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139 GALE F. JOHNSTON ONE MADISON AVENUE NEW YORK February 25, 1942 The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. dear Mr. Morgenthau: Please allow me to thank you for your very kind message received at the dinner in St. Louis Thursday. Mr. Sparks presented it to the gathering and it was appreciated by those friends of mine in the West who gathered for the occasion. The days spent with the Treasury in the development of Defense Savings will always present happy momories to me. The opportunity for service was a great one and I cannot conceive that any piece of work did more for this country of ours than did the Defense Savings organization in the months prior to the War. I am deeply indebted to you, Eugene Sloan and the others who made this opportunity possible. I do hope to see you soon and give you the opinions from various parts of the country that I have visited this year as to the continuing success of the effort. I visited in many States for the Company and have found much time to devote to Defense Savings. Everywhere the move continues to grow in popularity. The Staff is doing a particularly fine piece of work and receive many compliments. 140 Naturally I am gratified to hear many fine things said of you and of Bob Sparks, whose popularity with the Field Organization is adding such to the effort. With kind regards, Sincerely yours, GFJ Take Muster 141 FEB 25 1942 Dear Dick: I have just seen the double page spread in the New York Times sponsored by many large firms in New York for Defense Savings Bonds and Stamps. This is a fine advertisement. You and your staff are to be congratulated on the cooperation you are receiving from local institutions in your work. Best wishes. Sincerely, (Signed) E. Morgeathau, Jr. Col. Richard C. Patterson, Jr., Chairman, Defense Savings Staff, 1270 Sixth Avenue, New York, New York. FGT: (typed (2-24-42 n.m.c. file c thompson Subscribing for the PAYROLL PLAN and glad to cooperate! The New York State Defense Savings Staff of W e, the undersigned firms, the Treasury Department congratulates all those firms in the State of New York that have re. have been glad to coop- Defense Bonds-by paying for them out of current income- sponded to their country's Defense Bonds. orate with the office of the Defense JR. RICHARD Savings Staff by offering to ourem- HULL NEVIL FORD. serves a double purpose It helps our country's war victory effort, and is the soundest saving plan ployees the Payroll Savings Plan for the individual citizen. for the purchase of Defense Bonds We are proud of the quick response of our people to this patriotic appeal and we print this announcement a tribute to our employees. The Payroll Savings Plan is simple. The State Defense Savings Staff offers complete assistance and printed matter. Any one of the undersigned companies Our fellow workers know that this plan of buying will be glad to give the benefit of its experience to others. Again we repeat- we are proud of our employees! Sperry McCreery Stauffer McKesson Staff Factors Corporation Co. Margas Shapira Revilles Trask Schraft's The East Foundation Rlegal Corporation Shell Company. Inc. OFFICER ADDRESS Oppenheis Cellins Our Employees are DEFENSE BONDS on - we are proud of them Fitch Company Manhattan Robert Boards Storage 143 February 25, 1942 Dear Count Sforza: Thank you very much for your letter of February 23. I am sure that you can be of real use to us in the future as you have been in the past. There are so many things that the members of Italian societies can do to help win the war and liberate their former homeland. They can conserve rubber and other scarce materials, they can out down on their buying of unnecessary things, they can work harder than ever before in their shops and factories, and they can, of course, help by buying Defense Bonds. It is important that the buying of Bonds and Stamps should be done regularly out of current income, and we are urging everyone who earns regular pay to set aside a substantial part of it, week by week, to help in financing the war effort. Whatever you can do to promote greater effort along these lines will be very much appreciated. Your spirit of helpfulness has been wonderful from the very beginning, and I am truly grateful to you. Sincerely, (Signed) E. Morganthau. dr. Count Carlo Sforza, Department of Political Science, Emory University, Atlanta, Georgia. Phara file none Aug file to thompson FK/hkb Department of Political Science, February 23 1942 (Until March 20;la. ter on New York a Emory University, Atlanta Ga. gain) Dear Secretary Morgenthau, At the end of my series of lectures at this University the origins of the present war, I'11 go to Chicago for on a mass meeting of Italians, march 22,and to Detroit for a sibhidar meeting on the 29th. The two meetings - and others - are organized by the useful and pattobitic Mazzini Society, I775 Broadway New York. If there is anything that I may do in cases like these meetings to help the sale of Bonds among Italians and Italo-Americans I'll be most happy to do. And if your officials have suggestions or material to offer, they might write to the Mazzini Society.For my part, I repeat, I'll be glad to do all I can,on such occasions. Sincerely yours, Horza Count carlo Sforga 145 February 25, 1942 Dear Mr. Diets: The other evening I had the pleasure of seeing the film "Joe Smith; American" with some of our Treasury people. I was very much impressed with the film, because it delivered an important message in a clear and forceful way. It should do a great deal of good in combating the evil of loose talk and careless tongues. Thank you very much for having brought the film to my attention. Best regards, Sincerely, (Signed) 1. Morgenthan. Jr. Mr. Howard Diets, Metro-Goldwyn-Mayer Pictures, 1540 Broadway, New York, N. Y. FK/hkb 2/24/42 n.m.c. lopies thompson TREASURY DEPARTMENT 146 INTER OFFICE COMMUNICATION DATE February 25, 1942 Mr. Thompson TO FROM Mr. Haas In further response to your request of December 26, 1939, there is submitted herewith for the Division of Research and Statistics a memorandum listing, wi th brief descriptions, the studies or projects completed or under way, and the names of persons working on each, for the month of November 1941. 35 a TREASURY DEPARTMENT 146 INTER OFFICE COMMUNICATION DATE February 25, 1942 Mr. Thompson TO FROM Mr. Haas In further response to your request of December 26, 1939, there is submitted herewith for the Division of Research and Statistics a memorandum listing, with brief descriptions, the studies or projects completed or under way, and the names of persons working on each, for the month of November 1941. 147 DIVISION OF RESEARCH AND STATISTICS Report of Studies or Projects Completed or Under Way, and the Names of Persons Working on Each, for the month of November 1941 For convenience of reference, the studies listed are grouped under general subject heads. The names shown for persons working on each project include only those who participated fairly directly, as explained in the introductory note to the corresponding report submitted on December 28, 1939. No attempt has been made to cover also persons whose responsibility in each particular case was mainly in planning, supervising, or consulting. Financial Analysis I. Projects or studies completed 1. A review of current developments in the high-grade securities markets was prepared, and a memorandum was transmitted to the Secretary on November 14. Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Barnett, Mr. Rosen This review contained, in addition to analysis of the current situation, the following special study: Recent changes in the relationships of long- and short-term interest rates. - Mr. Murphy, Mr. Foy, Mr. Barnett 2. A memorandum was prepared, containing recommendations with respect to the December financing, and was transmitted to the Secretary on November 29. - Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Lindow, Mr. Tickton, Mr. Sandelin, Mr. Conrad, Mr. Robbins, Mr. Barnett 3. A maturity calendar for each issue of direct and guaranteed bonds and notes of the United States was prepared, showing by date the amounts outstanding, classified by the maturity, first, and final callable dates. The calendar was prepared as of November 3, and was transmitted to the Secretary on November 25. - Miss Lagos -24. 148 Yield rates on Treasury bonds, notes, bills, prewar bonds, on securities guaranteed by the United States, on securities not guaranteed by the United States, and the average yields of partially tax-exem Treasury bonds, taxable Treasury bonds, and hig grade corporate bonds, were computed daily on the basis of ver-the-counter closing quotations. They were SUP arized daily in a table showing for each issue tb closing bid and asked quotations and yields to ca.1 and maturity dates on that day, and the changes in prices and yields from the preceding day. A weekly table is prepared showing the price range since the date on which first traded, and also for the year 1941 to date.for all issues carried on the daily table except Treasury bills and Federal Intermediate Credit Bank debentures. A chart for each issue was kept up to date showing daily price and yield figures together with comparative monthly data since 1935, since the date of issue, or since the date first traded. In addition, yields were computed daily on five high-grade corporate securities, three municipal securities, and two British Government issues. - Mr. Moody, Miss McCoy, Mr. Kroll 5. At the request of the Secretary, arrangements have been made to secure periodically from the British Empire purchasing missions certain information regarding pur- chases in the United States by the British Empire. Reports and tables are prepared from this information, and are transmitted according to instructions by the Secretary. - Mr. Haas, Mr. Lindow, Mr. Wagner, Mr. March, Mr. Mayo, Mr. Marcus (a) Weekly statements are received from the British Purchasing Commission concerning the physical volume of airplane and airplane engine orders placed. This information is consolidated and coordinated in the Division, and a bi-weekly report, entitled, "British Empire Aircraft Statements" is prepared containing the following analytical tables, classified by company and by type of airplane or airplane engine: (1) current status of orders; (2) history of orders; (3) history of deliveries; (4) history of exports; (5) scheduled deliveries of unfilled orders; (6) options; (7) spare parts; and (8) secondhand units. These aircraft reports were prepared, and were transmitted on November 7 and 24. -3- 149 (b) The Division receives each week from the British Air Commission information concerning the disposition of airplanes and airplane engines inspected by the British Empire, and the status and Location of airplanes and airplane engines on hand in the United States. These data are edited and reviewed in the Division, and a weekly report, entitled, "Disposition and Status of Airplanes and Airplane Engines Inspected by the British Empire ", is prepared containing the following analytical tables, classified by company and by type of airplanes and airplane engines: (1) disposition of units inspected; (2) status of inspected units on hand; and (3) physical location of units awaiting export. These reports were prepared, and were transmitted on November 3, 10, 19, and 25. (c) The Division also receives weekly statements from the British Purchasing Commission showing (1) the dollar volume of orders placed by British Empire Governments and (2) the dollar volume of deliveries on orders placed by the United Kingdom through the various missions. The information in these statements is itemized by contracts and classified by twenty-five commodity groups. These data are reviewed and edited in the Division, and a b1-weekly report, entitled, "British Empire Commodity Statements", is prepared summarizing in dollar volume the information on orders and deliveries, by commodity groups. This report consists of eight analytical tables: The first three relate to orders placed during the current period by British Empire Governments; the next three consist of historical summaries of orders placed by the British Empire; the seventh and eighth relate to deliveries on orders placed by the United Kingdom through the British purchasing missions. These statements were prepared, and were transmitted on November 14 and 28. (d) The Division receives each week from the British Purchasing Commission information relating to the dollar value of commitments by the British Empire for capital expenditures in the United States, and 150 4 for extraordinary charges designed to expedite delivery. On the basis of the data submitted, a bi-weekly report, entitled, "British Empire Capital Statements" 1e prepared in the Division containing the following analytical tables, classified by commodity group and company: (1) total tangible capital commitments to date; (2) tangi- ble capital commi tments during the current period; (3) total commitments for extraordinary charges to date; (4) commitments for extraordinary charges during the current period; and (5) details concerning machine tools classified as capital. These statements were prepared, and were transmitted on November 14 and 28. (e) Each month the Division receives a detailed report from the British Purchasing Commission concerning the activities of its Iron Steel Division. On the basis of this information the Division prepares a report, entitled, "British Iron and Steel Statements" containing analytical tables showing on a physical volume basis: (1) current status of orders; (2) history of orders; (3) history of deliveries; (4) history of exports; (5) current status of orders of ferro-alloy and silicon metals; (6) current status of drop forgings orders; and (7) history of drop forgings orders. These state- ments were prepared, and were transmitted on November 24. (f) The Division receives each month from the British Purchasing Commission information, on a physical volume basis, relating to the purchases of various other important commodities. These data are edited and consolidated in the Division and analyses of British Empire orders are prepared for the several commodities containing the following analytical tables: (1) current status of orders; (2) history of orders; (3) history of deliveries; and (4) scheduled deliveries of unfilled orders. Statements for these>various commodity groups were prepared, and were transmitted as follows: -5- 151 Airplane propellers, November 28 Chemicals, November 3 Explosives and propellants, November 7 Motor vehicles, November 7 Shells and bombs, November 24 Ships, small boats, and marine engines, November 10 Small arms, fully automatic, November 19 The statements relating to orders for non-ferrous metals, ordnance, small armsammunition, and sub- machine guns, revolvers, and rifles, are in process of preparation. (g) Each month the Division receives from the British Purchasing Commission a fiscal statement summarizing the financial status of orders placed by British purchasing missions, classified into twenty-five commodity groups. This information is edited in the Division, and a report, entitled, "Status of Payments on Dollar Orders Placed in the United States by the British Purchasing Missions" is prepared consisting of the following analytical tables: (1) status of payments; (2) history of payments; and (3) estimated schedule of future payments. This report is in preparation. (h) Each month the Division receives from the Citadel Merchandising Company, Ltd., information relating to machine tool orders placed. Separate listings show by manufacturer, the orders, deliveries, and unfilled orders at the end of the month. These data are edited and reviewed, and a report, entitled, "Analysis of Citadel Merchandising Company, Ltd., Machine Tool Orders", is prepared containing the following tables: (1) current status of orders; (2) history of orders; and (3) history of deliveries. This report was prepared, and was transmitted on November 28. 6. At the request of the Secretary, arrangements have been made to secure periodically certain information regarding purchases in the United States by the Netherlanda Purchasing Commission, and by Lindeteves, Inc. - Mr. Haas, Mr. Lindow, Mr. Wagner, Mr. March, Mr. Mayo, Mr. Marcus 6- 152 Weekly statements are received showing the dollar volume of orders placed by the Netherlands Purchasing Commission and by Lindeteves, Inc., and the deliveries made thereon. These statements are itemized by contracts and are classified by the twenty-five commodity groups used for reporting orders placed by the British Empire. These data are reviewed and edited in the Division, and bi-weekly reports are prepared for each of these agencies summarizing the information classified by commodity groups. These reports consist of three tables each showing (1) history of orders; (2) history of deliveries; and (3) current delivery status of orders. These reports en- titled, "Netherlands Purchasing Commission Commodity Statements" and "Lindeteves, Inc. Commodity Statements" were prepared, and were transmitted on November 7 and 24, according to instructions by the Secretary. 7. At the request of the Secretary on October 22, seventeen oharts were prepared, and were transmitted on November 5. and 13, showing lend-lease orders effected by the Procurement Division from May 1, 1941 to date. - Mr. Tickton 8. In response to a request by the Secretary on January 21, 1941, that measures be taken to obtain information to assist in carrying through the defense financing program, arrangements were made to obtain the necessary detailed statistics on the holdings of each issue of the public debt and of guaranteed securities by the various classes of holders. - Mr. Haas, Mr. Tickton, Mrs. Wolkind, Mr. D. J. Leahy, Mr. Elitman, Mrs. Barnes, Mr. Robbins A summary was prepared of the data received as of September 30, consisting of brief explanatory text and six tables for publication in the Bulletin of the Treasury Department for November. The information as of October 31, received from 7,000 banks and insurance companies was coded, tabulated, and analyzed. An analysis was prepared, consisting of 100 tables, showing this information, classified by type of institution, by issue, by geographic area, by call classes, and by tax-exemption provisions. New letters were sent out to the banks and insurance companies on November 29, requesting comparable data as of November 30. 153 -7Special tabulations were prepared and were transmitted to the Federal Reserve Banks of New York and Philadelphia, covering ownership of securities issued or guaranteed by the United as 02 September JU. 9. At the request of the Secretary, arrangements have been made to prepare current statistical reports on the sales of United Stater Defense savings bonds, series E, F, and G, and Defense Postal savings stamps, on the basis of reports by the Treasurer of the United States, the Federal Reserve Banks, and the Post Office Department. The reports prepared during November were transmitted according to instructions by Mr. Graves. - Mr. Haas, Mr. Reagh, Mr. Brown, Mr. Tickton, Mr. Kroll, Mr. D. J. Leahy (a) Daily tables were prepared, showing the dollar volume, on the basis of the issue price, of sales of savings bonds, series E, F, and G, by Post Offices and by banks. The first table, prepared on November 1, presented these data for each business day of October, with totals for the month. The next table, prepared on November 3, showed these data for November 1. Subsequent tables showed the data for the successive business days of November, with cumulative totals. The table prepared on November 29 covered the period from November 1 through November 28. (b) Daily tables were prepared, containing a comparative statement of sales of bonds, series E, F. and G, in the three latest months, by Post Offices and by banks. The dollar volume of sales was shown on the basis of the issue price, together with the absolute and percentage changes in the latest month from the preceding month. The table prepared on November 1 contained these data for the full months of October, September, and August. The first table showing the comparison for November, October, and September, prepared on November 3, showed the data for the first business day of each month. Subsequent tables showed cumulated data for successive business days. The table prepared on November 29 covered the first 22 business days of each month. 154 -8 (c) A table was prepared on November 3, showing sales of savings bonds, series E, F, and G, by Post Offices and by banks, in dollar volume, on the basis of the issue with price, in each month from May through October, totals. (d) A table was prepared on November 4, showing for savings bonds, series E, F, and G, deposits in the account of the Treasurer of the United States, from sales and changes therein from redemptions, by months from May through October. (e) A report consisting of 150 pages, was completed on November 29, showing sales of savings bonds, series E, for the month of October, in dollar volume, on the basis of the issue price, by Federal Reserve districts, by States, by cities, and by counties, classified by sales agents and denominations. (f) A table was prepared on November 3, showing for savings bonds, series E, the estimated number of units sold, with percent of the dollar volume, by denomination, in each month from May through September. (g) A table was prepared on November 4, showing for savings bonds, series E, the estimated number of units sold, in dollar volume, together with totals based on the issue price, by Post Offices and by banks, by denomination, in each month from May through September. (h) A table was prepared on November 26, showing for savings bonds, series E, the estimated number of new purchasers, in each month from May through October, with totals. (1) A table was prepared on November 10, showing the estimated total value and number of units of Defense Postal savings stamps, by denomination, sold in each month from May through October, with totals. (j) A table was prepared on November 12, showing estimated dollar volume of Defense Postal savings stamps sold by States, in each month from May through October. -9 10. 155 A table was prepared, summarizing sales during August, September, and October, of Treasury notes, Tax Series A and Tax Series B, in par amounts, by individuals and by corporations. The table was transmitted to the Secretary on november 10, and copies were given to Under Secretary Bell, and Mr. Buffington. - Mr. Tickton 11. A table was prepared, showing sales during August, September and October, of Treasury notes, Tax Series A and Tax Series B, in par amounts, classified by denomination. The table was transmitted to the Secretary on November 10, and copies were given to Under Secretary Bell, and Mr. Buffington. - Mr. Tickton 12. At the request of Under Secretary Bell received November 3, a memorandum was prepared, entitled, "Circular on New Tax Series A-1944 and B-1944 Treasury Notes". The memorandum was transmitted to the Under Secretary on November 6. - Mr Foy 13. At the request of Under Secretary Bell, agenda, memoranda, and minutes were prepared in connection with the Treasury-Federal Reserve meetings held for the purpose of discussing financing policy. - Mr. Haas, Mr. Murphy, Mr. Lindow, Mr. Foy, Mr. Sandelin, Mr. Conrad (a) A report was prepared on November 6, on the "Proposed Report of the Treasury-Federal Reserve Committee on Financing Procedures", and was trans- mitted to the Under Secretary on that date. A copy was given to Mr. Morris on November 7. (b) Minutes were prepared of the meeting of the TreasuryFederal Reserve Subcommittee on Financing Procedures on November 7. - Mr. Lindow (c) The agenda and the following material were prepared for use in connection with the meeting on November 17 between representatives of the Treasury Department and of the Board of Governors of the Federal Reserve System: - 10 - 156 Report on proposed changes in financing procedures. - Mr. Murphy (1) Appendix I, Amount of series F and G savings bonds in excess of the present limit which might be purchased by individuals and fiduciaries from current income. - Mr. Conrad (2) Appendix II, Data with respect to subscriptions and allotments to taxable securities. - Mr. Foy (3) Appendix III, British experience with tap securities. - Mr. Sandelin (4) A table showing estimated current savings from incomes of $1,000,000 and over, and the amount of such savings which could be devoted to purchases of savings bonds, series F and G,in excess of the present limit. - Mr. Conrad (d) A review was made on November 27, of a memorandum for the Secretary from the Under Secretary, containing Treasury comments on points raised in a memorandum prepared by Federal Reserve representatives which was approved by the Executive Committee of the Open Market Committee of the Federal Reserve System. - Mr. Haas, Mr. Murphy, Mr. Lindow 14. At the request of the Secretary on November 7, a memorandum was prepared on the excess reserves of New York City banks and interest rates. The memorandum was transmitted to the Secretary on November 13, and copies were given to Under Secretary Bell and to Mr. Morris. - Mr. Murphy, Mr. Rosen 15. At the request of Under Secretary Bell on November 22, a memorandum was prepared, and was transmitted to him on that date on changes in excess reserves during the week ended November 19. - Mr. Murphy 16. At the request of the Secretary on November 27, a memorandum was prepared, and was transmitted to him on that date, on recent changes in excess reserves and interest rates. - Mr. Murphy, Mr. Barnett 157 - 11 17. A table was prepared comparing two proposed United States savings bond income plans, on a 20-year and on a 25-year basis, with a 2 percent annual coupon, payable semiannually. - Mr. Reagh. Mr. Kroll 18. At the request of Mr. Broughton on November 3, computations were made in respect to two proposed annuity bonds with each bond involving two interest rates. These computations were transmitted in a memorandum to Mr. Broughton on November 14. - Mr. Reagh, Mr. Kroll 19. At the request of Mr. Heffelfinger on November 12, material was prepared for the Secretary on "Analysis of Budget Expenditures for Aid to Agriculture under the AAA". The original and six copies were transmitted to Mr. Heffelfinger for the Secretary on November 13. Mr. Lindow 20. At the request of Mr. Buffington on November 13, a memorandum was prepared, and was transmitted to him on November 25, entitled "Summary of Memorandum on Consumer Credit by Rolf Nugent". - Mr. Rosen 21. At the request of Mr. O'Connell on November 24, data were prepared, and were transmitted in a memorandum to Mr. Foley on November 24, for response to a request by Mr. F. D. Overfelt of the Navy Department, for certain economic and fiscal statistics. - Mr. Barnett 22. At the request of members of the Defense Savings Staff, certain estimates of national income for use in charte on Defense savings bonds were checked on November 10, and on November 27, some statements were checked by telephone. - Mr. Breithut 23. At the request of Under Secretary Bell on October 31, a report was prepared on the "Bondex" service and reports, and was transmitted in a memorandum to the Under Secretary on November 6. - Mr. Murphy 24. At the request of the office of the General Counsel on August 14, a reply was prepared to a letter from the Senate Committee on Banking and Currency, requesting the opinion of the Secretary on S. 1797, the Farm Credit Act of 1941, and was transmitted to Mr. Bernard on November 26. - Mr. Foy - 12 - 1. 158 II. Projects or studies under way A study is being made of the relative interest costs of short- and long-term borrowing. - Mr. Foy, Mr. Barnett, Mr. Rosen 2. A study is being made of the available sources of funds for Treasury financing. - Mr. Tickton 3. A memorandum is being prepared on a negotiable "tap" security. - Mr. Sandelin, Mr. Murphy 4. A study is being made of the probable excess reserves in 1941-42. - Mr. Barnett 5. A study is being made of developments in the reserve position of the banks. - Mr. Murphy, Mr. Rosen, Mr. Barnett 6. Historical tables are being prepared which will present various data on new Treasury notes and bonds and on guaranteed new issues. - Mr. Conrad, Mr. Rosen 7. A memorandum 18 being prepared on the advantages and disadvantages of increasing the short-term debt. Mr. Foy 8. A revision is being made as of June 30, 1941, of the estimates of the ultimate increase in interest costs which would result from removal of the tax-exemption privilege from all public securities. - Mr. Conrad 9. A memorandum is being prepared recommending legisla- tion terminating miscellaneous types of tax exemption analagous to the exemption of interest on Federal se- curities, but unaffected by the Public Debt Act of 1941. - Mr. Foy 10. A study is being made of war-financing measures in belligerent countries in the present war. - Mr. Matlock 11. A comparison is being made of the British Fiscal Program 1941-42 with the Keynes plan proposed in "How to Pay for the War", by Mr. J. M. Keynes. - Mr. Matlook 12. At the request of Under Secretary Bell on October 14, 1940, a memorandum is being prepared on a memorandum submitted by Mr. John Evans, President of the First National Bank 159 - 13 of Denver, Colorado, in reference to United States Government bonds now owned by the Federal Reserve System and its member banks, and suggestions concern- ing a refunding and change in form which would appear Federal Reserve System, the member banks, the Federal Deposit Insurance Corporation, and the public generally whose money is deposited in member banks, - Mr. Murphy 13. In response to a request by Under Secretary Bell on January 27, 1941, comments are being prepared on a memorandum by Mr. George Eddy to Mr. White, in regard to a plan of Mr. N. E. Peterson, entitled, "A Means of Financing the Defense Program". - Mr. Murphy 14. At the request of Under Secretary Bell on February 5, 1941, an analysis is being made of his plan for investing savings banks' and insurance companies funds in special 2 percent Treasury certificates. - Mr. Tickton 15. At the request of Under Secretary Bell on February 11, 1941, a memorandum is being prepared to the Secretary regarding a letter from Mrs. Sylvia F. Porter, New York Post dated January 22, suggesting a plan for the distribution of United States Government securities. - Mr. Haas, Mr. Murphy 16. At the request of Under Secretary Bell on April 21, a memorandum is being prepared on Mr. Salant's memo- randum on "Limitation on Purchases of Defense Savings Bonds". - Mr. Murphy 17. Tables are being prepared for Professors Viner and Stewart, showing prices and yields of selected obligations of the United States. - Mr. Foy, Mr. Rosen 18. A study is being made of the market action of the various maturity classes of Government securities in relation to the type of holder. - Mr. Conrad 19. A memorandum is being prepared on the absorption of Government securities by life insurance companies and mutual savings banks during the next twelve months. Mr. Tickton, Mr. Robbins - 20. At the request of the Secretary on October 7, a memorandum 18 being prepared on "Mr. Knight's Analysis of the Reserve Position of New York City Banks". - Mr. Murphy, Mr. Rosen, Mr. Barnett 160 - 14 21. 22. At the request of Mr. Morris, on October 27, a review is being made of his memorandum entitled, "A Summary of Mr.the HaasMajor Pro's and Con's on the Question of Rights". - A memorandum is being prepared for the Secretary on "Proposal for a March Treasury Bill Concentration". - Mr. Murphy, Mr. Rosen 23. At the request of Mr. Broughton on November 12, a review is being made of a memorandum suggesting a new type of tax anticipation notes, Series A, to be issued during 1942. - Mr. Reagh 24. At the request of Mr. Morris on October 27, a review is being made of a memorandum and table on proprieties and practical results of various excess-profits taxes and limitations under war (or emergency) conditions. - Mr. Murphy 25. At the request of the Secretary on November 24, a memorandum is being prepared on "Proposed Research Committee on Fiscal Policy" together with a proposed departments. - Mr. Haas, Mr. Murphy draft of a letter to be sent to various Government 26. At the request of Mr. Blough on November 18, a review is being made of a memorandum on "How Fiscal Policy Can Aid the Work of SPAB". - Mr. Murphy 27. At the request of the Secretary on November 18, a review is being made of a letter dated November 14 from Vice President Wallace, concerning Winfield Reifler's program to stimulate international investment, and William S. Wasserman's plan for compulsory savings. - Mr. Murphy, Mr. Foy 28. At the request of Mr. Broughton on November 25, a conversation was held with Mr. Herbert N. Fell, regarding his plan to stimulate the defense savings program through the introduction of a lottery element, as described in a prepared outlining a proposal utilizing the lottery memorandum dated November 28. A memorandum is being principle to promote the sale of savings bonds, series E. Mr. Reagh, Mr. Brown - - 15 - 161 29. At the request of Under Secretary Bell replies are being prepared to certain questions asked by the Wagner Committee preparatory to its investigation of banking and monetary conditions pursuant to Senate Resolution 125. - Mr. Haas, Mr. Murphy, Mr. Foy 30. At the request of Under Secretary Bell on May 24, cooperation is being given to Mr. Bartelt and Mr. Blough in preparing replies to the list of questions accompanying a letter from Senator Tydings of May 5. The replies are for use by the Senate Committee created to find ways and means of automatically balancing the Federal Budget in times of peace. -Mr. Murphy, Mr. Foy Revenue Estimates I. Projects or studies completed 1. The regular monthly statement was prepared, showing the latest revised estimates of receipts, by months and by principal sources of revenue, for the period November 1941-June 1942. The statement was transmitted to the Bureau of Accounts. - Mr. Delcher 2. The regular monthly summary comparison was prepared, showing estimated receipts and actual receipts in October 1941 on the daily Treasury statement basis. - Mr. Delcher 3. The regular monthly detailed comparison was prepared, showing estimated and actual receipts in October 1941, based on the collections classification. - Mr. Smith, Mr. Bronfenbrenner 4. At the request of the Division of Tax Research on November 1, estimates were prepared of receipts in the calendar years 1941 and 1942, by semiannual periods, divided by specified tax groups, together with the estimated monthly rate of collection as of June 1942. Estimated income tax liabilities for the calendar years 1941 and 1942 were also prepared. The estimates were transmitted in a memorandum to Mr. Blough on November 3, and to the Director of the Bureau of the Budget on November 19, in a letter signed by Under Secretary Bell. Mr. O'Donnell, Mr. Leahey, Mr. Bronfenbrenner, Mr. Smith - 16 - 162 5. At the request of Assistant Secretary Sullivan on November 5, estimates were prepared, and were transmitted to him on that date, in a table showing tax receipts under the law in effect prior to the Revenue Act of 1941, and the estimated increase in receipts due to the Revenue Act of 1941, with totals. Mr. O'Donnell, Mr. Leahey, Mr. Bronfenbrenner, Mr. Smith, Mr. Delcher 6. Estimates were prepared on November 12, of income before and after individual income taxes, for the calendar year 1942, for individuals with net income of over $500,000, classified by income brackets. - Mr. Leahey 7. At the request of Mr. Tarleau on November 5, an estimate was prepared, and was transmitted in a memorandum to Assistant Secretary Sullivan on November 7, of the cost to the Federal Government if the securities issued in connection with the reorganiza- tion of railroads engaged in interstate commerce now in equity receivership were afforded the same exemption from the Stamp taxes as is afforded under Section 1808(e). - Mr. Leahey 8. At the request of the Division of Tax Research on November 19, a comparison was prepared of corporation earnings for the first nine months of calendar year 1941 with those in the first nine months of calendar year 1940, and was transmitted in a memorandum to Mr. Blough on November 21. - Mr. Delcher 9. At the request of the Division of Tax Research on November 21, a table was prepared, showing by net income classes of taxable individual returns, the number of returns and the net income, by each thousand dollar net income bracket up to $10,000, and the total for $10,000 and over. The table was transmitted in a memorandum to Mr. Blough on November 22. - Mr. Smith 10. In connection with the proposed revision of the revenue laws in 1942, a number of revenue estimates listed below, were prepared for use of the Division of Tax Research. Mr. O'Donnell, Mr. Leahey, Mr. Bronfenbrenner, Mr. Smith - 17 (a) 163 An estimate was prepared of the increase in individual income tax liabilities if indi- viduals were required to file joint returns and no relief for earned income provided, including an analysis showing the amount to be collected from individuals at present filing community property returns, and from individuals in community property states classified as filing separate returns. The estimate was transmitted in a memorandum to Mr. Blough on November 13. (b) Revised estimates were prepared of the effect of the mandatory joint returns proposal, with Treasury relief for earned income as reformulated. An analysis was prepared showing the amount of relief afforded by the Treasury proposal going to persons filing separate returns, and of the net gain in the amount which would come from persons filing separate returns and from persons filing community property returns. These estimates were transmitted in a memorandum to Mr. Blough on November 21. (c) Tentative estimates were prepared of the revenue to be derived from a tax on the increased income of individuals. The estimates were transmitted in a memorandum to Mr. Blough on November 24. (d) An estimate was prepared of the increase in revenue if the excess-profits tax were computed according to the 80-called "McKeough Plan". The estimate was transmitted in a memorandum to Mr. Blough on November 28. (e) A tabular presentation was made of the corporate net income of positive net income corporations for the years 1938-1942. This consisted of actual income in 1938 and 1939, and estimated income for 1940, 1941, and 1942. The table was transmitted in a memorandum to Mr. Blough on November 27. - 18 - 164 (f) Estimates were prepared of the revenue effect of: (1) an increase in corporation income and excess-profits taxes so as to take two-thirds of corporate net income; (2) an increase in corporation income and excess-profits taxes to take 100 percent of corporate net income in excess of 6 percent of invested capital. The estimates were transmitted in a memorandum to Mr. Blough. II. Projects or studies under way 1. Estimates of receipts for the fiscal years 1942 and 1943 are in preparation for inclusion in the Budget of the United States. - Mr. O'Donnell, Mr. Leahey, Mr. Bronfenbrenner, Mr. Smith 2. An analysis is in preparation of each component of the September revised estimates of miscellaneous internal revenue, excluding capital stock, estate, and gift taxes, for the fiscal years 1941 and 1942. - Mr. Daggit, Miss Spiegel 3. In connection with the proposed revision of the revenue laws in 1942, a number of revenue estimates, listed below, are being prepared for use of the Division of Tax Research. - Mr. O'Donnell, Mr. Leahey, Mr. Smith (a) An estimate is being made of the additional revenue which would be derived if mutual insurance companies other than life insurance companies taxable under Section 207 of the Internal Revenue Code were made taxable in the same manner as stock insurance companies other than life insurance companies taxable under Section 204, and at the same time the exemption under Section 101(11) were restricted to local mutual companies of the assess- ment type. (b) Estimates are being made of the yield by net income classes, at the level and distribution of income estimated for calendar year 1942, of a supplementary tax of 15 percent on individual incomes, with deductions, exemptions, and credits as under the 1941 Act, assuming that: (1) the supplementary income tax is allowed as a deduction in computing the regular income tax; (2) the regular income tax is allowed as a deduction in computing the supplementary income tax; (3) the tax is imposed on surtax net income without any offset. - 19 - 165 (c). An estimate is being made of the amount of add1tional revenue that would be obtained by repeal of Section 114(b) (3) and (4) of the Internal Revenue Code, providing for percentage depletions for oil and gas wells, coal and metal mines, and sulphur, under the following assumptions: (1) that no adjustment of the income credit under the excess-profits tax would be made with respect to depletion; (2) that the depletion deduction for the base period years under the income credit would be adjusted to correspond to the basis for depletion in the taxable year. (d) Estimates are being checked of the number of persons and the amount of net income by net income classes that would be reported for tax purposes if there were no personal exemptions or credit for dependents for the calendar year 1941. 4. A new study was begun for revising and improving methods of estimating revenues from the retailers excise tax on jewelry. - Mr. Daggit, Miss Spiegel, Mr. Saunders Economic Conditions Related to Fiscal and Revenue Matters 1. Projects or studies completed 1. Memoranda on the business situation were prepared, and were transmitted to the Secretary on November 4, 10, 17, and 24. - Mr. Haas, Mr. Daggit, Mr. Chevraux, Miss Ziegler These memoranda contain in addition to analysis of the current situation the following special studies: (a) Prices of farm products and ceiling prices as provided in the Price Control Bill, and farm product prices October 15. (Two tables in memorandum of November 3. Also described below under Economic Conditions, I, as item 14.) Mr. Daggit, Miss Ziegler (b) Chart of FRB index of production and components. (Chart in memorandum of November 23. Also described below under Economic Conditions, I, as item 18.) Mr. Chevraux - 20 - 166 2. Monthly or weekly reports are received from 25 individual companies, in response to the Secretary's requests giving confidential data on new orders and sales. The data in these reports are tabulated and charted currently for the Secretary's information, and are also combined into an index of new orders, which accompanies the weekly memorandum on the business situation. - Miss Washabaugh If 3. Memoranda on employment under the Work Projects Administration were prepared on November 4, 10, and 24. - Miss Hagedorn, Miss Washabaugh 4. At the request of the Secretary, a table is prepared each week summarizing exports of petroleum products, scrap iron, and scrap steel, from the United States to Japan, the U.S.S.R., Spain, and Great Britain, as indicated by departure permits reported daily by the Office of Merchant Ship Control. The tables were prepared for the weeks ending November 1 and 8. On November 3. and 12, respectively, the original and 13 photostats were transmitted to Assistant Secretary Gaston. - Mr. Tickton, Mr. D. J. Leahy 5. Compilations were made of daily quotations on selected commodities, and daily and weekly figures on selected business indexes, foreign and domestic security transactions, security prices, exchange rates, as well as other data for the Secretary's chart book. - Mr. Chevraux 6. At the request of the Secretary on September 17, the com- pilation of daily, weekly, and monthly prices of cotton, wheat, flour, and bread, was maintained for his use in connection with the charts listed in item 7 of this section. - Mr. Daggit, Mr. Saunders, Miss Washabaugh 7. At the request of the Secretary on September 17, the following charts showing cotton, wheat, flour, and bread prices, were kept up to date daily: - Mr. Daggit, Miss Hagedorn, Mr. Colclough (a) BLS prices of wheat flour and wheat feeds (bran and 1940middlings) to date. at Minneapolis, weekly, September -21 - 167 (b) Cotton prices: Market price (average, 10 spot markets) and our estimated farm price, weekly from August 1940 to date and daily from August 1941 to date, compared with the Department of Agriculture monthly farm price and parity price. (c) Wheat prices: Market price (average of Number 2 red winter at Chicago, Number 1 dark northern at Minneapolis, and Number 2 hard winter at Kansas City), weekly from August 1940 and daily from August 1941 to date, compared with the Department of Agriculture monthly farm price and parity price. (d) BLS retail prices of bread and wheat flour in 51 cities, monthly from August 1940 to date. 8. In accordance with the request of Mr. Leon Henderson on July 19, copies of eight charts on commodity prices and the cost of living were transmitted to him, as Indicated below. - Mr. Daggit The monthly movements of the NICB cost-of-living index compared with the BLS index of 889 commodities were shown from 1935 to date. On the same chart were shown the weekly movements of the BLS index of 889 commodities compared with the BLS index of 28 basic commodi ti es from August 1939 to date. Four charts as of November 1, 8, 15, and 22, were transmitted on November 4, 12, 18, and 25, respectively. Four charts showed weekly and daily movements of the indexes of 12 foodstuffs and 16 industrial raw materials from April 1940 to date. On the same charts were shown the percentage changes for each of the 28 commoditi es from the August 1940 low to October 31, November 7, 14, and 21, respectively. These charts were transmitted on November 4, 12, 18, and 25, respectively. 9. At the request of the Secretary on October 14, memoranda on developments in the cost of living, were prepared, and were transmitted to him on November 5, 12, 19, and 27. - Mr. Daggit, Miss Spiegel - 22 - 168 10. At the request of the Division of Monetary Research on November 21, oopies of three charts showing commodi ty prices in 1939-41 compared with prices in 1914-16; cost of living since mid-1939; and commodit prices and cost of living since mid-1939, were transmitted to Mr. Gass for Mr. Coe on the same date. - Mr. Daggit 11. At the request of the Secretary on November 7, a letter was prepared for his signature, to the Secretary of Agriculture with respect to the New York Produce Exchange reduction of margin requirements on cottonseed oil futures contracts. The letter was signed on the same date. Mr. Daggit 12. At the request of the Secretary on November 13, a letter was prepared for his signature to the Secretary of Agriculture, with reference to price fluctuation limits on commodity futures. The letter was signed on the same date. - Mr. Daggit 13. At the request of the Secretary, a letter to Mrs. Roosevelt for signature of the Secretary, was prepared with six charts on agricultural prices and farm income. The letter wasSaunders mailed on November 26. - Mr. Daggit, Mr. Colclough, Mr. 14. Two tables were prepared, one on present prices of farm products and ceiling prices as determined by the three bases provided in the Price Control Bill, and the other on "Farm Product Prices October 15: Percent Change from September 15, and Percentage of Pari ty". These tables were used in connection with the business memorandum of November 3. - Mr. Daggit, Miss Ziegler 15. At the request of Mr. Heffelfinger on November 10, for use in connection with the work of the Byrd Committee on curtailment of Government expenditures, six tables were prepared on farm income with and without Government payments, farm population, purchasing power, and per capita income, and were transmitted to him on November 12. Copies were given to Mr. Barnard. - Mr. Daggit, Mr. Colclough 16. At the request of Mr. Barnard on November 17, for an analysis of published data on highway projects, two tables were prepared and three photostats were made from the October 1941 issue of "Public Roads" magazine, and were transmitted to him in a memorandum on November 19. - Mr. Daggit - 23 - 169 17. A new study was made for estimating the BLS index for factory phylolla on the basis of the January 1941 revision. - Mr. Daggit, Mr. Cololough, Mr. Saunders 18. A new chart Kac completed showing the movements GI the FRB index of industrial production and its components for September and October. This was used in connection with the business memorandum of November 23. - Mr. Chevraux 19. A forecast was made of the following basic business series for the calendar years 1941 and 1942 and the fiscal years 1942 and 1943, for use in the Budget estimates; FRB index of industrial production (September 1941 revision); BLS index of wholesale prices; BLS index of factory payrolls (January 1941 revision); our index of the value of industrial production; Standard Statistics index of 420 stock prices; Department of Commerce series on salaries and wages (July 1941 revision); the FRB series on bank debits outside New York City; and the New York Times series on volume of stock transfers. - Mr. Daggit, Miss Spiegel, Mr. Cololough, Mr. Saunders 20. At the request of Mr. Kuhn, a reply was prepared for his signature to a letter addressed to the Secretary by Mr. James M. Witherow on October 22, in respect to the Searetary's statements on inflation of farm product prices. The letter was mailed on November 15. - Mr. Daggit 21. At the request of Assistant Secretary Gaston on November 8, in connection with checking data for use in his speech delivered on November 12, a new chart was prepared showing national income and purchasing power. A copy of the chart on prices in 1939-41, compared with prices in 1914-16,was also supplied. The speech and data were transmitted to the Assistant Secretary on November 10. - Mr. Daggit, Mr. Chevraux, Miss Hagedorn II. Projects or studies under way As of the close of the month no projects were in progress. - 24 - 170 Actuarial Problems I. Projects or studies completed 1. In response to a letter from the Bureau of the Budget on October 13, requesting the views of the Treasury Depart- ment on H. R. 5568, a bill "For the relief of certain widows of Foreign Service Officers", data for a cost analysis of the bill were obtained from the Department of State. An estimate and report were prepared, and were transmitted in a letter addressed to the Bureauof the Budget on November 15. - Mr. Reagh, Mr. Brown, Mr. Kroll II. Projects or studies under way 1. The Board of Actuaries of the Civil Service Retirement and Disability Fund is laying out detailed plans for tabulating and processing data for use in preparing the regular five-year valuation of the Civil Service Retirement Fund for the purpose of determining the liabilities of the Government under the Civil Service Retirement law. Under the law, such a valuation must be prepared as of July 1, 1940. Valuation plans are in process of preparation. - Mr. Reagh, Mr. Brown 2. The Foreign Service Retirement Law, as approved April 24, 1939, Section 26(m), provides that the "Treasury Department shall prepare the estimates of the annual appropriations required to be made to the Foreign Service Retirement and Disability Fund and shall make actuarial valua- tion at intervals of five years, or oftener if deemed necessary by the Secretary of the Treasury". The State Department has requested an estimate of the appropria- tion required for the fiscal year 1943. A preliminary estimate was given to the Department of State on October 18, and some work has been outlined on this basis. Mr. Reagh, Mr. Brown, Mr. Kroll 3. At the request of Mr. A. R. Pilkerton, Auditor of the District of Columbia, an actuarial quinquennial valuation is being made of the Policemen's and Firemen's Pension Fund of the District of Columbia. This valua- tion will be made by the Treasury Department in accordance with the 1942 District of Columbia Appropriations Act, approved July 1, 1941. An outline of the information required for the valuation was submitted to Mr. Pilkerton in a letter dated September 13. The basic 171 - 25 a data were received on October 31, and the work on the valuation has been begun. - Mr. Reagh, Mr. Brown 4. Several years ago & committee was organized for the purpose of studying ways and means to extend retirement benefits to all Government employees regardless of Civil Service status. The working committee, the Subcommittee on Retirement, has again become active and 18 attempting to draft legislation which would coordinate the provisions of the Social Security Act with the Civil Service Retirement Act. Several drafts of a proposed bill have been prepared. A meeting was held on November 4, and, as a result, a report containing specific recommendations was prepared for submission to the main committee. This report was signed by Mr. Reagh, Mr. Bronson, Social Security Board, and Mr. Glenn, Railroad Retirement Board. Mr. McCoy of the Veterans' Administration and Mr. Fisher of the Civil Service Commission did not sign. - Mr. Reagh, Mr. Brown 5. At the request of Under Secretary Bell on July 10, a memorandum is being prepared in regard to the 1941 legislative program of the Social Security Board. Mr. Reagh Other Projects or Studies 1. Publications (a) For the November issue of the Treasury Bulletin data were prepared on average yields of long-term Treasury bonds and high-grade corporate bonds. - Mr. Rosen All the material submitted for the November issue was reviewed and edited. Substantial revision was made in the table on average yields of longterm Treasury and corporate bonds. Revisions are being considered for future issues. Mr. Lindow, Mr. Lynch - 172 - 26 - (b) For the publication Prices and Yields of Public Marketable Securities Issued by the United States Government and by Federal Agencies, computations were made and copy was prepared for the issue covering the month of October. This publication shows by securities the coupon rates, maturities, and for each day of the month, together with a monthly average, bid and ask quotations (accrued interest to be added), and yields. - Mr. Reagh, Mr. Brown, Mr. Lindow, Mr. Moody, Miss McCoy (c) Material for the text of the Annual Report of the Secretary of the Treasury for the fiscal year 1941 was prepared on the following subjects: expenditures from general and special accounts; deficit in general and special accounts; and proprietary interest in governmental corporations and credit agencies. An article on estimates of receipts is in preparation. - Mr. O'Donnell, Mr. Reagh, Mr. Tickton Manuscript for the Annual Report is being given an editorial review as received. The usual handling of the material is going forward. - Mr. Tickton, Miss Westerman (d) At the request of Assistant Secretary Gaston on July 17, an article was prepared on the operations of the Treasury Department during the year 1941 to be incorporated in the 1942 Americana Annual. The article was transmitted in a letter prepared for the Assistant Secretary's signature on November 28. Mr. Barnett 3. Correspondence Replies were prepared to letters received on subjects relating to the work of the Division, and letters drafted elsewhere and submitted to the Division for that purpose were reviewed. - Miss Michener, Mr. Lindow, Miss Ziegler, and other members of the staff in appropriate fields of work. During November 433 letters were received in the Division and 387 were handled as required. - 27 - 173 4. Charts Charts are prepared and continually brought up to date for use in memoranda and in chart books on special subjects, and corresponding photographic, photostatic, and multilith work is carried on. This is done in the Graphic Section under the supervision of Mr. Banyas. A statistical report on the work of the Graphic Section for the month of November is attached. 174 Work Completed in the Graphic Section, Division of Research and Statistics, during November 1941 Type of work For Division For of R & S Others Total Graphic: New Charts: 38 9 1 27 (t) - Carts brought up to date: 3 : nd chart books brought up to date All other charts brought up to date 29 1 Total charts completed Bond book charts completed 27 (t) 668 24 692 Miscellaneous: 13 20 7 Total jobs Photographic: Photographs: 71 55 126 202 58 260 Contact prints 438 266 704 Enlargements 344 107 451 172 53 225 Total jobs Number ofTegatives Photostate: Total jobs Number of- Lettersize copies All other copies 1,599 7,494 1,123 451 2,722 7,945 Multilith: 13 16 3 Total jobs Number of- tal jobs 157 24 165 8 Zinc plates 20 44 Work Statistical Report Completed by the Graphic Section, Division of Research and Statistics, by months, beginning July 1941. : Oct. Nov. : : Sept. : : Aug. Dec. Total : : July : : : : : Type of work A. Graphic: New charts completed Charts brought up to date 34 43 721 727 34 49 38 757 709 692 - Bond book charts completed Bond books brought up to date 26(times) 26 (t) 27 (times) 26-(t) Miscellaneous 27 31 26 23 20 91 59 87 99 126 193 254 173 165 197 260 654 972 333 704 141 335 82 332 451 169 202 164 215 225 2,802 7,519 1,287 5,276 2,071 5,986 1,737 5,209 2,722 7,945 22 22 20 27 16 153 166 135 150 165 34 37 29 30 44 1 58 1 2 27 (t) B. Photographic: Photographs: Total jobs Number ofNegatives Contact prints Enlargements F Photostate: Total jobs Number of- Lettersize copies All other copies Multilith: Total jobs Number of- Zinc plates Miscellaneous: Total jobs 175 LB:wlt 8-1-41 9-18-41 TREASURY DEPARTMENT 176 INTER OFFICE COMMUNICATION DATEFebr. 25, 1942. TO FROM Secretary Morgenthau Mr. Hage Subject: How consumers are spending their incomes In response to your request for data showing how people are spending their incomes, Miss Hildegarde Kneeland of the Department of Agriculture, who is working temporarily for the OPA, will have detailed estimates on this subject completed by tomorrow afternoon or Friday. These will show en estimated breakdown of expenditures by income groups for about 15 expendi- ture items for 1941 and forecasts for 1942. While these estimates are necessarily approximations, they represent the best date 80 far available on this subject. I will send them to you as soon 9.8 I receive them. 177 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE perruary 250, 1962 Secretary Morgenthau FROM Gerard Swope Referring to telegram from Stevens Brothers addressed to Senator Vandenberg and sent to you by him, a similar telegram was addressed to Senator Brown and Mr. Mack immediately sent a telegram to Stevens Brothers, of which the attached is a copy. There is also a memorandum from Mr. Mack which you may wish to send to Senator Vandenberg. I have prepared a letter to Senator Vandenberg for your signature, if you desire to use it. Attachments as 178 TREASURY DEPARTMENT PROCUREMENT DIVISION WASHINGTON OF THE DIRECTOR February 25, 1942 MEMORANDUM TO MR. SWOPE: Herewith copy of telegram to Stevens Bros. In the telegram from Stevens Bros. to Senator Vandenberg the complaint is made that arrangements have been made by the Frocurement Division for the removal of household goods through the Traffic Service Department of the American Trucking Association which demands 360 a year as a condition for membership and does not represent the entire trucking industry. The American Trucking Association has been cooperating with the Procurement Division in making available to us information as to trucking facilities equipped to meet the substantial requirements of the decentralization program which involves moving the employees of some fourteen Government bureaus, totalling a possible 10,000 families, also Government records, to various points throughout the country. According to Mr. MacMillan, Chief of the Service Bureau, American Trucking Association, none of the trucking companies being used are members of the traffic service which calls for the $60 annual membership fee, as claimed by Stevens Bros. We do not have any contract with the American Trucking Association, nor is there any arrangement with them whereby any trucking company is excluded from participation, the only requirement being that they must show evidence of ability to perform the required service. Attachment: Copy of telegram FORDEFENSE BUY Director Special of Procurement to FORM NO. 14A NT THE PRESIDENT WASHINGTON 179 MARCH 14. 1935 Federal Works Agency CHARGE TRISING FOR TELEGRAM (See below) OFFICIAL BUSINESS-GOVERNMENT RATES (The appropriation from payable 80-1120006(10)005 Emergency Fund COPY FOR MR. SWOPE for thePresident, National Defense (Allotment to Federal Works Agency, Public Buildings Adminis- tration), 1942" February 25, 1942 STEVENS BROS. SAGINAW, MICHIGAN RETELS SENATORS VANDENBERG AND BROWN stop SUGGEST YOU SUBMIT DETAILED INFORMATION RELATIVE AVAILABLE EQUIPMENT SUITABLE FOR TRANSPORTING HOUSEHOLD GOODS OFFICE RECORDS AND EQUIPMENT ALSO EXTENT OPERATING RIGHTS stop WILL THEN CONSIDER YOUR COMPANY FOR DECENTRALIZATION MOVEMENTS CLIFTON E. MACK DIRECTOR TREASURY DEPARTMENT PROCUREMENT DIVISION 18 United States Senate ashinglon, D.C., 2/26/12 ,193 Respectfully referred to Hon. Henry Morgenthau, Secretary of the Treasury. Respectfully, 181 FEB 27 1942 My dear senator: Referring to your memorandum to me dated February 24, enclosing a telegram from Stevens Brothers of Saginaw, Michigan, which I herewith return, the Procurement Division of the Treasury, who received a similar message from senator Brown this morning, telegraphed to Stevens Brothers as per copy attached. when the Procurement Division hears from Stevens Brothers every consideration will be given to their proposal. I appreciate your referring the matter to me. Yours very truly, (Signed) H. Morgenthau, IN Secretary of the Treasury Honorable Arthur H. Vandenberg United States Senate GS:blb 2/25/42 us. Iilenme Copie to Thampson By Messenger 3/2/12 Hiphin3 55 CLASS OF SERVICE am WESTERN WILLIAMS PRESIDENT 1220 DL-Day Letter UNION NEWCOMB CARLTON BOARD SYMBOLS NT-Overnight Telepram LC-Delered Cable J. C. LEVER FIRST VIC PRESIDENT Ship Reliogram on telegrams and day letters in STANDARD TIME at point of origin. Time of receipt is STANDARD TIME point of destination ZA485 127 NT=SAGINAW MICH 23 1942 FEB 23 PM 11 23 HON ARTHUR H VANDENBERG= US SENATOR WASHDC= AS MY REPRESENTATIVE IN CONGRESS I URGE THAT YOU PROTEST THE ACTION OF THE PROCUREMENT DIVISION IN THE TREASURY DEPARTMENT IN ARRANGING FOR THE REMOVAL OF HOUSEHOLD GOODS OF NON DEFENSE GOVERNMENT OFFICERS AND EMPLOYES THROUGH A PRIVATE ORGANIZATION "TRAFFIC SERVICE DEPARTMENT" OF AMERICAN TRUCKING ASSOCIATION WHICH DOES NOT REPRESENT THE ENTIRE TRUCKING INDUSTRY AND WHICH DEMANDS SIXTY DOLLARS A YEAR AS A CONDITION FOR MEMBERSHIPS I INSIST THAT AN INVESTIGATION BE MADE OF THE ACTIONS OF THE PROCUREMENT DIVISION IN ALLOTING CONTRACTS TO GIVE COMPANIES THROUGH THE TRAFFIC SERVICE DEPARTMENT AT RATES HIGHER THAN ARE PRESENTLY AVAILABLE TO THE GOVERNMENT AS AN ILLUSTRATION OF GROSS WASTE AND INTEMPERATE SPENDING AS A TAXPAYING MEMBER OF YOUR STATE AND YOUR CONSTITUANT I URGE IMMEDIATE ACTION ON MY PROTEST= STEVENS BROS. THE COMPANY WILL APPRECIATE SUGGESTIONS FROM PATRONS CONCERNING ITS SERVICE 183 FEB 27 1942 Ky dear senator: I am in receipt this morning of your letter of the 26th with enclosed letter from J. C. Church, Executive secretary of the Independent Movers' and karehousemen's Association, Inc., Washington, D. C. There has been some misunderstanding in regard to this matter and a press release was issued yesterday, of am a It showsasin anynone is not required a matter the trucking to the been subscribers to. Division in touch with him any of the members Harehousemen's Association, Inc. have the necessary equipMr. Our that of and, companies Church, Procurement membership the to which the Independent telling up traffic I enclosing of Movers' service organization present fact, that has gotten if referred and have copy. of ment and facilities to do any of this work, they will be given every consideration. Sincerely yours, (Signed) R. Morgenthau. in Secretary of the Treasury Honorable Burton K. Wheeler United States senate Ice n.m.c. 3/2/42 Bs Messenger GS:blb 2/27/42 us. Hopkins 184 yu Swife Lee That we you is exhability.,7. upla struct MRS. FORBUSH ROOM 470 185 MORGENTHAU'S OFFICE TO-- r. D. W. Bell r. Gaston Mr. Barnard Mr. Buffington Mr. Haas Mr. Kuhn r. Sullivan T. Foley r. Cochran r. Graves Mr. Morris Mr. Schwarz Mr. White Ir. Thompson @@@@@@@@@@@@ r. Bartelt r. C. S. Bell r. Bernard r. Birgfeld Mr. Blough hr. Broughton fr. Delano Miss Diamond Mr. Hall Mr. Hanna Mr. Helvering Mr. Julian Mr. Kilby Mr. Mack Mr. Pehle Mrs. Ross Mr. Sloan Mr. Tarleau Mr. Frank J. Wilson Mr. T. F. Wilson SECRETARY'S CORRESPONDENCE SPECIAL This communication must be acknowledged or answered with 48 hours from the time it is received by the Secretary's Staff Assistant or the head of a Bureau, Office or Division of the Treasury Department. The Staff Assistant to the Secretary or the head to the Division, a carbon of the Bureau, Office, or Division receiving this communication will submit copy or answer after has been approved and signed offidal, of If 463 the Secretary's each the Treasury original by attached acknowledgment the proper Correspondence copy Building, communication Treasury is transferred to another Staff Assistant to the Secretary, or to the head of Mother Bureau, Office, or Division for Preparation of a reply, the Secretary's Correspondence Division must be notified of the date and to whom it is transferred Telephone Treasury Branch 2575. 186 BURTON K WHITLER. MONT., CHAIRMAN M. WHITE, m. MAINE - WAGNER. * HEMRIK WARREN SHIPSTEAD R. AUSTIN, VY. MINNE CHARLES w. TOBEY, N.H. CLYDE M. REED KANS CHAN GURNEY a. DAK. c. WAYLAND BROOKS. ILL WASH ANDREWS FLA United States Senate COMMITTEE ON INTERSTATE COMMERCE BOMMARTE ALA STEMANT. TENN IDAND TURNELL DEL AMEX M W. MITCHILL CLERK February 26, 1942 My dear Secretary: I herewith enclose a letter which I have received from Mr. J. C. Church together with other material which is self-explanatory. I would deeply appreciate having any comments which the Treasury Department would make on this. With my very kindest regards, I am SignereA BKW:sb Honorable Henry Morgenthau, Secretary Deparment of Treasury Washington, C. 1942 Annual Convention .. Hotel Stevens, Chicago, July 19 - 23 independent Movers & Warehousemen'sIndependent Association, Inc. Long Distance Movers A National Association of OFFICERS President NORMAN Beltimore, Md. STEVEN ....In Vice-President 310 STAR BUILDING-110h STREET and PENNSYLVANIA AVENUE N. W. Saginew. PHONE REPUBLIC 2016 Secretary v. WASHINGTON. D. C. Lincoln, Neber Treatmen PUGH In reply please Long Intend Clay, N.Y. JYLES T. February, 23, 1942 ... Vice-President SULLIVAN refer to file No. Northeastern Region N.Y. Syracum, Vice-President JA H VILLEN Central Region Decrois, Mich Vice-President VOLCHANIST MILLA Waters Region New Orleans La Senator Wheeler Senate Office Building Washington, D.C. Dear Senator Wheeler: Vice-President RABLET WHITE Southeastern Region Bigminrham Ala. "Vice-President Per Watern Region FAX GOLBER Longmont, * OARD OF DIRECTORS Northealers Region G. BATTERSON, Rocbester, N. We are enclosing herewith Brief containing our grievences against the Traffic Section, Procurement Division-Treasury Department. It appears that the Procurement Division entered into an arrangement with the Traffic Service Department of the American Trucking Associations by which the later has exolusive authority to designate carriers who are to transport office equipment and household effects of Government employees. It appears as evidenced by the enclosed contents, in order that the independent carrier may continue to serve the shipping public and our Government, it is essential that the monopolistic disposition of Governmentalitemovala be stopped, otherwise every independent operator will be obliged to subscribe to the Traffic Service Department of the American Trucking Associations, by the payment of $60.00 per year before he oan be afforded the opportunity to hope for the right to transport Government property or the household effects of the employees. Fla. In respect thereto, we request that you give this matter considerable attention. Cala Directors Lag. lowe with kind regards, I am, C Va Sincerely yours, 57. Joshers CHURCH J.C. Church, Executive Secretary D.C. NATHAN ZELBY Cooked New York, N. Y. BUY JCC/PP "ADOPT A TARIFF IN KEEPING WITH YOUR OPERATIONS" 188 TREASURY DEPARTMENT Washington Press Service FOR IMMEDIATE RELEASE, No. 30-48 Thursday, February 26, 1942. Procurement Director Clifton E. Mack today described the Division's methods of selecting motor carriers for the transportation of equipment of Government agencies and the personal effects of employees transferred from Washington to relieve congestion caused by war activities. "The problem," Mr. Mack said, "was a complex one in that transfers had to be performed expeditiously with a minimum amount of interruption of Government functions. "In selection of carriers to handle the movement of property of fourteen Government agencies from Washington and the personal effects of 10,000 employees, the primary consideration was the ability of the carrier to supply the amount and kind of equipment and the capacity of each organization to perform the job in accordance with requirements of the agencies and the employees concerned. "This property is being transported at regularly-published tariff rates by companies legally authorized under the provisions of the Interstate Commerce Act to operate in the territories within which the movements take place. "As a condition necessary to participation in this transportation, membership in any organization was not required. It has been erroneously reported that the Procurement Division required evidence that motor carriers subscribed to a traffic service operated by the American Trucking Associations before they could receive consideration. "As a matter of fact, none of the motor companies which, up to the present have performed a part of the service, are subscribers to the Traffic Service referred to. Associations, Inc., the Procurement coordinating "The American agency Trucking between type Division of has performance acted and the as a industry to insure as far as possible the functions. necessary to effect the transfer of Government "The Association has committed itself to act in this may liaison be with respect to any carrier selected or which whether such capacity selected Procurement Division regardless of Inc. carriers by are the members of the American Trucking Associations, 189 -2"By throwing these safeguards around the movements, the Procurement Division, in cooperation with other Government agencies, has acted not only to protect the interests of the public, the Government and its employees, but also to protect those of the motor transportation industry itself." -000- 190 OFFICE OF LEND-LEASE ADMINISTRATION FIVE-FIFTEEN 22d STREET NW. WASHINGTON, D.C. February 25, 1942 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Dear Henry: Thank you for your progress report prepared by Mr. Mack, dated February 24, 1942. I am most appreciative of what you have done to aid us in procuring the items which had been delayed. I agree with you that it is unfortunate that so many of the requisitions have been slow in reaching you. Many of these delays, as you know, have been caused by the fact that the specifications filed by the Soviet representa- tives have not been standard American specifications, and considerable time has been consumed in reaching an agreement between the Soviet specialists and the specialists of the War Production Board. In most instances, after this agreement has been reached, extensive clerical work is required by the Soviet representatives to prepare requisitions containing the specifications agreed upon, and in some instances, three or more days are consumed before the requisition is received by this office to be transmitted to the procurement agencies. Some of the fault in connection with the delays in the receipt by you of requisitions for cold rolled steel strips is our own. These requisitions were received in this office on Saturday afternoon, February 7, 1942, at a time when the entire financial situation in connection with the Soviet program was under review, due to the fact that requisitions had already been filed by the Soviet representatives for items having a value in excess of the credit granted the Soviet Government by the President. The situation was also complicated by the fact that the War Production Board had refused to consider requisitions for non-Protocol items until some long-term program could be developed. Due to the necessity of completing these reviews, the requisitions concerned were held for some days until the financial and programming difficulties could be solved. On February 16, 1942, financing had been arranged, and the requisitions were sent forward. The history of the tool steel specifications is not as unfortunate. The requisitions were forwarded within 48 hours after receipt by this office. 191 You may be sure that every effort will be made to process requisitions promptly after they are received. I anticipate that with the recent appropriation, financial problems can be avoided for some time to come. Sincerely yours, that BY SPECIAL MESSENGER FEB 27194 1030 OFFICE OF LEND-LEASE ADMINISTRATION FIVE-FIFTEEN 22d STREET NW. 192 WASHINGTON D.C. E R. Stettinius, Jr. Administrator as February 25, 1942 MEMORANDUM To: The Honorable Henry Morgenthau From: E. R. Stettinius, Jr. Subject: Executive Reports Transmitted herewith, for your information, are copies of the latest Executive Reports on Lend-Lease operations. Attachment 193 Executive Report No.1 Office of Lend-Lease Administration SECRET STATEMENT OF ALLOCATIONS AND OBLIGATIONS Weekly Report as of February 23, 1942 Adjusted Appropriation Category Appropriations Feb. 23, 1942 Allocations Obligations Feb. 23, 1942 Feb. 15, 1942 Feb. 15, 1942 $ 2,026,454,289 $ 1,993,354,681 $ 1,992,656,104 $1,261,531,534 2,877,000,000 2,837,956,698 2,836,232,388 2,230,575,283 971,100,000 959,051,249 958,085,045 556,335,291 1,675,280,100 1,663,858,450 1,630,372,400 1,194,930,754 466,500,000 457,323,631 455,511,922 127,579,271 Production Facilities 1,051,313,824 1,041,585,513 1,041,585,513 659,311,534 Agric. and Indust. Commod's 3,266,381,887 2,734,012,401 2,726,436,696 1,659,326,619 Servicing Repair of Ships, etc. 305,469,900 296,947,333 297,147,333 191,252,799 Services and Expenses 312,500,000 277,956,520 277,956,520 72,642,979 20,000,000 8,083,352 8,033,352 3,127,495 $12,972,000,000 $12,270,129,828 $12,224,017,273 $7,956,613,559 Ordnance and Ordnance Stores Aircraft and Aero. Material Tanks and Other Vehicles Vessels and Other Watercraft Misc. Military Equipment Administrative Expenses Total Adjusted Procuring Agency Allocations Obligations Limitations Feb. 23, 1942 Feb. 15, 1942 Feb. 15, 1942 $ 6,656,977,280 $ 6,589,453,020 $ 6,584,474,220 $4,217,854,915 Navy Department 2,670,077,469 2,613,061,348 2,602,053,298 1,637,456,630 Maritime Commission 1,136,915,100 1,127,296,500 1,104,796,500 871,660,305 932,901,774 931,136,940 1,518,037,076 1,008,312,076 18 126 1,001,412,076 1,184,944 869,944 819,944 683,392 $12,270,129,828 $12,224,017,273 $7,956,613,559 Feb. 23, 1942 War Department Treasury Department Department of Agriculture Other Total 032 + $12,916,093,643 930,461,235 552,028,799 515 676,929,518 las 33 Funds for freight and other necessary charges are not included in obligations. BAGE TREE DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENDE OF THE UNITED STATES WITHIN THE MEANING OF THE ESPIO- PER- 808 ACT. U.S.C. so: 31 AND 12. THE TRANSMISSION OR THE REVELATION OF ITS CONTENTS IS ART KARRER TO AS UNAUT BORIZED is MORIBITED " LAW. 194 LEND-LEASE FUNDS and TOTAL WAR DEPARTMENT (Millions) 20,000 (Millions) 7,000 PROGRAM LIMITATION ALLOCATIONS 16,000 6,000 Procurement Authorizations 5,000 APPROPRIATIONS 12,000 4,000 ALLOCATIONS Procurement OBLIGATIONS Authorizations 8,000 3,000 E 15% OBLIGATIONS . x 4,000 EXPENDITURES 2,000 1,000 EXPENDITURES minim Sep Oct Nov Dec Jon Feb Mor Apr May Jun Jul Aug See Sep Oct Nov Dec Jan Feb Mor Apr Moy Jun Jul Aug See 1941 1942 1941 1942 NAVY DEPARTMENT MARITIME COMMISSION (Millions) (Millions) 2,500 $ 3,500 3,000 2,000 PROGRAM LIMITATION 2,500 ALLOCATIONS 1,500 2,000 Procurement ALLOCATIONS PROGRAM LIMITATION Authorizations 1,500 Authorizations 1. OBLIGATIONS 1,000 Procurement 1,000 OBLIGATIONS 500 500 EXPENDITURES EXPENDITURES Sep Oct Nov Dec Jan Feb Mor Apr May Jun Jul Aug Sec 1941 1942 1941 TREASURY DEPARTMENT 1942 1 Seo Oct Nov Dec Jan Feb Mon Apr May Jun Jul Aug Sep DEPT. OF AGRICULTURE (Millions) (Millions) 2,500 3,500 $ 3,000 2,000 2,500 1,500 2,000 1,500 ALLOCATIONS PROGRAM LIMITATION 1,000 Procurement PROGRAM LIMITATION ALLOCATIONS Authorization 1,000 IGATIONS Procurement 500 Authorizations OBLIGATIONS ITEXPENDITURES Sep Oct Now Dec Jon Feb Mor Apr May Jun Jul Aug See 1941 1942 EXPENDITURES 500 pu% Sep Sep Oct Nov Dec Jan Feb Mor Apr May Jun Jul Aug 1942 1941 1 1 Excludes reserve of $500,000,000 Office of Lend-Lease Administration - February 24, 1942 195 TOTAL AMOUNT OF FUNDS OBLIGATED IN EACH WEEKLY PERIOD Millions of Dollars 500 500 400 400 300 300 200 200 100 100 O o Oct Nov Dec Jon Feb Mar 1942 1941 AMOUNT OF FUNDS OBLIGATED, BY WEEKLY PERIODS Thousands of Dollars Jan. 16-23 Jan. 24-31 Feb. 9-15 Feb. 1-8 APPROPRIATION CATEGORY Ordnance and Ordnance Stores Aircraft and Aero. Material Tanks and Other Vehicles Vessels and Other Watercraft Misc. Military Equipment Production Facilities Agric. and Indust. Commod's Servicing, Repair of Ships, etc. Services and Expenses Administrative Expenses Total 4,068 21,087 51,075 24,210 13,619 9,814 9,739 75,909 4,427 16,877 7,921 197,696 8,261 8,142 4,201 61,305 83,198 1,215 7,585 233 89 185 179 287,193 353,645 226,942 379,703 145,543 87,206 16,043 38,368 204,084 51,457 12,343 34,729 50,989 132,155 13,669 27,609 53,470 306,254 19,092 63,714 32,321 49,789 4,895 7,371 9,541 50,862 46,698 21,769 100,255 29,139 48,720 12,999 13,872 13,608 130,864 31 PROCURING AGENCY War Department Navy Department Maritime Commission Treasury Department 20 Department of Agriculture Other Total Office of Lend-Lease Administration 1 32 43 287,193 353,645 30 9 226,942 608 36,854 16,855 40 379,703 Executive Report 20 No. 2 Office of Lend-Lease Administration STATEMENT OF ALLOCATIONS, OBLIGATIONS AND EXPENDITURES Semi-Monthly Report as of February 15, 1942 Appropriation Category Cumulative to February 15, 1912 Allocations Obligations Expenditures Ordnance and Ordnance Stores $ 1,992,656,104 $1,261,531,534 $ 160,881,605 Aircraft and Aero. Material 2,836,232,388 2,230,575,283 311,298,056 958,085,045 556,335,291 98,417,301 1,630,372,400 1,194,930,754 271,839,475 455,511,922 127,579,271 28,346,688 Production Facilities 1,041,585,513 659,311,534 176,622,662 Agric. and Indust. Commod's 2,726,436,696 1,659,326,619 857,009,145 Servicing, Repair of Ships, etc. 297,147,333 191,252,799 126,158,147 Services and Expenses 277,956,520 72,642,979 17,677,817 8,033,352 3,127,495 2,556,703 $12,224,017,273 $7,956,613,559 $2,050,807,599 Tanks and Other Vehicles Vessels and Other Watercraft Misc. Military Equipment Administrative Expenses Total Cumulative to February 15, 1942 Procuring Agency Allocations Expenditures Obligations $ 6,584,474,220 $4,217,854,915 $ 675,587,818 Navy Department 2,602,053,298 1,637,456,630 284,114,717 Maritime Commission 1,104,796,500 871,660,305 452,012,522 930,461,235 552,028,799 194,611,137 War Department -3570 Treasury Department 846 Department of Agriculture Other Total 178-387" 462 1,001,412,076 676,929,518 443,965,405 819,944 683,392 516,000 $12,224,017,273 $7,956,613,559 $2,050,807,599 Funds for freight and other necessary charges are not included in obligations. TRIB STATES WITHIN TEE HEARTHD or THE BAGE ACT. DOCUMENT U.S.C. CONTAINS 501 #1 AND INFORMATION 22. ⑉ TRANSMIRSION AFFECTING THE on NATIONAL THE REVILLATION DEFRESS or OF THE ITS CONTENTS UNITED IN ANY MASTER TO AN ##AUTHORIZED PER- IS PROBIDITED BY LAW.* ESPIO- 197 Executive Report No. 3 Office of Lend-Lease Administration SECRET STATEMENT OF LEND-LEASE AID Semi-Monthly Report as of February 15, 1942 Type of Aid Cumulative to February 15, 1942 February 1 - 15 From Lend-Lease Appropriations: $1,068,312,966 $110,522,077 Articles Awaiting Transf. or Use 391,938,165 78,522,449 Articles in Process of M'f'r 124,184,354 2,602,554 Servicing, Repair of Ships, etc. 119,850,225 6,426,663 Rental and Charter of Ships, etc. 187,930,208 26,608,742 Production Facilities in U. S. 155,235,760 14,510,831 3,355,921 618,672 Defense Articles Transferred Miscellaneous Expenses Total 2,050,807,599 239,811,988 207,662,437 17,251,518 $2,258,470,036 $257,063,506 From Other Appropriations: Defense Articles Transferred Total Lend-Lease Aid Type of Aid Cumulative to Feb. 15, 1942 (000 omitted) Total Other China Russia $ 974,783 $38,836 $ 51,130 $3,564 $1,068,313 Articles Awaiting Transf. or Use 368,751 17,112 2,410 3,666 391,939 Articles in Process of M'f'r 124,184 - 124,184 Servicing, Repair of Ships, etc. 113,418 Rental and Charter of Ships, etc. 161,364 Production Facilities in U. S. 155,236 Br. Empire From Lend-Lease Appropriations: V Defense Articles Transferred Miscellaneous Expenses - - - 6,400 32 119,850 15,538 1,957 187,930 9,071 - - - 155,236 604 183 11 2,558 3,356 156,037 4,949 32,298 14,378 207,662 $2,054,377 $70,151 $107,787 $26,155 $2,258,470 From Other Appropriations: Defense Articles Transferred Total Lond-Lease Aid THE "TRIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE MANING AN UNAUT BORIZED OF PER⑉ * ACT. U.S.C. so: AND 12. THE TRANSMISSION OR THE REVELATION OF ITS CONTENTS IN APT MANNER TO 28 PRORIBITED BY$1 LAW. SIPIO- 198 LEND-LEASE AID SEGRET TOTAL WAR DEPARTMENT (Millions) (Millions) $ 3,500 1,200 3,000 Transfers 1,000 2,500 From Other Transfers From Other Appropriations Appropriations 800 2,000 600 1,500 Expenditures 400 Expenditures From Lend-Leose Appropriations 1,000 From Lend-Leose Appropriations 200 500 o o Sep Oct Nov Dec Jan Feb Mor Apr May Jun Jul Aug See Sep Oct Nov Dec Jon Feb Mor Apr May Jun Jul Aug Sep 1942 1941 1942 , - NAVY DEPARTMENT MARITIME COMMISSION (Millions) . 500 (Millions) $ 1941 800 $ 400 Transfers Transfers From Other From Other Appropriations 600 Appropriations 300 400 200 Expenditures From Lend-Lease Appropriations Expenditures From Lend-Lease 200 Appropriations 100 o o Sep Oct Now Dec Jon Feb Mor Apr May Jun Jul Aug Sep Sep Oct No Dec Jon Feb Mor Apr May Jun Jul Aug Sep 1942 1941 1942 , 1941 I DEPT. OF AGRICULTURE TREASURY DEPARTMENT (Millions) (Millions) $ 350 800 $ 300 600 Transfers 250 From Other Appropriations 200 400 150 Expenditures From Land-Lease Expenditures Appropriations 100 From Lend-Lease Appropriations 200 50 o o 194 1942 - Office of Land-Lease Administration - February 24,1942 See Oct Now Dec Jon Feb Mon Apr May Jun Jul Aug Sep 1942 1941 1 Sep Der Now Der Jon Feb Mor Age May Jun Jul Aug Sep 190 Executive Report No. 4 Office of Lend-Lease Administration secret STATEMENT OF TRANSFERS FROM LEND-LEASE APPROPRIATIONS AND OTHER APPROPRIATIONS Semi-Monthly Report as of Fobruary 15. 1942 priations $ 18,786 $ 1,753 139 20,199 $ 21,126 1,910 1,364 1,878 25,351 26,578 28,452 1,452 2,539 732 439 61 5,582 31,301 34,534 24,107 1,916 5,099 23,325 12,906 352 Lis L. Other L. L. Other L. L. Other L. L. Other L. L. Other Vessels and Other Wetercraft Misc. Military Equipment Agric. Prod's (Foodstuffs) L. L. . 22,503 3,507 Metals 2,269 50,129 2,298 19,196 1,206 13,715 12 8,513 4,412 1,418 Other 4,468 11 373 L. L. 352,353 L. L. 115,602 Other - 110,701 - 83,052 4,309 805 35,408 49,260 - 14,346 5,858 3 1,006 354,004 - - 94,807 - - - 2,254 - 7,293 64,001 - - - - Other L. L. 1,651 - - 35 Other - - - 94,807 40,270 L. L. - - - L. L. Other Total - L. L. L. L. 22,503 4,799 12 16,482 Other L. L. All Other 1,112 35,408 49,260 Other Fuel 168 - 52,883 18,185 2,730 571 Other Machinery - $ 7,293 44,679 Other Agric. Prod's (Exol. Food) 633 448 $ - 42,758 234 35 - - Non-Combat Vehicles Total Other - Combat Vehicles other L. L. - Aircraft Engines, Parts, etc. Russia - Aircraft China - Ammunition British - Ordnance (Excl. Amtunition) And ADE Appro- 3,499 4,581 1,990 839 - - 67,733 1,223 1,435 $974,783 156,037 $38,836 4,949 11 123,682 - - - - - 360 - $51,130 32,298 - 113,530 - - 96 71,620 1,330 $ 3,564 $1,068,313 14,378 207,662 2,092 THEN DOCUMENT CONTAIRS INFORMATION APPROTING THE NATIONAL DEFERSE or THE UNITED STATES WITHIN THE WELVING or THE HAPEO- 703- 28 PROSTRITIS ACT, v.s.c. ST ⑉ 21 AND ⑉ THE TRADEMISSION on THE,SEVERATION of ITA CONTEUTO IN ART SARRER TO AF UNAUTHORIZED LAW. 200 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 25,1942 TO FROM Secretary Morgenthau Mr. Haas Subject: The Export Freight Situation. The volume of lighterage freight in storage and on hand for unloading in New York harbor at the end of last week, at 20,116 cars, was approximately the same as the previous week's figure. (See Chart 1.) As of February 21, there was additional storage space available for 8,801 cars as compared with 8,910 cars a week earlier. Exports from New York last week increased by 1,131 cars to an estimated 5,969 cars. (See Chart 2, upper section.) Receipts of export freight at New York also increased noticeably from the low figure of the previous week, reaching 5,374 cars. (Lower section of Chart 2) The receipts for export at 9 other North Atlantic ports rose very slightly to 1,003 cars, but at 6 Pacific ports there was a 15 percent drop to a level of 1,788 cars. LIGHTERAGE FREIGHT IN STORAGE AND ON HAND FOR UNLOADING IN NEW YORK HARBOR* 1942 1941 CARLOADS CARLOADS Thousands Thousands 24 24 22 22 20 20 18 18 16 16 14 14 12 12 10 10 UNITED 8 JAN. MAR. MAY JULY SEPT NOV JAN MAR. MAY 1941 JULY SEPT. 8 NOV 1942 . Lergely export freight, but about 10% represents freight for local - of - - - and coastal shipment. Figures exclude grein. Office of the Secretary of the Treasury C-303-D EXPORT FREIGHT MOVEMENT 1942 1941 CARLOADS Thousands CARLOADS Thousands Exports 10 10 9 8 From New York 7 7 6 6 5 5 4 MMM 4 2 iii - HULL 2 3 3 SEPT. JULY MAY MAR JAN NOV. MAR JAN. MAY JULY SEPT. NOV. 1942 1941 CARLOADS CARLOADS Thousands Thousands Receipts for Export 10 10 9 8 At New York 7 7 6 6 5 5 have 4 4 At 9 other North Atlantic Ports .. 3 3 V within 2 I 2 I At 6 Pacific Ports o o JAN. MAR MAY JULY SEPT. NOV. JAN. MAR. 1941 MAY JULY SEPT NOV. 1942 As estimated from date of general managers' association of New York . Association of American Retroods Office of the Secretary of the Treasury Divides of I - C-382-D 203 INCOMING CABLEGRAM Date: February 25, 1942 Rec'd; February 26, 1942 From: Buenos Aires Federal Reserve Bank of New York, New York. #47 In order to increase our gold reserves please buy for our account gold bars for the equivalent of U.S. $5,000,000 keeping the gold bars earmarked for our account. Cable execution. (Sgd.) Banco Central de la Republica Argentina. (Received by telephone from Federal Reserve Bank of New York, N. Y. Feb. 26, 1942) RE:vw 204 INCOMING CABLEGRAM Date: February 25, 1942 From: Rio de Janeiro Federal Reserve Bank of New York New York This is our cable #2 sent Wednesday. You will receive $3,000,000 from several sources. Charge our account as fiscal agent of the Brazilian Government $3,000,000 plus interest same conditions our wire of the 11th February 1940 #2 releasing correspondent gold secured. Please authorise us to debit your account as fiscal agent of the United States of America with equivalent in milreis. Cable execution. (Signed) Banco do Brasil *Actual date of this wire was 11th February 1941. (Received by telephone from Federal Reserve Bank of New York, N. Y. 1:20 p.m., February 25, 1942) 1c Note: According to the above cable Brasil is repurchasing the remaining 60,000,000 milreis held by the Stab. Fund and paying back the dollar equivalent of $3,000,000. The $3,072,500 in gold that has been held by the FRB of NY as collateral will be returned to Brasil's earmarked account. y 205 0 0 Y DEPARTMENT OF STATE WASHINGTON In reply refer to FD 837.515/572 February 25, 1942 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of despatch No. 3529, dated February 20, 1942, from the American Embassy at Habana, regarding the proposed visit to Washington of Dr. Oscar Garcia Montes, Cuban Minister of Finance. Copies of the despatch have also been sent to the Board of Governors of the Federal Reserve System and to the Export-Import Bank. Enclosure: Despatch No. 3529, From Embassy, Habana, Cuba, dated February 20, 1942. 206 Habana, February 20, 1942. AIR MAIL No. 3529 Subject: Proposed vinita to Taskington of Dr. backs Cuban Minister of Finance. The Honorable The Secretary of State, Washington. Sir: Supplementing the Embassy's air mail despatch No. 3429 of February 10, 1942, enclosing a copy and translation of the Presidential message of February 7, 1942, in connection with a proposed issue of Cuban peso certificates, and the Embassy's telegram No. 65 of February 18, 1942, informing the Department that the Cuban Minister of Finance, Dr. Oscar Garcia Montes, intended to leave shortly for Washington to discuss matters relating to the note issue under reference, I have the honor to report that Dr. Garcia Montes' trip has been postponed due to the fact that Congress has as yet taken no action on the above mentioned Presidential message. As stated in the Embassy's telegram No. 71 of today, it is intended to call a special session of Congress to discuss the President's message, and Dr. Garcia Montes believes that he will be able to leave for Washington some time next week. In the meantime, the Ministry of Finance on February 19, 1942, requested the Treasury Department in Washington by air mail to furnish it with information on the estimated cost of printing the peso certificates under reference and their probable delivery dates. It now appears that Dr. Garcia Montes may be accompanied on his proposed trip to Washington by Engineer Amadeo Lopez Castro, the Secretary of the Presidency, as the Government desires to avail itself of Dr. Garcia Montes' visit to Washington to attempt to bring to a successful conclusion the negotiations for the $25,000,000 ExportImport Bank loan. In connection with the foregoing, the following press statement was released by the Cuban Cabinet, following a cabinet meeting held on February 18, 1942: 207 -2- "The first item discussed (at the cabinet meeting) was the national bank, with respect to which the Government for some time has been making the necessary studies with a view toward its establishment as one of the basic points of the Presidential platform. Following a revision of these studies, which have been approved, the President has requested that they be expedited as much as possible, so that the Central Bank may be organized without delay. With regard to the $25,000,000 loan, the Minister of State and Engineer Amadeo Lopez Castro reported that upon the return of Mr. Pearson from Rio de Janeiro the ExportImport Bank took under consideration the proposed loan contract, and it is expected that within very few days an agreement as to the definitive text thereof will be reached. It does not appear possible that Mr. Pearson can come to Habana, and the loan contract will probably be signed in Washington. For that purpose and in order to exchange views with regard to the Central Bank project prepared by the Government, Dr. Garcia Montes and Engineer Amadeo Lopez Castro will shortly proceed to Washington where they will also take up important matters regarding Cuban minerals." The Department will be informed by telegraph as soon as possible of the expected date of departure of Dr. Garcia Montes and Engineer Lopez Castro and of any further significant developments in connection with the proposed issue of silver certificates, the $25,000,000 loan, and the Central Bank. Respectfully yours, Ellis O. Briggs Charge d'Affaires ad interim AFN/mp 851.51 A true copy of the signed original (1)M.P :bj:2-25-42 208 DEPARTMENT OF STATE Washington In reply refer to II 840.51 Fromen Credits/5125 February 25, 1948 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits herewith a paraphrase of telegram no. 500 of February 20, 1942 to the American Legation at Bern, concerning the proposed transfer of Swiss funds in payment for services of Spanish ships. Enclosure: To Bern, no. 500, February 30, 1942. ehicopy 2-26-42 209 P PARAPHRASE OF TELEGRAM SENT TO: ANLEGATION, Bern DATED: February 20, 1942, 7 p.m. NUMBER: 500 Legation's 141, January 14, 9 p.m.; also 210, January 21, midnight, from Legation. Assistant Secretary Acheson discussed with the Minister of Switzerland on February 16 the proposed Spanish-Swiss transfer as referred to in the above-mentioned cables. It was stated to the Minister of Switzerland that this Government understands that the payment of nearly $2,200,000 which was now requested might be regarded as payment for services which had already been rendered by Spanish ships. The statement was made that in order to avoid possible embarrassment to the Swiss Government because the requested payment WES under discussion while the services in question were being rendered, this Government would be prepared to effect the transfer requested, although the Swiss Govern- ment should be informed that in the future it would not be the policy to effect further transfers of this nature. The fact was stated that information from Bern reveals that if transfers of this nature were permitted, Switzerland had indicated its willingness to accept dollars in a corresponding amount, and that it was thought that the Swiss National Bank would reciprocate through the purchase of United -2- 210 United States drafts up to $2,200,000 if the transfer of that amount were permitted. It was pointed out by the Minister of Switzerland that he desires to communicate with Bern and also to discuss the matter with the representative of the Swiss National Bank in this country. This cable is for the purpose of keeping you informed and in order that you may confirm the accuracy of the Department's assumption, based on the Legation's 210 of January 21, that a Swiss National Bank representa- tive has indicated that if we would permit the transfer in question, the Swiss Government would accept a corresponding amount of dollars. The counter-value of $2,200,000 in Swiss france, if obtained thusly from time to time, would be placed in the Special Account in the name of the American Legation at Bern, and, with the exception of the American diplomatic and consular missions in Switzerland where it would be used for expenses, it would be made available to the other American republics to enable then to make remittances to enemy areas, and would also be used to cover possible debit balances in the several clearing accounts proposed for remitting funds between enemy areas and the United States for representational expenditures. Cop:bj:vw:eh:2-26-42 211 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE February 25, 1942 TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £50,000 £26,000 Open market sterling held at 4.03-3/4, with no reported transactions. The Cuban peso was offered at a premium of 3/8% S.S compared with the quotation of 9/32% that has prevailed since February 14. In New York, closing quotations for the foreign currencies listed below vere as follows: Canadian dollar Argentine peso (free) Brazilian milreis (free) Colombian peso Mexican peso Uruguayan peso (free) Venezuelan bolivar 11-5/8% discount .2364 .0516 .5775 .2065 .5295 .2368 The Federal Reserve Bank of New York purchased 140,000 Swedish kronor in New York at the rate of .2385-1/2 for account of the Central Bank of the Uruguayan Republic. According to the latter, the kronor will be used to pay for Uruguayan imports. There were no purchases or sales of gold effected by us with foreign countries today. The Banco do Brasil, as fiscal agent of the Brazilian Government, today repurchased the remaining 60,000,000 milreis (valued at $3,000,000) of the 160,000,000 milreis (valued at $8,000,000) which the Stabilization Fund had bought from Brazil last November 5 under the July 1937 Stabilization Agreement with that country. Upon the payment of $3,000,000 to the Fund out of Brazil's dollar account at the New York Federal Reserve Bank, $3,072,500 in gold held as collateral by the Federal was returned to Brazil's earmarked account. It will be recalled that Brazil had repurchased the other 100,000,000 milreis from the Fund on January 29, paying back the dollar equivalent of $5,000,000. The Federal Reserve Bank of New York reported that the Bank of Canada shipped $2,617,000 in gold from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay office. 212 -2In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67d. The Treasury's purchase price for foreign silver was unchanged at 35 Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/8 Ye made no purchases of silver today. CONFIDENTIAL 213 BRITISH EMBASSY WASHINGTON, D.C. PERSONAL & 25th February, 1942. 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, Halifex The Honourable Henry Morgenthau, Jr. United States Treasury, Washington, D.C. 214 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 65 Information received up to 7 A.M., 24th February, 1942. 1, NAVAL C. in C. Home Fleet with main units including aircraft carrier has arrived at SCAPA from operations off NORTAY, Early on 23rd torpedo carrying aircraft made a sweep down the Norwegian Coast to locate and attack enemy warships on passage to TRONDHEIM Search happered by severe snow storm and nothing seen. H Three aircraft missing. At six A.M. 23rd one of H.M. submarines on patrol off the Norwegian Coast sighted a pooket battleship with a cruiser and three destroyers steaming on an Easterly course and attacled from a range of 1,500 yards, She claims one possible hit each on the pocket battleship and on one of the destroyers, When she surfaced later in poor visibility she saw nothing. On the 23rd one of H.M. sucmarines attacked three merchant vessels of about 9,000 tons escorted by destroyers, off TRIPOLI (L). She estimates three possible hits. Two of H.M. gunboats were lost in the SINGAPORE area on the 14th Two hundred survivers have been picked up. A Russian ship was unsuccessfully attacked by a Japanese submarine on the 21st between KARACHI and COLOMBO, A British 9,000 ton tanker has been toz- pedoed and set on fire by U-boat South of HALIFAX and a British 6,000 ton cargo vessel was shelled by Umboat on 23rd in same locality, Two U.S. merchant shipa have been tarpedoed in the vicinity of TRINIDAL and a U.S. tanker was torpedoed on the 21st/22nd but is still afleat. Four more ships, names not given, were sunk by submarines in the same area on the same and following nights. 2g MILITARY LIBYA. During the 22nd enemy resistance to our patrols increased and tactical reconnimanance reported considerable enery movement of M.T. accompanied by tanks towards THIMI from the area South East of DERNA. BURMA. The withdrawal of the 17th Indian Division across the River SITTANG began at dawn on the 22nd, valuable support being rendered by the R.A.F. The withdrawal was strongly opposed and there has been heavy fighting on the East of the River, The bridge at MOKPALIN was blown early on the 22nd to prevent it falling into enemy hands and it is feared that two Brigades of the Division have been overwhelmed and will be unable to make good their retirement over the River Fighting throughout has been heavy and continuous with considerable casualties CL both sides, The enemy has been reinforced and is now estimated at two Division One Squadron of our armoured Brigade reached PBGU on 22nd. 215 -NORTHERN FRONT All quiet, RUSSIA. In KHARKOV area Russian attacks have made some 3a AIR_OPERATIONS HESTERN FRONT 22nd/23rd, Three R.C.A.F. and eight R.A.A.F. bombers took part without casualties, 23rd/24th Twentywthree aircraft were sent sea mining. LIBYA. 21st/22nd. An Albacare scored direct hit on a 4,000 ton tanker East of TRIPOLI. 22nd. Our fighters shot down one JU 88, Twenty dive bombers with fighter esport attacked TOBRUK, No damage, no interception. Four Messerschmidts mychine-gunned ACROMA landing ground art_damaged six Hurricanes, Aircraft made several attacks on one of our convoys off SIDI BARRANI sinking two ships. Enemy air activity has increased. 22nd/23rd. Wollingtons dropped eighteen tons of bomba on MARTUBA landing ground starting fires among aircraft and transport vehicles, MALTA. A total of fifty-nine aircraft attacked our aerodromes. At LUQA one aircraft was destroyed. Hurricanes destroyed one enemy aircraft probably destroyed a second and damaged others. 216 Copy No. 13 BRITISH HOST SECRET (U.S. SECRET) OPTEL No. 66 Following is supplementary resume of operational events covering the period 12th - 19th February, 1942, 1. NAVAL Two convoys, one each way, between ALEXANDRIA and MALTA were re- peatedly attacked by enemy aircraft, The westbound convoy was twice attacked off LIEYA on 13th and one ship was damaged but has since reached part On 14th during the change-over of oscorts when the convoya not 250 miles east of MALTA, all ships were in action against aircraft mainly directed against the westbound conviry whose remaining two ships were severely damaged and later had to be sunk, There was no damage to ships of the eastbound convoy. Five enemy aircraft were certainly and four more probably destroyed, the majority by the air escort, An enemy Naval Ferce which had apparently attempted to intercept these convoys was attacked successfully by Naval Albacores, (See Optal No. 57). Shipping was heavily bombed in the SINGAPORE area prior to the fall of the city on the 15th. Suhmarine activity has been more widely dispersed than of late. There was a heavy attack, thought to have been made by at least three Umboats upon tankers in the DUTCH WEST INDIES. Shipping casualties elsewhere have not been heavy. Our submarines caused loss of over 14,000 tone of enemy shipping in MEDITERRANSAN and damage to others during the work, During the wook ending 18th 902 shipe were con- voyed. Imports into the U.K. from ships in convoy during the work ending 14th were 1,015,000 tons including 506,000 tons of oil, Imports for December, 1941, exclusive of tanker importe amounted to 2,761,000 tons. DUNKERQUE has arrived at TOULON. The main Japanese Floot appears to be in the Western Mandated Islands Area. A new 16 battleship The "KII" has joined the Floot The aircraft carriers have been replenishing with aircraft in JAPAN Two 8th cruisers have been transferred to the Southern Fleet to replace camalties. The Southern Floot is widely dispersed and operating south of KALAYA in the MACASSAR STRAITS, the FLORES SEA and in the PHILIPPINES. The first Canadian built merchant ship, 7,000 tons ordered by the British Government, are rived with cargo in the U.K. on 6th having been completed six months sheal of schedule, 2. MILITARY LIBYA. The object of General Rommol's operation with his three Armoured Columns between 14th and 16th can only be guessed. It has been suggested 217 -2that be may have intended either (A) to make a reconnaissance in Force, (B) to leanah a sudden attack sined at breaking through to TOBRUK, or (c) to ontion our amounted forces out of supporting range of the GAZALA position and attack them under conditions favourable to himself, His unexpected withdraval before his column had become heavily engaged in, however, difficult to explain In any event there coens little doubt that wastever min object my have been be Third to achieve it Owing to the demolitions carried out prior to our withdrawal the > ecoady is still unable to use the Part of DERNA, while the R.A.F. are concentration , on interfering with his traffic through BENGHAZY His administrative difficulties are, therefore, likely to be considerable. The Western Desart Brillway has not been extended as far as CAPUZZO Numerous reports have been received of Italian reinformements in LYBYA and it in likely that part at least of the 133rd Arnoured Division has arrived at THI POLL BURMA. A second Chinese Division is believed to have entered BURNA and others are moving Teatwards towards the Frontier. It is stated that Japanese reinforcements are moving north in STAM towards the SHAN border. FAR EAST. It is believed that there are now 29 Jap Divisions in the General Area of the SOUTH CHINA SHAS and PACIFIC ISLANDS. of those, it is thought that seven Divisions are available for fresh operations and that S further two could probably be spared from MALAYA at a later date if required. RUSSTA. No change in the general situation. Fighting has continued on most of the front but in no area does oither side soon to have made any sub- ctantial gains. This is no doubt still due to the nevere weather, deep ONOR and than both producing extremely difficult conditions on different parts of the front. 3g AIR_OPERATIONS HOSTERN PRONT. Bomber Command operated on five nights but not heavy cloud on every opossion, 287 tops of bombe were dropped. Harassing raids by dingle aircraft roving over wide areas sero carried outs It in estimated that upwidds of 4,400 tone of energy shipping was sunk or seriously damaged by our air craft, LTHYA. Our fighters had a most successful encounter with about thirty enery aircraft which were supporting the advance of their are moured columns on36th MALTA, Total of about 430 enery airraft took part in attacks mainly directed against aerodromos. Our fightern were again much handicapped by the underviceability of the aerodromes. RUSSTA. There have been no important changes in the air situation. 218 -3 4. EXTRACTS FROM PHOTOGR APHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS CN ENEMY TERRATORY IN BU AOFE BREMEN. 21st/22nd January - Two large grain depots were destroyed. FRANCE. - Photographs taken on 10th February show the alcohol distillery at PERIERS attacked by fighters two months previously, totally inactive. 4. OPERATIONAL AIRCRAFT BATTLE CASUALTIES METROPOLITAN AREA. British in the Air - Bombers 19, Fighters 20, Coastal 11 - total 50. One Fighter Command Pilct is safe. Enemy - 7 bombers destroyed, 5 damaged; 17 fighters destroyed, seven probably destroyed, 18 damaged, miscellaneous - one destroyed - total 25 destroyed, 7 probably destroyed and 23 damaged. MIDDLE EAST. (Including MALTA) - British - 1 Bomber in the air and 3 on the ground, 20 Fighters in the air, Coastal (Recce) 3 in the air. Total 24 in the air and 3 on the ground. 4 pilota and 1 crew are safe. Enemy - 14 bombers destroyed, 8 probably destroyed, 13 damaged, 26 Fighters destroyed, 6 probably destroyed, 15 damaged, 1 miscellaneous damaged. Total 40 destroyed, 14 probably destroyed and 29 damaged. FAR EAST (ABDA AREA) British and Allied - 6 bombers in the air, 1 Fighter do and one miscellaneous do. Total 8 in the air. One pilot is safe. Enemy - 2 bombers destroyed, 2 probable, 6 Fighters destroyed, one probable, 3 miscellaneous destroyed. Total eleven destroyed and 3 probably destroyed. Note: no account is taken of enemy aircraft destroyed on the ground in any theater of of British naval aircraft casualties. 6g HOME SECURITY. Estimated civiliah casualties for week ending 0600/18th. 8 killed and 12 seriously wounded. 219 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 25,1942 TO Secretary Morgenthau Mr. Kamarck FROM Subject: Summary of Military Reports At German Navy Air reconnaissance on February 22 found the battleship, Tirpitz, back at her usual berth at Trondheim. One pocket battleship (10,000 tons, 11-inch guns) and one Hipper cruiser (heavy cruiser, 10,000 tons, 8-inch guns) were at Bergen. (These must be the "two battleships" which were observed moving from Germany to Norway.) The Gneisenau was in a floating dock at Kiel. The Scharnhorst was at Wilhelmshaven. A Nurenberg cruiser (6,000 tons, 5.9-inch guns) was also discovered at Kiel. (U.K. Operations Report, February 23, 1942) Far East On February 22, five R.A.F. fighters inter- cepted a force of 63 Japanese planes. Three Japanese planes were destroyed and probably two more were also destroyed. No R.A.F. planes were lost. (The results of the air battles in Burma show conclusively the poor caliber of a large part of the Japanese Air Force. The crack Japanese pilots and planes in action over Malaya and the Indies are, however, about the equal of our forces. ) (U.K. Operations Report, February 23, 1942) 220 RESTRICTED No. 641 MID 319.1 M.I.D., W.D. 11:00 A.M., February 25, 1942. Situation 8-11-41 SITUATION REPORT I. Pacific Theater. Philippines: Action limited to brisk patrols against enemy's screen. Burma: All fighting is taking place west of the Sittang River. Australasia: Japanese parachute troops have landed near Koepang, Timor. Japanese aircraft bombed Port Moresby and Salamaua in New Guinea. Allied aircraft attacked Palembang in Sumatra and it 18 reported that two Japanese vessels were sunk by air action near Macassar. Japanese aircraft raided Batavia, Bandoeng and the naval base at Soerabaja. II. Western Theater. German High Command claimed that two large British merchant ships had been damaged on the night of February 24/25 by air action. The Germans admitted that British bombers had attacked Helgoland on the same night. III. Eastern Theater. The Russiana claim successful operations in the Staraya Russa district south of Lake Ilmen. The front south of Orel appears to have been etabilized. (A situation map will not be issued this date). German High Command claimed that German planes have caused extensive damages to the Russian Naval Base at Sevastopol. IV. Middle Eastern Theater. Press reports ground situation unchanged. Minor engagements between patrols are reported 60 miles southwest of Tobruk. Air activity in forward area is restricted by local storm. Long range bombing of Malta and supply bases of both combatants continue. RESTRICTED 221 February 26, 1942 Dan Bell Secretary Morgenthau I saw the President this morning and told him that we were considering introducing a bill to raise the debt limit to $125,000,000,000, and the President said, "Okay." " 222 February 26, 1942 Present: Mr. Foley Mrs. Klotz H.M.JR: Sit down, Ed. I am just no good at this intriguing business. In these times, the war makes me sick. I will try to dictate it as well as I can remember it. I asked the President about Summer Pike. I said, "I hate to bother you with it, but I would like to know, can I have him or can I not have him?" He said, "I don't care. I just don't want any vacancy on the Board. So I said, "There has been all this discussion, and we would like to have him." He said, "I am not going to ask them to let you have him, because I don't want to put any pressure on them, but if they will write you a letter saying that you can have him, it is all right with me. Well, that left be between the devil and the deep blue sea. So I said I would go down and ask Hopkins. I said to Harry - I says, "What happened? Where do we stand?" So he said, "Well, the fact is, Pike doesn't want to go with Henderson, and the Commission doesn't want him to go with Henderson. Pike does want to go with you and the Commission are willing." So I said, "Well, can't we get it straightened out?" So I said, "Won't you please call up Sumner while I am here, which he did at once, and he spoke to Summer, and he said to Summer - not to Sumner, he called up Purcell. He said to Purcell, "I understand that Pike doesn't want to go with Henderson and have you seen Henderson since last night or has Henderson seen you?" And he said, "No." Oh, earlier Hopkins said that Henderson was putting up a big fight, you see. -2- 223 He said, "No, we haven't seen him." I can't remember all he told him, but he told him just about what I am saying, and the long and short of It was, "Well, Morgenthau says he only wants him on a temporary basis and if you will write a letter to the President saying, 'It is all right,' the President will bless it." Well, I couldn't hear what Purcell said, but Purcell must have said, "Well, I have already written a letter." So Harry says, "Well, send me a copy of it." I asked Harry to tell Purcell to send it to him so he could clear it today. So he said, "Get it over to me this morning and I will clear it." He said to me, "All the President wants to do is see the letter," and I said, "Yes, that is right." Have you heard any of this? MR. FOLEY: No, I haven't heard any of it. H.M.JR: It just happened. I was with him three- quarters of an hour. Then Harry said, "Well, I want to talk to you about something else. It concerns you. He said, "Francis Biddle and Leo Crowley were over to see me last night for twenty minutes and went through this whole thing about the Alien Property Custodian, and Biddle says that he has had more time to look at it, and he has decided he doesn't want it. He has come to the conclusion he doesn't want it, but Leo Crowley says that the President offered him this thing, and here he is, he doesn't want to work with the Treasury on this present basis, and he would kind of like to be Alien Property Custodian. In brackets, of all the double-crossing so-and-sos, he is number one. MRS. KLOTZ: You always said so. H.M.JR: I said, "Well, Harry, I think the whole thing is settled." He says, "No, Leo said - I said, 224 3- "Leo joined me in a letter to the President," and he said, Well, in the last line, Leo says there is something which says that it isn't settled." Now let me just read this letter that we sent. He said, "In the last paragraph. "This will avoid your being bothered with the multitude of individual cases and at the same time avoid any public delegation of powers pending final decision by you on the over-all administration of the Alien Property Custodian." Well, I had forgotten about that. You (Reporter) just take a letter to Mr. Hopkins. Dear Harry: Enclosed herewith find a photostat of the joint letter of Leo Crowley and myself to the President and the authority which the President signed. You see, Ed, you and I weren't smart enough. MR. FOLEY: Well, we weren't smart enough to know that a fellow that makes representations to us and then runs around and makes other representations over there. He said the President was the one that wanted to give it to OPM, and this would satisfy-H.M.JR: OEM. MR. FOLEY: OEM, and this would satisfy him. H.M.JR: So-MR. FOLEY: When he was in to see me the other day, day before yesterday, he said that it was Biddle that hadn't given up, and he was having trouble with Biddle. H.M.JR: Well, let me get this thought down. I then took the time to tell Hopkins - I said, "Here is Victor Emanuel, the left hand and the right hand. On the right hand he has got Leo Crowley now getting a hundred thousand dollars from these public utilities, and on the left hand he has got New York 225 -4 Shipsome Building, Consolidated Aircraft, Lycoming Motors, and other aircraft." MR. FOLEY: Vultee. H.M.JR: And I said, "What it really amounts to, Leo is down here more or less as his representative, and then I said, "On top of that he has now taken on Willkie at a hundred thousand dollars a year, Victor Emanuel," and I said, "My informant is Leo Crowley." And I said, "How does it look?" He said, "Why do you think the President wants this?" I said, "Well, I think he wants this. He knows about Mack, he knows about Bullitt, he knows about the board of directors and the lawyers, and he wants to be in the position that if I go ahead and clean all of this up, he doesn't know anything about it, and he can say he doesn't know anything about it. Furthermore, I am not going to sell these properties. I want to keep them for the President at the peace conference, and I am not going to have any political directors, and that is the way I am going to run it." And then I said, "We have got seven billion dollars worth of assets, and this is only a small part of the thing. We have got the organization." He says, "Well, what about this telegram from this Senator on the West Coast and this Wheeler statement and all that?" and I said, "Well, I really don't know what we are going to do about it. It is peanuts compared to trying to handle I. G. Farben, and I told him about I. G. Farben and Standard Oil of New Jersey and the rubber - the synthetic rubber. He didn't know any of that. I said, "That is the stuff I am interested in and the other stuff is just peanuts. I am interested--" MR. FOLEY: A sociological problem. H.M.JR: I said, "I am interested in cleaning out the I. G. Farben people." He said, "Well, don't you think that if Leo would write the President a letter 226 - -5 - saying that he wants to withdraw, that the President will welcome such a letter?" and I said, "Yes, I think he would." I said, "I really think the President wants us to handle it." I said, "We are sitting on a keg of dynamite. I think the Chaney thing looks like a big tea party compared to this, and I think the President wants to have us clean it up without telling him about it so that he can say he doesn't know anything about it." He said, "Well, don't you think if Leo would write the President a letter saying he wants to get out of it, because Leo is in the position that he doesn't know whether he is or he isn't?" and I said, "Well, I can understand that." " He said, "As far as Biddle is concerned, he wants to wash his hands of it. He has no longer any interest." MRS. KLOTZ: Do you remember what the President said at the press conference? H.M.JR: Yes. He said that the thing wasn't-MRS. KLOTZ: Settled. H.M.JR: So he said, "Do you think the thing is settled?" and I said, "I don't think anything in Washing- ton is ever settled. I told the press that If you do a good job, the President leaves It with you; and if you do a bad job, he takes it away from you, and I said, "That is the way it should be. This fellow Leo, you see--" MRS. KLOTZ: He is a swine. He really is. MR. FOLEY: Yes. He never says what he thinks. H.M.JR: Do you remember Papa? MR. FOLEY: I know, you have had him sized up right along. this. MRS. KLOTZ: Well, Mr. Morgenthau went through all 227 -6H.M.JR: I want you to think it over, because I am not feeling well. You think it over, and if you want to talk - should I send for Leo, you see, and face him with this thing? MR. FOLEY: Yes. H.M.JR: And say, "Now, Leo, what does all this mean now? Hopkins says Biddle isn't interested. Are you or aren't you? Because I just haven't got time. I want to know where you stand versus me, see. I want to know. I mean, do you want to be Alien Property Custodian or don't you?" And the interesting thing, Hopkins said, "I don't believe anybody should be doing any of these jobs and getting salaries from outside sources." He says, "I don't think anybody should have anything to do with this." Am I right on that second fifty? Is he getting a second fifty? I said so. MR. FOLEY: That is my understanding, yes. H.M.JR: Isn't this a despicable thing? MR. FOLEY: That wouldn't turn up, you see, until he files his return this year, but Gene Duffield told me that he is getting an additional fifty thousand as president of the Philadelphia Company, which is one of the operating companies of the Standard Gas chain. H.M.JR: But think it over, because I have got to go on with my statement now. I have just got to work on my statement for Tuesday, but think it over, should I send for this fellow Leo? MR. FOLEY: All right. McConnell will do this if you want him to. He says if you can't get anybody else-- H.M.JR: But don't let him go to Mexico then. MR. FOLEY: No, he is not going to Mexico. H.M.JR: Well, we will hear today. 228 -7MR. FOLEY: Yes, and he will be all right on the Germans. H.M.JR: Well, we ought to hear today about Summer Pike. MR. FOLEY: I had three talks with him on the phone. He is not going to go to Mexico, and he will be back here probably on Monday to finish up what he was doing down there for three or four days. H.M.JR: Where? MR. FOLEY: He is in Houston, Texas. H.M.JR: Oh, he will be here Monday? MR. FOLEY: If we want him. H.M.JR: But this constant thing, I would like it settled and announced. I said, "Harry, this isn't a matter of life and death with me, but I would like to have it settled, too." I just want Leo - my own feeling is, I want to send for Leo and look him right in the eye and tell him that this is what Hopkins told me. MR. FOLEY: Well, I think that is the only way you are going to get it settled, and ask him. H.M.JR: And tell Leo, "Now, as I understand it, Hopkins is going to ask you to write the President." Well, I won't even say that. him. MRS. KLOTZ: Oh, I wouldn't do it. I wouldn't see MR. FOLEY: You wouldn't? MRS. KLOTZ: What have you got-- H.M.JR: I will tell you what you gain by it. Leo 229 -8 Crowley is in this town, and he can't afford to make an enemy of the Secretary of the Treasury, in his position. MR. FOLEY: That is right. H.M.JR: He can not afford to make an enemy of me. MRS. KLOTZ: But he already has. MR. FOLEY: No he hasn't. H.M.JR: Not on the surface. He hasn't, you see. I want him to know that I know of this meeting and that Francis Biddle said he doesn't want it, and it is just down to what Leo Crowley wants. I am going to say, "Leo, what do you want? Do you want it or don't you? Well, if you don't want it, why don't you write the President that you don't want it?" MR. FOLEY: That is right. He said it. He said to me that he didn't want it. H.M.JR: Well, you sleep on it, and after two 'clock I will talk to you about it. Now, he can't look me in the eye. He never could look me in the eye, you see; and I will say this to him, and if he knows he is making an enemy - he can't say the President asked him to do this and all that. He has come now and asked Hopkins to help him get this thing, and I want him to know that I know it. MRS. KLOTZ: Well, everybody works differently. I wouldn't see the man under any circumstances. H.M.JR: I think you are wrong. MRS. KLOTZ: I may be wrong, but I still wouldn't see him. H.M.JR: I think you are wrong because the man has a guilty conscience and he can't face me. - 10 - 230 MR. FOLEY: Well, he already -- MRS. KLOTZ: I wouldn't stoop to talk to him about it any more. He knows where you stand. He is such a H.M.JR: Well, Mrs. Klotz, he is all of that, and I know it, and he knows that I know it. The man - as I say, he can't in his position - what he is trying to do here is this fellow which, I think if you took the lid off, you see, here is a man getting a hundred thousand dollars from Victor Emanuel that has over a billion dollars worth of contracts. Have somebody add up what those three or four companies' contracts amount to. MR. FOLEY: All right. MRS. KLOTZ: Don't you get the feeling that you are begging him? H.M.JR: Oh, no. Oh, you have never seen him in here. No, I am not begging. I am under no obligation. I just want to face him with it. I just want to face him with this thing. I just want to say, "Leo, I can't understand you. I just can't understand you." MR. FOLEY: No, I don't think he is in that position at all. He says, "You signed this letter. You have talked to Foley, you have talked with me, and I understand that you are not interested, and all you want to do is to be consulted on these things from time to time, which we are doing." MRS. KLOTZ: Well, supposing he says, "All right, I will write the President a letter," and then he goes to Hopkins and says, "I don't want to write a letter," what do you prefit by it? H.M.JR: Oh, a lot. If he writes a letter, "Please release me of that--" MRS. KLOTZ: But he won't. H.M.JR: He may. 231 - 11 MR. FOLEY: He may write the letter now that the Secretary knows all the background. H.M.JR: And once he does, Hopkins is going to grab it, because Hopkins was very sincere this morning, and he said, "I don't believe anybody getting an outside salary should be doing this kind of thing, and, after all, it is Hopkins' job to look after the President just as it is mine, and he got this stuff, the Victor Emanuel stuff, and he got the John Mack stuff. When I told him John Mack said the President - he said, "Well, the President didn't know about the salary," and I said, "I am sure he didn't.' When I told him about the two hundred fifty dollar fees and all that. I said, "If the Presi- dent - " he said, "What do you think - I said, "The President wants me to clean this up without is knowing anything about it so he can shrug his shoulders, but he wants it cleaned up." I personally am ninety-nine - well, I have made up my mind, ninety percent, but I will give you a chance to argue with me after lunch, that the thing to do-MR. FOLEY: Oh, I agree with you. I think you ought to send for him. H.M.JR: Let's do it now. This is something-MRS. KLOTZ: Oh, everybody does things differently. H.M.JR: This goes back for ten years. MR. FOLEY: That must be what Jimmie Burns meant when I said, "Well, I think you had better get a proper, formal Executive Order as soon as the opportunity presents itself so that it would be settled, because this is no good having this confusion." You see, Perlmeter goes to the Secretary's press conference, and he thinks it is settled, and then he runs over to Leo Crowley, and Crowley tells him it was only for General Aniline and Film, and then he goes to the President, and the President says, "We are still 12 - 232 studying it, but there is nothing on that right now, and then that confusion still exists, and-- H.M.JR: Well, if he does this, then I will get the President to sign a regular order after that. MR. FOLEY: Yes, that is right. MRS. KLOTZ: That is what he should have done in the first place. H.M.JR: Well, we took this-MR. FOLEY: We took him at his word, Mrs. Klotz, that is the trouble. MRS. KLOTZ: Leo Crowley's word? MR. FOLEY: Sure. And the day before yesterday he came over to see me, and he approved everything and looked everything over and gave some advice and wanted to know how Bill Myers stood and wouldn't he be a good fellow to do General Aniline and Film and all that, and he said, "Do you think this is really settled, Eddie?" I said, "I really think so now that the President has authorized the publication of the order. I think it is settled.' "Well," he said, "I think so too, and I intended it to be so, but I am having a little trouble with Biddle, and Biddle doesn't seem to want to give up. I made up my mind I don't want to have anything to do with them over there, and I have told them that, but Biddle keeps pushing me forward into this thing." H.M.JR: Incidentally, as long as they have brought it to Hopkins' attention, I don't know what this whole West Coast thing is, but you had better clean it up one way or the other. MR. FOLEY: Well, I have got a telegram here, Mr. Secretary. It is a very, very nasty job that everybody is running away from, but it really is essentially a relief job. It has nothing to do with alien property custodianship, as we envisage it, which is economic warfare. 233 - 13 - I have got a telegram here, if you want to read it. (Telegram dated February 23, 1942.) H.M.JR: That is O.K. In my letter to Hopkins, put in this paragraph. Dear Harry: I am sending you herewith a copy of a telegram from Congressman John H. Tolan. I am also sending you a copy of my answer to him. After you have read the same, I would very much like to have your advice in view of your very extensive experience along these exact lines. MR. FOLEY: It is a relief problem. It is the same problem. In the Dust Bowl, when a lot of families have to move out-- Will I send this? H.M.JR: Let it go. MR. FOLEY: And then I think we cught to prepare letters for your signature to Eccles and Knox and all the others. H.M.JR: And Biddle. MR. FOLEY: Everybody that got copies. H.M.JR: And State. MR. FOLEY: And McNutt. H.M.JR: And State. a MR. FOLEY: Everybody is in it. It is essentially relief problem. It is the relief of these people that have been moved out of their places. 234 February 26, 1942 Roy Blough Secretary Morgenthau Please give very serious consideration to making a study showing how much indirect taxes a single person making $750 and a married couple making $1500 would have to pay on cigarettes, liquor, etc. This is very important, and I would like to have it by Tuesday or earlier. 3/2- Blough has prepared above, 235 February 26, 1942 Dan Bell Secretary Morgenthau When I go up on the Hill Tuesday, if I am questioned about economy - which I will be by Doughton - I want to use my statement which gave my recommendations to the Byrd Committee. I would like to know before Tuesday If any of my recommendations have been carried out. If they haven't, I want to rub their noses in my statement and stick by that. 3/2/42-Bill says he has taken Case of above, TO: Mrs. McHugh 236 The passage on economy was put into the Secretary's statement as he suggested. MR. KUHN 237 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 26, 1942 TO Ferdinand Kuhn, Jr. FROM Secretary Morgenthau I don't think there is anything in my statement for Tuesday on economy, and I think we should have something because Doughton certainly will go after me about it. Please talk to Dan Bell about it and find out what he thinks should be put in the statement. Please let Bell, White, Viner, and Haas see my Tuesday's statement at the earliest possible moment. 238 February 26, 1942 11:50 a.m. TAX STATEMENT Present: Mr. Blough Mr. Tarleau Mr. Kuhn Mr. Paul Mrs. Klotz H.M.JR: Now, where are we on this statement, please? Where do we stand on it? On the statement? MR. KUHN: We have the draft here which is going to need a lot of changing, which I am working on today and tonight. We haven't-- H.M.JR: Have you got the philosophy part, before you get into the tax part? MR. KUHN: Well, the philosophy part I think is good. H.M.JR: Can you read it to me? MR. KUHN: "I am here to offer my suggestions as to our first revenue act of the war. I hardly need emphasize the seriousness of the occasion. The task before us is to decide how this desperately serious war is to be financed and how its cost is to be distributed. Economic and social conditions during and after the war will depend to a large degree upon the courage and wisdom with which we attack these problems now. "To defeat the strangest combination of enemies in our history, we shall have to spend on a scale for which there is no precedent.' " 239 2- H.M.JR: I don't think that statement of what we do now is going to affect what we do after the war, do you believe so? MR. KUHN: Oh, yes. MR. TARLEAU: Yes, I think so. MR. PAUL: That is no exaggeration. H.M.JR: Isn't it? MR. KUHN: It is true. MR. PAUL: It is a very mild statement. H.M.JR: All right, go ahead. MR. KUHN: "To defeat the strangest combination of enemies in our history, we shall have to spend on a scale for which there is no precedent. The President has announced a program involving war expenditures of $52.8 billion in the fiscal year 1943. If we are to furnish the weapons to the men who are doing the fighting, we shall have to mobilize every possible dollar of our income. The President's Budget Message calls for an additional $7 billion in addition to a Social Security Program of $2 billion. This will leave $ billion to be borrowed. In so far as is possible this borrowing will be from the income and savings of the great mass of our people." " Then it goes on to talk about the principles that should guide us, and I think that is where-MR. PAUL: That is the part that we agreed to rewrite. MR. KUHN: That is the part that needs changing because the overriding principle is to frame taxes so that they will help win the war. Isn't that so? H.M.JR: Yes. Well, I would put it a little bit 240 -3- differently. thing applies. I said in discussing mustingThe withsame the English take second place to guns. In other words, the whole question of the Treasury takes a second place to War OF Navy, the needs of the Army and the Havy, MR. PAUL: You can't buy victory with dollars. H.M.JR: No, I mean that isn't as important. I mean, three years ago I would have said we were the most im- portant. Now I say we are third. MR. KUHN: But you do believe that taxes have got to facilitate the maximum production of war materials. You tax the things which compete with our war output. H.M.JR: That is all right. It is meaningless, but it is all right. MR. BLOUGH: Well, put it the other way. You certainly don't want to have a tax or financial program that will interfere. H.M.JR: That is all right, but the other thing is meaningless, because the only way to handle the thing is through rationing. You can put a two-cent tax on sugar, and you are not going to conserve sugar. That is what I mean. You have got to have sugar rationing cards. You can put all the tax in the world on tires, and it isn't going to conserve tires or gasoline. We are beyond that stage. The only way you can handle that thing is through rationing. I mean, it is the idea that this fellow last night - he told me he just came back from Berlin, Shea. He is anti-Nazi 8.8 anybody could meet, but he said - this is a very interesting story. He is a broadcaster, NBC. MR. KUHN: Dryer. H.M.JR: Yes, Dryer. He gave this as an illustra- tion. He said there was & potato crop, and they had no place to store them, and they were afraid they were going to freeze, so they had to move them in heated cars. So over night the word went out, "All third passenger traffic 241 -4 will be stopped," and they loaded the potatoesin the third class passenger cars and moved the potatoes to where they could take care of them; and, after the potatoes were moved, then the passengers could get on again. But I mean this thing that these boys have been playing with was all right three or four months ago, but it is passe now. You can not control the use of luxuries through taxes. MR. BLOUGH: We have never believed very strongly in that anyway, Mr. Secretary. MR. PAUL: We have got a statement here that it is only part of an integrated program. H.M.JR: That is all right. But they have got their taxes down anyway to about a dozen things. They have got it on liquor and wine. MR. PAUL: That is on top of the taxes we now have. MR. BLOUGH: The taxes on incomes do that, too. H.M.JR: But I want him to know how I feel so he doesn't go out on the end of a limb. I mean, taxes to control consumption -if Mrs. Klotz wants to buy something for her household, she is going to do what everybody else does, she is going to continue to buy what she needs from week to week, and if they put a tax on soap or if they put a tax on canned goods, she still is going to buy what she needs, but if she is given a card, you can only buy so many cakes of soap and you can only buy so much sugar, she is going to buy that and live within the law. Is that right? MRS. KLOTZ: Yes. H.M.JR: So I mean, the tax on the soap or the tax on the other things isn't going to change it, and I just want to let you know how I feel. I don't know whether these fellows - where they stand. MR. TARLEAU: That is right. 242 5- MR. BLOUGH: We agree with that. MR. PAUL: "All these controls are interrelated. The devices of price control, allocation, and rationing will be more effective if taxes and savings are increased." of MR. KUHN: But that applies to inflation and not to war materials. H.M.JR: Do you know what they did to me last night? MRS. KLOTZ: No. H.M.JR: It was at five minutes of five they walked in here to give me the works, everybody, this crowd plus Viner plus-- MR. PAUL: Oh, we had a moderate sized army. You brought in the rest to help you. H.M.JR: Haas, White, everybody. And everybody was against me on lowering the exemptions below seven hundred fifty dollars. A uniform army. I thought some place I would get - I said, it has gotten down to the place I can get all my New Dealers in the bathtub now. MRS. KLOTZ: How did it come out? You didn't know you had an army. H.M.JR: Right. (Laughter) And how we kidded Harry. Harry said, "I need two hours to justify my position." He says, "I can justify it either way. Isn't that what he said? But he said, "I need two hours." All right. MR. KUHN: Now, after this statement talks about-- H.M.JR: You ought to see. I left here a little after six with a beautiful headache. MRS. KLOTZ: It was awful. 243 6- MR. PAUL: We left about ten-thirty. MRS. KLOTZ: Without a headache. MR. TARLEAU: We had a headache, too. H.M.JR: But you didn't have fifteen to one. MR. PAUL: You gave us a headache. H.M.JR: Good. I don't mean that. MR. KUHN: After this statement talks about winning the war, it goes on into another paragraph that I question, because I think it is apologetic, and I want to try it out on you. "On the other hand, it is important to the war effort to maintain a high standard of morale in civilian life. Still another consideration is that the readjustment after the war should not be made unnecessarily difficult. We must never forget that our first task is to win the war, but we must also remember that new prob- lems will face us at the end of the war." Now, my feeling is that is just on the one hand and-H.M.JR: Now, Ferdie, I am not interested in any statements about after the war. I would cut them all out. As I said, you have got - this man talked about totalitarian Germans. We have got to concentrate - we should tell the Germans how nice we are going to be to them, see. I said, "How can you get people up to the point that they are going to kill somebody and tell them how nice you are going to be to them after the war." I mean, you can't - the two things don't go hand in hand. If you are going to say, "Now, we are going to treat you lovely--" MR. PAUL: That is right. I agree-H.M.JR: I am not interested in statements of after the war. 244 7 MR. PAUL: These are our problems, not the Germans. H.M.JR: but I mean, I am not interested in stuff after the war. PAUL: That is what we are doing, Mr. Morgenthau, with MR. that ten percent. H.M.JR: That is a domestic - that is domestic. MR. PAUL: Well, that is what we mean. H.M.JR: That is domestic. MR. PAUL: You mean our problems? MR. KUHN: I just feel it is wrong, Randolph, in this context. MR. PAUL: I agree with you, Ferdie. I want to register a disagreement with the fact that we shouldn't be interested in our problems after the war. I don't care how we talk about the Germans. H.M.JR: We are talking about two separate things. I am talking about international problems. MR. PAUL: Well, I agree completely with your-MR. BLOUGH: We had that in mind and that is the interpretation - if it is, it should be changed. H.M.JR: I don't know what is in the statement. I am trying to give Kuhn my philosophy which I think he has got anyway. That is all right. I am really not arguing. MR. PAUL: I just want to put up these arguments so we talk it out, but I think Kuhn and I are in agreement. I think that is too apologetic. H.M.JR: That isn't his right name. His name is McKuhn. (Laughter) MR. KUHN: The Secretary called up and said, "Mr. 245 -8McKuhn? Mr. McMorgenthau speaking." Mrs. Klotz started that one yesterday. MRS. KLOTZ: I wanted to call you both, you and Mr. McHugh, and I got the two of you confused. MR. KUHN: And Mr. O'Blough. H.M.JR: I am short on time, so go ahead. MR. KUHN: Mr. Secretary, the next section here is on inflation, but that is a problem that is intimately associated with the need for revenue. It goes on to repeat many of the things from your Boston speech about-H.M.JR: Good. MR. KUHN: inflation being a source of grave social injustice. MR. PAUL: It is very much in the same language as that budget message. MR. KUHN: It is the thing that was in the budget message, and it is all right, I think. H.M.JR: Can I lend you this chart, if you will promise to give it back to me, because I need it? Here is the latest chart showing the way food is absolutely following-- MR. KUHN: Paralleling-H.M.JR: the war. It is just going right along the same thing. Do you want it? MR. KUHN: I don't know whether it belongs in here. H.M.JR: Well, I am just giving it to you. It is interesting. MR. KUHN: I would like to see it. 246 -9H.M.JR: All right. MR. KUHN: Then there is a new section in here. The way to prevent inflation is to prevent people from engaging in a futile effort to buy more goods than can be produced. This requires, first of all, the steady cooperation of every man and woman. It also requires a comprehensive and integrated program of anti-Inflationary measures in which increased taxes and increased savings are essential parts. Price control, allocation, ration- ing, and the regulation of consumer credit are other parts of such an integrated program." That is all perfectly all right. H.M.JR: That is all r. ght. MR. KUHN: Then it goes on to say that all these controls are interrelated. "These devices of price control, allocation, and rationing will be more effective if taxes and savings are increased. Similarly, the effectiveness of the fiscal devices in preventing inflation will be greater if price and commodity controls are used." "Although increased taxes cannot by themselves solve the inflation problem, a much larger volume of tax revenue- H.M.JR: Excuse me. I think I used in Boston that the cost of living - if it went up so much that would be so much additional cost. MR. KUHN: It would be a tax on everybody. H.M.JR: Do you remember that? MR. KUHN: Yes, I remember it. It was in the budget message, too. H.M.JR: It is a good line. MR. KUHN: "Although increased taxes cannot by themselves solve the inflation problem, a much larger volume of tax revenue is necessary than will be collected from our 247 - 10 - existing tax system. My purpose today is to indicate the tax program which the Administration believes should be adopted at this critical time." H.M.JR: You have got nothing in there on - that I wrote you this morning-MR. KUHN: Economy? H.M.JR: Economy. MR. KUHN: No. H.M.JR: Well, you had better put it in because when I get right through, the first thing Doughton is going to talk about is about economy, so I might just as well hold my nose and say something. I have got Bell checking my recommendations for the billion dollars savings to see whether any of it has been done, so when Doughton - that is the first thing he will go after me on. I will say, "Now, Mr. Doughton, here are the recommendations I made to you gentlemen in Joint Committee on such and such a date, and there isn't one God damn thing you have done about it." I am having Bell check it. So I will say, "Don't talk about economy to me." I will be polite. MR. KUHN: That is true. You wanted economies on rivers and harbors and things of that kind. They wanted economies on WPA and NYA and on the little people. H.M.JR: That is right. But I mean, it is - from my memorandum, as far as I know, there is not a single thing that they have done, and I showed them where they could save about a billion dollars. I want a little something, about a paragraph, and I don't know but which what you could pick up something out of that statement I gave to the Byrd Committee, and I am having Bell check it to see whether a single thing has been done, because Byrd writes me a letter yesterday with an inventory, have we got any art advisers, how many automobiles do we use? This kind of little picayune stuff. MR. KUHN: Byrd is getting after our bond thing? 248 - 11 - H.M.JR: It isn't ours. It went to all Departments. MR. KUHN: Oh! H.M.JR: It went to all Departments. Is that all that you have got? MR. KUHN: No, one question I wanted to ask you. H.M.JR: Don't forget the economy. Am I not right? MR. TARLEAU: That is a very good point to forestall it and put it in the best light that we can before he asks. H.M.JR: And refer to my statement, you see, and say, "Gentlemen, you know that on such and such a date I made these recommendations, and I am very sorry to say that so far none of them have been carried out, and I still think that they are good, and I still think that they can be carried out," something like that. Get Bell to help you. MR. KUHN: Well, I have your statement, and I know the things you recommended. H.M.JR: Yes. But he is checking. MR. KUHN: One question about the body of the speech, and then I would like to read you three paragraphs of the conclusion, if you have time. H.M.JR: O.K. MR. KUHN: In this draft there is a great deal of space devoted to loopholes, and the loopholes are the first thing that you bring up. Now, my feeling was that you might want to do that in accordance with your idea that you wanted to get the loopholes removed first before you ask for anything else, but I think it is much more effective as a statement if you sail right into the individual income tax, corporation taxes, and so on, and 249 - 12 - then finish up with loopholes which, after all, are small stuff compared with the rest of it. H.M.JR: Well, the way we had it on the statement we gave to the President this morning, that ought to look pretty good, the way we had it this morning. MR. PAUL: We changed it there for that very reason. H.M.JR: The way we had it there is good. I would go along with you on that as long as Paul agrees. MR. KUHN: O.K. That is right, that is what I meant. And then I think at the end-MR. PAUL: We changed it last night. Two minds with but a single thought there. H.M.JR: You sound like a couple of turtle doves. MR. KUHN: I think at the end of each section in your statement to Ways and Means, you ought to do what you did at Cleveland, and tell how much revenue this will produce. MR. PAUL: That is easy. MR. KUHN: Just clinch it at the end of each section, and then turn to corporation profits. H.M.JR: Good. MR. KUHN: At the end there are three paragraphs. "I should like to end my recommendations with a further plea as to their importance as part of our war effort. Your task is the hardest any Congress has ever faced. The consequences of failure are staggering. But--on the happier side--if our war financing is wisely done, war production will be encouraged, inflation will be curbed, public morale will be improved, and our 250 - 13 - economic world after the war will be in a better position to meet the inevitable problems following victory." "The economic world" means our own will be better able to face. "Such objectives cannot be painlessly accomplished. There must be temporary dislocation, hardship, and sacrifice. But I feel certain--' H.M.JR: No sweat? MR. KUHN: Not this time. (Laughter) I will put it in if you want. H.M.JR: All right. What, no sweat? MR. KUHN: Harry White, last week, didn't like sweat. He said it is getting so trite, and I said, "Well, we will put in perspire." "There must be temporary dislocation, hardship, and sacrifice. But I feel certain that we will all rise to the challenge presented to us. Taxes have been described by a great American as 'the cost of living in a civilized society.' It will be our privilege to pay that cost cheerfully. "This is the spirit in which the American people will want to approach the problem of financing the war." H.M.JR: At first blush, it is all right. MR. PAUL: Do you think it is all right, Ferdie? MR. KUHN: I think it is all right. I think it can be strengthened a little bit. in general it is O.K. H.M.JR: Is it you? MR. PAUL: We got by with that non-technical stuff. H.M.JR: Oh, you got by with murder this morning. 251 - 14 - He goes in and in twenty minutes he sells an eight billion dollar tax bill to the President and gets his blessing. That is a good day's work. You can go nome and get tight on that one. MR. PAUL: Well, I would like to get tight sometime pretty soon. H.M.JR: It is too early. MR. KUHN: Tuesday night, Randolph. H.M.JR: You have got about six months to wait. MR. PAUL: Well, I am not sure I can stand it any more anyway. I can't take it. H.M.JR: What, being sober? MR. PAUL: No, being tight. H.M.JR: Now listen, young fellow (Kuhn), I am supposed to have a statement to show Mr. Doughton tomorrow morning. MR. KUHN: I am ready tonight. I mean, I am working tonight as well as today, so I am all clear on it. H.M.JR: Well, am I going to see it tonight? it. MR. KUHN: Some of it. I will try to get all of H.M.JR: Well, I am home tonight. Here is my schedule. I thought we would show the statement to Doughton. That was my idea for tomorrow morning. MR. KUHN: What time? H.M.JR: Nine-fifteen. But I am going to leave sometime, depending upon the President. I feel it is my duty to be in Dutchess County when he is there, and 252 - 15 he is leaving tomorrow afternoon not to return until Tuesday morning, so if the thing isn't finished, somebody is going to it. have to follow me up to the farm on Saturday and finish MR. PAUL: In other words, you are going up tomorrow afternoon? H.M.JR: Yes, come hell or high water. MR. BLOUGH: Tomorrow? H.M.JR: It is Friday, yes. And the statement has to be finished Saturday night, so whoever is going to come will have to follow me. MR. KUHN: Well, I am ready to work on it, and I think - there is not a great deal to be done. H.M.JR: Yes, but I won't have much time tomorrow, because Doughton is always good for two hours. MR. PAUL: He is going to put up the joint return problem to you tomorrow. H.M.JR: Well, if you fellows just have in mind I am leaving whenever I can for the farm tomorrow after- noon, and, if necessary, I will work Saturday. I mean, I don't want you up there Saturday. MR. PAUL: We don't want to go up either. I would like to get a day off. MR. TARLEAU: Aren't we in pretty good shape? MR. PAUL: I think we can finish it today. H.M.JR: You can have Sunday and Monday off. You can have two days off. Seriously. over. MR. PAUL: Well, I have got a lot of things to go 253 - 16 H.M.JR: You can have Sunday and Monday to yourself uninterrupted by me. Well, I am available tonight. MR. KUHN: All right. H.M.JR:- So whenever you fellows are ready, the sooner the better. MR. PAUL: Well, I think, Ferdie, we can't tell. I think we can finish it. MR. KUHN: I would like to, and I would like to have something to bring you-- MR. PAUL: You won't have any trouble with us. MR. BLOUGH: There has to be some redrafting of the body, too. MR. TARLEAU: Yes, there are some changes in policy. MR. PAUL: About that bank, for instance. MR. TARLEAU: Yes, there are some policy changes. H.M.JR: Well, I have - here are my appointments. I am busy from three to three-thirty. You could see me at four if you wanted to, but I won't be very good. MR. KUHN: I would rather see you at eight or eighty-thirty. H.M.JR: I will be in good shape at eight-thirty. MR. KUHN: I would live to try for that anyway. H.M.JR: I will be in good shape at eight-thirty. I will be good for about an hour. All right, class is dismissed. 254 DRAFT "A" 255 18 February 10, 1942 Statement by secretary Morgenthau before the Ways and Means Committee 1. Introduction I am here to offer my suggestions as to our first revenue act of the war. I hardly need emphasize the seriousness of the occasion. The task before us is to decide how this war is to be financed and how its cost is to be distributed. Economic and social conditions during and after the war will depend to a large degree upon the courage and wisdom with which we attack these problems victory in this war will demand expenditures on a scale for which there is no precedent. The President has announced a program involving war expenditures of $52.0 billion in the fiscal year 1943. If we are to furnish the weapons to the mon who are doing the fighting, we shall have to mobilize every possible dollar of our income. The President's Budget Vessage calls for an additional $7 billion in addition to a Social Security Program of $2 billion. This will 256 -2leave $ billion to be borrowed. In so far as is possible this borrowing will be from the income and savings of the great mass of our people. In the development of our program for financing the war, several principles should guide us. The first will be to facilitate the maximum production of war materials. This will mean that our usual ways of living will be drastically affected. To should not hesitate to change our ways of living in any way that helps the war effort. un the other hand, it is important to the war offort to maintain a high standard of morale in civilian life. Still another consideration is that the readjustment after the war should not be made unnecessarily difficult. We must never forget that our first task is to win the war, but we must also remember that new prob- lens will face us at the end of the war. AS we assemble for the consideration of the 1942 tax bill we are confronted with an economic problem which is intimately associated with the need of revenue. I refer, of course, to the grave threat of inflation. In war time money incomes are high due to full employ- ment at high wages, while the quantity of civilian -3 - 257 goods available for purchase is not enlarged, and in general is actually diminished. Unless effective preventive measures are taken there will result E. rapid general increase in prices. while moderate price rises may stimulate production when resources are partially unused, & substantial price rise would be an unqualified evil at L time when we are approaching full utilization of our productive resources. An inflationary price rise is a source of grave social injustice. It undermines mortle and 1 pedes war production. The hardships of inflation strike at random without consideration of equity or ability. once it has acquired momentum, inflation is extresely difficult to control, and it will letve a heritage of post-war difficulties that will have t as for decades. Every consideration of national welfare calls for its prevention. The way to prevent inflation is to provent people from engaging in the rutile effort to buy more oods then CEN be produced. This requires a comprehensive and integrated progres of anti-inflationery measures, in which increased taxes and Increased savings are essential parts. Price control, allocations, 4- 258 rationing, and the regulation of consumer credit are other parts of such an integrated program. All these controls are interrelated. The devices of price control, allocation, and rationing will be more effective 11 taxes and savings are increased. Similarly, the effectiveness of the fiscal devices in preventing inflation will be greater 1f price and commodity controls are used. Although increased taxes cannot by themselves solve the inflation problem, a much larger volume of tax revenue is necessary than will be collected from our existing tax system. My purpose today is to indicate the tax program which the Administration becritical lieves should be adopted at this time for the best interest of the country in the light of the considere tions I have mentioned, A IF Volume of Revenue A.II Objectives of Tax Bill In reaching the conclusion that the tax bill should raise $7 billion of additional revenue, I have had in mind the fact that the social security program should be expanded both as to coverage and as to -5- 259 protection, and that increased taxes and contributions for this purpose should be increased by approximately $2 Million a year. I am not making any recommendations with regard to social security taxation or benefor fits in connection with this bill, but changes of the magnitude indicated should be kept in mind in planning the tax program. B. Restraint of Inflation The tax recommendations which will be presented have been framed also to promoto the objective of curbing inflation as well as raising revenue. I have already indicated the menace of inflation and the manner in which taxes contribute to its restraint. The most effective anti-inflationary taxes are those which bear most directly on consumers' purchasing power. Since mass purchasing power is very largely in the low incomes, it 18 necessary to place heavier burdens on such incomes than would be justifiable If there wore no inflationary danger. The increased collections for social security taxes will also serve an ant1-inflationary purpose. 260 C. ADIZITY PAY In his recent Budget Message the President said that "progressive taxes are the backbone of the Federal tax system." Although the financing of the war requires taxes upon lower income levels to help in restraining inflation, we must not lose sight of the basic principle of our tax system, namely, that taxes should be fair and nondiscriminatory and imposed in accordance with ability to pay. Taxation according to ability to pay leads me to recommend increases in taxes upon higher levels of in- come as well as lower levels. Another corollary of the principle of ability to pay is that special privileges in our tax laws should be removed. Another 18 that taxes not capable of being adjusted to differences in income or family responsibilities, such as general sales taxes, should be avoided. Finally, it is an essential of taxation according to ability to pay that undue profits should be recaptured wherever they occur. It is not necessary to allow unreasonable profits in order to secure maximum production with economical business management. Under conditions of a war time -7 - 261 economy the country cannot tolerate the retention of undue profits. III. Tax Recommendations A. Removal of Special Privileges There are in our tax system certain provisions which grant to relatively few of our people special advantages and privileges at the expense of the great mass who must pay what 16 thereby lost. I am unwilling to ask the great mass of the taxpayers of the United States to pay billions of dollars of additional revenues until these defects have been removed from the tax laws. They are bad enough in time of peace--they are completely inexcusable in time of war. An important example of such a privilege 18 presented by tax exempt securities. Every element in our population should bear its fair share of the burdens which war imposes. Through tax exempt securities, however, persons with large taxpaying ability find themselves in a sheltered position. For the most part they did not buy these securities at prices reflecting to any significant extent the great privilege of escape from war time burdens and surely the States did not offer the securities on any such basis. The holders -8- 262 of tax exempt securities are obtaining what are essen- tially windfall profits in a time of national sacrifics. For a long time Presidents, Secretaries of the Treasury, and Congressional Committees have recontended the elimination of the tax exemption of interest on future Government securities. Last year the Congress, at my recommendation, removed the exemption on interest from future issues of Federal securities. No action has been taken with respect to the interest on future or outstanding State and local securities. In times of peace, when the strain on other elements in the population was not so heavy, the gradual elimination of tax exemption through imposing taxes only on future issues had much to recommend it, but the national emergency of war makes this gradual approach unacceptable. I therefore recommend the repeal of the present exemption applicable to outstanding issues of State and local ⑉ curities. Unfortunately, tax exemption clauses appear in many of the outstanding issues of Federal securities and these prontees must not be violated. In the case of State and local securities, however, there has never been any contract or moral commitment between -9- 263 the Federal Government and the security holders or the local governmental authorities regarding Federal taxation. It is true that some representations have been made in good faith by these governmental authori- ties on the strength of a mistaken interpretation of the Constitution. However, since the Supreme Court decision in the case of Graves V. O'Keefe in 1939 fair minded experts in constitutional law have had no doubt of the Federal power and moral right to tax the income from State and municipal securities. Federal tax policy has never been static; new taxes and higher rates have always been adopted when necessary. Such changes, as well as the possibility of new interpretations of the Constitution, have always been an unavoidable risk of those subject to our laws. Where this involves special hardships in particular cases, I would recommend that effort be made to devise relief measures designed to alleviate the situation. tax system cannot be defended which in a time of grave national emergency calls upon the great mass of our texpayers to shoulder the heavy burden of additional taxes and yet permits persons with large taxpaying ability to pay virtually nothing in taxes. The - 10 sacrifices necessary to win a war for the benefit of all of us should be shared by all of us--including the holders of tax exempt securities. The President said in his Budget Message, "When so many Americans are contributing in their energies and even their lives to the Nation's great task, I am confident that all Americans will be proud to contribute their utmost in taxes." I should feel remiss in duty if I did not recommend the elimination of an exemption which prevents all Americans from contributing their utmost. 2. Percentage depletion. A second example of special privilege is the allowance for depletion. At the present time the owners of mines and oil wells are allowed to deduct so-called percentage depletion or cost depletion, whichever is higher. Percentage depletion consists of a certain percentage (27-1/2% in the case of persons having an economic interest in oil and gas properties) of gross income, the deduction being limited to 50 percent of the net income from the property. Under this arrangement percentage depletion goes on after 100 percent of the cost is recovered and say substantially exceed depletion based on cost. 264 265 - 11 In 2937 the President and the Treasury recommended the elimination of percentage depletion, but as action was then taken. The war has intensified the necessity of the elimination of any such special favor to one group of taxpayers. One of the reasons asserted in behalf of percentage depletion is that 18 stimulates expleration for new mineral properties. If this is a proper objective, it would be better achieved by a special allowance depletion to these who do explore for new minerals without indiscriminate extension or the same favor to all owners. At the convenience of the Committee, we shall place before it a plan directed to this purpose. So far as other minerals are concerned, it is believed that an adequate stimulus for exploration would remain if the percentages allowable for depletion purposes were substantially reduced. 3. Joint returns. A third example of special favoritism in the tax laws is the option allowed married couples to file separate income tax returns. This permission has little or no significance for most taxpayers since at the present time married couples with incomes of up to $3,500 (the amount is higher in the case of married couples with dependents) pay the same total tax 266 - 12 whether they file joint returns or separate returns. It may dake a great deal of difference in tax, however, in the case of married couples with large incomes, especially if the income is more or less evenly divided between husband and wife. This difference in tax is unwarranted since in actual operation the family is the economic unit. Two families with the same total income will usually manage and dispose of that income in a similar fashion, regardless of whether the income is received by only one spouse or is received by both spouses. One difference may be noted--that when both spouses work, the expenses of the family ordinarily are higher than when only the husband works, since the services of the wife in the home must be replaced by hired help. The adoption of mandatory Joint returns would remove this tax differential and would also eliminate two specific kinds of tax avoidance which are present under existing law. The first is the tyeatment of community income in the so-salled community property states. In the non-community property states the income is taxable to the spouse who earns 18. In the commity property states, however, the husband who earns the 267 - 13 income may for tax purposes attribute half the earnings to his wife, although he retains the management and control of all the earnings. The result is that married couples in community property states receive a very substantial tax advantage over those living in other states. This advantage would be removed if Joint returns were made mandatory. A second source of tax avoidance which would be eliminated by mandatory joint returns is the possibility of manipulating incomes within families. For example, if the husband receives a large amount of income from securities, he may reduce the family income tax sub- stantially (and also reduce the amount of estate tax in case he predeceases his wife) by giving a portion of his fortune to his wife. This, and other methods of reducing taxes by married couples, would be eliminated through provision for mandatory joint returns, It is accordingly suggested that the filing of Joint tax returns by married couples be made mandatory with a special allowance for the earned income of the wife in order to give recognition to the less of the wife's services in the home. 268 - 14 At the increased rates of individual income tax previously suggested, it is estimated that the revenue from requiring the filing of Joint income tax returns would be approximately s 4. Capital gains, At the present time the maximus tax rates on gains from capital assets held 18 months or more are dispropertionately low, having been left at their 1938 level of an effective rate of 15 percent, while other income taxes have been very substantially increased. The rate increases on other incomes have encouraged an unusually large amount of capital loss realisation which was unusually noticeable during the last few weeks in 1941 and indicated tremendous use of capital losses to escape taxation on other income, In the light of these fasts, the following suggestions are made with respect to the tax treatment of capital gains and lesses. It is suggested, first, that capital gains from assets held 18 months or more be included in income at 50 percent, which is the present rule for gains from assets held two years OF more. IS is suggested that the maximum tax rate, which is allowed the taxpayer as an alternative in place of the regular progressive tax rate, should be increased from the present 269 - 15 30 percent to 60 percent, changing the maximum effective rate of tax on capital gains from 15 percent to 30 per cent. It is recommended also that long-term capital losses be not allowed as a deduction against ordinary income, but that instead they be allowed to be carried forward for a liberal period, perhaps 5 years, as a deduction against long-term gains. Similarly, the provision for the carry-over of short-term capital losses should be liberalized. It is suggested further that the basis of property for the computation of capital gains and losses be not changed at the death of the owner as at present, but that the basis in the hands of the person receiving the property be made the same as it was in the hands of the decedent. 5. Other examples of unwarranted favorable treatment. There are a number of other respects in which the tax laws grant unwarranted favorable treatment. The life insurance companies of the United States with assets of $ . and premiums of $ investment income of $ . had a total income tax of only $ Many mutual casualty insurance companies are exempt from taxation. Other companies, while nominally subject to tax, ordinarily pay no tax 270 - 16 because the allowance of expenses, losses and returned premiums more than offsets their included income. The provisions of insurance company taxation should be changed to renedy these defects and impose a fair burden of taxation on the insurance business. Banks and other taxpayers owning tax exempt interest bearing securities are able to deduct, against their taxable income, expenses allocable to the tax exempt securities. Obviously, this special favor should be eliminated from the statute. Under existing law trusts may be set up to provide pensions for a few high-salaried key men in a corporation. Although provision for the protection of retired employees is laudable there is no reason why tax benefits should be granted in order to provide large pensions for high-salaried executives. It is therefore suggested that the pension trust provision be amended to require a more general coverage of employees and to limit the amount which may be paid as a pension to any one officer or employee. Time does not permit the enumeration of still other tax advantages that should be removed. They will be presented to the Committee at your convenience, 271 - 17 B. Removing Other Diseriminations The inequities of our tax laws work in two direstions. As I have said, some of them extend undue privileges to a favored few. Still others result in unfair burdens upon certain taxpayers. Such inequities are like the defects in a picture--bad enough when the picture is on a small scale, but increasingly glaring as the picture is enlarged. with rates at war time levels it becomes urgent to correct all such defects. I, therefore, propose that we make every effort in this session of Congress to eliminate all hardships of this character so that our tax laws will east their burden equitably upon all taxpayers. C. Individual Income Taxes Most of the revenue that will be raised by the elimination of special privileges will come from the individual income tax. In addition, it is recommended that the individual income tax be changed to yield approximately $2.5 billion, or 50 percent more revenue than will be yielded under the present law. In recommending this amount I have had in mind the fast that the great bulk of tax increases under the social security changes will fall on individual incomes. 272 - 18 The individual income tax is the best available type of tax based upon ability to pay. Its rates and exemptions can be adjusted according to amount of income and differing family responsibilities. Furthermore, it is a direct tax. It falls where the Congress wants it to fall. I am suggesting a substantial increase in the income surtax rates throughout the scale. At the present time the first surtax bracket combined with the normal tax is 10 percent. Under the proposed schedule it would be 20 percent. The surtax rates above the first bracket would be progressive and would be increased in every bracket of income. The rate soale, together with comparative effective rates of tax, under present law and under the suggested seale, are shown in the accompanying tables. (Exhibits A, B, c, D). Because of the large increases suggested in the rates, it becomes essential to afford a more convenient method for the payment of income taxes. 273 19-20 provision for the collection of as such of the tax as possible at the source for those incomes that are paid periodically, including wages, salaries, bond interest, dividends, and reyalties, is the best available expedient to this end. To institute such a system immediately, however, might cause considerable hardship to taxpayers because of the substantial increases they are already called upon to pay during the year 1942 as a result of the Revenue Act of 1941. on the other hand, 1f the threat of inflation makes necessary quick and substantial increases in the rate of tax collection, the institution of collection at the source cannot be postponed. Since it is not known how soon substantial increases in the rate of tax collection may be necessary for the restraint of inflationary price rises, it would be desirable to enable the collection of income taxes at the source at any time and at rates within the discretion of the Treasury up to 10 percent. This will furnish desirable flexibility without imposing additional taxes that may not be necessitated by future economic conditions. 274 - 21 D. Corporation Taxes It is recommended that additional taxes be raised fres corporations in the amount of 83 billion, an increase of slightly more than 40 percent. A substantial share of the increased corporation tax should fall on excess profits. Taxes paid from such profits have less disrupting effects on business than have taxes which are generally applicable to all 00 operate earnings, irrespective of amount. A tax which absorbs excess profits still leaves the corporate taxpayer with a sufficient margin of income for dividends and safety and for continued incentive to produce. 275 - 22 on the other hand, a tax which dips too deeply into the incomes of low earning corporations may seriously affect their dobt-paying capacity, if not their very existence. Excess prefits taxes have the additional virtue of recapturing undue profits on war contracts. It is suggested that the maximum rate of the excess profite tax be increased from 60 percent to 75 percent with corresponding increases in the lower rate brackets. with rates or this magnitude it is increasingly important to have a fair basis from which to measure the profits subject to the excess profits tax. In addition to the many provisions in existing law to adjust earnings of the base period to correct for unusual circumstances, it is suggested that further relief be afforded where the earnings of the base period were abnormally depressed, such relief to be administered by a special board in the Treasury Department. It is believed that other changes in the excess profits tax law should also be node, some to eliminate defects which have been brought to light in the operation of the law, and others to eliminate unnecessary 276 - 23 hardships. These changes are of a more technical sharacter and will be presented to the Commissee later, at its convenience. Under present conditional when incomes of many businesses are declining because of shortages of raw materials and for other reasons, the corporation which continues to earn as such as it did during the base period is in better position to pay taxes than is the corporation whose earnings have deelined, just as the corporation which is making more than its base period earnings is in better position to pay taxes than the corporation which is aerely maintaining such earnings. At a time when very heavy taxes must be imposed on corporations, there should be a differentiation between corporations which have suffered a substantial deeline in earnings and corporations which have not. IS is therefore suggested that a portion of the increased corporation tax be imposed in the form of a special war tax against which a tax credit would be allowed for corporations whose incomes have declined. The credit would be determined by the extent that the ourtax net income of the taxable year is less than the 24 277 average surfax net income of the years 1936 - 1939. It is suggested that the rate of the war tax be 10 per cont with the tax credit computed as 5 percent. It is suggested that the balance of 83 billion additional corporate taxes be provided by increasing the rates on corporate incomes generally. It 10 suggested that the surtax be increased from 7 percent to 21 percent with smaller increases for corporations having less than $50,000 iscans. The normal tax rate might be increased from 24 percent to a round figure of 25 percent, but there should be no further increase in the corporate normal tax because any such increase would result in an undesirable windfall to the holders of partially tax except Federal securities. There can be no fair quarrel with the imposition upon corporations of a substantial preportion of the increased load of taxation required by our national peril. We are fighting for the maintenance of the very system of free enterprise which makes corporate profits 278 - 25 possible. I am confident that incorporated business will willingly pay at such a time an additional amount of tax which will leave it in a position in which its profite after taxes will in the aggregate be at the level of corporate earnings during the prevar years. The imposition of corporation taxes at the level and in the sasser suggested will require a very high rate of tax on any additional profite earned by corpore. tions subject to maximum excess profits tax rates. In the critical months ahead our patriotism will be put to the acid test. It must rise above the prefit motive. National war production depending upon that motive aleas may be tragically inadequate, This is a time in which we must forget profite and concentrate upon a suppose productive effort which alone will wis the war. Newsver, 18 is recognised that very high top. OF 80-called rates," may leave little inseative for the maintenance of efficiency in business operation. Furtherwore, after the war there may well be need for a large volume of expenditure in readjusting industry and maintaining employment. For these yeasons 18 10 believed destrable that in the case of any dollar of corporate profite the receipt of which results in an 279 - 26 increase in tax beyond so conts, the additional tax on such dollar shall be held by the Government to the account of the corporation and be returnable within a limited period after the war, in those cases where it is spent for new and additional capital equipment or otherwise is spent in the additional employment of labor. When tax rates are very high it is more than ordinarily important that profits be accurately determined. The determination of profits on an annual basis necessarily depends largely on more or less uncertain prophecies of the future and some of these prophecies later turn out to be false. Some supposed profits prove, in the light of subsequent events, to be illusory; this sometimes happens, for example, to be profits due to the rising prices of inventories. In a period combining unusual uncertainty and high tax rates, such as the present, there should be in the tax law provision for the practical correction of tax liabilities based upon erroneous assumptions. The uncertainties of this period also make it important to reduce the necessity for propheaying to the minimum. The capital stock tax and the associated 280 - 27 - declarad value 920020 w by the assuracy of guesess about future prefite. st 10 suggested that the revenue produced by those taxes be more fairly and less harmfully produced by the other taxes on corporations and that accordingly the capital stock and declared value excess profits taxes be repealed. E. Estate and Gift Taxes The estate and gift taxes are imposed at the time of the transfer of wealth from one person to another. Many of the fortunes which are being transferred, and will be transferred in the future, were built up during a period when income tax rates were far lower than they are today. It is much more difficult new to build we large holdings of property. For this reason substantial increases in the estate and gift taxes should be imposed as a method of equalising tax burdens. The suggested increases are indicated in the tables. (Table 4 and table 5.) In conjunction with the rate increases, it is suggested that the existing insurance exclusion of $40,000 be merged with the existing exemption of $40,000, and that a single exemption of $60,000 be allowed, This will increase the present exemption in some cases and 281 - 28 decrease 11 in others, and will reserve a discrimination between persons who are insured and these whe - not, It is likewise suggested that the excaption for the gift tax be reduced to $30,000 and that the annual exclusion of gifts be made a total of $5,000 for each donor, regardless of the number of donees to whom property is given. IS is believed that these changes in rates and exemptions, together with certain changes designed to prevent avoidance of the tax, will increase the annual revenue fres the estate and gift taxes by $ F. Excise Taxes New and increased special excise taxes are suggested to raise approximately e billion of additional revenue. Although these excise taxes are in the nature of sales taxes, their effects are substantially different from the effects of general sales taxes. Many of them are imposed on commedities of which there is or will increasingly be a searcity. Such taxes not only yield revenue but help to conserve materials needed for defense. Those excise taxes not relating to commedities of which there is a particular searcity have been chosen so as - 29 - 282 to fall on goods which are widely used and are of a luxury or semi-luxury shareater. The increase in consumer incomes will permit maintenance of the demand for those commodities despite the higher taxes. The Government will thus secure needed revenue, consumer purchasing power will be tapped, the producers will not be injured, and the consumers will not be taxed on necessaries of life. These special excise taxes have the further advantage of not requiring any substantial expansion of administrative machinery. No general sales tax is recommended and, indeed, I strongly urge that no such tax be made a part of this revenue bill. The general sales tax falls on searee and non-scares commodities alike. It falls across the board on necessaries and luxuries alike. It bears disprepertionately on the low income groups whose incomes are almost wholly spent on consumers goods. It 10, therefore, regressive and harmfully encreashes upon the standard of living. It increases prices and makes price control more difficult. It stimulates demands for higher wages and adds to the parity prices of agricultural products. It is not, as many suppose, easily collected; OR the contrary. its collection would require much additional administretive machinery at a time when manpower is scaree. 283 - 30 . I Constination could I - like to end my recommendations with a further plus as to their importance as part of our war effort. Your task is the hardest any Congress has ever faced. The consequences of failure are staggering. But-man the happier side-if our war financing is wisely done, war production will be encouraged, inflation will be curbed, public morale will be improved, and our economic world after the war will be in a better position to meet the inevitable problems following victory. Such objectives cannot be painlessly accomplished. There must be temporary dislocation, hardship, and sacrifice. But I feel certain that we will all rise to the challenge presented to us. Taxes have been described by a great American as "the cost of living in a civilized society." It will be our privilege to pay that cost sheerfully, This is the spirit in which the American people will want to approach the problem of financing the war. 2/1/18 284 This is Mr. Kuhn's Draft "A" but it - is Draft "B" of the Secretary's tax statement. Draft B. 285 I am here to offer my suggestions as to our first Revenue Act of the war. I hardly need to emphasize the seriousness of the occasion. The task before us is to decide how this desperately serious war is to be financed and how its gigantic cost is to be distributed. Economic and social conditions during and after the war will depend to a large degree upon the courage and wisdom with which we attack these problems now. To defeat the strongest combination of enemies in our history, we shall have to spend on a scale for which there is no precedent. If we are to transport and equip fighting men in sufficient numbers to turn the tide, if we are to furnish the weapons to the men who are doing the fighting, we shall have to use every ounce of our national energy and mobilize every possible dollar of 2/26 286 9 I -2- our income. The President has announced a program involving war expenditures of $52.8 billion in the fiscal year 1943. We shall have to tax in accordance with the magnitude of that program and in accordance with the seriousness of the position in which we stand. The President's Budget message in January called for the raising of $7 billion in new revenue from taxes, together with an additional $2 billion to be obtained from the Social Security Program. The unprec- edented sum of 35? billion will have to be borrowed in the coming fiscal year, even if the new Revenue Act fulfills the President's hopes to the last dollar. I should like to urge, therefore, the adoption and attainment of the goal the President has set, not as the D-A -3but 287 the very least that we can afford to the American people at this opitical time. Our task is more than the raising of a huge amount of new revenue. It is to make the tax program an instrument of victory. It is to frame the new Revenue Act so wisely and so soundly that it will facilitate the maximum production of war materials, hasten the mobilization of our resources, strengthen the unity of our people for the waging of total war, and prepare us for the new economic and social problems that will face us when the war is over. This means, firstly, that the new Revenue Act must halp to check inflation, for nothing in the economic field can interfere with the war effort as much as an -4- 288 uncontrolled rise in prices. An inflationary price rise is a source of grave social injustice. Tt undermines morale and impedes war production. It strikes at random without consideration of equity or ability to bear the hardships which it imposes. Once it has acquired momentum, inflation is extremely difficult to control, and it will leave a heritage of post-war stresses and strains that will haunt us for decades. Today we are confronted with a grave threat of inflation. Prices of food today are following precisely the trend of the first World War; prices of all commodities are rising at a somewhat slower but nevertheless disturbing rate. Unless effective preventive measures are taken by all the means at our command, we shall have a rapid general -- 289 increase in prices, with a resultant rise in the cost of our war effort far beyond the figures now contemplated. The way to prevent inflation is to prevent people from engaging in the futile effort to buy more goods than can be produced. This requires, first of all, the continuous and willing cooperation of every man and woman. It also requires a comprehensive and integrated program of anti-inflationary measures, in which increased taxes and increased savings are essential parts. Price control, rationing and the regulation of consumer credit are other parts of such an integrated program. It is important for us to remember that all these controls are interrelated. The devices of price control, -6290 allocation and rationing will be more effective if all caringo are increased. similarly, the effectiveness of the fiscal devices in preventing inflation will be greater if price and commodity controls are used. We should, therefore, tax so as to withdraw the greatest possible volume of purchasing power at this time, when money incomes are high and the quantity of goods for civilian use is shrinking day by day because of the demands of our war effort. A second obligation, a second pressing duty, is the need for severe economy in the operations of Federal, State and local governments. The anti-inflationary purposes of our taxing and savings programs will be -7- 291 defeated if, at the same time, the agencies of government indulge in unnecessary expenditure. As you know, I recommended a few months ago the saving of at least a billion dollars in Federal expend- itures which caused competition with war production and added unnecessarily to the volume of purchasing power in the hands of the people. I recommended especially the immediate reduction of expenditures on highway con- struction, rivers and harbors, non-defense vocational training and Federal subsidies to keep up the prices of agricultural products. Since then some economies have been made, but in the main my recommendations have not been remains, not only followed. A vast field for economy here in Washington but in the operations of State and local Governments. I should like to urge once more that -8- 292 real and substantial economies be made as a corollary to the new tax program. I do not mean that we should economize on the health and strength of our under- privileged, for that is no economy at all; but I do mean that we should save in subsidies to those who no longer need Government assistance, and in non-defense construction projects which can be postponed until the war is over. I have spoken of the need of checking inflation and the need of cutting non-essential expenditure in financing the war effort; I come now to a third and most insistent need that should govern our wartime tax program. That is the need of holding fast to the basic principle of our tax system, namely, that taxes should be fair and non-discriminatory and imposed in accordance with ability to pay. The cost of this war will have to be borne by -9- 293 and everyone. It will be borne willingly cheerfully, proudly, if the principle of ability to pay is followed. In terms of the new tax program, this principle means YE that special privileges in our tax laws should be removed. It means that taxes which cannot be adjusted to differences in income or family responsibilities, such as general sales taxes, should be avoided. It means that undue profits should be recaptured wherever they occur. Unreasonable profits are not necessary in order to obtain maximum production with economical business management. The country will not tolerate the retention of undue profits at a time like this, when millions are pledging their very lives to save and perpetuate our freedom. All will be expected to bear their fair share, in the higher and lower income levels alike. The recommen- dations which I shall now outline to the Committee - 10 - 294 will involve progressively increased taxes throughout the whole range of individual and corporate income now covered by our tax laws. Tax Recommendations 1. Individual Income Taxes. The individual income tax is the best available type of tax based upon ability to pay. Its rates and exemptions can be adjusted according to amount of income and differing family responsibilities. Furthermore, it is a direct tax. It falls where the Congress wants it to fall. I recommend that the individual income tax be changed to yield approximately $3 billion, or sixty per cent more revenue than will be yielded under the present law. D-A - 11 - 295 In recommending this amount I have had in mind the fact that the great bulk of tax increases under the Social Security changes will also fall on individual incomes. In accordance with the President's Budget message I feel that the Social Security program should be expanded both as to coverage and as to protection, and that increased taxes for this purpose should be increased by approximately $2 billion a year. I am not making any recommendations with regard to Social Security taxation or benefits in connection with this bill, but changes of the magnitude indicated should be kept in mind in planning the tax program. As for the individual income taxes themselves, I am suggesting a substantial increase in the income surtax D-A - 12 - 296 rates throughout the scale. At the present time the first surtax bracket combined with the normal tax is 10 per cent. Under the proposed schedule it would be 20 per cent. The surtax rates above the first bracket would be progressive and would be increased in every bracket of income. The accompanying tables, which I shall now submit to the Committee, will show the rate scale and comparative effective rates of tax under the present law and under the suggested program. (Exhibits A,B,C,D.) Because of the large increases suggested in the rates, it becomes essential to afford a more convenient method for the payment of income taxes. A provision for the collection of as much of the tax as possible at the source for those incomes that are paid periodically, including D-A - 13 297 wages, salaries, bond interest, dividends, and royalties, is the best available expedient to this end. To institute such a system immediately, however, might cause considerable hardship to taxpayers because of the substantial increases they are already called upon to pay during the year 1942 as a result of the Revenue Act of 1941. On the other hand, if the threat of inflation makes necessary quick and substantial increases in the rate of tax collection, the institution of collection at the source cannot be postponed. Since it is not known how soon substantial increases in the rate of tax collection may be necessary for the restraint of inflationary price rises, it would be desirable to enable the collection of income taxes at the source at any time and at rates within the discretion - 14 - 298 of the Treasury up to 10 per cent. This will furnish the flexibility we need without imposing additional taxes that may not be necessitated by future economic conditions. 2. Corporation Taxes It is recommended that additional taxes be raised from corporations in the amount of $3 billion, an increase of slightly more than 40 per cent. A substantial share of the increased corporation tax should fall on excess profits. Taxes paid from such profits have less disrupting effects on business than taxes which are generally applicable to all corporate earnings irrespective of amount. A tax which absorbs excess profits still leaves the corporate taxpayer with a sufficient margin of income for dividends and safety. - 15 - 299 On the other hand, a tax which dips too deeply into the incomes of low earning corporations may seriously affect their debt-paying capacity, if not their very existence. Excess profits taxes have the additional virtue of recapturing undue profits on war contracts. It is suggested that the maximum rate of the excess profits tax be increased from 60 per cent to 75 per cent with corresponding increases in the lower rate brackets. With rates of this magnitude it is increasingly important to have a fair basis from which to measure the profits subject to the excess profits tax. In addition to the many provisions in existing law to adjust earnings of the base period to take account of - 16 - 300 unusual circumstances, it is suggested that further relief be afforded where the earnings of the base period were abnormally depressed. Such relief would be administered by a special board in the Treasury Department. It is believed that other changes in the excess profits tax law should also be made, some to eliminate defects which have been brought to light in the operation of the law, and others to eliminate unnecessary hardships. These changes are of a more technical character and will be presented to the Committee later, at its convenience. There should be no further increase in the corporate normal rate because any such increase would result in an undesirable windfall to the holders of partially taxexempt Federal securities. D-A - 17 - 301 It is suggested that the balance of the $3 billion in additional corporate taxes be provided by a special war surtax which would absorb the present corporate surtax and would be imposed at the rate of 36 per cent on corporations with incomes of more than $25,000. This tax would differ from the present surtax in that a special tax credit would be allowed when the surtax net income for the current year has dropped in comparison to the income for the pre-war period. The reason for allowing the suggested tax credit against the war surtax is that under present conditions, when incomes of many businesses are falling, there should be a differentiation between corporations which have suffered a substantial decline in earnings and corporations - 18 - 302 which have not. The proposed tax credit accomplishes some differentiation. For corporations with more than $25,000 net income, the minimum tax rate would be 40 per cent; the maximum tax rate, 60 per cent, except where there are taxable excess profits, in which case the maximum combined excess-profits, surtax, and normal might tax rates would total 90 per cent. The rates on corporations with less than $25,000 of net income should also be increased but to a smaller extent since the privileges of incorporation are less valuable to such businesses and since small business will need all the protection we can give it in this period. There can be no fair quarrel with the imposition upon corporations of a substantial proportion of the increased load of taxation required by our national peril. D-A - 19 - 303 We are fighting for the maintenance of the very system of free enterprise which makes corporate profits possible. I am confident that incorporated business will willingly pay at such a time an additional amount of tax which will leave it in a position in which its profits after taxes will in the aggregate be at the level of corporate earnings during the prewar years. In the critical months ahead our patriotism will be put to the acid test. It must rise above the profit motive. National war production may be tragically inadequate if it depends upon that motive alone. This is a time in which we must forget profits and concentrate upon a supreme productive effort which alone will win the war. - 20 - 304 However, it is recognized that very high top, or so-called "marginal rates," may leave little incentive for the maintenance of efficiency in business operation. Furthermore, after the war there may well be need for a large volume of expenditure in readjusting industry and maintaining employment. For these reasons it is believed desirable that in the case of any dollar of corporate profits the receipt of which results in an increase in tax beyond perhaps 85 cents, the additional tax on such dollar shall be held by the Government to the account of the corporation and be returnable within a limited period after the war, in those cases where it is spent for new and additional capital equipment or otherwise is spent in the additional employment of labor. - 21 - 305 When tax rates are very high it is more than ordinarily important that profits be accurately determined. The determination of profits on an annual basis necessarily depends largely on more or less uncertain prophecies of the future and some of these prophecies later turn out to be false. Some supposed profits prove, in the light of subsequent events, to be illusory; this sometimes happens, for example, to profits due to the rising prices of inventories. In a period combining unusual uncertainty and high tax rates, such as the present, there should be in the tax law provision for the practical correction of tax liabilities based upon erroneous assumptions. The uncertainties of this period also make it - 22 - 306 important to reduce to the minimum the necessity for prophesying. The capital stock tax and the associated declared value excess profits tax are determined largely by the accuracy of guesses about future profits. It is suggested that the revenue produced by these taxes can be more fairly and less harmfully produced by the other taxes on corporations and that accordingly the capital stock and declared value excess profits taxes be repealed. 3. Estate and Gift Taxes The estate and gift taxes are imposed at the time of the transfer of wealth from one person to another. Many of the fortunes which are being transferred, and will be transferred in the future, were built up during a period when income tax rates were far lower than they are today. It is much more difficult now to build up - 23 - 307 large holdings of property. For this reason substantial increases in the estate and gift taxes should be imposed as a method of equalizing tax burdens. The sugattached gested increases are indicated in the tables. (Table 4 and table 5. ) In conjunction with the rate increases, it is suggested that the existing insurance exclusion of $40,000 be merged with the existing exemption of $40,000, and that assingle exemption of $60,000 be allowed. This will increase the present exemption in some cases and decrease it in others, and will remove a discrimination between persons who are insured and those who are not. It is likewise suggested that the exemption for the guft tax be reduced to $30,000 and that the annual ex- clusion of gifts be made a total of $5,000 for each donor, regardless of the number of donees to whom property is given. - 24 - 308 It is believed that these changes in rates and exemptions, together with certain changes designed to prevent avoidance of the tax, will incre ase the annual revenue from the estate and gift taxes by $250 millions. 4. Excise Taxes New and increased special excise taxes on distilled . spirits, gasoline, cigarettes and other items, are suggested to raise approximately $1.2 billion of additional revenue. Although these excise taxes are in the nature of sales taxes, their effects are substantially different from the effects of general sales taxes. Many of them are imposed on commodities of which there is or will increasingly be a scarcity. Such taxes not only yield revenue but help to conserve materials needed for defense. DA - 25 - 309 Those excise taxes not relating to commodities of which there is a particular scarcity have been chosen so as to fall on goods which are widely used and are of a luxury or semi-luxury character. The increase in consumer incomes will keep up the demand for those commodi- - ties despite the higher taxes. The Government will thus secure needed revenue, consumer purchasing power will be tapped, the producers will not be injured, and the consumers will not be taxed on necessaries of life. These special excise taxes have the further advan- tage of not requiring any substantial expansion of administrative machinery. No general sales tax is recommended, and indeed, I strongly urge that no such tax be made a part of this revenue bill. The general sales tax falls on scarce D-A - 26 - 310 non-scarce commodities alike. It falls across the board on necessaries and luxuries alike. It bears disporportionately on the low income groups whose incomes are almost wholly spent on consumers goods. It is, therefore, regressive and encroaches harmfully upon the standard of living. It increases prices and makes price control more difficult. It stimulates demands for higher wages and adds to the parity prices of agricultural products. It is not, as many suppose, easily collected; on the contrary, its collection would require much additional administrative machinery at a time when manpower is scarce. 5. Removal of Special Privileges There are in our tax system certain provisions which grant to relatively few of our people special advantages and privileges at the expense of the great mass who must D-A - 27 - 311 pay what is thereby lost. I am unwilling to ask the great mass of the taxpayers of the United States to pay billions of dollars of additional revenues until these defects have been removed from the tax laws. They are bad enough in time of peace--they are completely inex- cusable in time of war. (a) Tax Exempt Securities. An important example of such a privilege is presented by tax exempt securities. Every element in our population should bear its fair share of the burdens which war imposes. Through tax exempt securities, however, persons with large taxpaying ability find themselves in a sheltered position. For the most part they did not buy these securities at prices reflecting to any significant extent the great favor of escape from wartime burdens, and surely the States did D-A - 28 - 312 not offer the securities on any such basis. The holders of tax exempt securities are obtaining what are essentially windfall profits in a time of national sacrifice. For a long time Presidents, Secretaries of the Treasury, and Congressional Committees have recommended the elimi- nation of the tax exemption of interest on future Government securities. Last year the Congress, at my recommenda- tion, removed the exemption on interest from future issues of Federal securities. No action has been taken with respect to the interest on future or outstanding State and local securities. In times of peace, when the strain on other elements - in the population was not so heavy, there was much to be said for the gradual elimination of tax exemption through taxing future issues only. The national emergency of D-A - 29 - 313 war makes this gradual approach unacceptable. I therefore recommend the repeal of the present exemption applicable to outstanding issues of State and local securities. Unfortunately, tax exemption clauses appear in many of the outstanding issues of Federal securities and these promises must not be violated. In the case of State and local securities, however, there has never been any contract or moral commitment between the Federal Government and the security holders or the local governmental authorities regarding Federal taxation. Since the Supreme Court decision in the case of Graves V. O'Keefe in 1939 fair minded experts in constitutional law have had no doubt of the Federal power and moral right to tax the income from State and municipal securities. D-A 314 - 30 - A tax system cannot be defended which in a time of grave national emergency calls upon the great mass of our taxpayers to shoulder the heavy burden of additional taxes and yet permits persons with large taxpaying ability to pay virtually nothing in taxes. The sacrifices necessary to win a war for the benefit of all of us should be shared by all of us--including the holders of tax exempt securities. The President said in his Budget Message, . "When so many Americans are contributing in their ener- gies and even their lives to the Nation's great task, I am confident that all Americans will be proud to con- tribute their utmost in taxes." The taxing of future and outstanding issues of State and municipal securities would yield $200 million a year. D-A - 31 - 315 (b) Percentage Depletion. A second example of special privilege is the allowance for depletion. At the present time the owners of mines and oil wells are allowed to deduct so-called percentage depletion or cost depletion, whichever is higher, Percentage depletion consists of a certain percentage of gross income (27-1/2% in the case of persons having an economic interest in oil and gas properties), the deduction being limited to 50 percent of the net income from the property. Under this arrangement percentage depletion goes on even after 100 percent of the cost is recovered and may substantially exceed depletion based on cost. In 1937 the President and the Treasury recommended the elimination of percentage depletion, but no action D-A - 32 - 316 was then taken. The war has intensified the necessity of the elimination of any such special favor to one group of taxpayers. The removal of this special privilege would yield $80 million a year. One of the reasons asserted in behalf of percentage depletion is that it stimulates exploration for new mineral properties. If this is a proper objective, it would be better achieved by a special allowance depletion to those who do explore for new minerals without indiscriminate extension of the same favor to all owners. At the convenience of the Committee, we shall place be- fore it a plan directed to this purpose. So far as other minerals are concerned, it is believed that an adequate stimulus for exploration would remain if the percentages D-A - 33 - 317 allowable for depletion purposes were substantially reduced. (c) Separate Returns by Married Persons. A third example of special favoritism in the tax laws is the option allowed married couples to file separate income tax returns. This permission has little or no significance for most taxpayers since at the present time married couples with incomes of up to $3,500 (the amount is higher in the case of married couples with dependents) pay the same total tax whether they file joint returns or separate returns. It may make a great deal of difference in tax, however, in the case of married couples with large incomes, especially if the income is more or less evenly divided between husband and wife. D-A - 34 318 This difference in tax is unwarranted since in actual operation the family is the economic unit. Two families with the same total income will usually manage and dispose of that income in a similar fashion, regardless of whether the income is received by only one spouse or is received by both spouses. One difference may be noted--that when both spouses work, the expenses of the family ordinarily are higher than when only the husband works, since the services of the wife in the home must be replaced by hired help. The adoption of mandatory joint returns would re- move this tax differential and would also eliminate two specific kinds of tax avoidance which are present under existing law. The first is the treatment of community D-A - 35 - 319 - income in the so-called community property States. In the non-community property States the income is taxable to the spouse who earns it. In the community property States, however, the husband who earns the income may for tax purposes attribute half the earnings to his wife, although he retains the management and control of all the earnings. The result is that married couples in community property States receive a very substantial tax advantage over those living in other States. This advantage would be removed if joint returns were made mandatory. A second scource of tax avoidance which would be eliminated by mandatory joint returns is the possibility of manipulating incomes within families. For example, if the husband receives a large amount of income from D-A - 36 - 320 securities, he may reduce the family income tax sub- stantially (and also reduce the amount of estate tax in case he predeceases his wife) by giving a portion of his fortune to his wife. This, and other methods of reducing taxes by married couples, would be eliminated through provision for mandatory joint returns. It is accordingly suggested that the filing of joint tax returns by married couples be made mandatory with a special allowance for the earned income of the wife in order to give recognition to the loss of the wife's services in the home. At the increased rates of individual income tax previously suggested, it is estimated that the revenue from requiring the filing of joint income tax returns would be approximately $350 million. D-A - - 37 - 321 (a) Other Discriminations. There are other examples of special privilege in'our tax laws which need to be removed. They are to be found in the provisions of our present laws affecting capital gains, insurance company taxes, and pension trusts, and will be discussed in de- tail later by one of my assistants. The removal of these additional methods of avoidance would yield $95 million a year in additional revenue. The Hending The inequities of our tax laws work in two direc- tions. As I have said, some of them extend undue privi- leges to a favored few. Still others result in unfair burdens upon certain taxpayers. Such inequities are like the defects in a picture--bad enough when the picture is on a small scale, but increasingly glaring as the picture is enlarged. With rates at wartime D-A - 38 - 322 levels it becomes urgent to correct all such defects. I, therefore, propose that we make every effort in this session of Congress to eliminate all hardships of = this character so that our tax laws will cast their burden equitably upon all taxpayers. Conclusion I should like to end my recommendations with a further plea as to their importance as part of our war effort. Your task is the hardest any Congress has ever faced. The consequences of failure are staggering. But--on the happier side--if our war financing is wisely done, war production will be encouraged, infla- tion will be curbed, public morale will be improved, and our economic world after the war will be in a better position to meet the inevitable problems following victory. - 39 - 323 Such objectives cannot be painlessly accomplished. There must be temporary dislocation, hardship, and sacri- fice. But I feel certain that we will all rise to the challenge presented to us. Taxes have been described by a great American as "the cost of living in 8 civilized society." It will be our privilege to pay that cost cheerfully. This is the spirit in which the American people will want to approach the problem of financing the war. D-A 324 February 26, 1942 2:37 p.m. Harold Graves: HMJr: G: HMJr: G: HMJr: G: HMJr: G: this morning at half-past ten. Well, Harold, I want to see you at four o' clock. Fine. I wish you'd bring Sloan with you. All right. And I wish you'd give me an explanation of why our bond sales have gone all to pieces. All right, sir, I'11 do the best I can. And what you're going to do about it. Yes, sir. HMJr: You can bring Kuhn with you, too. G: All right. How about Odegard, he's right here. HMJr: G: HMJr: All right. I'll have him, too. Yeah. Well, I'd like to have an explanation, and what you're going to do about it. G: HMJr: G: Yes, sir. We'll do the best we can. Thank you. Four o'clock. 325 February 26, 1942 3:00 p.m. HMJr: Yes. Robert Doughton: Henry, hello. This is Bob. HMJr: Hello, Bob. D: How are you? HMJr: D: I'm all right. How are you? All right. What about our meeting in the morning? Has Senator George come back? I thought he was away. HMJr: Yeah, but I can't wait for him, and I told his office that and he said to go ahead without him as long as you and Stam were there. D: Well, let me ask you this. Byrd's got - I haven't been to one of his meetings in a good while, and he's got a meeting in the morning at ten o'clock. HMJr: D: Yeah. I thought maybe you'd want to attend that - his Economy Committee - what about that? HMJr: Well, what I'd like to do was to show you my statement that I was going to do on Tuesday. D: Well HMJr: And this will be my last chance to show it to you. D: Well, if that will be your last chance, of course, I'll do that. Then get - it won't take so long. It's not anything to discuss in particular, other than just listen to your statement, is there? HMJr: D: Well..... Are you able to give me a confidential copy 326 2- of it I can bring with me? HMJr: Yeah. D: That would be nice. HMJr: Yeah. D: And - nine fifteen. HMJr: Yeah. D: You won't need me there more than half an hour, will you? HMJr: D: No. Well, I'11 come down and it looks like we both ought to go to that economy meeting if we could. HMJr: D: Well I don't know how your calendar is, but I'd like to get back there. I've got a committee meeting, too, but I can let - it's not 80 important but what I can let somebody else handle that. HMJr: D: Yeah. Well, anyway, I'll be ready at the dot at nine-fifteen. At nine-fifteen at your office. HMJr: Yeah. D: I'11 be right there. I'm sorry Senator George can't be there. HMJr: Well, his office said never mind, but to go right ahead without him. D: All right. All right. I'll be there. HMJr: Will you bring Stam? D: Yeah. I'11 ask him to come. 327 -3HMJr: Okay. D: I'll call him right now. HMJr: Thank you. D: All right. Thank you very much. HMJr: Good-bye. D: Good-bye. 328 February 26, 1942 4:15 pm DEFENSE SAVINGS BONDS Present: Mr. Graves Mr. Odegard Mr. Sloan Mrs. Klotz H.M.JR: How do you do? MR. GRAVES: Fine, thank you, sir. H.M.JR: How are you? MR. GRAVES: Fine. H.M.JR: How was your trip? MR. GRAVES: Fine. I had a nice trip. H.M.JR: I am frankly worried on this slump of the Defense Bonds, and no one has tried to explain it to me, what is the matter with it, or why it is happening, or where it is happening, or what we are going to do about it. I want an explanation. I just want to know what is happening. MR. GRAVES: Well, would you like me to make a short speech? . H.M.JR: Very much. MR. GRAVES: I don't know whether you have based what you say on the last two days or not. H.M.JR: No, I have got a chart for the month of February, and we are now down on our sales to where we were on United States Savings Bonds at the same month last year at the same day. -2- 329 MR. GRAVES: Well, I am inclined to think that is wrong. H.M.JR: Oh no, it is not. George Haas runs a chart. MR. GRAVES: Did you ever have anything like a four- million dollar figure in February? H.M.JR: No, on a day thing. MR. SLOAN: Oh, that one day might be-MR. GRAVES: Oh yes. H.M.JR: No, the line is down now to where our line was last February on United States-MR. GRAVES: You mean the last couple of days? H.M.JR: Yes. MR. GRAVES: Well, I am willing to speak about that. H.M.JR: Well, I say the last couple of days. The trend has been approaching that line, that curve, for the last week or ten days. MR. GRAVES: Our sales in the first week in February were a hundred and thirty-six million. I am talking about the "E" bond. The next week they were ninety-six million. (Mrs Klotz enters the conference) MR. GRAVES: Last week they were ninety-four million and then we have had only three days this week, and they are twenty-seven million for those three days. Now, two of those reports Tuesday Wednesday, Monday are only and partial. We had three a holiday on days, in the most jurisdictions. I think three of the twelve Federal banks only reported on Tuesday, and what is it, did Mr. Reagh say? MR. SLOAN: Seven. MR. GRAVES: Seven reported on Wednesday's business, 330 3- so these last two days are just accidental. Now, as to the month's volume, it is, I think, going to be right at four hundred million on the "E bond. I was asked by Mr. Swope to give him a statement at the beginning of the month of what our February salos would be. I made an estimate myself. I and Mr. Broughton's people make an estimate and Mr. Haas' people make an estimate. Mr. Broughton's people estimated four hun- dred million. I estimated four hundred fourteen mil- lion, and Mr. Haas' people estimated four hundred twenty-five million. That was on an analysis 01 the January trend with what we knew about the trend every year in February. So our actual results in February will be right at the estimate that we all three made. It will be right at the lowest of those three estimates. We made an estimate also in December, on the twenty- sixth of December, in order to furnish a guide to Mr. Swope on the production thing at the Bureau, and also to serve as a basis for our estimate to the Bureau of his was the Budget, and our estimat ane then was made by Haas' division. It was two hundred six two million for February. H.M.JR: When did you make that estimate? MR. GRAVES: The twenty-sixth of December. So that is one fact, I think, that is worth nothing here, that the February sales-- H.M.JR: But on the other hand-MR. GRAVES: --- turned out to be about what we all estimated they would be at the beginning of the month. H.M.JR: But when you were wrong on January, when you went way over - you were way over on January. MR. GRAVES: That is right, we were, and it was in the light of that January experience that we made the new estimate of four hundred million for February. At 331 4- the time we made the estimate for January of two hundred million, we estimated two hundred sixty-two million for February. H.M.JR: And in January you sold how much in "E" bonds? MR. GRAVES: Six hundred sixty-seven million in January, and we revised our February estimate in the light of that January experience. Now, the way we made these estimates, all of us, whether we did it independently, was to discount out of January the very large proportion of limit buying which occured in January, and which always occurs in January. Investors come in and buy all the regulations will permit for the year U to five thousand maturity value. We estimated the amount of that by examining the sales by denominations. We made certain assumptions with respect to the thousand dollar denominations and five hundred dollar denominations, as to the proportion of the salvs of those denominations that were limit buying. Now there have been factors in here that have brought January down and to repeat, there were a hundred and thirty-six million sold the first week, which after all, is late January sales and not February sales in any large amount. The second week was ninety-six million, and the third week ninety-four, and I am inclined to think that we would have held right at about that figure but for the holiday on Monday. I was not too pessimistic myself, after examining this result. Now, you asked me this morning not only to explain, if we could, this slump, but also to tell you what we have in mind doing. H.M.JR: Yes. Well, I mean you have given me no explanation other than the statistical one; this is what you estimated, and this is what happened. MR. GRAVES: That is right. H.M.JR: Plus the fact that there was a holiday. MR. GRAVES: Yes. There are other things in there. I don't know, and no one knows how important they are, -5- 332 whether they have any importance at all, but we have heard from all quarters that the Congressional pension thing had an adverse effect on bond sales, that the OCD publicity also was a thing that hurt bond sales. I am inclined to think that whatever that effect was, it is temporary and that it will certainly not - it needn't worry us. It probably was overstated by our people in any case. Now, as to what we are planning to do, I have already told you these things, but we are-- H.M.JR: Well, as a result of your trip - I mean, you have just been out there. MR. GRAVES: Yes. H.M.JR: I can't get the feel of this organization. I just don't feel, Harold, we are going to town. Now let me call a spade a spade. Now, you have been out and what did you learn in Chicago and Jacksonville which would go toward convincing me that this thing is going to grow, that we are going to do ten-or twelve billion a year? What are the prospects? MR. GRAVES: Well, the principal thing that I learned-H.M.JR: What is in the making, what is going to happen which is going to - I make these speeches at Baltimore, I give a table and say, "This is what we have got to do. Now, what is in the making that is going to bring it about? MR. GRAVES: The thing that is going to bring it about, mainly, is the payroll savings thing. I think we are shortly going to be in this situation, that all companies, with very minor exceptions, who employ more than five hundred people will have installed a payroll savings plan. I think it is not unlikely that in a month or six weeks from right now we will be in that situation. I brought with me the report that Mr. Haas gives you, and we have in twelve states already, as of February fourteenth, reached that situation, that every company -6- 333 in those twelve states employing more than five-hundred people has installed a payroll savings plan. The national average as of that date, February fourteenth, was sixty-six percent. In other words, two thirds of all companies in the country employing more than fivehundred people have - or had on that date - installed the payroll savings plan, and the situation is statistically much better than that, because virtually all the large concerns employing five thousand, ten thousand, fifteen thousand, a hundred thousand, all of those companies have installed the plan so that I would suspect that - or estimate that probably ninety percent, or some- where in that neighborhood, of the employees of companies employing five hundred or more are now actually exposed to the payroll savings plan. Now, that is, of course, only the beginning of this job. The hard work to accomplish the result we all had in mind has yet to be done. It isn't enough to install a plan. We have got to promote the plan, within the employees of each company, and I think a good job by and large is being done on that, especially in communities like Chicago or New York or Philadelphia where we have great numbers of employees involved. I think a great deal of progress is being made from day to day toward bringing participation of the employees up to respectable proportions. We have hundreds and hundreds and hundreds of companies throughout the country where all one hundred percent of the employees are actually signed up on the payroll savings plan, and we are getting reports, general, as I understand, right along of additional companies that have attained that result. I don't mean to give you the impression that that is general. It certainly is not general. I imagine the average rate of participation in companies that have installed the plan is probably in the neighborhood of thirty percent, but it is coming up everywhere and our people, I think, are doing a good job toward promoting participation on the part of employees. The other thing that I think will have great affect on our program is this pledge campaign. We have just finished - Mr. Haas' department has just concluded a partial analysis or analysis in part of the pledges for the state of Oregon. The population 334 of Oregon is just a shade over a million, and in the canvass which we conducted by way of experiment in Oregon, I think they got three hundred thousand. MR. SLOAN: Three hundred thousand were signed up. MR. GRAVES: That is thirty percent, factually, of the total population, including men, women, children, and everybody. On Mr. Haas' tabulation, which represents only a part of the total of three hundred thousand pledges, do you know, Peter, how many? MR. ODEGARD: It represents almost the complete report. There was one package which probably contained maybe a thousand or two, maybe as much as five thousand pledges. MR. GRAVES: I see. Well, we will say then it is complete for it seems to be for all practical purposes the average amount pledged was a hundred twenty-nine-MR. ODEGARD: Was a better amount than a hundred and twenty-nine dollars. MR. GRAVES: A hundred and twenty-nine dollars. H.M.JR: That is not enough. You won't get your ten or eleven billion on these figures. I have seen those, and I have seen the ones on Oklahoma, and they don't add up. MR. ODEGARD: The Oklahoma figures were forty-four dollars, but the Oregon figures, I think, are pretty good when you think that that includes into that average of a hundred and twenty-nine dollars - there are all kinds of people, in many cases children and so on, signing these pledges. I suspect that if those pledges were limited to the people who are receiving income that is, who would be included in the group of major income receivers, that the average would be higher. MR. GRAVES: That would be for Oregon about forty million a year, and Oregon has about one one-hundred-thirtieth 335 -8of the population. You multiply that by a hundred thirty, and that would be only five billion two hundred million. H.M.JR: Well, it has to go over two hundred dollars. MR. ODEGARD: That is right. It has to be ten percent of the total, approximately. H.M.JR: It has to go over two hundred dollars. MR. GRAVES: Well, the Oregon canvass was-- H.M.JR: I mean, so much stress is being laid on this pledge campaign, and there is nothing in the pledge campaign which makes me believe that we are going to attain our goal. MR. GRAVES: Well, I started to say that the Oregon thing was done prior to our issuance of this schedule that indicates what people of different income brackets should be able to invest in Defense Savings Bonds. In other words, there was no control or no guide before those people at the time that campaign was undertaken. That is true also of that county in Oklahoma which, by the way, was a rural county where you would probably not expect a very high per capita investment. Well, there is our program, those two things. They are the things that we are concentrating on and intend to concentrate on for the next few months. H.M.JR: Well, let me tell you gentlemen this. I am sitting here - I mean, I just don't get the feeling. Now, it may be necessary for me to go in to the field for two or three days myself, because this is so serious there is no use sugar-coating it. There is nothing that anybody has told me yet that makes me believe we will attain the goal announced in Baltimore. Now, maybe it is because I don't know, see. Maybe everything is lovely MR. GRAVES: No, everything is not lovely. 336 - H.M.JR: Maybe everything is all right, but-MR. GRAVES: Everything is not. H.M.JR: But Harold, nothing has been shown me that will attain anything like-- MR. GRAVES: You are never going to attain that goal except by a great deal of awful hard work, and it is going to take a long time before we will ever get our monthly sales up to what we might regard as an ultimate level. H.M.JR: Well, a billion a month is what I would like to see. I mean, what you had me say in Baltimore, you had me say what, a billion a month or ten billion? MR. ODEGARD: Ten billion a year in "E's." MR. GRAVES: No, I don't think you said in "E's." MR. SLOAN: Two and a half billion out of twenty- five billion was ten percent. Projecting a hundred million dollar income this year would mean ten billion dollars, was my recollection of it. H.M.JR: That is right. I say maybe the trouble is with me, but you fellows have got to do something to me or take me out by the hand and show it to me and let me see it, and that is one of the reasons, not being able to go this week, is why I sent George Buffington out this week, to be my eyes and ears, because I am really worried. Worrying isn't going to do any good, so the next thing is to do something about it. I am not one of these fellows who will sit back and say, "My God, I am so worried," but I want to do something. I feel frustrated on every-side because I don't know which way to move. MR. GRAVES: Well, there is no royal road to this thing. It is going to be a slow and tedius job. H.M.JR: Well, one thing, Harold, and you know this better than I. I personally think from what I have - 10 - 337 seen that you ought to get your commissioners - Collectors of Internal Revenue out of this. It was all right to use them as a nucleus on which to build, but now that they have got - they can't do two jobs. MR. GRAVES: We are trying to do that. H.M.JR: One thing is, I think, that they should be put back in Internal Revenue and people should be put in those places who could give it full time. MR. GRAVES: We are trying to do that. It is not as easy as-- H.M.JR: But wherever I have been and met the commissioners, I have not been impressed with them. They are a little bit above the average political hack. MR. GRAVES: Well, we have some very excellent ones. H.M.JR: Well, I haven't met them. MR. GRAVES: On the other hand, we have some very mediocre ones. H.M.JR: I must have met those. MR. GRAVES: I can think of one mediocre one that you have met, Mr. Cavanaugh in Detroit. H.M.JR: Yes. MR. GRAVES: We are setting him aside in Detroit. H.M.JR: Well, I think, Harold, it is just like certain rules I have made since you were gone. Just the way I have taken a leaf out of the President's book as far as the Navy goes. I mean, if an admiral isn't in such a mental condition that he can carry out a split-second order, out. - 11 - 338 Now, this thing has got to go and just as soon as I get my tax program out of the way, which will be Tuesday or Wednesday, I don't want to - I am not going to sit here and say, "I am worried." I am not going to find fault. But, we have got to do something about it, and I am not - I am from Missouri. Now, maybe everything is lovely, and everything is sweet, and maybe everything is fine, but - and maybe it is just because I haven't seen it. I agree with you that the thing - I have said it again and again - will fall and rise on this payroll deduction plan, and there are two places, one the Amalgamated Clothing Workers of New York and one in California, where the labor people themselves have hired somebody and the thing is going well, but with that exception I understand that is the only case where that has happened. MR. GRAVES: I didn't know about that. H.M.JR: Yes, that the labor unions themselves the AFL Sunday night told me they have hired their own men to go out and do it, and they are just going to town in California. MR. GRAVES: Oh yes, you mean in connection with their billion dollar drive, yes. H.M.JR: That is just in California, and I hear the Amalgamated Clothing Union have done the same thing in New York. They have hired their own person to work with their own people. But just as soon as I catch my breath after the tax bill, I am going to take off my coat and vest. I went through the same thing with Farm Credit. Maybe you think everything is lovely-MR. GRAVES: No, it isn't. but I went up against it and Mrs. Klotz went through it. They had me locked up there, and we just couldn't jam those mortgages through, and people were being foreclosed, and we just couldn't get the H.M.JR: thing through, but we licked it. 339 - 12 MRS. KLOTZ: You went out in the field though. H.M.JR: Yes, I know I did. MRS. KLOTZ: You went out many times. H.M.JR: And maybe that is the answer. But as I say, all I want to do, I want to help. I don't want to complain, I want to help. But I want you to know that maybe this is a temporary slump, but I am afraid it isn't. MR. GRAVES: Well, I don't - haven't viewed it as a slump particularly, beyond - except by comparison with January. MR. ODEGARD: Our total sales this month, Harold would run what, seven hundred million? MR. GRAVES: About that. They are-MR. ODEGARD: Which, as against slightly over a billion in January, is-MR. GRAVES: million. .six hundred and twenty-three H.M.JR: But this is the way I figure that this thing would go on a per day basis. If they did a billion and sixty in thirty days - is that right? MR. GRAVES: That is right. H.M.JR: In thirty days, that is about thirty-five million a day. MR. ODEGARD: A good deal of which was in five thousand dollar lots, people buying five thousand and fifty thousand limits in January. H.M.JR: Well, they ought to be able to remove those, but what I want - let's say it is thirty million a day. - 13 - 340 than MR. that. GRAVES: No, but the limit buying was more H.M.JR: Well, whatever it is-MR. ODEGARD: I suspect that if you took the limit buying out that the difference between January and February would not be very great. H.M.JR: Well, Haas ought to do it. MR. GRAVES: He has no way of doing it. He could do it with a lot of lag. He could probably do it - he might begin now to analyze those things. H.M.JR: Well, he ought to begin now. What I want to say is this. I don't care what it is, if it is ten million a day, then in February it ought to be eleven, and in March it ought to be twelve. It has got to grow per day. MR. ODEGARD: Well, but-- H.M.JR: It has got to grow per day. MR. ODEGARD: Of course, there are factors which effect this kind of promotion that you can't control. You can't I don't think, say that it ought to grow ten million today, twelve million tomorrow and so on in each successive month, because you get, for example, a Pearl Harbor, and something shoots things up all of a sudden, then you get-- H.M.JR: My dear-MR. ODEGARD: a pension program which-- H.M.JR: All right, all true, but you have sold and I have sold, actually sold, see, and the time to put the most pressure on is when you have the most resistance. The time to do the most advertising is when the going is the most difficult, you see. You know that. MR. ODEGARD: Sure. - 14 - 341 H.M.JR: I mean, and the company that did its advertising well in '33 got their dividends and went ahead. I mean, the people that had the nerve to go out, you see, and were that. people that had the nerve to go out in '33. there You know MR. ODEGARD: That is right. H.M.JR: And there were people who sold automobiles in '33 and who sold ice-boxes in '33. There is always some body that is just a little bit smarter than anybody else, and those are the people that go ahead. Now, if you threw in my face - well, I don't know that the Navy recruiting has fallen off equally, and that some other Government activity that iskeyed to morale has, all right, there is always an exception, and I want to be that exception by hitting a little harder and working a little harder and using some of that "sweat" that Ferdie keeps talking about all the time. This means an awful lot to me, and I just don't want to be licked, and I am afraid I am taking a licking. MR. ODEGARD: Of course there is one bright spot in the licking. H.M.JR: I am afraid I am taking a licking. I sense it. I am taking a licking, Harold. MR. ODEGARD: There is not one but several bright spots, one of which Mr. Graves hasn't mentioned-- H.M.JR: I sense I am being licked. and one is that at one plant, for MR. ODEGARD: example, where the program has been implemented as we hope it will be implemented throughout the country, the average participation is ninety-seven. The average pledge is three hundred thirty-dollars. H.M.JR: That is GE? MR. ODEGARD: That is GE, and the average of the - 15 - 342 total payroll is about fifteen percent. H.M.JR: I heard about that about three weeks ago and asked them to get the man to come down here and go to work for us, and he isn't working for us. MR. GRAVES: Oh, yes he is. MR. ODEGARD: Oh, yes. H.M.JR: Here? MR. GRAVES: Well, he is here and there. He is here all the time we want him. He has been here many times. H.M.JR: No one has walked him into here. MR. GRAVES: I beg your pardon. H.M.JR: You have got to do a job on me. You have got to resell me on this organization, because I am in the dumps on this thing. MRS. KLOTZ: Poor Mr. Graves. H.M.JR: No, don't say that. MR. ODEGARD: We had Mr. Neal, Mr. Secretary, make a report on the GE telling exactly, step by step, what they did. That report is now at the printers. It is going to be a beautiful job. We are going to send copies to thirty-nine thousand firms. list. MR. GRAVES: Well, the whole of Mr. Haas' mailing H.M.JR: Well, when I first asked about it they said we were getting out our own, do you remember? MR. GRAVES: That is right. H.M.JR: And from that day to this I just don't - 16 - 343 know. It has been a blank wall, Harold. you. MR. GRAVES: That is my fault. I should have told H.M.JR: It is your fault. MR. GRAVES: But we have not put that man on our payroll. I offered him that, and he didn't want it. H.M.JR: But that isn't - I mean, I hope I am wrong, but I sense that this thing is on the skids. MR. GRAVES: Oh, it isn't on the skids. It is that way (indicating up) on the skids, I would say. H.M.JR: Well, beginning with next Wednesday, my time is yours. Now, you try to prove to me that this thing is going up. MR. GRAVES: Would you like to take a turn around the country? I think that you really can't learn anything about this unless you do. yes. H.M.JR: I will take a turn around the country, MR. GRAVES: I think it would be nice if you would go to the important places. When I say important, I mean relatively important, New York and-- H.M.JR: I will take a turn around, but don't take me to New York. MR. GRAVES: Well, that is one of the very most important spots. H.M.JR: All right. MR. GRAVES: And I think you would be very much interested to see how they are tackling this payroll allotment plan. 344 - 17 H.M.JR: But now remember, if I go with you and Ispot, see Harold. things I don't like, I am going to say so on the MR.GRAVES: Right. 2 H.M.JR: And if I hurt somebody's feelings it is just too bad. MR. GRAVES: Of course, as to that, in New York our people who are working on this payroll allotment-H.M.JR: Are volunteers. MR. GRAVES: Yes, they are volunteers. H.M.JR: Well, I can't help it. MR. GRAVES: And I think it would be unwise to say anything on the spot that would make them fold up and quit. H.M.JR: Well, maybe that is what they need. MR. GRAVES: No. H.M.JR: But, Harold, you have thrown that into my face until I am sick and tired of it, that I can't criticize the radio programs because they are given to me. The most expensive thing in the world is a gift. MR. GRAVES: I don't think I ever said that about a radio program. H.M.JR: Well, Ferdie Kuhn has said it over and over again. MR. GRAVES: But I have said it about our people. H.M.JR: Well, Harold, maybe the volunteer group is wrong, but if I am going to go out and I see the people only putting in twenty-five percent of the effort-- - 18 - 345 MR. GRAVES: You won't see that. I wasn't thinking of that. I was - because these people in New York like Bruce Smith, and Bruce, who is detailed to us by the American Telephone and Telegraph Company and others are certainly working long hours and they are working hard, and I think they are doing a good job. I certainly feel they are doing a much better job than anybody we could get to replace them. That is what I meant. H.M.JR: Well, I will try to plan it so that I can go out with you. MR. GRAVES: I wish you would. I would like you to go there, and I would like you to go to Chicago. H.M.JR: It depends on what Buffington tells me when he gets back. MR. GRAVES: Yes. H.M.JR: But, I am from Missouri. I want to be sold. I am asking to be sold. MR. GRAVES: You see, our job, Mr. Morgenthau, is a job of reaching - well, just to simplify this a little bit, it is a job of reaching seven thousand odd companies and in one way or another reaching the people who work for those seven thousand companies, and our method is to rely on these local committees, and those local committees recruit these volunteer people and send them out, company after company. They first sell the management, and then try to sell; with the cooperation of the labor people, the personnel, and it is a slow tedius thing. You take the Treasury Department, our own Department, where we have a payroll allotment plan. A great deal ought to be done that we haven't had the time or energy to do to bring up participation in the Treasury Department. H.M.JR: You see, Harold, here is the thing. I am going out with an open mind. I have got no preconceived notions, no hobbies or nothing, but just remember this, that from the minute I go on the Hill, the fight is on - 19 - 346 for savings through legislation. MR. GRAVES: Yes. H.M.JR: And that is one of the many reasons why I have got to be sold that this is right. Now, I keep saying so publicly. In this room I can tell the four of you that I have my doubts, but toward the public I have said consistently, "I want to do it on a voluntary basis." Now, I hope I am right, but it is the easiest thing in the world, just at the turn of the hand, to get the thing through by legislation. I think it is all wrong, but If I go out with you, I go out with you with an open mind, but I am telling you beforehand if I see something that is wrong, I am going to say so. MR. GRAVES: I don't think you will see anything that is wrong. I mean, anything of major consequence. You will remember, maybe-- H.M.JR: Now, maybe everything is fine and maybe I am seeing something under the bed. MR. GRAVES: I don't want to give that impres- sion. H.M.JR: Maybe I am just seeing things under the bed, but I see other departments here in Washington just because things are done this way, and they are just using the - using the Army as an example, because they have done this thing, they have got to deal with so many thousand factories and so many thousand employees, and they are not getting the production, and they are not getting what we need, and nobody can change that thing, because it has been done that way for twenty odd years. MR. GRAVES: Certainly they can't say that about our project, because this is the first thing of its kind that has ever been done. H.M.JR: Yes, but the fact is, Harold, it is eight months young. We may be wrong. Maybe we are right. I - 20 - 347 will promise you I will go out with a completely open mind, praying every night that everything is right, see. find-- MR. GRAVES: Well, in the main, I think you will H.M.JR: And I know that you have done everything that anybody can do, and better than anybody can do, see. MR. GRAVES: No, I disagree about that. H.M.JR: Well, you have set up a swell organization, and the people around in it and nobody can do any better than you have, and I have watched the thing, and I have been criticizing myself. This is my favorite child, my pride, my joy, and I don't want my child to go sour on me. MR. GRAVES: I agree with you. H.M.JR: But nobody could have done more than you have, but through this thing and this thing which I have approved step by step, maybe I have been wrong. MR. GRAVES: No, I don't think so. H.M.JR: Well, I may be, but Harold, if I could get this thing over, this is the only thing that I have got with you and Odegard and Kuhn. We are being awfully frank. I think if you fellows - you get too determined that there is one way down that street and that nobody passes. I don't think you have always been right, because you are human just the way I am. MR. GRAVES: Well, I certainly make no claim to be right. H.M.JR: You are just as human as I am, but I think every once in a while something comes up on this thing and I think that the three of you have been just a little bit too single tracked, see, and all I keep pounding is to say, "Let's reexamine ourselves. My God, that is all I am asking for, Peter, what? - 21 - 348 MR. ODEGARD: That is right. H.M.JR: That is fair, isn't it? MR. ODEGARD: Sure, we ought to do it all the time. H.M.JR: Let's reexamine ourselves. All I am asking here is to do to this what I had Harold Graves do to the rest of the Treasury for seven years, constantly challenging ourselves, is this right? Now, you and Kuhn and you (Sloan), all - I mean, I can't pay for the stuff that you have given me. The Government can't pay for the time and thought and energy and affection that you give to your work, but on the other hand, and I have approved every step that you have made, done. I am a part of this thing, but I want to challenge what we are doing. MR. ODEGARD: Mr. Secretary, no one has been more has done more than Mr. Graves, who has challenged it at every step of the way, even when Ferdie and I thought the things were pretty good. H.M.JR: Well, I may be a hundred percent wrong, but I think it is time that I go out in the field for two or three days. MR. GRAVES: I think that would be very good. MR. KLOTZ: At least if it would do nothing more than reassure you, you see. H.M.JR: Reassure me or-MRS KLOTZ: Or show things up. MR. GRAVES: You couldn't help, in my opinion - I know nothing about Pennsylvania, because I have not visited Pennsylvania since they organized. I don't think you could help being reassured if you were in Chicago or New York and really spent some hours going over this. H.M.JR: I will try to plan it so that next Wednesday or Thursday we will get away. - 22 - 349 aboutMR. it. GRAVES: And you won't say anything to them H.M.JR: To who? MR. GRAVES: To the people we are going to visit? H.M.JR: No. MR. GRAVES: All right. H.M.JR: We will sit in the back row with dark glasses on. MR. GRAVES: Well, I think you will have to talk to these people. H.M.JR: Well, but we will arrive in the city in the morning with no Secret Service and no city police and no motorcycles. MR. GRAVES: We will have to tell them you are going to come so they can have the people there. H.M.JR: Well, they can call them up. We will see. MR. GRAVES: I was going to remind you, not by way of any excuse or anything of that kind, that I'once told you when we had a similar talk that it would be May before we would elevate bond sales of the kind that we are trying to make to anything like a satisfactory level. You asked me about it, and I told you that it would be it would take that long for the payroll savings thing to take hold in anything like the proportions necessary to give you sales in the volume that you had in mind. We were then talking about "E" bond sales of five hundred million dollars a month. You remember that, don't you? H.M.JR: Vaguely, Harold. There is so much happens each day that it is very hard. MR. GRAVES: I still would have that in mind as being about the best we can do. - 23 - 350 H.M.JR: Five hundred? MR. GRAVES: No, I am now talking about the dollar volume. I am saying it will be May. H.M.JR: Yes, but how much by May? MR. GRAVES: Well, I would hope that by May we would have all. enough of the "E" Bond to make a billion dollars in MR. ODEGARD: A month? MR. GRAVES: A month. H.M.JR: How much would that be of the "E"? MR. GRAVES: I think three quarters of a billion. The "F" and "G" Bonds have been so far two hundred sixty- six million out of a total of-H.M.JR: How much? MR. GRAVES: Two hundred sixty-six million out of a total of six hundred twenty-three million. I may be a little high on my "E" Bond there, Peter. MR. ODEGARD: I was going to say six fifty. MR. GRAVES: Yes. But I think that that is attainable, that you can bring your total of Defense Bond sales up to a billion a month and have it hang there or perhaps go higher than that, but you can't do that in March nor April, and I don't know whether we can do it in May-H.M.JR: Well, May is only two months off. MR. GRAVES: That is right. It is going to be May before this thing has taken hold sufficiently. H.M.JR: That is only two months off. - 24 - 351 MR. GRAVES: That is right. H.M.JR: Well, anyway, I am glad I have had this talk. I don't know whether you are or not. MR. GRAVES: Very glad. H.M.JR: But for whatever it is worth, and don't let this talk get out of this room, gentlemen. MR. GRAVES: No. O.K. H.M.JR: Don't let's let it get out of this room. 352 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 26, 1942 TO Secretary Morgenthau FROM Mr. Kuhn This is to tell you of the steps leading up to the "Bomber for }acArthur" project which first appeared in the Washington Post on February 4th, and was first announced on radio station WJSV early that same morning. Early in January, Mr. Carlton Duffus of our Defense Savings Staff, who is in charge of special activities in the promotion field, suggested to his group that the "Buy a Bomber" campaigns in other cities should be extended to Washington. He placed this work in the hands of Mr. James Moran of his staff, who has charge of special activities in the southeastern states, including the District of Columbia. Mr. Moran first approached Mr. Jess Willard, manager of Station WJSV, who wanted such a campaign directly linked in some way to General MacArthur. Mr. Moran next approached the Washington Post which expressed its willingness to participate, and the project was then cleared and approved by Mr. Hugh Lynch, Administrator of the Defense Savings Staff for the District of Columbia. In the last week of January, Mr. Duffus told Mr. Moran "Be sure that we are absolutely clear with the Army Air Corps." Accordingly, Mr. Moran approached Colonel Arthur Ennis, in charge of public relations for the Army Air Corps. Mr. Moran outlined the plan, and Colonel Ennis said "That's swell" or words to that effect. Mr. Moran next said that we would like an official blessing from General Arnold before proceeding with our campaign. Colonel Ennis said that could be arranged, and turned Mr. Moran over to lajor Kerwood, one of his assistants in the public relations office of the Army Air Corps. -2- 353 On or about February 2, Mr. Moran visited Major Kerwood again to ask for a telegram from General Arnold. Major Kerwood said "What do you want General Arnold to say?" Mr. Moran said that he simply wanted General Arnold to put the stamp of official approval on our plan and to do so in a telegram which could be published in the Washington Post and read over the radio. Major Kerwood promptly wrote a telegram for General Arnold's approval, Mr. Moran suggesting one or two changes, and Major Kerwood said that he would get the telegram approved as promptly as possible. The next day, February 3, Mr. Moran telephoned Major Kerwood to ask whether the telegram had been approved. Major Kerwood said that the Washington Post would have it in plenty of time for publication the following morning, February 4. At no time during these negotiations did Mr. Duffus, Mr. Moran or any of our staff have any personal contact with General Arnold on the subject. Fudenand Kudn. g. These are the facts as we remember them, to the best of our recollection. baulton Duffer Subscribed and Rwarm to before me by Farbinant Kaha, Jr. andton suffers and James & maran this 26th day of Fabing a. D. 1942 Samuel it. marks vatar Public. R my common entires nov 14, 1942 354 As soon as you saw the Washington Post of February 4th, steps were taken to bring this campaign to an end. A record of your telephone conversations with Assistant Secretary of February War McCloy of 4th. is in your files for the morning 7. K. 355 # of METRO GOLDWYN MAYER PICTURES T LOEW BUILDING-1540 BROADWAY NEW YORK OWARD DIETZ February 26th, 1942 Dear Mr. Secretary: Your thoughtful letter about "JOE SMITH, AMERICAN" was received with pride and I an sending a copy to the producer, the director and the chief players. It has been too long since I've had the pleasure of talking directly to you but at the same time I should like you to know that there has been no let-up in our industry activity on behalf of the serviceable work which you have so ably stimulated. Sincerely, Mr. Henry Morgenthau, Jr. The Secretary of the Treasury, Washington, D.C. HD:BL 356 TREASURY DEPARTMENT DEFENSE SAVINGS STAFF NEW YORK HEADQUARTERS-1270 SIXTH AVENUE, NEW YORK. N. Y -CIRCLE 6-3100 ALBANY BUFFALO STATE BANK BUILDING MARINE TRUST BUILDING ROCHESTER LINCOLN ALLIANCE BUILDING February 26, 1942 NEW YORK STATE COMMITTEE ERBERT H. LEHMAN MORARY CHAIRMAN HD PATTERSON JR. STATE CHAIRMAN LYTLE HULL VICE CHAIRMAN FORD TE ADMINISTRATOR Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. D. SMITH ASSOCIATE STATE ADMINISTRATOR Dear Henry: W. DOUGLAS HAIRMAN GREATER NEW YOR COURTLANDT D. BARNES E-CHAIRMAN WARD H. LETCHWORTH I wish to thank you for your note concerning the double page spread in the New York Times. ARMAN, LPSTATENEWYOR OSCAR SOLBERT Vice CHAIRMAN EXECUTIVE COMMITTEE by EMERSON CHAIRMAN YARD POPE VICE-CHAIRMAN This idea came from Clarence Pritchard, a volunteer member of our staff, and we hope it will stimulate backward concerns to make up their minds that the Payroll Savings Plan should be promptly adopted. BRUERE COLUMBUS GENE O DONOVAN With best wishes, ARTHUR GETMAN GIFFORD HEIMANN KUDNER LYONS MYERS Sincerely yours, sirk. W. REYBURN G. ROUSE SCHNEIDERMAN Richard C. Patterson, Jr. STREBEL FORDEFENSE BUY UNITED STATES SAVINGS BONDS BONDS Daily changes in the stock of Series E savings bonds on hand 1 (In thousands of pieces) : Number of : Number of pieces : Stock on hand at close of : manufactured :pieces sold day : this day : : : this day IBM deliveries this day 2,000 : Feb. 10 193 705 17,712 159 695 18,248 - 11 220 640 18,668 - 12 13 144 370 18,894 14 87 15 none-closed none-closed none-closed 18,807 18,807 16 363 535 18,979 17 89 800 19,690 2,500 1,000 18 218 800 20,272 1,000 19 160 800 20,912 1,000 20 193 800 21,519 1,000 200 21,319 22 none-closed none-closed none-closed - 21 21,319 23 214 800 21,905 24 55 800 22,650 25 104 800 23,346 Office of the Secretary of the Treasury, Division of Research and Statistics. 1 - - - - - 1,600 700 February 26, 1942 Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices, (3) Federal Reserve Bank issuing agents, and (4) Treasury vaults in Washington. UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Twenty-one Business Days of February and January 1942 and December 1941 (February 1-25, January 1-24, December 1-24) On Basis of Issue Price (Amounts in thousands of dollars) $ 78,063 278,485 $128,428 388,500 $ 73,206 356,549 46,761 220,128 516,928 57,043 221,015 226,688 22,389 116,098 - 10,282 $623,438 $794,986 $365.174 153,483 January : 1941 : 1942 over : February January over December : 1942 December over : January - 39.2% -$ 50,365 - 110,015 $ 55,222 235,017 - 28.3 - 160,379 - 31.0 - 18.0 887 290,240 34,654 104,917 -$171,548 $429,812 - : Office of the Secretary of the Treasury, Division of Research and Statistics. January : Total : Series G - Banks : January : Series E - Total Series F Banks February February Percentage of Increase or Decrease (-) : Series E - Banks : Series E - Post Offices or Decrease (-) : : Item Amount of Increase : Sales over : December 75.4% 153.1 - 0.4 128.0 154.5 90.4 - 21.6% 117.7% February 26, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. CONFIDENT UNITED STATES SAVINGS BONDS Daily Sales - February 1942 On Basis of Issue Price (In thousands of dollars) Post Office Date Bank Bond Sales Bond Sales Series E Series E Series F Series G $ 8,435 $ 34,150 3,572 4,893 4,257 4,310 3,023 $ 6,191 $ 19,795 7,887 16,537 16,149 23,510 10,039 2,793 3,937 2,367 3,829 2,019 19,518 18,515 14,640 18,620 6,174 5,486 3,902 3,279 3,293 2,710 1,714 25,354 11,794 9,782 14,670 9,026 5.740 3,071 1,109 1,487 1,584 1,047 5,741 2,639 2,992 3,147 3,231 3,827 22,405 4,285 13,911 9,167 11,769 11,733 3,212 4,490 1,642 1,483 $ 78,063 All Bond Sales Total Series E Series F Series G $ 60,136 $ 42,585 $ 6,191 30,199 38,989 33,156 45,958 18,233 11,459 21,430 20,406 27,820 13,062 $ 19,795 $ 68,572 2,793 3,937 2,367 3,829 2,019 19,518 18,515 14,640 18,620 6,174 33.770 43,882 37,413 50,269 21,256 16,265 12,679 7,637 7,781 4,385 1,152 44,690 25,581 18,906 24,035 14,458 7,005 30,839 15,695 13,061 17,963 11,736 7,454 3,071 1,109 1,487 1,584 1,047 16,265 12,679 7,637 7,781 4,385 1,152 50,176 29,483 22,185 27,328 17,168 8,719 39,365 8,187 29,745 19,969 19,362 22,208 28,147 5,924 16,903 12,313 14,999 15,560 3,212 1,715 1,401 1,455 3,193 13,748 3,211 14,118 9,401 6,138 7,282 1,715 1,401 1,455 3,193 13,748 3,211 14,118 9,401 6,138 7,282 12,015 2,339 6,222 2,703 1,148 1,697 45,107 10,826 32,737 23,115 22,592 26,035 7,784 1,623 9,663 22,502 5,109 17,582 16,504 3,980 7,705 2,703 1,148 1,697 7.784 1,623 9,663 $278,485 $ 46,761 26,991 6,751 19,065 $220,128 $545,375 $356,549 $ 46,761 Total February 1942 2 3 4 6 7 9 10 11 12 13 14 16 17 18 19 20 21 23 24 25 Total 113 690 113 690 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. $220,128 $623,438 February 26, 1942. 360 February 26, 1942 John Sullivan Secretary Morgenthau If you are well today, I wish you would get together with Callahan of the Defense Bonds Staff. I understand that he has a whole program worked out for publicity in the newspapers, radio, etc. from the 1st to the 15th of March. I don't know what the Bureau of Internal Revenue has planned, but I wish you would handle the whole thing because the more publicity you can get from now until the 15th the better. Please give me a one-page memo, or two pages if necessary, on what you are proposing to do the first two weeks in March. submitted - 3/26/42. 361 MEMORANDUM February 26, 1942. TO: The Secretary FROM: Mr. Sullivan SUBJECT: Tax Publicity from March 1st to 15th. On receipt of your memorandum I sent for Mr. Cann and Mr. Callahan and we discussed the publicity program already put into effect by the Bureau and the program as outlined by Mr. Callahan. I am attaching herewith a copy of the Bureau program, having given you the original some time ago. A review of the two programs reveals that many of the details recommended by Mr. Callahan have already been provided for. Other suggestions of his are additional to the program now in effect. We are attempting to synchronize the two programs by adding to the present Bureau program the following suggestions from Mr. Callahan: 1. The Commissioner of Internal Revenue will wire every collector of Internal Revenue to use material al- ready made available to him in five-minute radio speeches every other night from now through March 15th. 2. We would like to make three 5-minute radio transcriptions and use local radio stations on March 9th, 11th and 13th. 3. Request all commercial radio programs to play "I Paid My Income Tax Today" at every opportunity between now and March 16th. 4. Spot announcements for use by radio networks on March 14th, 15th and the morning of March 16th. 5. Assign one person from Mr. Schwarz's office to prepare and distribute human interest newsy stories, relating to the filing and payment of income tax returns, this person to be assigned to the Internal Revenue Bureau from now through March 15th. 362 2- 6. Letter from you to all newspaper editors urging editorials explaining the importance of the income tax. 72 Preparation and distribution in mat form of cartoons. 8. Treasury statement urging employers to give employees time off to file returns. JhS 363 November 19, 1941. MENORANDUM FOR Mr. John L. Sullivan, Assistant Secretary of the Treasury. The following statement outlines the steps that are being taken to bring to the attention of the public their obligations to file income tax returns and pay income taxes under the Revenue Act of 1941. The Press (1) Last year the articles "Your Federal Income Tax" were sent to more than 2,100 daily newspapers on the Treasury mailing list with a personal letter over ay signature to the managing editor of each paper (Exhibit A). The first article was released January 27, 1941. This year the number of articles will be increased to 50 or more and the release of the first article will occur on or shortly after January 1, 1942. The manuscript for these articles is in course of preparation and will be completed on or about November 24. They are to be sent to the managing editors of nearly 2,200 daily papers on the Treasury mailing list with a personal letter over my signature thanking them for past courtesies and requesting their continued cooperation. A supply of the articles will also be sent to each collector of internal revenue for distribution to the press in his collection district, (2) Separate releases, 8 or 10 in number. will be prepared and mailed to the weekly newspapers, of which there are about 11,000. These articles will be prepared on multilith or simeograph machines thus saving some of the time and money that would be involved if they vere printed. (3) Special releases will be prepared for farm journals, educational journals, labor papers, trade papers, technical journals, etc. (4) Special articles. Every year special writers from press associations and magazines call at the Bureau for information -2- 364 Memorandum for Mr. John L. Sullivan, Assistant Secretary of the Treasury. relating to income taxes upon which to base special articles to be published during the filing period. A large scrapbook in this office above many examples of the special articles used by the press last year. (5) Collectors of internal revenue in the majority of cases have close contact with the press in their respective districts. Clippings reached the Bureau showing that thousands of newspaper articles, many of which are illustrated, are published in newspapers throughout the country during the income tax filing period, evidencing the close and effective cooperation between collectors and the press. Radio (6) A year age there were sent to all radio stations listed with the Federal Communications Commission 26 items of approximately 125 words each entitled "Income Tax Brevities* (Exhibit B) and 30 Spot Announcements of about 25 words each (Inhibit c). There are approximately 900 such radio stations and to each of them was sent a personal letter over my signature thanking them for their coopera- tion in the past and soliciting its continuance. The plan this year calls for increasing the number of items in both groups and sending them to the 900 radio stations with a personal letter early in Jameary. These assouncements will stress the simplified Form 1040A. call attention to the amount of weekly income that would make a return necessary and how such of that income will be used in paying the tax. The desirability of filing returns early will also be stressed. (7) For the first time, this year plans are under way to have collectors of internal revenue make a series of radio talks to ansver questions that may be propounded as the result of an invitation extended to the public over a national hook-up. The plan is to have the questions sent to the Bureau in Washington where the answers will be prepared and distributed to the collectors for use in their radio talks. The problem of contacting the national radio chains for the purpose of having them solicit the public through the medium of the air, for questions to be answered by "Mr. Income Tax" has been taken up with Mr. Sahwars by the Deputy Commissioner of the Income Tax Unit. Notices (8) The 64 collectors of internal revenue have been furnished with a draft of a notice (Exhibit D) to be sent to all employers in 365 -so Memorandum for Mr. John L. Sullivan, Assistant Secretary of the Treasury. their respective districts with a letter of transmittal over the collector's signature, enlisting their cooperation to the extent of posting the notices in a conspieneus place on the employer's premises. The letter also asks the assistance of the employer in distributing income tax returns to those of their employees who did not file a return last year. The notice calls particular attention to the changes in the personal exemption and to the simplified Form 1040A. The notices and letters will be printed and furnished collectors for mailing to all employers represented in each collector's addressograph plate file in the Employment Tax Division. These letters and notices will go to approximately 2,171,000 employers with a total employment roll of about 33,000,000 persons. Posters (9) A poster has been prepared and 350,000 copies will be printed for distribution to post offices, banks and other establishments for display in public places. The poster deals specifically with the simplified Form 1040A and is directly applicable to that class of taxpayers who will be filing returns for the year 1941 for the first time. A statement regarding filing requirements is printed on the poster, time aiding in the general publicity program. The poster also shows the dollar tax due, 1f the 1040A return is used, thus clearly showing the taxpayer what he oves the Government is taxes based wpen the gross income received by him. Information Returns (10) The information return Form 1099 for 1942 (Exhibit E) has been improved over the form used last year by including greater details as to filing requirements and a statement as to optional use of Form 1040A. About 25,000,000 of these forms will be filed in 1943. A any of this form, which is furnished each employee by the employer, constitutes one of the major systems of advice regarding the necessity of filing returns. The 15,000,000 taxpayers who filed individual returns last year will receive returns this year from the collectors' mailing lists. The additional 6,100,000 new taxpayers will be to a great extent in the employee class, hence a great majority will be advised of their tax filing responsibility through this information form. Other Publicity Massures (11) Each year the Bureau edite a peoplet on income taxes issued by the American Automobile Association which in turn distrib- utes it to motorists. Officials of the Internal Revenue Service, 366 Nemorandum for Mr. John L. Bullivan, Assistant Secretary of the Treasury. both in Washington and the field, appear before trade organizations. Chambers of Commerce, clubs, conventions and similar bodies to an- plain provisions of the income tax lavs. Collectors endeaver to reach the farmers who are required to file returns under the new lav, through cooperation with the county agents, or county committees of the Agricultural Adjustment Administration. In these collection districts where military camps are located the collectors assign some of their deputies to assist the soldiers in the preparation of their returns. A great deal of success was attained during the last filing period as the result of arrangements made by collectors to have deputy collectors visit plants and factories for the purpose of assisting large groups of employees in the preparation of their returns. Similar action will be taken during the easuing filing period. It is felt that the publicity seasures used last year were very effective, as is evidenced by the fast that it was originally estimated that 16,000,000 income tax returns of all classes would be filed in 1941. From January 1, 1941, to September 30, 1941, 16,063,211 returns were filed. The latter number will be considerably increased by returns filed during the last three months of this calendar year. (4/good) Guy I. Heivering Commissioner Attached: Inhibits. This letter beering the pen signature of Commissioner Helvering was tionssent list.to all radio stations, about 900, ea Federal Communica- TREASURY DEPARTMENT WASHINGTON 367 OFFICE OF COMMISSIONER OF INTERNAL REVENUE February 5, 1941 ADDRESS REPLY TO ONER OF INTERNAL REVENUE AND REPER TO PUB:REL:JLM EXHIBIT "B" Dear Sirs: In past years the Radio Broadcasting Stations of the country have generously cooperated with the Bureau of Internal Revenue by broadcasting between programs, as time permitted, brief announcements, advising the people to file their income tax returns promptly. This patriotic service has been much appreciated by us, and because it was so helpful, we are anxious that you render it again this year. The Bureau estimates that fifteen million persons will file returns, practically double the number who filed them in 1940. It has increased its force of field deputies to care for this added work, but we realize the necessity of making the people more than ever income tax conscious, so that the returns will flow in in a constant stream and not in a last minute rush. Your Station can make a decided contribution to this end; and as an aid to you in doing so we are enclosing two sets of scripts for your use. A continuance of your fine cooperation will stir anew the gratitude of us all. Very truly yours, Enclosures. Commissioner. 368 INCOME TAX CREVITIES For use by RADIO BROADCASTING STATIONS Suggested items of timely public interest to fill gaps between scheduled programs and Spot Announcements Prepared by TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE WASHINGTON, D. C. 1941 369 INCOME TAX BREVITIES NO. 1 An Important Message From Your Uncle Sam. Here is an important message from your Uncle Sam. When you pay your income tax, you contribute to the National Defense program. Now is the time to make out your income tax return and file it with the nearest Collector of Internal Revenue. If you wait, and everybody else waits, until March 15, to perform this duty, you may not make the deadline. Have you ever been in one of those long lines at an In- ternal Revenue office the last week of the filing period, waiting restlessly for service? What a waste of time and money! you exclaim. Did you ever stop to think that you may be the cause of that waste? That you are the source of your own annoyance? Save your time and save your money by filing your income tax return early. National Defense cannot afford to wait. 370 INCOME TAX BREVITIES NO. 2 Who Files an Individual Income Tax Return. Individual income tax returns for the calendar year 1940 must be filed by - 1. Single persons, or married persons not living with husband or wife, having a gross income of $800 or more; and 2. Married persons living together and having a combined gross income of $2,000 or more. The liability of a citizen or resident of the United States to file a return is determined by his status as a married or single person and the amount of his or her gross income. If a single individual received $800 or more or a married individual received $2,000 or more, but finds that allowable deductions make his return nontaxable, that does not relieve him of the responsibility of filing a return. There should be no doubt in your mind as to your liability for filing a return, if you are a single person and received $800 or more or if you are a married person and received $2,000 or more. There is certainly no doubt at all about your responsibility to aid the National Defense by filing your income tax return promptly. .... 371 INCOME TAX BREVITIES NO. 3 How to Make Out Your Income Tax Return. If you have ever made out an income tax return, you know that your Uncle Sam gives you ample instructions how to do it. Attached to the Form you will have to use you will find two pages of directions on how to fill out the return and compute the tax. Read the instructions over until you understand them before you begin to answer the questions on the Form you are filling out. Should you not understand the instructions, consult with or write your nearest Collector of Internal Revenue. He will answer your inquiries, and settle your doubts. Why not do this today? When you put off filing your income tax return, you are delaying the National Defense program. That you do not want to do. 372 INCOME TAX BREVITIES NO. 4 Service to the Income Taxpayer. Uncle Sam offers an almost unrivaled service of help to the income taxpayer. Attached to the sixty-four Internal Revenue collection districts in the United States are more than 4,000 field deputies. In as many of these districts as possible, and necessary, the Bureau of Internal Revenue conducted schools of instruction for this corps of field deputies, the purpose being to train them for income tax work. Where the school was not feasible, the Collector held classes in his office for the new personnel, to acquaint them with the duties they are now performing. Even this augmented and highly trained force cannot properly serve the millions who will file returns unless they cooperate with the Collectors by filing promptly. This year the Collectors collect the defense tax at the same time they do the income tax, and will handle double the number of returns handled last year. 373 INCOME TAX BREVITIES NO. 5 Your Income Is Reported by Others, too. If you are liable for filing an income tax return, do it now. Uncle Sam has many ways of finding you out. Your employer, no matter who he is, must file with the Collector of Internal Revenue your name and the salary or wages he paid you in 1940, also the bonuses or other forms of compen- sation, if the gross amount is $800 (if you are a single person), or $2,000 or more (if you are married). You will get a form, if your name is on the tax rolls; but if you do not, this does not relieve you of the responsibility of filing a return. The Collector of Internal Revenue nearest you will send you the Form you need, if you apply to him through the usual channels of communication. This may be the first time you have ever filed a return. If so, it is a proud moment in your life. When you pay an income tax, you share in the defense program. Sharing in that is not only a duty but a great privilege. .... 374 INCOME TAX BREVITIES NO. 6 Use the Right Form in Making Out a Return. Income tax returns are filed on Form 1040 and Form 1040-A. Those who paid income tax last year have already received a Form for this year's filing from the Collector of Internal Revenue. If the form received this year is not the proper one as indicated by the instructions on the form, application should be made to the Collector for the proper form. This year several million persons who never before paid an income tax will have to file returns. Many of these individuals will make a contribution to the National Defense program. They can get the proper Form by applying to the nearest Collector of Internal Revenue. If the individual's gross income in 1940 was not in excess of $5,000, and was received from salaries, wages, dividends, interest or annuities, he should use Form 1040-A in making out the return. If it was in excess of $5,000, or was received from other sources regardless of amount, Form 1040 should be used. Avoid running into difficulties by using the correct Form. 374 INCOME TAX BREVITIES NO. 6 Use the Right Form in Making Out a Return. Income tax returns are filed on Form 1040 and Form 1040-A. Those who paid income tax last year have already received a Form for this year's filing from the Collector of Internal Revenue. If the form received this year is not the proper one as indicated by the instructions on the form, application should be made to the Collector for the proper form. This year several million persons who never before paid an income tax will have to file returns. Many of these individuals will make a contribution to the National Defense program. They can get the proper Form by applying to the nearest Collector of Internal Revenue. If the individual's gross income in 1940 was not in excess of $5,000, and was received from salaries, wages, dividends, interest or annuities, he should use Form 1040-A in making out the return. If it was in excess of $5,000, or was received from other sources regardless of amount, Form 1040 should be used. Avoid running into difficulties by using the correct Form. 375 INCOME TAX BREVITIES NO. 7 The Passing of the Green Sheet. Those who file income tax returns this year will find their labors cut in half. No duplicate return need be filed. The Green copy is out. In former years millions of green copies were filled out by those who filed returns. That consumed a lot of time and a lot of paper. The green copies were for the use of State authorities, checking for the benefit of county and municipal authorities in determining liabilities for political sub-division taxes. They served their day - well and faithfully. The States and counties and towns now have their own lists of taxpayers. If, however, they wish to see any of the Federal returns, they can do so - upon written request of the Governor of the State, designating the representative of his State to make the inspection. No taxpayers mourn the passing of the green sheet. If you do not file your income tax return promptly, and that slows up the National Defense, many of us may mourn. .... 376 INCOME TAX BREVITIES NO. 8 Information Returns. An individual income tax return consists of a single folded sheet of paper, on which the filer reports his gross income and other required data. The Bureau of Internal Revenue checks this information to see if it is correct. Employers and others are required to report, under oath, on Form 1099, all "payments of fixed or determinable income to another, in the calendar year, of $800 or more." Payments of salaries, or other compensation for personal services, aggregating less than $2000 made to a married individual are not required to be reported. These reports are attached to the income tax returns, and the auditor uses them as a check against the taxpayer's figures. Last year 21,350,000 "information at source" reports were filed with the Commissioner of Internal Revenue. Form 1099 is a monitor, aiding you to be accurate in making out your income tax return and assisting the revenue agent to check. National Defense says: Why not do it now? 377 INCOME TAX BREVITIES NO. 9 The Head of a Family. The Internal Revenue Code recognizes only two classes of individuals who are liable for income tax - single persons and married persons. It makes provision, however, in the personal exemptions, for another person, who is called "the head of a family." This person may be single, or a widowed father or mother. As defined by the Regulations, for income tax purposes, the head of a family is: an individual who actually supports in one household one or more dependents who must be closely connected with him by blood, by marriage, or by adoption. His right to govern this household and support his dependents must be based on a legal or moral obligation. As such, he may claim $2,000 exemption. Nevertheless he will be required to file a return if his gross income for the year is $800. or more. The head of a family has an important place in society, and the law recognizes it; but it does not relieve him of the duty of filing an income tax return, even though it is non-taxable. If it is taxable, it is his privilege to share in the National Defense. .... 378 INCOME TAX BREVITIES NO. 10 Hymen and Your Personal Exemption. 1 Poets and income tax experts alike pay tribute to Hymen, the god of marriage, though, truth to tell, the tax experts concern themselves only with the financial status of the newly-weds. Consider the case of two young persons, each having incomes, who were married on June 30, 1940. In their conjugal state their tax liability depends upon their combined gross income. But what about their exemptions? Each was single six months of the year; they have been married for six months. The law allows them to prorate their exemption on this basis; each $400 for the first period of the year, unless they were in fact entitled to a head of a family status, and together $1,000 for the second period. If either of them was the head of a family during the first six months of the year, he or she would be entitled to a prorata share of a personal exemption of $2,000. Their interest in this, however, is not so great as their interest in National Defense. All the more reason why they should file their returns now. 379 INCOME TAX BREVITIES NO. 11 Deductions for Losses. Losses sustained by an individual may be deducted from his gross income on his income tax return. To be allowed, however, they must follow closely the wording of the Internal Revenue Code. Losses to the extent not compensated for by insurance or otherwise are deductible if incurred 1. In the taxpayer's trade, business or profession; 2. In any transaction entered into for profit; 3. From fires, storms, shipwreck, or other casualties, or from theft. Losses from wagering are deductible only to the extent of the gains received from wagering. The net loss from such transactions may not be deducted from income received from other sources. In general, such losses must be actually sustained during the taxable period for which they are claimed and must be bona fide and identifiable by evidence that can be checked. 380 INCOME TAX BREVITIES NO. 12 Deduction for Traveling Expenses. In the conduct of a business, traveling expenses is an important item with many income taxpayers. Such expenses are deductible from the filer's gross income on a return; but the Bureau of Internal Revenue lays down certain regulations which must be observed to obtain the deductions. The expenses must be reasonable and legitimate, and neo- essary to the operation of the business in which the taxpayer is engaged. The taxpayer must set down the number of days he was away from home during the taxable year on account of business, the total sum he paid for traveling, for lodgings and for meals, and the amounts of "other expenses" incident to his journeyings. Tipe, provided they are reasonable in amount, may be included in "other expenses". 381 INCOME TAX BREVITIES NO. 13 Income Tax Filing Basis is Now Gross Income. The liability for filing a Federal income tax return this year is bared on gross income. Heretofore it was based on net income. For tax purposes, generally speaking, gross income includes gains, profits and income derived from salaries, wages or compensation for personal service of whatever kind and in whatever form paid, or gains or profits and income derived from any source whatever, except gifts, inheritances, and other items specifically excluded by law. The regulations say that all amounts received, including prizes, awards, bonuses, retiring allowances for past services and honorariums of every kind are part of one's gross income. Professional men have many sources of income to report. A minister of the gospel, for instance, if he is liable, must return, in addition to his salary, all the fees he received for any rite or office of the church he may have performed. Income tax paid contributes to the National Defense. 382 INCOME TAX BREVITIES NO. 14 What You Get For Your Income Tax. The person who pays an income tax gets a bigger return on his money than does the taxpayer of any other civilized country in the world. It is a token of his citizenship. To be an American is to be the peer of any man. It guarantees him the protection of the most powerful Nation on earth. Without the revenue derived from this tax, much of the power of the Nation would diminish. It makes him a partner with his Government in all of its activities. That is a great inspiration to the honest pride and self-respect of any man. It safeguards those inalienable rights guaranteed him by the great charter of his liberties - the Constitution. No man who is not ashamed of his country should or does think it anything but a privilege to pay an income tax. This year there is a tremendous incentive for doing so - the National Defense program is financed substantially through the income tax. The more reason to file your return now. .... 383 INCOME TAX BREVITIES NO. 15 Why Overpay Your Income Tax? Last year many persons made errors against themselves in their income tax returns, and paid the Government more than they owed. Uncle Sam will refund these overpayments. Much of this might have been avoided, if the taxpayer had followed the instructions in making out his return. By filing a correct return he can save himself time (which once gone, can never iss recaptured), and money (which he may need while it is in Uncle Sam's hands). While the instructions accompanying the tax forms are carefully prepared, if you are in serious doubt as to the accuracy of your income tax return, consult the nearest Collector or Deputy Collector of Internal Revenue. Use this service now if you really need help. National Defense cannot wait. INCOME TAX BREVITIES. 384 NO. 16 Items Exempt From Income Tax. There are several items of income that are exempt from the Federal income tax, as follows: 1. Proceeds of life insurance paid by reason of the death of the insured. 2. Amounts received under life insurance or endowment con- tract, which are less than or exactly equal to the premiums or consideration paid therefor. 3. Gifts, bequests, devises, or inheritances. 4. Interest on obligations of the District of Columbia, any Territory, State, county, or municipality. 5: Interest on certain bonds issued by the United States Government or its possessions, and on Federal farm-loan bonds. 6. Amounts received through accident or health insurance or under workmen's compensation acts for personal injury or sickness, and damages received on account of such injuries or sickness. 7. Pensions and compensations received by Veterans from the United States for services rendered in time of war. 8. Pensions received by the family of a Veteran for services rendered to the United States. 9. Alimony and an allowance based on a separation agreement. 10.The rental value of a house and its appurtenances furnished a minister of the gospel as part of his compensation. 385 INCOME TAX BREVITIES NO. 17 A Challenge to America. "It is not enough to defend our national existence", said President Roosevelt in his Message to Congress. "Democracy as a way of life is equally at stake." This is the heart and soul, the inspiration of our National Defense program. The dictators are bent on world domination - and that means destruction of our form of government. They have challenged the ability of the democracies to em- ploy their full resources against them. Our Nation has accepted this challenge, and every resource at its command is being organized to meet it. The great army of income taxpayers has a definite part in this program - not by bearing arms, not by producing planes, not by building warships - but by providing some of the revenue for financing National Defense. Do not delay, then, in filing your income tax return. 386 INCOME TAX BREVITIES NO. 18 State, County and City Employees. Time was when the salaries of the officials and employees of States, counties, municipalities and other political subdivisions were exempt from the income tax - but those days are gone. The Federal income tax reaches taxpayers in every walk of life. Every official or employee of a State or local government unit must file an income tax return, if single and his gross income is $800 or more, or, if married, and it is $2,000 or more. The responsibility for getting the necessary income tax Form is theirs. If any of them needs assistance in filling out the return, the local offices of the Collector or Deputy Collector of Internal Revenue will help them. They, too, have a part in the National Defense program, and should not delay in filing their returns. 387 INCOME TAX BREVITIES NO. 19 Great Caesar and Your Income Tax. Great Caesar, while walking the streets of Rome, was stopped by a soothsayer, who said to him: "Beware the Idea of March!" The warning went unheeded, and great Caesar lost his life. All of us know an old gentleman whom we call Uncle Sam. A mythical person he is to every one of us, but he is the symbol of the might and power of our Nation and our Government. If you listen closely, you will hear him say: "Beware the Idea of March!" March 15th is the last day on which you may file your income tax return. If you fail to do this, you will not meet great Caesar's fate, but you will have to pay a penalty. National Defense also reminds you of great Caesar. The tax which is now being collected with the income tax will be used to keep enemies from our shores. Your duty is plain. File your income tax return now. 388 INCOME TAX BREVITIES NO. 20 Keeping Step With an Old Custom. The Bureau of Internal Revenue is using many ways to no- tify the wage earners of America that they may be liable for the income tax. Collectors of Internal Revenue have sent to all employers whose names are on the tax rolls printed notices calling attention to the important changes in the income tax law, and asked them to post these notices in conspicuous places on their prem- ises for their employees to see. This is following one of our oldest national customs. What is so familiar as the bulletin board in a courthouse, post-office, church, factory or club? People will stop to read a notice on a bulletin board who would not halt to hear someone tell them what is in that notice. Millions of men and women who have never filed an income tax return will be liable for filing one this year. Many of them work in mills and factories. They may be notified of their liability over the radio and through the newspaper, but some- how the bulletin board is part of their daily life, too. All three are used by the Government in telling the people of the National Defense program and the part the income tax has in it. 389 INCOME TAX BREVITIES NO. 21 Deductions for Contributions. Some latitude is given the taxpayer in Following deductions for contributions on his income tax return. In general, the deduction is limited, in the case of individuals, to 15 percent of the net income exclusive of contributions. The organization to which the gift is made must be an institution created and organized in the United States and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, Gifts made to the special fund for vocational rehabilitation of World War Veterans, to posts or organizations of war veterans or auxiliary units or societies of such posts or organizations, or to a domestic fraternal society, order or association, operating under the lodge system (if such gifts are used as the law indicates), are also deductible. If the contributions are made to a church, they may include pew rent, assessments, dues, gifts to a missionary enterprise, or to other religious activities. Contributions for exclusively public use may be made to the United States, as the gift of a yacht for National Defense, or to any State or political subdivision thereof - like land for a public park, .... 390 INCOME TAX BREVITIES NO. 22 The Taxpayer's Duty. In his Budget Message to Congress the President said: "The threatening world situation forces us to build up land, sea and air forces able to meet and master any contingency. It is dangerous to prepare for a little defense. It is safe only to prepare for total defense." Who disputes this? Every true American is united behind the President in the program for total National Defense. This program will cost huge sums of money. All of us know that. They are to be raised by taxation. Nobody resents that. Taxpayers - your duty is clear, Speed up National Defense by filing your income tax return now. 391 INCOME TAX BREVITIES NO. 23 Make Your Income Tax Return Accurate An income tax return made by an individual whose sole source of income is compensation for personal services is not a complex document. He was paid so much money; the instructions with the return advise him as to his exemption and as to his credits, all of his income is earned, and the credit on that account is easily computed. The tax on the balance he can calculate without difficulty if he follows the instructions with the return. In cases where an individual has wilfully made a false return, the delinquency may cost him a fine of $10,000, or five years in prison, or both, together with costs of prosecu- tion, in addition to the tax penalties. The honest person does not tempt the long arm of the law. He makes out his return accurately. This year he should file it promptly, to speed up National Defense. **** 392 INCOME TAX BREVITIES NO. 24 Filing an Income Tax Return Is No Burden. Nearly nine million income tax returns were filed in 1940, and more than half of them were not taxable. The law requires an income tax return to be filed by single persons if their gross income was $800.00 or more and by married persons if their gross income was $2,000.00 or more regardless of the fact that the net income may not be sufficient in amount to be taxable. Each individual is required to compute the tax due upon the basis of the income shown on the return. Authority to check to determine the accuracy of his computation is lodged in the Bureau of Internal Revenue. How can the Bureau determine if a return is taxable until it sees it? And how can it see it unless it is filed? A general rule establishing a base for computing the tax was found to be the only fair and reasonable method of reaching all incomes liable for taxation. Certain exemptions and credits are allowed, and the Bureau must pass on these. In all the years the income tax has been levied, no person has ever complained that the mere ministerial act of filing a return was a burden. National Defense is an added reason why you should not delay in filing now. .... 393 INCOME TAX BREVITIES No. 25 Housewives Have An Interest In Income Tax. Many housewives will file income tax returns this year: many more will remind their husbands to do 60. They, too, have a direct and positive interest in National Defense, and will want to know something about the much-talked-of income tax return. The present income tax return is the product of the common experience of tax experts within and without the Bureau, By following the instructions on the income tax form the taxpayer cannot go wrong. National Defense says: Hurry up with this! 394 INCOME TAX BREVITIES NO. 26 Wagering An A Source of Income. Gains from wagering are a source of income. Those who indulge in this pastime are required to keep a record of their winnings, and report them, in their sworn income tax returns, as part of their gross income. No wagerer wins all the time. The fabulous gamblers of history, whose luck was proverbial and whose winnings were said to be enormous, often had corresponding losses. The average wagerer sometimes finds himself on the losing end of a wager. He is not required to keep an account of such losses, but he may do 80 and report them in his income tax return as a claim for deduction from his gross income. Should the balance sheet of his wagering account show all losses and no gains, he will be allowed to deduct nothing. He can deduct no more than he has gained. That is the law. In preparing your income tax return be sure to report every item of your gross income. In this way you will be helping on the National Defense program. .... This letter bearing the pen signature of Commissioner Helvering was sent to more than 2100 newspapers on Treasury mailing list. TREASURY DEPARTMENT EXHIBIT "A" WASHINGTON 395 OFFICE OF COMMISSIONER OF INTERNAL REVENUE ADDRESS REPLY January 15, 1941. OF INTERNAL REVENUE AND REFER TO PUB:REL:JLM Dear Sir: For many years the newspapers of the country have cooperated with the Bureau of Internal Revenue by publishing information designed to assist taxpayers in preparing and filing their Federal income tax returns. For the part your paper has taken in this program I desire to express my sincere thanks. The press has been particularly helpful during the income tax filing period each year by giving widespread publicity to a series of about thirty short articles issued by the Bureau under the general heading "Your Federal Income Tax." These articles contain in- formation of vital interest and importance to the millions of per- sons whose Federal income tax returns are required to be filed not later than March 15 of each year. This year, due to important changes made by the Revenue Act of 1940, the necessity of furnishing helpful information to prospective income tax payers is far greater than usual. The new law requires income tax returns to be filed by single individuals, or married individuals not living with husband or wife, having a GROSS INCOME of $800 or more; and by married individuals living together having a combined GROSS INCOME of $2,000 or more. Last year the exemption for a single individual was $1,000 and for a married couple $2,500 A year ago the net income was used in determining the liability for the filing of a Federal income tax return, while this year gross income is the basis. For these reasons millions of persons will be required to file returns this year who were formerly exempt. These changes and other important facts will be explained in the series of "Your Federal Income Tax" articles which will be mailed to your paper within a week or two. The purpose of this letter is to thank you for your cooperation in the past, and to express the hope that your newspaper will be able to use the articles this year. Very truly yours, Commissioner. - 397 Exhibit "C" INCOME TAX BREVITIES For use by RADIO BROADCASTING STATIONS 1941 SPOT ANNOUNCEMENT Use care in making out your income tax return. This may save you time, annoyance and unnecessary expense. The sooner you file it the better. 1. 398 INCOME TAX BRATIES SPOT ANNOUNCEMENT ..... Many persons overpay the Government on their income CAX. This is avoidable if the instructions on the Form are followed. Are you in this number? 2. 399 INCOME TAX BREVITIES SPOT ANNOUNCEMENT . Uncle Sam has experts who will help you make out your income tax return. This costs you nothing. Consult the nearest Collector of Internal Revenue. 3. 400 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... When you pay your income tax you become a partner of your Government. This is a high privilege. Show your appreciation by filing your return today. 4. 401 INCOME TAX BREVITIES SPOT ANNOUNCEMENT National Defense is a burden all of us wish to share, one way or another. You contribute directly to it when you pay your income tax. Pay it today. 5. 402 INCOME TAX BREVITIES SPOT ANNOUNCEMENT The basis now for filing a return is the gross income. Remember this in making out your return, and file it promptly. 6. 403 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... If you wait until the last moment to file your income tax return, you may not get it in in time. That will cost you money. File it today. 7. 404 INCOME TAX BREVITIES SPOT ANNOUNCEMENT If you need assistance, there is a Collector of Internal Revenue or a Revenue Agent near you who will help you make out your income tax return. His services cost you nothing. 8. 405 INCOME TAX BREVITIES SPOT ANNOUNCEMENT Every single person whose gross income is $800 or more a year must file an income tax return. It may not be taxable, but it must be filed. Get yours in at once. 9. 406 INCOME TAX BREVINIES SPOT ANNOUNCEMENT Every married person living with husband or wife, if their aggregate gross income is $2,000 or more a year, must file an income tax return. Do not postpone this action. 10. 407 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... Year income tax return must be filed by midnight March 15. Why join the last minute rush? Make out your return and file it today. 11. 408 INCOME SUX BREVITIES / SPOT ANNOUNCEMENT ***** If you are the head of a family, you can claim $2,000 exemption and a credit of $400 for each dependent. Remember this, and file your return today. ..... 12. 409 INCOME TAX BREVITIES SPOT ANNOUNCEMENT A single person may be classed as the head of a family for income tax purposes. Read the instructions before making out your return, and file it now. 13. 410 INCOME TAX BREVITIES SPOT ANNOUNCEMENT . The exemptions allowed to income tax payers are $800 for a single person and $2,000 for a married person or the head of a family. 14. 411 INCOME TAX BREVITIES SPOT ANNOUNCEMENT Keep the data from which your income tax return is compiled. You may need it for verification when Uncle Sam audits it. Why not file the return today? 15. 412 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... You may pay your income tax in four quarterly instalments: the first with your return, then on June 15, September 15 and December 15. But you should file your return at once. 16. 413 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ***** Fifteen million persons, it is estimated, will file income tax returns this year. Receiving them is an immense job. Do not delay in filing your return. 17. 414 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... Ignorance of the law will not protect you, if you fail to file your income tax return. Get the Form today, if you haven't done so. And fill it out now. 18. 415 INCOME TAX BR3VITIES SPOT ANNOUNCEMENT ..... You may pay your income tax by check or by money order. Do not send cash through the mail, or pay cash to any one except a Collector of Internal Revenue. 19. 416 INCOME TAX CREVITIES ..... SPOT ANNOUNCEMENT Uncle Sam has many ways of finding out if you have not filed your income tax return. Rest easy at night by filing yours at once. 20. 417 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... There is a Collector of Internal Revenue near you who will answer any question you ask about your income tax return. Consult him now if you need help and avoid errors. 21. 418 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ***** If you wait until March 15, to file your income tax return, and everybody else does the same, many of you may not get them in. Avoid the rush. ..... 22. 419 INCOME TAX BREVITIES SPOT ANNOUNCEMENT Haste makes waste is a very old and true proverb. Your income tax return is too important to be made out in a hurry. Do it and file it now before time rushes you. 23. 420 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... Instructions on the income tax Forms will guide you in making out your return. Read them carefully now and tackle the job at once. 24. 421 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... As a good citizen, you owe it to yourself and to your Government to file your income tax return early. Be sure that it is accurate and file it now. 25. 422 INCOME TAX BREVITIES SPOT ANNOUNCEIENT ***** If you need help consult your local Collector of Internal Revenue and avoid errors in your income tax return. He will charge you nothing for his services. ..... 26. 423 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... There is always satisfaction in doing a good job. The best job income tax payers can do is to file their returns now. What do you gain by waiting? 27. 424 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... An income-tax bottle-neck is like all other bottle-necks. Only so many returns can pass through it in a day. File yours now. 28. 425 INCOME TAX BREVITIES SPOT ANNOUNCEMENT ..... The man who files his income tax return early naturally gets more convenient service than can be given to him who waits until the very last moment. 29. 426 INCOME TAX BREVITIES SPOT ANNOUNCEMENT Eight million persons will file an income tax return this year for the first time. The return is easy to prepare. Do it now and file it at once. 30. EXHIBIT "D" TREASURY DEPARTMENT Office of Commissioner of Internal Revenue 427 Washington, D. C. A&G-Mimeograph Coll. No. 5279 October 29, 1941. Distribution of Income Tax Return Blance to New Taxagyers. (Supplemental to A&C-Mimeograph Coll. No. 5123). COLLECTORS OF INTERNAL REVENUE: Reference is made to A&C-Mimoograph Coll. No. 5123, dated October 23, 1940, relative to the distribution of income tax return blanks to new taxpayers who, for the first time, were required by the provisions of the First Revenue Act of 1940 to file returns. The Revenue Act of 1941 has lowered the personal exemption bases to $750 for single individuals and $1,500 for married individuals, thus affecting a large number of individuals who, heretofore, have not been required to file returns. Therefore, as in the past, a campaign of publicity bearing upon such change will be conducted through the media of the radio, the news- papers and other publications. Collectors will be expected to augment the Bureau's efforts along this line by seeking the cooperation of local newspapers, radio stations, publishers of trade journals, etc. There is enclosed herewith a draft of a notice, a supply of which will be printed and distributed to Collectors, calling attention to the change in the income tax law, with respect to the personal exemption as provided by the Revenue Act of 1941. There is also enclosed a draft of a letter to be sent to all employers, as represented in the addressograph plate file in the Employment Tax Division, soliciting their cooperation in posting these notices in conspicuous places on their premises, and seeking their assistance in solving the problem of furnishing blank forms of returns to those of their employees who will be required for the first time to file returns. The letter to employers will also be printed and an adequate supply thereof will be forwarded to you with the printed notices. The letter will be printed on letterheads and the Collector's office will complete them by stamping thereon the district address and the Collector's name. The procedure outlined in Mimeograph Cell. No. 5122 will be followed substantially in the distribution of the several forms of returns, as well as information returns, Form 1099, for the taxable year 1941. Correspondence with regard to the instructions outlined herein should refer to the number of this mimeograph and to the symbols A&C:Col. NORMAN D. CANN, Acting Commissioner. Enclosures. 428 (Reclosure to A&C-Mimeograph Joll. No. 5279) NOTICE CHANGE IN PERSONAL EXEMPTION BASES FOR FEDERAL INCOME TAX PURPOSES The enactment of the Revenue Act of 1941 has resulted in an important change with respect to the liability of individuals for the filing of income tax returns. Individuals under the following circumstances will be required to file returns covering the calendar year 1941. Single individuals, or married individuals not living with husband or wife, having a GROSS INCOME of $750 or more. Married individuals living together having a combined GROSS INCOME of $1,500 or more. The liability of a citizen or resident of the United States to file a return is dependent upon his status as a married or single person, and the amount of his GROSS INCOME. Therefore, every citizen or resident of the United States will be required to file a return for the taxable year 1941 if his GROSS INCOME in 1941, regardless of the amount of his net income, equals or exceeds the amount specified above for his particular status. A return must be filed even though, by reason of allowable deductions from gress income and of allowable credits against net income, it develops that no tax is due. A simplified return, Form 1040A, has been provided and may be used if gross income is not more than $3,000 and if such income consists wholly of salaries, wages, other compensation for personal services, dividends, interest, rent, annuities or royalties. However, Form 1040 may be used if desired. Form 1040 must be used for GROSS INCOME of more than $3,000 from salaries, wages, interest, dividends, rents, royalties and annuities; or if any part of the in- come is derived from sources other than salaries, wages, interest, dividends, rents, royalties or annuities, Form 1040 should be used regardless of the amount of the income. While returns must be filed on or before March 15, 1942, with the Collector of Internal Revenue for the district in which the taxpayer resides, it is urged that they be filed as soon as possible after January 1st. Individuals who filed Federal income tax returns for the year 1940 will receive appropriate blank return forms from the Collector of Internal Revenue. If an individual is in doubt as to his liability for the filing of a return and if his employer has no blank return forms available, a request should be made of the Collector of Internal Revenue for the district in which the individual resides, or of any deputy collector stationed in the vicinity, for the appropriate 1941 individual income tax return blank and the printed instructions accompanying the form. Failure of individuals, under the circumstances outlined above, to file returns will subject them to the imposition of the penalties prescribed by law. (Enclosure to A&C-Mimeograph 429 Coll. No. 5279). TREASURY DEPARTMENT OFFICE OF COLLECTOR OF INTERNAL REVENUE (Designate District) Dear Employer: The Revenue Act of 1941 provides, among other things, that, effective with returns for the calendar year 1941, the personal exemption for income tax purposes in the case of single persons shall be $750 instead of $800 as last year, and in the case of married persons, living together, $1500 instead of $2000. The Act further provides (as did the First Revenue Act of 1940) that the gross and not the net income shall be the determining factor with respect to the liability for the filing of income tax returns. Naturally, the change in the law with respect to the personal exemption will affect many individuals who have not heretofore filed Federal income tax returns. Without any intention or desire to impose upon you, the purpose of this letter is to respectfully enlist your cooperation with this office to the extent of posting the enclosed notice in a conspicuous place on the premises of your establishment for the information and guidance of your employees. Additional copies of this notice may be obtained from this office upon request. While the Bureau of Internal Revenue is giving all possible publicity to important changes in the law, it is believed that with your assistance none of your employees, because of a lack of knowledge of the requirements, will fail to file returns for the calenda- year 1941 and thereby become liable to the penalties provided by law for such failure. The distribution of blank forms to individuals liable for the filing of income tax returns presents a serious problem to this office. In the belief that you would be willing to cooperate with your Government in this important task, it is respectfully suggested that you can assist further by advising this office of the number of Forms 1040 and 1040A which will be needed by your employees for the filing of their returns. Those of your employees who filed returns for the year 1940 will receive appropriate blank return forms by mail from the Collector and it will be appreciated if you will take this into consideration when estimating the number of forms you will need. Promptly upon receipt of such advice from you, the necessary forms will be immediately forwarded to you for distribution to the employees who will need them. The circumstances under which Forms 1040 and 1040A shall be used are fully explained in the enclosed NOTICE. By reason of the change in the law referred to above, it is quite possible you will be required to report an additional number of employees on Form 1099, information return (copy enclosed), and will, therefore, need more of these forms than heretefore. They are now available in this office and the desired number will be furnished you upon request. This office is reluctant to impose any serious burden upon you and yet I am sure you will realize that such cooperation on your part will mean much to this office in its desire to fully administer the revenue laws as enacted by Congress. Very truly yours, Collector. 430 Form 1099 TREASU BY DEPARTMENT EXHIBIT "g" To ISTEENAL REVENUE SERVICE WHOM Employee's social security number, PAID UNITED STATES if any (Full name and home address) (If employee la married woman name of busband should also be turnished) INFORMATION RETURN FOR KIND AND AMOUNT OF INCOME PAID CALENDAR YEAR 1941 SALARIES w AGEA INSTRUCTIONS TO PAYORS FEEA COMMINING INTEREST ON NOTES MORTGAGES ETC. OTHER FIXED OR DETERMINABLE RENTS AND ROTALTIES DIVIDENTIA FOREIGN ITEMS ($750 ca more) ISOUND (If single $750 of more disffied Prepare one of these forms for each $1,500 of more) in accordance with the instruc- ($750 or more aggresse amount of sture items) ($100 more (Total paid include Ing amounts claimed subtatable) n return Form 1096. $ $ $ $ $ $ nx include payments to nonfirst aliena reported on Form 1042. orward with return Form 1096 to reach the Commissioner of real Revenue. Returns DistribuSection Washington D. C., on SINGLE MARRIED before February 15. 1942 Copy of this form as filed with the vernment should be furnished to employee whose income is reported first column to assist him in prehis income tax return 16-23576 BY VHOM PAID (Name and address) (OVER) 431 (T. D. ) TITLE 26 -- INTERNAL REVENUE CHAPTER I PART 458 - SUBPART E Regulations governing the inspection of corporation statistical transcript cards by the Office of Price Administration. TREASURY DEPARTMENT Washington, D. C. COLLECTORS OF INTERNAL REVENUE AND OTHERS CONCERTED Pursuant to the provisions of sections 55 (a) and 702 (b) of the Revenue Act of 1934; section 106 (c) of the Revenue Act of 1935; section 55 (a) of the Revenue Act of 1936; sections 55 (a) and 602 (c) of the Revenue Act of 1938; and sections 55 (a) and 603 of the Internal Revenue Code, cor- poration statistical transcript cards prepared by the Bureau of Internal Revenue from corporation income and declared value excess-profits (termed prior to October S, 1940, merely excess-profits) tax returns made under the Revenue Acts of 1934, 1936, 1938, or the Internal Revenue Code, or under such Revenue Acts and Code as amended, for any taxable year beginning after June 30, 1935, and 432 -2ending before July 1, 1941, may be open to inspec- tion by the Office of Price Administration. The inspection of such transcript cards herein authorized may be made by any officer or employee of the Office of Price Administration duly authorized by the Administrator to make such inspection. Upon written notice by such Administrator to the Secre- tary of the Treasury giving the classes of corpora- tions whose transcript cards it is desired to inspect, the Secretary and any officer or employee of the Treasury Department, with the approval of the Secretary, may furnish such Office of Price Administration with any data on such cards or may make the cards or any of them available in the office of the Commissioner of Internal Revenue for inspection and copying by the Office of Price Administration or by such examiners or agents as the Administrator thereof may designate. The information so outained may be published or dis- closed in statistical form provided such publica- tion does not disclose, directly or indirectly, the name or address of any corporate taxpayer. (E.O. Feb. , 1942, and secs. 55 (a), 702 (b), , 48 Stat. 698, 770, 106 (c), 49 Stat. 1019, sec. 55 (a), 49 Stat. 1671, secs. 55 (a), 602 (c), 52 Stat. 433 -3478, 568, secs. 55 (a), 603, 53 Stat. 29, 111; 26 U.S.C. 55, 341, 342, 26 U.S.C. 1940 ed., 55 (a), 603.) you Secretary of the Treasury. Approved: February 26 1922 Financia The White House. 2/26 February 26, 1942 Dear Harry: Enclosed herewith find a photostat of the joint letter of Leo Crowley and myself to the President and the authority which the President signed. I am sending you herewith a copy of a telegram from Congressman John H. Tolan. I am also sending you a copy of my answer to him. After you have read the same, I would very much like to have your advice in view your lines. very extensive experience along theseofexact Sincerely, honorable Harry Hopkins, The White house. 434 435 THE SECRETARY OF THE TREASURY WASHINGTON February 12, 1942. l'emorandum for the President: You will recall that you authorized the Secretary of the Treasury to delegate to High Commissioner Sayre in the Philippines, and to Governor Poindexter in Hawaii all of your power and authority under section 5(b) of the Trading with the Enemy Act. From time to time you have approved specific memoranda submitted to you authorizing the Secretary of the Treasury to take various affirmative action under the Trading with the Enemy Act. We believe that the problems constantly arising in connection with the control of foreign property and business enterprises dominated by enemy aliens could be more adequately dealt with if you were to sign the attached memorandum delegating to the Secretary of the Treasury your authority under sections 3(a) and 5(b) of the Trading with the Enemy Act. This will avoid your being bothered with a multitude of individual cases and at the same time avoid any public delegation of powers pending final decision by you on the over-all administration of enemy property. Genny Lea Serewly 436 THE WHITE HOUSE WASHINGTON February 12, 1942 Memorandum to the Secretary of the Treasury: All power and authority conferred upon me by Sections 3(a) and 5(b) of the Trading with the Enemy Act, as amended, are hereby delegated to the Secretary of the Treasury. Moneush 437 February 26, 1942 y JOHN H. TOLAN, CHAIRMAN HOUSE COMMITTEE INVESTIGATING NATIONAL DEFENSE MIGRATION SAN francisco, CALIFORNIA. YOUR TELEGRAM OF FEBRUARY 23 HAS BEEN CAREFULLY STUDIED BY THIS DEPARTMENT. WE ARE IN AGREEMENT THAT THERE IS A GENERAL NEED FOR CAREFUL PLANNING WITH RESPECT TO THE RESETTLEMENT OF PERSONS, BOTH ALIENS AND CITIZENS, EVACUATED FROM STRATEGIC AREAS AND THAT THE PROBLEM IS ONE IN WHICH THE FEDERAL GOVERNMENT SHOULD ASSUME A MAJOR RESPONSIBILITY. WHILE THE TREASURY DEPARTMENT STANDS READY TO HANDLE ANY PROBLEMS WITHIN ITS PROPER SPHERE OF OPERATION, I AM SURE THAT YOU WILL AGREE THAT THE PROBLEMS INVOLVED IN NATIONAL DEFENSE MIGRATION ARE PRIMARILY SOCIAL PROBLEMS ENVISAGING THE UP-ROOTING OF A LARGE SEGMENT OF POPULATION FROM AN AREA AND THE TRANSPLANTING OF THIS GROUP IN A NEW LOCALITY. THE PROBLEM IS VERY SIMILAR TO THAT INVOLVED IN THE DUST BOWL MIGRATION OR IN THE RESETTLEMENT OF FAMILIES MOVED FROM SUB-MARGINAL LAND. AS WE SEE IT, THE SAME PROBLEM WOULD BE RAISED IF THE ARMY DECIDED TO CLEAR A SUBSTANTIAL AREA OF ALL OF ITS INHABITANTS IN ORDER TO USE THE GROUND FOR MANEUVERS, MUNITIONS DUMP OR A FIRING RANGE. IN ANY SUCH CASE THE INHABITANTS OF THE AREA ON SHORT NOTICE WOULD HAVE TO BE RESETTLED IN NEW AREAS, FIND NEW EMPLOYMENT, AND LIQUIDATE AT FORCED SALE THEIR IMMOVABLE PROPERTY. AS WE SEE IT, VESTING TITLE IN THE UNITED STATES GOVERNMENT OF THE PROPERTY OF THE GROUPS BEING RESETTLED WOULD ONLY FURTHER COMPLICATE AN ALREADY AGGREVATED SOCIAL PROBLEM. MOREOVER, AS YOU POINTED OUT IN 438 Page 2. YOUR TELEGRAM, THE PROBLEMS INVOLVED ARE NOT CONFINED TO ALIENS BUT UNDOUBTEDLY WILL INVOLVE UNITED STATES CITIZENS AS WELL. IT IS THE VIEW OF THE TREASURY DEPARTMENT THAT THE SOCIAL PROBLEMS INVOLVED IN ANY SUCH RESETTLEMENT PROGRAM SHOULD BE HANDLED BY ONE OR MORE DEPARTMENTS OF THE FEDERAL GOVERNMENT HANDLING SIMILAR SOCIAL PROBLEMS OR, IF NEED BE, A NEW AGENCY CREATED FOR THE PURPOSE OF DEALING WITH THE PROBLEMS OF NATIONAL DEFENSE MIGRATION. (Signed) H. Morgenthau, Jr. Secretary of the Treasury. 439 SAN FRANCISCO CALIF FEB 23 1942 SECRETARY OF THE TREASURY HENRY MORGENTHAU WE URGE THE IMMEDIATE ESTABLISHMENT OF A REGIONAL ALIEN PROPERTY CUSTODIAN OFFICE FOR THE PACIFIC COAST AREA. WE HAVE LEARNED OF NUMEROUS SACRIFICE SALES BY ALIENS; THIS OFFICE SHOULD HAVE EXISTED BEFORE THE EVACUATION OF FEBRUARY 15. IT MUST BE FUNCTIONING BEFORE ADDITIONAL PROHIBITED AREAS ARE EVACUATED. MANY WITNESSES BEFORE THIS COMMITTEE HAVE URGED THIS ACTION. CITIZENS WHO MAY BE EVACUATED WILL REQUIRE SIMILAR PROTECTION FOR THEIR PROPERTY, AND LEGISLATION MAY BE NEEDED TO SET UP SUCH CUSTODIANSHIP. IT IS OUR IMPRESSION THAT THE NEED FOR AN ALIEN PROPERTY CUSTODIAN ON THE COAST IS BUT ONE EXAMPLE OF A GENERAL NEED FOR ADVANCE PLANNING FOR THE CIVILIAN PROBLEMS WHICH ARE ACCOMPANYING THE EVACUATION OF ALIENS AND WILL ACCOMPANY ANY FUTURE EVACUATIONS. THE ARMY, AFTER DESIGNATING STRATEGIC AREAS, NEEDS THE PLANNED ASSISTANCE OF THE CIVILIAN AGENCIES OF THE FEDERAL GOVERNMENT IN HANDLING THE ACTUAL EVACUATION AND IN RESETTLING THE EVACUEES. THE NEED FOR ADVANCE PLANNING AND COORDINATION OF ALL CIVILIAN AGENCIES CONCERNED WITH EVACUATION PROBLEMS EXISTS NOW. JOHN H TOLAN CHAIRMAN HOUSE COMMITTEE INVESTIGATING NATIONAL DEFENSE MIGRATION. 1005A FEB 24. 440 February 26, 1942 Message from Harry Hopkins I think the problem which Congressman Tolan raises may become a very important one. The Federal Government is undoubtedly the only agency which has the power to look after these houses. I realize, of course, that you have no power to do anything about the house of a citizen. I think the weakness in your telegram is the last paragraph because you advise the Congressman that we have to create a new agency to handle the problemthat is immediately urgent. copy to Mr.Foley- 441 FEB 26 1942 My dear Mr. Secretary: I am enclosing a copy of the telegram which I have received from Congressman John H. Tolan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a social problem but I shall be happy to discuss the matter with the agency charged with the resettlement of families evacuated from strategic military areas. Sincerely yours, (Signed) R. Morgenthas. Jr. Secretary of the Treasury. The Honorable The Secretary of the Navy. Enclosures By EHF:vls - 2/26/42 Messengment Steen 3:45 442 FEB 26 1942 My dear Mr. Secretary: I am enclosing & copy of the telegram which I have received from Congressman John H. Telan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a social problem but I shall be happy to discuss the matter with the agency charged with the resettle- ment of families evacuated from strategic military areas. Sincerely yours, (Signed) R. Morgenthau. Jr. Secretary of the Treasury. The Henerable The Secretary of State. Enclosures steen By Messanges 3:ts EHFivls - 2/26/42 443 FEB 26 1942 My dear Mr. Secretary: I am enclosing a copy of the telegram which I have received from Congressman John H. Tolan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a social problem but I shall be happy to discuss the matter with the agency charged with the resettlement of families evacuated from strategic military areas. Sincerely yours, (Signed) E. Morgenthan. Jr. Secretary of the Treasury. The Honorable The Secretary of Agriculture. Enclosures By Messenger EHF:vls - 2/26/42 Steen3:45 444 FEB 26 1942 My dear Mr. Secretary: I am enclosing a copy of the telegram which I have received from Congressman John H. Telan, Chairman of the House Committee Investi- geting National Defense Migration, together with a copy of my reply. I consider this to be primarily a soeial problem but I shall be happy to discuss the matter with the agency charged with the resettle- ment of families evacuated from strategic military areas, Sincerely yours, (Signed) N. Horgesthau. It. Secretary of the Treasury. The Henorable The Secretary of War. Inclesures By Messenger Steenz ts KHFivls - 2/26/42 445 FEB 26 1942 My dear Mr. Attorney Generals I an enclosing a copy of the telegram which I have received from Congressman John H. Tolan, Chairman of the House Committee Investigat= ing National Defense Migration, together with a copy of my reply. I consider this to be primarily a social problem but I shall be happy to discuss the matter with the agency charged with the PO⑉ settlement of families evacuated from strategic military areas, Sincerely yours, (Signed) H. Morgonthang 3rd Secretary of the Treasury. The Honorable The Attorney General. Enclosures EHFivls - 2/26/42 By Messenger Steens:, ts 446 FEB 26 1942 My dear Mr. Crowley: I am enclosing a copy of the telegram which I have received from Congressman John H. Tolan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a 80cial problem but I shall be happy to discuss the matter wi th the agency charged wi th the resettle- ment of families evacuated from strategic military areas. Sincerely yours, (Signed) N. Morgenthau, as. Secretary of the Treasury. Hon. Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation, Washington, D. C. Enclosures EHF:vls - 2/26/42 By Messenger Steen to 447 FEB 26 1942 My dear Mr. Ecoles: I am enclosing a copy of the telegram which I have received from Congresman John H. Telan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a ⑉ cial problem but I shall be happy to discuss the matter with the agency charged with the resettle- meat of families evacuated from strategic military areas. Sincerely yours, (Signed) 1. Morgenthaus June Secretary of the Treasury. Non. Marrinor S. Ecoles, Chairman, Board of Governors of the Federal Reserve System, Washington, D. C. Enclosures EHFivls - 2/26/42 By Meesenger Steen 3 45 FEB 26 1942 448 My dear Mr. MoNutt: I am enclosing a copy of the telegram which I have received from Congressman John H. Tolan, Chairman of the House Committee Investi- gating National Defense Migration, together with a copy of my reply. I consider this to be primarily a soeial problem but I shall be happy to discuss the matter with the agency charged with the resettle- ment of families evacuated from strategic military areas. Sincerely yours, (Signed) N. Morgenthan, dis Secretary of the Treasury. Hon. Paul V. McNutt, Administrator, Federal Security Agency, Washington, D. C. Enclosures EHF:vls - 2/26/42 By Messenger Steen sits 449 FEB 26 1942 My dear Mr. Rayburns I am enclosing a copy of the telegram which I have received from Congressman John H. Telan, Chairman of the House Committee Investi- gating National Defense Migration, together with copy of my reply. I consider this to be primarily a 80etal problem but I shall be happy to discuss the matter with the agency charged with the resettle- ment of families evacuated from strategic military areas. Sincerely yours, (signed) N. Morgeather, IN Secretary of the Treasury. Non. San Rayburn, Speaker, House of Representatives, Washington, D. C. Enclosures By messagen Jeley-4:35 EHFivls - 2/26/42 L 450 THE ATTORNEY GENERAL WASHINGTON February 26, 1942 My dear Mr. Secretary: I have your letter with copies of Tolan's telegram and your answer. The situation on the West Coast is extremely serious and I agree with Tolan that a Custodian should This has been urged on be appointed immediately. me by many recent telegrans from California. The evacuation will be made much more difficult if the Japanese do not have a Custodian to protect the property they are leaving behind. Sincerely yours, immarrosses Honorable Henry Morgenthau The Secretary of the Treasury Washington, D. C. 450-A BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON D.C. TELEPHONE HOBART 9000 EASE QUOTE FERENCE NO With the compliments of British Air Commission, who enclose Statement No. 22 - Aircraft Despatched - for week ended February 24, 1942. The Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. February 26, 1942. 450. MOST SECRET STATEMENT NO. 22 ATRCRAFT DESPATCHED FROM THE UNITED STATES DURING WEEK ENDED FEBRUARY 24th, 1942 FLIGHT DELIVERED DESTINATION cobra ASSEMBLY POINT U.K. U.K. Russia Baarah U.K. U.K. BY AIR BY SEA FOR USE IN CAN. 31 as 9 III OLIDATED 2 line (via Bermuda) GHILD Middle East Suez U.K. U.K. Middle East Port Sudan Middle East Port Sudan Australia Sydney 6 U.K. 1 U.K. IN MARTIN 1 6 imore ISS yhawks 12 COOD daing U.K. U.K. 17 3 on E AMERICAN ang U.K. U.K. 40 1 ard II 126 TAL ritish Air Commission February 26th, 1942. 1 2 451 THE SECRETARY OF THE TREASURY WASHINGTON FEB 26 1942 My dear Mr. President: Pursuant to the practice heretofore adopted, I am sending you herewith a report of the audit of the Exchange Stabilization Fund covering the fiscal year ending June 30, 1941. After you have examined this report, I shall be glad if you will return it for the permanent files of the Treasury. There is now in course of preparation an annual report of the Exchange Stabilization Fund which is required pursuant to Section 10(a) of the Gold Reserve Act of 1934, as amended, to be submitted to the Congress. This report will be available at an early date. Faithfully, Secretary of the Heasury. The President, The White House. Enclosure. DEDEFENSE BUY an fall 452 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON February 26, 1942 MEMORANDUM TO THE SECRETARY: Supplementing my status report to you of February 24th, relative to the Russian Program, there have been developments concerning two of the eight indicated deficiencies. The information is now available on Marine Cable to present the supplier's claim that an AA rating is required to meet the April 1st delivery requirement, and the matter was presented to W. P. B. this morning with the request that immediate consideration be given. On Tool Steel, 510 additional tons have been allocated by W. P. B. for delivery before April 1st and the balance of 876 tons requisitioned by the Russians for delivery prior to April 1st has been allocated for delivery during April and May. Inquiry is now being made to determine whether W. P. B. can advance these allocations. The six other indicated deficiencies reported in my memorandum of February 24 are under active consideration by W. P. B. FORDEFENSE BUY UNITED You requested information as to the length of time required for W. P. B. clearance on Lend-Lease requisitions. A spot check of requisitions cleared to us since February 1st by W. P. B. indicates that the average time required for clearance is about ten calendar days. Certain of the requisitions, for example those for steel and some difficult miscellaneous items, require about eleven days for clearance, and in other instances such as automotive equipment the time averaged 81 days. All requisitions for steel and an increasing number of requisitions for other commodities require allocations or priority determinations which extends the clearance period. A spot check of January clearances by W. P. B. shows, however, that there has been an improvement during February in time of clearance as com- -2- 453 pared to January. A revised scheduled report of the status of Russian purchases as of February 28th will be submitted to you March and will include any further changes up to the end of 2nd this month. CliftonProcurement of E. Mack Director Since us. 454 FEB 26 1942 Gentlemen: Attention: D. J. Cameron Reference is made to my letter of February 28, 1936, enclosing form of letter which I approved and which I authorised and requested a you, as fiscal agent of the United States, to write to the Bank of Canada. Ottava, Ontario, Canada, respecting the purchase of newly-sined Canadian silver, and also to my letters of May 13. 1936. November 5. 1936. January 26, 1938, March 29, 1940 and September 14, 1940. in this connection. It is my understanding that the Bank of Canada has advised you that it wishes to renew, for the month of March, 1942, the arrangement provided for by your letter to it of February 29, 1936 as amended and clarified by your letters of May 27. 1936, November 10, 1936. January 27. 1938. March 30. 1940 and September 24, 1940. This is to advise you that you are authorised and requested, as fiscal agent of the United States. to renew such arrangement for the month of March, 1942, all as stated in your letter to the Bank of Canada above mentioned, as amended and clarified, except that during March, 1942, you may purchase newly-mined Canadian silver which according to the production date marked on the bars was produced in Canada during February, March or April, 1942, and se to advise the Bank of Canada, and to carry out during such month the transactions contemplated by your letters of February 29, 1936. May 27. 1936, November 10, 1936, January 27. 1938, March 30. 1940 and September 24, 1940. It is understood that the terms of the Department's letter to you of June 19. 1934, regarding the purchase for the account of the United States of silver, at home or abroad, shall apply to the action taken by you pursuant to the foregoing. except that the silver purchased pursuant to this authorisation need not be of the degrees of fineness, or carry the marks, required for "good delivery in the market of the place where the purchase is made or where delivery is to be taken. Very truly yours, (Signed) H. Bargesthaue JR. Federal Reserve Bank of New York, Secretary of the Treasury. 33 Liberty Street, New York, New York. m.c.m.c there RH:kma:1c:2/24/42 FEB 26 1942 455 Gentlemen; Attention: D. J. Cameron Reference is made to my letter of November 19. 1941. enclosing a form of letter which I approved and which I authorised and requested you, as fiscal agent of the United States, to write to Banco de Mexico, S. A., Mexico City, Mexico, respecting the purchase of newly-sined Mexican silver. It is my understanding that Banco de Mexico has advised you that it wishes to renew, for the month of March, 1942, the arrangement provided for by your letter of November 21, 1941. to 18. This is to advise you that you are authorised and requested, as fiscal agent of the United States, to renew such arrangement for the month of March, 1942, all as stated in your letter to Banco de Mexico above mentioned, except that during March, 1942, you may purchase newlymined Mexican silver which according to the production date marked on the bars was produced in Mexico during February, March or April, 1942, and so to advise Banco do Mexico, and to carry out during such month the transactions contemplated by your letter of November 21, 1941. It is understood that the terms of the Department's letter to you of June 19. 1934, regarding the purchase for the account of the United States of silver, at home or abroad, shall apply to the action taken by you pursuant to the foregoing, except that the silver purchased pursuant to this authorisation need not be of the degrees of fineness, or carry the marks, required for "good delivery" in the market of the place where the purchase is made or where delivery is to be taken. Very truly yours, (Signed) E. Morgeathau, day Secretary of the Treasury. Federal Reserve Bank of New York, 33 Liberty Street, New York, N. Y. 2/17/42 n.m.c. 1) its Tittick 456 INCOMING CABLEGRAM Date: February 26, 1942 Recd: February 27, 1942 From: Caracas ALLAN SPROUL, FEDERAL RESERVE BANK OF NEW YORK NEW YORK, NEW YORK #4 Buy for our account $3,000,000 in gold debit our account plus charges. Gold is to be earmarked and left with you for our account cable execution sgd. Herrera Mendoza Banco Central de Venezuela, S.A. Received by telephone from the Federal Reserve Bank of New York - 2/27/42, 11:55 am - kma COPY 457 THE NATIONAL CITY BANK OF NEW YORK February 26, 1942 In replying please quote initials EFR Mr. L. W. Knoke, Vice President Federal Reserve Bank of New York 33 Liberty Street New York, New York Dear Mr. Knoke: With reference to our letter of February 20th and our telephone conversation of today, we enclose herewith our check drawn on you to your order in the amount of $1,499,935.35, representing the total cost, including charges for the purchase of gold to be placed under earmark for the account of Amministrazione Pontificia per le Opere de Religione, Citta del Vaticano, at your bank. We understand that of this amount $1,496,160.04 represents the cost of the gold purchased at $35 per troy ounce of fine gold, plus $3,740.40, being 1/4 of 1%, and $34.91 for labor. We further understand you will forward us your invoice covering the details concerning the gold purchased and held under earmark and will also advise us within the next day or two of the meaning of the term, "earmark," which we may transmit to Amministrazione Pontificia per le Opere di Religione. Very truly yours, (signed) E. F. Regan Vice President 458 February 26. 1942 Mr. Livesey D. W. Bell Referring to telephonic conversation, will you please send the fellowing cable to the American Consul General, Calcutta, India, as reply to Consul General's 112 February 25. 6 P.S. "Free Treasury: (1) To facilitate the negotiation of checks dream on the treasurer of the United States the following procedure is suggested. (2) All U. S. dollar checks drew on the Treasurer of the United States negotiated by the National City Bank of New York are to be delivered to the American Censul General, Calentta, accompanied by list in triplicate with complete description each check as follows: Name of drawers symbol member: check number: amount; payee's name: date of check. Consular officer will carefully verify checks against list and advice Treasury by wire through State Department aggregate amount of cheeke delivered by bank. Upon receipt of this advice Treasury will effect paymont in corresponding amount to the National City Bank of New York, New York, for account of its Calentta breach. Consular officer should instruct National City Bank of New York to use all possible diligence in identification of payee and determining validity of endorsements. The National City Bank of New York, Caleutte, should on- dorse checks as follows Quote Pay to the order of the Treasurer of the United States for credit of our account with the National City Bank of 459 New Took, New York. Signature National aw Bank of How Yesk, Calcutta. Ingests. Streetway will Seek to the National any Bank of New York, Calcutta. only for mind I take have applicable is Intin. Containe officer should fairward checks commonated w - of 11st to System of United States, Machington, as property as possibile w effect - available. Second on of 11st should follow w separate carrier as earliest possible date. think copy should to retained w Generitor officer. (3) Consular officer should make as arrangeance for incurrence as shipments will be covered w Government Seasee in Shipment set. (b) Please africe National easy Beak of New York and other v. s. Communicate officials appropriate parts havenf. (5) Please handle a mentioned your 112 is - herein outlined. treasury so paying National city $ of New Term, You Tost $2,876.15. (6) to stateise number of checks - as - of United States, / you advice disturning officers that they should cable through thats respective departments shots local currency requirements. Integrate will then be make to - dollar to National City Beak of New Tost, Saleutta, through 100 New York office." n Repartment approves the foreigning. Away expense issured is earrying - the instructions contained is this telegram should to included in regular accounts as separate item for billing treasury is accestance see. K.45. Foreign Service Regulations. Please repeat foregoing to Consul, Bombay omitting paragraph No. 5 and substituting "Bombay" for "Calcutta" throughout. FD:imc. 2/26/42 TREASURY DEPARTMENT 460 INTER-OFFICE COMMUNICATION DATE February 26, 1942 TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £79,000 £11,000 Open market sterling remained at 4.03-3/4. with no reported transactions. The Canadian dollar improved to a final quotation of 11-5/16 discount as compared with 11-5/8 yesterday and 11-1/4% a week ego. The Uruguayan free peso, which has remained at .5295 during the past two weeks, moved off to . .5275 today. In New York, closing quotations for the foreign currencies listed below were BE follows: Argentine peso (free) .2365 Colombian peso Mexican peso Vonezuelan bolivar .0516 .5775 .2065 .2760 Cuban peso 3/8% premium Brazilian milreis (free) We sold $4,988,000 in gold to the Central Bank of the Argentine Republic. which was added to its earmarked account. We also sold $1,496,000 in gold to the Amministrazione Pontificis per le Opere ii Religione, Vatican City, which was earmarked in its name at the New York Federal Reserve Bank. No new gold engagements were reported. In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67 The Treasury's purchase price for foreign silver was unchanged at 35 Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/8 We made no purchases of silver today. 461 -2- The report of February 18 received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $3,596,000, a decrease as follows: of $25,000 in the short position since February 11. Net changes were Short Position Country England ** Europe Canada Latin America Japan Other Asia All Others Total February 11 $ 523,000 (Long) 2,481,000 621,000 (Long) 84,000 (Long) 160,000 2,278,000 70,000 (Long) $3,621,000 Short Position February 18 $ 527,000 (Long) 2,385,000 506,000 (Long) 137,000 (Long) 160,000 2,257,000 36,000 (Long) $3,596,000 Change in Short Position - $ 4,000 - 96,000 + 115,000 - 53,000 -- - 21,000 + 34,000 - $ 25,000 Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign (-) indicates decrease in short position, or increase in long position. ** Combined position in registered and open market sterling. CONFIDENTIAL 461-A BRITISH EMBASSY WASHINGTON, D.C. February 26th, 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. 461. Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 67 Information received up to 7 A.M., 25th February, 1942. 1. NAVAL Photographic reconnaissance of AAS FJORD (TRONDHEIM) on 24th showed TIRPITZ in her usual berth, also a pocket battleship and 8 inch cruiser at the head of the Fjord. On 19th a small American steamer was sunk by aircraft north of PORT DARWIN. 2. MILITARY LIBYA. Enemy mechanical transport and tanks perviously reported moving towards TMINI (OPTEL No. 65) did not continue their advance on 23rd. Small parties of enemy with a few tanks were encountered by our patrols between THINI and EL EZZEIAT (25 miles to the south-west). They withdrew when engaged by our artillery and armoured cars. A Free French column has been operating with our armoured cars south and south-east of MEKILI, 3. AIR OPERATIONS WESTERN FRONT. 23rd to 24th. One Hampden was lost during successful sea-mining operations. 24th. Our fighters carried out some small offensive operations, two coastal command Hudson missing. At dusk Fighters destroyed a Dornier attacking convoy off CROMER. 24th/25th. Aircraft were despatched on sea-mining (51) and on leaflet dropping Northern FRANCE (5). Two aircraft are missing. LIBYA. Kittyhawks destroyed one and damaged two Messerschmidts 109 'or the loss of two Kittyhawks, one pilot safe. 4 long-range Messerschmidts 109 ttacked MAKTILA aerodrome (16 miles south of SIDI BARRANI) and destroyed or imaged five of our aircraft, and also shot down a Blenheim near SOLLUM. MALTA. 23rd. In addition to attack reported yesterday, 37 enemy air saft bombed our aerodrome: and destroyed two Wellingtons and one Hurricane, also seriously damaging buildings, 23/24 and 24th. 29 enemy aircraft operated and destroyed one Hurricane in the ground. One Messerschmidt was shot down. NETHERLANDS EAST INDIES. 24th. 3 Blenheims attacked two enemy sub- Marines north of JAVA without definite result. 461 -225th, Six Fortresses attacked enemy shipping at mouth of MACASSAR River, two transports sunk, During 24th, 40-50 enemy bombers and 30-40 fighters ttacked SOURABAYA, enemy lost two by anti-aircraft and one by Fighter, we lost nil, Details of damage not available but believed not serious. KALPDJATI was attacked by 15 bombers and 6 fighters, Blenheims and two Martins were destroyed on the ground. BATAVIA was also attacked but no details available. 4. JAPANESE AIR FORCE Evidence following the DARWIN raid indicates that the probable distribution of Japanese heavy bombers is as follows: BALI One Squadron (12 aircraft) KENOARI Four RABAUL One /AMBON - Three Squadrons If PALEMBANG Number uncertain There are also indications that the reinforcements in south-east BORNEO, CELEBES, and MOLUCCAS area have been withdrawn mainly from South INDO-CHINA, 5. FINLAND GERMANY has promised FINLAND a monthly allowance of 20,000 tons of bread grain and 1,000 tons of butter for the next 6 months. While this will not lead to any substantial increase in the Finnish scale of rations, which are exceedingly small compared with those in GERMANY, it should prevent such a deterioration in the food position as might seriously affect FINLAND'S will and power to remain a combatant, 462 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) } OPTEL No. 82 Following is supplementary resume of operational events covering the period 26th February to 5th March, 1942, / 1. NAVAL Air reconnaissance located TIRPITZ, SCHEER and PRINZ EUGEN at TRONDHEIN and GNBISENAU and SCHARNHORST at KIEL, The PRINZ EUGEN is damaged aft ald there is no dock in this part of NORWAY where she can be repaired, There are numerous indications of construction of important fortification works in the CHANNEL ISLANDS. Two convoys with troops and supplies arrived at RANGOON on 5th March without incident. Naval defence of JAVA except by submarines became impossible on 3rd March. All remaining British and U.S. Naval forces except submarines were sent to COLOMBO, Remaining Dutch Naval forces followed later. SOURABAYA Naval Dockyard has been demolished, A Umboat has been operating off FREETOWN. Submarine attacks in the West Atlantic were again heavy and shipping losses in the FAR EAST may prove to have been considerable but in the MEDITERRANSAN and in home waters they have been less. During the week ending 4th March 948 ships were convoyed. Imports into the U.K. from ships in convoy totalled 420,000 tons and included 199,000 tons of oil, Parachute mines were dropped in the SUEZ CANAL area on 2nd/3rd but all 0Xploded on land, 2, MILITARY BURMA. The 63rd Indian Infantry Brigade group arrived during the week, The Japanese still have a considerable numerical superiority, two divisions being employed on the SITTANG-EGU Front, with a third division in reserve in the MOUL MEIN area and a fourth either in reserve in the BANGKOK area or moving up to sup- port. A fifth division is in the CHIENGRAI area of NORTH STAM ready to oppose any advance by Chinese troops from the SHAN States, In addition it is considered that one further division from MALAYA and one from INDO-CHINA could be made available for the BURMA Front. JAVA. U.K. and Austral ian forces consist mainly of anti-aircraft units some of which were evacuated from SINGAPORE and SUMATRA and are fighting as in- fantry. These forces were dispersed among the principal ports and aerodromos. 3. AIR OPERATIONS WESTERN FRONT. Bomber Command dropped 657 tons of bomba of which 477 were directed upon the Renault works. This compares with an estimate of 430 tons 403 -2dropped on LONDON during the heaviest raid by the G.A.F. Two attacks were made on KIEL, Forty-six aircraft laid sea mines during the week while 90 enemy aircraft carried out similar operations off our East Coast. LIBYA. Air activity by both sides was restricted by bad weather. Our fighters carried out offensive sweeps and patrol work, Enemy bombers resumed their raids on the DELTA and CANAL areas paying particular attention to aerodromes. MALTA. Heavy attacks on aerodromes continued. About 390 aircraft raided the Island during the period. BURMA. Our small forces were heavily engaged in support of our troops on the SITTANG RIVER, Fighters successfully intercepted Japanese bomber formations approaching RANGOON and inflicted heavy casualties. FAR EAST. Allied aircraft made a number of attacks upon large enemy convoys and naval units approaching the North coast of JAVA and also attacked troops disembarking. Several ships were sunk or damaged and heavy casualties were inflicted on personnel. Allied bombers raided Japanese aerodromes in South SUMATRA. R.A.A.F. Hudsons bombed aerodromes in NEW BRITAIN, Enemy. bembers raided PORT MORESBY and their fighters attacked WENDAM and BROOME aerodromes in AUSTRALIA Our losses in aircraft on JAVA aerodromes through enemy action were heavy. RUSSIA. No important changes in the air situation. 4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS ON ENEMY TERRITORY IN EUROPE. COLOGNE. Several reports which seem to be confirmed leave little doubt that a very important chemical works at LEVERKUSEN have been damaged.an production of certain specialised pharmaceutical products affected, HAMBURG. Two out of six submarines of about 500 tons, building in a shipyard, are reported to have been almost completely destroyed last September, 5. HOME SECURITY 1 civilian seriously wounded. 464 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 6,1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Summary of Military Reports Japanese Forces The main Japanese fleet appears to be in the Western Mandated Islands area (1.e., between our fleet and the Philippines and on the flanks of our communications with Australia). A new battleship carrying 16-inch guns, the "K11", has joined the Fleet. The aircraft carriers have been replenishing with aircraft in Japan. Two S-inch gun cruisers have been transferred to the Southern Fleet to replace casualties. The Southern Fleet is widely dispersed. It is operating south of Malays, in the Macassar Straits, in the Floree Sea (south of Celebes), and in the Philippines. (U.K. Operations Report,February 12-19, 1942) German Navy In the course of the operations to intercept the German warships moving up the Norwegian Coast, the British Home Fleet went out to sweep the waters near Norway and returned to Scape Flow by February 24. Early on February 23, torpedo-planes were sent out to search along the coast. A severe snow-storm reduced visibility and nothing was seen. Three of the planes failed to come back. At six a.m. a British submarine on patrol off the Norwegian Coast sighted the German pocket battle- ship, a cruiser, and three destroyers. The submarine 465 -2attacked from 1,500 yards. (The British announced today that the cruiser was hit and has been seen damaged at Trondheim.) (U.K. Operations Report, February 24, 1942) Mediterranean The British have recently run a convoy through from Malta to Alexandria and attempted to send one from Alexandria to Malta. The convoy to Malta, consisting of three merchantmen with escort, was twice attacked off Libya on February 13. One ship was damaged. It fell out and limped back to Alexandria. On February 14, the convoy to Malta met the one coming from Malta about 250 miles east of the island. Escorts were changed over. At this time, repeated Axis air attacks were made. The attacks were concentrated on the convoy to Malta. The remaining two ships of this convoy were severely damaged and later had to be sunk. The eastbound convoy from Malta to Alexandria suffered no damage and reached port safely. Five Axis planes were certainly, and four more probably, destroyed. (Malta must be a very painful thorn in the side of the Axis, in view of the efforts made against it. In the course of an average week, recently, the Axis has been using a total of around 400 planes A week against it. This is several times the scale of the present attacks on England. ) (U.K. Operations Report, February 12-19, 1942) -3- 466 VOICE OF THE CHIEF (The Federal Communications Commission Foreign Monitoring Service has not reported any broadcasts of the "Voice of the Chief" for a number of weeks. The station was off the air for about four days several weeks ago, and then came back on the air again. It is not possible to hear the broadcasts, "jammed". If anything intelligible is made out of the broadcasts, they will be reported.) however, since they are being systematically GO UNITED STATES GOVERNMENT 467 COORDINATOR OF INFORMATION WASHINGTON, D. c. NOT February 26, 1942 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Treasury Department Washington, D. C. Dear Henry: The attached is a report which comes from the British MEW weekly digest. Sincerely, Bill William J. Donovan. 468 The critical food shortage in France caused anti-Vichy demonstrations the end of January in the following towns: Nimes, Sete, Arles, Montpelier. Demonstrations in the Department Herault obtained larger supplies of fruits and vegetables and a six ounce in- crease in the meat ration. The february fat ration is fourteen instead of sixteen ounces. In Italy the peasants are reluctant to deliver their crops and this is causing difficulty in providing the normal consumer's ration of seven ounces of bread daily in the urban areas. New petty expedients have been adopted, such as denying rations to domestic work- ers on the grounds that their master's higher standard of living permits sharing their supply with the servants. In certain factories the workers have succeeded in getting increases in rations by striking. The Italian peasants have been carrying on a veritable war against the Italian currency. For the last two months in Germany there has been a very extensive weeding out of laborers for the armed forces. The fact that men on leave have been sent back to the Russian front indicates that the Germans were forced to use the reserves they were saving for the Spring offensive. During the winter months very little factory leave was granted. German over-all production has probably decreased due to the heavy mobilization for the army. War production may actually be increased if civilian consumption can be cut and the last ounce of efficiency wrung from the factory and the last ounce of work extracted from the laborer. 468-A UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, D. c. February 26, 1942 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Dear Henry: The following summary "of average listeners" to the radio in Germany has been prepared from material gathered over more than a year. " The listener has the keenest nose imaginable for propaganda and if possible will not listen. His touchstone of truth is his apparent objection. The problems of day-to-day existence keep him overwhelmingly absorbed; how and when the war will end, how to keep himself warm and how to get decent clothing and food. "He has no interest in isms or ideologies and has a personal respect for Hitler which is quite distinct from his faith in other leaders. He would like changes made in the regime but on the whole has faith in it because 468.B The Honorable Henry Morgenthau, Jr. -2- 2/26/42 it has tackled certain practical social problems and given military superiority to Germany. He is aware of many instances of corruption within the party. They think generally that either such things are bound to happen under any regime or these are exceptions about which Hitler knows nothing. "He cannot help feeling Germany and Britain should be fighting on the same side. Rather than fight to death for the breakup of the British Empire he would far prefer an honorable and negotiated peace with Britain now. His conviction that Britain will never negotiate before final victory and never give in is the main founda- tion for his respect for Britain and his respect for Churchill is more than a sneaking one. "Knowing for the first time that Germany is hard pressed, he is far less certain than six months ago that Germany will win; but he does not often think Germany will lose. He expects the war will last for a long time yet feeling that since Germany has survived the hard times 468.C The Honorable Henry Morgenthau, Jr. -3- 2/26/42 this winter she will be able to survive anything. He does not want Germany to be beaten and the people who do are disliked by him. "After the war he wants: security from arbitrary injustice, inflation, war and unemployment. " He fears most: Occupation of Germany by Russia. He is so fearful of this that he is less worried than he was about what Britain may do. He is afraid sometimes that the enslaved peoples, the Czechs and Poles in parti- cular will take revenge. "He has lost someone or may lose someone in Russia; or he knows of those who have. He has an open mind about whether Germany's attack on Russia was right and is appalled by the horrors of the Eastern Front. "He has forebodings if he is over forty and about one-half of the German audience is because he remembers America's part in the last war. His best hope is that America will be blotted out by the Japanese. He is just beginning to realize the importance of Japan's victories after two months but still has little interest in the 468-D The Honorable Henry Morgenthau, Jr. -4- 2/26/42 Far East. He often wonders whether Germany should not be allied with the British instead of the Japanese. For Italy he has profound contempt, feeling she must remain under German tutelage after the war and wondering if she is not more trouble than she is worth. " "He is disillusioned and cynical rather than bitter about life in general. It is possible things may become easier but even if Germany wins there is no golden advantage near. He intends to hang on, however." Sincerely, Bie William J. Donovan 469 NUMBER 21 SECRET COORDINATOR OF INFORMATION THE WAR THIS WEEK February 26-March 5, 1942 CO Printed for the Board of Analysts Copy No. 3 Securaty of the Treasury FEBRUARY 26-MARCH 5, 1942 SECRET Coordinator of Information THE WAR THIS WEEK The unrelenting tide of Japanese advance has now swept over the beaches of Java and is already threatening to engulf that final Dutch stronghold. The Nipponese offensive has developed a kind of frenetic quality, which suggests that they propose to overwhelm their objectives at whatever cost before the Allies can recover balance and before Japanese strength begins seriously to spend itself. If Java falls, India and Australia at once enter the potential range of the Japanese offensive. Present indications suggest that the first blow will probably fall on Australia, but, with the occupation of Rangoon imminent, India, too, stands in grave peril. In the western theatre of the war the situation continues to be somewhat enigmatic. Extensive Russian claims are not yet matched by confirmed Russian performance, and there is some reason to believe that the counter-offensive is bogging down. On the other hand, the Soviet "encirclement" of Staraya Russa may be the forerunner of an important move- ment in the north. And in the Libyan desert Rommel, despite steady reinforcement, still waits, and the time and character of the expected Mediterranean drive remain matters of speculation. The Battle of Java The Battle of Java has opened in the form which Japanese strategy was generally expected to give it. Large and heavily protected convoys descended on Java's northern 1 SECRET SECRET shore. In the ensuing naval action heavy losses were suffered by both sides. The Japanese were not prevented, however, from making landings in force in three areas, and Allied attempts to drive them back into the sea were unsuccessful The steady progress inland of these spearheads now point to an early conquest of the islands. The eastern prong of the Japanese assault struck at Rem- bang, and quickly advanced inland to Blora. From that point it can threaten Soerabaya, the Dutch naval base, which is clearly its principal objective. It can also move westward on Demarang. A second landing at Indramayu has Bandoeng, military headquarters, as its objective, and has already reached the region of Soebang some 30 miles northeast of the former city. The third assault was apparently designed to take the capital, Batavia, in a two-pronged vise. The danger in which the island stands is indicated by the announcement of the Netherlands Indies Government that all major demolition of installations valuable to the enemy has been completed. Newspaper reports suggest that 85,000 to 100,000 troops were put ashore in the initial landings, and these estimates are not considered unreasonable by military observers. The Allies have since lost their initial advantage in the air. Soon after the original landings the Japanese were reported to have established at least one air field on the island. That this advantage has now been vigorously exploited is indicated by a press report of Wednesday which speaks of the "virtual collapse of United Nations air support." And an official of the Dutch Colonial Ministry in London has declared bluntly that Java cannot hold out indefinitely without reinforcements. India or Australia If Java succumbs, the Japanese will then be faced with the most critical strategic decision of the war. Among the several alternatives open to them, some military observers believe their decision will be narrowed to the question: India or Australia? And a simultaneous attack on both is by no means beyond the realm of possibility. A drive on India would have as its immediate objective the isolation of China and the hampering of Allied supply to Russia and the Middle East through the Persian Gulf. Its ultimate objective, in conjunction with the European branch of the Axis, would be the expulsion of Anglo-American forces from the entire Middle East and the establishment of contact between the two ends of the Axis. Such a drive would have the benefit of a supply line which is far distant from Allied bases and which could be protected by shore-based aircraft along most of its course. And an attack on India would, moreover, be directed against a country where internal dis- sension invites invasion. Despite these advantages, the Japanese may not concen- trate their first effort on India, in the view of highly placed military observers, but instead will probably attempt the conquest of Australia. If the Japanese are to win the war in 1942, they must insure themselves once and for all against the threat of a counter-offensive which the United Nations have all but publicly announced will be based in Australia. The conquest of northern Australia would give the Japanese a forward base with which to shield the conquered Indies from expected counter-blows. But such a base would be subject eventually to dangerous assault from Australia itself. The conquest of northern Australia, moreover, would not reduce the war potential of that country as a whole. Only a complete reduction of Australia will offer the Japanese the security and freedom which their wider strategic aims 2 demand. 3 SECRET SECRET Possible Lines of Attack Australia's population and war potential are very largely concentrated within a hundred-mile belt along the southeastern coast of the continent (see Appendix: "Australian Population and Transport as Factors in Defense.") An assault on this rich, populous, and strategically important area would lie both in the logic of the situation and in the tradition of Japanese tactics-to attack the enemy in hismain defenses. For such an assault the Japanese already possess Me- lanesian bases, notably at Rabaul (see accompanying map. Japanese naval forces, based on Rabaul, could attack Sydney and return without refueling. It is believed more likely, however, that the Japanese will first extend their conquests to new bases in southeastern Melanesia, perhaps brigades. Nine divisions are in Japan proper, where it is believed 225,000 may be constituted as special task forces. One of the paradoxes of the successful campaign in south- eastern Asia is that it has never absorbed any notably large Japanese forces. More than a month ago there were only 18 divisions (plus some special units) in this theater of opera- tions, and today it is estimated that this number has risen only to 21 or 22 divisions. For the assault on Java, some eight or nine divisions have been concentrated in Sumatra, Borneo, the Celebes, in the Strait of Malacca and in the Java Sea (to which may also be added whatever troops can be spared from the five divisions which took Singapore). It is estimated that only four divisions and a tank regiment are operating in the Thailand-Burma area. There are now as far as the important harbor at Noumea in Free French only five divisions and a tank regiment in the Luzon-Davao area, with indications that some of these troops are now New Caledonia (thus at the same time denying its use to the being withdrawn. Allies). The conquest of Australia would in any event necessarily begin with an assault on Port Darwin and other northern Australian bases, which they must possess in order to secure their lines of communications. Already damaging raids have been made on Darwin, and the air bases at Broome and Wyndham have been attacked. It is obvious from these figures that, if Java is readily overrun, a very considerable force-perhaps 10 or 11 divi- sions-would be available for a drive on Australia. In addition, a task-force might be despatched from Japan proper via the Mandated Islands and Rabaul. Japanese Casualties Present Extent and Disposition of Japanese Forces With the fall of Java, the Japanese would have extensive forces available for an assault on Australia. There are under arms at the present time approximately two and a quarter million seasoned Japanese troops, according to the estimates of reliable sources, and another 350,000 are in training. There are in all 72 divisions, together with 23 independent brigades, 14 tank regiments, and five cavalry As a counter-weight to forecasts of continuing Japanese successes, must be considered reports of heavy Japanese casualties in southeast Asia-running as high as 200,000 killed and wounded. In 20 divisions (20,000 each), this would amount to a casualty rate of 50 per cent. This figure is thought to be excessive, although reliable observers place it as high as 145,000, of which the toll by drowning in transport sinkings may account for nearly one-third. 5 4 SECRET SECRET These casualties still run well above the rate usually deemed the situation in southern Burma appears to be desperate sufficient to disrupt a divisional organization. The willing- The steady resistance of Chinese units to the north presents, ness of the Japanese to suffer such losses, however, doubtless attests the desperate resolution by which they hope to capitalize present Allied weakness. These casualties, added to the 1,200,000 in dead, wounded and missing estimated to have been lost in China since 1937, however, an encouraging contrast. And it further emphasizes the crucial importance of holding northern Burma must ultimately affect the Japanese war potential. But observers point out that this also is an incentive to rapid victories and quick entrenchment in a position of impregnability. against the Japanese advance. This importance is twofold. In the first place, the most practicable alternative routes for the delivery of supplies to China would go from Assam in northeastern India through northern Burma to China (see This Week, February 12-19). These routes the Japanese will no doubt make every effort to cut before they can be built and used. In the second place, somewhat south of these, there exist a number Will the Japanese Attack Russia? A successful conquest of Australia might be a prelude to, or even a concomitant of, an attack on Russia in the Maritime Provinces, it is believed by competent observers. There is no evidence that Japan has felt it necessary notably to weaken her military strength in the north. In fact the number of troops stationed in Manchuria, North China, Sakhalin and Korea is reliably estimated to be about a third again as many as the 500,000 to 600,000 now dispersed in the southwestern Pacific theater of operations. French official circles (and especially the French Ambassador at Tokyo) are reported to believe that the Japanese high command is planning such an attack on the Maritime Provinces, and they foresee that it may occur as early as April-synchronized, it will be noted, with the anticipated Nazi drive in southern Russia. of roads and trails, possible invasion routes to India. The chief of these lead from such points as Akyab, on the Arakan coast, or Mingin, farther inland, to the Indian railhead of Chittagong in Bengal. The inland trails thread the wild and thickly forested mountains which separate India from Burma. Up to now they have been thought to be useful only for light troops and only during the dry season. During the rainy season (normally about the third week of May to the first half of October) the rainfall at Akyab, for example, averages about 181 inches. Despite all this, these trails do not appear to be any more difficult than some already negotiated by the Japanese on their way to Singapore and into Burma. The best land invasion route would probably be through Manipur State in eastern Assam. Here in 1917-1919, frontier troops under British and Indian officers successfully crushed a tribal revolt. The series of bridle paths and trails which these soldiers negotiated 25 years ago are known to have been extended since then. It does not appear likely The Impending Struggle for Northern Burma that such terrain would stop seasoned Japanese troops, well With the Rangoon-Mandalay railroad cut north of Pegu, and with native Burmese troops deserting to the Japanese, trained in jungle warfare. There is, of course, the further 7 6 SECRET SECRET possibility that the Japanese might try an invasion of India by sea-entirely by-passing the Burmese frontier. India's Future in the Balance Meantime it has been announced in the House of Lords that in a few days Prime Minister Churchill will make a statement on India. Already Sir Stafford Cripps, well known advocate of conciliation, has predicted official action in the near future. In Philadelphia, Lord Halifax, a former Viceroy of India, has expressed himself as being entirely in accord with Sir Stafford's views, and as certain that the government would "leave nothing in their power undone to insure fullest cooperation between themselves and all Indian people." Even the magisterial Times has come out in favor of an early solution for the Indian problem. The chief question mark appears to be the attitude of the Prime Minister himself. In India, the visit of Chiang Kai-shek seems to have had a significant effect both on the government and on the Congress party, and with them most Indian liberal groups. A Viceroy's Executive Council, composed exclusively of Indians enjoying the confidence of the electorate, is reported to be the solution most commonly suggested. The Delhi correspondent of the Times has warned, however, that the desires of the Congress party for the transference of real power to Indian hands are "offset by minority demands that previously given British assurances about their constitutional future will be upheld." Dissidents like Bose, once president of the Indian National Congress and now said to be in Japan, where he is reported to have called the present war a great chance for India to satisfaction, however, may be more serious. A bitter dispute over a proposed sales tax is now raging in the Punjab, prime recruiting center for the Indian army. Furthermore, the Working Committee of the All-India Moslem League has threatened revolt if the British Government should grant the demands of nationalist groups. The League, under the leadership of Mr. Jinnah, has long advocated Pakistan, the division of India between Hindus and Moslems. It would be impossible to say how many Moslems agree with Mr. Jinnah in the official stand of the League. Certainly many do not. Fazlul Huq, premier of Bengal, and Sir Sikan- der Hyat Khan, premier of the Punjab, both Moslems, have urged full Indian cooperation in the prosecution of the war and are evidently willing to discuss constitutional reform. The latest expression of such views appeared in resolutions adopted by the All-India Azad Muslim Conference on March 1 at New Delhi under the chairmanship of the premier of Sind. Furthermore, certain sections of the Moslem community, such as the Shiahs, and other organizations like the Momins, are like- wise said to differ from the views of Mr. Jinnah and the League. The Russian Fog Begins to Lift After weeks of indecisive and conflicting claims and com- muniqués, a certain amount of reliable information on the Russian situation is finally available. In the south, although the Russians have reinforced their Sevastopol and Kerch garrisons in the Crimea, and fierce fighting appears to be throw off British domination, can scarcely be considered repre- raging around Kharkov, there have as yet been no decisive changes. Here it is reported that the beginning of the spring thaw has slowed the operations of both armies. In the north and center, however, the Soviets claim more sentative of a large section of public opinion. Moslem dis- substantial gains. At Staraya Russa their pincers are still 9 8 SECRET SECRET reported as closing on an impressively large number of Germans. Between Vyazma and Smolensk, they claim the capture of Dorogobuzh-and if this report is confirmed, it means that the German position at Smolensk is in some peril. The dangers of optimistically taking every Russian claim at its face value are illustrated, however, by a map published in last Sunday's edition of the New York Times. With the coast west of Taganrog occupied by the Russians, with Kharkov and Vyazma practically encircled, and with the Conflicting reports on the imminence of an attack on Soroka perhaps indicate a confusion in the counsels of the Finnish high command or possibly an attempt similarly to confuse Britain and the United States. Some reports maintain that its capture is essential to Finnish security, while others insist that the Finns will hesitate to anger the United States by cutting an important route of lend-lease shipments. There appears also to be some fear that German concentration on a southern offensive this spring might railroad between Leningrad and Vitebsk cut by the Red Army-all claims that competent American military opinion leave the Finns to fend for themselves in the north. as yet treats with some scepticism-the picture it presents is north meanwhile may have raised somewhat the confidence one of uniform Russian successes. And the figure it records of of the Finnish people in their Allies. But there exists con- 260 miles as the maximum Soviet gain from the German point of extreme advance represents an exaggeration of siderable doubt as to whether Germany will fulfill her perhaps 100 miles. The Finnish Dilemma It is still unclear just what the Finns intend to do when spring finally comes. No doubt war weariness is on the increase. Recently Tanner, Social-Democratic Minister of Commerce, made a speech at Abo in which he stated that, since there had been no military activity for three months, none needed to be anticipated. The censor suppressed the address, but not before the release of it by one paper had caused wild rejoicing among Finnish troops. These latter are also reported to be disappointed in finding that the East Karelians, in the areas conquered by Finland, are not noble Finns yearning to be free, but rather the toughest enemies Finland has thus far encountered. Moreover, desertion is becoming so common that the government is reported to have felt obliged to introduce legislation making the penalties for this offense less harsh. Japanese victories and German reinforcements in the promises in the recently-renewed trade agreement, since she is still far behind in delivering the quotas of goods stipulated in the agreement of 1941. Food shortage continues to be a serious problem, with considerable class bitterness against the rich who patronize the black market. But the majority of the Finns, one report concludes, remain gloomily resigned to their fate. Alert in the North Neutral Sweden, in the meantime, has fallen prey to the war of nerves. Although positive evidence is lacking, prominent Swedes appear to feel that a Nazi invasion may be in the offing. German press attacks are said to reflect the dis- like with which Hitler and his entourage speak of the one neutral country in northern Europe. It is felt in Sweden that the most likely provocation of German aggression would be an Allied offensive through Norway in 1942 or 1943. And the Swedes know that they can expect only trouble from the present Nazi fleet concen11 10 SECRET SECRET tration in Norwegian waters-including the Battleship Tirpitz, the pocket battleship Scheer, and perhaps a heavy cruiser (which may have been the Prinz Eugen, reported torpedoed by the British). Pessimists point out that even if the Allies had no intention of invading Norway, Hitler might occupy Sweden as a preventive measure. Meanwhile, the preparation of airfields and barracks on the island of Zealand, Denmark, may indicate a German effort to reinforce Norway. Nor is Sweden behind in her preparations. Right now she is calling large numbers of men into service-somewhat earlier than usual but not in numbers greater than intensified spring and summer activities would justify. And the Swedish general staff categorically denies that these preparations have anything to do with the external situation. Estimates of the number of German divisions needed for a successful invasion and occupation of Sweden vary between 15 and 40, an expenditure which the Germans would probably hesitate to make as the spring offensive in Russia approaches. The Swedish press is unanimous in its resolution to main- tain the neutrality of the country against any aggressor. African scene warn against optimism that Rommel can be stopped in eastern Libya, provided he makes an attack in that direction with all the forces he has at his command. Vichy Continues to Sit on the Fence With victory still in the balance, the Vichy government continues to play at the time-worn game of running with the hare and riding with the hounds. The most recent example was the transfer of the battleship Dunkerque from Mers-elKebir, in Algeria, to the French metropolitan naval base at Toulon. Authorities at Vichy alleged that the Dunkerque needed further repairs to her fire control, damaged in the battle of Oran. But the American government viewed this step with great suspicion, suggesting as it did the possible transfer to the Axis of French naval units at a moment of great naval tension in the Mediterranean. A protest from the Department of State drew in response a solemn promise from Pétain that no French warships would be turned over to the Axis and furthermore that the terms of the armistice would at no time be violated. The Social Demokraten has expressed what appears to be the opinion of the overwhelming majority of the population: "Swedish people have but one interest, to defend to the utmost Swedish liberty and national independence." Mediterranean Pause Although heavy reinforcements continue to reach Rommel and the season for campaigning in Libya is growing short, Hispano-Portuguese Parley Although the results of the much-heralded meeting of Franco and Salazar at Seville have not been disclosed, the Portuguese premier was pleased with the outcome and returned to declare to a selected group of "reliable" legislators that the three bases of his foreign policy are neutrality, Mediterranean have been almost completely lacking during friendship with Brazil, and the British alliance. The meeting had been favored by the British who believed that Salazar might improve Franco's attitude toward the democracies. Although lacking definite news, the public in both Portugal the past week. At the same time close observers of the North and Britain feel that the meeting was successful in these terms. the Marshal still hesitates to loose the expected attack. Fresh indications of Axis intent elsewhere in the eastern 12 13 SECRET SECRET The Germans quite naturally opposed the meeting, which was sought by the Spanish, who were beset by perennial economic difficulties and who were politically and ideologically isolated by the results of the Rio Conference. Even Suner recently made the statement privately that no Spaniard wishes to join the Axis in the war so long as Spain is not subjected to something approaching a watertight blockade by the Allies. It is indicated that the discussions dealt in fact largely with economic matters. Portuguese friendship with Britain has the background of centuries of cooperation-beginning with a commercial treaty in 1294 and an alliance in 1386. The Methuen treaty between the two countries was signed in 1703, and with one short intermission, they have been allied ever since. This duel between anti-Axis Congressman Damonte Taborda and Lieutenant Colonel Enrique Rottjers (won by Taborda) lent a note of color to the final stages of the campaign. But the existence of a state of siege in Argentina inhibited discussion of international affairs, and the campaigns in thirteen provinces were fought on local issues. Eighty-five of the 158 seats in the Chamber of Deputies, but no seats in the Senate, were involved. In Buenos Aires and La Plata Provinces, and in the Federal Capital itself, many Radicals refused to vote in an advance protest against the Castillo regime and the frauds which they felt would inevitably occur. The results and significance of the elections will be discussed later in these pages. friendship rode the storm of Allied occupation of Portuguese Timor with flying colors as a result of British tact, and the recent Japanese invasion of Timor has again brought the countries closer together. A diplomatic rupture or war between Portugal and Japan would be distinctly advantageous to the United Nations as removing Portugal from the temptations of possible future cooperation with the Axis. Elections in the Argentine Although the results of the Argentine congressional elections of last Sunday, March 1, will not be announced for another week, it appears that, even though the Radicals may retain a working majority in the Chamber, they will be unable to affect greatly the course of Argentine foreign policy which is firmly in the hands of the Executive. Hence no change in the Argentine's "isolationist" policy is yet foreshadowed. Competent observers report that the elections were notably quiet, and that very little enthusiasm was apparent. The 14 15 SECRET SECRET leased to herders in areas of hundreds of square miles in each holding. APPENDIX AUSTRALIAN POPULATION AND TRANSPORT AS FACTORS IN DEFENSE The few population centers of Australia are so widely distant from one another that they might themselves be viewed as separate islands in the Australian continent. There are three of these centers, but only one is extensively populated and has any appreciable war potential of its own. This area, fortunately for defense, is in the southeastern sector of the continent, where in a belt about 100 miles wide most of The population of Australia is highly homogeneous, with 97 per cent of the inhabitants of British descent. Maintenance of a "White Australia" has been a part of Australia foreign policy upon which there has been virtually no disagreement. The Japanese can have no hope of peace so long as "White Australia" flanks their conquests. Transportation in the Defense of Australia Australia's center of population is remote from the rest of the world. Even so, these great distances favor the Japanese. Sydney is a third again as far from San Francisco as from Yokohama, and Jaluit, in the Marshall Islands, is nearly Australia's population of 7,000,000 is concentrated (see map). One-third of this total population lives in the cities of Melbourne and Sydney. Aside from the port of Free- 2000 miles closer to Sydney than is Honolulu. New Zealand, mantle in Western Australia, all the chief commercial ports- actually 1200 miles away. Sydney, Melbourne, Adelaide, Newcastle, Brisbane, Kembla, On land, likewise, the defense of the continent will be handicapped by the transportation factor. The principal and Geelong-are in this area. And the important industrial concentrations-including the munitions industry built up since the beginning of the present war-are likewise here. The second most important population area lies in the vicinity of Perth in the state of Western Australia-although it is to be emphasized that the whole of Western Australia in 1933 had fewer than half a million inhabitants. Finally, centering in Port Darwin in the Northern Territory, there is a frontier "islet," whose population normally is negligiblesome 1,500 in Darwin in 1933 and only about 5,000 in the whole Northern Territory. Both Darwin and Perth are situated on the margins of the Great Western Plateau-an arid, inhospitable region which is largely uninhabited except by aborigines. Even the margins of the Great Plateau are very sparsely populated, and land in this region is normally 16 which is often thought of as a near neighbor of Australia is railroads skirt the eastern and southern periphery of the continent, with feeder lines to the interior-some 28,000 miles in all in 1938, on a continent which is approximately the same size as the United States. There is no railroad connecting the Northern Territory with the rest of Australia. A poor and badly equipped line runs 316 miles south from Darwin to Birdum. A new all-weather highway is the only link over the desert from Birdum to Alice Springs, 600 miles south, where connection with the main railway system is made. In this "main system," there are five different gauges, varying from state to state. Rolling stock is short, not only because of increased war demands, but because a considerable quantity was shipped to Iran for the transport of matériel to Russia. Roadbeds and bridges generally are light, creating 17 SECRET another problem in the transport of heavy tanks or the use of American-type locomotives. Finally, motorized transport is limited by the necessity of importing liquid fuel. Australia can produce only about 20 percent of its requirements, and with the East Indies and Near Eastern supplies virtually cut-off, the liquid fuel shortage already constitutes a crucial problem. 18 GOVERNMENT PRINTING OFFICE 1942 470 RESTRICTED MID 319.1 No. 642 Situation 8-11-41 M.I.D., W.D. 11:00 A.M., February 26, 1942. SITUATION REPORT I. Pacific Theater. Philippines: No enemy aggressive actions reported. Burma: No ground activity to report. British state their troops are reorganizing. Australasia: No ground activity to report. The Dutch Naval Base at Soerabaja was raided again on February 25. A Japanese plane evidently on reconnaissance was reported over Darwin. II. Western Theater. The German Air Force attacked British shipping off the coast of Scotland, February 25. III. Eastern Theater. The Russians claim further important successes along the front with heavy losses inflicted on the Germane. No indication as to the actual location of the reported fighting is given officially. IV. Middle Eastern Theater. There is no major change in ground situation in North Africa. Axis aerial bombardment of Malta continues. The air forces of both combatants continue their harassment of rear area and supply lines. Bombs of the heaviest calibre were dropped on Malta by German bombers during raids on February 25. RESTRICTED