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212 September 4, 1942 9:05 a.m. CURRENCY Present: Secretary Knox Mr. Patterson Mr. Berle Mr. Feis Mr. White Mr. Perkins Mr. Pasvolski H.M.JR: Bob, for lack of anything else, we drew up a little agenda and I really wish that you would kind of lead this seminar, because this is on the assumption that you want us, in the civilian depart- ments, in on this thing; and if this suits you all right, we will go along this line. If it does not, we will take some line that you prefer. (Agenda distributed, copy attached.) MR. PATTERSON: Provision has been made, of course, already, for the use of some regular legal tender, with a small distinguishing mark, for pay of troops-H.M.JR: Which we are delivering tonight or tomorrow morning. ...in occupied areas. I suppose the rest of this discussion has to do with the possiMR. PATTERSON: bility of some other kind of money being provided. MR. WHITE: No, Mr. Patterson, these are necessary all during the initial period, the very early period. Whether that is a matter of two days or several months, depends entirely upon military authorities and progress, but these are problems that we will be confronted with at once. The problems of another kind of currency are 213 -2those which will occur anywhere, as I say, a week to many months, depending upon the military authorities. Some of these are matters on which you have to make a decision almost within a question of hours or days, upon the initial part, and some within a week or two, depending upon how much area you cover. But they are all under the heading of the problems during the initial period. Then there are problems during the intermediate period which we could not possibly get to in the first week. Then there are other problems during the later period. SECRETARY KNOX: The situation right now is that you have got eleven thousand Marines in the Solomon Islands in occupied territory. MR. PATTERSON: Yes, we have got troops in New Caledonia; the question has come up there, too. I do not suppose those people in the Solomon Islands - I do not suppose there is any traffic there of any kind. SECRETARY KNOX: Yes, very crude. It was a British possession originally; a British mandate, wasn't it? Who is up on the history of the Solomon Islands? MR. BERLE: It was a British mandate handed over to Australia. SECRETARY KNOX: But normally a British mandate, and they had a certain amount of very crude economics. (Mr. Pasvolski entered the conference.) MR. WHITE: The Fiji Islands use sterling - some of those islands. MR. FEIS: May I suggest that it is quite a different problem, because the interest and importance of this lies in the fact that the relations of the people of the occupied territory is going to be of first-rate military importance, and that is not so in the Solomon Islands, Caledonia, and that type of occupation. 214 -3MR. WHITE: That is very true. MR. FEIS: I think that is why this has 80 much more difficulty. MR. WHITE: Of course that does not apply, but if we go into Burma or Java, the same problems arise that arise here. MR. FEIS: Even those will be simple. These are the toughest. SECRETARY KNOX: In New Caledonia you have twentyfive thousand men spending American money or some kind of money. MR. WHITE: It may be so that some of those same kinds of problems exist. We haven't been thinking in terms of those, but maybe we should. SECRETARY KNOX: I think you should. I do not know why you have any different kind of occupation currency for the far Southwest than you do for anywhere else in the world. H.M.JR: I think Secretary Knox is right. We just were not aware of it, that is all. We were not called on, and we were called on by the Army. SECRETARY KNOX: Don't you agree, Bob? MR. PATTERSON: What is the proposition? SECRETARY KNOX: If we provide some kind of currency to be used in areas that are occupied, we should use the same kind of currency - American currency - with a dis- tinguishing mark. MR. PATTERSON: I think so. SECRETARY KNOX: So this stuff provided for would be available immediately. 215 -4MR. WHITE: I think we ought to look into those areas. MR. BERLE: Mr. Secretary, can we generalize? One situation in the South Pacific might be handled differently if you occupied half of France, for instance. H.M.JR: I agree: Could I just go back a step a minute? The thing, Bob, that you have not said yet for the Army, or Frank Knox for the Navy, is this - maybe you have - have you gentlemen made up your minds that you want us, the civilian departments who are interested - do you want us definitely to help you on this thing? MR. PATTERSON: Yes. H.M.JR: Does that go for the Navy? SECRETARY KNOX: Absolutely. It is much more an Army than a Navy problem. H.M.JR: I know, but there have not been any expressions. And then, earlier, when we were talking, Secretary Knox said he thought that Colonel Donovan ought to be in on this. I do not know what he is doing, so I do not know. MR. WHITE: He probably has considerable informa- tion available as to what Germany and Japan and Italy are doing in occupied areas, and I should imagine that that experience, which I presume clears through him, in addition to his general experience, would be-SECRETARY KNOX: He has specific knowledge of territories that are likely to be occupied. He is charged with the responsibility for certain things which require a fairly intimate knowledge of internal conditions in those countries in which we are likely to carry on operations. 216 - 5MR. PATTERSON: Running down the points, and this is just off-hand, because I have not studied them - some of them I have considered before - I would think the second point, "Provision of coins," H that it would be preferable to have our own local coins used. Our own coins-- MR. WHITE: U.S. coins? MR. PATTERSON: U.S. coins, yes, and the reserve supply be kept here. MR. WHITE: Unfortunately, we have a very inade- quate supply of coins, so if that kind of a decision is made there are certain things that the Treasury will have to do. We are very short of coins. MR. PATTERSON: If the paper money is U.S. legal tender with an identification mark, it would seem to me, consistently with that, we ought to have silver coins - metal coins. MR. WHITE: I think so, if they are new silver coins, silver half-dollars. MR. PATTERSON: You don't even need an identification mark on them. MR. WHITE: I imagine you wouldn't want those any different. - MR. PATTERSON: We would prefer, under three, to have the exchange rate fixed by the U.S. Treasury. Four is a little harder. I have not given any thorough thought to that. Five is a little deep for me. Six - I suppose so far as that relates to currency, that they are not under any disadvantages - no impedi- ments offered at all by the provision for United States currency. 217 -6MR. WHITE: Six? MR. PATTERSON: Six. MR. WHITE: Well, six refers to - I am not sure that I understand. Six refers to the question of getting the productive facilities in the country working just as rapidly and as effectively as they can to meet the needs of the military authorities. It might be even diverting some of the productive capacities or helping them - in other words, assuming that there is already some disintegration, and that there will be, as a result of the activity in that area, much more of a breakdown, I presume you will want to get the civilian product ion going just as rapidly as possible, both to help the Army and to help the Army by helping the civilian population. MR. PATTERSON: I would suppose that - yes, that is clearly the topic, but I had supposed that probably the discussion was with relation to currency, or is it just a broad topic? MR. WHITE: It was a much broader topic because we did not know at that stage how many of the officials would be remaining and what the attitude might be and it might require substantial financial assistance and even some supervision as to what you want those plants to produce. MR. PATTERSON: That is the thought, I think-SECRETARY KNOX: Getting into the field of very important decisions, does the Army, and to some degree the Navy, desire a civilian government for an occupied territory? These questions relate to the civil adminis- tration. H.M.JR: That is right. It is, rather than military. MR. WHITE: Except that in the initial stages the civilian governor would operate for the purpose of helping the military. 218 -7SECRETARY KNOX: A man agreeable to the military, and a man chosen because of his skill and some familiarity with the country and the government. MR. PATTERSON: A good deal of thinking has been going on along those lines in the last two months on the question of military government, I believe, with the Board of Economic Warfare and the State Department. I don't know - perhaps some other agencies, too. I am just not well enough posted, myself, on that, but there has been a good deal of discussion covering the topic of six, and I believe, also, of seven. MR. BERLE: Do we have to get quite that far into six or seven? Mainly you are going to have a lot of things that have to be done right behind the lines, from repairing local electric light plants, and getting those going, and a raft of things. Now, I believe in some of the European armies they have their mobile economic units that move right along with the troops as an emergency squad, and wouldn't interfere in these things, just as you might have a Red Cross unit move along without prejudice. The military is still running; the army is still in control. MR. PATTERSON: You can't have a civilian governor during the initial phases of occupation. There is nothing that he can do. Who is going to feed him? He has no transportation. He cannot get from place to place. That is, during the initial phases there is no question of the fact that it is, of necessity, a military function - a military operation. MR. PERKINS: And it is going to stay that way for some time. MR. PATTERSON: Until they declare the area safe. SECRETARY KNOX: It depends on what kind of re- sistance you encounter. In some situations you may meet with a token resistance or very mild form of resistance, and then that be succeeded by an opportunity to establish an arbitrary civil type of government. You see what I mean? 219 -8MR. PATTERSON: Yes, you know that the State Department is making a convention with several other countries for relief and the rehabilitation. H.M.JR: I am familiar with that. MR. PATTERSON: And I believe that the draft of that now provides that the director to be appointed under that agreement takes over when the military commander says that the immediate exigencies will permit it. MR. WHITE: Unless the terms of that are extended. MR. FEIS: Mr. Secretary, that convention, I be- lieve, which would operate through rather necessarily elaborate international machinery - it is only contemplated that that would become operative after the armistice, after the general armistice. H.M.JR: I understand. MR. FEIS: That is not regarded as a peace machinery. MR. PATTERSON: That was not the way it was discussed at the Board of Economic Warfare. It was thought it would become operative in any given area as soon as the military commander declared that it was a safe area. MR. FEIS: Take the machinery, Mr. Secretary - I am speaking for purposes of exposition - you have got to call a meeting of the United Nations setup, and agree upon an executive director, and have him create his staff. Those are simply some of the numerous steps, largely diplomatic in character, that are required to set up that machinery. MR. PATTERSON: But the timing of the operation by the terms of the paper are not that. The timing of the operation by the terms of the paper are that assuming the agreement is in operation - in effect and a director appointed, and then, thereafter, as soon as an area is taken over, and as soon as the 220 -9military commander on the spot declares that it can be done, the director moves in. Now, they may be fighting in all other parts of the world. I am telling you the terms of the paper. MR. WHITE: The difference of opinion lies in this, I think, Herbert, in that you are assuming that the organization will not be set up until then, whereas the discussion of the document had presupposed that the organization would be set up at once. MR. FEIS: My judgment is that you cannot rely on that organization to take care of the situations thatdocument. you (White) had in mind when you were drafting this MR. PATTERSON: I was only referring to that as one phase of a general situation, but I think that paper is correct in this, that it goes on the basis that after initial occupation, during which everything is, of necessity, military, there comes a time when civilian authority of some sort or other takes control. That paper covered, so far as relief and rehabilitation were concerned, many other problems, too. MR. FEIS: I think the distinction is this, if I understand Mr. White's conception of drawing six and seven, it was to take care of and to assure effectiveness in the production and civilian activities connected with, or necessary to, a successful military effort. The other has to do with the activities after the military effort has been successful and established. MR. WHITE: And going beyond - however, there is this point, Herbert, that I think Mr. Patterson is right in saying that that document contemplated opera- tions before a general armistice. Possibly Herbert's point is that the organisation is so complex in requiring international action, that he doubts whether it will be set up, possibly, in time to be effective in many of the areas. 221 - 10 MR. PATTERSON: I understood there was a great rush about it, that they couldn't wait a day, that they were going off collecting signatures. MR. FEIS: Mr. Secretary, I was a participant in a good many of the discussions regarding that document. There was a great rush, but the rush was not so it would be available immediately behind any successful military effort. It was that it is foreseen that this relief job, relief and rehabilitation job, is going to be tremendous. It is a matter of uttermost moment in the minds of governments like the Norwegian, Dutch, and Belgian, that behind the present governments their people are saying, What steps are you taking in advance to deal with our post-war plight?" Each of those governments has threatened - begun to go off on its own to buy foodstuffs and stuff like that. We have been trying to stop those independent efforts and for that reason have had to have an agreement, now, to stop these uncoordinated and independent efforts and keep those situations under control. That is what gives it an air of uttermost urgency. MR. BERLE: I wonder if we couldn't perhaps save ourselves a little time here if weagreed to a few things which I think will be generally admitted. One is that the first currency is likely to, or, in all events, ought to stay for some considerable period of time; that is, whatever goes in with the troops ought to be so handled that it is going to stay for quite some time. We cannot be shifting currency around every five minutes, so the arrange- ments made for the troop operations ought to be so handled so that they will stick for quite awhile. If we can begin there-- MR. PATTERSON: Not necessarily. SECRETARY KNOX: Aren't you confusing two things? MR. PATTERSON: U.S. money for pay of U.S. troops is good at any time for troops, and is the best possible currency to use for them. 222 - 11 Now, it might be that way for two months and then some other arrangement might be made. No, I do not think there is anything immutable about the kind of money you want to use. MR. BERLE: As respects the money used for troops, I think that probably is true, but that will be immediately the largest single currency factor, I should think - I speak in due deference to the Treasury people who know better probably in the area in which they are unless you were lucky enough to get a whole country the size of France at a bound. So the relationship between that American currency and the local currency on the ground would at once be the outstanding thing on the landscape there. If you shift that around very rapidly, the local population is likely to make some trouble, I should think. I do not claim to be a great expert on this. H.M.JR: If I can - I am not trying - all I am trying to do here - now, if I am wrong, for heaven's sake say so - the Army and the Navy, once they have occupied a territory, would be gla d to have some civilian assistance to handle the multitude of details that have to do with the civilian population. MR. PATTERSON: That is true. SECRETARY KNOX: That is true. H.M.JR: Then I also think - I was saying here to Mr. Berle, that I am sure that the English have some kind of a plan, on the basis of which we get started, and that is the first leg on the relay race to the peace table; and if they get a lap ahead of us and should get the civilian population tied up under their thumb, then whatever our peace plans are will be made that much more difficult for us. That is why I think at least we should have a plan and find out what they are thinking about. If you people agree, then the details could be worked out by these experts a great deal better than I could do it. I am just trying to get you two men to think about it. 223 - 12 SECRETARY KNOX: I would like to say this. We are trying to talk about two different things. Bob this civil organization for relief which I think is has introduced into the discussion the question of an utterly different thing from the establishment of a civilian government following on military occupation. MR. PATTERSON: Well, they are comparable. SECRETARY KNOX: They may overlap a little bit. The civilian governor comes first. You do not want to have to govern a territory after you have conquered it. MR. PATTERSON: You have to for a long time. SECRETARY KNOX: You want to get rid of it as soon as you can. MR. PATTERSON: Yes, but you have to for a long time, and of course, assuming that you make progress into the interior, there comes a time when the rear zones are safe and can go over to a civilian government, but the zone of advance is military. SECRETARY KNOX: Yes, it is not proposed by this creation of a civil government of occupied territory to interfere whatever in complete control of the whole territory by the military authority for military purposes. But what is contemplated is the setting up of a civilian government that will take a lot of the contacts with the local population off the Army's hands - as I know they would like to get rid of it as fast as they can - the police organizations in the little towns and all those variousdetails which have to do with the economic territory. MR. FEIS: I imagine a solution for what is bothering the Secretary might rest if this is to be regarded as a first attempt to sketch the provisions that will have to be taken in the economic and production sphere as occupation progresses - I think what is bothering the Secretary might be taken care of by having a new 224 - 13 - Five A in between five and six. I think maybe in this exposition we have skipped over, in trying to foresee the movement of events, an intermediate period there that would have to be borne in mind. MR. WHITE: I think that Mr. Patterson and the Secretary are thinking of a little later stage for a governor. There is a stage in between, before it is settled enough to have a governor, and yet is quiet enough, and there is enough area, geographical and economic area, covered so that the Army would have conplete control - would have the complete direction, but would probably wish to avail itself of civilian advisors or assistants to take over particular areas. For example, I can well see where the Army might say, "We want somebody to take care of the banks. These banks have got to run properly, otherwise the economy cannot function, and we cannot get the goods out and people will be dissatisfied. Therefore, we will appoint Mr. X" - who they will know ahead of time and who will have had the appropriate training to take care of the banks. That man will still have to report to some military authority - still be completely under the supervision of the military authority. The governor in the broader sense such as is being used now, does not come in until later, until you have passed over a territory. So there is an intermediate stage. SECRETARY KNOX: I discussed this very problem with the President only the other day. This was his thought, and I agreed with it, that there should be created very soon in the joint staff, a committee of some sort which will look forward to the time when we have to govern and administer the civilian affairs of occupied territory. That group in the joint staff should be making its plans now and when the civilian governor goes in, he goes in as a member of the staff of the military commander. MR. PATTERSON: That is all they have done. SECRETARY KNOX: Well, it has not been done yet. 225 - 14 MR. PATTERSON: Well, it has. They have had for three months, a school of military government in Charlottesville, a division of military government under General Gullion, the Provost Marshall. They have done a lot with the Board of Economic Warfare, and the thing is continuing right along. The thought is exactly what Mr. White said. The attention being given to the thing is this, that it pre-supposes a military government under the command of the military commander in the area,-- SECRETARY KNOX: That is right. MR. PATTERSON: with the use of a great many skilled civilians to run the water works and to run the power plants, the telephones, the policing - of course, that is primarily a military function because they use military policemen, but schools - well, everything. All they need to do if they want to is to move that unit over from Gullion into the joint Chiefs of Staff, and add some naval personnel to it. SECRETARY KNOX: I sent for the set-up of the joint staffs to see whether they had yet created such a committee, as the President stressed the necessity of having it created soon, and it is very definitely in the President's mind that while this civil govern- ment in occupied territory shall be subordinate to military authority, that he should be a civilian rather than military. The problem is wholly civic under the command of the general in command of the whole opera- tion, but nevertheless, a civilian, rather than a military. MR. PATTERSON: That is possible. H.M.JR: Well, to show the need of tightening up, besides the representative of General Carter, there have been two Army officers from two different branches of the Army within the last two weeks - each thought he had a bright idea about money for occupied territory coming in - the people come in and want to know this and that. I said, "Sendthem back. Let them find out 226 - 15 - what the rest of the Army is doing, but I mean - so it evidently has not yet been coordinated. SECRETARY KNOX: No, it has not been. H.M.JR: And I would like to just-MR. PATTERSON: The unit is set up in the Army, there is no doubt of that at all. I know all about it. SECRETARY KNOX: Is it manned by officers or civilians? MR. PATTERSON: Officers. SECRETARY KNOX: I do not think that is what the President territories.has in mind for the government of occupied MR. PATTERSON: Frankly, no, but this is true in the initial stages, and I think necessarily so. The government has got to be under the command of the commanding general - nothing else will work. SECRETARY KNOX: That is right. MR. PATTERSON: It has got to be, I think, the special charge of a man on his staff who acts in his name. SECRETARY KNOX: That is right. MR. PATTERSON: Of course, he will not be competent to handle all kinds of problems. He cannot be. And for that I think they are now getting up a roster of skilled civilians. SECRETARY KNOX: That is right. MR. PATTERSON: The only thing they need, I believe, if it is the thought that that ought to be under the joint chiefs of staff, is to move the unit over and add some Navy to it. 227 - 16 SECRETARY KNOX: The Navy is not particularly interested. MR. BERLE: If I can raise a question here, it seems to me we have quite a lot of problems in there. You are moving into a country that has a government and that government will want to say something about it; again, depending on how it WO rks out, it might be an American general; it might be a British general; conceivably it might be a French general - you cannot depending on how things are working at the moment. MR. PATTERSON: We can only settle our own, here, of course. MR. BERLE: I was going to say, in these joint operations you have to have the cards placed pretty well before you can move a unit in - a unit of that kind. You would have to have some agreement as to the territory in which that kind of a government could work, with somebody, notably British-- MR. PATTERSON: Some one commander in charge of every area, no matter whether the troops - they may be British and American, but I do not think the operation will amount to much unless there is somebody, one or the other, in actual command. And that would settle all initial phases, certainly, of the government. H.M.JR: Well, look, Bob-- MR. BERLE: An able British general, but that might not necessarily determine who had the civilian, or military and civilian government, in the territory. MR. PATTERSON: It would almost determine it. If it were a British general it would be a function of that British commander. H.M.JR: Could I just say something a minute, be- cause I have got this feeling - if I am wrong you tell me, because I have got plenty to do and I am not looking for worlds to conquer or new territory - - 228 - 17 - if the Army feels they have got this thing well in hand, and I gather that you think that they have, let me go on with my business and I will forget about this thing. I do not want to - I mean I sort of get that it is going all right; and if you think it is the feeling that you have got this thing in hand, going all right, and you want to take the responsibility, I have got more than I can attend to and I would just like to drop it and forget about it. MR. PATTERSON: They have it in hand, Henry. H.M.JR: I mean, don't let's be polite with each other. MR. PATTERSON: No, there has been a lot of thought given to it. They have it in hand. It is under General Gullion and immediately under General Wickersham, who devotes his entire time to it. He has, I believe, several men from the Board of Economic Warfare, hasn't he, Milo? MR. PERKINS: There have been a lot of folks working with him. I have got one or two administrative suggestions to make. I think it is very difficult to hit this thing in the broad. I think a step that ought to come pretty soon, whether it is in the general chiefs of staff or stays entirely in the Army - and the Navy wouldn't want to be directly concerned with it - I think before long in terms of specific areas we need a guy in the Army and he needs to have his civilians in mind, if that is the way it is going to be. The job is one of such terrific magnitude that he is going to have to have help from the Treasury on the money thing. I think perhaps the unique thing we can supply in the Board of Economic Warfare, since we have got hundreds of very able business people, some of whom have lived in Europe most of their lives - I think we can supply, if we knew - just to take an example, and you cannot do this thing on a shotgun basis, you have got to do it on a rifle basis - if we knew that the northern half of Norway were an area that might be conquered and we have our plan for that, then we have half 229 - 18 a dozen kinds of work we are doing. We have a good many facts about that and we can get more. Now the recruiting of technicians for that, the likely problems - probably the most urgent kind is the power plants you will have to restore - what materials you may be likely to need. All that sort of thing can be thought out if you do it concretely in relation to an area, and I think out of that will grow a lot of principles. We have had people down at the Charlottesville school, as you know. We have been working on a lot of specific problems. I do think we are coming to a point where you just cannot treat reoccupation in the broad, although maybe that is the way it started. I think where we are getting now we have to think of a particular hunk of pie that you have to cut, and the problem is going to be terrific. You shut off. from the civilian point of view, most of your supplies - suppose you could take a couple of hundred square miles in France, then you could probably stop communication between the rest of France and that. So you have problems of food. There are little things. A fellow in M.I.T., Bob Harris, has done a good deal of work on dehydrated foods for the Army. He has a soup mixture that the British are using in their community feeding and we are using in our school lunches. A tablespoonful is used and makes green pea soup or tomato soup. It has all the proteins and thirty percent of the vitamins that the human being needs for a day. Maybe as a matter of emergency feeding where you have got to live on potatoes and what else you get, a few drams of that would be very useful. I mean the problems are just multitu- dinous. I think you have got the thing well started, Bob, and I think the next logical step which you folks are thinking about is getting it down to more specific areas. Then you have got medical problems in those areas. You have got to take them into account. 230 - 19 MR. WHITE: There is a more basic problem - that is, it seems to me to be the basic problem. A school such as I understand is being operated - I know some- thing of it from various sources - pre-supposes that you will get further, be more effective, by providing some educational training in courses and lectures to men with more or less familiarity with the field, but who are being educated for these problems, as against turning the task over to civilian agencies operating under the Army. We quite agree the Army has to have control, who will get men who are already well trained for it, and who will merely be acting under their guidance, getting their plans ready, and all that sort of thing, so that they will be ready to step in. In other words, I do not understand that you can get as good results by training Army people into the intricacies of some of these problems any more than the State Department or the Treasury could expect to train soldiers by getting civilians in and having military men come in and talk to them for a few months. In other words, this is a highly-specialized, highly-trained task. H.M.JR: Harry, may I interrupt you? I was not warned yesterday, and I am not being personal - I am just being practical, see? What I gather Judge Patterson is saying to me, very politely, is that the Army wants to do this. They have a man in charge of it, and so on and so forth. I say, O.K. and I am serving notice also it. politely - that I am not going to do any more about MR. PATTERSON: The school, though-- H.M.JR: May I finish, please? But please, when you do want something of the Treasury, I hope that you do not take two months to make up your mind. General Eisenhower's request is two months old, to-- MR. PATTERSON: They gave him an answer immediately to that. They told him at once that they did not want British currency. 231 - 20 H.M.JR: But from the time that that cable came, after my fussing and fussing - I think it was Monday or Tuesday that we finally got an order from you people, but it is your responsibility - I said right from the beginning, it isn't something that I, as Secretary of the Treasury, want to have anybody feel I am horning in on; and I am not. I am withdrawing, and any time you people want to ask us, we are here. I am not going to make any more suggestions. But when you do want something, don't expect to have it as of yesterday, if this other thing is an example. Now, I mean, there are no personalities in this thing, because we are at war; and if the Treasury can help, all right; but I am not going to call any more meetings, I am not going to do any more about it, because you are not treating with Donald Nelson. If you want this show, O.K., God bless you. I hope for all the success, and you can call on me for any kind of help, and I will always stop anything for the Army and Navy. Whatever I am doing I will drop. You have always got priority 1-A. But don't let's be so polite with each other. MR. PATTERSON: No. . The Eisenhower cable was promptly answered. He said, "Do you want British currency for your troops?" The answer promptly went back, "No." Now, so far as the actual provision of something else for the troops, I assure you that the provisions for currency are far ahead - far ahead of any other phase of planning for an occupied area, so that there is no arrears about it. We will have that currency, I suppose, in storage for some months so that by-- H.M.JR: But I don't want you to be so polite with me, Bob, you don't have to treat me-MR. PATTERSON: I don't think you have quite grasped the Army's general attitude. We think, of necessity, that it is primarily an Army responsibility, whether we 232 - 21 - want it or not. That doesn't mean at all that we think we are self-sufficient on it. As Mr. White said, we have the school down there, but we don't believe for a moment that we can train a man in that school to run a water works or a power station. Of course they can't. The only thing the school is trying to do, I believe, is to indoctrinate them in general over-all stuff and teach them their need for reliance upon the assistance that people in the Treasury are capable of giving them that they will need. They can't handle this banking stuff, for instance. We can't possibly handle that. H.M.JR: Well, Bob, we are here if you want to call on us. But I mean, I am not going to do any more plowing. MR. PATTERSON: They will have to come to you from time to time if these operations take effect and get from you some skilled people. There is no question of that. H.M.JR: Well, we are here. MR. PERKINS: I think the next step is to get single guys with a few around them, thinking in specific areas. Now, your Charlottesville education has been broad and general so some of them there will have a pretty good, broad background. But this is a job of such magnitude that the Army is going to need everything they can get from the Treasury, everything they can get from State, from BEW. No one of those agencies can do more than fulfill a segment but you are going to begin to get action. We can get one guy whose job it is to plan on what you are going to do on this front, the top of Norway, or Belgium, or maybe have four or five plans going. Then I think it ought to be his function, with a small staff around him, to find out what is available in these other agencies. He is going to need plenty of help. It is going to be tough. MR. PATTERSON: If they plan operations in the northern part of Norway, they first pick out what they 233 - 22 call a task force. They pick out a commander, and the commander picks out a staff. I presume that it would be one of his first charges in picking out a staff to pick out an officer who was supposed to run all phases of military government in the area. Then it would be up to that officer to pick out as a member of his staff to search around for that particular area and its needs. If it is not populated, then it is easy, I suppose. But we will assume that it is populated and that it has power stations that they believe are going out of commission, or have been destroyed and have to be rehabilitated as fast as possible. He has got to assemble the people he is going to rely on. MR. PERKINS: And the materials and ships and all the information, and one thing our guy has been doing is programming a lot of specific things for you fellows that in some areas are certainly going to have to be looked at. I think the thing will take a lot of solidity as you begin to think of the narrower area. MR. PATTERSON: Yes. MR. BERLE: I should like to say one thing on behalf of the State. The minute you move a military government into an area, political repercussions take place on all, and when that is translated into civilian repercussions, that is still more true. I would think that we want to be consulted in connection with those arrangements. If you put "American military government into France or a British military government in, they are different - if you happen to have a joint force you have got to have an agreement between the two governments as to how the thing falls; and what you do there is likely to affect your political conditions all over the continent of Europe and several other places besides. I merely want to drive that peg in. I think on that Mr. Hull probably would have some views and probably would want to be consulted. I haven't the slightest doubt that you have that entirely in mind. I make that point more for the record than 234 - 23 otherwise, because you will see at once that the result of an extended government, let us say, under American auspices, or under British auspices, or under somebody else's auspices, of any particular area, may vitally affect the whole political formations which follow afterwards. I want to mention that because I think we have a legitimate interest. MR. FEIS: I should like to reinforce that, too, Mr. Secretary, and say that those political repercussions would in turn, I think, have very serious military repercussions. MR. BERLE: And financial, too. MR. FEIS: If you take, say, France, outside of the question of adjusting the relations with the British, and the question might be raised in the military service of the utmost political importance in our relations with Britain, you would immediately face - and I just use this - for instance, the question of what part the fighting French movement is going to play in this, what they are going to say to their people, what attitude you take, or things you will say to the Vichy government. I don't need to elaborate on the illustration. Some of those questions will have direct military significance, as well as having great ultimate political significance. So I think, too, that the Secretary of State would of are the expect to have an adequate chance to be consulted upon these matters, and I am taking note of the fact that in Britain the first stages preparation taking form of consultation with the governments of the occupied areas, right now in-- H.M.JR: Governments in exile? MR. FEIS: Yes, sir. H.M.JR: Well, thanks for coming. MR. KNOX: What have we decided? What is the net of it? 235 - 24 - H.M.JR: Well, the net of it, as I interpret it, is that the Army takes the position they have got this thing well in hand; and if and when they want to call on people for assistance they will do so. MR. KNOX: O.K. H.M.JR: And I withdraw and leave them in charge of the field, talking for the Treasury. MR. PATTERSON: Yes, that is right. H.M.JR: And the Treasury will be most willing, and we will give both the Army and "avy always priority over anything else that we are doing. Is that all right? MR. PATTERSON: Yes. So far as the general planning over-all is concerned, of course, I agree with Milo that you can't deal with this in the abstract to any finished extent, but so far as planning - the general planning is concerned for military government of occupied areas, the Army has that in hand - I believe well in hand. It has been going on for about three months. The Navy has some stuff, too, Frank, because as I understand it, you are backing some school at Columbia, I think. MR. KNOX: It doesn't amount to much, and what we have had to date is a fine lot of confusion about those islands that belong to the French down in the South Pacific, where we have had one squabble after another. MR. PATTERSON: You are doing something, because I think at Columbia a school is sponsored by the Navy, isn't it? MR. KNOX: Yes. MR. WHITE: That is the trouble. Sometimes they do something - just enough to stake the claim. It isn't cultivated and planned in the way you would sit down 236 - 25 and outline it to be handled, and possibly the Army isn't - I don't know enough about it, I am sure, but if you say it is, care has to be exercised to make certain that the kinds of problems that you are dealing with are being handled by the men most competent in the field. Again I say, there is no more reason to expect we could take some smart lawyers and make fancy generals out of them by having a few generals talk to them, any more than you can take some smart officers and make economists out of them, or men who are versed in political strategy or foreign policy by having a series of lectures. MR. PATTERSON: I think the main thing they have got to do now, as far as they can do it in a general way before they have anything concrete in mind, is to have some system of assembling the necessary skills. I think they are working on that now. I have talked with some from the Board of Economic Warfare about it just recently. MR. PASVOLSKI: Mr. Secretary, there are obviously two distinct functions. There is the function of maintaining - establishing and maintaining public order, under military government and it has to be done by the authorities. Now, beyond that there are two other functions, the function of reestablishing civilian life, and the function of reestablishing political relations. Now, you are working in all three of those fields, aren't you, or are you contemplating finally-MR. PATTERSON: I don't think we are doing much in the long range. MR. PASVOLSKY: My point is that shouldn't the program be arranged to take account of all three of them? H.M.JR: Thank you all. Agenda for Meeting of September 4 237 A. Problems during the initial period of occupation. 1. Provision of currency (already discussed). 2. Provision of coins. Shall local coins in circulation be used or shall U.S. cans be used? If the latter, where shall the reserve supply be kept? 3. Fixing the exchange rate at which transactions are to take place. Shall rates be set in advance by the U.S. Treasury, or shall they be established by the military authorities on the spot? 4. Treatment of local currency in circulation. a. Shall local currency in occupied territory be b. C. retained as legal tender? Shall local currency be made freely convertible into U.S. currency? Shall the conversion of local currency into U.S. currency be made compulsory? 5. Provision of banking facilities. a. Shall existing banks be operated under supervision? If so, under whose supervision? b. Shall special banking facilities be supplied? C. Shall financial and monetary assistance be made available to banks? 6. Integration of production capacity with army and civilian needs. a. Supervision and control over production in the occupied territory. Provision of raw materials, machinery and labor b. for essential production. C. Provision for financial assistance to rapidly in- crease production of essential products. 7. Control of property. a. Shall military authorities supervise settlement of debts among the local population? b. Shall an attempt be made at once to restore property seized by the enemy to the rightful owner? C. What transfers of property shall be permitted and under what conditions? d. How shall enemy interests be taken over? 238 September 4, 1942 11:04 a.m. Robert P. Patterson: Hello. HMJr: Hello. P: Henry? HMJr: Henry talking. P: We'll be up Sunday night. About sevent HMJr: Seven? P: Yeah. HMJr: That's five Patterson's? P: There'11 be two grown-ups and four little kids. HMJr: And four kids? P: Yeah. HMJr: P: Do they eat anything special? No, no, they're all - they're - they're - they won't - they're not in arms or HMJr: I see. How old is the youngest? P: Five. HMJr: Five. That'11 be fine. I!11 look forward P: They range from thirteen to five. Thirteen to five. HMJr: P: All girls. HMJr: All girls. (Laughs) P: Three of ours, and one visitor. All W.A.A.C.'s, eh? HMJr: 239 -2P: on yeah, yeah. HMJr: All right. P: We'11 be there. HMJr: Wonderful. P: Goodbye. HMJr: Yes. P: Thank you. = 240 September 4, 1942 12:34 p.m. HMJr: Hello. Operator: Governor Ransom. HMJr: Hello. Ronald Ransom: Henry? Ronald Ransom. HMJr: Henry Morgenthau. R: Yes. How are you today? HMJr: I'm fine. R: Murphy did a fine job of presentation. He's as clear as a bell always, and whether you agree with his or not, he certainly knows what he's talking about. HMJr: Who's that? I'd like to meet him. R: Your friend, Henry Murphy. HMJr: Oh, yes. R: He's a good boy. HMJr: Yes. R: Although I seldom agree with him, I always like to talk to him. HMJr: Right. R: Now I wanted to ask you this, you see, under the established practice for many long years HMJr: Yes. R: the group representing the Federal Reserve .... that meets with you is the Executive Committee of the Open Market Committee HMJr: Yes. 241 -2 R: ....at the present time consisting of Allan Sproul, Williams, McKee, Szymozak, and Draper. HMJr: Right. R: Now this meeting's being called as quickly as you HMJr: Yeah. called it today makes it impossible to get Sproul and Williams R: down here. HMJr: Yeah. R: And I don't know the time factor that involves you, but if that meeting could be held tomorrow morning .... HMJr: I won't be here. R: Well HMJr: Listen. R: That pretty well disposes of that. HMJr: Listen R: Yeah. the fellows in town come on over, and we won't HMJr: call them by any name except that - friends of the Federal Reserve and the Treasury. R: Well, that's a very nice term, I appreciate that, but it still leaves me as the presiding officer over here HMJr: Well R: ....in a dilemma. Now I have brought Sproul up to date and he has brought Williams up to date HMJr: Well, you - you come on over, and let's forget all this damn formality. R: It isn't a question of formality; it's a question of the way the system operates. 242 -3HMJr: Well, let me then ask the Federal Reserve Board to come over. To hell with the Open Market Committee. R: Well, may I say that would cause more trouble than the other. I'd rather you'd ask the Open Market Committee members who are in town and just include me as an interloper. HMJr: I - I - I accept it.... R: You can do that. HMJr: R: HMJr: R: ....I - I'd like the Acting Governor of the Federal Reserve (Laughs) .plus the other members who are here. How's that? All right. Now could you while we are there get Williams and Sproul on your loud-speaker 80 you can get their views? HMJr: Sure. R: All right. There's a nice question of protocol involved, and I need your help. HMJr: Well, I'll have Summer Welles here. R: All right, that's fine. Summer - Summer will probably do the job. HMJr: (Laughs) Okay. R: All right. Fine. HMJr: Thank you. 243 September 4, 1942 2:21 p.m. Harold Ickest Hello, Henry. HMJr: Yes, Harold. I: A short time ago - a few days ago I sent to the President a proposed Executive Order HMJr: Yes. I: job. giving me sufficient powers to run this oil HMJr: . Yeah. I: And I understand that the Budget has sent a draft to you for your comment. HMJr: Well, if it has I've never received it, Harold. I: agencies. HMJr: What? I: I just wanted to say, when you get around to it if there's anything you want to discuss with me, I'd be very happy to take it up with you. I don't know why they would send it to me. All they do is to do - try to make life just as difficult for me as possible. HMJr: I: Well, they - they did send it to you, as accord- ing to their list. HMJr: Well I: You might inquire. HMJr: Oh, I'd have had it, but I'11 inquire, Harold. I: All right. HMJr: Thank you. I: Goodbye. 244 September 4, 1942 2:24 p.m. HMJr: Hello. Operator: Lewis Douglas. HMJr: Right. Operator: Lewis Go ahead. Douglas: Hello. HMJr: Yes, Lew. D: Hello, Henry. I owe you an apology. HMJr: What fort D: Well, I - for all the haste that I evidenced HMJr: D: HMJr: D: (Laughs) .... at the request of somebody over .... Well, I was a little bit - I was - (laughs) - I was a little devilish, I guess. No, you weren't devilish at all. I was asked to do it forthwith. I did. HMJr: But - but you - you were in such a hurry. (Laughs) D: Well, yes, and 80 was HMJr: And then the thing was going to come over that day or next day, and it didn't and D: HMJr: Exactly ! .... and I just wanted to make sure that it wasn't lost in the Potomac somewhere. D: No, Henry, it wasn't. It wasn't lost at all in the Potomac. (laughs) But I - I owe you an apology HMJr: Well, I .... 245 2- because I thought it was a - a D: HMJr: D: HMJr: No. .... a matter that ought to be dealt with in haste Yeah. D: .... bustand, it! to be sure, it should be - dang, ding, HMJr: Yeah. (Laughs) D: But that's - that's really the - I just wanted to apologize. (Laughs) HMJr: oh, well, that isn't necessary. D: The other thing you know was - I - I thought that statement of yours before the Senate yesterday was really a - a perfectly extraordinary one. HMJr: What was that? D: The - your statement before the Senate Finance Committee. HMJr: D: Well, I'm glad that at least you liked it anyway. Well, I - I think it's - I thought it was - was a I fine, moral statement, Henry. HMJr: D: Well, thank you. It took about ten days to do it, but Well, I mean just this part of it: "I have said that I thought I could do - achieve the result from the voluntary method HMJr: D: Yeah. .... "now I find that something else may be substituted for it". HMJr: Yeah. D: Well, that takes courage, Henry. HMJr: Well, it did, to be honest. 246 -3D: of course, it takes courage HMJr: Yeah. to be - to do it. D: HMJr: D: But. And it. I just wanted you to know that I appreciated HMJr: Well, it's very sweet of you. D: Okay. HMJr: Thank you. D: All right, Henry. HMJr: Goodbye. 247 September 4, 1942 2:55 p.m. GROUP Present: Mr. Gaston Mr. Sullivan Mr. Graves Mr. Haas Mr. White Mr. Schwarz Mr. Thompson Mr. Buffington Mr. Cairns Mr. Gamble Mr. Odegard Mr. Kuhn Mrs. Klotz H.M.JR: I just have four minutes to say something, and that is this: During this past week there have been several people in the Treasury who have been talking to newspaper people. Now instead of my getting annoyed with the newspaper reporters - after all, that is their job, to get news - if people are indiscreet in the Treasury, they are the people to get annoyed with. Now, Schwarz' job is to contact these men who want news, and I am holding him responsible. And if Schwarz is going to do his job, it is up to the people here in the room and the people who work for him to make it possible. Now, I cannot go through what happened in the Treasury in the summer of '33 when there were people here who were at that time saying continuously that the President couldn't legally evaluate the gold dollar, and there were memoranda written, and so forth. They mysteriously appeared in the New York Tribune, and that was one of the reasons that the President put me in here at that time, to stop that kind of thing. 248 -2Well, this thing on the tax bill, and the last thing in the Wall Street Journal yesterday, "Treasury officials think it is untimely and unwise at this time to present this kind of a thing" - that was the last story. Now, this has got to be kind of an honor system. I mean, I can take it out of Schwarz' hide up to a certain point, but he can't control everybody; and unless everybody is going to tell the people down the line to stop this sort of thing, because It is going on, it makes his position untenable. I don't talk to newspapermen except twice a week, and I am just going to ask you to cooperate with Schwarz to make his job possible, because the way it is now it is impossible. He cannot do what I want him to do, and that is to stop leaks. The President once said that there were only two departments in Washington that could keep their mouths shut, one, the Treasury, and the other, the Navy, and now I am ashamed to say that the Treasury can. So please cooperate with Schwarz, yourselves, and the people who work for you, to see that these pipe lines with the papers like the Wall Street Journal are cut off once and for all. That is my sermon for today and my prayer. It makes me very nervous. I have gotten so the last couple of days when people come in the room I have to think, "Well now, can I tell this person this thing? I don't know. I mean, it has gotten me so I am kind of going like this, I don't know whether I can talk or whether I can't talk, which is a very, very uncomfortable feeling. So each one, if you would pass it down the line and simply say that - if a newspaperman calls up on the telephone the head of the division can say for the man, "I will talk to him, I will take care of him." But that is that. I say it is my sermon and my prayer. MR. GASTON: Well, we can spell out some details about this thing. If you don t mind, I will talk to Schwarz about it. 249 -3H.M.JR: Would you please, because I have been very uncomfortable and unhappy about it. It isn't a major thing, but the next time - I mean, a lot of things actually have military importance. This didn't happen to. But I have done things - I mean this thing of the shipment of Russian gold, for instance, which came in here recently. Well, I was able to keep it a secret, but there might just as well - the way it is now, there might have been a leak. Take the things we are doing for the Army we are at war, and I think everybody should be - it is an honor system, that is what it is. That is all. 250 September 4, 1942. 3:10 p.m. FINANCING Present: Mr. Heffelfinger Mr. Murphy Mr. Buffington Mr. Haas Mr. Ransom Mr. McKee Mr. Piser Mr. Draper Mr. Szymczak Mr. Rouse Mr. Thomas H.M.JR: I am sorry I kept you waiting but I have been late all day long. First, as to the financing, this is the way it looks. As of this morning, about everybody we talked to wanted a certificate. I think that was unanimous, wasn't it? MR. ROUSE: Yes, sir. H.M.JR: And then everybody else, I think, wanted something from a two to three-year note. Isn't that about right? MR. ROUSE: Pretty much. H.M.JR: Then we asked everybody to think over the possibility, if it were a two to three-year note, of giving the Victory Fund Committee a chance to see what they could do to sell it, giving all non-banking people a chance for full allotment. And the banks, so to speak, would underwrite it to keep the thing open for a week. Most of the people doubted very much whether the Victory Fund Committee could sell enough to make it worth while, but they said they did not 251 -2think it would do any harm. They would think about it over the week-end and let Rouse know Tuesday morn- ing. Does that about sum it up, Rouse? MR. ROUSE: Yes, sir. H.M.JR: So it looks a little bit - at least that is what they want, and I am not fighting it very hard. MR. McKEE: Was anything said about how long you would keep your books open on it? H.M.JR: On the note - they said on the note, if we were going to do it, to keep it open a week, maybe. The other interesting suggestion was made by Levy, and was that on this thing of trying to price the certificate, it should be priced in jumps of decimal six five. MR. ROUSE: Yes, sir. H.M.JR: Rather than - as between five-eighths and three-quarters, make it decimal six five, the way they do in the City of New York. He says there is no reason why they couldn't. I understand their tables go in jumps of five. He was saying that five-eighths would sell below par and three-quarters might be too rich. He says, "Why not split the eighths and do it - make it decimal six zero, or six five or seven." MR. ROUSE: The unit one-eighth was a little clumsy to use in short paper, and with the volume of short paper we are now getting outstanding, this would be a good suggestion. H.M.JR: Now, the other thing was that I very much hoped we could settle today this question of whatever changes we were going to make on the tax anticipation notes, so we could get the thing ready. My idea was that we wouldn't offer this until this financing was finished, so as not to add any confusion; but I guess it will take a little time to do the paper work. 252 -3MR. HEFFELFINGER: A day or so, yes, sir. H.M.JR: That is quicker than I thought. I have not had a chance to talk to Murphy. Did you floor them, Murphy? MR. MURPHY: I explained the situation. (Laughter) hard. MR. DRAPER: He was good, all right. He tried MR. MURPHY: I do not think I made any progress. H.M.JR: As I get it, the Federal Reserve and the Treasury are together as to three years. I also understand that we are together - what was the difference between banking and non-banking? MR. MURPHY: This, that the interest would be paid when they were redeemed by non-banking, but that bank- ing holders would be eligible to receive interest only when presented in actual payment of taxes. H.M.JR: The only thing - let me do it the other way. The only way you understand we are differing was on this progressive rate? We wanted-- MR. MURPHY: Five, six, seven, eight, nine, ten. H.M.JR: And they wanted? MR. MURPHY: They wanted five, nine, ten, eleven, eleven, eleven. H.M.JR: Have you gotten any closer together? MR. SZYMCZAK: No. H.M.JR: Well, I have got to decide it, then. (Laughter) MR. McKEE: You cannot go wrong on those last figures. 253 -4H.M.JR: On Murphy's figures? MR. McKEE: No, on the other figures - the last. H.M.JR: Which ones? MR. McKEE: The last ones you mentioned. MR. MURPHY: Five, nine, ten, eleven, eleven, eleven. H.M.JR: Because we have been sparring on this thing, now, for two months. The only thing that Haas and Murphy raised was this, if I should decide to take the ones that Haas and Murphy recommend, will you fellows say, "O.K., you do not have to worry about the bill rate and the certificate rate. We will hold the fort for you." MR. McKEE: I do not understand that question, because the rates that they recommend are not going to interfere with the rest of your short-term market. MR. SZYMCZAK: And we do not think that our rates would, either, John. H.M.JR: I gathered from Haas that he thought that - somebody had passed a remark that they would. MR. HAAS: Oh, I raised that question. I think it is a disputed question. Some of the other advisors you brought in thought, definitely-H.M.JR: But not this crowd. MR. HAAS: This rate that Henry suggested - five, six, seven, eight, nine, ten - I look at it this way: if I were treasurer of a corporation, I certainly would take the tax notes with those rates in prefer- ence to bills or certificates. And that is the way to tell whether one rate is higher than the other. I do not think it will affect the short rates because the Federal Reserve Board open-market operations can take care of it because they can really control the short-term 254 -5- rates. rates. So I wouldn't worry about it affecting the MR. SZYMCZAK: On any one of the graduated rates. MR. HAAS: You can do it on any one, but you have-- the situation is a little more difficult on the other. On the high rates which the Federal Reserve Board suggests, it just means that it is very much easier to sell it because you are giving somebody a value which is much higher than the terms of what are in the market at the present time. H.M.JR: What is yours, again, Henry? MR. MURPHY: Five, six, seven, eight, nine, ten. MR. DRAPER: Your average is ninety. MR. MURPHY: In terms of yields that is sixty, seventy-two, eighty-four, ninety-six, one hundred eight, and one hundred twenty, in successive six months' periods. And it gives an average return of point ninety if the instrument is held three years. H.M.JR: Supposing I do it this way so as not to - supposing I call up Sproul in New York and tell him that we propose to do it this way, if between now and Tuesday when I get back, unless he can say that this is going to really disturb the money market, that the money market is going to be really disturbed about it - if they are not disturbed about, and it is just a difference of method, then I would like to do it this way. MR. SZYMCZAK: Mr. Secretary, it is not so much a difference of method, in our opinion, as it is a difference of volume as between our rates and Murphy's and Haas' rates, and a difference in the time that they hold them. That is our opinion. We think that our 255 -6- rates will get a larger volume of money and that the holders will hold them longer than would be the case with the rates suggested, which are lower rates and which are simpler rates. H.M.JR: Simpler rates? Well, our boys think that this will work the same way, on the same theory that the E bonds do, the longer you hold them the more stake you have got. MR. SZYMCZAK: That is quite true in principle only. Ours would give them more incentive to hold them. MR. HAAS: They give them more stake. MR. McKEE: It would get you more funds, too, we hope. H.M.JR: Well, it is easier to go up than it is to come down in the sense that if we could do this, then if it did not do after a month or two we could always increase it. MR. SZYMCZAK: And these are not held by banks ex- cept for tax purposes, so they are not market securities. They would not directly affect your rate structure. MR. McKEE: Mr. Secretary, if I might make a statement as to my own personal opinion-H.M.JR: Would you, please? MR. McKEE: I believe that using, we will call it Murphy's rates, against Szymczak's rates - that is the way we have termed it so far this morning-MR. RANSOM: Just to keep you straight, Mr. McKee is talking about a third set of rates. You have got two. MR. McKEE: No, I am not. I am talking about the second set of rates that Murphy read off. 256 -7 MR. PISER: Mr. Szymczak's rates are a third set. The ones that Mr. Murphy read off were the original Federal Reserve ones. week. ten. MR. RANSOM: The ones we recommended to you last H.M.JR: Murphy's is five, six, seven, eight, nine, MR. PISER: That is Murphy's. H.M.JR: Now, what is Szymczak's? MR. SZYMCZAK: Five, eight, nine, ten, ten, ten-- H.M.JR: Five, eight, nine, ten, ten, ten. That was not what I heard last night. MR. RANSOM: No, that is not what we suggested. MR. MURPHY: Five, nine, ten, eleven, eleven, eleven. H.M.JR: Wait a minute. Give poor John McKee he is so bashful, give him a chance. (Laughter) MR. McKEE: What I wanted to say was this, that if and when, in my opinion, you adopt the program of Mr. Murphy's rates, that then, personally, I would rather see you go to a straight tax, not with a fixed rate for two years, than to try to do a dual job, which I do not think you are doing with those rates, and I think the results would be just disappointing. Now, I hate to see you use up that field of short- term possible money on something that we do not believe is going to sell to begin with. Therefore, I think that you would be well advised to stick to your tax notes as you had them, with an adjustment of rates to point seven two for two years, and forget this threeyear note, unless you put something in there that is going to attract these funds that we have not been able to get in heretofore, in anything. 257 -8H.M.JR: Well, John, I am a little bit confused, because I have got three tables. Are you for the five, eight, nine, ten, ten, ten? that. MR. McKEE: Is that Szymczak's rate? I am for H.M.JR: Well, we are not so terribly far apart. MR. McKEE: The average yield on that, Mr. Secre- tary, is point zero four. MR. SZYMCZAK: One point four. MR. McKEE: One point zero four, against Mr. Murphy's point nine zero. That is the difference you are talking about. MR. SZYMCZAK: And the original was one point one four, average. MR. DRAPER: I want to make it a little more diffi- cult, if I may. I think the rate that Allan Sproul favored, point one one four-- MR. SZYMCZAK: You mean one point one four. MR. DRAPER: One point one four - and I rather favor that, myself. H.M.JR: Supposing I try to get Allan on the telephone. MR. RANSOM: Could you get Al Williams, at the same time? (The Secretary held a telephone conversation with Mr. Sproul, as follows:) 258 September 4, 1942 3:29 p.m. HMJr: Allan Sproul: HMJr: S: HMJr: S: You're on the loud-speaker, and some of your pals are here. Good. I never had - I'm having more trouble trying to change the tax note than I've ever had to price an issue. Well, it's a little more tricky job. Yeah. And now we've got two sets of figures here, one that they've called the "Murphy" figure (Laughs) HMJr: See? S: which is five - six - seven - eight - nine - ten. Yeah. HMJr: And now they got the Szymozak series, which is known as the five - eight - nine - ten - ten ten. See? S: Yeah. HMJr: And I got yours too. Now - which rune up to eleven, as I understand it. S: That's right. HMJr: Now think the thing over. I'd really like to settle it on Tuesday, see? And the proposal I'd like to put to you, supposing we did ours, see? Would there be any major change in the money rates? don't - I don't want you to answer me now. Think about it. I S: If you did yours? HMJr: Yes. S: No, and I don't think there'd be any major change in money rates if you did either one of the others either. 259 -2HMJr: I see. Well S: I - I've been thinking this over.. HMJr: Yeah. S: ....for sometime, and concentratedly since our meeting Tuesday HMJr: S: Yes. and I have my views pretty well in mind. I then your objective is to get these temporarily idle funds which have not been attracted by existthink when you go beyond the one-purpose tax note ing market obligations HMJr: Yes. and that you want to get them for as long as S: possible. HMJr: Yeah. and then that requires a yield for the periods S: held which approximates market rates during the early period, and which then depends on its demand feature to make the continued holding to HMJr: S: maturity very attractive. That's right. Now we suggested for consideration a schedule of rates which answer those specifications, I thought, which average one-fourteen for the three-year period as compared with the market yield now for three years of about one twenty-seven. HMJr: S: Yeah. I think that note would have the maximum effectiveness as a dual purpose note without upsetting your short-term market. It seems to me the - the shortterm market would still have the support of the banks to which the modified tax note wouldn't be available for cash conversion. It would still have the continued preference of some buyers for a wholly marketable issue HMJr: Yes. 260 3 S: HMJr: S: and finally, it would - it would still be sup- ported by the fact that under present conditions market obligations have a demand feature in effect, only it's a demand on us instead of on you Yeah. and your people still seem to be concerned about the effect of such rates on the short-term market. I - I can't be dogmatic about that. I don't think anyone can. But I - I strongly believe the - the rate schedule they suggest, which averages ninety for three years compared with a market of one twenty-seven and - and which is well below the market after the first half-year, just won't do the trick. So that HMJr: S: Well my judgment would be if you want to compromise these different viewpoints, you certainly shouldn't go below the - the rate schedule which that difficult name "Szymczak" trys doing HMJr: S: HMJr: S: I see. because He says you I think that's the - the minimum you could work with which would do the job we want to do, and I - although I still believe the one we originally suggested would be more effective. HMJr: Well, what I 'd like to do with it is to think about. We'll all think about it. We'11 settle it Tuesday. S: HMJr: Fine. And I had a good morning. Rouse arranged a good schedule, and the burden of the advice was a certificate and a two to three-year note. S: Well, that hite the bull's-eye as far as I'm concerned. 261 HMJr: S: HMJr: S: All right. Well, it oughtn't to be very difficult. By Tuesday we ought to be able to pretty well fix it up. This I should think so. this tax note is a demn sight more difficult. It seems to be, than the three billion dollar issue. Well, I think it is because it's - has a lot more trimmings, and it's to last for some time, not for two days. HMJr: S: HMJr: Well, I wouldn't want to announce the tax note any- way until this - this financing was out of the way. I don't think you should. I think you should get this financing out of the way before you come out with the tax note. Right. Now Levy, he was down - he said he didn't think that - he thought we'd sell less and less tax notes from now on as we - as we offered more certificates and more bills. But that was his opinion. S: Well, he was - he didn't know about S: Oh, no, not about the modified note. HMJr: Oh, no, he didn't know. I haven't told anybody. S: No. HMJr: HMJr: - Well, I'm sorry I - I got this group together on only a couple of hours notice and 80 it's very informal, but I did want to let you know and get your advice. S: Well, thanks very much for calling. HMJr: And I'11 S: No - nobody seems to know that I'm the Vice Chairman of the Executive Commi ttee of the Federal Open Market Committee, but I can't blame them for that. 262 -5HMJr: Oh, yes, they're very much aware of it. S: (Laughs) HMJr: And this is purely informal. S: Right. HMJr: And I called up the State Department and got a S: Good. (Laughs) HMJr: ruling on it. And you might - if you didn't mind telling Mr. Williams I tried to get him in Philadelphia but they tell me the weather up in New York is bad, and I've got to leave at quarter of four if I want to get home. S: Well, I'11 tell him. HMJr: Will you? S: Yes, I'11 call him and tell him. HMJr: Yeah, we're all very much aware, but this was just a hurry-up meeting. S: Right. HMJr: Thank you. S: All right. HMJr: Goodbye. S: Goodbye. 263 -9H.M.JR: O.K. We will wait now until Tuesday. MR. RANSOM: For your final decision? H.M.JR: Sure - or Wednesday. When are you going to increase the bills to four hundred million? MR. HEFFELFINGER: That is up to you, Mr. Secretary. (The Secretary held a telephone conversation with Mr. Alfred Williams, as follows:) 264 September 4, 1942 3:35 p.m. HMJr: I just thought I'd tell you I called a sort of an Alfred H. Williams: Yes. HMJr: informal meeting of the people who were in town of the Federal Reserve and we're making a little progress on the financing. The people I saw this morning seem to want the certificate and a two to three-year note. Yes. W: HMJr: And they seem to be pretty definite about it, and I just thought I'd let you know. Our main trouble is on trying to decide what we're going to do on this tax anticipation note Yes. W: HMJr: and we've got all kinds of new schedules and rates, and they've given them names like bombers. W: (Laughs) HMJr: I mean, they've got a - e've got a - they're naming them just the way they name bombers, see? 86 W: We hope they can go to their objectives. HMJr: What? W: We hope they can go to their objectives like our bombers. HMJr: W: I'11 tell them that. Well, I - I just wanted to let you know. This is purely informal, and - and we'll all be in touch with each other on Tuesday. Yes. HMJr: Take care of yourself. W: Righto. 265 - 2°HMJr: Ransom says to tell you - you're not on the loud-speaker - he tells me to say you can - you can have your own schedule and we'll name it after you. (Laughs) Well, I've - I've been looking at W: HMJr: Yes. some of the current market yields on the - W: on the Treasury notes HMJr: Yes. and I would think that that 80-called W: 'Szymczak" schedule, which is somewhere in between HMJr: W: HMJr: that one that he originally proposed Yeah, that's 104. Yes - and the "Murphy" schedule Yes. Well, you know all these names, eh? W: (Laughs) I've been posted on those, Mr. Secretary. HMJr: Yeah, you're - you're for the "Szymczak bomber", eh? I - I would assume that - that we could - we could do a good marketing job HMJr: With - with the "Szymczak" schedule? I - I would think we could. HMJr: All right. W: It seems to me that - that Murphy is a little too close there. HMJr: Yes. W: One way of judging that is to note his second rate there, which 18 seventy-two. HMJr: Well, we're going to take it up again on Tuesday. 266 -3- W: Yes. W: I'11 try to settle it Tuesday with your help. All right. HMJr: Thank you. W: Righto. Bye-bye. HMJr: 267 - 10 H.M.JR: He is leaning towards the Szymczak rate. MR. RANSOM: Are you having a meeting with us Tuesday? H.M.JR: I thought we might meet again at three o'clock, Tuesday. 268 Sept 4th 1942 his comet Corp 1 1/2 billion Certificate June/et 3/4% 3yr 1.31/3 SeR 200 Chris hlevine 1/2 billion Certificates in billion notes 15/8% due mach a 234447 June 268 m fill - Bank of manhattan wants a certificate may 3/4 note Lbc 1944 14% march 1945 12 16e/5 1924 Res 268 m Leveng 1/2 fillion certifically , may 1st 65 1/2 fillim Lbe15-1944 1/8 OUT 268 Mr. aldrich chase Bh Certificate 2 fillions 7 months mayl, 1943 34.70 / William 5 yrs. sept 1947 13/4% TREASURY DEPARTMENT 269 INTER OFFICE COMMUNICATION DATE September 4, TO Secretary Morgenthau FROM Mr. Haas 1942 Subject: Recent Changes in Prices and Yields of Government Securities During the week ended last night, little change occurred in the prices of Government securities, although the tone was easy. Taxable notes were mixed, while most taxable bonds were unchanged from their levels of a week ago. Declines were prevalent among the tax-exempt issues, ranging up to 3/32 in the case of the longest-term bonds. Among the taxable securities, the 1-1/2 percent notes due December 1946 declined 1/32, closing yesterday at 100-4/32. The taxable 2's due December 1949-51 (offered in July) and the 2-1/2's of 1967-72 remained unchanged at 100-6/32 and 101-6/32, respectively. Except for the 2-1/2's of 1967-72, prices of all rently below their levels of that date. Prices of shorttaxable notes and bonds outstanding on March 19 are our- and medium-term tax-exempt securities have also declined, leaving the longer-term partially tax-exempt bonds as the only sector of the market in a generally improved position relative to the March 19 benchmark. (See attached chart and tables.) The average rate on the weekly offering of bills was 0.367 percent, slightly below the average rate of a week ago. Certificates of indebtedness were firm, with some improvement occurring in the prices of the 1943 maturities. Purchases by the Federal Open Market Account during the week aggregated $76 millions, consisting of $37 mil- lions of bills, $29 millions of certificates, $9 millions of partially tax-exempt bonds, and $1 million of taxable securities. Sales totaled $11 millions, confined entirely to bills, and bill maturities amounted to $42 millions, so that the net increase in the Account's portfolio was $23 millions. Attachments Price Table I 270 and Yield Changes of United States Securities August 27, 1942 to September 3, 1942 (Based on mean of closing bid and asked quotations) Prices Security Aug. 27, 1942 Yields Sept. 3, 1942 Change Aug. 27, 1942 (Decimals are thirty-seconds) 1 Sept. 3, 1942 Change (Percent) TAXABLE SECURITIES sills Average rate last issue etificates 11/1/42 1/2% 2/1/43 5/8 8/1/43 7/8 exable Notes 1-1/2 12/15/45 3/15/46 12/15/46 taxable Bonds 3/15/48-50 6/15/49-51 6/15/49-51 12/15/49-51 2-1/2 2-1/4 2-1/2 2-1/2 2-1/2 3/15/56-58 6/15/62-67 9/15/67-72 - 100.025 100.104 100.023 100.050 100.105 100.03 99.16 99.01 99.03 100.05 100.03 99.17 98.31 99.04 100.04 101.06 100.11 100.08 100.06 100.02 103.22 101.06 103.03 100.13 101.06 101.05 100.11 100.08 100.06 100.02 103.22 101.04 103.03 100.13 101.06 100.043 - -.002 +.007 +.001 .00 +.01 -.02 +.01 :37 .37 .00 .36 -.01 -.02 .76 .35 .50 .76 .58 1.00 .57 .98 1.05 1.26 -.01 -.02 1.07 1.25 +.02 1.47 +.01 +.01 .52 .00 -.01 -.01 1.46 -.01 1.78 1.95 1.96 .00 1.77 1.95 1.96 1.97 1.99 .00 2.07 2.07 .00 -.02 2.12 2.23 .00 .00 .00 .00 .00 .00 1.97 1.99 .00 .00 .00 .00 .00 .00 2.47 2.12 2.23 2.47 .00 2.44 2.44 29 0/32e +.01 -.01 .08 .28 .34 .36 +.02 .00 .37 .36 .00 .42 -.01 -.01 .00 TAX-EXEMPT SECURITIES Tax-exempt Notes 9/15/42 12/15/42 1-1/8 1-1/8 12/15/43 3/15/44 6/15/44 9/15/44 3/15/45 Tax-exempt Bonds 6/15/43-47 10/15/43-45 4/15/44-46 12/15/44-54 9/15/45-47 12/15/45 3-1/8 4-1/4 6/15/46-48 6/15/46-49 10/15/47-52 12/15/47 2-3/4 2-1/2 2 3-1/8 2-1/2 2-1/2 2-3/4 2-1/4 2 2-1/4 2-7/8 2-3/4 2-3/4 2-3/4 3/15/48-51 9/15/48 12/15/48-50 12/15/49-52 12/15/49-53 9/15/50-52 9/15/51-55 12/15/51-53 6/15/53-55 6/15/54-56 3/15/55-60 9/15/56-59 6/15/58-63 12/15/60-65 100.03 100.14 100.20 100.21 100.29 100.25 100.13 101.02 100.16 100.02 100.13 100.19 100.21 100.29 100.25 100.13 101.00 100.15 102.08 102.28 103.29 106.30 105.09 105.00 109.01 107.00 107.14 114.28 104.10 107.10 106.27 104.08 110.18 106.10 106.22 108.12 110.16 105.01 103.16 105.12 110.04 109.11 109.16 110.05 102.07 102.27 103.28 106.29 105.08 104.31 109.00 106.30 107.13 114.28 104.09 107.11 106.27 104.06 110.19 106.09 106.20 108.11 110.16 105.00 103.14 105.12 110.01 109.08 109.14 110.02 Treasury Department, Division of Research and Statistics. Decimals in prices of certificates are true decimals. Excess of price over zero yield. -.01 -.01 32* .00 .49 .41 .49 .00 .52 .52 .00 -.02 -.01 .48 .55 .50 .56 +.01 .54 .94 .52 .68 .82 .93 -.02 -.01 -,01 -.01 .99 .99 .00 .96 .96 .00 1.15 1.14 -.01 1.11 1.12 1.12 1.12 1.24 1.16 1.37 +.01 -.01 -.01 -.01 -.01 -.01 -.01 -.01 -.02 -.01 .00 -.01 +.01 .00 -.02 +.01 -.01 -.02 -.01 .00 -.01 -.02 .00 -.03 -.03 -.02 -.03 .69 .83 1.25 1.16 1.38 1.32 1.30 1.59 1.58 1.61 1.72 1.74 1.66 1.65 1.74 1.96 1.98 2.04 2.08 1.32 1.30 1.58 1.58 1.62 1.72 .00 +.02 .00 -.01 .00 -.01 .00 .00 -.01 .00 +.01 .00 .00 1.74 1.67 +.01 1.65 1.74 .00 .00 1.97 +.01 1.99 2.05 +.01 2.09 +.01 +.01 September 3, 1942. 271 Price and Yield Changes of United States Securities March 19, 1942 to September 3, 1942 (Based on mean of closing bid and asked quotations) Prices Security March 19, 1942 Yields Sept. 3, 1942 March 19, 1942 Change (Decimals are thirty-seconds) 1 Sept. 3, 1942 Change (Percent) TAXABLE SECURITIES -.23 -.25 57 .84 1.02 - 1.67 1.83 - - 1.96 -.10 -.01 -.02 -.02 2.09 2.12 2.24 - +.11 .76 2.46 .98 1.07 1.25 1.47 +.20 +.22 +.23 +.23 - 1.78 +.11 1.95 +.12 1.96 1.97 - 101.05 100.11 100.08 100.06 100.02 103.22 101.04 103.03 100.13 101.06 37 .76 - - - 100.27 -.09 -.14 -.22 -.25 - - 100.12 103.23 101.06 103.05 - - .50 - 6/15/52-55 3/15/56-58 6/15/62-67 9/15/67-72 101.28 101.04 100.03 99.17 98.31 99.04 100.04 .35 +.17 - - 6/15/49-51 9/15/49-51 12/15/49-51 12/15/51-55 - 12/15/46 taxable Bonds 2-1/2 2-1/4 2-1/2 2-1/2 2-1/2 100.12 99.31 99.21 99.29 .37 - 9/15/44 12/15/45 100.023 100.050 100.105 .20 - 11/1/42 2/1/43 8/1/43 Taxable Notes 1-1/2 - - 7/8 - 1/2% - - Average rate last issue rtificates - Bills 1.99 +.03 2.07 -.02 2.12 2.23 -.01 .00 2.47 2.44 -.02 5/32* 0/32* -5/32* -5/32* .22 .26 .26 .36 +.10 .41 +.15 .34 49 .37 .39 52 50 .41 .56 +.15 +.15 +.11 +.15 TAX-EXEMPT SECURITIES 1-1/8 1-1/8 3-1/4 2-3/4 2-1/2 3-3/4 3-1/8 4-1/4 2 2-3/4 2-1/2 2 3-1/8 2-1/2 2-1/2 2-3/4 Tax-exempt Notes 9/15/42 12/15/42 6/15/43 9/15/43 12/15/43 3/15/44 6/15/44 9/15/44 3/15/45 Tax-exempt Bonds 6/15/43-47 10/15/43-45 4/15/44-46 12/15/44-54 9/15/45-47 12/15/45 3/15/46-56 6/15/46-48 6/15/46-49 10/15/47-52 12/15/47 3/15/48-51 9/15/48 12/15/48-50 12/15/49-52 12/15/49-53 9/15/50-52 6/15/51-54 3 2-1/4 2 2-1/4 2-7/8 2-3/4 2-3/4 2-3/4 3/15/55-60 9/15/56-59 6/15/58-63 12/15/60-65 101.04 101,11 101.04 101.03 101.16 101.10 100.27 101.16 101.00 100.02 100.13 100.19 100.21 100.29 100.25 100.13 101.00 100.15 -1.02 103.21 104.06 105.06 108.11 106.06 105.28 110.08 107.28 108.08 115.20 104.23 107.28 107.07 104.21 110.22 106.16 106.20 108.18 110.20 104.29 103.10 104.28 110.00 109.10 109.12 110.00 102.07 102.27 103.28 106.29 105.08 104.31 109.00 106.30 107.13 114.28 104.09 107.11 106.27 104.06 110.19 106.09 106.20 108.11 110.16 105.00 103.14 105.12 110.01 109.08 109.14 110.02 -1.14 41 -1.11 -1.10 -1.14 -.30 -.29 -1.08 -.30 -.27 -.24 -.14 -.17 -.12 -.15 -.03 .57 Treasury Department, Division of Research and Statistics. Decimals in prices of certificates are true decimals. Excess of price over zero yield. -.30 -.17 -.14 -.19 -.17 -.14 -.16 -.17 -.07 .00 -.07 -.04 +.03 +.04 +.16 +.01 -.02 +.02 +.02 /32* +.14 .52 .68 .72 .82 .91 .93 99 .94 .90 .96 1.11 1.09 1.14 1.12 1.13 1.33 1.15 1.38 1.12 1.33 1.28 1.65 1.60 1.66 1.74 1.78 1.70 1.68 1.80 2.00 2.01 2.07 2.10 1.24 1.16 1.37 1.32 1.30 1.58 1.58 1.62 1.72 1.74 1.67 1.65 1.74 1.97 1.99 2.05 2.09 +.11 +.11 +.10 +.02 +.05 +.06 +.03 +.03 -.01 -.09 +.01 -.01 -.01 +.02 -.07 -.02 -.04 -.02 -.04 -.03 -.03 -.06 -.03 -.02 -.02 -.01 September 3, 1942. 272 Firms Employing 100 to 499 Persons Participating in Payroll Savings Plans (As reported by the War Savings Staff's State Administrators) : savings plans : State Total Number of firms with payroll number of firms Percent of total having payroll savings plans Apr. 18 Aug. 22 Aug. 29 Alabama 149 246 250 285 52 86 88 Arizona 43 66 67 67 64 99 100 Arkansas Northern California Southern California Colorado Connecticut Delaware District of Columbia Florida Georgia Idaho Illinois 55# (estimated) Apr. 18 142 Aug. 22 Aug. 29 44 512 39 39 652 657 657 78 99 100 756 986 993 1,178 64 84 84 55 113 133 134 134 84 99 100 277 430 436 622 45 69 70 21 52 55 87 2 60 63 52 116 128 152 34 76 84 147 195 196 196 75 99 100 133 387 388 417 32 93 93 31 31 34 91 91 91 31 1,813 1,829 2,253 58 80 81 99 100 1,300 Indiana 415 619 624 624 67 Iown 165 204 204 272 61 75 75 Kansas 276 285 285 285 97 100 100 136 187 18 313 43 60 60 38 46 71 71 198 30 77 66 Kentucky Louisiana Maine 179 272 60 152 272 152 77 67 Maryland 177 269 271 405 44 Massachusetts 921 928 1,532 1,030 42 60 61 639 67 88 88 435 86 99 100 143 41 50 52 664 71 99 99 100 Michigan 689 905 908 Minnesota 376 433 435 59 72 74 Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio. Oklahoma Oregon 661 472 660 49 49 49 82 100 40 123 84 92 92 113 113 67 86 86 103 14 18 18 21 135 145 92 93 133 61 89 894 52 96 100 42 79 93 93 80 81 463 859 33 39 894 39# 2,060 3,406 3,444 4,257 48 282 430 436 499 57 19 74 1,475 1,740 65 349 48 83 289 289 83 166 281 75 100 100 2,096 80 99 100 75 75 79 84 281 2,096 154 251 251 335 46 71 149 40 141 178 21 25 25 Tennessee 199 326 330 Texas 326 548 576 like 44 West Virginia Wisconsin Wyoming 36 Total 73 73 1,378 2h 40 42 44 82 100 100 97 97 449 61 61 63 281 381 384 38h 73 234 347 348 134 190 192 278 435 436 17 21 67 348 272 49 100 99 100 70 71 64 64 81 100 100 100 100 100 52 94 94 94 27,256 56 81 82 21 21 99 41 680 2a Alaska Railroads 100 94 59 100 84 hi 25 2 Virginia 85 19 1,454 2,076 Washington 84 14 211 Utah Vermont 100 1,126 1,682 South Dakota 87 100 19 281 Pennsylvania Rhode Island South Carolina 86 2 2 49 49 49 15,365 22,128 22,376 September 4, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. * Data are for August 22, inasmich as no August 29 report was received. 273 Analysis of Exposure to Payroll Savings Plans August 29, 1942 Total number in the country (estimated) Number exposed to payroll savings plans Percent of total exposed Part A - Summary by Number of Organizations Exposed I. Business organizations (1) Firms with 5,000 employees or more (2) Firms with 500 to 4,999 employees (3) Firms with 100 to 499 employees 484 487 5,267 22,376 6,106 86 27,256 82 (4) Subtotal - large firms 28,127 33,849 83 (6) Total business organizations 136,914 . III. Grand total . II. Governmental organizations . 108,787 # (5) Firms with less than 100 employees 99 136,914 Part B - Summary by Number of Employees Exposed 7,83,027 22,758,702 # (6) Total business organizations 20,020,675 . (5) Firms with less than 100 employees * (4) Subtotal - large firms 7,854,262 7,007,844 5,158,569 # I. Business organizations (1) Firms with 5,000 employees or more (2) Firms with 500 to 4,999 employees (3) Firms with 100 to 499 employees 30,000,000 TO II. Governmental organizations (1) Federal Government (2) State and local governments 1,214,997 2,200,000 1 2,700,000 (3) Total governmental organizations 2,766,183 4,900,000 25,524,885 34,900,000 1 III. Grand total office of the Secretary of the Treasury, Division of Research and Statistics. 1 1,551,186 71 45 56 73 September 4, 1942. Excludes agricultural employees, military personnel, employees on WPA or NYA or CCC projects, proprietors, firm members, self-employed, casual workers and persons in domestic service. Data not available. 274 Firms Employing 500 Persons or More Participating in Payroll Savings Plans (As reported by the War Savings Staff's State Administrators) Total Number of firms with payroll Arizona Arkansas Northern California Southern California Colorado Connecticut Delaware Aug. 22 Apr. 18 41 Aug. 29 of firms savings plans (estimated) Apr. 18 Aug. 22 Aug. 29 63 65 83 49 76 78 13 14 14 64 93 100 22 77 9 Alabama : State Percent of total having payroll number savings plans 17* 16 17 73 77 122 133 134 175 70 76 77 121 142 143 146 83 97 98 25 31 31 31 81 100 100 114 137 138 158 72 87 87 18 22 68 82 82 15 18 98 100 84 84 District of Columbia 32 41 42 42 76 Florida 28 36 36 43 65 86 122 123 123 70 99 100 Georgia 11 11 11 100 100 100 11 82 Idaho Illinois Indiana 391 88 455 459 559 70 81 131 132 159 53 79 39 56 74 74 100 100 68 68 Iowa 22 29 29# Kansas 2h 24 24 96 23 L8 71 54 Kentucky Louisiana 48 38 80 38 58 58 29 lih 44 76 80 95 Maine 48 57 60 95 57 94 98 105 93 84 99 80 Maryland 301 338 70 89 298 281 88 237 87 93 93 81 81 Missouri Montana Nebraska 79 26 103 281 99 99 82 82 73 90 90 75 100 100 72 78 78 80 80 80 91 100 100 32 211 67 86 86 100 100 100 1,087 70 79 139 74 94 95 83 89 90 96 32 32 39 128 128 142 67 3 Mississippi 265 4 Massachusetts Michigan Minnesota 25 23 32 25 5 Nevada 4 4 182 181 142 New Mexico New York 759 North Carolina 75% 5 5 5 869 863 132 131 0 0 0 412 444 447 31 51 51 50 54 499 100 100 100 89 88 94 94 61 51 Oklahoma Oregon Pennsylvania Rhode Island South Carolina 48 551 590 61 76 84 97 5h 629 590 78 84 97 97 100 100 100 115 43 59 61 104 61 90 96 97 76 100 97 5 5 Texas 6x Washington West Virginia Wisconsin 70 68 100 94 10 12 8 12 12 12 49 68 141 127 91 100 100 89 100 100 77 64 68 70 51 142 154 82 68 68 36 105 105 105 93 91 100 73 11 10 88 88 97 97 92 92 100 100 100 100 100 115 95 95 95 6,593 74 87 87 25 4 Virginia 5 Tennessee 50 100 78 63 5 South Dakota Utah Vermont 80 0 North Dakota Ohio 32 5 New Hampshire New Jersey G 32 29 4 4 Wyoming 1 3* 3 Total 3 Railroads 3 Alaska 109 109 109 .864 5.714 5.751 September 4, 1942. office of the Secretary of the Treasury, Division of Research and Statistics. . Data are for August 22, inasmuch as no August 29 report was received. CONFIDENTIAL 275 UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) September August : : : : sales Cumulative sales by business days : : September daily July : : Date September as :percent of August : September 1942 1 2 3 $ 7.528 $ 7,528 $ 12,222 $ 12,597 9,811 17,339 28,810 21,986 60.2 9.397 26,735 41,258 32,441 64.8 Office of the Secretary of the Treasury, Division of Research and Statistics. 61.6% September 4, 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. CONFIDENTIAL 276 UNITED STATES SAVINGS BONDS - SERIES E Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : : September : : sales : Date Cumulative sales by business days : September as July August !percent of August : : September daily : : September 1942 1 2 3 $ 11,634 $ 11,634 $ 14,044 $ 15,821 14,748 26,381 36,222 30,701 72.8 18,305 44,687 50,797 47,523 88.0 Office of the Secretary of the Treasury, Division of Research and Statistics. 82.8% September 4, 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. CONFIDENTIAL 277 UNITED STATES SAVINGS BONDS - TOTAL Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : September August : : : sales Cumulative sales by business days : daily July : Date September as :percent of August : : optember 1942 1 2 $ 19,162 $ 19,162 $ 26,267 $ 28,418 24,558 43,720 65,032 52,687 67.2 27,702 71,422 92,055 79,964 77.6 3 fice of the Secretary of the Treasury, Division of Research and Statistics, 73.0% September 4, 1942. urce: 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. 278 Sales of United States savings bonds CONFIDENTIAL September 1 through 3. 1942 Compared with sales quota for same period (At issue price in millions of dollars) : : $ 6.9 17.3 26.7 16.6 26.4 35.6 42.2 58.1 108.78 104.2 101.1 : : $ 7.5 9.8 9.4 Daily to date : : $ 7.5 : as & of : quota : date : : : : 272.7 288.2 307.6 327.2 date to Quota, to date $ 19.2 $ 19.2 $ 21.8 24.6 27.7 43.7 71.4 51.1 81.9 90.1 372.4 393.2 419.7 446.4 475.8 495.9 : : 1 2 3 4 5 8 18 350.1 19 365.4 99.7 105.0 112.1 119.2 125.7 130.5 399.6 415.7 436.2 457.1 481.4 497.4 141.0 147.0 155.2 163.4 171.0 176.6 540.6 562.7 591.4 620.5 652.4 674.0 532.7 549.2 570.0 188.7 195.5 205.0 721.4 744.7 775.0 T 15 16 17 22 23 24 25 26 28 29 30 as % of : quota 88.1% 85.5 87.2 116.6 140.5 201.4 236.6 270.1 305.0 329.3 67.8 76.7 84.4 Sales : Sept. 1 : Sept. 1 : to date : 143.3 168.8 193.4 220.6 239.2 76.5 80.5 to Total : 34.5 55.5 81.0 98.3 77.9% : $ 14.9 26.4 44.7 Daily : $ 11.6 14.7 18.3 : quota Actual sales : : $ 11.6 : as % of : date : Sept. 1 : to date : 12 to Sept. 1 : Quota, : Sales : 10 11 to date Series F and G Actual sales : 9 Sales : Sept. 1 : Sept. 1 : to date Date Daily : Quota, : Actual sales : Series E September 4, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Note: Quota takes into account both the daily trend during the week and the monthly trend during the month. 279 Statement of Randolph E. Paul, General Counsel of the Treasury Department, before the Senate Finance Committee in Executive Session in support of the recommendations of the Secretary of the Treasury for an additional war-time revenue program In his statement Secrotary Morgenthau omphasized the need for additional taxes to increase Treasury receipts out of current income by an amount far in excess of his previous recommendations and to exercise a strong restraining influence on consumer spending in order to furnish an effective weapon for combatting inflationary increases in prices. The Secretary has indicated the broad outlines of the Treasury's recommendations. It is my purpose to discuss these recommendations in detail. The proposed spendings tax is in two parts -- a flat rate tnx to be refunded after the war, and a progressive surtax. The Refundable Part of the Spondings Tax The refundable part of the spendings tax would be imposed at a flat rate of 10 percent on the total spendings of individuals for consumer goods and services. In general, it would apply to all individuals who had income subject to the individual income tax, and Also to individuals subject to the spendings surtax whether or not they had income subject to the income tax. It is suggested that single persons be entirely outside the scope of the tax only if their income is less than $500, and married couples only if their income is less than $1,000. The exclusion would be increased by an additional $250 for each dependent. The test for deternining liability to file a refundable spendings tax return would therefore be stated in terms of income, even though the tax itself would be assessed on the basis of spendings. The reason for using the income test is to facilitate the administration of the refundable spondings tax by collecting it in conjunction with the individual income tax. Tax base The tax would be levied on total spendings of persons filing returns and reporting total spendings in excess of $500 for a single person, $1,000 for a married couple, and an additional $250 for each dependent. The tax would be imposed on the taxpayer's total spendings, not nerely on that part of his spendings above these amounts. 280 -2The amount of spendings would be computed indirectly. From the total amount of funds at the disposal of the taxpayer, derived either from current income or by drawing on capital, there would be subtracted the amount of savings. "Savings" would be defined to include, chiefly, repayment of debt, premiums paid on life insurance, expenditures for the purchase of bonds or other capital assots, gifts and contributions, payment of taxes and increases in bank balances. The items needed to determine the tax base are shown in the attached schedule (Exhibit 1). Method of collection The refundable part of the spondings tax would be collected in the same manner and at the same timo ns the individual income tax. A tentative tax would be collected at source on wages, salaries, and dividends in the same manner as it is proposed to collect part of the regular income tax. A spendings tax return would be made part of the annual income tax return. The amount of spendings and the tax thereon would also be computed on the same return. The total of the income tax and the spendings tax payable would be ascertained by deducting the income tax and the spendings tax already collected at source. If the anount collected at source exceeded the combined tax liability, the excess would be promptly repaid to the taxpayer. Short income and spendings tax form The great najority of taxpayers would be eligible to file a simplified refundable spendings tax return which would be a supple- mentary part of their simplified income tax return. Tax rate and amount of tax The refundable part of the spendings tnx would be levied at a rate of 10 percent on the taxpayer's total spendings. An individual with an income of $5,000, for example, who spent $3,200, would pay A tax of $320. If he increased his savings and spent only $2,400, the tax liability would be reduced to $240. 281 - -3- - Special provision would be required to avoid large differences between the tax on persons just below and just above the exclusion limits - that is, the limits at which the tax becomes applicable. For A single person without dependents, for instance, the exclusion amount is $500. Those with spendings in,excess of $500 would be liable to a tax of 10 percent on all their spendings. In some cases, in the Absence of A special provision, the tax would be greater than the excess of their spendings over the exclusion limits. An individual spending $510. for example, would be subject to a tax of $51, wherens if he spent only $500, he would not be subject to-tax. To provide for a gradual transition between non-taxable and taxable individuals, it is proposed that the tax on persons just above the exclusion limits shall not exceed the excess of their spendings over the exclusion limits. In the illustration cited, the tax on the single individual spending $510 would be $10. Refunding of spendings tax It is suggested that this flat-rate spendings tax be made refundable without interest After the war. The amount collected in the first year of operation of the tax might be refunded in the first year following the close of the WAR: the amount collected in the second year might be refunded in the second year following the close of the war; and so on. It might also be desirable to provide for earlier refunding after the close of the war at the discretion of the Secretary of the Treasury. Provision should in any event be made for the earlier refunding of the tax even prior to the close of the war in cases of proven distress. The Treasury proposes that the entire Amount of the flat-rate tax be refunded. However, if the Committee should desire to do so, is technically fensible to refund the entire tax only to the lower income groups. it 282 - 4 The Individual Spendings Surtax I turn now to a discussion of the second part of the spendings tax, the spending surtax. This tax would be imposed at progressive rates on exconditures in excess of an exemption of $1,000 for a single person, $2,000 for a married couple, and an additional $500 for each dependent. In contrast to the exclusions under the flat rate tax, these exemptions provide a minimum of spendings that is free from surtax for everyone, regardloss of the total amount spent. The spendings would be calculated in the same manner as in the case of the refundable spendings tax -- that is, they would not include such items as debt repayment, insurance premiums and bond purchases -- except that you may want to consider allowing some extraordinary expenditures also to be deducted. Method of collection The tax would be collected currently by requiring individuals to report the approximate amount of spending at short intervals, say quarterly, with a final adjustment after the close of the year. The quarterly report might contain no more than a single item --- the approximate amount of spending during the preceding quarter. Tax rates The tax rates would be progressive. The following surtax rate schedule is suggested: (Brackets) $ 0 - $ 1,000 1,000 - 2,000 2,000 - 3,000 3,000 - 5,000 5,000 - 10,000 Over $10,000 : Spendings Tax rate (Brackets) 10% 20 30 40 50 75 This schedule would apply to a single person in the usual manner. However, direct application of this progressivo spendings tax schedule to A family as A unit would be unduly harsh on large families and would favor single persons. This follows from the fact that the larger the 283 -5family, the greater is the necessary amount of spendings and the higher the rate at which the spendings would be taxed. This difficulty can be overcome by putting the family's tax on a per capita basis. The family's total spendings would be divided by the number of persons in the family. The progressive rate schedule would then be applied to the resulting per capita spendings. The per capita tax computed in this way would be multiplied by the number of persons in the family to get the total family tax. For this purpose, a dependent child would be counted as equivalent to one-half a person. For example, a married couple with one dependent would comprise 2.5 taxable persons. If this family spent $5,000, spendings in excess of the exemption of $2,500 would be $2,500 or $1,000 per taxable person. According to the above rate schedule, the surtax would be $100 per person, or $250 for the family (2.5 times $100). Married couples would be permitted to file either joint returns or separate returns, since discrimination would be avoided by the method of computing spendings per taxable person. The amounts and effective rates of tax under the above rate schedules are shown in Exhibits 2, 2a, 2b and 2c. Effective date of surtax The spendings surtax should be made effective as of September 1, 1942. It is essential that this be done in order to prevent large scale buying and hoarding of consuners' goods in anticipation of the enactment of the spendings tax. In addition, unless the spendings tax is made effective as of the date on which it is announced, individuals would be given an opportunity to convert their bank deposits into currency, hoping thereby to set asido spendable funds upon which an adequate check could not be nade. These and similar dongers can be prevented only by making the spendings surtax effective as of September 1, 1942. The corresponding difficulties are not of great importance with respect to the refundable part of the spendings tax and this could go into effect January 1, 1943. Reduction of exemptions for the regular income tax In addition to the spondings tax, the Treasury recommends a reduction in the personal excuptions under the individual income tax. 284 -6The exclusions of $500. $1,000, and $250 for the refundable spendings tax are believed to be desirable in order that A very large volume of consumer spendings may be brought into the tax base. For purposes of simplicity the income tax exemptions and the refundable spendings tax exclusions should be the same amounts of income. Accordingly, it is suggested that the personal income tax exemptions be lowered to $500 for single persons, $1,000 for married couples, and $250 for each dependent. This step will need to be taken in any event AS the impact of the war increases. It represents a $200 reduction in A married couple's exemption and a $50 reduction in the amount of the dependent credit, from the exemptions tontatively adopted by your Committee. The proposal would increase the number of taxpayers to some five million above the estimated number under the exemptions tentatively adopted by your Committee. Under the rates of H. R. 7378, the lowering of exemptions would increase the tax liability of A married person without dependents having An income of $2,000 from $140 to $178; for one with an income of $10,000 from $2,152 to $2,220. A married person with two dependents having an income of $2,000 would pay a tax of $83. wherens with the exemptions under H. R. 7378, he would pay no tax. For n $10,000 income, the tax liability would be increased from $1,880 to $2,050. The Amounts of tax and the effective rates for taxpayers with selected net incomes under present law, under the rates of H. R. 7378. with the proposed lowered exemptions, are shown in Tables 3. 3a. 3b, and 30. The proposed reductions in personal exemptions and credit for dependents will increase substantially the tax load of those in the lowest taxable income groups and you may want to consider revising the surtax rate schedule to reduce the impact on these groups. We should be glad to submit such schedules for your consideration, Effect of the Treasury program The total yield of the proposed program at 1942 levels of income is estimated to be $6.5 billion. Of this amount, $4.5 billion would be refundable to taxpayers after the war. 285 -7- Examples illustrating the combined effects of the refundable part of the spendings tax, the spendings surtax and the reduced individual income tax exemptions for individuals with selected amounts of income are shown in Exhibits 4 through 4d. For example, a married couple with two dependents having an income of $5,000 would have an income tax liability of $680. If their spendings amount to $3,800 the spendings surtax would be $80 and the refundable spendings tax, $380. If their spendings were only $3,100 the spendings surtax would be reduced to $10 and the refundable spendings tax to $310. Their combined tax would be $1,140 in the first case and $1,000 in the second case. Of these amounts, however, $380 or $310, respectively, would be refunded after the war. Effect of the Treasury proposals on the anti-inflation program The spendings tax will raise very substantial amounts of revenue and will accordingly be valuable in financing the war. More important, it will be particularly helpful as an anti-inflation measure in two ways: (1) by withdrawing consumer purchasing power and thus reducing the demand for goods, and (2) by creating an obstacle to spending, thus checking spending and encouraging saving. Because it will apply only to individual spendings and not to business spendings, it will not interfere with price ceilings. On the contrary, it will greatly facilitate the exercise of direct price controls, rationing, and other methods of combating inflation. The refundable part of the spendings tax and the spendings surtax differ in the emphasis placed on these two methode of reducing spending, The refundable tax, applying to the bulk of total individual spending at a 10 percent rate, will be effective primarily by withdrawing purchasing power. The spendings surtax, on the other hand, is intended primarily to discourage spending directly, rather than to absorb large amounts of purchasing power. For this reason it is imposed only on spending above A fairly adequate living level, but at increasingly heavy rates. Insofar as spendings are not checked, the tax will bring substantial payments into the Treasury; insofar as they are checked, inflationary pressure on the price level will be reduced. For these reasons, these taxes should provide a powerful instrument for combating inflation. Moreover, they provide an adjustable instrument which, once put in operation, can be increased or decreased as the current economic situation requires. 286 -8Like any new tax, and perhaps more than some taxes, A spendings tax necessarily involves Administrative and compliance problems. These problems are reduced by the fact that a spendings tax can be administered in conjunction with the individual income tax. As a consequence, the refundable tax will require no additional returns, and the collection of the refundable tax at source will impose no additional burden on either withholding agents or the Bureau of Internal Revenue. Nevertheless, the spendings tax will create an administrative problem in checking on information not now required on income tax returns, in familiarizing the public with a new type of tax, and in helping the public to fill out the forms that they will be required to submit. Compared with other measures of like importance in meeting the inflation and revenue problems, the administrative difficulties should not prove disproportionately large. In time of war, administrative difficulties cannot be allowed to stand in the way of measures vital to the Nation's welfare. 287 Exhibit 1 The Individual Spendings Tax Schedule (To be used by persons subject to the spendings surtax and by persons not eligible to use simplified income tax return. A simplified spendings tax schedule will be available to all other persons subject to the spendings tax.) Funds at the disposal of the individual 1. Salaries, wages, and other compensation for personal services. $ 2. Dividends and interest received, including government interest 3. Rents, royalties, annuities, pensions 4. Withdrawals from business, professions, partnerships, trusts 5. Cash receipts from gifts, bequests, and insurance 6. Receipts from sale of capital assets 7. Receipts from repayment of loans made to others 8. Receipts from borrowing, including debts incurred on installment purchases 9. Cash and bank balances at beginning of year 11. Other receipts Total disposable funds (items 1 to 10) Deductions: Non-taxable use of funds 12. Cash and bank balances at end of year $ 10. $ 13. Cash gifts and contributions 14. Interest and taxes paid, except on owner-occupied homes 15. Expenditures on the purchase of capital assets 16. Life insurance premiums, annuity, and pension payment 17. Outlays for repayment of debt, including installment debt 18. Loans made to others 19. Other nontaxable disbursements Total deductions (items 12 to 19) 21. Expenditures subject to tax (item 11 minus item 20) $ 20. 288 Exhibit 2. Individual Spendings Surtax: Rates and amount of surtax 1,000 - 2,000 2,000 - 3,000 3,000 - 5,000 5,000 - 10,000 : 0 $1,000 : $ (Bracket) : : (Bracket) Surtax rate : : person : per taxable : Expenditure 10% 20 Cumulative surtax per taxable person at upper limit of bracket $ 100 300 600 30 40 50 1,400 3,900 - Over 10,000 75 289 Exhibit 2a Refundable spendings tax and spendings surtax: Amount of tax and tax as per cent of spendings Single person - No dependents Exclusion for refundable tax -$ 500 Exemption for surtax : : : 0 $ $ 80 100 120 tax :spendings 0$ 0 0 0 80 100 20 140 150 50 200 200 100 300 250 200 450 300 300 600 350 450 800 400 600 500 1,000 1,400 2,400 3,400 6,900 10,650 14,400 33,150 1,000 1,500 2,000 3,200 4,400 8,400 12,650 16,900 38,150 600 800 1,000 1,500 2,000 2,500 5,000 0% 0 0 1.7 3.3 5.0 8.0 10.0 12.9 15.0 20.0 23.3 30.0 34.0 46.0 53.3 57.6 66.3 : 20,000 25,000 50,000 : 1,000 1,200 1,500 2,000 2,500 3,000 3,500 4,000 5,000 6,000 8,000 10,000 15,000 tax : 800 Refundable: Surtax: Total : 500 Surtax as :percent of Amount of tax Total spendings: before exemption - 1,000 Total tax as percent of spendings 0% 10.0 10.0 11.7 13.3 15.0 18.0 20.0 22.9 25.0 30.0 33.3 40.0 44.0 56.0 63.3 67.6 76.3 290 Exhibit 2b Refundable spendings tax and spendings surtax: Amount of tax and tax as per cent of spendings Married person - No dependents Exclusion for refundable tax - $1,000 - 2,000 Exemption for surtax 1,000 1,500 2,000 2,500 3,000 3,500 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 tax : $ Amount of tax Surtax :Refundable : : before exemption 0 0 $ $ 150 200 0 0 Surtax as : Total tax Total :percent of: as percent : : Total spendings: tax :spendings :of spendings 0 $ 150 200 250 50 300 300 100 400 350 150 500 400 200 600 500 400 900 600 600 800 1,200 2,000 4,300 6,800 10,050 28,800 1,200 2,000 3,000 5,800 8,800 12,550 33,800 1,000 1,500 2,000 2,500 5,000 0% 0 0 2.0 3.3 4.3 5.0 8.0 10.0 15.0 20.0 28.7 34.0 40.2 57.6 0% 10.0 10.0 12.0 13.3 14.3 15.0 18.0 20.0 25.0 30.0 38.7 44.0 50.2 67.6 291 Exhibit 2c Refundable spendings tax and spendings surtax: Amount of tax and tax as percent of spendings Married person - Two dependents Exclusion for refundable tax - $1,500 - 3,000 Exemption for surtax 2,000 2,500 3,000 3,500 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 tax Surtax as : Total tax : $ 1,500 : Refundable: Surtax : before exemption Amount of tax 0 $ : Total spendings: 0 0 $ $ 200 0 250 0 300 0 200 250 300 percent of : Total tax as percent anendings : of spendings 0% 0 0 0 350 50 400 1.4 400 100 500 2.5 500 200 700 4.0 600 300 900 800 700 1,000 1,500 2,000 2,500 5,000 1,200 3,000 5,200 7,700 24,450 1,500 2,200 4,500 7,200 10,200 29,450 5.0 8.8 12.0 20.0 26.0 30.8 48.9 0 10.0 10.0 10.0 11.4 12.5 14.0 15.0 18.8 22.0 30.0 36.0 40.8 58.9 % 292 Exhibit 3 Comparison of individual surtax rate schedule under present law and H. R. 7378 1 : : : 14 16 18 20 22 26 32 38 44 50 60 70 80 90 100 150 200 250 300 400 - 10 120 260 16 300 580 560 17 24 900 21 28 12 25 14 29 36 16 32 40 18 35 43 20 38 46 22 41 49 26 44 52 32 47 55 38 50 58 44 53 61 50 55 60 57 66 70 59 69 80 61 72 90 63 75 100 64 77 150 65 79 200 66 81 250 67 82 300 69 400 71 500 72 750 - 1,000 1,000 - 2,000 2,000 - 5,000 5,000 and over 73 74 75 76 77 H.R. 7378 13 32 500 - 750 : : 10 12 - 8 law 20 13 6 Present : 8- 9 4 46- H.R. 7378 Total surtax cumulative : : 6 2 2- 1 - $ I (000) law : income Bracket rate : Present : Surtax net 63 82 82 82 S2 82 82 82 82 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,300 25,080 30,980 37,080 43,380 49,780 82,280 115,280 148,780 183,280 254,200 326,280 500,760 693,780 1,443,760 3,723,780 - 980 1,460 2,020 2,660 3,380 4,180 5,040 5,960 6,940 9,020 12,320 15,800 19,460 23,240 29,840 36,740 43,940 51,440 59,140 98,640 139,140 160,140 221,140 303,140 385,140 590,140 795,140 1,615,140 4,075,140 - 293 Exhibit 3a. Amount of individual income tax and effective rates under present law, H. R. 7378, and H. R. 7378 with lowered exemptions. Single person - No dependents Personal exemption: Present law - $750 - 500 Treasury proposal- 500 H. R. 7378 : :with lowered: : : : exemptions Present : : : : : : : Percent 500 - -6 600 700 800 - - 15 - 3 $ 34 34 52 52 71 71 900 11 1,000 1,200 1,500 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 21 89 89 40 126 126 1,000,000 5,000,000 69 181 181 117 273 273 165 365 365 221 472 472 347 686 686 483 920 920 649 1,174 1,742 2,390 4,366 6,816 9,626 25,811 64,641 414,616 854,616 1,174 1,742 2,390 4,366 6,816 9,626 25,811 64,641 414,616 854,616 4,374,616 4,374,616 1,031 1,493 2,994 4,929 7,224 20,882 53,214 345,654 733,139 3,923,124 tered extemption Percent Percent - - 2.5 4.9 2.5 .4 6.5 6.5 1.2 2.1 3.3 4.6 7.8 7.8 - - 15 0 :H.R.737 :H. R.7378:with low law : : :H. R. 7378 :H. R. 7378 law Effective rates : : : Present : : personal exemption 1 Amount of tax : Net income before - 5.9 6.6 7.4 8.7 9.7 10.8 12.9 14.9 20.0 24.6 28.9 41.8 53.2 69.1 73.3 78.5 4.9 8.9 8.9 10.5 12.1 13.7 14.6 15.7 17.2 18.4 19.6 21.8 23.9 29.1 34.1 38.5 51.6 64.6 82.9 85.5 87.5 10.5 12.1 13.7 14.6 15.7 17. 18.4 19.6 21.8 23.9 29.1 34.1 38.5 51.6 64.6 82.9 85.5 87.5 Normal tax rate (percent) 6 4 6 4 1 Maximum earned income assumed. 6 6 294 Exhibit 3b Amount of individual income tax and effective rates under present law, H. R. 7378, and H. R. 7378 with lowered exemptions Married person - No dependents Personal exemption: Present law -$1,500 - 1,200 H. R. 7378 Treasury proposal- 1,000 : with lowered: : : 7378 exemptions : law Percent : : - - - -$ - : exemptions Percent - - - - - 13 31 7378 :with lowered - - - : : 1,000,000 5,000,000 Present : H. R. : law Effective rate H. R. 7378: Present : H. R.: H. R. 7378 : 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,800 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 : $ Amount of tax : Net income before personal exemption 1 Percent - 1.2 2.6 - 1.0 30 68 - 2.1 4.9 48 86 - 3.2 5.7 66 104 42 103 140 141 0.4 1.3 178 2.1 90 232 270 -$ 13 49 - - 6 $ 23 138 324 362 249 532 576 3.6 4.6 6.2 375 746 790 7.5 521 992 1,044 1,592 873 1,305 2,739 4,614 6,864 20,439 52,704 345,084 732,554 3,922,524 1,532 2,152 4,052 6,452 9.220 25,328 64,060 414,000 854,000 2,220 4,136 6,556 9.336 25,466 64,226 414,176 854,176 4,374,000 4,374,176 8.7 10.9 13.1 18.3 23.1 27.5 40.9 52.7 69.0 73.3 78.5 3.8 4.1 6.5 5.7 7.0 9.3 7.8 10.8 13.3 14.9 16.5 19.2 21.5 27.0 32.3 36.9 50.7 64.1 82.8 85.4 87.5 8.9 10.8 12.1 14.4 15.8 17.4 19.9 22.2 27.6 32.8 37.3 50.9 64.2 82.8 85.4 87.5 Normal tax rate (percent) 6 4 6 4 6 1 Maximum earned income assumed. 6 295 Exhibit 3c. Amount of individual income tax and effective rates under present law, H. R. 7378, and H. R. 7378 with lowered exemptions Married person - two dependents Personal exemption: Present law Dependent credit: Present law H. R. 7378 Treasury proposal - 400 - 250 - $ 400 Effective rate Present: H.R. 7378:H.R. 7378 :Present :H.R. 7378:H.R. 7378 :with lowlaw !with low- : law : : : personal exemption 1/ - 1,200 - 1,000 Amount of tax : Net income before - $1,500 H. R. 7378 Treasury proposal :ered exemp- tered exemp- :tions :tions $ 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 Percent Percent Percent - - - 13 - - 0.8 - 28 - - - 46 - - - 65 - - - 83 - - - - - - 1,000,000 5,000,000 $ $ - - 2,400 $ 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 - 6 12 - - 0.6 13 101. - 26 120 - 43 138 - 62 157 0.3 1.2 1.9 2.6 80 175 0.5 3.2 267 5.7 8.9 11.4 13.1 16.2 18.8 24.8 30.2 35.0 49.6 63.4 82.7 85.3 87.5 58 172 154 356 466 271 570 680 5.4 397 784 914 6.6 1,442 2,050 3,926 6,296 9,046 25,121 63,811 413,736 853,736 9.0 11.2 16.5 21.4 25.9 39.9 52.2 68.9 73.2 78.4 1,117 2,475 4,287 6,480 19,967 52,160 344,476 731,930 3,921,884 3.4 - 1.9 3.9 717 1.6 2.6 - - 1,292 1,880 3,716 6,036 8,756 24,776 63,396 413,296 853,296 4,373,296 4,373,736 4.2 4.8 5.5 6.0 6.5 7.0 8.9 11.7 13.6 15.2 18.0 20.5 26.2 31.5 36.2 50.2 63.8 82.7 85.4 87.5 Normal tax rate (percent) 4 6 6 4 6 6 1/ Maximum earned income assumed. Exhibit 4. Illustration of the combined effect of the income tax, spendings surtax, and refundable spendings tax Income $2,500 : Single person:Married couple:Married couple : No dependents:No dependents :Two dependents Assumed spending on consumer goods and services $1,700 $1,300 $1,900 $1,500 $2,100 $1,700 Income tax (H. R. 7378 with lowered exemptions) 1/ 175 270 175 - - - 270 270 175 175 15.8% 10.8% 10.8% 7.0% 7.0% 170 130 190 150 210 170 Amount 605 525 460 420 385 345 As a percent of income 24.2% 21.06 18.4% 16.8% 15.4% 13.8% 365 365 70 30 Amount 435 395 As a percent of income 17.4% Spendings surtax 270 - Income tax and spendings surtax: Refundable tax Total, income tax, spendings surtax and refundable tax: Exemptions: Single person, $500; Married couple, $1,000; each dependent. $250. 1 Exhibit 4a. Illustration of the combined effect of the income tax, spendings surtax, and refundable spendings tax Income $5,000 No dependents : : : No dependents Married couple : Single person Married couple Two dependents : : Assumed spending on consumer goods and services $3,200 $2.500 $3.500 $2,800 $3,800 $3,100 920 920 200 790 790 680 680 150 80 80 10 1,120 940 870 760 690 22.4% 18.8% 17.4% 15.2% 13.8% 320 250 350 280 380 310 1,600 1,370 1,290 1,150 1,140 1,000 Income tax (H.R. 7378 with lowered exemptions 1/) Spendings surtax 360 Income tax and spendings surtax: Amount As a percent of income Refundable tax 1,280 25.6% Total, income tax, spendings surtax, and refundable tax: Amount AB a percent of income 1 32.0% 27.4% 25.8% 23.0% 22.8% Exemptions: Single person $500, married couple $1,000, each dependent $250. 20.0% Exhibit 4b. Illustration of the combined effect of the income tax, spendings surtax and refundable spendings tax Income $10,000 : No dependents Assumed spending on consumer goods and services No dependents : Married couple Single person Married couple Two dependents $ 6,500 $ 5,000 $ 5,500 $ 4,000 $ 6,000 $ 4,500 2,390 1,200 2,390 2,220 2,220 2,050 2,050 600 600 300 400 200 3,590 2,990 2,820 2,520 2,450 2,250 Income tax (H. R. 7378 with lowered exemptions 1/) Spendings surtax Income tax and spendings surtax: Amount As a percent of income Refundable tax 35.9% 29.9% 28.2% 25.2% 24.5% 22.5% 550 400 600 450 650 500 4,140 3,390 3,420 2,970 3,100 2,750 Total, income tax, spendings surtax, and refundable tax: Amount As a percent of income 1 41.4% 33.9% 34.2% 29.7% Exemptions: Single person, $500; Married couple, $1,000; each dependent, $250. 31.0% 27.5% Exhibit 4c. Illustration of the combined effect of the income tax, spendings surtax and refundable spendings tax Income $25,000 : : : No dependents l'arried couple Married couple No dependents : Single person Two dependents : : : Assumed spending on consumer goods and services $10,000 $ 6,000 $11,000 $ 7,000 $12,000 $ 8,000 Income tax (H.R. 7378 with lowered exemptions 1/) 9,626 9,626 9,336 9,336 9,046 9,046 Spendings surtax 3,400 1,400 2,400 1,200 1,800 700 13,026 11,026 11,736 10,536 10,846 9,746 52.1% 44.1% 46.9% 42.1% 43.4% 39.0% 1,000 600 1,100 700 1,200 800 14,026 11,626 12,836 11,236 12,046 10,546 56.1% 46.5% 51.3% 44.9% 48.2% 42.2% Income tax and spendings surtax: Amount As a percent of income Refundable tax Total, income tax, spendings surtax, and refundable tax: Amount As a percent of income Exemptions: Single person $500, married couple $1,000, each dependent $250 1 Exhibit 4d. Illustration of the combined effect of the income tax, spendings surtax and refundable spendings tax Income $100,000 16,000 $11,000 $18,000 $13,000 $20,000 $15,000 64,641 7,650 : Income Tax and Spendings Surtax: Amount As a percent of Income Refundable Tax 72,291 72.3% 64,641 3,900 68,541 68.5% As a percent of Income 1 64,226 5,800 64,226 3,300 63,811 5,200 63,811 3,000 70,026 67,526 69,011 66,811 70.0% 67.5% 69.0% 66.8% 1,600 1,100 1,800 1,300 2,000 1,500 73,891 69,641 71,826 68,826 71,011 68,311 68.3% Total, income tax, spendings surtax, and refundable tax: Amount Married couple No dependents : No dependents : Two dependents Income Tax (H.R. 7378 with lowered exemptions 1/) Spendings surtax : and services Married couple : Assumed spending on consumer goods Single person 73.9% 69.6% 71.8% 68.8% Exemptions: Single person, $500; Married couple, $1,000; Each dependent, $250. 71.0% 301 Table A. Comparison of individual surtax rate schedule under present law, H. R. 7378, and Schedule B. Bracket rate : 60 130 115 13 15 90 195 190 13 17 120 260 275 16 19 210 420 465 16 21 300 580 13 20 23 560 980 17 24 25 900 21 28 28 25 32 32 14 29 36 36 16 32 40 40 18 35 43 43 20 38 46 46 49 6 1 2 6 3 - B 13 1.5 9 2 4 - H.R. 7378 13 6 1.5 - law 10% 6% 1 - : Schedule 13% .5 - .5 - law :H.R. 7378: B : (000) Total surtax cumulative Present :Schedule: : Present: : Surtax net income : 9 30 $ 65 $ 50 $ 675 3 - 6 4 - 8 6 10 8 10 12 - 12 - 14 - 16 18 - - - - 22 41 49 22 - 26 44 52 52 26 - 32 47 55 55 32 - 38 50 58 58 38 - 44 53 61 61 50 55 63 63 60 57 66 66 70 59 69 69 80 61 72 72 90 63 75 75 100 64 77 77 150 65 79 79 - 200 66 81 81 - 250 67 82 82 300 69 82 82 400 71 82 82 - 500 72 82 82 - 750 73 82 82 74 82 82 75 82 82 76 82 82 77 82 82 20 44 50 60 70 80 90 100 150 200 250 300 400 500 750 1,000 2,000 over - - - - - - - - - - 1,000 - 2,000 - 5,000 5,000 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49,780 82,280 115,280 148,780 183,280 254,280 326,280 508,780 693,780 1,460 2,020 2,660 3,380 4,180 5,040 5,960 6,940 9,020 12,320 15,800 19,460 23,240 29,840 36,740 43,940 51,440 59,140 98,640 139,140 180,140 221.140 303,140 385,140 590,140 795,140 1,135 1,635 2,195 2,835 3,555 4,355 5,215 6,135 7,115 9,195 12,495 15,975 19,635 23,41. 30,015 36,915 44,115 51,615 59,315 98,815 139,315 180,315 221,315 303,315 385,315 590,315 795,315 1,443,780 3,723,780 1,615,140 4,075,140 1,615,315 4,075,315 - - - 302 Table B Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule B Single person - No dependents Personal exemption: Present law - $750 - 500 - 500 H. R. 7378 Schedule B law : B : : : 700 800 - 3 $ 1,000 1,200 1,500 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 1,000,000 5,000,000 Percent - - 2.5 2.0 - 4.9 4.0 5.4 6.6 7.4 15 $ 12 34 28 52 43 .4 6.5 7.8 11 71 59 1.2 21 89 74 2.1 8.9 40 126 111 3.3 69 181 166 4.6 117 273 268 165 365 380 5.9 6.6 221 472 502 10.5 12.1 13.7 14.6 15.7 347 686 756 483 920 1,031 1,493 2.994 4,929 7,224 20,882 53,214 345,654 733,139 1,174 1,742 2,390 4,366 6,816 9,626 25,811 64,641 414,616 854,616 1,030 1,314 1,912 2.565 4,541 6,991 9,801 25,986 64,816 414,791 854.791 3,923,124 4,374,616 4,374,791 900 :Schedule - -$ 600 Percent - - 7378 B Percent 500 H.R. - Schedule: : : H. R. 7378 : Present: : : law 1 : Present Effective rates : Amount of tax : Net income before personal exemption 649 7.4 8.7 9.7 10.8 12.9 14.9 20.0 24.6 28.9 41.8 53.2 69.1 73.3 78.5 17.2 18.4 19.6 21.8 23.9 29.1 34.1 38.5 51.6 64.6 82.9 85.5 87.5 9.2 11.1 13.4 15.2 16.7 18.9 20.6 21.9 23.9 25.6 30.3 35.0 39.2 52.0 64.8 83.0 85.5 87.5 Normal tax 6 rate (percent) 4 6 4 1/ Maximum earned income assumed. 6 6 303 Table 0 Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule B Married person - No dependents Personal exemption: Present law -$1,500 H. R. 7378 - 1,200 - 1,000 Schedule B : : 7378 Effective rate :Present: H. R. law : 7378 : Schedule B : : : Percent Percent 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,800 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 1,000,000 5,000,000 - B - - - - Percent - $ : Schedule : : exemption 1 : : : law H. R. : Amount of tax Present : Net income before personal - -$ 10 - - - - 25 - - 13 40 - 1.0 3.1 30 56 - 2.1 4.0 48 71 - 3.2 4.7 66 89 0.4 4.1 1.3 5.7 42 103 140 126 163 2.1 7.0 5.6 7.0 8.2 90 232 265 9.3 -$ - - 6 $ 23 138 324 377 3.6 4.6 249 532 621 6.2 7.5 375 746 885 521 992 1,169 1,757 2,395 4,311 6,731 9,511 25,641 64,401 414,351 854,351 873 1,305 2,739 4,614 6,864 20,439 52,704 345,084 732,554 3,922,524 1,532 2,152 4,052 6,452 9,220 25,328 64,060 414,000 854,000 4,374,000 4,374,351 8.7 10.9 13.1 18.3 23.1 27.5 40.9 52.7 69.0 73.3 78.5 .9 2.1 10.8 13.3 14.9 16.5 19.2 21.5 27.0 32.3 36.9 50.7 64.1 82.8 85.4 87.5 10.6 12.6 15.5 17.7 19.5 22.0 24.0 28.7 33.7 38.0 51.3 64.4 82.8 85.4 87.5 Normal tax rate (percent) 1 4 4 6 6 Maximum earned income assumed. 6 6 304 Table D. Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule B Married person - two dependents Personal exemption: Present law - $1,500 H. R. 7378 - 1,200 Schedule B - 1,000 Present law - $ 400 Dependent credit: H. R. 7378 Schedule B : : : : : : - law - B : : 1,000,000 5,000,000 : 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 B : law : : $ Effective rate : Present: H.R. 7378: Schedule : Present: H.R. 7378: Schedule personal exemption 1 250 Amount of tax : Net income before 400 Percent Percent Percent - - - - - -$ 10 - - .6 - - 22 - - - - 37 - - 1.3 2.1 - - 53 - - - - 66 - - 13 86 - 26 105 - 43 123 - - $ - - 6 62 142 12 80 160 58 172 262 154 356 496 271 570 750 397 784 717 1,117 2,475 4,287 6,480 19,967 52,160 344,476 731,930 1,292 1,880 3,716 6,036 8,756 24,776 63,396 413,296 853,296 1,024 1,602 2,225 4,101 6,471 9,221 25,296 63,986 413,911 853,911 3,921,884 4,373,296 4,373,911 0.3 0.5 1.9 3.9 5.4 6.6 9.0 11.2 16.5 21.4 25.9 39.9 52.2 68.9 73.2 78.4 0.6 1.2 1.9 2.6 3.2 5.7 8.9 11.4 13.1 16.2 18.8 24.8 30.2 35.0 49.6 63.4 82.7 85.3 87.5 2.8 3.4 4.1 4.8 5.3 5.9 6.4 8.7 12.4 15.0 17.1 20.0 22.2 27.3 32.4 36.9 50.6 64.0 82.8 85.4 87.5 Normal tax rate (percent) 4 6 6 1/ Maximum earned income assumed. 6 4 6 305 Table 1. Comparison of individual surtax rate schedule under present law, H. R. 7378, and Schedule A. Surtax net income: Bracket rate Total surtax cumulative Schedule: Present : : Schedule law :H.R.7378: law : H.R.7378 :Present: (000) A : .5 $ .5 - 6% 1 6 1.5 1 1.5 - 6 2 6 13% 13 9% 30 $ $ 13 65 $ 60 130 A 45 110 13 15 90 195 185 13 17 120 260 270 420 460 16 19 210 16 21 300 580 670 13 20 23 560 980 1,460 2,020 2,660 3,380 4,180 5,040 5,960 6.940 9,020 12,320 15,800 19,460 23,240 29,840 36,740 43,940 51,440 59,140 98,640 139,140 160,140 221,140 303,140 365,140 590,140 795,140 1,130 1,630 2,190 2,830 3,550 4,350 5,210 6,130 7,110 9,190 12,490 15,970 19,630 23,410 30,010 36,910 44,110 51,610 59,310 98,810 139,310 160,310 221,310 303,310 385,310 590,310 795,310 2 3 9 - 4 3 9 4 6 - 17 24 25 900 10 21 28 28 12 25 32 32 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49.780 82,280 115,280 148,780 183,260 254,280 326,280 508,780 693,780 6 8 8 10 - 12 - 14 - 16 - 18 - 20 - 22 - 26 - 38 - 44 - 50 - 60 - 70 - 80 - 90 - 100 - 150 - 200 - 250 400 500 750 1,000 2,000 over 29 36 36 32 40 40 18 35 43 43 38 46 46 20 22 41 49 49 26 44 52 52 32 47 55 55 38 50 58 58 53 61 61 - 32 300 14 16 - - - - 44 50 55 63 63 60 57 66 66 70 59 69 69 80 61 72 72 90 63 75 75 100 64 77 77 150 65 79 79 200 66 81 81 250 67 82 82 300 69 62 62 400 71 82 62 500 72 82 82 73 82 82 74 82 82 75 62 82 750 - 1,000 - 2,000 - 5,000 76 82 82 5,000 77 62 82 1,443,780 3,723,780 - 1,615,140 4,075,140 1,615,310 4,075,310 306 Table 1a. Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule A. Single person - No dependents Personal exemption: Present law - $750 - 500 - 500 H. R. 7378 Schedule A Amount of tax : Present: H. R. 7378 Schedule: law : H.R. 7378 :Schedule : : : A : : law Percent 500 - Percent A Percent - - - - $ : Present Effective rates : : Net income before personal exemption 1, - 600 $ 700 800 15 - - 3 $ 11 $ 34 26 52 40 2.5 4.9 3.7 .4 6.5 5.0 1.2 7.8 8.9 6.1 6.9 10.5 8.8 10.7 13.2 15.0 - - 900 11 71 55 1,000 1,200 1,500 2,000 2,500 3,000 4,000 5,000 6,000 21 89 69 40 126 106 2.1 3.3 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 1,000,000 5,000,000 69 181 161 4.6 12.1 117 273 263 165 365 375 5.9 6.6 221 472 497 7.4 347 686 751 483 920 1025 649 1,174 1,742 2,390 4,366 6,816 9.626 25,811 64,641 1309 8.7 9.7 10.8 12.9 14.9 13.7 14.6 15.7 17.2 18.4 19.6 1907 1,031 1,493 2,994 4,929 7,224 20,882 53,214 345,654 733,139 414,616 854,616 25,981 64,811 414,786 854,786 3,923,124 4,374,616 4,374,786 2560 4536 6986 9796 20.0 24.6 28.9 41.8 53.2 69.1 73.3 78.5 21.8 23.9 29.1 34.1 38.5 51.6 64.6 82.9 85.5 87.5 1.8 16.6 18.8 20.5 21.8 23.8 25.6 30.2 34.9 39.2 52.0 64.8 83.0 85.5 87.5 Normal tax rate (percent) 6 6 4 6 4 1 Maximum earned income assumed. 6 307 Table 1b Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule A Married person - No dependents Personal exemption: Present law H. R. 7378 -21,500 - 1,200 - 1,000 Schedule A : : : : -$ 9 -$ - Percent - - - - 13 37 - 30 52 48 66 - 7378 - 23 - - Percent - - - law - - - 1.0 : : : 1,000,000 5,000,000 : - A Percent - .8 1.9 2.8 2.1 3.7 3.2 4.4 66 84 103 121 0.4 1.3 4.1 23 5.7 5.3 6.7 42 140 158 2.1 7.0 7.9 90 232 260 3.6 9.3 4.6 6.2 10.8 13.3 14.9 16.5 19.2 10.4 12.4 15.4 17.6 19.4 21.9 23.9 28.7 1,600 $ 1,800 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 A : : 1,000 1,100 1,200 1,300 1,400 1,500 Effective rate :Schedule : Present : H. R. : Schedule : : $ Amount of tax : Present : H. R. law : 7378 : Net income before personal exemption 1/ 6 138 324 372 249 532 616 880 7.5 8.7 375 746 521 992 873 1,305 2,739 4,614 6,864 20,439 52,704 345,084 732,554 1,532 2,152 4,052 6,452 9,220 25,328 64,060 414,000 854,000 1,164 1,752 2,390 4,306 6,726 9,506 25,636 64,396 414,346 854,346 3,922,524 4,374,000 4,374,346 10.9 13.1 18.3 23.1 21.5 27.0 32.3 27.5 36.9 40.9 52.7 69.0 73.3 78.5 50.7 64.1 82.8 85.4 87.5 33.6 38.0 51.3 64.4 82.9 85.4 87.5 Normal tax rate (percent) 6 6 4 6 4 6 1/ Maximum earned income assumed. 308 Table 1c. Amount of individual income tax and effective rates under present law, H. R. 7378, and Schedule A Married person - two dependents Personal exemption: Present law - $1,500 H. R. 7378 - 1,200 Schedule A - Dependent credit: Present law - $ H. R. 7378 Schedule A Net income before Effective rate Present: H.R. 7378: Schedule : Present: H.R. 7378 : Schedule law : A : : : : 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 20,000 25,000 50,000 100,000 500,000 1,000,000 5,000,000 250 - - law Percent Percent Percent - - 9 - - .6 1.2 - - 20 - - - - 34 - - - - 49 - - - - 63 - - $ 13 81 - - 26 100 - 43 118 - - 6 62 137 12 80 155 58 172 257 154 356 491 271 570 745 397 784 717 1,292 1,880 3,716 6,036 8,756 24,776 63,396 413,296 853,296 1,019 1,597 2,220 4,096 6,466 9,216 25,291 63,981 413,906 853,906 4,373,296 4,373,906 1,117 2,475 4,287 6,480 19,967 52,160 344,476 731,930 3,921,884 $ A - - - - $ : $ 400 - : emption 1/ 400 - Amount of tax : personal ex- 1,000 0.3 0.5 1.9 3.9 5.4 6.6 9.0 11.2 16.5 21.4 25.9 39.9 52.2 68.9 73.2 78.4 0.6 1.2 1.9 2.6 3.2 5.7 8.9 11.4 13.1 16.2 18.8 24.8 30.2 35.0 49.6 63.4 82.7 85.3 87.5 1.9 2.6 3.2 3.9 4.5 5.1 5.7 6.2 8.6 12.3 14.9 17.0 20.0 22.2 27.3 32.3 36.9 50.6 64.0 82.8 85.4 87.5 Normal tax rate (percent) 4 6 1/ Maximum earned income assumed. 6 4 6 6 Individual Income Taxes in Great Britain 1 and Canada tax tax : tax Post- Net war tax Effective rates : Total : Net : : Total Amounts Total tax : : : tax Net : : : : war : Effective rates Net : : : : tax Amounts Post- : : before personal Total : Net income Canada : Great Britain 2 tax exexmptions:liability: credit :liability:liability:liability:liability: credit :liability:liability:liability Single person - No dependents $ 2,500 $ 5,000 10,000 25,000 50,000 850 $ 123 1,975 4,625 15,137 36,575 207 727 $ 1,768 4,385 14,897 36,335 240 240 240 34.0% 29.1% 39.5 46.3 60.5 73.2 35.4 43.9 59.6 72.7 $ 826 $ 200 2,128 5,112 15,496 35,703 400 $ 626 800 1,728 4,312 14,696 34,903 $ 651 $ 250 $ 401 1,878 4,762 14,846 34,553 1,000 1,000 1,000 800 800 33.0% 25.0% 42.6 51.1 62.0 71.4 34.6 43.1 58.8 69.8 26.0% 16.0% 37.6 47.6 59.4 69.1 27.6 37.6 55.4 67.1 Varried couple - No dependents $ 2,500 $ 5,000 10,000 25,000 50,000 730 $ 143 1,855 4,505 15,017 36,455 227 $ 587 1,628 4,245 14,757 36,195 260 260 260 29.2% 23.5% 37.1 45.1 60.1 32.6 42.5 59.0 72.4 72.9 1,378 3,762 13,846 33,553 500 Married couple - Two dependents 10,000 25,000 50,000 1 2 530 1,655 4,305 14,817 36,255 $ 143 227 260 260 260 $ 5,000 $ 387 1,428 4,045 14,557 35,995 21.2% 15.5% 33.1 28.6 43.1 40.5 58.2 72.0 59.3 72.5 $ $ 2,500 435 $ 217 1,662 4,546 14,630 34,337 600 1,200 1,200 1,200 $ 218 1,062 3,346 13,430 33,137 Under Finance Act of 1941. b Converted at $4.00. Maximum earned net income is assumed. Under Income War Tax Act of 1942. 17.4% 33.2 45.5 58.5 68.7 8.7% 21.2 33.5 53.7 66.3 310 Supplement to the statement of Randolph E. Paul, General Counsel of the Treasury Department before the Senate Finance Committee in Executive Session in support of the recommendation of the Secretary of the Treasury for an additional war-time revenue program In connection with the formulation of the comprehensive antiinflation tax program outlined by the Secretary. we have given careful consideration to all possible alternative tax measures. One alternative that deserves special mention because of the widespread attention it has received is the general sales tax. In our view, the spendings tax is distinctly preferable to a general sales tax for the following reasons: 1. The spendings tax can completely exempt individuals with a low standard of living. The sales tax cannot provide such an exemption, except in an indirect, partial and unsatisfactory fashion by exempting whole classes of goods, such as food. A sales tax will exempt alike, or tax alike, the liberal purchases of a commodity by the woll-to-do and the limited purchases of the same commodity by the needy. The exemption of individuals with very low standards of living is important in the interests not only of fairness but also of the war effort. We can ill afford to impose taxes that would 80 reduce the standard of living of many individuals as to inpair their productive efficiency. 2. The proposed spendings tax is imposed at rates graduated according to the amount an individual spends. For this reason it can be truly effective in curtailing consumption at all income levels. A sales tax cannot be graduated, except very crudely in terms of classes of commodities. It is therefore impossible to impose a sales tax at sufficiently high rates to discourage luxury spending without at the same time imposing an intolerable burden on the great nasses of the people. In short, a spendings tax can be more selective in its impact on consumption than a sales tax. 3. A sales tax, even if levied at the retail level, would in practice have to be paid by business firms on some types of purchases. It would therefore enter into costs of production with resulting pressure against price ceilings. In addition, it would be difficult to impose a sales tax without affecting parity prices of farm products. A spendings tax would have neither of these effects, since it is collected directly from individuals. 311 -24. The spendings tax proposed will reach as large an amount of consumer spendings as a retail sales tax without exemptions, and a considerably larger amount than a retail sales tax with food exempt. It will do so despite the fact that the spendings tax exempts completely individuals with low standards of living. The reason for this difference between the two taxes is that a spendings tax can include services purchased by consumers while it is administratively extremely difficult to include such services in a retail sales tax. Out of total consumer spendings of $75 billion, the spendings tax will reach over $50 billion. A retail sales tax on all tangible connodities will reach about the same amount; a retail sales tax with food exempt will reach only about $32 billion. 5. Despite the popular bolief to the contrary, the retail sales tax is not an easy tax to administer. On a Federal level, it is an entirely new addition to the tax structure, involving the creation of new administrative machinery. The spendings tax will admittedly in- volve administrative difficulties of its own. But these are no greater than those that wouldarise under the sales tax and the spendings tax has the great advantage that it can be integrated with the fully developed administration of the individual income tax. The New York Times. 312 SEP - 4 1942 "The plan is dead. Not a man exists in the income tax, and has on the committee is for it," said been slightly modified by the fact SPENDING TAX G GETS Senator Gustey of Pennsylvania that any payments the home-ownSeveral members indicated their is may have to make for light. preference for a sales tax and at heat or repairs will not be exA COOL RECEPTION; the request of Senator Vanden- empted from the spending tax. It is proposed to deduct the 10 berg. Randolph Paul, Treasury counsel, outlined a retail sales tax per cent flat rate on spendings at SALES LEVY URGED plan this afternoon. the source. That would mean, Tomorrow, the committee will with the addition of the 5 per cent give further consideration to the deduction proposed at present for Morgenthau Offers Plan for spending tax and also to the sales the collection of part of the income 10% on Spending to Be Re- tax plan submitted by Mr. Paul, tax, a total of 15 per cent taxable which would apply to retail sales income withheld at the source in funded, Plus Surtax on Outlay of all tangible personal property 1943. If the taxpayer had not at without exemption even for food. the end of the year spent 10 per Some members are understood cent of his taxable income on conTO RAISE $6,500,000,000 to feel that food should be ex- sumera' goods or services, an adempted, but were assured by Mr. justment would be made whereby Paul this afternoon that states the excess would go to the credit 'It's Dead,' Declares Guffey- which had imposed sales taxes had of his income tax. There would be no withholding found that many smaller retailers Paul, at Vandenberg's Request, did not keep records which differ. of the spendings surtax, but it entiated sharply between different would be collected by having taxOutlines Impost on Sales types of commodities. Really Two Spending Taxes The Treasury's proposed spending tax, as presented by Secretary The treasury proposals printed on Page 16. Morgenthau and Mr. Paul, would be divided into two parts: (1) A refundable tax imposed at By JOHN MacCORMAC Special to THE New YORK Times flat rate of 10 per cent on total WASHINGTON, Sept. 3-Pro- spendings of individuals for con- posals for a new $6,500,000,000 spending tax on individuals, of which $2,000,000,000 would be a permanent addition to the Treas ing from 10 to 75 per cent on ex- ury's revenues and $4,500,000,000 penditures in excess of an exemp- would be enforced savings returnable to the taxpayer without inter- tion of $1,000 for a single person, $2,000 for a married couple and eat at the end of the war, met a cold reception from the Senate Fl. additional $500 for each dependent. Neither the flat-rate refundable nance Committee when presented tax nor the progressive non-re- today by Secretary Morgenthau. of personal income tax exemptions in the House bill by a $200 reduction for married couples and a $50 reduction for dependents. Although Secretary Morgenthau in urging adoption of the spending tax said "I do not merely recom- mend bold action along these lines; I request it," it found al most no favor with the committee. Not a single member actively en- fundable surtax would apply to exa They were accompanied by Treasury proposal for the lowering sumer goods and services and (2) a non-refundable spendings surtax imposed at progressive rates rang- penditures for investment or debt repayment. They would not, there- fore, affect the purchase of bonds payers report their spending quar- terly with a final adjustment after the close of the year. The flat-rate spending tax would be levied on the total spendings of those reporting total spendings in excess of $500 for a single person. $1,000 for a married couple and an additional $250 for each dependent. not merely on that part of spendings above these amounts However, to provide for a gradual transition as to non-taxable and taxable individuals the tax on persons just above the exclusion limits would not exceed the excess of their spendings over the exclusion Nimits Thus an individual spendfing $510 would pay $10. not $51. The spending surtax rates would progress as follows: For a "spend- ing bracket" over exemptions up to $1,000. 10 per cent: between $1,000 and $2,000, 20 per cent: $2,000-$3,000. 30 per cent: $3,000 $5,000. 40 per cent: $5,000-$10,000 50 per cent, and over $10,000. 75 or stocks, payment of insurance premiums, interest on mortgages or investments generally in real For a married couple with no dependents whose income was estate, payment of income tax, increases in bank balances and gifts and contributions tax, spendings surtax and refundable spendings tax -assuming an per cent. $2,500 a year. the combined income annual expenditure on consumer Thus the man who bought a goods and services of $1,500home outright or by installments would be 16.8 per cent of income would be favored as against his of which $150 would be refundneighbor who merely paid rent. It able. dorsed it although some were non- was explained by the Treasury For a married whose person income with nowas commital. that this discrimination already $5,000, dependents combined taxes-assuming 313 The New York Times. SEP - 1942 an annual expenditure on consumer goods and services of $2,800 would be 23 per cent. of which $280 would be returnable For a married taxpayer with $10,000 income and no dependents combined taxes would take 29.7 per cent of income. of which $450 would be refundable, If $4,500 was spent. The Treasury submitted a comparison with British and Canadian taxation which indicated that a married couple without depend- ents in Britain earning $2,500 would pay in all individual income taxes a total rate of 29.2 per cent, of which $148 would be refund. able; and that the same couple in Canada would pay 26 per cent, of which $250 would be refundable. The British and Canadian rates for the higher income brackets were The great majority of taxpayers would be eligible to file a simplified refundable spendings tax return. which would be a supple mentary part of their simplified income tax return. An individual with an income of $5,000 who spent $3,200 would pay a tax of $320. If he spent only $2,400 the tax liabil. ity would be only $240. Would Repay After the War The amount collected in the first year of operation of the refundable tax might be repaid in the first year after the close of the war: the amount collected in the second year might be refunded in the sec. and year. and so on. Provision would be made for earlier refunding in cases of proven distress The spendings surtax, Mr. Paul said. should be made effective as still higher in comparison with of Sept. 1, this year, to prevent Hita All Above Bare Subsistence consumers' goods in anticipation of American rates. Secretary Morgenthau told the committee that his proposal would reach into the lowest-income groups above the level of bare subsistence income, and would provide high penalty rates for luxury spending Together with a further lowering of exemptions from the Individual income tax. it would reach into incomes aggregating $65,000,000,000. The Secretary admitted that the spending tax would reduce the amounts workers could set aside for war-bond purchases under vol- untary payroll deduction plans, but said that in the face of present conditions, "we can no longer atford to rely entirely on voluntary lending. "If the proposals we make seem large scale buying and hoarding of the tax. To lower individual income tax exemptions in accordance with the Treasury's recommendations, Mr. Paul said, would increase the number of taxpayers by 5,000,000 above the present level Under the present tax bill the lower exemptions would increase the tax liability of a married person who has no dependents but has $2,000 income. from $140 to $178: for one with an Income of $10,000. from $2,152 to $2,220. Since the change would substan- tially augment the tax load of the lowest taxable income groups, Mr. Paul suggested that the commit. tee might wish to consider revis- ing the individual surtax rate to reduce the Impact on them. The spendings tax would be par- ticularly helpful as an anti-infladrastic, he stated, "I should like tion measure in two ways, he add. to say with all possible emphasis ed. The refundable tax would that I believe nothing less drastic withdraw consumer purchasing will accomplish the results we must have. Mr. Paul. explaining how the refundable part of the spending tax would be collected. said that a ten- tative tax would be levied at the source on/wages. salaries and divi- dends in the same manner as it is proposed to collect part of the reg- ular income tax, and a spending tax return would be made part of the annual income tax return. power and thus reduce the demand for goods; and the surtax would create an obstacle to spending. thus encouraging saving. Compares Spending and Sales Tax Contrasting the spending tax with the sales tax, Mr. Paul said that it completely exempted individuals with a low standard of liv. ing which the sales tax could not do, except in a partial fashion by 314 The New York Times. excepting certain classes of goods had no opinion as between a sales such as food. Its rates, he continued, would be progressive which would be fair and would effectively curtail consumption at Whithcome levels, whereas a sales tax could not be graduated and thus would not discourage luxury spending. unless it were so high as to impose an intolerable burden on the great masses of the people. A sales tax. even If levied at the retail level, Mr. Paul said, would in practice have to be paid by some firms on some types of purchases, and would therefore enter into costs of production with resulting pressure against price cellings. Out of total consumer spending of $75,000,000,000, he continued the spendings tax would reach over $50,000,000,000. A retail sales tax tax and spending tax. Senator Barkley had no comment. But Senator Byrd described the spending plan as "the most compli- cated and unworkable that has been submitted by tax experts to the Senate Finance Committee in the nine years of my membership. It has all the evils and none of the virtues of a sales tax. The logic of the present situation points inevitably to a graduated sales tax with a smaller tax on food and clothing.' Other comment was as follows: Senator Saft-Complicated and un- workable The taxpayers won't understand It. Senator La Follette- am opposed to lowering exemptions and the lack of provisions in the on all tangible commodities would spending tax for medical expenses. I appreciate how the Treasury. in a complex way, is only about $32,000,000,000. A sales trying to cushion the regressive effects of a sales tax. reach the same amount, but one with food excepted would reach tax would be as difficult to admin. later as a spending tax. Mr. Paul reiterated the Treas- ury's opposition to a sales tax when he submitted proposals for one this afternoon at Senator Vandenberg's request. According to members of the committee the plan he described was one for a tax which would affect all retail sales of personal Senator Edwin c. Johnson- would lower the standard of liv. ing at least 50 per cent. Senator Brown It seems a hit complicated. I think I would prefer the Danaher plan. (Senator Danaher's plant would com. bine a sales tax with the purchase of war stamps.) Senator Gerry-I don't like It. property, services rendered in con- Senator Davis Too complicated laundries, barber shops, dry clean- Senator Herring - If it's as confusing to the taxpayer as to the committee I don't think it will be adopted. It discriminates nection with them and also such services as those performed by era and beauty parlors. The tax rate would be uniform and would be applied to all retail sales, even of food, or even if made to the gov- ernment The chorus of opposition to the Treasury's spending tax plan among members of the committee was almost without a dissenting note Senator Walsh said the plan should not be rejected, however, just because it was new. Senator George said It was too new for I'm opposed to it. against the man who pays rent. I prefer & sales tax. Senator Balley-I'm very doubtful about it. I don't think the Treas. ury has thought it through Senator Bennett Champ ClarkThe most complicated monstros- ity I've seen Senator Radcliffe-Extremely complicated and unworkable. Senator Connally- am very comment, but should have consid- doubtful that the committee will eration. Senator Capper said he adopt it. 315 The New York Times. How the Proposed Taxes Strike Special to THE New TORK TIMES. WASHINGTON, Sept 3-Treasury Department examples of hose the proposed spendings tax, refundable spendings fax and lower family exemptions in the income tax would affect incomes of $2,500, $5,000 and $10,000 a year are as follows, the lowered exemptions rejerred to being $800 for a single person, $1,000 for a married couple and $250 for each dependent: 3HT ADD 383H INCOME OF 83,500 donti VISIT Assumed spending on consumer Single Person. Married Couple, Married Couple No Dependents No Dependents Two Dependents goods services. $1,700 Income taxand (H. R 7378 with low. $1,300 $1.900 $1,500 ered exemptions) Spendings surtax 365 365 TO Income Amounttax and spendings surtax As s per cent of Incoins Refundable tax Total Income tax, spendings our- 170 270 395 270 270 15.8% 10.8% 10.8% 7.0% 150 210 130 100 606 As a per cent of income 24.2% 175 175 tax and refundable tax Amount me $1.1 175 30 455 17.45 270 $2,100 535 31.0% 400 18.4% 170 - 420 16.8% 175 7.0% 345 15.4% 18.8% INCOME OF 85,000 Single Perion Married Couple. Married Couple, Assumed spending on consimer goods Income tax (H. R. 7378 with low. ered exemptions) Spendings surtax Income Amounttax and spendings surtax As a per cent of income Refundable tax Total income tax. spendings surtax and refundable tax Amount - NOR As percent of income. No Dependents. No Dependents Two Dependents $8,200 $2.500 $3.500 $2,800 $3,800 $3,100 920 920 190 790 680 680 360 200 150 80 80 10 1,280 25.6% 1,120 22.4% 320 250 1,600 1,550 32.0% 27.4% 940 18.8% 350 1,290 25.8% 870 17.4% 280 1,150 28.0% 760 15.2% 490 13.8% 380. 310 1,140 1.000 22.9% 20.0% INCOME or $10,000 Single Person, Married Couple. Married Couple. Assumed spending on consumer goods ABC services Income with-low neted examptions) Spendings surtax Income tax and spendings surtax: Amount As a per cent of income Refundable tax Total income tax. spendings surtax and refundable tax: Amount As a per cent of income No Dependents. No Dependents. Two Dependents. $5,500 $4,000 $6,000 $4,500 $6,500 $8,000 2.390 2,300 2,220 2.220 2,080 2,060 1,200 600 600 300 400 200 3,590 35.9% as 2,450 2,990 2,820 2,520 29.9% 28.2% 25.2% 24.5% 600 450 650 600 4,140 3,390 3,420 41.4% 33.9% 34.2% 2,970 29.7% 3.100 31.0% 2,250 22.5% 500 2.750 27.5% 316 September 4, 1942 Secretary Morgenthau Randolph Paul Attached is a redraft of what we think should be in the President's message on taxes. It has been prepared by Mr. Blough and myself and approved by Herbert Gaston, (Initialed) R.E.P. REPAkfachment 317 Seventh Draft September 4, 1942 Draft of tax section for Judge Rosenman One of the most powerful weapons in our fight to stabilise living costs is taxation. It is a powerful weapon because it reduces the competition for consumers' goods. The provisions of the tax bill pending before Congress would increase revenue by much more than any previous measure in our history. If the bill became law in the form passed by the House, a full year's Federal tax collection would approach $24 billion. But in the fiscal year 1943 our Federal expenditures are expected to reach $77 billion. To help offset the pressure of this huge expenditure on our price structure and cost of living, a much more drastic tax measure is necessary. I recommend to the Congress the recent proposals of the Secretary of the Treasury for heavy taxes on spending and the provision for the post-war rebate of part of these taxes. They provide a valuable instrument for combating price rises. Heavy wartime taxes do not create the economic sacrifices of war. The burden is already with us whether or not taxes are levied. The function of wartime taxation is to distribute 318 -2the inevitable burden more equitably. Fair distribution of the burden will be promoted by taxes which help in preventing a damaging rise in the cost of living. The cooperation and self-restraint of the whole Nation will be required to stabilise the cost of living. The stabilisation of the cost of living cannot be maintained without heavy taxes on everyone except persons with very low incomes. With such increases in the tax load unfair tax distribution becomes less and less tolerable. We can rightly expect the fullest cooperation and self- restraint only if the tax burden is being fairly levied in accordance with ability to pay. This means that we must eliminate the tax exemption of interest on State and local securities and other special privileges or loopholes in our tax law. It means that in the higher income brackets the tax rate should be such as to give the practical equivalent of a top limit on income after taxes, approximating $25,000. It means that we must recapture through taxa- tion all wartime profits that are not necessary to maintain efficient all-out war production. Such provisions will give assurance that the sacrifices required by war are being equitably shared. 319 -8As much of the income tax as is practicable should be collected at the source. Such a collection mechanism would ease the burden of the heavy taxes the war requires; it would assure collection from the many added millions of taxpayers; and it would make possible prompt adjustments in rates of collection necessitated by changing economic conditions. Heavy wartine taxes will fall on all of us. We must spare only those whose incomes are at the minimum necessary for productive efficiency and decent living. We should avoid such taxes as general sales taxes, which would out into that necessary minimm and, by raising the costs of goods, threaten to destroy the stabilisation of living costs which we seek to maintain. The recently proposed spendings tax would go far beyond the sales tax in discouraging spending, and would do so without cutting into the minimum living standard. 320 September 4, 1942 Governor Olson was here today and asked me whe ther I could do something on the Giannini situation. He said he had been to see the SEC and asked them if they wouldn't get their suit straightened out. I told him there was no trouble between Giannini and me because the bank had been be- having itself for the last six months. He said, "Well, supposing the State superintendent of banks gave them a charter where the Treasury had refused one, how would you feel?" I said, "You have your State superintendent get in touch with Mr. Preston Delano, Comptroller of the Currency, and talk matters over before anything is done. He said he would. Copy to: Mr. Preston Delano 321 SEP 4 1942 My dear Mr. President: Parenent to the provisions of the Act approved March 8, 1958, (se Stat. 107), as amended, an Act to maintain unimpaired the capital of the Commodity Credit Corporation at $100,000,000, and for other purposes, an appraisal has been made of the assets and liabilities of the said Corporation as of March 51, 1942. As a result of such appreisal, it has been determined that the assets of the Corporation exceed the liabilities, including capital stock of $100,000,000, by an amount of $87,815,515.68. A report of the Committee appointed by me to appraise, on my behalf, the assets and liabilities of the Corporation is attached for your information. The Act provides that in the event the networth of the Corporation, as above by the appreisal by the Secretary of the Treasury, is in excess of $100,000,000 such excess shall, as seen as practicable after such appreisal, be deposited is the Treasury by the Commedity Credit Corporation and shall be credited to Miscelleneous Receipts. In view of the foregoing, is is recommended that the Commodity Credit Corporation be furnished a copy of the appreisal report enclosed herewith and be directed to deposit is the Treasury, as provided by the Act approved March e, 1999, the sas of $27,815,835.00, less the partial pay- ment of $18,000,000 which has been received and was deposited is the Treasury as of Jess so, 1948. Faithfully, (Signed) H. Morgenthau, Jr. The President, The White House. By S. S. Agent 9/4/42 at 3:35 PM Attachments. OSPing 8/8/98 322 My dear Mr. Secretary: Persuant to provisions of the Act approved March s, 1956, (se Stat. 107), as assended, an Act to maintain uninpaired the capital of the Commodity Credit Corporation at $100,000,000, and for other purposes, the Secretary of the Treasury has had an appraisal made of the assets and liabilities of the said Corporation as of March 51, 1942. As a result of the appreisal, it has been determined that thomsets of the Corporation exceed the liabilities, including the capital of $100,000,000, by the amount of $27,815,518.00. A copy of the report of appreisal is attached. The above-cited Act provides, that in the event the not worth of the Corporation, as shown by the appraisal by the Secretary of the Treasury, is in excess of $100,000,000 such excess shall, as seen as practicable after such appraisal, be deposited is the Treasury by the Commedity Credit Corporation and shall be credited to Miscellaneous Receipts. I - advised that a partial payment of $18,000,000 has already been nade and deposited is the Treasury as of June so, 1942. It will therefore be appreciated if you will take the appropriate steps to see that the attached copy of the report reaches the prepar officials of the Corporation, and that deposit of the balance of $9,815,515.68 is made into the Treasury. Very sincerely yours, The Honorable, The Secretary of Agriculture, Washington, D. C. Attachment. GEJing 8/8/62 323 September 4, 1942. Dear General Rodgers: I wonder if I may trouble you once more POgarding the photographs that were taken of my son Henry and myself on the day I visited Fort Riley. You very kindly sent me one excellent picture of the two of us standing in front of the plane be- fore it took off. It is such a good picture that I should appreciate your lending me the negative so that I can have more copies made. If by any chance you have prints of other pictures of the two of us taken on the same day, f should be very glad to have them. Thanks in advance, and best wishes to all of you at Fort Riley. Sincerely, (Rioned) H. Moreanthan, Jr. Brig. General Robert C. Rodgers, Fort Riley, Kansas. FK:cgk:eg B. F. Station by Manus 9/4/4 3:43 PM - Air Mail 324 CONFIDENTIAL SEP 4 1942 by dear General: The Department has received your letter of September 3, 1942, regarding the inspection by Customs and other Government officers at Temps, Florida, on August 15, 1942, of certain personal of the British and Canadian armed foress and survivers of terpedood British a ships. A thorough investigation of this insident is being made and I shall be glad to advise you further when a report of the investigation is received. A custome amaination of the baggage and effects of all persons arriving in the United States, with certain exceptions for diplements and other persons mentioned in article 432 of the Customer Regulations of 1937, a boyy of which is enclosed for your ready reference, is required by law. Rewever, is is the purpose and prestice of this Department and its custome officers in the field to conduct such constructions of persons such as you mentioned in your letter with the least inconvenience cansistent with the attendant circumstances. By direction of the Secretary: Very truly yours, (Signed) Herbert E. Gustol HIBBERT E. GASTON, Assistant Secretary of the Treasury. Major General George v. Strong, Asting Chief of staff, Military Intelligence Division G-2, War Department General Staff, Bashington, D. C. Beclosure. WRJ-esb 9-4-42 MEMORANDUM FOR THE SECRETARY. # 325 September 4, 1942. Mail Report The mail this week has been considerably heavier and extremely interesting. It has been dominated by two subjects, the Ruml Plan, and the reason for the lag in Bond sales. The proportion of letters favorable to the Ruml Plan is forty out of fifty, with eight strongly opposing it and two critical. There have been between seventy-five and one hundred letters received comment- ing on it, and in the favorable group quite a few suggest small adaptations. A number of letters, in- cluding some anonymous ones, include the Times editorial criticizing the Treasury's attitude toward the plan and urge a change of heart. Exclusive of the Ruml plan, four letters approved the withholding tax, while two were unfavorable to this method of collection. There was one letter favorable to higher personal taxes as opposed to four unfavorable. Only a few letters com- mented on the sales tax, but most of them were favorable to it. There were also many that advocated higher liquor and luxury taxes. The usual exemptions are urged, including illness expense and debt retirement, while there have also been the usual suggestions for further taxation, including levies on labor unions, the increase of postage rates, taxes on slot machines, pets, race tracks, etc. As was the case last week, letters seeking to explain the falling off in Bond sales put the responsibility everywhere but on the buyer. In other words, the Secretary's question, "Ask the American Public" encouraged various members of that public to express themselves in detail! Extravagance and lack of leadership on the part 326 -2Memorandum for the Secretary. September 4, 1942. of the President and his associates led in the reasons given. Half of the letters mentioned one or both of these points. Strikes, labor slow-down and high union dues were mentioned in one-fifth of the letters. Other reasons included the rising cost of living, uncertainty as to future taxes, unsatisfactory handling of rationing, etc. There were only twelve apparently serious complaints, most of them on the subject of redemption. Four letters from different parts of the country reported large cashing of Bonds at the end of the sixty-day period. Five letters made suggestions as to increasing sales at Christmas time. Several hundred replies, all very favorable, were received in response to telegrams addressed to theatres on the September Bond Rally, "Salute to Our Heroes". On Friday morning alone, more than fifty letters of protest came from firms which had received form letter saying that our records showed they did not have payroll participation. These firms all asked correction of the error, some saying they had had payroll deductions since shortly after Pearl Harbor. A number complained of the waste of printed matter in this and other mailings on War Bonds. The threat of inflation and the need for Government economy still are much discussed, while four letters praised the work of the Joint Committee on the Reduction of Nonessential Expenditures. Letters referred from the White House during the month of August totaled 631, of which we referred 250 for handling elsewhere, and acknowledged the remainder. This is over 250 pieces of mail more than the August receipt of last year. 327 1 General Comments A letter has been received from Sidney Hendricks Salomon, a great-grandson of Haym Salomon of Revolutionary fame, who writes from Nice, France, in regard to the blocking of his accounts at the American Express Company, and Lloyds in London. Mr. Salomon, over 75, and with a bedridden wife, has been forbidden by Doctors to make the trip to Lisbon, and therefore is probably cut off from this country "for the duration". Then he writes, "I rec- ognize the present relations may make any action on my funds more difficult, but not perhaps impossible. I never failed to devote three times the amount of my salary to the pay in the various Government appointments I have held in Washington, in the Offices of the Secretary of Commerce and Labor, as an Editor under Mr. Oscar Straus, and as Assistant Director, Bureau of Research, in charge of Non-Ferrous Metals, War Trade Board, to support my position, and when in 1914 I was attached as a Voluntary Assistant to the London Consulate, of course I was never paid at all! Something like my great-grandfather, eh? * * This is the first time in my over 75 years that I have had to call upon the Government for aid, and I trust that you will see your way to send me a favorable reply." E. H. Bobst, Nutley, N.J. I am taking the liberty of sending you herewith copies of various letters which I have today written to the Federal Reserve Bank of New York on the subject of what I consider unnecessary delays in dealing with a number of license applications. The following applications, filed more than two months ago, have not to this day been acted upon: (Lists three, filed on May 15, June 12, and June 16.) It is respectfully submitted that delays such as have occurred in the matter of the foregoing license applications are unwarranted, vexatious, and, in part, detrimental to the smooth operations of an industrial concern, which is contributing in a large measure to the war effort. * # 328 -2Leland B. Groezinger, (Lawyer), San Francisco, Calif. A client of ours, a citizen of the United States who resides in England, would like to loan the U. S. Government the sum of $25,000, interest free, for the duration. For reasons of her own, she does not wish to purchase S. War Savings Bonds. # # # Would you be so kind as to advise us whether there are any arrangements for making suchit? a loan, and, if so, what steps are necessary to complete U. H. C. W. Melick, Scarsdale, N.Y. Recently I noticed that a program is being considered by your department for the registration and subsequent mobilization of Latin American securities held by American Nationals. In this article it is stated that payment for the secur- ities held by Americans "is to be based upon the market price on the decree date". My wife and I hold Bonds of the department's mortgage bank of the Republic of Colombia. These bonds were obtained by us in good faith. At the time, they were considered a good investment and we, to a large extent, were influenced by a desire to aid in a friendly way our sister republic. We are small bondholders and depend on our income which, in the case of these bonds, has been denied us for some years. The loss of this income, while it seriously affects us, is overshadowed by the knowledge that our Government may confiscate the principal we invested in these bonds, and give us in lieu thereof, the low market price now prevailing, without a thought as to our position or the why and wherefore for such low market price. May I protest most strongly against this Government fol- lowing this course. # * If this Government desires to do something to help the South American countries, please do not do it at the expense of our citizens, who are called upon to do so much in these days of stress. 329 3Favorable Comments on Bonds Mrs. M. E. Curtis, Flushing, N.Y. After listening to the constant appeals to buy Savings Bond, would suggest for your consideration a restoring of the $10,000 limit in place of the present $5,000. Would it not be worth trying? Joseph Eldridge, Texarkana Bus Company, Texarkana, Texas. I have read where you have increased the amount of Bonds corporations and Unions may purchase. That is fine. Now, how about giving the little man a break that would like to continue to invest in series E Bonds? Do you not think it would be wise to permit the small buyer to purchase up to $10,000 instead of $5,000 of maturity value in Bonds? * * * I have about reached the limit on my series E Bonds, and do not think I will have enough additional money to invest in the other series to amount to anything, so naturally, I am inclined to divert my investment or spending, whereas if I might be permitted to invest what little additional I may have, I would be only too glad to do so. C. E. Criswell, Everton, Mo. Who can possibly know how much he can put into War Bonds until he knows how big his income tax will be? Settle the amount of the tax and we shall buy more Bonds if we can. I am afraid to buy many because I have to pay that tax, and some big insurance premiums. You'll get all I have left. F. Levin, Cable Raincoat Company, Boston, Mass. We made an appeal in our factory for contributions from the workers to the Payroll Allotment Plan, and we have had a very good response. One of our employees, Hovsep Dzerigian, has requested us to deduct $5 weekly from his pay, and to make Bonds payable to the U. S. Treasury. He explained to the clerk who helped the workers write up their cards that he wanted to make this contribution to "Uncle Sam" in appreciation for his citizenship in this country. 330 - Mrs. Paul Hackett, South Ozone Park, Long Island, N.Y. Although the movie stars have done a wonderful job working so hard selling War Bonds, my husband and I think it a good idea if the disabled vets of the last war be paraded, the object to sell War Bonds. This would show some appreciation for what they have done for their country. They are forgotten, evidently. Many could be taken from the hospitals, and many more from their homes, and I am sure they would stir the people, those who can afford to buy Bonds. # # Please remember the disabled and give them another chance, show them they are appreciated, don't let them be forgotten. Many of them have sons in the armed forces. 331 5 Unfavorable Comments on Bonds W. Schmitz, Bayonne, N.J. * I do not think it is fair that the boys in the service should receive $50 a month, risking their lives, while others stay home and make $100 or more a week. Why not put every person in the United States in the Army? You do not have to give each one a uniform, and you do not have to take people out of commercial life, but merely grade every person according to Army ranks. All would receive the same pay as the boys receive in the Army, except that they receive an allowance for maintenance, as they have to support themselves, while the boys in the Army receive their support from the Government. * Instead of considering how many votes some Senator or Congressman may lose by putting through one tax proposal or another, we should all be willing to give everything we can to win this War, and not make empty speeches as to what other people should do. It is easy for a person to make a speech and ask the people to buy War Bonds. I am sure that many of these speechmakers, who advise everybody to buy War Bonds, do not buy any themselves. Anonymous - Mailed from St. Paul, Minn. Just what do you mean, larger incomes and increased pay checks? What about your own Government employees in the Post Office Department? We haven't seen an increase since 1925. If 80,000 letter carriers start talking of the rotten deal we have been given, it won't help in the elections coming up all over the country. No wonder the sale of War Bonds has fallen off. How can you expect us to buy War Bonds with living expenses up 25% E. C. Baugher, Winchester, Mass. It is evident to any thinking man that the sales of War Bonds and Stamps do not square with the requirements. What is the answer? Well, here is one answer. In the Sept. issue of the Reader's Digest there is a condensation from the American Magazine of a paper by Senator Byrd entitled, "Waste, The Enemy". Here is a disclosure of alarming waste, 332 -6two billion dollars a year. How can the Administration expect the public to be unmindful of this reprehensible and inexcusable squandering of the taxpayer's money? William H. Daniels, Paterson, N.J. I am for an all out war effort. I want to do everything I can to beat the Axis powers. I have sold or given away all the scrap rubber and metal I could find. I spent 20% of my income for Bonds since this war started. It makes me wild and I feel like cussing when I see the fool things that are either done in Washington or under the jurisdiction of Washington. Men loafing on jobs, etc. # ** If you wish some more specific information, just read the article by Senator Byrd of Virginia in the Sept. issue of the Reader's Digest, entitled, "Waste". It is a condensation from the American Magazine, and Senator Byrd ought to be a good enough authority. * * # I have only taken the trouble to write this letter because I want to see the Bond sale a big success. It is only by every one doing their bit that we can win this war. Politics should be out for the duration. Miss Elizabeth H. Hughes, N.Y.C. As an honest taxpayer on a $3,000 income I would like to say that the reason I am not putting more money in Bonds is that all the tax publicity about the Ruml Plan has stopped all my plans. I had bought two $100 Treasury Notes so far against this (1942) income, besides occasional Bonds, and of course the 10% salary deduction. If the 1942 tax is "telescoped" and forgotten - well, I certainly would not begrudge my Government the $200, but in the meantime, I am very un- certain. # I want to do my utmost, but I would not expect to be the only citizen paying a 1942 tax. And I'm scared to buy all Bonds for if you change your minds again, I won't have the money to pay the taxes. For the love of the plain people, what are you planning about payments of this y ear's taxes? Let us in on it, please. 333 7- A War Worker (Mailed from Detroit, Mich.) I have bought more than 10% of my wages for Bonds ever since we have been at war but I always went to the Post Office paid my money and received my Bond and U.S.A. had my money right away then the factorys took hold of it and wanted the workers to buy the Bonds of them so their company could say they were 100% that was all right so they are taking so much out of your pay every week but the bad part of it is when you have a Bond paid for you don't get it right away up to now since the company I work for I received four Bonds and they have enough of my money for four more Bonds which I will receive some of these days but what I mean is if I had my Bonds U.S.A. would have my money and I am only one person. I think your July and August quoto would of been over the top if the companies didn't hold on to the working man's money so long. Arthur H. Damon, Counsellor at Law, Boston, Mass. As one of the U. S. Americans who is trying to have our people buy Bonds and Stamps, the enclosed editorial from the Boston Herald may interest you. (War Bond sales falling off.) On the street I have asked many people why. They think that the programs are too much Hollywood and rather cheap. Also that there is not real leadership in Washington; that the folks at home do not appreciate what our boys in the armed forces are doing. Why not make your sales effort of a higher type and appeal to those who have the cash and can buy? Good luck to you! Edwin L. Morey, Onancock, Va. After reading the remarks about the raising of the quota of War Bonds and its failure, I ask, has It not occurred to you gentlemen that a great many of our citizens are influenced by the actions of the administration of the Government? The papers are full of accounts of labor rackets, willful waste of Govt. property, corruption and use of Govt. time and material by Govt. officials, with very little being done about it, even when it is brought to the highest authorities, who seem to desire that everything should be hushed up. The people in our vicinity have seen these things. The 334 -8carrying off of Government material by officials for their personal use, fishing parties at Government expense, just small incidents going on in many places. * Many people have said they will not buy War Bonds for the Government to waste, and stories have been around of people deliberately burning up their scrap in spite. # I have been employed by the Government as a guard and have reported to the Department of Justice a few of the unfair and corrupt practices going on at Fort Custis where I was employed, as I made no effort to shield the officials in question. I resigned, and as a result, have prejudice on my record. I did my duty for my country, sparing no crooked person who deliberately works against the interest of our country. # * # We are in this war to win, and if every one will drop personal gains we will soon come through with flying colors. E. A. Fletcher, Milwaukee, Wis. It is difficult to believe that you are correctly quoted in the enclosed clip- ping, when so many of our citizens could answer the question you were asked. The answer is -- put our Government on a sound financial base, and then the quetas will be promptly met. The farm bloc, the silver bloc, strikes, vacations, and all unnecessary expenditures should be wiped out at once. Unions and wages should be regulated. See that this is done and then you can sell our Bonds. W. M. Bennett, Duluth, Minn. If you want to know the reason why lots of people aren't buying the War Bonds they should, read Senator Byrd's article in the present issue of the Reader's Digest. Our Government is still playing too much politics with this war, and until it stops, there will be plenty of people who won't fully support your Bond drive. * * Thus far, we are losing this war because our people are still being babied instead of being challenged with leadership which is it- self patriotic and self-sacrificing. We are willing to sacrifice, but our leaders haven't the guts to demonstrate, and then make the request. 335 -9-- Mrs. G. G. Williams, Oakland, Calif. I am told the peoples' letters are read by the Government Department receiving them, but whether that is true or not, I will be relieved to know. * ** Today I heard that you say the people are far behind in their Bond buying, and it disgusted me! My husband, along with thousands of to- day's war workers, signed up for a 10% deduction from his salary for Bonds. This was done almost two months ago, and with the understanding the deduction would start the third week in July. It is now the third week in August and this has not been done. Millions of dol- lars could have been in the Treasury just from the ship- yards in Richmond alone. And in how many other places this incompetence has taken place is only a matter of conjecture. Why blame the people when the blame can be laid at your very own door? This lack of interest, in- competence, or what have you, is appalling and I for one, resent being practically called a slacker on account of it. Why doesn't your office wake up and realize there is a war, and it should mean ACTION? Senator Alexander Wiley, Washington, D. C. As a result of the war effort, hundreds of thousands of American citizens are temporarily away from their home of residence. Many of these citizens, like myself, have purchased War Bonds away from the hometown. Quotas have been assigned to states, counties and municipalities, but when a citizen away from home buys a Bond, there appears to be no way that his home community can get credit on its quota for that purchase. Now why couldn't my community get credit on its quota for Bonds that I have purchased in Washington? When I purchase a Bond here, why shouldn't the seller give me, besides my Bond, a sales slip showing the purchase and showing also the name of the community which I desire to have credited for such sale? A Worker, Jamestown, N.Y. Am writing you in regard to Government Bonds which are not given out to us (Employees of "Morlin Rockwell Corporation") to date. I buy one - 10 - 336 $25 Bond ever two weeks. I have waited as long as six or seven weeks for my Bonds and have had three Bonds dated the same month and day. The morale is very low in this plant, due to this fact. One employee takes out one $25 Bond per week, and the Company held back for seven weeks, and the Bonds were all dated the same. J. C. Gault, Officers' Club, Ft. Leavenworth, Kans. About four months ago I made allotment of my pay through the Finance Officer, U. S. Army, for the monthly pur- chase of a War Bond ($37.50). These Bonds were to be in the name of myself and/or wife, Eleanor, and mailed to her. To date, no Bonds have been received. * H. B. Lundberg, Lundberg Screw Products Co., Lansing, Mich. We are in receipt of your circular letter regarding payroll savings plan. # # We are a small company and have a payroll of about $60,000 per month, and buy approximately $6,000 worth of Bonds per month for our employees. We may have some difficulty keeping the plan up unless some way can be found to deliver Bonds more promptly after they are paid for. My name is Donald Perry and I am eleven years old, and I live in Onset, Mass. This summer I have been shining shoes. I charge the soldiers of Uncle Sam 5g per shine and the citizens 10c. I have saved all my money until I had enough to buy one Bond. On my birthday, which was August 25, my mother took me to the Onset Post Office to buy the Bond. The postmistress told my mother that she was too busy, that there were nine or ten ahead of me - although there was no one in the Post Office at the time - and to come in the following day. I was brokenhearted and returned home without my Bond. I thought Uncle San needed my money to help win this war, and that the postmasters would never be too busy to sell us Bonds. - 11 - 337 Gerald Millen, Vice President, Marine & Shipbuilding Workers of America, River Rouge, Mich. When we started our Victory Bond drive at the Great Lakes Engineering Works in River Rouge, about one-third of the employees were subscribing to the payrool deduction plan of buying Bonds. Now we are 100% and are flying the Treasury Minute Man Flag. The Bonds are sent to the employees through the Manufacturers National Bank of Detroit, but it takes approximately six to eight weeks after the Bond is paid for, before they are received. This is not satisfactory to the majority of employees, and we have asked the company to handle the Bonds directly through their office. They have refused to do this, and we would like your office to advise whether or not the company can be compelled to issue the Bonds. Abner G. Saul, Fairfield, Alabama. I am enclosing & folder handed me by my bank teller this morning, showing a revised schedule of service charges to be made by the members of the Birmingham Clearing House Association beginning October 1, 1942. The writer believes that this increase of service charges will have a tendency to decrease the amount of War Bond sales, since the average small depositor whom you are trying to reach with your various selling campaigns is going to find it more economical to leave his funds on deposit with the bank in order to reduce his service charges, rather than put that money into Bonds. 338 - 12 Comments on Bond Rally Held at Treasury Miss Molly Geiger, Washington, D.C. A friend of mine and I were down town today to buy Bonds, and incidentally to see and hear the stars at the Treasury Building. Due to the gross mishandling of the crowd, we were able to do neither. # # * The first half hour we made progress, about twenty feet. Then the people, some of whom were there to buy Bonds, started coming in full force. The line, which you could only tell was there by asking, was gradually disappearing in the crowd. We were still twenty feet from where we started. More people came and the line was further jostled until it was unrecognizable. Then the stars came. From then on we were pushed until we were in the street below the South Entrance to the Treasury. Still no sign of a Bond buying booth, and people asking all over where the line to buy Bonds had disappeared to. We were packed in that crowd like sar- dines until we pushed our way out along with innumerable other prospective Bond buyers, who were sick of the whole thing, and said so. * # # We had expected to find a rope to keep the line separate from the people who were just down to see the stars, and a sign stating the purpose of that line. Also, we had expected to find several people making out receipts for Bond purchases, or perhaps there were, we didn't get close enough to find out. In fact, I have never seen such poor management of a mass meeting or rally before in my life. For certain, I know of three Bonds that were not purchased, and I have knowledge of a large number of others. I hopezihat this sort of mismanagement is not the standard, because if it is, I think you will defeat the purpose of these rallies. C. G. Abbey, Geneva, N.Y. My opinion is that if YOU and other highly paid Government officials would spend the time you employ in having your picture taken surrounded by Hollywood Hams, in other activities, the war news wouldn't be so depressing. If we are to depend on the influence of Hollywood bigamists, we'd better throw in the towel. Let's stop PLAYING or we're liable to get hell knocked right out of us. 339 - 13 Favorable Comments on Taxation A Taxpayer (Mailed from New York City). The present idea of a so-called "spending tax" is merely a camouflage for a much needed Sales Tax, which you and the administration have consistently opposed. Why not face the problem fearlessly and honestly, and urge the Congress to give us a Sales Tax so that the great mass of our people with small incomes, and who furnish the largest way? # #reserve of taxes, may be reached in a big B. W. Wells, Real Estate & Loans, Benton Harbor, Mich. # * I have been in banking nearly all my life, and have given much study on the subject of a heavy gaso- line tax, say 25g per gallon. It would raise a huge sum, conserve tires as well as cars, and the people who would pay it could afford it. I have thought so much about It that I took some cards, sat down and put one name on each card - I had 128 cards when finished, all the people that I was well acquainted with. Then I discarded until I had just 100, which I thought was a good cross section of this county. When I had finished talking with these people - I had seen 87 - my notes showed more than 80% would not object. Julian Nehring, Two Rivers, Wis., has appointed himself a volunteer Tax Collector. He sends Money Order for $1.00, list showing payments of 1g to 12c, and says, "Just a few lines in regard to the attached list of Federal tax I collected on such as cosmetics, shampoos and lotions. The people were willing to help and pay this Federal tax. I think this is very nice of these people who want to help the war cause along. I do this work at spare time, my health won't permit fulltime work. I don't make much money but it all helps to keep us living. * * * Mr. Morgenthau, don't you think it would be a good idea to give this list of people a little radio program? 340 - 14 Joseph J. Klein, (Certified Public Accountant), N.Y.C. I share with other tax specialists, chagrin that a business man, rather than a member of our fraternity, originated and formulated the most constructive Federal tax reform since the inception of the present Federal income tax laws in 1913. I write to urge adoption of the fundamental principle in the Ruml "pay-as-you-go" (I prefer to call it: 'pay-as-you-earn') plan. In what follows, I shall briefly as possible indicate (1) how objections voiced against the plan can be met fully, and (2) the indisputable national advantage of the plan as I suggest modifying it. (Itemizes suggestions.) * # In conclusion, I urge that the fundamental merit of the Ruml plan be utilized and that solutions be sought, and I am confident that they can be found, - for the relatively minor shortcomings which Treasury officials, in their laudable desire to safeguard the revenue, have pointed out. Louis Sussman, (Certified Public Accountant), N.Y.C. I have been following with a great deal of interest the press releases concerning the deliberation of the Senate Committee on the Ruml plan. It is obvious that the theory of the plan, fundamentally, has been received quite favorably, and that many persons vitally interested in the taxation problems of our Government have openly ex- pressed their wholehearted approval of what this plan will accomplish. I note that the one strong objection that has been raised thus far concerns itself with the "windfall" that may come to certain few taxpayers whose income in-1941 will have been greater than their respec- tive earnings for 1942. My suggestion for removing this objection is simply this. I propose that the income tax for 1941 and 1942, respectively, be considered as a single proposition, and that the taxpayers shall be obli- gated to the Government for either the 1941 tax or the 1942 tax, whichever is greater. It is my opinion that no taxpayer whose case may fall into the latter category can reasonably object to this proposal. 341 - 15 Ada W. Yerkes and Robert M. Yerkes, New Haven, Conn. We want to know what our obligations are to be. You owe the nation a good tax bill which shall yield large returns with minimal injustice and shall also safeguard us against inflation. It is long overdue. We favor a Sales Tax, or some better method, of vastly extending the tax base. The personal income tax alone is inadequate. Better methods to tax the machine must be devised. We favor strongly the RumI plan for tax payments as having many important advantages and rela- tively few defects. It should be adopted. O. F. Kelley, President, Boonville Mills Co., Boonville, Mo. I was surprised to learn today that the only bank in this small community cannot find that they have had any orders for Series A Treasury Tax Notes this year. While Congress is worrying about some plan to cancel certain 1942 income taxes, it should be brought forcibly to the attention of that group that instead of such action, they should make it compulsory upon all income taxpayers to regularly buy Series A for those whose taxes may not exceed the permissible limit of this note, and Series B for the remainder, to get our people on a payin-advance basis, instead of talking about cancelling accrued taxes. I think the people of this country have more confidence in logical tax recommendations made by career men in the Treasury Department than in all the proposals made by all of the spineless politicians who have been elected to office. Claudius O. Johnson, The State College of Washington, Pullman, Wash. Your statement before the Senate Finance Committee that the American people are ready to make sacrifices and will stand for a tough tax program is, in my opinion, absolutely correct. I have mingled con- siderably with the rank and file of American people during the last few months, and that is the reaction I get everywhere. Quite as important as a tax program is a Bond selling program, as you so well know. Surely you will not attempt to maintain that present Bond selling plans are very ambitious ones; nor would 342 - 16 you maintain that the present Bond plans are operat- ing satisfactorily. Is it not true that we are not selling enough Bonds to the public, and that the people who ought to be buying them are, on the whole, not doing so? Every intelligent person with whom I talk, and who has given anythought to this program of financing the war, agrees with me that we should have a compulsory Bond buying program. The question is, when should such a program be launched? My answer is that it should be launched now. The American people don't care a rap about the November elections, and they are thoroughly disgusted with public officials whom they suspect of being concerned about the November elections. What the American people want is action -- action which requires of them some immediate sacrifices. 343 - 17 Unfavorable Comments on Taxation Gertrude Chase, City Coal & Coke Company, Detroit, Mich. For God's sake, why don't you put on a Federal Sales Tax and get away from all the monkey-doodle nonsense? Are you afraid of the CIO and the Farm Bloc? Yes. The working man is spending money like a drunken sailor, and never saves a penny. # * * Why not cut out the politics and get down to brass tacks, and save the dividends for the widows, etc? After all, it is not all the wealthy class that own stock - check your General Motors roster for once and find out. Courage brother, put it on ! Miss H. Frances Lewis, Superintendent, Association for the Blind of Rochester, Rochester, N.Y. I am writing you in behalf of a group of citizens who may very well be classified as "forgotten". They are the workers in private charitable organization who have nothing to look forward to in the way of Social Security, nor to any pension or retirement fund, such as are granted City, County, State and Federal employees who are doing simi- lar welfare work. As a group, we have been rather patient, especially in view of the fact that we pay our full quota of income taxes, both Federal and State, some of which may presumably be expected to help pay old-age benefits to employees of both departments. In view of the above facts, we are wondering if some slight exemption might not be made on income taxes to those who could prove they were so employed. # # Mrs. Peter A. McFarlane, Seattle, Washington. My husband and I are both employed. We have a son four years old. This necessitates our having a housekeeper, as you can readily understand. * # I have no objection to married couples who have no children being forced to file joint income tax returns, nor do I object to paying 19%, 25%, or even more of my income, if it becomes nec- essary to do so to win this war, but I do seriously 344 - 18 object to married couples with children having to file joint income tax returns, and especially do I object to having to pay income tax on the $480 per year which I have to pay a housekeeper for taking care of my child so that I am able to work. This amount is a total loss to me, to say nothing of the additional $420 per year for room and board, yet it is not deductible from my income because the housekeeper is not a blood relative, although I am her sole support. For some time now, I have been buying a $50 War Bond each month, but will certainly be unable to continue doing * so. Katherine M. Stanfield, Stanfield Ranch, Echo, Oregon. I am owner and operator of an eleven hundred acre ranch and being an old maid, have a few ideas about income tax for single women. Since I maintain a household and home, the same as any married couple, I feel there should be the same exemptions for all single people in my posi- tion. On the other hand, I feel that the farm laborers whom we employ and pay four and five dollars a day, plus board and room, should have to pay a tax. Because they are a floating population, this makes a difficulty. However, if you passed a law forcing all farmers to collect a certain percent of all pay checks and turn them in, it would solve the problem and bring in a great additional revenue. Most of these people squander their wages each Saturday night in town. Defense projects have forced labor up to an impossible level for agriculture. The cost plus on such projects is a wrong method for a sane and stable Government. No doubt a simple farmer like me should not express all these ideas. But when you are from the original founders of this nation, you want justice and right. W. G. Campbell, Rutland, Ohio. (Federal Security Agency). On August 20, a representative of the Bureau of Internal Revenue, who stated he was Mr. R. McNeal of Athens, Ohio, called at my home in Rutland, Ohio, demanding my 1942 Chrysler Sedan because of a delinquent income tax payment 345 - 19 of $55.00. My wife explained that I was in New York on official business, and refused to surrender the keys to Mr. McNeal. He threatened to arrest her on the spot, stating, "I am a Government man and either you will give me the keys or I will personally see that you go to the penitentiary for resisting an officer. * On further refusal to give up the car, Mr. McNeal departed, returning approximately two hours later with two men, one of whom stated he was a Deputy Marshall, (but inquiry proves that this man is a constable in a Justice of the Peace's office about 40 miles from here, and not a U. S. Marshall as he and Mr. McNeal repre- sented.) Mr. McNeal took a piece of pipe and an axe and proceeded to break the garage door and lock, gaining access to the automobile and departing from the house with it. # I have learned that McNeal turned this car over to the finance company handling my car, with instructions to sell the car for $800, and pay the income tax payment of $55 to him. It is my belief that this agent should be instructed to immediately return this automobile to the status in which it was found, and be further instructed to repair the garage door lock and door which he broke. I shall await your an swer before filing any charges of destruction of property against Mr. McNeal, or before asking the arrest of the aide to Mr. McNeal on the charge of impersonating a Federal officer. L. C. Kostler, Secy.-Treas., The Indoor Baseball Association, Amherst, Ohio. * # Inasmuch as the State of Ohio issued an exemption from payment of admission tax on the U.S.O. Benefit, we did not then charge 10% for Federal taxes, not doing so because we felt that such a worthy cause would obviously be exempt. After turning over the entire proceeds to the U.S.O., we have been notified that the Federal Bureau insists upon payment of the tax. As the enclosed statement and check indicates, we have con- formed with your requests by having appropriated money from our own treasury to pay the $31.15 tax. The 550 employees of this organization (The U. S. Automatic Corporation) who were first in the county to subscribe 100% for the 10% Bond Deduction Plan, 100% for the Paralysis Drive, 100% for the Red Cross, and 100% for the Community Fund, the mental reservations which they have about the payment of this tax, we leave to your imagination. 346 BRITISH AIR COMMISSION - 1785 MASSACHUSETTS AVENUE WASHINGTON. D.C. TELEPHONE HOBART 9000 PLEASE QUOTE REFERENCE NO With the compliments of British Air Commission who enclose weekly Statement No. 67, covering Aircraft Flight Delivery as at September 1, 1942. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury WASHINGTON, D. C. September 4, 1942. U. S. SECRET 2 CONFIDENTIAL REPORT REF. NO. D-55 BRITISH MOST SECRE LOCATIONS OF OCEANIC FLIGHT DELIVERY AIRCRAFT -- WEEKLY REPORT NO. 67 (Covering Movements through September 1, 1942) 1. FORTRESS I (B17C) off Boeing Contract A-5077 20 DELIVERED TO U.K. 2a LIBERATOR TYPES off B.A.C. Contracts A LB30A(B24) off Consolidated Contract A-5068 6 DELIVERED TO U.K. (assigned to forry service) (B) LIBERATOR I (B24A) off Consolidated Contract Z-677 19 DELIVERED TO U.K. 1 under repair 20 (c) LIBERATOR II (824) off Consolidated Contract F-677 (a) Never taken by U.S.A.A.F. 56 DELIVERED TO U.K. 5 DELIVERED TO M.E. (1 crashed in Africa) 2 in Ferry Service (delivered to Montreal) at Montreal 65 (b) Taken by U.S.A.A.F. and Returned or Kept 14 DELIVERED TO U.K. 6 in Forry Service (delivered to Nontreal) 1 at Montreal 1 at Detroit 2 on special duty 6 retaken by U.S.A.A.F. 46 kept by U.S.A.A.F. 74 3. HUDSON Y (LONG RANGE) off Lockheed Contract A-17-9 174 DELIVERED TO U.K. 42 DELIVERED TO DEBERT 1 in R.A.F.F.C. Training (at North Bay) 1 at Montreal 2 under repair 5 crashed (2 in U.S., 3 after export) 225* *Excluding one crash written off by contract amendment. SUPPLEMENTARY (not included in table at and of report) SHORT RANGE HUDSON y off A-17/9 168 DELIVERED TO U.K. (by sea) 6 DELIVERED TO NEW ZEALAND (by sea) 1 flight delivered to Canada (at Debert for training) 1 returned from Canada for repair 6 lost at sea 182# *Excluding one crash written off by contract amendment. 4a HUDSON III off B.A.C. Contracts (A) Lockheed Contract A-67 (LONG RANGE) 46 DELIVERED TO U.K. 4 crashed (after export) 50* *Including "Gift Plane" SUPPLEMENTARY (not included in table at end of report) SHORT RANGE HUDSON III off A-67 29 DELIVERED TO U.K. (by sea) 1 Resident at Lookheed plant 30 Page 1. September 2, 1942. SECRET CONFIDENTAIL REPORT REF. NO. D-55 BRITISH LOCATIONS OF OCEANIC FLIGHT DELIVERY AIRCRAFT - WEEKLY REPORT NO. MOST SECR (Covering Movements through September 1, 1942) he HUDSON III off B.A.C. Contracts - Cont. (B) Lockheed Contract A-68 (LONG RANGE) 211 DELIVERED TO U.K. 3 DELIVERED TO DEBERT 1 at Detroit 20 for U.S.A.A.F. Familiarisation Program (including 1 known crash) 10 crashed (after export) 245 Excluding two orashed written off by contract amendment. SUPPLEMENTANT (not included in table at and of report) 30 RANGE) DELIVERED TO NEW ZEALAND (by sea) 71 (SHT 2ANGE)DELIVERED TO U.K. (by nee) 5. VENTURA (83%) (A) off Year Contract A-346 (a) LONG RANGE 100 DELIVERED TO U.K. 1 in Iceland 2 at Gander 37 DELIVERED TO PENNFIELD RIDGE 14 at Montreal 70 departed Miami 8 at Detroit (including 7 for Miami or West Palm Beach) 6 at Miami or West Palm Beach 7 on route Miami or West Palm Beach 1 on special duty (Wright Field) 8 taken by U.S.A.A.F. 14 crashed (3 in U.S., 11 after export) 268 (b) SHORT RANGE 8 DELIVERED TO PERNFIELD RIDGE 6 at Mentreal 2 at West Pala Beach 2 at Detroit 18 SUPPLEMENTARY (not included in table at and of report) 10 (SHORT RANGE) DELIVERED TO U.K. (by sea) (B) off Yes Contract A-1718 (LONG RANGE) 24 DELIVERED TO U.S. 2 in Iceland 3 at Gander 5 DELIVERED TO PENNFIELD RIDGE 3 at Montreal 43 at Detroit 11 on route Detroit 243 taken by U.S.A.A.F. 334 6. FLYING BOATS (A) off B.A.C. Contracts (a) CATALINA I (28-5ME) off Consolidated Contract A-2587 7 DELIVERED TO U.K. (b) CATALINA I (28-SME) off Consolidated Contract F-210 38 DELIVERED TO U.K. 1 DELIVERED TO AUSTRALIA 1 DELIVERED TO SINGAPORE 40 (a) CATALINA I (28-54) off Consolidated Contract A-37 42 DELIVERED TO U.K. $ DELIVERED TO SINGAPORE 8 at Dartmouth 1 at Baranda 59 September 2, 1942. Page 2. 349 U. S. SECRET CONFIDENTAIL REPORT REF. NO. D-55 LOCATIONS OF OCEANIC FLIGHT DELIVERY AIRCRAFT ITS (Covering Movements through September 1, 1942) MORE NOLD MOST SECRET 6. FLYING BOATS - Contd. (A) off B.A.C. Contracts - Cantd. (a) CATALINA I (28-5VR) off Consolidated Contract AUS-58 17 DELIVERED TO AUSTRALIA 1 DELIVERED TO U.K. 18 (a) CATALINA IIA (28-5MC) off Consolidated Contract CAN-78 17 DELIVERED TO U.K. 9 DELIVERED TO AUSTRALIA 1 in Bernuda 2 crashed (after export) 29 SUPPLEMENTARY (not included in table at and of report) 7 DELIVERED TO CANADA (B) off Lend-Lease Contracts. B.S.C. Requisitions (a) CATALINA III (PB75A) off B.S.C. Reg. 10772 10 DELIVERED TO U.K. 2 at Montreal 12 (b) CATALINA IB (PBY5B) off B.S.C. Reg. 1/8 33 DELIVERED TO U.S. 6 at Gander 2 at Montreal 2 in Bermuda 38 at Elisabeth City 1 crashed (after export) 82 7. LODESTARS off Land-Lesse Contract AC-53. B.S.C. Reg. 1049 (a) Lodester IA (0-59) 7 departed Mismi or West Palm Beach 3 taken by U.S.A.A.F. 10 (B) Lodestar II (0-60) 15 departed Miami or West Pala Beach 8. HUDSONS OFF LEND-LEASE CONTRACTS (A) KUDSON IIIA (A29) off AC-5 130 DELIVERED TO DEBERT 2 in R.A.F.F.C. Training (at North Bay or Montreal) 1 at Mentreal 2 at Montreal for Debert 2 at Ottawa 1 at Detroit for Debert 1 at Nashville (transition) 4 under repair 2 at Long Beach 32 for China 20 divorted to U.S. Navy 153 taken by U.S.A.A.F. 6 crashed (5 in U.S. 1 after export) 356 SUPPLEMENTARY (not included in table at end of report) 49 DELIVERED TO AUSTRALIA (by sea) 12 DELIVERED TO NEW ZEALAND (by sea) 61 Page 3 September 2, 1942. SECRET CONFIDENTIAL REPORT GE. NO. D-55 BRITISH MOST SECRET LOCATIONS OF OCEANIC FLIGHT DELIVERY AIRCRAFT - WESKLY REPORT NO. 67 (Covering Movements through September 1, 1942) 8. HUDSONS OFF LEND-LEASE CONTRACTS - Cont. (B) HUDSON IIIA (A29) off AC-151 184 DELIVERED TO U.K. 1 at Gander 4 in R.A.F.F.C. Training (at North Bay or Montreal) 2 at Montreal 1 at Detroit 1 at Nashville (transition) 2 at Long Beach 2 for China 14 crashed (3 in U.S., 11 after export) 211 SUPPLEMENTARY (not included in table at end of report) 45 DELIVERED TO AUSTRALIA (by sea) 42 DELIVERED TO NEW ZEALAND (by sea) 1 crashed (on acceptance flight) 88 (c) HUDSON VI (A28A) off AC-671 31 DELIVERED TO U.K. 8 in R.A.F.F.C. Training (at North Bay or Montreal) 44 departed Miami 8 at Miami (for training) 1 at Miami or West Palm Beach 1 at Detroit 1 taken by U.S.A.A.F. 1 crashed (after export) 95 SUPPLEMENTARY (not included in table at and of report) 4 exported to New Zealand (by sea) (D) HUDSON VI (A26A) off AC-906 18 DELIVERED TO U.K. 5 in R.A.F.F.C. Training (at North Bay or Montreal) 33 departed Miami 35 at Detroit 2 on route Detroit 16 at Nashville 1 under repair 5 at Long Beach 30 taken by U.S.A.A.F. A crashed (2 in U.S., 2 after export) 154 9. BOSTON III A (A20C) off L/L Contract AC-934 2 at Detroit 3 on route Detroit 5 10. BALTIMORE IIIA(A30) off L/L Contract AG-19, B.S.C. Reg. 144 1 at West Palm Beach 11. DOUGLAS TRANSPORTS off B. S. C. Requisitions (A) DAKOTA II (C-53) off B.S.C. Reg. 1050 11 departed Miemi (B) DAKOTA I (C-47) off L/L Contract AC-167, B.S.C. Reg. 2489 1 departed West Palm Beach Page 4 September 2, 1942. SECRET CONFIDENTIAL REPORT REF. MO. D-55 MOST SECRET BRITISH LOCATIONS or OCKANIO FLIGHT DELIVERY AIRCRAFT -- KREKLY REPORT NO. 67 (Covering Movements through September 1, 1912) 12. FORTRESS (817) (A) FORTRESS IIA (R17)). Army Release 40 DELIVERED TO U.K. (modified) 2 at Montreal (modified) 1 at Detreit (modified) 2 on special duty (modified) 12 taken back by U.S.A.A.F. (in April) 6 taken back by U.S.A.A.F. (in June) 61 (B) FORTRESS II (B17 F) off L/L Contrast AC-16 6 at Cheyenne (modification center) 13. LIBERATOR III (B24D). Aray Release 11 DELIVERED TO U.K. (unmodified) 55 DELIVERED TO U.K. (modified) 4 in temporary South Atlantic Ferry Service (modified) 3 at Mentreal (modified) 6 at LaQuardia Field (modification center) 5 on route LaQuardia Field 1 at Fort Worth (modification center) 2 taken back by U.S.A.A.F. (in June) 3 crashed (unmodified) (2 on route modification center; 1 after export) 1 crashed (modified) (after export) 91 the MITCHELL I (B25B). Army Release 3 DELIVERED TO U.K. (modified) 8 at Montreal (modified); 1 for U.K., 10 to return to U.S. for re-modification 12 at Minneapolis (for re-modification) 23 15. MITCHELL II (B250). Army Release 87 DELIVERED TO U.K. (modified) 2 in R.A.F.F.C. Training (at North Bay or Mentrol 1 at Montreal 8 at Detroit (modified) 10 at Kansas City (modification center) 2 on route Kansas City 37 taken back by U.S.A.A.F. (June) 29 taken back by U.S.A.A.F. (April) 164 16. MARAUDER I (B26A) Army Release 1 at Gender (modified) 4 at Montreal (modified) 40 departed Miami (modified) 17 at Miami or West Palm Beach (modified) 2 on route Miami or West Palm Beach (modified) 2 at Nashville (modified) 6 crashed (in U.S. 2 on route modification center; % after modification) 7I AIRFRAMES DIVISION PLANNING & PRODUCTION DEPARTMENT BRITISH AIR COMMISSION WASHINGTON, D.C. Page 5 September 2, 1942. BOXLY REPORT 10.67 REF. NO.P-55 Page 6 U.S. SOCIATIONS OF OCKANIC FLIGHT DELIVERY AIRCRAFT SECRET (Covering Movements through September 1,1942) 2 1 3 4 6 5 7 Fl'g POSITION 8 16 10 9 L/L September 2, 1942 A.R. 13 SECRET EMIDE MOST Doug. L/L L/L A.R. BATC L4b. Ned.III Yest, Posta Lister End. Best, Balt. Trans. B17 B24D B25B B25C B26A TOTAL UNITED KINGDOM MIDDLE EAST AUSTRALIA 20 95 174 257 124 148 233 66 40 1247 87 3 5 5 SINGAPORE DEBERT 42 27 27 9 9 175 130 3 PENNFIELD RIDGE 50 FERRY SERVICE 50 12 8 4 Iseland or Greenland 3 3 Gander or Goose 6 1 13 1 5 R.A.F.F.C. Training 19 1 Mentreal Ottain Dartmouth 23 1 3 4 22 2 54 8 2 5 1 3 4 2 2 Bornada Departed Missi or W.Pala Beach Niami or West Palm Beach 8 8 4 4 70 22 in route Miami or W.Pala Beach Detreit En route Detroit Nashville On special duty Klisabeth City Modification Centers En route Modification Centers 82 12 9 8 1 1 38 53 11 2 2 35 8 104 8 1 16 3 18 2 226 17 1 7 1 40 20 2 1 2 5 38 38 6 12 7 10 35 7 2 5 Long Beach 9 9 Under Repair For China 1 2 34 34 Diverted to U.S. Navy U.S.A.A.F. Familiarisation Taken or Retaken by U.S.A.A.F. 50 165 20 251 5 20 20 20 20 225 14 14 295 620 3 16 25 3 247 184 25 816 2 572 66 6 4 1 5 Crashed TOTALS 8 5 12 67 91 23 176 71 71 2859 353 SECRET by authority London ENCLOSURES Date 4 State RET BBM COPY No. (Classification) (For Record Section only) QBC/els MILITARY INTELLIGENCE DIVISION W. D. G.S. Great Britain MILITARY ATTACHE REPORT (Country reported go Government Finance I.G. No. Subject (Brief descriptive title) London From M.A. 5020 49974 4 September 1942 Date Report No. Source and degree of reliability: Official publication. Reliable 885.7 SUMMARY.-Hereenter careful summary of report, containing substance succinctly stated; include important facts, names, places, dates, etc. The figures given in this report supplement those previously given in our reports Nos.49504, 48576, 48168 and earlier reports on the same subject. They cover: Government Revenue and Expenditure, July 1942. Floating Debt, July 1942. Security Prices and Interest Rates, June and July 1942. Currency Circulation and Deposite in the Bank of England, June and July 1942. London Clearing Banks, June and July 1942. t.Wallace 9/19/42 copies: 12. Distribution by originator Master copy to MIS; 1 copy to MIS; 3 copies file Routing space below for use in M. L D. The section indicating the distribution indicate will place the number a check of mark copies in the lower case in part recipients' one should be box sent. in case The one message copy center only is of to the go Intelligence to him, or will Branch will draw a circle around than moreof the the box of the recipient to which the particular copy is to go. G-1 GHQ WPD G-4 G-3 x x A O.era Obled IB FL Bee MA Bee BE Air OR EE BE WE Comm x X Trans Rec Bee I 0-2 State ONI CID BBG Trees F.B.I A.W.C. Inf. Coord x P ADT T Bod 0.4.0 Ind.Coll Expert OLLA Tank Center Coord of ind ABW USW R.S. Boo. LA FE Bis. Cont. Diseases Field BEN Part x loss ASWA x x x CHIEFS OF ARMS AND SERVICES Inf. Cav. FA CAO AC CO Phil CO Pas on Haw AAF Sig. Armd Ord QM ows Med. Engr. (2) Attach at Enclosures: 49974 -1- SECRET SECRET (Classification) WAR DEPARTMENT O. a. (Her) Fin. 354 SECKET SECRET GOVERNMENT REVENUE AND EXI ENDITURE, b thousands. July 1942 Daily averages LONDON CLEARING BANKS, h millions THATLINA Revenue 3,427 Inland Revenue Customs and Excise 2,369 7,236 Total Ordinary Revenue Expenditure Supply Services not given Deposit and other accounts 1,122 Total deposite 3,263 England Money at call and short notice Bills discounted Treasury deposit receipts Advances to customers and other accounts Investments 7,188 Deficit July 2.14 3,264 Coin, notes, and balances with Bank of 13,499 14,824 Total Ordinary Expenditure June Current accounts Balances with other banks, etc. 355 342 147 132 292 273 543 607 800 796 4,038 1,075 129 104 FLOATING DEBT, b millions. July 1942 Weekly allotments of Treasury Bills, 75.0 weekly average a, BRYAN CONRAD Treasury Bills Lt. Colonel, Field Artillery 925.0 Market Assistant Military Attache 1,718.2 Other Mays and Means Advances nil By Bank of England By Public Departments CMA, American Enbasay, London. 4 September 1942. Forwarded 164.2 BBM 665.0 Treasury Deposits by banks 3,472.4 Floating Debt SECURITY PRICES AND INTEREST RATES June July 116.7 not given 119.3 104.3 112,5 107.3 Indexes of Security prices (August 1939 = 100) 3g % Mar Loan Industrial debentures Industrial ordinary shares Interest Rates 1.003 1.001 3g % Mar Loan 2.95 not given Industrial debenturos 4.04 4.04 Industrial ordinary shares 5.11 5.04 Treasury Bills, average allotment rate = Yields of: CURRENCY CIRCULATION AND DEPOSITS IN THE BANK OF ENGLAND June July 753 not given Notes and Coin Estimated circulation with the public, average, b millions Estimated circulation, 1935 = 100 Currency held by London clearing banks, average, L millions 209.6 146.6 From M.A.London Deposite in Banking Department of Bank England, 6 millions Total 188.5 11.2 130.4 Public Bankers Other accounts SECRET 46.9 Report No.49974 2 From K.A.Londam 199.9 10.7 140.7 48.5 4 September 1942 Report No.49974 -3- SECRET 4 September 1942 355 in TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 4, 1942. TO Secretary Morgenthau 7 FROM Ferdinand Kuhn, Jr. This strikes me as an unusually interesting and important report. I think you will want to read the summary and also the marked passages on page 7 and succeeding pages. 3. K 356 9.2.42 MERICANESTIMATES NTELLIGENCE REPORT OF THE ENEMY CONFIDENTIAL OFFICE WAR INFORMATION INTELLIGENCE COPY No. Ferdinand CONTENTS Summary page 1 Why We Fight page 3 Information about the Enemy page 6 Identity of the Enemy page 7 The Prime Enemy page 9 Appraisal of the Enemy's Strength page 11 The Enemy's Intentions page 14 Future Treatment of the Axis page 17 Conclusions page 18 Summary Two-thirds of the American public believe they have a clear understanding of why this country is at war. They tend to express their understanding of terms of positive and idealistic purposes. But their views lack definiteness and consistency. Americans tend to make a distinction between enemy governments and the peoples of enemy countries. Three-fourths of them say that the German government, rather than the German people, is our real enemy. Only threefifths distinguish the Japanese government in the same way. Despite the distinction observed between governments and peoples, Americans tend to characterize Germans and Japanese in terms of opprobrium. People are divided about five to three in believing that Germany, rather than Japan, is our prime foe. Germans are widely considered stronger than the Japanese, more directly responsible for the war and for Japanese aggression against us. In appraising the strength of the enemy, the American public shows certain evidences of wishful thinking. Three out of ten think that German generals and the German army are not loyal to Hitler. Four out of ten believe that the people of Germany are not behind their Fuehrer. And many who consider Germany united reason that its unity is based only on compulsion and fear. About half the people in the United States think that Germany's military strength has diminished since 1939 and an almost equal number believe that it is now inferior to the combined power of Russia and Britain. Approximately a third of the public thinks that German war production, includ- ing the output of the conquered countries, is less now than when the war began. And three-fourths of the people interviewed expressed the view that the German people today are getting less food than at the war's outset. Americans appear to have a vivid awareness of the ruthless treatment which Germany has meted out to the conquered countries of Europe. Accordingly, they anticipate in overwhelming numbers that similar ruthlessness would be accorded the United States were Germany to win the war. Neverthe- less, a substantial minority, nearly one-fourth of the whole population, still doubts that the Axis aims at world conquest; they think that Germans want to rule Europe and Africa, that the Japanese aspire to control only Asia and that North and South America will be left to the United States. In spite of the brutality which most Americans expect in the event of an Axis victory, they tend at this stage of the conflict to advocate leni- ent treatment of the enemy when the United Nations have won the war. They urge extermination or imprisonment of Nazi leaders. But, for the most part, they suggest that the German people be disarmed and policed, yet treated with kindness and generosity. -3- "We are fighting today for security, for progress and for peace, not only for ourselves, but for all men, not only for one generation, but for all generations. We are fighting to cleanse the world of ancient evils, ancient ills." - President Franklin D. Roosevelt, Message to Congress, January 6, 1942. AMERICAN ESTIMATES OF THE ENEMY To a people remote from its actual battlelines, even the greatest of wars inevitably remains, in some measure, an abstraction. Its issues are phrased in platitudes. The enemy is seen in simple stereotypes. But in total war - in a people's war -- a grasp of issues, an understanding of the enemy, are essential implements for victory. Men need to know what they fight for -- and what they fight against. Realistic appraisal of the task confronting them is their strongest armor. Why We Fight Most Americans today believe they have a clear awareness of why they are engaged in the present world war. But the definitions they offer show little consistency and a great deal of fuzziness. They constitute, perhaps, only a warm and patriotic loyalty to familiar American symbols. In the latter part of July, as part of a detailed study conducted for the Bureau of Intelligence by the Princeton University Office of Public Opinion Research, a national sample was asked the question, "Do you feel that you have a clear idea of what this war is all about -- that is, what we are fighting for?" Two-thirds of the sample answered this question in the affirmative. Three out of ten said "No". Four per cent expressed no opinion. The number of people believing that they have a grasp of the war's significance has increased markedly since the early part of June. When an "The true goal we seek is far above and beyond the ugly field of battle. When almost identical question was put to a cross section at that time, only 53 per cent answered in the affirmative. we resort to force, as now we must, we are determined that this force shall be People with better educational background are considerably more prone than those with inferior schooling to express the conviction that they know what the war is all about. Men are more likely than women to feel that they have a clear understanding. Economic status also appears to be a factor in this connection. The question was answered affirmatively by a much larger proportion of those in the upper income brackets than by those at the bottom of the economic ladder. When people who answered this question affirmatively were asked to define the aims for which we are fighting, more than half expressed posi- tive purposes. Perhaps inevitably, these were of a fairly vague nature. The most common responses were given in idealistic terms - such as freedom, liberty, democracy or American ideals. Some mentioned global aims. The other definitions offered were rather negative in nature; they reflected a more or less defensive view of the war. Some said we are fight- ing to get rid of Nazism and Fascism; others said that we are battling for survival. And a few felt that our purpose is to preserve or enhance our directed toward ultimate good as well as against immediate evil. We Americans are not destroyers - we are builders. We are now in the midst of a war, not for donquest, not-for vengeance, but for a world in which this Nation, and all that this Nation represents, will be safe for our children." Addresses by Vice President Wallace, Cordell Hull, Sunner Welles and Milo Perkins have spelled out these aims in varying degrees of concreteness and detail. This is a view of the war which American media of information have done much to foster. Editorial commentators in sympathy with the Administra- tion's foreign policy have consistently advanced the thesis that this country - is fighting, not merely in self-defense, but for the attainment of some better organization of society when the war is ended. They frequently stress the importance of "winning the peace, as well as winning the war." That portion of the press which has been "isolationist" in its point of view has, however, tended to ridicule post-war aims. It has insisted that the WILL" is defensive in nature - a response to aggression. And it has argued, along with a number of "interventionists," that the very consideration of positive or idealistic goals at this time constitutes an impediment to the prosecution of the war. economic and political power. Despite efforts to promote an acceptance of America's war aims in The tendency to regard the war as embracing positive and non- terms of long-range positive purposes, there appears to be a very large Materialistic aims is in conformity with the general tenor of governmental minority in this country which remains uninspired by then and unfamiliar with statements about the nature of the conflict. The most authoritative def- them. The failure of a full third of the public to feel any clear understand- inition of our purposes is that given by President Roosevelt in his radio ing of the nature of the conflict in which they are engaged must inevitably address of December 10, 1941, immediately after the Japanese attack upon us bazon be a serious deterrent to their full participation in the war effort. the interviews. It should be noted that together they comprise only a portion of the sample, since they fail to include those who scored a 50 per cent rating on the two information questions. Information about the Enemy The degree of information which Americans possess about the nature of the enemy is, of course, an important factor in determining their appraisal of him. Without a detailed test of information, the extent of this knowledge is difficult to determine. Responses given to a few questions will, however, shed some light on this subject. The "enlightened" group, as might be expected, has a such higher percentage of college graduates, the "unenlightened" a higher percentage of those with only a grade school education or less. There is also a marked distinction between the two economically. While only 33 per cent of the "enlightened" group were drawn from the lower income brackets, 70 per cent The Princeton research agency asked two information questions of the national sample to secure an indication of their knowledge about Germany. The first of these concerned the German Gestapo. Four-fifths of those interviewed said that they had heard of it, but, when presented with three names to choose from, only about half of these - 44 per cent of the whole of those catalogued as "unenlightened" were near the bottom of the economic ladder. Three-fifths of the "enlightened" group was composed of men, while three-fifths of the "unenlightened group was made up of women. The "enlightened," then, are apparently those who have had exposure to influences which have promoted something more than stereotyped concepts of the war. sample - were able to identify Heinrich Himmler as its chief. Respondents were also asked the question: "Which of these jobs do you think Joseph Goebbels has in Germany?" Their answers divided as follows: 63 the peoples of enery countries. The distinction is by no means a clear one. Nor has there been any clear and consistent policy on the issue in state- 23 For the sake of simplification, those who answered both of these questions correctly and who also asserted that they had a clear understanding of what the war is about were catalogued as "enlightened." Those who answered both questions incorrectly and confessed that they had no understanding of the war's nature were labeled "unenlightened." The views of the two groups were strikingly different in respect to almost all the questions asked in ments by officials of the United States. In its study for the Bureau of Intelligence, the office of Public Opinion Research asked the question, In the war with Germany, do you feel that our chief enemy is the German people as a whole or the German government?" The answers were divided as follows: People only People and government Government only No opinion 5% 18 74 3 Don't know 5% Americans tend to make a distinction between enemy governments and 9 (a) Foreign minister (b) Minister of Propaganda (c) Leader of Storm Troopers Identity of the Enemy -8In explanation of their point of view, the small group which named the German people as our enemy expressed the opinion that they are behind their government and, therefore, equally to blame. A number also said characterized both Germans and Japanese as "intelligent," only a few selected from the list such contemptuous terms as "unimaginative," "dull," or "lasy." that the Germans have always been a warlike people. In contrast, most of Description of the enemy peoples in such terms is scarcely consistent those who distinguished between the people and their government declared, with the tendency to distinguish these peoples from their governments. It when they were asked why, that the German people were forced by their leaders into fighting a war against their will. Patently, those who named people and government alike observed no distinction between them. Americans were not quite so prone to distinguish between the people of Japan and the government of that country. Only three-fifths of the sample singled out the government. One in 10 named the Japanese people alone, while a full quarter of those interviewed said that they considered our foe to be government and people alike. When Americans are asked to characterize the people of enemy countries, suggests, indeed, real and deep-seated hostility to the Germans and Jap- aneae - with a commingling of respect for their prowess as adversaries. The descriptives reflect plainly the conventional representations of the enemy appearing in our media of information, Newspaper cartoons commonly represent the Germans, as distinct from their leaders, in the role of stupid, brutish automations. They depict the Japanese in ape-like forms, dagger in hand and poised for treachery. It is doubtful that such stereotypes indicate any real awareness of the nature and motivations of the enemy peoples. In his message to Congress on January 6, President Roosevelt encour- they are prone to use rather obvious and common terms of opprobrium. Out aged the belief that the dictator governments, rather than their peoples, of more than a score of adjectives attributing a variety of vices and vir- are our foes. "The militarists in Berlin and Tokyo started this war," he tues to the German people, the one word most frequently chosen was "war- said, "but the massed, angered forces of common humanity will finish it." like." This descriptive was selected by 68 per cent of the people inter- In subsequent speeches, he has alluded to "the peoples" as misled or hood- viewed. More than half of the sample also chose two other words - "hard- winked, while stating that "the leaders" are guilty and the real enemy. working," which has sympathetic connotations, and "cruel," which clearly Other spokesmen of the Government have gone beyond indictment of the lead- expresses antipathy. Respecting the Japanese, the adjective most commonly selected was ers alone, separating Nasis from other Germans. And some have argued that the German people themselves are our real adversaries. "treacherous"; 73 per cent employed this term. Again, two other words were singled out by more than half of the respondents, both of them of a dis- paraging nature - "aly" and "cruel." While considerable minorities The Prime Enemy The American public seems inclined to consider Germany the principal enemy confronting us in this war. For purposes of comparison, this 10 11 subject was presented to the sample in two forms. Half of the respondents it is Germany, to the anti-Administration minority it is Japan. Editorial were asked, "Which country is the greatest military threat to the United attention before Pearl Harbor was, in very large part, directed toward States - Germany or Japan? Germany was named by 49 per cent, Japan by 31 per cent and both by 15 per cent. Germany; in the two or three months following, the attention shifted almost as strongly to Japan. More resently it has swung gradually back to a slim The other half of the sample was asked, "Which do you think the United preponderance toward Germany. States should consider its #1 enemy - Japan or Germany?" Only negligible differences appeared in the responses. Forty-eight per cent chose Germany, while 27 per cent chose Japan, 22 per cent said "Both" and three per cent Appraisal of the Enemy's Strength For a long period before the outbreak of war, American media of had no opinion. information tended to disparage the military strength of Germany, Italy nd The reason most commonly given for considering Germany a greater Japan. Not until the fall of France persuaded them that the German war threat than Japan was that Germany is the stronger of the two. Many who hold machine possessed enormous power did American commentators tend to present this view also reasoned that Germany is behind Japan and that she is respon- anything like a realistic appraisal of German strength. To an even greater sible for starting the war. Half of those who consider Japan the greater degree, media of information popularised the notion, prior to Pearl Harbor, threat supported their opinion by asserting that the Japanese manace is more that Japan was militarily and economically weak. immediate - a reason which may indicate some recognition that Germany is the ultimate foe, There are still vestiges of this sort of thinking. Commentators suggest now and then that German strength may be destroyed by raw material This view that Germany is our #1 enemy is held in much greater shortages and that German morale may crack because of a fundamental anti- proportions by those catalogued as "enlightened" than by those in the "un- pathy between government and people. Occasionally, too, the argument is enlightened" group. There is a direct relation between economic status and advanced that Japanese lines of supply are overextended and that the island the belief that Germany is a greater danger to America than Japan. Similarly, empire lacks the industrial resources to maintain a giant war machine for a people with better educational backgrounds were somewhat more prone to regard prolonged period. In general, however, press and radio no longer present Germany as enemy #1 than were those with inferior schooling. Men were more the Axis leaders as mere maniacs, but show then as cunning, vicious leaders prone than women to pick Germany as our principal foe. And older people of strong and disciplined peoples. any showed a slightly greater tendency in this direction than younger people. Who is the chief enemy - Japan or Germany - is a question to which the press presents no uniform answer. To the pro-Administration majority Although Government statements and the media of information have, since American entry into the war, urged recognition of the enemy as possessing power, endurance and resourcefulness, the earlier illusions respecting enemy 12 13 mess persist, to a considerable degree, in the public mind. There is rked tendency among Americans to believe, even today, that the German About half the people in the United States think that Germany's military strength has diminished since the war began in 1939. Three in and people are disloyal to their government, every ten think that this strength has increased; one in ten hold that it is When asked, "Do you believe most of the German generals are loyal to er?" three out of every ten members of the sample answered "No." In tion, one in every ten had no opinion on this topic. Equal numbers of sample doubted the loyalty of the German army. An even greater percentage of the American public - four in every thinks that the people of Germany are not behind their Fuehrer in about the same as it was before the fighting started, while an equal number express no opinion. 1890 The chief reason given for the view that German strength has diminished is that the Nazi war machine has suffered losses of nen and equipment. A few suggested that the Reich has been weakened by bombings, by the garrison- ing of occupied countries, by the failure to conquer Russia and by changes war. Eight per cent of those interviewed expressed no opinion in in the methods of warfare. The principal reason offered for the belief that connection. It should be noted, besides, that among the majority be- German strength has grown is that the conquered countries have added to ng that the German people are behind Hitler, the most common explana- Germany's resources. A number reason that experience gained in battle and offered in support of the opinion was that they are forced to be, or increasing war production have bolstered the Nasis' power. d to be otherwise. Indeed, no more than half of this group gave There is a prevailing belief, not only that German military might is na for their belief in Hitler's popular support which indicated aware- less than it was when the war began, but also that it is now less than the that the support is solidly based upon self-interest and conviction. combined power of Britain and Russia. The following answers were given to rongly united than are the "unenlightened." Those who are convinced rman unity are drawn disproportionately from the upper income groups, the question, "Do you think Germany's military strength today is greater or less than the combined military strength of Britain and Russia?" Greater atter educated (except in the lower income class), older people, Less stants, persons of American or occupied country origin, professional Don't know 30% 44 8 "Enlightened" people are much more inclined to believe that Germany Same 18 nd business executives, Those less convinced of German unity tend to About a third of the American public also believes that the arms from German, Italian or Russian background and are found particularly skilled and unskilled workers. There is &correlation, too, between elief that Germany'is the #1 enemy and the belief that the German e genuinely support their government. factories now under German control are producing less than the factories which Germany had when the war - first began. Slightly more than a third believe that the German output of war material has increased. Nearly a quarter of the population admitted frankly that they had no opinion on 14 this subject. Not many Americans have illusions as to the kind of treatment the It is in regard to the standard of living within Germany that Americans are most strongly persuaded that the enemy is weakening. Hore than three-fourths of those interviewed expressed the view that the German people today are getting less food than they were getting at the war's outset. Despite the occupation of defeated European countries, a mere six per cent of the people in America feel that the Germans have improved the food supply for their own population. country would suffer should the Nazia be victorious. The chart on the following page illustrates the division of responses to a series of questions designed to determine the kind of treatment Americans think they would receive from a victorious Germany. This expectation of harsh treatment from the Germans, if they should win, is undoubtedly based on a general recognition that the Germans have already dealt cruelly with the peoples of Europe whom they have defeated. People in this country appear to be fully sware of the fact that the Nasis The Enemy's Intentions are attempting drastic oppression of the French people and an even more The bulk of the American public appears to be persuaded that the Axis is engaged in a war for the conquest of the world. There is, nevertheless, a substantial minority which clings to the idea that our enemies desire only to divide the earth into spheres of influence, leaving the American continents to the domination of the United States. The Office of Public Opinion Research presented this question to the national sample interviewed in July: "Here are some statements telling which parts of the world Germany and Japan might try to rule if they win the war. Which one comes closest to your own opinion?" brutal enslavement of the Poles. When asked how they would describe the way in which the Nazis are treating Poles and Frenchmen, the people interviewed answered overwhelmingly in such terms as, "cruelly," "as slaves or "killing then." Only a very few suggested that the treatment was fair or reasonable for a defeated enemy. When asked to estimate what the Nasis intend to do with the Poles and the French, the prevailing opinions were that the Nasis desire to enslave them for the service of Germany or that they intend to control their countries and allow them to exist only as long as they serve Nasi purposes. (a) Just their own countries and the surrounding territories Radio, newspapers and magasines have given dramatic emphasis to the 3% (b) The Germans will rule Europe and Africa and the Japanese will rule Asia, leaving North and between them, including the United States Qualified answers Don't know 66 4 (c) They will divide the whole world pied countries. The story of Lidice was told and re-told. Similarly, our 23 media of information have stressed atrocity stories about Japanese treat- ment of American civilians and prisoners of war. But, although the Axis has 4 South America to us campaign of terror and intimidation waged by the Germane in Europe's occu- been presented as a composite of barbarisms, there has been little editorial suggestion that we should engage in nass reprisals. Commentators have been 17 HOW AMERICANS THINK NAZIS content to highlight the contrast between fascist and democratic behavior. WOULD TREAT US IF WE WERE DEFEATED Future Treatment of the Axis conta DO YOU THINK. NO The brutality which Americans expect from the Nazis is in marked contrast to the leniency which they now urge in dealing with the enemy when OPINION the United Nations have won the war. The distinction which they make be- YES NO they would keep on army here to tween the German people and their leaders becomes strikingly apparent in 88% police us? 8% 4% this connection. The sample was asked, "When the war is over, how do you think we should treat the Nasi leaders?" Nearly half of those interviewed answered "Kill them; do away with them." A few people suggested that they should they would make pay the cost 95% of the war 3 be tortured. A greater number urged that they be imprisoned, treated "harshly" or isolated and deprived of power. Only a very few suggested even the smallest degree of leniency for the Nasi leaders. they would kill Toward the German people, however, Americans as yet apparently feel some of our busi ness and polit- 88% 7% ical leaders' 5% no such rancor. The overwhelming belief was that they should be kept under control and prevented from re-arming, but that they should be treated with kindness. Some suggested that they be re-educated into democratic ways and a few urged that we help them reconstruct their country. Only one person would V have work for 91% the Nazis? 6% 3 in ten recommended killing the German people or punishing them severely. No more than two per cent of all those questioned spoke of reparations in connection with treatment of the defeated enemy. That such generosity will prevail when the ravages of war have been they would take our food away to they could starve us? 72% 20% 8% brought closer to the American people is, to be sure, extremely dubious. It seems significant, nevertheless, that at this stage of the conflict Americans refrain from blind hatred and remember the democratic principles for which they are fighting. 18 19 Conclusions A large measure of confusion plainly exists in the minds of the American people respecting the nature and magnitude of the war in which they are engaged. This confusion arices from uncertainty as to the scope and character of our war aims and from misunderstanding or underestimation of the real strength and nature of the Axis conspiracy against us. Nevertheless, when the consequences of defeat are presented as concrete pos- sibilities, Americans show a lively awareness of what they are fighting likely to lead to a spirit of vengefulness which will inevitably BOW the seeds of future conflict. Because Nasism is an abstraction, Americans tend, at this early stage of the war, to blame German leaders, rather than the German people. No such abstraction shields the Japanese. And since it is easier to hate people than to hate the ideas they represent, there is a dangerous possibility that American animus will be directed exclusively, on racial grounds, against the Japanese. against. When the views of the group characterized as "unenlightened" are A good deal of wishful thinking may be contained in the prevalent notion that the German army and people are not firmly united behind their contrasted with those of the group called "enlightened," the need for information directed toward the lower economic and educational levels be- Nazi leaders. Similarly, the belief that enemy strength has been seriously comes apparent. The "enlightened" people take a gloonier view of the cur- weakened by losses, by raw material shortages and by a scarcity of food rent situation than do the "unenlightened." But their morale is higher indicates an unhealthy lack of respect for the power of our adversaries. and healthier in terms of determination and awareness of the affirmative, There is fear of the enemy and a recognition that he intends to deal with us brutally. But there is little tendency among Americans to ac- as well as the negative, aspects of our war aims. Purpose is the foundation of strength. Americans need to have their knowledge that he has any real chance of achieving his designs. The fears purposes clarified and dranatised. They need to know that the achievement expressed are fears of what seem to be only exceedingly remote contingencies. of these purposes demands sacrifice and struggle - and also that the Although Americans are prone to distinguish between the enemy peoples and their governments, they reveal a susceptibility to hatred for Germans and especially for Japanese. They are liable to think of these people as possessing vicious characteristics. Their hatred needs to be directed. If it becomes enlightened hatred of the evil nature of the enemy's system, rather than an attribution of evil characteristics to the victims of that system, it can be made a potent instrument for the creation of a just and enduring peace. If the hatred is generalized and undiscriminating, it is achievement of them can bring real benefits to themselves. Sources of the Report This report is based on the following material; "The Nature of the Enerty, . confidential report prepared for the Bureau of Intelligence by the Princeton University Office of Public Opinion Research "Nature of the Enemy in American Media," special report by the Media Division, Bureau of Intelligence. "Who is the Enemy? Peoples? Or Regimes?" special report by the Division of Source Materials, Bureau of Intelligence