Full text of Diaries of Henry Morgenthau, Jr. : Volume 577 : Part 1

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DIARY

Book 577

October 8 and 9, 1942

Book Page
Adair, Tom - Corporal

See Financing, Government: War Savings Bonds
Airplanes

Shipment to British Forces - Hoflich report - 10/8/42.

577

- 0Canada

See Foreign Funds Control

Chiefs of Staff
See Joint Security Control
China

Adler reports on conversation with Kung concerning
current economic situation, Sino-American financial

relations, work of Stabilisation Board - 10/8/42

Federal Reserve Bank of New York, as fiscal agent,
reports on dollar exchange supply of Central Bank of
China - 10/9/42
Correspondence

Mrs. Forbush's mail report - 10/9/42

170
157

Costa Rica

See Latin America
"Country Gentleman"
See Financing, Government: War Savings Bonds

-DDiplomatic Pouches - immunity of
See State Department

-BEconomic Stabilization, Office of
See Inflation

-FFinancing, Government

$4 Billion Borrowing:

Announcement - 2% Treasury Bonds, 1950-52, and an

additional amount of 18% Treasury Notes of Series B,
1946 - 10/8/42
a) Sproul-HMJr conversations - 10/8-9/42
1) Eccles told "bond issue not yet sure
success" - 10/9/42

2) Walter Stewart told of situation at
6:30 P.M. - 10/9/42

19.21.106,
120,123
109.115.126
131

a) Shall Eccles instruct presidents of

Federal Reserve Banks to call larger
commercial banks to subscribe or shall
Federal Reserve System put in

subscriptions for deficit immediately?
3) Eccles told of Stewart's opinion
b) Bell's report - 10/8/42
(c) Closing of books - 16/9/42

142,148
25

- I - (Continued)

Book Page

Financing, Government
Var Savings Bonds:

State Administrators - proposed meeting:
Conference: present: HMJr, Graves, Kuhn, Gamble,
and Odegard - 10/8/42
Tentative agenda - 10/8/42
"Country Gentleman" pamphlet criticised by HMJr -

577

10/9/42

Adair and Uhl thanked for songs - 10/9/42
Payroll Savings Plan - report on - 10/9/42
Fiscal and Monetary Advisory Board
Letter (not sent) recommending re-establishment discussed
by HMJr and White - 10/8/42

151,152
153

30-A

Foreign Funds Control
Canada: Bank balances of Canadian nationals resident in

Canada - Treasury will furnish information to

Canadian Legation - 10/8/42
Ship Movements: Investigation of Swiss insurance

companies reveals dissemination of vital information
in normal course of business operations - 10/9/42
Frankfurter, Felix
Address at inauguration of president of College of City
of New York - 10/8/42

177

-GGoldman, Nahum

"Who's Who" - 10/9/42

156

-IInflation
Economic Stabilization, Office of
Regulations for $25,000 salary limitation - Byrnes-Treasury
correspondence concerning - 10/8/42
a) "Sum of salary and bonus in 1942 should not

exceed total salary and bonus in 1941 if sur

in 1942 exceeds $54,000 - Sullivan memorandum
recounting hardships - 11/5/42: See Book 581,
page 215

-JJoint Security Control

176

Membership - 10/8/42

-LLatin America

Costa Rica: Ness (Norman D.) available to advise Treasury
concerning taxation and general fiscal policy - 10/8/42.
Mexico: Railroad equipment used in United States - report
on protection of - 10/9/42

219

- L - (Continued)
Book

Page

Lend-Lease

U.S.S.R.:

Materials available from storage and production,
October 1942 - copy sent by HMJr to FDR - 10/8/42.
Over-all report also prepared for FDR - 10/8/42
a) Chart: "Time taken to place orders for Lend-Lease

industrial supplies for U.S.S.R."

577

48
51

United Kingdom:

Reconstruction Finance Corporation reports on $425

million loan - British have used $390 million 10/8/42

10/8/42

Federal Reserve Bank of New York statement showing
dollar disbursements, week ending September 30, 1942 -

-MMexico

See Latin America

Military Reports
British operations - 10/8-9/42
Hoflich summary - 10/8/42
"The War This Week, October 1-8, 1942" - Office of
Strategic Services report
Pacific Naval Losses - United States and Japanese:

Hoflich report - 10/9/42
Office of War Information report - 10/9/42

77.78.221
80

222
227

-NNess, Norman D.

See Latin America: Costa Rica
-R--

Railroad Equipment

See Latin America: Mexico

Revenue Revision

Revenue Act of 1942: Congressional proceedings on
continuing exemptions - Congressional Record, October 8,
1942

-SSecret Service

HMJr's whereabouts not to be revealed by officer stationed

at entrance unless HMJr specifically instructs him -

10/9/42

Security Control, Joint
See Joint Security Control

102,104

- S - (Continued)

Book Page

Ship Movements

See Foreign Funds Control

Stabilisation Fund
Statement for August and September, 1942 - 10/8/42
State Administrators

577

See Financing, Government: War Savings Bonds

State Department

Diplomatic Pouches - immunity of:
FDR checks with HMJr on success of search 10/9/42

FDR checks with HMJr before talking to Welles
a) FDR concoats "story" to be used when search

101-A
101-B

is called off

1) Return of pouches in New Orleans described
by Gaston

Switzerland

For investigation of insurance companies, see Foreign
Funds Control: Ship Movements

-T$25,000 Salary Limitation

See Inflation: Economic Stabilisation, Office of

-UUhl, Richard - Sergeant
See Financing, Government: War Savings Bonds
U.S.S.R.
See Lend-Lease
United Kingdom
See Lend-Lease

--War Savings Bonds
See Financing, Government

101-D

10/7/42
1

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Thursday, October 8, 1942.
10/7/42

Press Service
No. 33-53

Secretary of the Treasury Morgenthau today announced the

offering, through the Federal Reserve Banks, for cash subscription at par and accrued interest of 2 percent Treasury Bonds of
1950-52, and an additional amount of 1-1/2 percent Treasury
Notes of Series B-1946. The aggregate amount of both issues
will be $4,000,000,000, or thereabouts, and the proportionate
amount of bonds and notes to be issued will be determined by
the relation between the total subscriptions received for each

and the total subscriptions received for both. In order to insure widespread participation of banks, corporations and others
who may be interested, and for the convenience of investors, the
subscription books for each issue will remain open two days,

that is, through Friday, October 9. There will be no restrictions as to the basis for subscribing for either the bonds or
the notes.

The Treasury Bonds of 1950-52, now offered for subscription,

will be dated October 19, 1942, and will bear interest from that
date at the rate of 2 percent per annum payable semiannually with
the first coupon due March 15, 1943, for a fractional period. The
bonds will mature March 15, 1952, but may be redeemed, at the
option of the United States, on and after March 15, 1950. The
bonds will be issued in two forms: bearer bonds with interest
coupons attached, and bonds registered both as to principal and
interest. Both forms will be issued in denominations of $100,
$500, $1,000, 35, ,000, $10,000 and $100,000.

The notes now offered will be an addition to and will form
a part of the series of 1-1/2 percent Treasury Notes of Series

B-1946, issued pursuant to Department Circular No. 686, dated

May 25, 1942. They are identical in all respects with such
notes with which they will be freely interchangeable. The notes
are dated June 5, 1942, and bear interest from that date at the
rate of 1-1/2 percent per annum, payable on a semiannual basis

on December 15, 1942 and thereafter on June 15 and December 15

in each year until they mature on December 15, 1946. They will
not be subject to call for redemption prior to maturity. They
will be issued only in bearer form with interest coupons
attached, in denominations of $100, $500, $1,000, $5,000,
$10,000 and $100,000

Pursuant to the provisions of the Public Debt Act of 1941,

interest upon the bonds and notes now offered shall not have any
exemptions, as such, under Federal Tax Acts now or hereafter en-

acted. The full provisions relating to taxability are set forth
in the official circulars released today.

Subscriptions will be received at the Federal Reserve Banks

and Branches, and at the Treasury Department, Washington. Bank-

ing institutions generally may submit subscriptions for account
of customers, but only the Federal Reserve Banks and the Treasury
Department are authorized to act as official agencies. Subscriptions from banks and trust companies for their own account
will be received without deposit, but subscriptions from all
others must be accompanied by payment of 5 percent of the amount
of bonds or notes applied for.
Subject to the usual reservations, and within the amounts
of the respective offerings, subscriptions for each issue for
amounts not exceeding $25,000 from banks which accept demand
deposits, and subscriptions in any amount from all other sub-

scribers, will be allotted in full; subscriptions for amounts

over $25,000 from banks which accept demand deposits will be

allotted on an equal percentage basis, to be publicly announced.
before October 19, 1942, or on later allotment. Payment for any
notes allotted must be made or completed on or before October 15,
1942, or on later allotment, and must include accrued interest
from June 5, 1942. (The amount of accrued interest from June 5
to October 15, 1942 is about $5.41 per $1,000.)

Payment for any bonds allotted must be made or completed on or

The texts of the official circulars follow:

UNITED STATES OF AMERICA

2 PERCENT TREASURY BONDS OF 1950-52

Dated and bearing interest from October 19. 1942

Due March 15. 1952

REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER MARCH 15. 1950

Interest payable March 15 and September 15

TREASURY DEPARTMENT,

1942

Office of the Secretary,

Department Circular No. 698

Washington, October 8, 1942.

Fiscal Service
Bureau of the Public Debt
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the

Second Liberty Bond Act, as amended, invites subscriptions, at par and accrued

interest, from the people of the United States for bonds of the United States,

designated 2 percent Treasury Bonds of 1950-52. At the same time the

Secretary of the Treasury is inviting subscriptions for an additional amount

of Treasury Notes of Series B-1946 under Department Circular No. 699. The
aggregate amount of both issues will be $4,000,000,000, or thereabouts. The
amount of bonds to be issued hereunder will be determined by the relation

which the total subscriptions for the bonds bear to the total subscriptions
received for both the bonds and the notes.

II. DESCRIPTION OF BONDS

1. The bonds will be dated October 19. 1942, and will bear interest from

that date at the rate of 2 percent per annum, payable on a semiannual basis on
March 15 and September 15 in each year until the principal amount becomes payable. They will mature March 15, 1952, but may be redeemed at the option of

the United States on and after March 15, 1950, in whole or in part, at par and
accrued interest, on any interest day or days, on 4 months' notice of redemption given in such manner as the Secretary of the Treasury shall prescribe.
In case of partial redemption the bonds to be redeemed will be determined by
such method as may be prescribed by the Secretary of the Treasury. From the
date of redemption designated in any such notice, interest on the bonds
called for redemption shall cease.
2. The income derived from the bonds shall be subject to all Federal
taxes, now or hereafter imposed. The bonds shall be subject to estate,
inheritance, gift or other excise taxes, whether Federal or State, but shall
be exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the possessions of the United
States, or by any local taxing authority.

-23. The bonds will be acceptable to secure deposits of public moneys,

but will not bear the circulation privilege and will not be entitled to any

privilege of conversion.

4. Bearer bonds with interest coupons attached, and bonds registered
as to principal and interest, will be issued in denominations of $100, $500,
$1,000, $5,000. $10,000 and $100,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered
bonds, and for the transfer of registered bonds, under rules and regulations
prescribed by the Secretary of the Treasury.

5. The bonds will be subject to the general regulations of the Treasury

Department, now or hereafter prescribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and
Branches and at the Treasury Department, Washington. Subscribers must agree

not to sell or otherwise dispose of their subscriptions, or of the securities
which may be allotted thereon, prior to the closing of the subscription books.
Banking institutions generally may submit subscriptions for account of

customers, but only the Federal Reserve Banks and the Treasury Department

are authorized to act as official agencies. Others than banking institutions
will not be permitted to enter subscriptions except for their own account.

Subscriptions from banks and trust companies for their own account will be
received without deposit. Subscriptions from all others must be accompanied
by payment of 5 percent of the amount of bonds applied for.

2. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in part, to allot less than the amount of bonds applied
for, and to close the books as to any or all subscriptions at any time without
notice; and any action he may take in these respects shall be final. Subject
to these reservations, and within the amount of the offering, subscriptions
for amounts up to and including $25,000 from banks which accept demand

deposits, and subscriptions in any amount from all other subscribers, will
be allotted in full; subscriptions for amounts over $25,000 from banks which
accept demand deposits will be allotted on an equal percentage basis, to be
publicly announced. Allotment notices will be sent out promptly upon allotment.

IV. PAYMENT

1. Payment at par and accrued interest, if any, for bonds allotted here-

under must be made or completed on or before October 19, 1942, or on later
allotment. In every case where payment is not 80 completed, the payment with
application up to 5 percent of the amount of bonds applied for shall, upon

declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United States. Any qualified depositary will be permitted to
make payment by credit for bonds allotted to it for itself and its customers

-3- up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district.
V. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions, to make allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to
the Federal Reserve Banks of the respective districts, to issue allotment
notices, to receive payment for bonds allotted, to make delivery of bonds

on full-paid subscriptions allotted, and they may issue interim receipts
pending delivery of the definitive bonds.

2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the
offering, which will be communicated promptly to the Federal Reserve Banks.

HENRY MORGENTHAU, JR.,

Secretary of the Treasury.

UNITED STATES OF AMERICA

1-1/2 PERCENT TREASURY NOTES OF SERIES B-1946

Dated and bearing interest from June 5, 1942

Due December 15, 1946

Interest payable June 15 and December 15

ADDITIONAL ISSUE

1942

Department Circular No. 699

TREASURY DEPARTMENT,

Office of the Secretary,
Washington, October 8, 1942.

Fiscal Service
Bureau of the Public Debt
I. OFFERING OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the

Second Liberty Bond Act, as amonded, invites subscriptions, at par and accrued

interest, from the people of the United States for notos of the United States,

designated 1-1/2 percent Treasury Notes of Sories B-1946. At the same time

the Secretary of the Treasury is inviting subscriptions for 2 percent Treasury

Bonds of 1950-52 under Department Circular No. 698. The aggregate amount of

both issues will be $4,000,000,000, or thereabouts. The amount of notes to
be issued hereunder will be determined by the relation which the total subscriptions for the notes bear to the total subscriptions received for both
the notes and the bonds.

II. DESCRIPTION OF NOTES

1. The notes now offored will be an addition to and will form a part of

the series of 1-1/2 percent Tronsury Notos of Series B-1946 issued pursuant
to Department Circular No. 686, dated May 25, 1942, will be freely interchangeable therewith, are identical in all respects therowith, and are described
in the following quotation from Department Circular No. 686:

"1. The notes will be dated June 5, 1942, and will bear interest
from that date at the rate of 1-1/2 percent per annum, payable on a

semiannual basis on December 15, 1942, and thereafter on June 15 and
December 15 in each year until the principal amount becomes payable.

They will mature December 15, 1946, and will not be subject to call for
redomption prior to maturity.

#2. The income derived from the notos shall be subject to all
Federal taxes, now or horoaftor imposed. The notes shall be subject
to estate, inhoritance, gift or other excise taxes, whother Federal

-2or State, but shall be oxompt from all taxation now or hereafter
imposed on the principal or interest thoreof by any State, or any
of the possessions of the United Statos, or by any local taxing

authority.

3. The notos will be accepted at pnr during such timo and undor
such rules and regulations as shall be prescribed or approved by the
Socrotary of the Tronsury in payment of income and profits taxos payablo at tho maturity of the notes.

"4. Tho notos will be acceptable to secure deposits of public
monoys, but will not boar the circulation privilogo.
"5. Bonror notos with intorest coupons attached will bo issuod

in donominations of $100, $500, $1,000, $5,000, $10,000 and $100,000.

The notes will not be issued in registered form.

"6. The notes will be subject to the general regulations of the
Tronsury Department, now or heronftor proscribod, governing Unitod
Statos notos."
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will bo received at the Federal Resorve Banks and

Branches and at the Trensury Department, Washington. Subscribers must agree

not to soll or otherwise disposo of their subscriptions, or of the securities
which any bo allottod thoroon, prior to the closing of the subscription books.
Banking institutions generally any submit subscriptions for account of custonors, but only the Fodernl Reservo Banks and the Tronsury Department are

authorized to act no official ngoncies. Others thnn banking institutions will
not be pernitted to ontor subscriptions except for their own account. Sub-

scriptions from brnke and trust companies for their own account will be received
without doposit. Subscriptions from all others must be accompaniod by payment
of 5 porcent of the amount of notos applied for.

2. The Secretary of the Treasury reserves the right to reject any
subscription, in whole or in part, to allot less than the anount of notes
applied for, and to close the books as to any or all subscriptions at any time
without notice; and any action he Day take in these respects shall be final.
Subject to these reservations, and within the amount of the offering, subscriptions for amounts up to and including $25,000 from banks which accept denand

deposits, and subscriptions in any amount from all other subscribers, will be
allotted in full; subscriptions for amounts over $25,000 from banks which
accept denand deposits will be allotted on an equal percentage basis, to be
publicly announced. Allotment noticos will be sent out promptly upon allotment.
IV. PAYMENT

1. Paymont at par and accruod intorest from June 5, 1942, for notos
allotted herounder must be made or completed on or bofore October 15, 1942, or
on later allotmont. In every caso where payment is not 80 completed, the

-3payment with application up to 5 percent of the amount of notos applied for
shall, upon doclaration made by the Socretary of the Trensury in his discro-

tion, be forfeited to the United States. Any qualified depositary will be
permitted to make payment by crodit for notos allotted to it for itsolf and its
customers up to any amount for which it shall be qualified in excess of existing deposits, whon 80 notified by the Fedoral Reserve Bank of its district.
Accrued interest at 1-1/2 percent from June 5, 1942, to October 15, 1942, on
$1,000 face amount is $5.41209.
V. GENERAL PROVISIONS

1. As fiscal ngents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions, to make allotmonts on the
basis and up to the amounts indicated by the Socretary of the Trensury to the
Federal Reserve Banks of the respective districts, to issue allotment notices,

to receive payment for notes allotted, to make dolivery of notos on full-paid
subscriptions allotted, and they may issue intorin receipts pending delivery
of the definitive notes.

2. The Secretary of the Trensury may at any time, or from time to time,

prescribe supplemental or anendatory rules and regulations governing the
offering, which will be communicated promptly to the Fedoral Resorve Banks.

HENRY MORGENTHAU, JR.,

Secretary of the Tronsury.

October 8, 1942
10:15 a.m.

WAR SAVINGS BONDS

Present: Mr. Graves

Mr. Kuhn
Mr. Gamble
Mr. Odegard

H.M.JR: All right, gentlemen.
MR. GRAVES: You remember, we suspended, in

the middle of our rush the other day, the proposal
of a convention of our people. we would like to have
your approval of holding such a meeting in a couple
of weeks - probably, if you approved, two weeks from
Monday - to consider our program in all of its aspects
and to give these people some details of operations
that we ought to be carrying on until something happens
to us that makes it advisable to change.
For instance, we want to go ahead, strongly, with
the pay-roll savings. We would like to impress upon
people the advisability of concluding this program,
if we can, by the end of the year, getting as many of
the companies as possible in this thing on the basis

of ten percent of gross pay roll.

You and I talked over the phone yesterday about

the F and G thing - that is another thing we would
like to inform these people on, and recruit these
insurance fellows that have been offered to us.

Those are illustrations of a good many projects

that we think would be very beneficial - in fact,
necessary for us to talk over with our people if we
are going to do a good job. I gave you this list of

projects before. (Tentative Agenda of meeting handed
to the Secretary, copy attached.)

-2-

H.M.JR: Is it just the same?
MR. GRAVES: It is just the same.
H.M.JR: Wouldn't the women's program be Miss

Elliott?

MR. GRAVES: We were not sure what we should do

about that. You see, the women have just had a meet-

ing of their own, and here I think it would perhaps
suffice for us to have a discussion with our people.

That would be Mr. Odegard's job - just how the women's

activities are to be fitted in.

H.M.JR: You mean you wouldn't have Miss Elliott

there?

MR. GRAVES: We might, or we might not.

H.M.JR: We should. I mean, if you are going to
expect them - after all, thirty percent of the people
in the factories, now, are women. It seems to me that
they should be there. They are very definitely and

constantly increasing.

MR. GRAVES: Yes.

H.M.JR: I mean, you can't expect the women to
do the work unless you recognize them.
MR. GRAVES: We would, of course, recognize them.

It was a question of whether we needed to have her.

H.M.JR: I would definitely suggest that.
MR. GRAVES: Is that your belief, too?
MR. ODEGARD: I would agree, yes. I think that
Miss Eiliott ought to be in the picture - someone
from the Women's Division.

H.M.JR: I think it should be Miss Elliott.

-3MR. ODEGARD: I think it should be Miss Elliott,

yes, if possible. You see, I haven't talked with her
about whether she would be so involved with other
things in connection with this Women's Week thing.

H.M.JR: She should "disinvolve" herself.
MR. ODEGARD: Of course, the fact that they had

this other conference should not necessarily mean that
Miss Elliott ought not to be here, because she ought

to present this thing to a different group rather than
to their own group.

H.M.JR: I think so. After all, you have Myers

to do the farm and Houghteling the Negro, and so forth

and 80 on.

It is all right with me.
MR. GRAVES: Fine. We will go ahead, I think, at

Kansas City, two weeks from Monday - two days and a
half.

That is all I have.
H.M.JR: Now - that is all you have?
MR. GRAVES: Yes.

H.M.JR: There is one thing I would like to ask,
as long as I have you. I think it was Odegard who told

me that you reorganized the advertising section and
changed it from an advertising agency, so to speak,
to an advisory service. You never said anything more
than that. Wouldn't that mean you can get along with
a less number of people? We seem to have a lot of
specialists, and everything, over there with Mahan.
MR. ODEGARD: Well, as a matter of fact, what

has happened is that in Callahan's shop, to which
that advertising operation has been transferred, we
not only are getting along with fewer people, but
we are shorthanded, now.

-4H.M.JR: Did you let anybody go?
MR. ODEGARD: Well, we have lost McCarty, for
example.

H.M.JR: But there were a lot of - when I
studied this thing a month or two ago, there were a

lot of people doing copy work, the kind of thing
they would do in an agency.

MR. ODEGARD: Oh, that - you see, the main people
involved are John Legler, who is working with Syd Mahan

in writing copy, preparing layouts, and so on, and
Mr. Legler has gone with Mr. Mahan into the retailers
operations.

Syd felt very strongly that he needed someone to
help him with the retailers operations, and so he has
taken all of the people who were in his shop before,

they are still working with him.

H.M.JR: Do you mind if I come back at you again?
If you read the thing which was prepared for me,
there were twenty odd people who were trained in

advertising. I am not - now, they are not trained
in retail things, but they are advertising specialists.
Now, if you are going to rely on the agency, I just
wonder why you keep these same people - and they are

very high-priced people, too.

MR. ODEGARD: I don't know how many of those

people there are, because we have not taken them over.

H.M.JR: There are a flock of them. Mahan had
a flock of them.

MR. GRAVES: I will go over that with Peter.
H.M.JR: These men - when you recommended them,

they were there to do advertising work. Now if you
need people in the retail business, I would get
people skilled in the retail business.

-5MR. ODEGARD: Most of those that Mr. Mahan had -

Mr. Mahan's orientation had always been a retailer's
orientation; and most of the people that he had on
his staff, even when he was doing the advertising for
the War Savings Staff, were people whose orientation
was toward retail operations. He has taken those

people, for the most part, with him. Isn't that right?
MR. GAMBLE: He has taken four people; Mahan's

group consists of four people.
H.M.JR: How many?

MR. GAMBLE: Four people. I think the thing that
you are concerned with, Mr. Secretary, is that the

grading of our people--

H.M.JR: Do you want to bet me on that?
MR. GAMBLE: No, I said Mr. Mahan has taken with

him in the retail section, which is my department,
four people, including himself.

H.M.JR: Do you want to bet on how many people
he had who were getting over three thousand a month
ago?

MR. ODEGARD: If you hire somebody for the War

Savings Staff, the way they are classified by the

Civil Service is advertising specialists.

MR. GAMBLE: That is what I wanted to say. We
have people who know nothing about advertising,

classified as advertising specialists.

H.M.JR: This gives the background on each fellow.

I read it twice, because the first time Harold wasn't
satisfied. You wrote it three times, didn't you?
MR. GRAVES: We did it very fast a couple of

times and finally had it done more carefully.

-6H.M.JR: The three of you take a look at it.
I would be curious to know just what happened. If
they are doing an honest day's work, fine, but I
just - when you have a reorganization - I just

wondered if all of these people were round pegs in

a round hole. I have nobody in mind; I couldn't

give you a name.

MR. GRAVES: There were, as you say, a long

list of people. Take, for instance, Duffus' outfit -

a lot of these people - we have sent how many of

those people to the field?
MR. GAMBLE: Nine.

MR. GRAVES: They have been sent to the field,
out of Washington, where they are working on state
organizations. That whole thing has been much improved since--

H.M.JR: How is your over-all pay roll in
Washington?

MR. GRAVES: We have about three hundred and

fifty people. It is about the same.
H.M.JR: About the same?
MR. GRAVES: About the same. We are intending

to cut it down somewhat. Our budget estimate, as I

remember, was three hundred and thirty-four people,

so we are pretty close to our estimate.

MR. ODEGARD: As a matter of fact-MR. GRAVES: We have added to the Farm Division,
as you know, and some to the Women's Division, and

some to the Educational Division. None of those are
included in this figure of about three hundred and

fifty.

MR. ODEGARD: I was just going to say, as a

matter of fact, that in the advertising section,

this Mr. Mahan had it set up there with not very many
actual production people; that is, there were people

who were mainly advertising managers and that sort

of thing. We had a few like Legler, who was writing
copy, and he still is helping Mahan on preparation
of retailers copy. We had Sherry King, and I just

don't know what we were going to do with Sherry King.

I have talked to Vince Callahan about it. Sherry
was writing copy. Dun Laney is another. I can give
you the names of all the people.

H.M.JR: They don't interest me. It is just I am being a little - should I say-MR. GRAVES: Economical, that is right. We all
try to be.
H.M.JR: Pre-Pearl Harbor.
MR. GRAVES: That is our slogan - to be economical

in this thing.
H.M.JR: Every once in a while I still think that
money is money.

MR. GRAVES: You are thinking maybe of the OWI?

H.M.JR: No, no, I just - I mean, we are here.
I had it on my mind. Peter said some time he would
tell me. He hasn't had an opportunity to, and I just

wondered what happened in this reshuffle.

MR. GAMBLE: At least ten of the people which

you read on that list are no longer on that list.

Two of them have been discharged and eight or nine--

H.M.JR: And the advertising thing, now, is all

under Callahan?

MR. ODEGARD: Yes.

MR. KUHN: Tom Lane of Callahan's shop will be

the contact man with the Advertising Council.

-8H.M.JR: I read your memorandum. It was a good

memorandum; if it works like that it will be wonderful.
MR. KUHN: That is what we hope it will do. We

didn't make any claims.

H.M.JR: I say, if it works like that-MR. KUHN: That was the setup with the Advertising Council - not only on war bonds, but on tax notes,

F and G, and so on.

H.M.JR: O.K. Peter wants to see me.

17
TENTATIVE AGENDA,
PROPOSED MEETING OF STATE ADMINISTRATORS.

(Oct. 15 - 17, at either Kansas City or Chicago)
I - In General Meeting
Opening statement by Mr. Graves (to be prepared in advance
and road)

(1) Review of progress.

(2) Program for the future.
(3) Statement of Secretary's policy.
(See attached rough outline.)

II - In Group Meetings conducted by Mesars. Gamble, Odegard,

and Coyne, and participated in by various members of the
Staff according to subject.
Discussion leaders indicated.
(1) Payroll Savings (Engelsman)

(a) Objectives: All remaining companies to install
plans.

90% employee participation
10% of gross payroll
Expedited delivery of bonds
(b) Methods of promotion
(2) F and G Bond promotion (Gamble)

(a) Prospect lists
(b) Direct mail and other advertising
(a) Canvassers

(d) Follow-up
(3) Farm Program (Myers, Partain)
(4) Women's Program (Odegard)

(5) Schools at War (Odegard, Anderson)
(6) Labor (Houghteling)

(7) Negro Activities (Houghteling)

(8) Special Events (Gamble, Duffus, Welch)

(9) Retailers Activities (Gamble, Mahan)

(10) Sales Outlets (Gamble)

(11) Advertising, Publicity, and Promotion (Odegard,
Callahan, Thomas)

(12) Miscellaneous (Odegard, Coyne, Gamble)

October 8, 1942
10:32 a.m.

Allan
Sproul:

Good morning.

HMJr:

How are you, Allan?

All right. How are you?

HMJr:
S:

I'm all right. How are things going?
Well, there's - there's not much doing yet.
The reaction in the market 18 about the same
as in our discussions of the issue before it
came out.

HMJr:

Yeah.

Some think it's fine. Some think it's lousy.

HMJr:

(Laughs)

HMJr:
S:

That's all right.
But they're going to work on it. The only re-

action on the outstanding market is that some
of the one and a half notes and some of the
two's of December are beginning to come in for
sale, which was to be expected, and we'll be in
there taking those up.

HMJr:

(Laughs) Well, you did a - quite a job yesterday.

Yeah, we got to work yesterday.

HMJr:

Right, and I suppose
And I think we'11 do some more today.

HMJr:
S:

Good for you. Well

And we're - we're getting our - both the dealers,
the banks here, and also, as far as this district
is concerned, our people out through the district
to go to work on it.

-2HMJr:

Well, if anything happens that disturbs you, will

I shall.

HMJr:

I thank you.

All right.

you call me yourself?

October 8, 1942
3:40 p.m.

HMJr:

Hello.

Operator:

Mr. Sproul. Go ahead.

Allan
Sproul:

Hello.

HMJr:

Allan?

Yes, Mr. Secretary.

HMJr:

Well, the bond market looks much healthier

today, doesn't it?
Yes, and I have Mr. Rouse right here. He tells
me everything's under control today.

HMJr:
S:

Good.

And, of course, it's too early to tell about
the subscriptions, but the market is in a good
frame of mind about it, I think.

HMJr:

Well, I suppose that stock market cheered them

Yeah.

HMJr:

And they can't help but be influenced, can they?

No.

HMJr:

What?

No.

HMJr:

And - well, I - I - I feel - I feel all right

up a little bit.

today.

HMJr:

So do I. Mr. Rouse can tell you what's

happened in the market if you want.
I would, please.

Robert
Rouse:

Well

-2HMJr:

Hello?

The - the reception on the two - on the two's,
of course, was a little cool. They'd been

hoping for a two and a quarter.
HMJr:

Yeah.

The - a number of people, of course, sold to

make room

HMJr:

Yeah.

hoping to get that.

HMJr:

Yeah.

But they came in to buy them back again today

HMJr:

Yeah. (Laughs)

and with a little help on our part, the

quotations for the bonds out beyond the new
two's

HMJr:
R:

HMJr:

Yeah.

....are up to eight or nine thirty-seconds better
I see.

in some spots. We've held the two's where

we left them last night.
Yes.

At the moment we're in process of buying a fair
amount just at the close of the market
Yeah.

and the shorter bonds we've got at the same
prices or perhaps one better.
Yeah.

-3R:

So that the whole atmosphere of the market, net
changes in price, will show an increase

HMJr:

Yeah.

and no declines. There may be one or two with

a decline of one thirty-second. With the exception
of the one and a half, a forty-six which closed at
five-seven, and they re quoted, of course, par to

one now because they can buy all they want of a new
issue at par.

HMJr:

But I - I would say we had a good day.

Well, it looks like it.

HMJr:

Yeah, I'd say we had a good day.

At the moment I think we've spent just under $50

million dollars and I suppose it will take another
twenty or twenty-five before we close at four
o'clook.

HMJr:

Well, I would say your - that your vigor was
pickin' up.

(Laughs)

HMJr:

(Laughs)

HMJr:

Well, it's all right. I'm taking vitamins now.
(Laughs) All right. If you run out of them, let
me know.

All right. (Laughs)

Allan
Sproul:

Well, I think you're right. We've had a good day

HMJr:

Yes.

on the market so far

and we'll keep watching the subscriptions to

see how it comes along.

-4HMJr:

Robert

Fine. Thanks to both of you.

Rouse:

oh, there's one other thing, Mr. Secretary.

HMJr:

Please.

HMJr:

I think the Chase wanted you to know their subscription, which was $125 million for each.
Mr. Bell told me.

Good.

HMJr:

And also that message they're ready to take some

more.

Well, I think they'd be - they'd be willing if

HMJr:

Well, I think that's very handsome.

Right.

HMJr:

Thank you.

Yes, sir. All right.

HMJr:

Goodbye.

we need some underwriting, that they'd do more.

October 8, 1942
4:10 p.m.
Daniel

Bell:

Dan.

HMJr:

Yes.

The bonds are three thirty-three.

HMJr:

Yes.

....and the notes, two seventy.

HMJr:

Good.

Not up 80 much. They're about two hundred and

HMJr:

Well, that's all right.

I think so. We ought to close, hadn't we?

HMJr:

Yes. Do I have to sign that?

No, it's just that I want your word, that's all.

HMJr:

My word.

Okay, thank you.

HMJr:

Hello?

Yeah.

HMJr:

And I won't check up on you tomorrow on this

fifty million behind the September's.

I mean, send out the usual notices.

one.
B:

What do you mean?

HMJr:

oh, about Fort Dix. Don't you know you said to
me when

on ! (Laughs) Yeah, that's right.

HMJr:

Don't we always?

-2B:

Yeah, that's right.

HMJr:

Well, almost always. (Laughs)

Almost, yeah, that's right. All right, thanks.

October 8, 1942
4:34 p.m.

HMJr:

Robert

Bob?

Doughton:

All right, Henry.

HMJr:

Are you going to be busy tomorrow morning?

No, sir.

HMJr:

Would eleven o'clook suit you?

Finest in the world.

HMJr:

Well, I'11 come up and see you.

All right. Supposing you come to the Ways and
Means Committee room over in the Capitol.

HMJr:

Ways and Means

We won't be bothered there. You know, where we

HMJr:

Yeah, Ways and Means at the Capitol.

Yeah, it's on the second floor.

HMJr:

Second floor.

Does that suit you just as well?

HMJr:

Any place you say.

Well, all right.

have our conferences sometimes.

Ways and Means at the Capitol, second floor.
At eleven o'olook.

HMJr:

Right.

Thank you.

HMJr:

Thank you.

HMJr:

OCT 8 - 1942

Dear Mr. Directors

I wish to acknowledge your letter of October 6, 1942,
requesting recommendations for concrete regulations to

effectuate sections 5 and 7 of Title II of the Executive
Order of October 3, 1942.

In anticipation of your request this Department has
already formulated certain tentative recommendations for
regulations which we are prepared to discuss with you.
However before making final recommendations several

decisions on major policy questions will have to be

determined. I would appreciate it if representatives
of this Department were afforded an opportunity to discuss
these questions with you, or such representatives as you
may designate.

Sincerely yours,
(Signed) H. Morgenthau,J:

Honorable James F. Byrnes,

Director,

Office of Economic Stabilisation.

JLS:kb

October 7, 1942

TO:

MR. PAUL
MR. SULLIVAN

FROM:

THE SECRETARY

Please cooperate on preparing an answer which

I would like to have tomorrow morning.

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE FOR EMERGENCY MANAGEMENT

OFFICE OF ECONOMIC STABILIZATION
WASHINGTON D.C.

October 6, 1942

MES F. BYRNES
Director

Dear Mr. Secretary:

The Executive Order of October 3, 1942, provides in Title II,

Sections 5 and 7 as follows:

Sec. 5. "No increases in salaries now in excess of $5,000
per year (except in instances in which an individual has been
assigned to more difficult or responsible work), shall be granted
until otherwise determined by the Director."

Sec. 7. "In order to correct gross inequities, and to provide
for greater equality in contributing to the war effort, the Director

is authorized to take the necessary action, and to issue the appro-

priate regulations, so that, in so far as practicable, no salary shall
be authorized under Title III, Section 4, to the extent that it exceeds

$25,000 after the payment of taxes allocable to the sum in excess of
$25,000. Provided, however, that such regulations shall make due
allowance for the payment of life insurance premiums on policies heretofore issued, and required payments on fixed obligations heretofore
incurred, and shall make provision to prevent undue hardship."
Inasmuch as the administration of these two sections is closely
related to the administration of the revenue laws, I should appreciate it

if you could recommend to me such concrete regulations as you consider appro-

priate to carry into effect these provisions.

Section 7 by its terms would appear to affect only salaries as
authorized or recognized under Title III, Section 4 of the Executive Order.

Inasmuch as the recent emergency legislation seems to authorize a broader
and more direct control over salaries, the regulations which you may recom-

mend to carry out the President's objectives, need not be limited to Title
III, Section 4 of the Executive Order so long as they come within the scope
of the powers granted to the President.

Sincerely yours,
JAMES F. BYRNES

EVICTORY
BUY
WAR
BONDS
STAMPS

Hon. Henry L. Morgenthau,

Secretary of the Treasury.

30
Treasury Department

Division of Monetary Research
Date

194

o: Files
0/8/42 - HDW took to Secretary's office.
letter discussed and Secretary decided

ot to send.

MR. WHITE

Branch 2058 - Room 2141

30-B
THE SECRETARY OF THE TREASURY
WASHINGTON

Dear Mr. Eccles:

I have felt for some time that it would be highly desirable

to establish the informal Fiscal and Monetary Advisory Board again
as an active, consultative group. The fiscal and monetary problems confronting our Government now and during the post-war
adjustment period are of such magnitude and complexity that we
need more than ever to have an effective group responsible for
continuous reexamination of our basic policies.
For maximum effectiveness I believe that regular meetings
of the group should be held every few weeks, and special meetings
when necessary. It is my thought that an agenda would be prepared in advance of each meeting, so that the members might come
to the meeting informed and prepared to discuss the topics on the
agenda. I assume that from time to time members will have
matters which they will wish to have included in the agenda.

The discussions might be particularly fruitful if, in advance

of the meetings, members would exchange memoranda on the topics
to be discussed.

I believe that it will be possible to cover a good deal

of ground during these meetings if we confine ourselves to the
larger issues which should appropriately come before an advisory
board of this kind.
I am calling the first meeting for Wednesday, November 18,
to leave ample time for preparation of preliminary memoranda.
There is appended an agenda for the discussion at that meeting.
As you will observe, the agenda is rather comprehensive. It
was our thought that a quite general discussion would be appro-

priate to the first meeting of the Board. The range of subsequent

meetings will presumably be not quite so wide.

FOR DEFENSE

BUY
UNITED
STATES
SAVINGS

BONDS

not sent.

30.C

-2 In addition to yourself, I am sending this letter to the

following persons:

Mr. Jesse Jones, Secretary of Commerce

Mr. Paul V. McNutt, Federal Security Administrator
Mr. Harold Smith, Director of the Budget
Mr. Preston Delano, Chairman of the National Resources
Planning Board

Mr. Leon Henderson, Price Administrator

Mr. James J. Byrnes, Director of Economic Stabilization.

I am confident that the interchange of views which might
take place at meetings of this kind could be of great service in
the formulation of our basic fiscal and monetary policies during
the critical years ahead of us.
Very truly yours,

Secretary of the Treasury.
The Honorable Marriner S. Eccles,
Chairman, Board of Governors of the
Federal Reserve System.
Attachment

30-D

Agenda for Discussion at Meeting of November 18

1. Tax program for adoption in 1943.
2. A program for compulsory saving.
3. The place of the banks in the Government's borrowing program.

4. Problems of the debt and interest burden resulting from a
long war.

It is hoped that the technical staffs will prepare memoranda
on those parts of the agenda with which their agencies are primarily

concerned. These memoranda should be made available to all members

of the Committee in advance of the meeting and should serve as a
basis for discussion.

30-E
Oct. 5

Dr. White asked that this be re-sumbitted
to the Secretary as a possible suggestion.

42.

nmc

Come Harry in White and see # me

about this 10m2

30-F
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

All
DATE May 5, 1942

Secretary Morgenthau

H. D. White

HDW
Appended is a suggested draft of a letter which might
be sent to the names indicated. I am not sure of the first
name and the last name on the list, but I think on the
whole it would be a wise thing to have them both included.
I don't quite see why Mr. Nelson should be included since
his work concerns itself exclusively with production and
not with either fiscal or monetary problems. However, you
may wish him to be included in order to "pack" the committee.
The Agenda is carefully designed, first, to give you
an opportunity to tell the group about the status of your
voluntary saving program and to indicate that you are carefully watching progress so as to be the first to speak up
if it gives evidence of not yielding adequate savings. The
last item is to give an opportunity for Mr. Paul--whom you
would probably wish to have present to indicate the progress
on the Hill and make the group feel that they are being kept
currently informed. Item 2 is to give Smith and Eccles an
opportunity to make their suggestions and probably to have
memoranda prepared in their shops and in the Treasury on

their suggestions. Item 3 raises the question of excess
reserves and implies the possibility of putting through a
reduction in reserve requirements. It may also serve to put
Federal Reserve Board a little on the defensive.
The idea was to get a small enough number of items on
the Agenda to permit some discussion on each, and yet large
enough to avoid spending too much time on any one of them

during the first meeting, and also to show that there is
plenty to talk about and lots of opportunity for collaboration and cooperation.

30-G
PRAZI
Dear

I have felt for some time that it would be highly desirable

to establish the Fiscal and Monetary Advisory Board again as an
active, consultative group. The fiscal and monetary problems con-

fronting our government now are of such unparalleled magnitude
that we need more than ever the cooperative consideration by the
officials most concerned with continuance of our basic fiscal
and monetary policies. Moreover, the situation changes so rapidly
that the consultative group concerned with the reexamination of
our basic fiscal and monetary policy should meet quite often.

For maximum effectiveness I believe that regular meetings of
the Board should be held every two weeks, and special meetings
when necessary. It is my thought that an agenda would be prepared
in advance of each meeting, so that the members might come to the
meeting informed concerning the subject of the day, and prepared
to discuss it. I assume that from time to time members will have
matters which they will wish to have included in the agenda. The

discussions might be particularly fruitful if, in advance of the

meetings, members would exchange memoranda on any of the topics

to be discussed in which they were specially interested.

I believe that it will be possible to cover a good deal of

ground during those meetings, if we confine ourselves to the larger
issues which should appropriately come before a Board of this kind.
I am calling the first meeting for Thursday, May 8. There is appended an agenda for the discussion at that meeting.

In addition to yourself, I am sending this letter to the

following persons:

Mr. Jesse Jones, Federal Loan Administrator
Mr. Harold Smith, Director of the Budget
Mr. Preston Delano, Chairman of the National Resources
Planning Board

Mr. Leon Henderson, Price Administrator

Mr. Lauchlin Currie, Administrative Assistant to the President
Mr. Paul V. McNutt, Federal Security Administrator.
I am confident that the interchange of views which might take
place at meetings of this kind could prove very helpful in formilating programs and policies.

Sincerely,

Secretary of the Treasury.

30-H

Agenda for Discussion

1. Progress of the voluntary saving program.
How large a portion of savings bond purchases are

reducing consumers' expenditures? When will it be
possible to know whether the enlarged program of
voluntary sale of war bonds has been a success?

2. Additional fiscal and monetary measures
called for by the enlargement of the program of defense

expenditures for the fiscal year 1943 from $56 billion
to $70 billion.
3. Is the excess reserve position of the banking
system appropriate to such a volume of securities as
the Government will have to sell to banks during the
next six months under the new program of defense
expenditures?

4. The legislative status of the revenue program,

especially with regard to corporate profit taxation,
the withholding provisions of the Revenue Act, and the
proposed Social Security taxes.

See page 8174

United States
of America

Congressional Record
PROCEEDINGS AND DEBATES OF THE

77th

CONGRESS, SECOND SESSION

WASHINGTON, THURSDAY, OCTOBER 8, 1942

Vol. 88

No. 172

Senate
(Legislative day of Monday, October 5, 1942)
The Senate met at 11 o'clock a. m., on
the expiration of the recess
Rev. Paul V. Yinger, pastor, Cleveland
Park

renew mount
ton.

up with wings as eagles; they run
They D. Congregational their C., that offered strength; wait the upon Church, following they the shall Lord Washing- shall prayer: shall

and not be weary: they shall walk and
not aint.-Isaiah 40: 29-31.
Let us pray

In Thy presence alone, Father of Life,

Senate, I desire to give notice, through
the CONGRESSIONAL RECORD that I am

calling a hearing to consider Senate bill

quorum is present.

purposes of silver held or owned by the

APPRAISAL OF ASSETS AND LIABILITIES
OF THE COMMODITY CREDIT CORPO.

S. 2768, to authorize the use for war
United States, to be held on Wednesday,

October 14. 1942, in the Banking and
Currency Committee room.

This notice is given for the convenience

of interested parties who may desire to
appear and be heard.
CALL OF THE ROLL

we see the light of truth. Thou art the

Creator and the Life Giver. In Thy
hands are held the fragments of our
little days. We need each morning Thy
sustaining strength, and every night Thy

renewing spirit.
Until we see ourselves as Thy creatures

our years are as grass. Unless Thy love
surrounds us. a great dread commands us.

Be to us, then, O God, a bulwark in
times of stress, a source of high-encircling courage, a fountain in the heat
of the day, and a haven from all false

fears

Keep our minds this day from every
partial loyalty. Make us sensitive to
every influence of Thy spirit. May the
worthy leanings of our hearts find ready
expression, by Thy grace.

Hear our words and discern our
thoughts, and give us of Thyself. In

Christ's name we pray. Amen.
THE JOURNAL

On request of Mr. BARKLEY, and by
unanimous consent, the reading of the
Journal of the proceedings of the calen-

dar day Wednesday, October 7. 1942,

was dispensed with. and the Journal was

approved
MESSAGE FROM THE PRESIDENT

A message in writing from the Prestdent of the United States submitting sev-

The VICE PRESIDENT. Ninety Sena.
tors have answered to their names. A

Mr. HILL I suggest the absence of a

quorum

The VICE PRESIDENT. The clerk
will call the roll.
The Chief Clerk called the roll, and
the following Senators-answered to their

names:
Alken
Austin
Balley
Ball

Bankhead
Barbour
Barkley
Blibo

Gerry

Gillette
Green
Guffey

O'Daniel
O'Mahoney
Overton
Pepper

Gurney
Hatch

Radeliffe

Hayden

Reynolds

Herring

Reed

Roaler

Bchwarts
Shipstead
Smathers

Bone

HIII

Brewster
Brooks

Holman

Brown
Bulow

Johnson, Colo

Smith

Kilgore
La Pollette

Spencer

Bunker

Burton
Butler

Johnson Calif

Stewart

Langer

Taft

Lee

Thomas Idaho
Thomas Okia
Thomas Utah

Byrd
Capper

Lodge

Caraway

McCarran
McParland

Truman

Chaves

McKellar

Clark Idaho
Connally

McNary
Maloney
Maybank

Vandenberg
Van Nuya

Danaher

Mead

Davis

Millikin

Downey

Doxey
Ellender

Murdock
Murray
Norris

George

Nye

Chandler

Clark Mo.

Lucas

Tunnell
Tydings

Wagner

Wallgren
Walsh
Wheeler
White
Wiley
Willia

Mr. HILL I announce that the Senator from Virginia (Mr. GLASS] and the

RATION

The VICE PRESIDENT laid before the
Senate a communication from the Prestdent of the United States, which, with the
accompanying report, was referred to the

Committee on Banking and Currency

and the communication was ordered to be
printed in the RECORD as follows:
THE WHITE HOUSE

Washington, October 8, 1942.

My DEAR MR. PRESIDENT: I have the

honor to transmit herewith for the information of the Congress a letter dated
September 4. 1942, from the Secretary of

the Treasury transmitting, pursuant to

the provisions of the act approved

March 8. 1938 (52 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 of all the assets and
liabilities of the said Corporation as of
March 31, 1942. On the basis of such
appraisal the Commodity Credit Corporation has deposited in the Treasury the
sum of $27,815,513.68

During the fiscal year 1938, it was nec-

essary for the Congress to appropriate
$94,285,404.73 to maintain unimpaired

the capital of the Commodity Credit

Corporation and it was necessary for the

Congress to appropriate for the fiscal

years 1939 and 1941 further amounts of

$119,599,918.05 and $1,637,445.51, respec-

tively. The payment made by the Corporation in the fiscal year 1940 amounting to $43,756,731.01. together with the
payment for the fiscal year 1942 of $27.
815,513.68 results in net expenditures by

the Congress for the last 5 years

eral nominations in the Army was communicated to the Senate by Mr. Miller,

Senator from Delaware (Mr. HUGHES] are
absent from the Senate because of illness.

amounting to $143,950,523.60.

USE OF GOVERNMENTAL SILVER-NOTICE

DREWS), the Senator from New York (Mr.

The policy adopted by the Congress
and incorporated in the act approved

one of his secretaries.

OF HEARING

Mr. MALONEY Mr. President, as

The Senator from Florida (Mr. AN-

MEAD], and the Senator from Georgia
(Mr. RUSSELL) are necessarily absent

chairman of the Subcommittee on Coin-

Mr. McNARY. I announce that the
Senators from New Hampshire (Mr.

Banking and Currency Committee of the

absent.

age and Philippine Currency of the

BRIDGES and Mr. TOBKY] are necessarily

March 8. 1938, as amended providing for

an annual appraisal of the assets of the
Commodity Credit Corporation, makes it
possible to include in each annual Bud-

get the expenditures necessary to support the program which the Corporation
8169

CONGRESSIONAL RECORD-SENATE
is

reason

REVENUE ACT

The

give

OCTOBER

CONGRESSIONAL RECORD-SENATE

1942

8175

this
as

8174

the

would
the

that

barrier

could
State

the

Union

only

activities

sweep

record

off their feet by means of

their As a mat-

showing

some

figures

increase

countiess

this great land.

com-

OCTOBER 8

CONGRESSIONAL RECORD - -SENATE

8176

CONGRESSIONAL RECORD-SENATE

1942

power,
sub

the

bill

Then

the

Mr. MALONEY Would

States, counties and cities at will with

tly be less than that levied

States

The

Federal

power

the

8177

willing that

Sena.
be

thank
the

Mr.

the

Federal
not

the

this

tained

their

the

Mr.

then

ability

Mr.

munits

payer
State.

Did

that

the

doctrir

language
of

with

the

had

there

Lake

built

within

will

Federal

Mr.

the
be

Lat

States
always

six

issued
Mr

AUSTIN

believe

and

the

effect

the

one
Mr

of
of

regard

can-

upon

which
the

the

this

in-

that

committee was the compact between

not be taxed by the States without its

come in State is very much less,

and

not by consent but to take by

pro-

tional

securities
No 173

control. the very life of the State or

Na.
of

municipality

The Members of this body as cheer
when I first came to the Benate. are in

else.

OCTOBER

that together they amounted to 15 per-

of fine

the total

Mr.

AUSTIN.
less

1942

the

limited

Mr.

are

8179

hand

and
the

have another list to

CONGRESSIONAL RECORD-SENATE

8178

without

doubt.
ones
greatly

than

object

The

income

State
Mr
Mr.

that

BONE

BROWN

will

Senator

the

Wash

the

pointed

ington?

the

much

good

bring
fallecy
from

the

when

public

other

citizen.

the
to

carry
happen

The

percent

have

being

refers

AUSTIN
evi-

the

and

$3,000,000 to begin
of

BONE Three million dollars

AUSTIN Yes. With large tax
is
2.2

have

eral-tax
partially

wanted
that

that

BROWN
Senate

there

were

exempts, and
in

that

stay

Fed-

and

his

that
lay

the

laps

those

his

and invest
after
which

menta.

Senator

some
from

Oklahoma

Mr quoted decision of the Bo

preme which one of the Justices

the
the

about

well

the

obtain

aspects
not

course,

amount

not.

frankly
heard

one,
and

reciprocal
On

outset
Federal
the

the
Gov

provision

were operated in the bill makes DO
my eviction that the pro-

CONGRESSIONAL RECORD-SENATE
really

the

OCTOBER 8

counties

the

CONGRESSIONAL RECORD-SENATE

1942

8181

any

the

8180

the bars

Mr.
the

another.
117

that

they

the

arti

will

(Mr

from
to

the

during

the

Civil

has

State

refund

all-In
which

follow
studies

received the Joophole

trend
as

have

Federal

come

bended

Government

and

the

Mr.
to

the

profits

the

history
this

debate

is, be the relation of in

courts

Yes.
the

liquor

involved

AUSTIN

the

collected
sixteenth

in actual practice

since
was

adopted,

and

that is, the Senate from

Good

lawyer
recog

Supreme
such
But

tax

was levied few years as recall
during the Civil War

the

Senator

whose

admire

Mr. BARKLEY
from

Mr. LUCAS
Sension

language

There

I thank the Senator for allowing me

BROWN In the first place

the

which

this brief statement
Mr. BURTON

8183

thank

AUSTIN

Mr.

CONGRESSIONAL RECORD-SENATE

1942

OCTOBER

CONGRESSIONAL RECORD-SENATE

8182

taken

Mr.

Insure

Benator

Ohio

AUSTIN

thank
was

Kentucky

passed during the Civil
diately following the Civil

the
that

primarily

National

the

passed

Yes
the

After

the

power

the

United

the

this

President

Mr.

what

decided?

Mr.

No.

decided

Court

1928

the

salary
not

for

taxed

the

based
but

see:

which
after

the
the

Yes

that

Willeuts

the

direct
is

arise?

the

AUSTIN

but
Mr.

There

only
the

the

refer

States

and

all

Was

Mr. President the

the

Mr.

President,

Mr.

will

Mr.

LUCAS

when

that

legislation
AUSTIN

the

statute
Chief
1869?

LUCAR

before

case

the

After dis.
Court,

Court
make
he

that

That

BROWN
the

LUCAR
AUSTIN

which

Michithe

moment?

effort.

would be sufficient to justify overturning
great principle involved.

Mr. AUSTIN. yield.

on all fours with the holding in the Pollock case.

from

than

the

such

bonds

AUSTIN.

stand-

tax

President

cannot

how the Senator Michigan face the language of the Su-

preme Court in decision after decision

bonds

In before the court. Chief
Justice that profits derived
such

taxed,
said:

reaching

might
conclusion

bonds
the

8184

CONGRESSIONAL RECORD-SENATE

OCTOBER 8

amendment-repeated every year since
that amendment was adopted in 1913-

Sac.preferred
134. Credit
for dividends paid on certain
stock.

forbidden-

which the States and municipalities en-

end thereof the following new subsection: the

It seems to me that the opinion of the
Chief Justice is clear. He thought that
the Pollock case was in effect, and that
such a tax was forbidden.

joy by virtue of constitutionalism- an
immunity not expressed directly in the

But It does not follow. because a tax on
the interest payable on State and municipal
bonds is a tax on the bonds and therefore

Mr. AUSTIN. That is what he said
about it. I take his word for it. I think

he said what he meant, and meant what
he said, no matter what this debate may
provoke.

Mr. BROWN. Mr. President, will the

Senator yield?

Mr. AUSTIN. I yield.
Mr. BROWN. The question in the

Willcuts case did not involve the interest
on bonds at all.

Mr. AUSTIN. No. That is plain. We

understand that

Mr. BROWN. A man had some municipal bonds, which he sold at a profit

of some $760. The question was whether

the profit was taxable. The Supreme
Court held that it was taxable.

Mr. AUSTIN. At the same time, it

held that the income was not taxable
Mr. BROWN. The Court went on to
say. as it has said on a number of occasions. that in its judgment the rule in

the Pollock case still applied. I have

never contended anything else: but the
Senator from Vermont and the Senator
from Ohio are too good lawyers not to
know that it is a cardinal principle that
a court speaks not through its opinions,
but through its decisions. Since 1896,
when the Pollock case was decided, it has

not decided a case involving the power

of the Federal Government to tax a
municipal bond.

Mr. AUSTIN. Mr. President, I take
issue with that last statement of ab-

and now do away with the immunity

Constitution but expressed in the lives of
our people as represented by the Congress of the United States and the Su-

preme Court of the United States. In

time of war are we to stand for freedom
by maintaining freedom's bastions, or
are we to vote against it by opening the
door to further centralization of power
and removal of the protection which the
States have enjoyed against encroachment upon a function which is absolutely essential to their existence? For
my part, I shall support the amendment
of the Senator from Ohio.

Mr. THOMAS of Utah obtained the

floor.

Mr. GEORGE. Mr. President, will the
Senator from Utah permit me to dispose
of one brief matter and then suggest the
absence of a quorum?

Mr. THOMAS of Utah. I yield.
Mr. GEORGE. Mr. President, the next
amendment passed over is on page 91,
after line 13. under the heading "Credit
for dividends paid on certain preferred

stock." The Senator from Maine (Mr.
BREWSTER], the Senator from Alabama

Section 26 is amended by inserting at

"(h) Credit
for dividends paid on certain
preferred
stock

(1) Amount of credit: In the case of
public utility, the amount of dividends
during the taxable year on its preferred stock paid

The credit provided in this subsection shall

subtracted
from 27.
the basic surtax credit pro- be
vided in section

"(2) Definitions: As used in this subsec.
tion and section 15 (a)-

"(A) Public utility: The term 'public

utility* means a corporation engaged in the

furnishing of telephone service or in the sale

of electric energy. gas, or water, If the rates
for quch furnishing or sale, as the case may
be, have been established or approved by an
agency or instrumentality of the United States

or by a public utility or public service com.
mission or other similar body of the District
of Columbia or of any State or political sub.
division thereof.

(B) Preferred stock: The term 'preferred

stock' means stock issued prior to September
1942, which on September 1, 1942 and dur.

ing the whole of the taxable year was non.

voting stock the dividends in respect of which
were cumulative limited to the same amount
and payable in preference to the payment of
dividends on other stock."

The PRESIDING OFFICER Is there
objection to the present consideration of
the amendment? The Chair hears none.

[Mr. BANKHEAD), and other Senators have

Mr. GEORGE Mr. President, I offer
an amendment to the amendment on

the committee, and after conference with

page 92, line 15. after the word "was", to
strike out "nonvoting."

brought the situation to the attention of
the staff and with the Treasury representative, we are of the opinion that the
proposed amendment to the committee
amendment ought to be adopted. The
amendment to the amendment would
simply strike out the word "nonvoting"

in the committee amendment. It has

The PRESIDING OFFICER The
question is on agreeing to the amend-

ment offered by the Senator from

Georgia to the amendment reported by

the committee.

The amendment to the amendment

been discovered that under the constitutions and laws of some of the States a

was agreed to.
agreed to.

those principles are in effect today. after

strictly preferred stock is given certain
voting privileges. Moreover, the Securities and Exchange Commission has required the insertion of a limited voting
privilege in the issuance of some pre-

ment, even though the Pollock case was

If that is the only feature of this par-

solutism regarding the decisions of the
Court. I say that when the Court refers
to the Pollock case and reaffirms it in a
subsequent case, it adds to the strength

and the moral authority of the prin-

ciples of the Pollock case, and shows that

the adoption of the sixteenth amend-

decided before the sixteenth amendment was adopted. That is the value of

those cases.

I now invite attention to another case,
that of Helvering Mountain Producers'
Corporation (303 U. 376). This case
was decided in 1938. The Chief Justice
rendered the opinion. In that case he
took up the Pollock case. The immunity
from taxation of such bonds was distinguished, and the Pollock case was re-

affirmed.

How far are we going with this? We
are about to make a decision of the great-

est importance. By our vote on the

amendment of the Senator from Ohio
we are to say. after full consideration
and debate, whether we now stand for

freedom. as our predecessors have stood
for 150 years, or whether we are to break
down one of its most essential protectors

and bastions.

We are now about to decide by our vote

whether we think we are wise enough to
overrule the repeated decisions of the

Congress relating to the sixteenth

ferred stocks.

alaf Minendment which caused it to be
passed over, I am ready, with the consent

of the Senate, to accept the amendment
to the amendment, and let it go to conference. Is that agreeable to the Senator
from Michigan?
Mr. BROWN. Mr. President, I am very
happy to learn that the Senator has ac-

cepted the amendment to the amendment, because the situation in Michigan

is similar to that in Alabama, Maine, and
other States. I think the amendment to
the amendment would add very much to

the provision, and would carry out my
own original idea in presenting it to the

Finance Committee.

Mr. GEORGE. Mr. President, I ask
unanimous consent for the present consideration of the committee amendment
on page 91, after line 13, which has previously been passed over.

The PRESIDING OFFICER. The

amendment will be stated for the information of the Senate.
The CHIEF CLERK. On page 91, after

line 13, it is proposed to insert:

The amendment as amended was
Mr. GEORGE I now suggest the absence of a quorum, before the Senator

from Utah (Mr. THOMAS] begins his
address.

The PRESIDING OFFICER The
clerk will call the roll.
The Chief Clerk called the roll, and
the following Senators answered to their
names:
Alken

Gerry

O'Daniel

Austin

Gillette

O'Mahoney

Bailey

Green
Guffey

Overton
Pepper

Ball

Bankhead

Barbour
Barkley

Bilbo

Gurney
Hatch
Hayden

Herring

Radcliffe
Reed

Reynolds
Roster

Bone

Hill

Schwartz

Brewster
Brooks

Holman

Shipstead

Johnson, Calif.

Bulow
Bunker

Johnson. Colo.
Kilgore
La Follette

Burton
Butler

Lee

Byrd

Lodge

Capper

Lucas

Brown

Langer

Chavez

McCarran
McFarland
McKellar

Clark Idaho
Clark Mo.

McNary
Maloney

Connally

Maybank

Dansher

Mead

Caraway

Chandler

Davis

Millikin

Downey

Murdock

Doxey
Ellender

Murray
Norris

George

Nye

Smathers
Smith
Spencer

Stewart
Taft

Thomas Idaho

Thomas Okia
Thomas Utah
Truman

Tunnell
Tydings

Vandenberg
Van Nuys
Wagner
Wallgren
Walsh
Wheeler
White
Wiley

Willis

CONGRESSIONAL RECORDSENATE

1942

The PRESIDING OFFICER. Ninety
Senators having answered to their names,
a quorum is present.

Mr. BROWN. Mr. President, will the

Senator yield?

Mr. THOMAS of Utah. I yield.
Mr. BROWN. Mr. President, I ask unanimous consent that at this point in the
RECORD there be printed the opinion of

the Department of Justice on the constitutionality of the issue now before the
Senate-the right of the Federal Government under our income-tax laws to tax
the income from bond issues of State and
municipal governments.

For the benefit of the Members of the
Senate I desire to emphasize the conclusions reached by the Department:
The foregoing and an abundance of similar

evidence permitted the conclusion to be
reached in our study that the preponderant

understanding of the States at the time of
the ratification of the sixteenth amendment

was that its adoption would in all probability carry with it the power to tax the
income from State and municipal bonds.
We should like to reiterate. however, that

the constitutionality of the proposed legislation does not depend exclusively upon the
acceptance of our construction of the sixteenth amendment, namely, that the words
"from whatever source derived' mean exactly what they say, and as so interpreted
clearly embrace income from Government
securities. With full confidence. the validity
of our conclusion may rest upon the basic
proposition previously discussed that no implied constitutional immunity from Federal
taxation attaches to interest received from
State and municipal obligations.
There being no objection. the opinion
was ordered to be printed in the RECORD,
as follows:
DEPARTMENT OF JUSTICE

Washington, April 14, 1942.
Hon. RANDOLPH E. PAUL.

Tax Adviser to the Secretary of
the Treasury, Washington, D.

DEAR Ms. PAUL: On June 24. 1938, Hon.
James W. Morris, Assistant Attorney General

in charge of the Tax Division of the Department of Justice. transmitted to the Honorable Herman Oliphant, general counsel of
the Treasury Department, a comprehensive
study of the constitutional aspects of the
taxation of Government bondholders and
employees Copies of this study were also
made available to the appropriate congresstonal committees.

You have requested our opinion on the
constitutionality of the proposal by your
Department to subject to Federal income
tax the interest received hereafter on outstanding and future issues of State and
municipal bonds, with special emphasis on
legal developments subsequent to the publication of our study. We are pleased to
comply with your request and submit the
following views.

In our earlier study we expressed the fol-

lowing conclusion:

"It is believed that there can no longer
be found in the decisions of the Supreme
Court any rule of continuing authority which

would raise a constitutional prohibition

against applying the Federal income tax to
State bondholders officers, and employees.
You are no doubt aware that since that
time the decisions of the Supreme Court on
the question of constitutional tax immunity
have all served to reinforce and confirm that
conclusion. The trend toward a limitation
of such immunity, which had developed
when we published our study in 1938, has

continued without interruption to the
present date.

No. 172

We are, of course, no longer concerned

8185

Justice Stone had stated in the O'Keefe opin-

with the power of the Federal Government
to tax the income of State officers and em-

son, page 486. that there was no basis "for

Court in Graves v. N. 6% rel. O'Kee'e (306
466). and the enactment of the Public
Salary Tax Act of 1939, have removed that
problem from the field of controversy Taxa-

Government concerned as would justify a
decision that the tax upon the employee's

ployees. The decision of the Supreme

tion by both State and Federal Governmental

of the salaries of public employees is now
an accepted Incident of our fiscal system
The only remaining question is whether the
income received from State and municipal
obligations may be subjected to Federal
taxation. In our view, the answer is as clear

and certain as the solution of any legal
problem can ever be prior to a final deter-

the assumption that any tangible

or certain economic burden is imposed on the
salary was invalid.

On the other hand, It is no doubt true
that the issuing government would bear a
part of the economic burden of an income
tax imposed upon the bondholder. Nevertheless, this Department did not attach to
the statement of Mr. Justice Stone the sign
nificance urged for it by those who have
opposed the legislation now suggested. The

recent decision in Alabama against King &
Boozer confirms our view. It is now clearly

mination of the precise issue by the Supreme

established that the validity of a tax upon
bond interest will not be affected by the

income.

den will in some measure be passed on to the

Court. It is our considered opinion that the
Congress does have the power to tax such

It 18, of course, true that the Supreme

Court concluded in Pollock v. Farmers' Loan

increased likelihood that the economic burGovernment.

The question in the Alabama case was

& Trust Co. (157 U. B. 429. 158 U. 8. 601)
that a Federal tax could not validly be imposed upon income derived from municipal
obligations. That decision was based upon
the theory that a tax on income was a tax
upon the source from which the income was
derived. Thus, a tax on the income from
municipal bonds was the equivalent of a tax
upon the bonds themselves, and, therefore,
an unconstitutional burden upon the power

whether an Alabama sales tax. which was

completely discredited in later opinions of
the Supreme Court. With the destruction
of the premise of the Pollock case, its conclusion must also fall.
The theory, which once won a qualified
approval, that a fax on income is legally or
economically a tax on its source, is no longer

sumed and borne by the Government. Hence
there was no uncertainty as to the economic

effect of the tax as in the earlier case of
James v. Dravo Contracting Co. (302 U. B
134), which involved a lump-sum contract

in March 1939. in Graves v.N.Y. ex rel. O'Keeje

servation (pp. 8-9):

to borrow. However, this reasoning has been

tenable . said the Supreme Court

to be collected from the buyer. was unconstitutional in its application to purchases made by a contractor engaged by the

United States under a
contract. It was quite clear, of course. that
the entire burden of the tax would be borne

by the Government In fact, the Government had agreed with the contractor that
State taxes, if valid, would constitute part
of the cost of the project and would be as-

The Supreme Court nevertheless sustained

the State exaction In the course of its
opinion the Court made the following ob-

(306 U. S. 480) Less than a year earlier in
Helvering v. Gerhardt (304 U. S. 405). the
Court had sustained a Federal tax upon the
salaries received by employees of the Port

"So far as such a nondiscriminatory State
tax upon the contractor enters into the cost
of the materials to the Government, that is

opinion (p. 424) have imposed "to an inadmissible extent a restriction upon the taxing
power which the Constitution has granted to
the Federal Government." The imposition of
a State tax upon the salary of a Federal employee was similarly held in the O'Keefe case
not to place an unconstitutional burden upon
the employing sovereign. Collector v. Day
(11 Wall. 113). another landmark decision
like the Pollock case, was thus overruled
The express dental in the O'Keefe case that
a tax on income was the equivalent of a tax
upon the source represented no new thought
but was rather a reiteration of a principle
which had been applied in the court's prior
decision in New York ex rel. Cohn v. Graves
(300 U. S. 308) and in Hale v. State Board
(302 U.S.95). There, too, it had been recognized that "income is not necessarily clothed
with the tax immunity enjoyed by its source.
The opponents of the pending proposal
urge that it would produce an unconstitutional "Interference" with State governments.
Translated into practical terms, the interference complained of is merely the increased
cost of future public borrowing which might
be occasioned by the tax. It is significant
that this increased cost involves no discriminatory burden. Rather, it represents the
effect of placing income from private and

the one to be free of taxation by the other
does not spell immunity from paying the
added costs, attributable to the taxation of
those who furnish supplies to the Government and who have been granted no tax

of New York Authority The claimed immunity. If allowed. would in the Court's

public sources upon the same plane of
equality. The absence of any element of dis-

crimination would be helpful in sustaining
the constitutionality of the proposed tax.
Until the Supreme Court handed down its

decision in Alabama v. King & Boozer on

November 10, 1941 (314 U. 8. 1). there was
room for the view that, despite the decisions

affecting public employees a constitutional
immunity from taxation might possibly be
accorded to Government bondholders. Mr.

but a normal incident of the organization

within the same territory of two independent
taxing sovereignties. The asserted right of

immunity."

Thus, the Supreme Court finally laid to
rest the theory that an economic burden
in terms of increased governmental costs
invalidates a tax. The earlier opinions in
Panhandle Oil Co. v. Knox (277 U. 8. 218).
and Graves v. Texas Co. (298 U. S. 393). were

held untenable so far as they supported the
contrary conclusion

A decision which supports State taxation
of Federal cost-plus-a-fixed-fee contractors

would operate at least equally to sustain

Federal tax imposed upon State bondholders

Both relationships rest upon contract; one
involves the furnishing of supplies and serv-

ices. the other money. The tax in each

Instance would increase the cost of governmental operation: In the case of the State
tax on the Federal contractor, to the full
extent of the tax exacted: in the case of the
State bondholders. to some extent which is
difficult of precise ascertainment. Paraphras
ing the language of the Supreme Court in

the Alabama case, we may therefore conclude

that so far as a nondiscriminatory Federal

income tax upon a holder of a State obliga-

tion enters into the cost of borrowing, that
is but a normal incident of the organization
within the same territory of two independent
taxing sovereigns

What has been said thus far as to the

power of the Federal Government to impose
a tax upon income received from State obli.
gations applies with equal force to all interest
hereafter received whether upon future issues

or upon outstanding obligations. No con-

8186

CONGRESSIONAL RECORD-SENATE

stitutional question as to the validity of a
retroactive tax is involved (See United

conclusion that Irrespective of the weakened

cited therein.) The proposed tax reaches only

of the sixteenth amendment which would
remove the immunity of the State bondholder and officer. We there examined at
length the history of the ratification of the
amendment and presented as exhibits the
evidence which would support that conclusion. Accordingly, we refrain from entering
into that phase of the problem in detail

States v. Hudson (299 U. 498). and cases

future income and is therefore entirely prospective in operation. It possesses the same

constitutional validity as the income tax imposed by the Public Salary Tax Act of 1939
upon the income received after 1938 by all

Federal judges, irrespective of the date of
their appointment to office.
The assumption, which was formerly prev-

vitality of the Pollock case and Collector v.
Day. there is sound basis for a construction

One brief observation however, seems appro-

alent that interest received upon State securities was immune from Federal taxation,

priate.

is analogous to the assumption of many

Committee on Ways and Means of the House
of Representatives reference was made to the

years standing that under Evans v. Gore (253

U. 8. 245). an income tax upon the salaries

At the hearings last month before the

fears expressed in 1910 by then Governor

salaries of some Federal judges were made
subject to the income-tax laws by the Reve-

nue Act of 1932 which required that all

Hughes. of New York that the proposed
sixteenth amendment would authorize the
taxation of interest received from State and
municipal obligations. Reference was also
made to the subsequent assurances of Sen-

compensation received by judges taking office

stor Root and Senator Borah leading to the

of Federal judges would be unconstitutional

as a diminution of their compensation The

after June 6, 1932 the effective date of the
act. be included in gross income Judges
who had taken office prior to June 6. 1932
were thus given a statutory tax immunity

In the case of the bondholder express statu-

tory exemption was included in the act of
October 3, 1913, and this provision was repeated in later acts. With the realization
that tax immunity of judges who had taken
office prior to June 6, 1932. was not a constitutional requirement the Congress. by the

Public Salary Tax Act of 1939 took the final
step to remove it The present proposal to

tax future income of all State securities is
therefore consistent with the procedure and

objective of the Public Salary Tax Act of
1939 A further illustration of the applica-

tion of the income-tax laws to future income
arising out of transactions which were closed

before the particular taxing provision was
adopted may be found in Burnet V. Wells

(289 U. S. 670) The grantor of an irrevocable trust was there held constitutionally
taxable upon the trust income although the
trust had been created before the enactment

of the statute imposing the tax.
There is no constitutional basis for con-

tending that income hereafter received upon

outstanding State bonds must be free from
Federal taxation because the obligations were

issued and purchased on that implied or ex-

conclusion that the amendment was adopted

by the legislatures of all the States with the
views of the latter two in mind. The statemental of Governer Hughes and of Senators

Root and Borah. and of many others, were
gathered and commented upon in our study.

It is significant that a large number of public
officials (some agreeing and others disagree-

ing with the construction placed upon the
amendment by Governor Hughes) urged that

If the Hughes construction was correct, It
furnished an additional ground for the adoption of the amendment Among these was
Frederick M Davenport, to whom Senator
Root's letter had been addressed and Senator

Brown. of Nebraska, who was the father of

the joint resolution submitting the amendment to the States. It is also significant
that the New York Legislature rejected the

amendment in 1910 after the message of
Governor Hughes, but ratified it subsequently under the administration of Gov.
John A. Dix. who vigorously championed the

broadest interpretation of the amendment
The foregoing and an abundance of simflar evidence permitted the conclusion to be
reached in our study that the preponderant

understanding of the States at the time of

the ratification of the sixteenth amendment
was that its adoption would in all probability

pressed understanding The Federal Government was not a party to such contracts

carry with it the power to tax the income

revenue measure is not fettered by any agree-

the constitutionality of the prepased legiala.
tion does not depend exclusively upon the

and the power of the Congress to enact a
ment between individuals or between an individual and a State. There are many illustrations of this proposition. Thus, in Louisville & Nashville R. R. V. Mottley (219

from State and municipal bonds

We should like to reiterate however that
acceptance of our construction of the sixteenth amendment, hamely. that the words

"from whatever source derived" mean exactly

467), an act of Congress which prohibited the

what they say, and as 60 interpreted clearly

States (257 591). an order of the Inter-

With full confidence the validity of our conclusion may rest upon the basic proposition
previously discussed that no implied consti-

enforcement of certain contracts for transportation was upheld although applied to a
preexisting contract. In New York v. United
state Commerce Commission which increased

an intrastate railroad rate was upheld even
though the State charter had provided that
a lesser rate should be charged by the com-

pany. See also Norman B. & O. Co. (294
U. 8. 240)

It accordingly appears that no objection on

constitutional grounds can be successfully

raized against the proposal to tax the income

hereafter received upon outstanding State
obligations Indeed the assistant secretary

embrace income from Government securities.

tutional immunity from Federal taxation
attaches to interest received from State and
municipal obligations.
Very truly yours,
SAMUEL O. CLARK Jr.

Assistant Attorney General

Mr. THOMAS of Utah. Mr. President,
there are times in the history of our country which become epochal in relation to
various things which the Government has

mitted that If Federal taxation of income

done. I deem the action of the Senate
Finance Committee in reporting two

constitutional there remaine no constitu-

propositions almost epochal insofar as
they will affect, and affect for the better,
the taxing habits of our Government.

of the Conference on State Defense has ad.

arising out of future issues of State bonds is

tional bar to Federal taxation of the income
received from the bonds now outstanding
(Tax Immunity and the Revenue Bond. by
Daniel B. Goldberg. a printed memorandum
distributed by the Conference on State De.

fense, March 1940.)

The Department's study of 1988, referred
to above, reached a second and alternative

Despite what has just now been said by

the Senator from Vermont, I have felt,

and I think others have felt with me, that
when the people spoke for the sixteenth
amendment they asked for and they recelved a power which Congress had at

OCTOBER 8

first been denied, and that that power,
granted under the authority of the Con.
stitution, through the amending power.
was meant for universal application in
the ordinary sense in which I use that
term. I do not mean that something
from which no tax returns can be gained
should be taxed merely in order to make

taxes universal. I think It is perfectly

proper and in keeping with the income.
tax
tions.theory to permit the ordinary exemp.

However, certainly the words "from
whatever source derived" meant some.
thing. I have been told that every word

in our Constitution is important, and
especially important to constitutional

lawyers, and that sometimes the weight
of each word is equal to that of all other

words. Of course, that is a fallacious

statement, and no one would argue it.
However, we all know that an income
tax had been attempted and had been
denied by the High Court on constitu.

tional grounds; that the sixteenth

amendment adopted in-order to overcome a decision of the Supreme Court:
and that with the adoption of the sixteenth amendment there was a change
and a development of the American tax-

ing powers.

The pending bill provides for a reduction of the exemptions so as to make it
possible for the Federal Government to
bring about taxation of income from municipal bonds and securities. It provides
for a tax on gross income- tax which,

as I view the subject, is the most just
of all taxes, because it is levied universally, without deductions, and without

preferences. I hope and trust that this
new proposal will become law. and that
it may become a fundamental part of
our income-tax procedure as time goes
on. I say that, not as a constitutional
lawyer, for I am not a constitutional lawyer, but as a matter of ordinary fairness
as between individuals.

The sixteenth amendment was no

sooner adopted than Immediately the tax-

ing power given Congress under the

amendment started to be narrowed and

we soon learned that we could tax income

from whatever source derived except
judges' salaries; that we could tax income
from whatever source derived unless it
happened to be salaries of State officials
or those receiving their money from State
taxes: that we could tax income from
whatever source derived unless it hap-

pened to be from a bond or security
issued by a State or by a subdivision of a

State. Gradually. through litigation,
through contest, the words "from whatever source derived" were modified by
condition after condition. Of course, if
the fundamental theory in a democracy
that people and things should be treated
on the basis of equality is not accepted,
then the narrowing of the taxing range
seems logical to the man who likes special
privilege; it seems logical to a person who
believes that some should give and others
should not: It seems logical to those who

entertain the theory of taxation that
there should be those who should not pay

their just share of the burden.
Even when I was a beneficiary of tax
interpretations I could never understand
why my pay should not be taxed when

1942

8187

CONGRESSIONAL RECORDSENATE

the pay of a fellow professor in a neighboring institution was taxed.
cannot even now understand the basis

which certain deductions are allowed.
on I cannot understand why- and this, perhaps, is an argument in favor of a tax on

gross income- I give a dime to somebody who needs it badly. I cannot be
allowed a deduction in computing my tax.
but if I give the dime to an intermediate
agency. then I can be allowed the deduc-

tion, although the person who is to be

the beneficiary will probably receive only
9 percent of the dime. That is one of the
simple things to which, of course, great
courts, and especially great lawyers who
read decisions over and over again, never
pay attention

Mr. BROWN. Mr. President, will the
Senator permit an interruption there, to
allow me to interpolate a quotation from

an editorial in the New York Times which
says almost the same thing the Senator
is now saying?

Mr. THOMAS of Utah. I should be

glad to have the Senator do so, but I did
not read the editorial.
Mr. BROWN. It is so close to what the

Senator has stated that I think It buttresses and supports his argument. This
said at the time the sixteenth amendment was under consideration. Would
the Senator mind if (read it?

Mr. THOMAS of Utah. I should be

glad to have it read.

Mr. BROWN. The New York Times
in an editorial published on March 2,
1910, said:

The question regarding the constitutional
amendment enabling the Federal Govern-

ment to lay a tax on incomes "from what-

ever source derived" is not a question regard-

ing the conflict of laws, or for the construc-

tion of an obscure statute. involving dim.
cult question of principle. It is a question

addressed to the man in the street regarding

the adoption of a new policy as to which his
views should and will prevail. It is a question without roots in the past and looking
wholly to the future. The Supreme Court
perhaps might listen patiently to such an
argument as Senator Root's but the men in
the street will pay no attention to it. and
should not

It is not a question for the Supreme Court.
One man is theoretically as competent as
another under universal suffrage to say
whether the proposed constitutional enablement of the taxation of incomes from all
sources means that incomes from some
sources are not included, because they were

not included when the Constitution was
worded differently. The votes and the intelligence of the common people will and
should settle this question. Indisputably
they think and have a right to think that
the proposition is that Congress may tax
all incomes. The four words mean the
same after the 4,000 words of Senator Root's

argument are digested as before, and cannot be made to mean anything different, except by technicalities which can only prevail

the income tax who will never see Senator
Root's argument, and who ought not to be
troubled with it, their own interpretation
of the language being the very thing in ques-

tion. To argue that some sources of income

will not be taxable because they ought not
to be taxable, or because they have not

been taxable before, is beside the point.

Mr. THOMAS of Utah. I thank the
Senator, and I appreciate his reading
from the editorial. I know that that is
the way it looks to the man in the street.
I do not for a moment discount the type

of deduction made by the man in the

street, because our Government operates

as a result of the deductions of its citizens. Men do not go to the ballot box
and weigh every argument in favor of
this man or that man. They vote in favor of the man who they think better
represents their ideas of the American
system of government.
I said in the beginning of my remarks
that, either consciously or unconsciously,
we have done remarkable things which
have produced the real evolution in the

development of our constitutional

scheme. Those things have been done

as the result of certain stimuli. I think
that the two recommendations of the
Finance Committee, which I am now discussing. come as the result of long study

ernment stepped in and built a road in a

State without the State's consent. Of
course, it got the State's consent.
What would have become of our automobile industry. indeed. would we have

had any automobile industry, if it had
not been for the statesmanship of those
men who resolved an impossible situation? Some States could not build roads.
How, in the wide world, could the State

of Nevada, with its meager population
and wealth. build a road connecting Cali-

fornia and Utah, for example, without
some kind of Federal assistance? Who
would use the road that went across
Nevada, would it be merely the people

of Nevada? No. Roads are built for
all the people.

Mr. President, the American Union

cannot be destroyed by uniting the
people. That is physically impossible.
I stand for these two proposals advanced by the Finance Committee because they are a step forward in the
taxing process.

We were told by President Buchana
that the Federal Government could not
help the States in their educational programs, and he vetoed the Federal landgrant act; but a greater statesman took
the place of President Buchanan and
signed the measure which brought into

and because that committee has consistently tried to make the income tax a
fair and a just tax, and these two additions will make it a fair tax and a more

existence the Federal land-grant colleges.
Was the Union destroyed because some

just tax.

same basis with the richer communities?
What would our Government have been.
what would have become of this Federal

The arguments, Mr. President, about
our Federal system, about the destruction of sovereignty, about destroying the
rights of our cities and of our States by
taxing a person's income which is re-

celved from a State bond, does not appeal

strongly to me. We sometimes say we
are taxing State bonds: but there is no
tax on the bond itself: the tax is on the
individual income derived from the bond.
There is a difference, and we should
not allow our words to be confused in
that manner.
It has been stated so many times that
our Government would be destroyed by

some act that I marvel that it is able to

exist at all. Consider what has been
done within the last 5 or 6 years in merely

getting rid of various exemptions. In
each instance the same argument was
used that is now presented: yet the Fed-

eral Government has not been destroyed,
the powers of the State legislatures have

not been disturbed, and the power of

Congress has not been greatly developed:
but there is more justice in the land and

there is a better understanding in regard to the fundamentals of our constitutional system. Every time the Federal
Government has stepped forward with

new States and new Territories were
allowed to educate their people on the

organization which. it is said, is now
going to be destroyed again because the
Congress of the United States suggests

that John Doe, who owns a city bond,
shall pay an income tax on the interest
he derives from the bond. just as he
pays an income tax upon the dividend
of some corporation situated in the same
city which issues the bond?

How is the Federal system to be destroyed in that way? What is our Federal system? Is it a loosely knit organization made up of 48 separate States
like 48 blocks which can be picked up
and divided and thrown around? That
is not a reasonable conception of the
Federal Government.

I think no man understands better

than I do the contribution to the science

of government and the art of politics
made by the master minds who framed
our Federal system, and the great theory
there should be one government dealing
with those affairs which were common to
all the people, and a separate govern-

ment dealing with those affairs which

were common to dust a few people. That
is the essence of the Federal system. One
division as dependent upon the other.

at the cost of defeating the people's will.

some great act which has made the continuous development of our country possible; we have been met with the same

sort of argument. Lincoln thought that

When the fourteenth amendment to
the Constitution of the United States was

It is only necessary to find the meaning
of a few easy words, and they are to be

if we could fight to save the Union surely
we could spend a little money to build

begun by bringing into existence a defini-

and spontaneous interpretation as would be

knit together. Some contended that was

understood with the same freedom of natural

used in the case of private and personal
interest Only trouble can be made by sub-

stituting other words assumed to be equiv-

alent, and arguing as though they were in
the act, or that the meaning is otherwise
because it ought to be otherwise. Millions
will, through their Representatives vote on

a railway in order to keep the country

unconstitutional Consider the road

program; think of the argument back in
Jackson's time, think of the argument in
Wilson's time, that such a program was

unconstitutional and that the States

would be destroyed if the Federal Gov-

written, what a wonderful epoch was
tion of American citizenship. The fourteenth amendment is generally looked
upon as an amendment which gave us a
false doctrine in regard to persons, but
it is an amendment which makes it possible ultimately for the poorer persons in
the poorer and the weaker States who
are underprivileged because of the places

CONGRESSIONAL RECORD-SENATE

8188

To encourage investment in productive

where they live, to share as American
citizens should share rights and privi-

enterprise, the tax-exempt privileges of fu-

leges equally because of their citizenship.

removed.

Probably the definition of citizenship
was quite accidental, because those who
wrote the amendment were thinking of

other things; but it is the most states-

manlike, most forward looking notion. so
far as the science of government is concerned, that can be found in any of the
constitutional schemes of the world. because it gives us a key to something which
Webster thought could not be done and

which Calhoun thought could not be

done. Both those men in this very body
debated with the same logic. That SOVereignty is indivisible, and that it must
be one, and therefore must be in the national government, was contended by
Webster. That sovereignty is indivisible,
and must be one, therefore must be in the

States, was contended by Calhoun. We
know both statements to be fallacious.
It is possible to divide sovereignty on a

cooperative basis, and the fourteenth

amendment says that "All persons

born or naturalized in the United States,
and subject to the jurisdiction thereof.
are citizens of the United States and"and here duality comes into our scheme"and of the State wherein they reside."
Mr. President, we have now. through
these great mediums set up by the American Government, a key to governmental
organization as large as we want to make

it without in any sense destroying the
individual or without in any sense destroying the community. That is the
genesis of the American Constitution,
and that is what has come as a result of

growth in the American Constitution
That is what is in the American Constitution, because the fathers in writing
the Constitution established. as Marshall
proclaimed, a document which was to
last through the ages, not to last so ironbound that it would destroy itself, not
even to grow under the idea which became dominant after we got away from
Newton's balance theory and accepted as

our great fundamental Darwin's theory
of growth. We want to go even further
than that, and we can go even further
than that, because in the philosophy of
citizenship enunciated by the fourteenth
amendment we have a new idea about
politics and a new ideal of government,
government which can expand itself and
take care of any evolution which may

come.

Mr. LANGER Mr. President, will the

Senator yield?

Mr. THOMAS of Utah. I am glad to

yield.

Mr. LANGER I noted the distinguished Senator just mentioned politics.
Yesterday the statement was made on
the

and

in favor of the

Democratic the Party floor in 1940 of Party the had Senate planks the that in Republican their both plat-

and

secured of

I income forms therefore declaring from State copies municipal taxing the bonds. plat-

forms, and have before me both the Republican and the Democratic platforms.
After reading the plank in the Demo-

cratic platform I do not see how any
Democratic Senator can help voting
against the Burton amendment. This is

the plank:

ture Federal, State, and local bonds should be

I read It again:
To encourage investment in productive
enterprise, the tax-exempt privileges of future Federal, State, and local bonds should
be removed.

The distinguished Senator from Ver-

mont (Mr. AUSTIN said this morning
that people had not voted on this question. Mind you, the Republican Party
did not have any plank like this at all.
They had no plank dealing with the sub-

ject. But the people of the United

OCTOBER 8

cerned, I intend carry out the pledge
Iamendment.
made to my people vote against the
Mr. BURTON. Mr. President will the
Senator from Utah yield?

Mr. THOMAS of Utah. I yield.
Mr. BURTON. I should like to com.
ment briefly upon the statement which
has just been made by the Senator from

North Dakota in connection with what
he read from the Democratic platform
I assume he will not regard me as being
bound by that platform.
Mr. LANGER. I stated that it was not
in the Republican platform. I understand the Senator from Ohio is a Re.

States and I, myself, heard It mentioned

publican.

paign-depended upon this plank, and
thought that at last the income from

interpreting the Democratic platform.
believe that the members of the Democratic Party intend to abide by the Con-

from the platforms during the cam-

the $18,000,000,000 of bonds was going to

be taxed. Yet. with amazement, I lis-

tened yesterday, as I have this morning.
to Democratic Senators arguing against
taxing such income, when, as a matter
of fact, they were elected upon this very
plank.

In my judgment, if the Senator will

give me 1 more minute, It is exactly on
a parallel with what happened here some
months ago, when Wendell Willkie was
before the Committee on Foreign Relations and was interrogated, as all will
remember, by the distinguished Senator
from Missouri (Mr. CLARK], and was
asked about the various speeches he had

made. It will be remembered that he

said, "It was just campaign oratory.'

Mr. BALL. Mr. President, will the

Senator from Utah yield?

Mr. THOMAS of Utah. I yield.
Mr. BALL. I have heard the statement just made by the Senator from

North Dakota repeated so many times

that I am tired of hearing it. I was

in the committee hearing when Mr. Willkie was questioned, and what the Senator has repeated is not a correct quotation.

Mr. LANGER. I will say to the dis-

Mr. BURTON. That is correct. In

stitution of the United States, and, therefore, even though they may have placed

that plank in their platform, not fully

appreciating at the time its effect upon
local governments, I think It may be
properly assumed that they expect
to proceed in a constitutional manner.
and, under the decisions of the Supreme
Court, the amendment presented by the

committee is unconstitutional If they
wished to proceed in the manner indi-

cated in their platform, then they would
proceed by way of proposing a constitutional amendment

Mr. LANGER I agree to that, They
can do it either way. If they adopt the

amendment here and the Supreme Court
holds it to be unconstitutional then certainly they would go ahead and submit a
constitutional amendment.
Mr. BROWN. Mr. President, will the
Senator yield?
Mr. THOMAS of Utah. I yield.

Mr. BROWN. I call attention to the

fact that, as stated yesterday, although

I did not have the exact language at
hand. the Republican program committee, headed by the late Dr. Glenn Frank.

in its report to the Republican National

tinguished Senator from Minnesota that
before I rose on the floor today. I consulted the distinguished Senator from
Missouri (Mr. CLARK], who, I am sorry

Convention used the following language:
We favor elimination of all tax exemptions
of future issues of Federal, State, and mu-

inquired of him as to exactly what had
been said, and he replied that Mr. Willkie not only said, in response to his in
terrogation. what I have quoted, but that
when the Senator from North Dakota
(Mr. NYE) repeated the question, Mr.
Willikle made the same statement. I was
not a member of the committee, but my
information on the subject was received

Senator yield?

to note, is not present. I particularly

from the Senator from Missouri (Mr.

CLARK) only a few moments ago.

Mr. President, it does not make any
difference to me. I am neither a Republican nor a Democrat. However, I am
interested in the amendment under con-

sideration. The Republican Party of
North Dakota had in its State platform
almost identically the same language
that is in the Democratic national platform, and I, for one, believe in living up

to the platforms [believe the
people have a right to depend on the
platforms which the various political

parties adopt, and, 80 far as I am con-

nicipal securities.

Mr. BURTON. Mr. President, will the
Mr. THOMAS of Utah. I yield.
Mr. BURTON. The report to which

the Senator from Michigan referred was
a report of a committee to the convention. The convention did not adopt that
report on that point. but even that committee, I think, in its report, advocated

only procedure by a constitutional

amendment. The committee, of which
the Senator from Michigan was chairman, which made an investigation some

time ago of this matter. reported to the

Senate a measure providing for taxation
of State tax-exempt securities. I believe
the Senator said, by a vote of 4 to 2. but
when the measure came before the Senate, the Senate itself voted against such
taxation by a vote of 34 to 20.
Mr. THOMAS of Utah. Mr. President,
I am glad the Senator from Ohio brought
up the constitutional question, not because I propose to answer it. but because

I desire to tell of an incident. I think

CONGRESSIONAL RECORDSENATE

1942

the Senator will grant that if we are
acting unconstitutionally today. we prob-

ably acted unconstitutionally when we
with other exemptions, actions

or at an

been

ofIn 1937
idea
I had a discussion with the

by did which the reversals away Court's have sustained of least the by Federal by the evolution system. courts

chairman of the Senate Judiciary Committee. He had introduced an amend-

ment to the Constitution providing for

overcoming the various exemptions in re-

gard to bonds. I took the stand that a

constitutional amendment was not neces-

sary. I do not believe that a constitutional amendment is ever necessary to
oversome a decision of the Supreme
Count. Since its creation the Supreme
Cotat has heard and considered only
real causes.

Through its whole history it has refused to go into the field of advisory
opinion. Every decision handed down
by the Supreme Court is a decision déal-

ing with a particular case. It is true
that the dicta and the words of the

judges in arguing the decisions have become the dominating thought, but those
dicta have not become the dominating

law of our land. If they had we would

have had confusion worse confounded,
and it would be impossible for any court
to overcome a previous decision, because
it would find itself engaged in such con-

flict of logic that it would forget the

cause before it.

Mr. President, we all revere Justice
Marshall, who wrote the opinion in the

McCulloch versus Maryland case, but in
that case he happened to make a statement which has been made the foundation for more false argument than prob-

ably anything else that Marshall ever
said. He handed down a truism, a truism soon misquoted, a truism which is
valid only to a certain extent, a truism
which is utterly invalid in the experience
of the United States.
The power to taxHe said-

involves the power to destroy.

Soon politicians and judges were quoting Marshall's words asThe power to tax is the power to destroy.

We know that taxation has been used
in our own Government to destroy. But
if. as argued, American liberty and the
American federal system, the sovereignty
of the free States, had depended upon a

truism which is valid only to a certain
extent, our Government would have hung

by a thread so thin and so narrow that
it would have disintegrated long ago.
If the power to tax is the power to destroy, the States would have been destroyed time and time again.
Back in the last war I happened to be

on a State pay roll. I would buy a railroad ticket and would not have to pay a
tax. I would buy gasoline for a State car
and did not have to pay the gasoline tax.

ot-because Marshall away back in the
McCulloch case said:
The power to tax is the power to destroy.

No. Mr. President, he did not say that.
He said:

The power to tax involves the power to
destroy.

Now we have changed all those things
without destroying the sovereignty of the
States. We have provided for the taxation of State salaries without destroying
the power of the States. The only thing
left is the taxing of the income on taxexempt bonds.

Mr. President, what municipality in

the United States is going to be destroyed
If we start taxing John Doe because be
receives some money from a municipal

bond? Name the town, name the city,
name the State. By a stretch of the
imagination one can assume, I suppose,
that all States and all cities are operated

entirely on borrowed money: but they
are not. Taxation of such income does
not interfere with the taxing power of
the local taxing units. It does not interfere with the taxing power of the cities.
The argument is fallacious, just as fallaclous as it has always been, when it has
been put forth to stop some kind of im
provement on the score that the power
of the States would be destroyed.
Mr. President, in the past 4 or 5 years
we have gone forward with a type of cooperation between the States and the

Mr. THOMAS of Utah. Mr. President,

all I have said up to the present time
has been an argument which could be

used in answering the Senator from
North Carolina. I will not repeat what
I have heretofore said. I am glad the
Senator calls it simply an indirect tax
instead of a 'direct tax.
Mr. BAILEY should like to make the
record straight on that point. All Federal taxes are indirect. We will make no
progress by making a distinction. If we
levied a direct tax it would have to be
apportioned among the States under the
Constitution. For that reason there are
no direct taxes levied by the Federal Government.

Mr. THOMAS of Utah. Mr. President,
If I had a share of bank stock which paid
me a dividend, and my State took some
of the dividend money in taxation, that
would not be a tax upon the bank.

Mr. BAILEY. Does the Senator dies

pute the fact that a tax upon the income
of a city security or a State security is

tax which is a taking by a Federal act
from the city or the State, as the case

may be?

Mr. THOMAS of Utah. It is taking

State money, I grant, but we tax salaries
of State officials, and that money comes
out of taxes imposed by the State.

Mr. BAILEY. But the State is not

under necessity in that case. It does not

have to raise the salaries. That is a

spoken of as a system of borrowing money

State issues bonds of necessity. They are

from the Federal Government instead of

from private concerns At any rate,

most of the public-works program of the
last several years has been built upon a
cooperative system. There is no doubt
that that system will be continued, first,

because it represents an evolutionary
notion.

Mr. BAILEY Mr. President, will the

Senator yield?

Mr. THOMAS of Utah. I yield.
Mr. BAILEY. I should like the Senator to discuss the proposition that taxation of income derived from State or
municipal securities is taxation of the
State or the municipality. I waive the
question of the power to tax being the
power to destroy. Is not the taxation
of such income taxation of the city? I
will give the Senator an illustration. A
city issues its bonds, which are nontaxable, and sells them at a premium or at
a very low rate of interest. But let us
say the city issues its bonds and that
the income from them is taxable. The
purchaser will not pay the premium, or
else the interest rate is increased. In
either event the people of the city or the
people of the State issuing the securities
are required to pay higher taxes in order
to pay the increased interest on the bonds
or the difference on the principal if the
bond is sold below par. What strikes me
is that we are dealing here with an indirect tax on the cities, the counties, and

the States of this country. That is not
the power to destroy. but where is it in
accord with our system of dual govern-

a someone made a ruling that

ment, if we do have a dual government?
There are some vestiges of it left. How
do we reconcile that policy with our sys-

we dare not get into that field-we dare

tem of government? That is my question.

Federal Government which may be

I would buy tires for the State car and
did not have to pay a tax on the tires.
There were exemptions, exemptions, exemptions, simply because someone- not

8189

matter of discretion with the State. The
issued for necessary purposes. The city
issues bonds of necessity. It does not do
so by choice: it is because of necessity. by
reason of the growth of the city, for the
construction of water works, and so on.

Mr. THOMAS of Utah. I cannot understand the logic of the Senator. Surely
it is just as necessary to pay the salary
of the governor of the State. His salary
may be paid with money raised from the
sale of bonds, but I hope no State does so.

Mr. BAILEY. I know that the Senator
is a very able scholar and a thoroughly
reasonable man. He draws a distinction
between taxing the income from a bond
issued by a State and taxing the salary

of the Governor of a State. We take
nothing from the State when we levy a

tax on the salary of the Governor. If
the salary is $10,000 and we take $4,000,

the State continues to pay $10,000 for
the services of the Governor. But when
the State issues a bond, if the bond is

subject to taxation, every purchaser

knows it. The State must then sell the
bond for less or pay a greater rate of
interest. It is a case of necessity
Mr. THOMAS of Utah. Granted: but
I have sold bonds, and I have carried in
the same portfolio bonds of this district
and bonds of that city. I was not able
to sell them on an equality. Let us take
the State of Utah and compare it with
the great State of Virginia, for example.
Under the Senator's theory, in Utah we
must pay more for money raised from
the sale of bonds because, in theory, the
man to whom the bonds are sold
Mr. BAILEY. My very able friend sees
the difference, without reflecting on a

CONGRESSIONAL RECORDSENATE

State, between a man with good security

and a man with none. I do not think
the Senator's analogy will go very far.

Mr. THOMAS of Utah. But it holds in
practice. Whenever a Senator says that
when a State sells its bonds at A lower
price than the price at which some other
State sells bonds, that is a tax upon the
people of that community, then I think
my logic is just as valid as his. It is not

a tax. It is because the bond is not
worth as much

Mr. BAILEY. I will not detain the

Senator longer in his argument; but I

should like to say that it does not appeal
to me as being valid. Take the case of

a man who has very little credit. Even
in the District of Columbia, under the
operations of a system devised by what
we call the Sage Foundation, men pay
as much as 32 percent for money. That
is perfectly oppressive, hopeless, and out-

rageous. I do not approve it. Another
man, a very able man. whose credit is
good with everybody, obtains money at

1 or 2 percent There is a difference
in condition. There is no element of

taxation. There is no element of compulsion That is one of the unfortunate
things due to differences in the condi-

tions of men.
Consider the whole body of State, mu-

nicipal, and county securities. There are
others to come. There are schools to be

built-and we have not gone as far in

direction as we must go water lines

to be laid, sewers to be built, and sanitary

facilities to be established. They are
comprised in the whole social fabric of
municipal and State government. I have
always thought that the States have a
far greater social function than has the
Federal Government That is my doctrine; and that was the doctrine of this
country until Pelham against Massachu-

setts, in 1922.

Suppose we should authorize the levy-

ing of the proposed tax. Immediately

every State and every city would increase
its interest rate, or reduce the premium.
In any event, the effect would be a tax
upon the State or the city. What is pro-

posed by the bill is a taking by act of

Congress. That troubles me very greatly.
I do not like to see people escape taxa-

tion. The wealthy man who buys the

bond of my city of Raleigh does not there-

by escape Federal taxation. The city of
Raleigh gets the benefit of it, and the

people of the city of Raleigh are the

people of the U. S. to that extent.
The argument about favoring the rich
will not hold water. All we do is to per-

mit the States, cities, and counties of
the country to finance themselves; and
the people of those States, cities, and
counties get the benefit of it. It is universal in its application.

That, to my mind, is the nub of the
trouble. If the Senator can clear It up,
I shall not contend with him beyond the
point where he convinces me.

Mr. THOMAS of Utah Mr. President
I cannot be clear as to what is in any
man's mind, especially after listening to
the arguments of the Senator from North
Carolina. However, other factors enter

into the prices of bonds, and into the

interest rates.

Mr. BAILEY. of course, there are
other things; but once we enact the
proposed legislation, this factor will be

constant:

Mr. THOMAS of Utah. Mr. President,

without wishing to prolong the argument, let me say that If this year I buy a
$100 bond which pays 5 percent, and
next year buy one which pays only 3 percent, I realize that there is a difference.
We are talking about different things.
Incidentally, I did not say a word about
taxing the rich, and I never do so, because my theory of the income tax is

that it ought to be universal. That is
one of the arguments which I put forward. That is why I favor the gross in-

come tax. It is fair. think of the person who is taxed All the logic in the
world cannot remove the fact that the

income tax is on the person who receives
the income, and not upon the bond, regardless of the consequences upon the
bond.

Let us suppose that I own a $100 municipal bond, and a $100 bond of a corporation within that municipality, each
of them paying me 5 percent interest
On the one I pay a Federal tax. and on

change the illustration and consider two
persons, one of whom owns the municipal bond, and the other the bond of the
corporation, we have one person who is
exempt from taxation. Each receives
exactly the same amount
As I understand the sixteenth amendnot as a great jurist would see it.
probably, and not as a judge would see

it in handing down a particular opin-the theory was to permit the Federal Government to tax the income of
persons everywhere, from whatever
source derived. That is the way I read

I do not believe the Senator is safe
in undertaking to proceed on the idea
that there is an analogy in the matter
of taxation, at any rate, between tax.
ing income from the securities of a cor-

Mr. BAILEY. Cities are incorporated
but
that does not make them corporations.

Mr. THOMAS of Utah. I agree with
the Senator. I should go very much
further and say that no two city corporations organized exactly alike. They
are complex corporations; and therefore
a rule about taxation may work in one
community and may not work in another,
because of the very complexity of the
make-up. In one city there may be a
city waterworks, a city streetcar system.
and various other facilities owned by the
city, which makes all the difference in
Mr. BAILEY. There Is a difference between imposing a burden on a corporation or business and imposing a burden
upon a unit of government. We are deal-

ing with a proposed action which is
tantamount to a tax on another unit of
government. It strikes me that that is

the hurdle which we must all get over.
Mr. THOMAS of Utah. I will help the
Senator over it by asking a question. Of

course, I know that the Senator from

mind about it. I have run into this very
obstacle.

So say to the Senstor that he mis-

understands me. I should like to be convinced. I should like to walk out of this

chamber with a clear mind that I have
done right. So if the Senator will con-

comes from whatever source derived; but

is another.

Mr. THOMAS of Utah. However,

through legal definition most cities are
corporations.

Mr. BAILEY. Let me say that I want

gress shall have the power to tax in-

have heard many a man say that a city
should be conducted like a corporation;
that a city is a corporation, and all the
citizens are stockholders. That is a very
superficial view. It may make an Illustrative appeal to an audience: but a corporation is one thing and a government

that there is involved in a city all that is
involved in the concept of government
but in a corporation there is involved
merely
the concept of managing ape.
clai interest.

to be convinced. I voted for the section.
I have had a great deal of trouble in my

rent view, but it is not the view to which
we have all been accustomed The sixteenth amendment says that the Con-

ment. That is the great difference. I

which is infinitely more than a corpora.

vinced.

Mr. BAILEY. That may be the cur-

and force that It was never intended that

city, which in corporate form. but a

North Carolina does not want to be con-

the sixteenth amendment

we should tax the securities of cities,
counties, or States as though they were
corporations. I think the Senator is un.
fortunate in undertaking to put them in
the same category. The United States
Steel Corporation is a corporation engaged in an industry However, a State
is a body corporate engaged in govern-

poration and taxing the securities of

the world.

the other I pay no Federal tax. If we

I have previously contended and the
contention is satisfactory to me-that
that amendment must be read in connection with the whole Constitution
think it can be contended with reason

OCTOBER 8

tion. The Senator will agree with

vince me, I should like to have him do so.
Mr. THOMAS of Utah. Mr. President
I realize that I cannot convince the SenI

8190

ator. I realize, from the laughter all
around me by my associates in the Senate

that I have been put in a box, and that
I cannot move out of it.

I believe that If the Senator from

North Carolina thinks about the matter
he will realize that by agreeing to the
committee amendment the Congress of
the United States would not be the imposer of a direct burden upon the munici-

palities. Any man who handles municipal bonds and who goes from bank to
bank trying to find the high bidder, and
who finally gets a bid that is 2 percent
less, realizes that he does not get the
bid which is 2 percent less as a result of
any act of the Congress of the United

States or of the Government of the

United States. The burden which is imposed upon the taxpayer who buys the
bonds is imposed by the banker or by
the buyer of the bonds himself. and not
by any act of the Government
If. for instance, we assume that we
shall be able to sell the bonds at a some-

CONGRESSIONAL RECORD-SENATE

what lower price, as we do, because the

Federal Government says that the in-

come from the bond issued by the instru-

mentality will not be taxed. of course
that is valid. The purchaser pays more
money for the bond because he can sell

it for more money. and so on. and so
forth. However, the Federal Government is not in the least responsible for
that situation, and historically it is not
legally responsible. It would responsible for abolishing that advantage, and

it is its abolition which I think is just.
Mr. BAILEY. Mr. President, let us
consider a bond which yields 2 1/2 per-

cent net. Let us say it is a city bond.
If we were to impose a tax upon it, so

that it would yield 21/4 percent or 2 per-

cent or 1% percent, according to the
income of the purchaser, because we
have graduated rates, immediately the
purchaser would bid less for the bond
unless the city raised the rate. There
is the act of imposition. The starting
point there is what the Federal Government did. The Senator will agree with
me that the bond might sell at 2 1/2 percent: the rate of return might vary with
the war news.

However, here is the constant factor:
If, as soon as the proposed tax is imposed upon the income from it, it sells
at 2 1/2 percent, at once the number of

buyers in the market is reduced. At
once we reduce the number of such

buyers, and at once we reduce the par
value. That is reflected either in selling at a premium or in selling below
par.

I think that situation is what actuated the committee in heretofore exempting the income from bonds pre-

viously issued. The banks and Insurance

companies are filled with them. They

have been the great purchasers of such
bonds. If we take the income from past
issues of bonds, we imperil the capital of
thousands of banks and we injure a great
many insurance companies. However,
that is behind us.
Now we go forward and run directly in-

to the proposition that any tax which

may be levied under the authority of the
bill which is before us will be reflected in
an increased burden upon the city, the
county, or the State, and that will be a
burden upon the people of the city, the
county. or the State, and by no means
a burden upon any wealthy man who buys

the bond.

Mr. THOMAS of Utah. I am sorry
that the Senator used that last sentence if he was answering me, because I

made no argument about what the
wealthy man would make

Mr. BAILEY. I was responding to the
general argument; I did not hear the
Senator from Utah say anything about
it. That is the general argument.
I shall not interrupt the Senator an.
other time; but now I should like to say
that I think it was the Secretary of the
Treasury. Mr. Andrew Mellon, who first

recommended such a tax. I have not
seen the report, but it was before the

velopment of the taxing process, the FInance Committee has done a remarkable
thing by recommending a gross income

made $100,000,000 or $200,000,000. Of
course, I do not profess to be in any such

tax.

class.

started to tell of an incident of which
was reminded by the Senator from Ohio

However, I think he was mistaken. I
do not think we are proposing to take
money from wealthy men by way of taxation. I do think that we are proposing
to necessitate additional burdens of taxation upon the people who would have

when he asked whether the Congress
should proceed constitutionally or not.
Of course, the Congress should proceed,

constitutionally; that is the only way in

to bear them- people of the cities,

which it can proceed: but Congress does
things in a different way today than they
were done before, and the Supreme Court
has changed its view as to the constitu-

the counties, and the States.
That is the point which struck me; but
I assure the Senator that if he can convince me. I hope he will do so. I am open

tionality of questions time and time
again. I have never held that it took a

to conviction. I should dislike to think

that my mind was closed.

constitutional amendment to overcome a
decision of the Supreme Court.

logic in regard to the imposition of a
burden: but I do not accept the logic
in regard to the imposition of a bur-

amendments to overcome such decisions,

Mr. THOMAS of Utah. No one can
convince the Senator if he accepts his

We have adopted constitutional

and the Sixteenth Amendment is one of
them, but I believe that, as a theory of
government, as a theory of logic, such #
procedure is sometimes unnecessa
Therefore, in 1937, after the argument of
the chairman of the Judiciary Committee, who said that the only way we could

den so far as one being imposed by the

Congress of the United States is con-

cerned.

Mr. BAILEY. I beg the Senator's par-

don. If I lay a tax on United States

Steel it can pass on the burden to the
purchasers of steel. If I lay a tax on
a city bond the city must pass on the
burden to the people of the city.
think it is the imposition of a burden.
I assure the Senator that I shall not
further interrupt him.
Mr. THOMAS of Utah. I thank the

overcome various exemptions would be by

Senator most heartily.
Mr. President, I have somewhat lost
the trend of my thought, because I was
referring to only two points, and had no
idea that I should speak at such length.
have commended the Senate Finance
Committee for reporting the two propo-

sitions: I have done so on the simple
basis that the trend of the taxing habits
of the United States in regard to in-

come taxes has been to narrow the exemp-

constitutional amendment, I said If we
could get another review of the question
by the court we could overcome the exemptions by decision, because the court
as then constituted would not stand by
the Evans case and some of the other
cases. I, therefore, submitted an amendment to the tax act of 1937, providing for

a tax on gross incomes. I jokingly told
the Members of the Senate who were
members of the Judiciary Committee that

I was going to write into the law the
Constitution of the United States, and
I quoted in my amendment the provision
that there should be levied upon all in-

comes, from whatever source derived
and before any deductions were made
one-half of one percent.

tions. I continue that line of discussion on the theory that the more universal the tax the better the tax from

Of course, no one supported the
amendment. To me it sounded like a
simple amendment, Mr. President, but
after the amendment was offered and

exemptions the better the tax from a
democratic standpoint; the fewer the

was sent to the legislative counsel, when

a democratic standpoint; the fewer the

exemptions the less opportunity for special privilege, special consideration, and
special write-offs.

The problem, about which the Senator
from North Carolina has been talking is

a problem, not in law. but in simple

government. It is a governmental process: Shall we maintain a taxing system
which in theory is supposed to be equal

and universal- a graduated scale,

of which in fact is not?

That is the question. The tax is imposed
upon the individual, the receiver of the

income. I still stand by the theory of

the amendment "from whatever source

it came back it covered 29 full printed
pages. That is how complex our taxing
system has become; that is how disintegration has been setting in, and that
is, in a little way. what is actually happening.

Since the adoption of the sixteenth
amendment we have undertaken to tax
income from whatever source derived

except in the case of the salaries of
judges, and of State employees, and
except in the case of bonds of certain
kinds. The tendency of those exemptions was to narrow the taxing field.
The first requirement of any government, if it is to grow and to build itself

derived.' I think it is valid; I think it

up, is to widen the taxing field constantly

is proper.

that government must not tax that which

have been made. it is because of the
write-offs, it is because of the various
amounts which can be subtracted from
this man's income but which cannot be

produces but that which is produced.
because when the capital structure is
taxed ultimately the ability to pay taxes

It is because of the exemptions which

committee. He made a report, s alleged,

subtracted from that man's income, that

Federal Government to stand by and to
permit a great body of tax-free securities
to be outstanding for people to buy and

square, and just income tax is one levied
upon gross income. Therefore. I repeat
what I said in the beginning, that, from

that it would be unfortunate for the

8191

the standpoint of the growth and de-

thereby escape taxes. Mr. Mellon was
an able financier. I understand that he

1942

I have always maintained that a fair,

and everlastingly. It is an old truism

is destroyed.

Mr. BONE. Mr. President

The PRESIDING OFFICER (Mr.

SPENCER in the chair). Does the Senator

from Utah yield to the Senator from
Washington?

CONGRESSIONAL RECORD-SENATE

8192

income-taxamendment to the Constitu-

Mr. BROWN. Very recently the case
of Evans against Gore was overruled in
O'Malley V. Woodrough (307 U. S. 272:
1939)-directly overruled and stated by

Supreme Court of the United States at-

Mr. BONE. It seems to me, in the

Mr. THOMAS of Utah. I am glad to
yield.

Mr. BONE. Since we adopted the
sixteenth amendment- the

tempted to interpret the words "from

whatever source derived" to afford a basis

for the argument that the Federal Government cannot tax. for example, income
from certain securities. or was that declsion prior to the enactment of the present Income tax law? I do not recall at
the moment.

Mr. THOMAS of Utah. I cannot answer that question because I am not
familiar with the decisions, but in decid-

ing the Evans case I am sure that the
Court brought in other parts of the Constitution instead of the sixteenth amend-

ment, and I am sure that the practice
which grew up after the last war, when
the income tax became important, was
developed entirely upon the fallacious interpretation of the decision in the Pollock
case.

Mr. BONE I never could follow the
reasoning of the Court. It seems to have
proceeded on some theory of contract,
because the constitutional provision was

too plain for words, that income, from
whatever source derived, might be taxed.

the court to be overruled.

light of the clearly demonstrated viewpoint of the Supreme Court as presently
constituted, that the court would never
hold that we could not tax the salary of
anyone. We are not certainly diminishing any man's salary by taxing it after it
comes into his possession: we have not
lowered his salary. but merely made him
contribute the expense of running the
Government and conducting the war.
As to the principle of taxing income from
municipal securities, I know a great many
very persuasive arguments may be made

on both sides of the question, and I
listened with a great deal of interest to

the argument of our friend the Senator
from Vermont (Mr. AUSTIN], who probably presented as forcefully as anyone
could the viewpoint that has been ex-

pressed many times by attorneys for
municipal corporations, who have
doubted the wisdom of such a tax for
reasons apparent to every lawyer, but I
think it is time to lay at rest the question
of whether or not ve can tax income from
any source derived which is now exempt

That does not require any interpretation,
it seems to me. The people adopted that

under the law.

been able to see the weight of the argument which has been advanced. that we
have no inherent power to tax income.

what was in the minds of the American

constitutional provision. have never

I think it is a matter of policy rather
than of power.

I have not heard all the Senator's argument, but I assume It to be that Congress has the power by legislation to tax
income from whatever source derived
It seems to me there can be no question
about that, and I should like to see that

particular principle of law laid at rest
for once and for all, for I think that the
theory which has been advanced that
under the sixteenth amendment we cannot tax income from any source is fal-

lacious.

Mr. THOMAS of Utah. I think the

Senator from Michigan has a better answer to the Senator's question than I
have, and I will ask him to reply to the

Senator.

Mr. BROWN The case of Evans V.
Gore (253 245, 1920) was a case involving the salary of a Federal judge. In
that case the sixteenth amendment was
referred to incidentally, but the basis of
the decision in the Gore case was that
the salary of a judge, under the consti-

tutional provision, may not be diminished during the term for which he was
appointed. The court held-I think erroneously-that the taxing of the salary

of the judge was a diminishment.
Mr. BONE. That was a refinement of

reasoning It did not lower his salary;
it merely taxed it after it came into his
possession

Mr. BROWN. It taxed it just as the
salaries of all other citizens are taxed,

Mr. THOMAS of Utah. As a result of
the decision. the average man on the
street said that the judges were taking

care of themselves.

Mr. THOMAS of Utah. I should like
to see it laid at rest, because I know

people when they adopted the

amendment

Mr. BONE. That is correct.
Mr. THOMAS of Utah Debating societies have talked about the income tax
and discussed the great injustice which
had been done to our Government because of the Supreme Court decision.
We know the various theories in regard
to the income tax which were brought
into the argument in that case. It was

stated that the tax would destroy our
Government, destroy the Federal system,

destroy everything that was good. We
know of the argument made before the
Supreme Court of the United States by

a great jurist wherein he used words

which shook the Nation. that the income
tax was a communistic device and would

bring about a change in the American
standard of living for which the people
would not stand. Such arguments make
one laugh today. and yet the same argument is being advanced against the last
step in the effort to overcome the extremely great injustice in regard to the

sprc of taxation.
Mr. BONE. Mr. President, will the

Senator yield further?

Mr. THOMAS of Utah. I am glad to

yield.

Mr. BONE. I do not believe that I

am overstating the attitude of mind of
the average man, but from my recollec-

argument the
of voted on
of the

amendment time tion the the of Union the legislatures which advanced the various income-tax at States

was proposed to them,

I think am only stating the truth, when
I say that 999 out of every 1,000 human
beings who read about it and talked
about it believed sincerely that when

OCTOBER 8

their State approved the amendment
gave the Congress the right to tax in. It
comes
in this country from whatever
source derived.
That was the overwhelming view, that
was the belief people honestly cherished
about it, and it came with a great shock

to taxed.
find that
be

some incomes were not to

Mr. THOMAS of Utah. If the Sena.
tor will read the statement of the Governor of my State to the legislature in
recommending that the amendment be
not ratified, he will find that he argued
in just the way the Senator has argued,
that the levying of an income tax should
be reserved as a system of taxation by the

States: that the ratification of the

amendment would take away certain

powers from the States which they then
had: and that if income from whatever
source derived were taxed by the Fed.
eral Government, the States would never
be able to impose a State income tax.

Mr. BONE. That argument is ad-

vanced now.

Mr. THOMAS of Utah. It did not destroy the Union-although Utah voted
against the amendment, I am sorry to
say.

Mr. NORRIS. Mr. President
The PRESIDING OFFICER. Does the
Senator from Utah yield to the Senator
from Nebraska?

Mr. THOMAS of Utah. I am glad to

yield.

Mr. NORRIS. Suppose one were going to write an amendment which would
give the authority to tax as is proposed
in the committee amendment, I wish the
Senator would tell the Senate what lan-

guage he could use which would be

plainer, in the effort to bring about that
result, than the language of the sixteenth
amendment itself. "from whatever source

derived." Could the Senator think of
anything that would be more comprehensive? Is there a possibility of any
man framing words in the English language so as better to express the idea
that power was given to tax all instrumentalities, than by the language of the
sixteenth amendment itself?
Mr. THOMAS of Utah. The implication in the question of the Senator from
Nebraska cannot be answered. There is
no way of describing any source in language broader than "whatever source.
Mr. NORRIS. Then it follows that it
cannot be done, and if the Senators who
say we have no right to impose that kind
of a tax are correct, it is impossible to
frame an amendment which would give
us that right.
Mr. THOMAS of Utah. It would mean
it would be useless to reduce laws to
writing.

Mr. NORRIS Certainly.

Mr. THOMAS of Utah. It would
mean, further, that if we interpreted it
loosely, even as it has been interpreted
by the courts, the Constitution would
become meaningless

Mr. NORRIS. Absolutely.
Mr. THOMAS of Utah. And the Constitution becomes purposeless if. for example, we decided every constitutional
question according to the last decision,

CONGRESSIONAL RECORDSENATE

1942

instead of going back to the original
document itself.

Mr. President, just one more word.
Appeal has been made for the preservation of freedom and for the preservation

of our Federal system. I do not know

how to answer that kind of an argument.

I have been reading the history of the
United States covering the last 150 years,

and each time our Government has
moved forward in an expansion of its
constitutional powers, the destruction of
liberty has been predicted, and the destruction of the Federal Government has
been prophesied. Yet we all know that,
man for man, the American citizen today is much ahead of the citizen of the
United States 150 years ago.

We know that, State for State, each
State is stronger than it was then, even
in a comparative sense. We know that
the scheme of our constitution has so
progressed that today the people of the
United States realize that the constitution is the companion of the American
people in accomplishing their. political
and social ends.

Mr. LANGER. Mr. President, will the
Senator yield?

Mr. THOMAS of Utah. I yield.
Mr. LANGER. During the course of
the Senator's remarks I asked him a
question and made a statement which

was disputed by the junior Senator from
Minnesota [Mr. BALL], in regard to what
Mr. Wendell Willkie said during a hear-

ing before the Committee on Foreign
Relations of the United States Senate.
Because of the fact that there has arisen
a question of veracity between the Sena-

tor from Missouri (Mr. CLARK] and the

junior Senator from Minnesota (Mr.

BALL], I have secured a copy of the report of the hearing to which I have referred, and will quote from it.
Under date of February 11. 1941, Mr.
Willkie appeared before the committee,
and a colloquy took place, from which I
will cite the part that is material to the
present discussion
Mr. WILLKIE You said he would not get us
into war.

Senator CLARK of Missouri. No: I made no
such promise for the President

Mr. WILLKIE As to the statement about
the President, in the course of the campaign

I made a great many statements about him.

He was my opponent, you know.

Senator CLARK of Missouri. You would
not have said anything about your opponent
you did not think was true, would you?
Mr. WILLKIE Oh, no: but occasionally in
moments of oratory in campaigns we all expand a little bit

A short time later the Senator from
North Dakota (Mr. NYE) interposed.
The following colloquy ensued, which
appears on page 905 of the printed
volume of hearings:

Senator NTE In the same vein, at about
the same time you remarked:

"I believe we should keep out of war at all

hazards."

Mr. WILLKIE Yes: and I think this bill provides the method of keeping out of war.

Senator NYR. You stated further:
"We are being edged toward war by an administration which is alike careless in speech
and in action.

No. 172

I think you have already discussed your

present views on that score.
Mr. WILLKIE. Yes, str.

Senator NYE One more assertion of yours,
that of October 30:

on the basis of his-

That is, Roosevelt's"past performance with pledges to the people,

you may expect we will be at war by April
1941. if he is elected."
Mr. WILLITE You asked me whether or not

I said that?

Senator NTE. Do you still agree that that
might be the case?

Mr. WILLKTE. It might be. It was a bit of

campaign oratory

I submit, Mr. President, that that part
of the Democratic platform which was
adopted in 1940, on the 15th day of July.

in which it was said to the people of
America:

To encourage investment in productive enterprise, the tax-exempt privileges of future
Federal, State, and local bonds should be
removed-

was a definite pledge made by the Demo-

cratic Party to the people of America.
Mr. THOMAS of Utah. Mr. President,
may I ask the Senator from North Dakota, since he has brought political parties into the debate, if there is any party
in any State, or in the Nation, that would
put into a platform a pledge that they
expected to maintain this exemption and
expect to get anywhere with the American people?

Mr. LANGER They did, and they

were elected. They were elected on the
pledge which they made in their platform
that they would take away the privilege
of tax exemption from the rich.
Mr. THOMAS of Utah. Yes, and the
Republican Party would have said the
same thing. but it remained silent on the
subject. It did not dare say the opposite,
did it? Is there any party in the United
States that would go before the people
on a platform making the opposite declaration?

Mr. LANGER. I do not know about
that. I know the Republican Party was

8193

question about what Mr. Willkie said,
and if the Senator from Minnesota was
present and failed to hear it. I am sure

he was the only one in the large company

which was present at the hearing who
did fail to hear it. Not only that but it
was quoted the next day in every newspaper in the United States and was made

the subject of considerable editorial

comment througout the country.
had nothing to do with injecting this
question into the discussion here today,
but I take this opportunity to call attention to the fact that on the same day. in
the same hearing, on numerous occasions
Mr. Willkie made a statement which was
diametrically opposed to the statements
which he has been making recently con-

cerning a second front, when he predicted and asserted that a second front
would not be necessary, that if we would
merely send a few medium and heavy
bombers, Germany could be bombed into
submission in very short order, without
any expeditionary force whatever being
necessary.

Mr. GEORGE. Mr. President, if there
is a question of what Mr. Willkie said,
the Senator from Missouri is within his
rights to have the RECORD speak the
facts, but I believe that the passage of the

pending tax bill is more important than

what Mr. Willkie said during the last
campaign. or what he is saying at the
present time. I am sure of one thing.
that Mr. Willkie furnishes so much text
that if we undertake to debate it here
we will not finish before the next Presidential election.

Mr. WALSH. Mr. President, I ask to
have inserted in the RECORD a few of the

many messages I have received from
officials of the State of Massachusetts,
including the commissioner of corporations and taxation, representing the Governor. and the mayor of Boston. in opposition to taxing the income from State
and municipal bonds, which telegrams
express my views on the pending question.

silent on the subject.

There being no objection. the communications were ordered to be printed

dent. will the Senator yield?
Mr. THOMAS of Utah. I yield.
Mr. CLARK of Missouri. I have been
informed that a few moments ago, while
I was temporarily absent from the floor,
the Senator from Minnesota [Mr. BALL)
denied that Wendell Willkie had made a
statement before the Committee on Foreign Relations of the Senate when it had

in the RECORD as follows:

Mr. CLARK of Missouri. Mr. Presi-

under consideration the lease-lend

BOSTON MASS. August 5, 1942.
Hon. DAVID I. WALSH,

United States Senator,
Washington, D.C.:

I strenuously urge your opposition to tax
on municipal bonds. Such a tax would have

serious effect on Boston's financial condition.

Boston's views have been made known to
Senate committee through Charles J. Fox.
city auditor.

MAURICE J. TOBIN,

bill-

Mayor of Boston.

Mr. CONNALLY. What difference

does it make whether Willkle said it or
not?

Mr. CLARK of Missouri. It makes
some difference. The Senator from
Minnesota undettook to question the
statement of fact. particularly a state-

ment in which I understand I was quoted.

Mr. President, the fact of the matter
is that Mr. Willkie made the statement
which has been attributed to him, not
once, but twice, in the Committee on
Foreign Relations. once in answer to a
question by me, and some time later in
answer to a question by the Senator from

North Dakota (Mr. NYE). There is no

BOSTON, MASS., July 27, 1942.

Hon. DAVID L WALSH:

Your attention is respectfully directed to

fact that Massachusetts, in fact all New Eng-

land, will be very seriously handicapped If
proposal to tax income from State and municipal securities is permitted to be made a
part of Federal revenue bill. The structure
of financing both because of constitutional
as well as statutory limitations prevents many

municipalities from borrowing without advantage of tax exemption, and in many instances even though borrowing could be had

increased cost for the money because of abo-

lition of tax exemption would cause communities of Massachusetts to suffer much by way

CONGRESSIONAL RECORD-SENATE

8194

of increased expenditures, and a sum far in
excess of what Federal Government possibly

could gain for authority to tax. Examination
of inheritance-tax returns here in Massachusetts demonstrates in so-called large estates

there is practically no volume of tax-exempt

securities; carrying out suggestion that at
least so far as Massachusetts is concerned
rich do not go to the purchase of tax-exempt

securities There is indication however in
respect to borrowing. which have been can-

celed and the places to which interest on
the bonds are forwarded that tendency in
Massachusetts is for the institutions educational, charitable. and religious- gather
in municipal and State bonds and not individuals or corporations of great wealth or
influence In my opinion It would be very
definitely of injury to Massachusetts If such
a proposal as that of taxing State and municipal securities was made a part of Federal
revenue program. It is urged that you oppose
such enactment in interest of Massachusetts.
HENRY E LONG.

Commissioner of Corporation
and Taxation.
MASSACHUSETTS COLLECTORS

AND TREASURERS ASSOCIATION

September 17, 1942.

The Massachusetts Collectors' and Treasurers' Association organized some 35 years
ago and representing the treasurers and col-

lectors of the 351 municipalities in Mas-

sachusetta, in regular meeting assembled on
this, the 17th day of September 1942, unani-

mously went on record as opposed to any
congressional enactment which will make
possible the taxing by the Federal Government of the interest from securities issued
or to be issued by the State or its political
subdivisions.

The secretary of the association who at-

taches his signature hereto, was specifically

instructed to call to the attention of the

Members of the House of Representatives
and the Senate of the United States the
opposition of the association and its members to the passage of such legislation. In
their opinion such an act would be detrimental to the well-being of Massachusetts
and its cities and towns and would disregard that which has made it possible for
Massachusetts and its cities and towns to
give to its inhabitants through the years
a form of benefit which has not been exceeded by any State in the Union. The
inability of many municipalities to borrow,
the extra cost to them. and the certainty
that many things which should be constructed after the war cannot be undertaken If such a restriction is imposed upon
them is more serious in the minds of the
association than can be expressed in words

as Massachusetts and its political subdivisions are strongly of opinion that, just as
taking away their ability to tax, to affect
in any way the borrowing of the State or
its political subdivisions is comparable to
destroying the sovereignty which they are
anxious to maintain as well as the ability
to furnish through their credit the very best

by way of benefits to the individual in-

habitants of Massachusetta whether expressed

through State expenditure or through that

of the cities and towns.

It is the opinion of the treasurers and col-

from this Commonwealth and urges, because

the situation is important enough to pass a
resolution that every possible step be taken
to defeat the enactment of such legislation
to the end that there will be no change In the

policy which has proven wise through the

years and which has been of extreme help to

the continuity of activities by the cities and
towns.

Respectfully submitted by order of the

Massachusetts Collectors and Treasurers' Association representing the treasurers and collectors of the 351 cities and towns of Massachusetts.
NATHANIEL M NICHOLS

Secretary
CITY OF WORCESTER MASS.
AUDITING DEPARTMENT

September 21, 1942
Hon DAVID L WALSH
United States Senate.
Washington, D.C.

DEAR SENATOR WALSH: I am greatly dis-

appointed to learn that the Senate Finance
Committee has again voted to include the
taxation of future issues of municipal and
State bonds in the current revenue bill new
being prepared for presentation to the Sen-

ate whole

It is deplorable that a government that is

attempting to raise eight billions in the proposed tax bill to support a war for freedom in

all its phases, including constitutional rights,
should include in the bill taxation that directly violates those rights
Moreover, the Federal tax gain as a result
of taxing bonds may be fifty millions, approximately only one-half of 1 percent of
total, certainly a picayune revenue to attempt to recover in defiance of certain fundamental principles of our democracy.
Such enactment will add to the cost of
local government without providing any substantial compensation revenues for the Federal Government The fiscal freedom of

State and local government is in great

danger; also, a probable failure of government to survive the additional burden of
increased taxes.

Massachusetts occupies an outstanding

undestrable

of this kind in the whole period of its 35

payments. Under current statutory prov. reller

sions municipalities are required to provide

in ir-current budgets amounts equal :

a fixed percentage of the prior year's welfare

expenditures When this requirement has
been satisfied they are privileged to borrow
the balance of their estimated relief expend

tures. In 1939 borrowings of this character

were slightly in excess of $14,000,000

Treasury officials have claimed that the
taxation of future issues will place no great
immediate burden on municipalities since

for the duration of the war municipal borrowings for capital improvements will be

necessarily curtailed This argument entirely

overlooks the two peculiar types of borrow.
ing already pointed out and makes no allow.
ance for the problems which will be faced by

municipalities at the close of the war. If

our cities and towns are to participate in the
post-war program of public works they should
not be faced with the added interest burden
which everyone agrees will develop if the income from municipal securities is to be sub.

ject to Federal income tax. It is a matter

of record that the tax rates of Massachusetta

municipalities are among the highest in the

country. In the interest of the owners ct
real and personal property in this State I
trust you will see your way clear to oppose
the proposal to tax municipal securities
when it reaches the floor of the Senate and
thus prevent the imposition of an added tax

burden on our local taxpayers.
Sincerely yours,

CHARLES J. Fox.

City Auditor.

Mr. SMITH. Mr. President. I do not
wish to detain the Senate, but I feel it
my duty to express my appreciation of
the speech made by the Senator from
Vermont (Mr. AUSTIN].
I am surprised that the argument concerning the power of the Federal Government to tax incomes derived from

of the money involved. That does not
concern me. I think the powers of the
sovereign States, which are coordinate

ernment

States has revolved around the question

city in Massachusetts I earnestly ask you
to vote against the inclusion of taxation

with the Federal Government in our dual
form of government, should be kept inviolate. The State governments have

I hope I shall hear from you with the

they feel that they are entities of the

As a financial official of the second largest

of municipal and State bonds

assurance that you will vote against a violation of State right
Sincerely yours,
HENRY A. ALLEN, City Auditor.
CITY OF BOSTON,
AUDITING DEPARTMENT

City Hall, September 15, 1942.
Hon. DAVID I. WALSH.
Senate Chamber,

Washington, D. C.
DEAR SENATOR WALSH: The proposal to levy

a tax on the income from future issues of
municipal securities will place a heavier bur-

This is an item of borrowing which munic-

in the past and that such action is as unwar-

ranted and unneeded as it is unwise and

Mas.

and towns and I believe the proposed legislation would do more to endanger her standing than any other possible act of the Gov-

years existence, to the Members of Congress

cal subdivision securities will be a direct

attack on the ability of the State and its political subdivisions to function as they have

Another Item of borrowing peculiar to

sachusetts is that in connection with

bonds issued by municipalities and

financial structure, and that of her cities

Because of the seriousness of this situation.
the Massachusetts Collectors and Treasurers
Association addresses this, its first resolution

the taxing of interest from State and politi-

ipalities
not face. in other sections of the country

position among the other States in her sound

den on cities and towns within this Commonwealth than on any other municipalities
within the country. This is due to the fact
that since taxes are not due and payable
until November 1, our cities and towns for
10 months of the year must finance ordinary maintenance requirements by the issuance of revenue anticipation loans. According to the latest "Statistics of Municipal
Finances" issued by Mr. Waddell the 39

lectors of Massachusetts that a vote to permit

OCTOBER

cities of the Commonwealth in the year 1939
issued roughly $125,000,000 temporary notes.

the right to pass laws and levy taxes, and

Government, and have a right to issue
bonds, and to carry on their business as
they see fit.
Mr. President, I have observed with a
great deal of uneasiness the gradual encroachments of the Central Government
upon the States. Every move we make

is along that line. I am glad the Senator from Vermont made the speech be

did today upholding the rights of the
States, the counties, and the municipalities, which have developed so wonder-

fully in our country. I would rather risk

the chance of having the country kept
an even keel through the continuance
of the power reserved in the 48 States,
their sovereign capacity, than having
this body undertake to keep the Government on an even keel. Our people have
elected us to this body. and are looking
to us to interpret the Constitution, and

to deal fairly with them. Do we take

into consideration the powers reserved
in the States? I doubt very seriously
whether a great percentage of the mem-

CONGRESSIONAL RECORDSENATE

1942

bership of this body has seriously studied
the Constitution and the decisions of the
Supreme Court with respect to that twi-

light zone which lies between the re-

served and the delegated powers.
Mr. President, I consider the committee amendment, which would grant to the
Federal Government the power to tax securities of States which are now tax exempt, to involve one of the most serious
questions to come before the Senate. It
is not a question of dollars and cents. It

is a question of exercising what the

people of the States consider to be their

rights and their powers. To impose a
tax on their instrumentalities of course
curtails their power. I shall never vote
to permit the Government of the United
States to exercise such power, to usurp
the power over the States.

I felt particularly uplifted when the

argument in favor of States rights was
made today by the Senator from Ver-

mont. I used to believe that we had

three coordinate branches of government. the legislative, the judicial, and the
executive. It seems to me that the power
of government has been narrowed down
now almost to one branch. and I shall
not be a party to contributing to such
narrowing of power.

I am amazed that Senators should
stand on the floor of the Senate and
argue over the words of the sixteenth

amendment, "from whatever source derived." We can argue that language to
a reductio ad absurdum.
Mr. President, I stand here today trying to keep inviolate, so far as it is in my
power to do so, the right of the States to
exercise the power they have heretofore
had, the power held by them up to the
present time, to attend to their own affairs and not be overlorded by a great

central government. I believe in State
rights. I believe in individualism. cannot understand why Senators, for the
sake of obtaining a little tax revenue,

joint resolution which later resulted in
the adoption of the sixteenth amend-

little colored boy sitting on the fence

The House passed the legislation by a

first, and he turned a few shades lighter,
but finally he climbed down off the fence
and came to the platform on which the
debaters sat. The preacher invited him

ment.

vote of 318 to 14. Then the sixteenth
amendment was referred to the States for

ratification, the firts States ratifying it in
1909 and the last States ratifying It in
1913. All but 3 of the 48 States in the
Union ratified the sixteenth amendment.

The sixteenth amendment to the

minds of the people in the streets, to the
minds of the people on the farms, carried
only one meaning. and that is the mean-

ing contained in the language of the
amendment itself, which is one of the
short amendments The language is:
The Congress shall have power to lay
and collect taxes on incomes, from whatever source derived. without apportionment

among the several States, and without regard

to any census or enumeration.

That language is so plain that the
people of the country understood it to
mean that if the amendment were
adopted Congress would have power to

lay and collect taxes on incomes from
whatever source derived There was no
quibble over the meaning of the language

at that time. The people of the States

sent their Representatives and Senators
to the State legislatures with instructions

to vote for that amendment, believing
that they would thereby stop up the last
loophole which permitted tax dodging.

The people understood the language.
It was only after the lawyers got hold of
it and began to split hairs over it that

handed out benefits to the tune of several

that action is constitutional or not. How-

States now seems to be obsolete. Every
move we make is a move to discredit it.
am greatly concerned about the trend
which the argument in the Senate has

taken, that in order to obtain certain

taxes the splendid system of State government shall be destroyed.
hope we can vote on the Senate com-

mittee amendment today. and that it

will be rejected and that the amendment
of the Senator from Ohio (Mr. BURTON)
will be adopted

Mr. LEE. Mr. President, I rise to

speak for a few minutes in opposition to
the Burton amendment, or rather. I shall

speak in support of the committee

amendment, which proposes to withdraw

the special privilege of tax exemption
from local and State bonds. In 1909 the
Senate, by a vote of 77 to 0. passed a

read It to him again, and said, "Now son,

in your mind who was it that was baptized?" The little boy answered back
without hesitation, Well, I do not know,

sir, but I think it was the man who
wanted to be."

I use that to Illustrate the simplicity
of language when one wants to understand it, and the people wanted to understand the sixteenth amendment when
It said:
The Congress shall have power to lay and

collect taxes on incomes, from

source derived

It has been argued in this debate that
when we lay a tax on a man's income,
simply because it comes from a local or
State bond, we are taxing the local government or taxing the State. Has It ever
been argued, by the same token, tha
when we tax the income of the farmerIf any poor farmer ever had enough income to reach up into the income-tax

brackets- we are laying a tax on the
farm? If we are. It is unconstitutional,
because such a tax is an ad valorem tax

warm. One time they were having a
debate on the subject of baptism. The

language describing what occurred:

They are more and more looking to
Washington. In Washington we have

to come to the platform, which he did,
and said to the boy, "Now sit down and
listen." So the preacher read this past
sage of the Scripture to him. Then he

been argued that when we tax the income
of a merchant we are laying a tax on the
merchant's grocery business? It has not
When he receives an income, it is identified as his. He puts it in the bank, and
he is taxed according to that income.

preachers representing different denominations sometimes have denominational
debates, which are sometimes called religious debates, and those debates wax

ever, the Constitution of the United

people of the States are not paying much
attention to their legislatures any more.

Of course it scared the little fellow at

Mr. President, I wish to illustrate my
point. In my section of the country the

billion dollars. I do not know whether

of our dual form of government. State
legislatures are rapidly becoming more
nominal adjuncts to Washington The

nearby and he called him.

and the Federal Government has no
power to levy a tax on a man's farm.
Has it ever been argued that when we
tax a lawyer's income we are levying a
tax on the practice of law? Has it ever

it began to have several faces and several
different meanings.

debate took place under a brush arbor
and great crowds were gathered. The
discussion was about a preacher named
Philip who was hitchhiking his way along
the road. He saw a eunuch of great authority riding along in a charlot. Philip
thumbed a ride and the eunuch picked
him up. Philip noticed the eunuch was
reading in the Bible from Isaiah. After
some discussion the eunuch decided he

will endeavor to destroy the very essence

8195

wanted to be a and this is the
And as they went on their way they came
unto a certain water and the eunuch said,
See. here is water; what doth hinder me to
be baptized?

And Philip said, If thou believest with all
thine heart, thou mayest. And he answered
and said, I believe that Jesus Christ is the
Son of God.

And he commanded the charlot to stand

still: and they went down both into the
water. both Philip and the eunuch: and he
baptized him.

The point of debate was who baptized

who. One of the debaters raised the
question that by the language of the
Scripture one could not tell who baptized
who, because the Scripture saysAnd he baptimed him.

Another debater, who wanted to prove
that Philip baptized the eunuch, saw a

It is argued that by this amendment
we are trying to lay a burden on the com-

munities and States. No such thing is
*true. We are merely trying to withdraw
a special exemption, because as things
stand today the States and communities
are the only authorities which can issue
bonds which are tax exempt.
Mr. CONNALLY Mr. President, will
the Senator yield?

Mr. LEE. I yield.
Mr. CONNALLY Under the Senator's

construction of the sixteenth amendment,
does he contend that the language "from

whatever source derived" includes any

income from any source?

Mr. LEE. That is what it says.

Mr. CONNALLY. Is that what the Senator construes it to mean?

Mr. LEE. That is what it says. of

course do.

Mr. CONNALLY. Does the Senator
contend that under that language the
Government could tax a township in
Oklahoma which receives $100,000 in
taxes from the people? That is income to
the township. Could the Federal Government tax that income, or income receive
in the form of taxes by a drainage diztrict, a school district, or a road district?

CONGRESSIONAL RECORDSENATE

8196

OCTOBER 8

The sixteenth amendment says "from

does not have enough income to get into

eral, State, and local, have operated

Mr. LEE. It says that Congress shall
have power to lay the tax. If Congress
should lay the tax. I suppose it would
have the right to collect it: but I do not
think Congress would lay such a tax.
Mr. CONNALLY. Why not. if the Sen-

taken away from him because he cannot
pay the taxes on it. when there are others

surtaxes. Indeed, think It is fair to

whatever source derived

ator wants to tax everything?

Mr. LEE. I do not want to tax everything. Would the Senator vote to lay
such a tax? Such a measure would
first have to pass through the Congress.

Mr. CONNALLY Of course. The

Senator says that the Federal Government could tax the annual taxes raised

in a township or city. Would he favor
such a tax?

Mr. LEE. No.
Mr. President, I believe in equality.
One of the things which made the tax

collector in ancient history very unpopu-

lar was the inequity of taxation. The
people are willing to pay taxes if they
know that the taxes are levied in all
fairness.

Let me illustrate the situation as it is
today. I made a few computations with
respect to Oklahoma. A married man
living in Oklahoma who operates a store
and has an income of $5,000 has to pay
income taxes amounting to $146.22 A
living beside him who has an income

of $5,000 from tax-exempt securities,
State or local bonds, does not pay a thin

dime. Is that fair? Do the people approve that? I do not think so.

Again, if a married man living in

Oklahoma has an income of $10,000 from

the rental of apartment houses and other
properties after he has paid his property
and paving tax, he pays an income tax of
$737.85; but if a man living next to him
has an income of $10,000 from school
bonds which he has purchased, he does
not pay a thin dime. Do the people ap-

prove that? I think not. I know they
do not.

Again, if a married man living in Oklahoma has an income of $50,000 derived
from the oil business in my State, he pays
an income tax amounting to $11,132.41.
If right beside him there lives a man who

has an income of $50,000 from State
bonds, he does not pay a thin dime.
Does any Senator think that the people
approve that? Did not the people have

that situation in mind when they sent
their State representatives to the State

legislatures to vote for the sixteenth
amendment to give Congress the power
to lay and collect taxes on incomes from

whatever source derived? I think they
had exactly that in mind.
Take another example. We say we do

not have a capital levy, but I maintain
that an ad valorem tax is a capital levy.
If a farmer does not make enough from
his farm to pay the ad valorem tax, what
happens? The tax assessments accumu-

late until he loses his farm. His farm is
taken. His capital is levied upon and
taken: yet, as was pointed out by the
Senator from Michigan (Mr. BROWN] a
man in the same community may have
an income of several million dollars, 44
percent of which is from tax-exempt securities, on which he does not pay a dime

of tax. However, the poor farmer who

the income-tax brackets has his farm

in the same community with him who

enjoy the special privilege of exemption.
I have heard two Senators make the
statement that "I am not one who proposes to soak the rich." I am not either:
but neither do I propose to give the rich
a special exemption. I submit that this
offers the rich a special exemption. Did
any Senator ever hear of a poor man
buying an issue of community bonds,
school bonds, State bonds, water bonds,
or sewer bonds? Did any Senator ever
hear of a day laborer buying such bonds?
Have we ever heard of any poor people
buying such bonds?
Suppose a man has an income of $5,000,

and he buys some 3-percent tax-exempt

the fair or effective collection of progressive against

that these exemptions violated the say

of the tax law itself by actually giving spiris
advantages
those incomes.
with large incomes greater than
those
withtosmall

He later said:
I therefore recommend to the Congress
that effective action be promptly taken
terminate these tax exemptions for the to
future.

That was the request of the President

of the United States in 1938. We still
have not complied with In my opin.
ion, here is the chance, the last chance
we shall have, to comply with his request and to terminate the tax exemp.
tions. In this crisis, when we are so
badly in need of additional revenues,
when we are so desperately seeking every

bonds. To him the exemption privilege
is worth two-tenths of 1 percent. The
Senator from Michigan pointed out yesterday that to a man with an income of
$100,000 a tax-exempt bond bearing 3

reservoir from which we might raise income with which to pay for this war, I
am amazed and surprised to find in the
Senate opposition to taxing a man's income regardless of its source.

percent interest is worth more than a tax-

This is our last opportunity, in my
opinion, to close this one loophole, to
stop this last inequity, to remove this

able bond bearing 20 percent. Yet we
are told that the exemption privilege is

not worth anything to the rich. I ask
Senators to answer that argument.
Mr. President, from 1909 to 1913 the
people approved a fair and equitable taxing plan for taxing the people according
to their incomes and their ability to pay.

Congress passed the bill. The House
passed it by a vote of 318 to 14. and the

Senate by a vote of 77 to 0. Forty-five

of the 48 States approved it, and it
became law. Then it was nullified by
judicial decision. The court said that it
did not mean what it said. Those who
today are opposing the withdrawal of this

special privilege believe that the court
then was right, but a later court, acting
upon a case involving the salary of an
employee of the Home Owners' Loan
Corporation, reversed that decision, giving the Congress the power to lay taxes
upon income from the Federal Government and from States.
As has been pointed out, our Democratic Party said in its 1940 platform:
To encourage investment in productive
enterprise the tax-exempt privileges of future

Federal, State, and local bonds should be

removed

I do not see how any member of the

Democratic Party can repudiate that
plank in the platform, that pledge and
promise to the people.

his

Furthermore, President Roosevelt, in
"message to Congress on April 25,

1938, said:

Whatever advantages this reciprocal immu-

nity may have had in the early days of this
Nation have long ago disappeared Today It
has created a vast reservoir of tax-exempt
securities in the hands of the very persons
who equitably should not be relieved of taxes

on their incomes.

He thereby recognized that the rich

have a special advantage.

Both the States and the Nation are deprived of revenues which could be raised
from those best able to supply them.
Later in his message President Roose-

velt said:

Tax exemptions through the ownership of
Government securities of many kinds, Fed-

special privilege to a special class.

The argument has been advanced that

there is nothing of a reciprocal agreement as between the local communities
and the Federal Government, that there

is no reciprocity. However, let me remind the Members of the Senate that
the local communities can tax the property in those communities, and that the
Federal Government does not try to tax

the property in those communities

With respect to the States, the Federal
Government has offered, and is willing
to have, reciprocity of taxation.
The identity of the source of the income is lost when the individual receives
the income. Does the individual have
three or four different bank accounts,
and when he places the money in the
bank does he say, "The money in this
account came from bonds, the money in
that account came from labor, the money
in the other account came from invest-

ments"? No. indeed. He has one account, in which he deposits all his income: and on that income he is subject,

by all the laws of equity and fairness,
to pay the same tax that I pay and that
John Q. Citizen pays and that all others
pay. The people expect us to levy the
tax accordingly, and certainly so now.
when we are in need of revenue with
which to pay for the war.

The PRESIDING OFFICER. The

question is on agreeing to the amendment

of the Senator from Ohio (Mr. BURTON).

Mr. AUSTIN. Mr. President, I arise

to request unanimous consent that I beallowed to have a certain matter printed
in the RECORD. During my remarks an

interrogatory was propounded by the

Senator from Illinois which I was unable
to answer, but which the distinguished
majority leader, the Senator from Kentucky, was able to answer, showing that
in 1861 the Congress levied a direct tax
upon the income of the citizens of the
several States.

The secretary of the minority has

brought to my attention an important

statute which seems to me to have a bear-

CONGRESSIONAL RECORD-SENATE

1942

ing upon the conscience of the Congress
with respect to the matter, and perhaps
indicating the vigilance of the States in

money hereby appropriated shall paid out
by the governor of any State or Territory or
any other person to any attorney or agent
under any contract for services now existing

States Statutes at Large, page 822, chap-

of any State or Territory and any attorney or

respect to it. It is Twenty-six United

or heretofore made between the representative

ter 496, an act to credit and pay to the
several States and Territories and the

agent. All claims under the trust hereby
created shall be filed with the governor of

District of Columbia all moneys collected
under the direct tax levied by the act of
Congress approved August 5, 1861. I ask
unanimous consent to have a copy of the
statute printed in the RECORD, because it
includes not merely the States, the Territories, and the District of Columbia, but

also the inhabitants who paid the tax,
when they could be ascertained.

I see that the Senator from Illinois is
in the Chamber. I am glad he is here, so
that he will know about this act of Congress passed in 1891 recognizing the
principle of immunity, and restoring what

had been collected by the tax law of
1861.

Mr. President, I renew my request to

have the statute printed in the RECORD as

a part of my remarks.
There being no objection, the statute
was ordered to be printed in the RECORD,
as follows:
Chapter 496

An act to credit and pay to the several States

and Territories and the District of Colum-

such State or Territory and the Commissionera of the District of Columbia, respectively,
within six years next after the passage of this

act; and all claims not so filed shall be forever barred, and the money attributable
thereto shall belong to such State, Territory.
or the District of Columbia, respectively, as
the case may be.

Sac. 4. That It shall be the duty of the

Secretary of the Treasury to pay to such persons as shall in each case apply therefor, and

furnish satisfactory evidence that such applicant was at the time of the sales hereinafter mentioned the legal owner, or is the
heir as law or the devisee of the legal owner
of such lands as were sold in the parishes of

St. Helena and St. Luke's in the State
of South Carolina, under the said acts of
Congress, the value of said lands in the
manner following. to wit: To the owners

of the lots in the town of Beaufort, one-half
of the value assessed thereon for taxation
by the United States direct-tax commisstoners for South Carolina; to the owners of
the lands which were rated for taxation by
the State of South Carolina as being usually
cultivated, 85 per acre for each acre thereof

returned on the proper tax-book: to the

owners of all other lands, 01 per acre for each

bia all moneys collected under the direct
tax levied h the act of Congress approved

acre thereof returned on said tax book: Provided, That in all cases where such owners,

.001
Augu
Be it enacted, etc., That It shall be the duty

deemed r purchased said lands, or any part

of the Secretary of the Treasury to credit to
each State and Territory of the United States

and the District of Columbia a sum equal to

all collections by set-off or otherwise made
from said States and Territories and the District of Columbia or from any of the citizens
or inhabitants thereof or other persons under

the act of Congress approved August 1861
and the amendatory acts thereto.

SEC. 2. That all moneys still due to the
United States on the quota of direct tax apportioned by section 8 of the act of Congress
approved August 5: 1861. are hereby remitted
and relinquished

Sec. 3. That there is. hereby appropriated,
out of any money in the Treasury not other-

wise appropriated. such sums as may be

necessary to reimburse each State. Territory.

or persons claiming under them. have re-

thereof, from the United States. they shall
not receive compensation for such part so

redeemed or purchased: and any sum or sums

held or to be held by the said State of South

Carolina in trust for any such owner under

section 3 of this act shall be deducted

from the sum due to such owner under the

provisions of this section: And provided fur-

ther, That in all cases where said owners have

heretofore received from the United States
the surplus proceeds arising from the sale of

their lands, such sums shall be deducted from

the sum which they are entitled to receive
under this act. That in all cases where persons, while serving in the Army or Navy or
Marine Corps of the United States, or who had

been honorably discharged from said servIce, purchased any of said lands under sec-

and the District of Columbia for all money
found due to them under the provisions of
this act; and the Treasurer of the United
States is hereby directed to pay the same to
the Governors of the States and Territories
and to the Commissioners of the District of
Columbia but no money shall be paid to any
State or Territory until the legislature hereof
shall have accepted, by resolution. the sum
herein appropriated, and the trusts imposed,
in full satisfaction of all claims against the

tion 11 of the act of Congress approved
June 7. 1862, and such lands afterward reverted to the United States, it shan be the
duty of the Secretary of the Treasury to pay
to such persons as shall in each case apply
therefor, or to their heirs at law. devisees, or
grantees, in good faith. and for valuable consideration. whatever sum was so paid to the
United States in such case. That before
paying any money to such persons the Sec.
retary of the Treasury shall require the per-

lection of said tax, and shall have authorized

execute a release of all claims and demands

United States on account of the levy and col-

the governor to receive said money for the use
and purposes aforesaid: Provided, That where
the sums, or any part thereof. credited to any

son or persons entitled to receive the same to

of every kind and description whatever

against the United States arising out of the

execution of said acts, and also a release of all

have been collected by the United States from

right, title, and interest in and to the said
lands. That there is hereby appropriated,

other person. either directly or by sale of property, such sums shall be held in trust by such

wise appropriated, the sum of $500,000. or so
much thereof as may be necessary to pay for

State, Territory, or the District of Columbia,

the citizens or inhabitants thereof, or any

State, Territory. or the District of Columbia

for the benefit of those persons or inhabitants
from whom they were collected, or their legal

representatives: And provided further, That

no part of the money collected from individuals and to be held in trust as aforesaid

shall be retained by the United States as :
set-off against any indebtedness alleged to
exist against the State, Territory. or District
of Columbia in which such tax was collected:

And provided further, That no part of the

out of any money in the Treasury not other-

said lots and lands, which sum shall include

all moneys in the Treasury derived in any
manner from the enforcement of said acts
in said partsbee, and not otherwise approprinted. That section 1063 of the Revised
Statutes is hereby made applicable to claims
arising under this act without limitation as
to the amount involved in such claim: And
provided further, That any sum or sums of
money received into the Treasury of the
United States from the sale of lands bid in

8197

for taxes in any State under the laws de-

scribed in the first section of this act in excess

of the tax assessed thereon shall be paid to

the owners of the land so bid in and resold, or
to their legal heirs or representatives.
Approved March 2. 1891.

Mr. O'MAHONEY Mr. President. it
is my purpose to support the amendment

offered by the Senator from Ohio (Mr.
BURTON), and I desire very briefly to
state to the Senate my reasons for so
doing.

As view the question. it is not at all
a question of constitutionality. I have
no personal doubt at all that the Congress has the power to tax incomes from
whatever source derived, and that such
power includes the power to tax income
derived from State, municipal, and county bonds.

As I see it, Mr. President. the question
is purely a realistic one: Are we now to

levy a tax for the purpose of raising
money with which to win the war and

to pay for the war, or are we to endeavor
to change the system of taxation?

It were a matter of raising money with
which to pay for the war, my vote might
be different from what it will be: but

an examination of the facts clearly demonstrates that there is no possibility of
raising any substantial sum by the proposed method.

Mr. President, it is an easy thing to
assume that the wealthy people of the
country have tremendous incomes from
which could be drawn. and should be
drawn, large sums to help finance the
Government, particularly in this crisis.
Of course, there are large incomes; but
the significant fact which seems to me
to have been utterly overlooked is that
in the aggregate the incomes of the very
wealthy are but a drop in the bucket.

I hold in my hand a press release

which was issued by the Secretary of the
Treasury on Friday. October 1942, giving the figures for taxable and nontaxable individual income and defense-tax

returns for 1940, filed during the year
1941. The significant revelation to be
found in the statement from the Treasury is that during the year 1940, 1,866
persons had a net income of between
$100,000 and $150,000; only 626 persons

had a net income of from $150,000 to
$200,000;273 persons had an income of
from $200,000 to $250,000; 167 persons
had an income of from $250,000 to $300.166 persons had an income of from
$300,000 to $400,000: 86 persons had an
income ranging from $400,000 to $500.000: 79 persons had an income ranging
from $500,000 to $750,000; 33 persons had
an income ranging between $750,000 and
$1,000,000; 28 persons had an income
ranging between $1,000,000 and $1,500.-

000: 8 persons had an income ranging
between $1,500,000 to $2,000,000; persons had an income ranging between
$2,000,000 and $3,000,000; 4 persons had

an income ranging between $3,000,000
and $4,000,000; 2 persons had an income
ranging between $4,000,000 and $5,000.000; and 1 person had an income of $5.000,000 and over.

Mr. President, If my arithmetic is correct, that means that in 1940 there were

3,345 persons who had an income of
$100,000 or more.

8198

CONGRESSIONAL RECORD-SENATE
third of the total income of the United
States, but that is not the fact: it is less

Mr. LUCAS Mr. President, will the
Senator yield?

ator yield?

sonal exemptions.

Mr. O'MAHONEY. Yes: this study
was made under the auspices of the

tween $4,000 and $5,000 & year received

in the aggregate more than twice, in.

T. N. E. C., in cooperation with the

deed, almost three times, as much as all

W. P. A., and we endeavored to find the

those who received incomes of $100,000 or
more.

total income.

Mr. LEE. Including the tax-exempt

United States receiving $100,000 or more,

ury of the United States to cut off the

the number of taxpayers in this small
group which represents incomes of be.

able income?

fact: If the entire income of those 3,345
persons were to be totaled it would be
found to amount to $691,424,000. In
other words, if we were to take, not the
normal tax and the surtax, but the entire income of every individual in the

To me it seems perfectly obvious that
it is not worth $691,000,000 to the Treas-

comes between $4,000 and $5,000. for
total of $1,742,796,000 In other words

clude nontaxable income, as well as tax-

Mr. President, this is the significant

and we are spending at the rate of

filed income-tax returns showing in.

Mr. O'MAHONEY. I yield.
Mr. LEE. Do the Senator's figures in-

Mr. O'MAHONEY It is net income,
as figured before the deduction of per-

$6,000,000,000 a month

days ago by Secretary Morgenthau Ac.
cording to his statement 393,844 persons

Mr. LEE Mr. President, will the Sen-

net income?

the total receipts to the Treasury would
be only a little more than $691,000,000

Let us take the same situation
respect to the figures given out a with few

than 10 percent.

Mr. O'MAHONEY. I yield.
Mr. LUCAS Is that gross income or

OCTOBER 8

Mr. President, I ask that I may be permitted to put these tables in the RECORD

income?

at this point.
There being no objection, the tables

Mr. O'MAHONEY. Oh, yes: that is
my understanding. For example, let us
refer to those in the next bracket, who
receive incomes of $15,000 to $20,000 a
year. They constitute only two-tenths of
1 percent of the number of consumer

were
ordered to be printed in the RECORD
as
follows:
Distribution and disposition of consumer
income

preferential treatment which, by the exlisting law. we give to the political sub-

units in the United States, and their

A. CONSUMER UNITS AND INCOME

total aggregate income is only 2.3 percent

(By income brackets]

I am not concerned about the amount

If we were to go to the other end of
the scale and take, for example, those

divisions of the United States, the States,
the counties, and the cities.

of taxes which may be paid by the
wealthy, Mr. President, but I am tremendously concerned that the States, the

cities, and the counties of the United
States shall not be deprived of this pref-

erential treatment. I believe that the
present law grants a preference, certainly. but it is a preference granted to
local political subdivisions which sadly
need it in a time when counties and cities,

and even States, are turning to the Federal Treasury, with its tremendous defl-

of the total income of the United States.

Percent

Income brackets

who receive between $2,000 and $3,000 a

sumer
units

year-a very modest income- would

sgrew

Esta

come:
delived

find that they constitute 11.2 percent of
the number of consumer units, so-called.
Their income amounts to 17.4 percent of
the total In other words, the total aggregate income of persons receiving be-

Under $500

17.0

$500 $1,000
$1,500
$2,000
$3,000

$5,000

tween $2,000 and $3,000 a year is almost

$10,000

$10,000 $15,000

twice as much as the total aggregate income of all the persons receiving $20,000
or more a year.

cit. for money with which to do the
things which they cannot do without

Percent

con-

$20,000

and over

[Net Income classes and money figures in thousands of dollars)

such assistance. It seems to me to be of
the utmost importance that we should
maintain the present situation and that

Taxable and nontaxable returns
by net income classes
(1)

we should do nothing to jeojardize it
Very little is to be gained by withdrawing this preferential treatment.

Number of
returns
(2)

Net income

(3)

Credit for

Personal

depend

exemption

enta

(5)

(4)

Earned in
come credit
(6)

Total tax

(3)

Taxable Individual returns:
With net income

Mr. President, there are in the United
States about as many counties as there
are individuals receiving these huge in-

Under (estimated)

under (estimated)
under 2.5 (estimated

2.5 under (estimated

3under (estimated
under (estimated

comes. I am not thinking of the indi-

viduals with the huge incomes, but I am
thinking of the counties and of the mar-

528,784

482,599

393,893

376

260

2,905,066
914,060
912,174

1,014,623

under

under
under

ket they will have and which they

should have for their securities.
It was a perfectly amazing discovery
to me when I found that, as a matter
of fact, the wealthy in the United States
receive only a very small proportion of
the total income. During the studies of
the Temporary National Economic Com-

under

mittee we published a monograph, Mono-

graph No. 3, entitled "Who Pays the
Taxes?' On page 7 of the monograph
is to be found a diagram showing the

disposition and distribution of consumer

4,000 under 5,000

Total

more would amount to a perfectly amaz-

possibly be less than one-fourth or one-

With no net income
43

ing proportion. I thought it could not

8,090

5,000 and over

Total, taxable returns

5,075

7,437.26

279,200

income in the United States for 193839. This makes, what is to me, a very
amazing revelation. All the people in
the United States who received income
of $20,000 a year, and over, constitute
only three-tenths of 1 percent of all recipients of income, and they received
only 916 percent of the total income. I
should have imagined that the total income of all those receiving $20,000 or

9,463,548

2,551

7,437.30

23,276,652

(32

916,107

1,898,980

916,112

1,899,014

9,463,615

1,441,49

1942

CONGRESSIONAL RECORD-SENATE

Mr. O'MAHONEY. Mr. President, I

wish to remark that the point of the issue
before us is simply this: We are not voting for or against a substantial income to
the Federal Treasury: we are not voting
for or against the extremely wealthy: we

are voting directly on the question

whether the political subdivisions of the
United States shall continue to have a
market for their securities, which is protected by the law.

At a time, Mr. President, when power

in the United States and all over the
world is being constantly centralized, I
think it is the supreme duty of every per-

son who believes in maintaining the
principle of local government and local
authority to support local authority by
preserving the law as it now stands.
Mr.LAFOLLETTE Mr. President, We
shall never have an equitable tax system

in this country until the privilege of tax
exemption is withdrawn from the municipal, county, and State levels of government. It is true in time of peace, with
low income-tax rates insofar as individ-

uals are concerned In time of war,
with the rates in the pending bill going to

87.4 percent on the top bracket, this
haven of refuge for the wealthy taxpayer

becomes a form of special privilege. It
is like a cancer eating at the vitals of
the democratic process.

I have been amazed as I have sat

through the debate today. to hear on the
one hand that Senators are opposed to

the committee amendment because it
does not tax the income from existing
and outstanding tax-exempt securities,
and on the other hand to hear Senators
say that they cannot support the committee amendment because it does not
raise any revenue for the war. I am to
some extent caught on the horns of that

dilemma myself. I have voted in the

Senate time and time again for placing
a tax on the income from so-called taxexempt securities, because I have no
shadow of a doubt that the Federal Government has the power to tax them and
because I have always believed that the
income-tax system could never be just

exempt securities under the pending bill,
we would secure $225,000,000 of ad-

ditional revenue. If we defeat the

amendment offered by the Senator from
Ohio (Mr. BURTON] and begin to remove

this privilege, the time will come when
those who are sweating to pay the interest and the principal upon this gigantic
indebtedness will be relieved by reason

of this tax exemption having been

8199

have the courage to strike down these
special privileges, not only for the purpose of removing them as special priv-

ileges, but also for the purpose of

strengthening the fiscal program of the
Government for a long and desparate
war.

There are today approximately $20.000,000,000 of tax-exempt securities out-

standing. Under the existing law the

withdrawn.

Government is losing an estimated $184.

this, that, and the other thing rise on

a year. This is a large slice of income,

proposal contained in the committee

and the principle of the Senate committee is adopted, ultimately the tax-

I have been very much surprised to
hear ardent advocates of Federal aid for
the floor of the Senate and say that the

amendment is an assault upon the rights
of the States. Yesterday, one Senator
who, like myself, is an ardent advocate
of Federal aid for vocational education,
rose on the floor of the Senate and said
that he was opposed to the committee
amendment because it would enable the
Federal Government to secure revenue
from the securities issued by his State
for the support of education.
Mr. President, I say you cannot have

your cake and eat it. too. Either the
States must assume full responsibility
for meeting all the problems which go
with modern society, or they must yield
up an obsolete, an outworn, an unjustified special privilege.

At this time, Mr. President. when the
Government is engaged in a struggle for
its very life, to have special pleaders surround the corridors of the Capitol asking for a retention of special privilege is
discouraging to me. This is a time when
municipalities, counties, and States are
no longer burdened by the problems of
unemployment, and, therefore, they are
no longer in the position where they must
utilize their resources for vast public improvements. On the contrary. the Federal Government is shouldering the full

cost of putting in the utilities for the

vast defense housing program which is
being constructed, part of which is permanent in character, and is being built

000,000. Under the rates in the present
bill the income loss will be $225,000,000
and if the Burton amendment is defeated.
payers of this country. who are forced to

pour their hard-earned dollars into the
Treasury. win be assisted by those who
are escaping their fair share of taxes
because of the tax-exemption privilege
these bonds have.

Mr. President, I wish to point out Loo
that as the income-tax rates have risen,
the statistics of the Treasury Department show that those in the upper brackets have been accumulating more and

more of their income from this taxexempt source.

In this connection I point out that in

1928, net estates over $100,000 and under

$200,000 had only 1.6 percent in taxexempt securities income. In 1940 that
income had risen to 3.1 percent.
In 1928 estates of $1,000,000 and over

derived 6.2 percent of their income from
tax-exempt securities. By 1940 that figure had risen to 15.1 percent.
These are the most recent figures obtainable, but I venture the assertion that

if we could know what they are today
under present tremendously increased
rates, we would find that this tendency

of the rich and those in the upper

brackets to accumulate more and more
of these securities has gone on apace, and

with the constantly rising tax rate. unless we check this privilege, the situation
will become all the more aggravated.

or equitable with this island of refuge

in which It is being built. For them to

Mr. President, it has been said here
that one cannot cite the cases of a few
individuals and prove any theory. I hold

President, in time of war it becomes absolutely essential that we remove these

Congress by their concerted drive

hearings of the House committee. The

for the wealthy taxpayer. But, Mr.
special privileges.

I have prepared an amendment which
provides for the taxation of the income
from outstanding securities. I am sorry
am not in a position to offer it now. so
as to give an opportunity to vote for It to
those who have risen in this debate and
said that if there was only some revenue
involved they would be delighted to vote
for the amendment

The time has come when we should
make a beginning in this direction. even
if we cannot succeed in achieving the
whole objective. Let no man doubt that
with appropriations and contract au-

thorizations now already exceeding
$200,000,000,000, the time will come when

If the committee amendment is enacted
into law. revenue will be obtained from
an income tax levied on securities which
are now tax-exempt
It is estimated that, If we were to tax
the income derived from so-called tax-

by private enterprise, and which will

inure to the benefit of the communities
come here and attempt to overwhelm the

in my hand a table appearing in the

against this proposal is to me a shocking
indication that even in this dire hour of
the Nation's necessity selfish interests
and those who desire to retain special
privilege are not conscious of the situation which confronts the people and their

table shows the incomes of 25 individuals.

Government.

I said in connection with another

amendment, and I venture to repeat it
now, that we are in the most desperate
fiscal and financial crisis that any nation
in the written history of the world has
ever faced. It is no answer. Mr. President, to say that a particular amendment
will raise only $225,000,000, or that it will
raise only $150,000,000. I recognize that
as against the vast expenditures which
we are making. any particular amendment may seem to shrink into Insignificance, but if we follow that rule, we will
never in the aggregate adopt a sufflciently heavy tax program to enable the
Government to weather the fiscal storm

and to maintain its credit. We must

It shows the total amount of their incomes. It shows the total amount of
income derived from tax-exempt securities, and it shows their savings under the

rates proposed by the Treasury. I shall
read only a few of these items at random,

but I do not think they are untypical of
those with large incomes.

son of
Let me say. before I quote from this
to the arguments ad-

vanced the Senator

table, (Mr. that O'MAHONEY in by a response large part that of for the from the percentage Wyoming very rea.

the national income is in the lower
brackets, we should remove the tax-

exemption privilege from those who are

in the upper brackets. Otherwise that
portion of the load is dumped on those
with the least ability to carry the burden.
Individual No. 1 has State and local interests amounting to $221,000. His taxable net income from other sources is
$601,000. His total income is $823,800.

8200

CONGRESSIONAL RECORD-SENATE
opinions rendered by able Members of
this body to the effect that we do have

The revenue loss to the Treasury from tax

exemption under the rates proposed is

are about to be asked to die
thi.

you young
man Do
on Sahara Desert

the power

$195,000.

preservation think the of Government coughing for the

Mr. President, there may be doubt in
the minds of some upon this question.
There is none in my own mind. I have

Individual No. 8 in the table has State
and local interests of $820,000. He has
taxable net income of $835,000. He has
a total income of $1,656,000. His taxexempt interest is $605,000. His taxable
interest is $1,251,000. The revenue loss

a square deal when

he his can is guts get getting $750,000 the of feels that

Nation. Let us permit the Supreme

a special privilege? tax exemption from
Mr. President I fear this will be
war. The question of the morale a long of
people will ultimately determine whether
or not this Government survives. The
only way we can maintain morale when
the casualty notices descend upon the
homes of America like snow in a Montana
blizzard is to maintain equality of sacri.
fice circumstances.
so far as it is humanly possible under
the

Mr. President, I speak with feeling.

I will give up anything I have in this
world to maintain democracy, to maintain this Government, and I think the

always believed that the sixteenth

amendment struck down the Pollock case

for good. Be that as it may, let us

from the tax exemption is $646,000.

assume that one takes the other position.
If he is fair-minded at all he must admit,
it seems to me, that there is a grave ques-

Under the bill as reported from the committee the revenue loss would be $722,000.
Individual No. 21 on the list has State
and local interests amounting to $1,083.000. His taxable net income from other
sources is $4,321,000. His total income

tion of constitutional power involved.
If so, let us resolve it in favor of striking
down special privilege when we are taking the lives of young men to defend this

is $5,405,000. His tax-exempt interest

is $3,380,000. His taxable interest is $4.251,000. The revenue loss from the tax
exemption is $871,000. The revenue loss
under the bill as reported from the committee would be $953,000.
Mr. LEE. Mr. President, will the Sen-

Court to decide this question, rather than
conduct a legalistic argument here.

I hope that I am not exceeding the

are

bounds of propriety in debate, but I feel
deeply on this question. I feel deeply
because I think the time has come, if
this democracy is to survive, when we
must demonstrate that we have the courage to strike down special privilege at a
time when young men by the millions

ator yield?

Mr. LA FOLLETTE. T yield.
Mr. LEE. Does the argument that the
principle is minimized because there are
only a few of such inequities appeal to
the Senator?

Mr. LA FOLLETTE. Mr. President, I
have just said that, on the contrary, the
very fact that there are relatively few
cases is more reason for removing the

OCTOBER

to
young thing willing, they men and have. of anxious this However, country give up allinevery ready fair.

ness they should know that those who

are here on the home the soldiers
of democracy in positions of power-have

the courage to insist that in this war

there shall be equality of economic sacri-

fice as well as of flesh and blood

EXHIBIT A

TABLE No. 2 -State and local government securities as a percent of gross estate, by size

classes of net estate, estate tax returns filed in 1928-40

exemption.

The exemption amounts to a considerable sum of money. for the Treasury has
estimated that under the rates proposed
by the Finance Committee, If we were to
tax the income derived from so-called
tax-exempt securities, we would secure
an additional amount of $225,000,000 a

Net estate (in thousands of dollars)
Filing year

200 under

200

300

300 under

500 under

1,100 and

1,100

500

over

State and local government securities as percent of gross estate

year. That is not "hay" in anybody's

Percent
1928

language, regardless of the deficit which

1929

we face.

1930

Mr. President, I ask unanimous consent that the two tables to which I have
referred, together with the appendix following the statement of my individual

1932

1932
1933

Percent
1.6

2.3

Percent
27

1.6

1.8

2.2

1.4

Percent

Parent

4.3

4.1

4.5

3.0

6.0

3.6

1.9

4.2

4.8

2.6

5.0

8.2

2.1

11.1

5.1

6.6

11.2

21.9

3.4

4.4

5.8

10.0

23
14.4

1934

1985

3.6

5.7

6.7

11.0

3.0

5.4

6.3

8.2

3.1

5.3

5.7

9.2

11.

2.9

4.4

1935

views, be incorporated in the RECORD at

1937
1938

the conclusion of my remarks.
The PRESIDING OFFICER Without
objection, it is so ordered.
(See exhibits A. B. and C.)

5.2

8.0

3.2

4.4

7.1

11.6

3.1

3.6

6.2

8.1

15.

16.1

1939

1940

Before specific exemption

Mr. LA FOLLETTE. Mr. President,

Included securities of Territories and Insular possessions.

- Gross estate includes tax-exempt insurance.

we have not hesitated to interfere with
the lives of individuals in this war. We
have exercised the plenary power which

Source: Complied from Statistics of Income.
EXHIBIT B

government possesses. We have reached

into every home in America and by the
long arm and power of the Government
we have taken the flower of the young
manhood of America and put it into uniform. We are sending It overseas to die
on foreign shores, on 42 fronts. Did we
inquire, Mr. President, whether we were
taking any privileges away from those
young men? We did not. We assured
them, however, that they were being sent
abroad to fight for the fundamental principies upon which this Government was
predicated. Those principles include the
principle of equality among men.
I do not wish to have anything I say
seem invidious: but today I have heard
legalistic arguments about whether we
have the right to eliminate this special
privilege or not, in the face of an opinion
by the Assistant Attorney General of the
United States, an opinion by the General
Counsel of the Treasury Department, and

100 under

TABLE No. 4-Tax liability assuming interest from State and local government securities
(a) tax-exempt and (b) taxable under present and proposed individual income-tax rates,

for 25 selected Individuals

[In thousands of dollars)
Present rates

Taxable
Case

State

net

and

income

local

Total in-

from

Interest

come

other

sources

221.1
236.1

200.

Revenue
loss from
tax ex-

Interest

exempt

taxable

emption

Tax liability

Revenue
loss from

Interest
exempt

tax

Interest
taxable

601.9

823.1

424.2

595.7

171.8

504.4

669.

207.1

444.

126.4

301.2

174.8

157.0

364.1

148.1

409.1

87.0

230.9

276.8

189.8

1,337.8

1,568.4

199.2

1,081.0

182.4

1,151.

1,307.1

196.8

925.

147.1

362.

179.2

1,125.0

215,
349.

1,181.6
975.8

1,354.2

226.1

83.6

241.8

158.0

106.

294.0

144.2

493.7

82.6

820.1

339.6

257.0

101.1

835.6

1,656.3

106.0

646.6

710.9

1,432.7
237.7

1,251.6

106.2

334.1

407.1

162.1

249.

412.5

158.

351.7

279.

121.1

194.1

275,1

626,8

175.

442.1

266.1

216.

525.

249.9

503.0

253.1

303.

504.

330.1

Tax liability

Proposed rates

373.6

704.3

773.0

765.1

1,538.1

149.4

608.3

1,327.6

305.0

1,157.7

647.

668.7

974.6

198.6

712.8

514.2

243.1

831.1

288.9

1,106.8

186.6

817.2

630.6

229.

817.4

Footnotes at end of table.

948.1

emption

CONGRESSIONAL RECORDSENATE

1942

TABLE No. 4-Tax Hability assuming interest from State and local government securities
(a) tax-exempt and (b) taxable under present and proposed Individual income-tox rates,
for 25 selected individuals Continued
(In thousands of dollars)
Present rates

Proposed rates

Taxable

Case

State

net

and

income

Total In

local

from

come

interest

other
sources

Tax liability
Interest

Interest

exempt

taxable

Revenue
loss from

tax exemption

Interest

exempt

taxable

tax ex.
emption

394.6

370.0

771.1

250.7

643.2

302.5

304.7

651.9

347.3

296.

603.0

899.1

423.1

653.0

229.8

500.7

764.

260.9

404.

100.

564.

94.8

395.1

300.8

116.0

471.4

355.

316.3

915,

1,231.

066.8

915.8

249.0

780.0

1,058.1

278.3

313.

278.7

502

179.2

416.6

237.4

220.0

495.

275.1

356.

135.4

491.

75.1

335.9

251.1

94.8

407.6

312.8

5,405.

3,380.3

4,251.3

871.0

3,776.9

4,730.0

343.

125.0

125.1

276.1

15.

4,221.4
170.

1,083.

953.

220.2

166.1

393

102.2
99.5

165.0

121.9

320.

198

314.8

231.1

646.

217.5

457.1

239.1

265.

542.1

277.0

424.8

218.9

643.7

136.2

366.3

230.1

184.9

558.8

373.9

9,969.4

14,441.7

24,411.1

10,348.8

7,565.3

12,068.0

20,867.0

709.2

172.6

Total

Tax liability

Revenue
loss from

227.
264

17,914.1

Exclusive of net long-term capital gains and losses.

As included in Sensis Finance Committee version of H. R. 7378, Victory tax excluded.
Source: Income items from returns on Form 1040 for 1940.

EXHIBIT c
OPINION OF ASSISTANT ATTORNEY GENERAL
SAMUEL O. CLARK, JR., ADDRESSED TO RANDOLPH
E. PAUL

DEPARTMENT OF JUSTICE

Washington, April 14, 1942.
Hon RANDOLPH E. PAUL,

Tax Adviser to the
Secretary of the Treasury

Washington, D.C.

DEAR Ms. PAUL: On June 24. 1938, Hon
James W. Morris Assistant Attorney General
in charge of the Tax Division of the Department of Justice, transmitted to the Honorable

Herman Oliphant, General Counsel of the

Treasury Department, a comprehensive study

of the constitutional aspects of the taxation
of Government bondholders and employees.
Coptes of this study were also made available
to the appropriate congressional committees.

You have requested our opinion on the
constitutionality of the proposal by your De-

tion of any legal problem can ever be prior
to a final determination of the preciee issue
by the Supreme Court. It is our considered
opinion that the Congress does have the
power to tax such income

It is, of course, true that the Supreme

Court concluded in Pollock v. Farmers' Loan
. Trust Co. (157 U. 8. 429; 1581 8 601) that

a Federal tax could not validly be imposed
upon income derived from municipal obligations. That decision was based upon the
theory that a tax on income was a tax upon
the source from which the income was derived. Thus, a tax on the income from mu.
nicipal bonds was the equivalent of a tax
upon the bonds themselves, and, therefore.
an unconstitutional burden upon the power
to borrow. However, this reasoning has been
completely discredited in later opinions of
the Supreme Court. With the destruction of
the premise of the Pollock case, its conclusion

must also fall.

future issues of State and municipal bonds,

The theory, which once won a qualified
approval, that a tax on income is legally or
economically a tax on its source, is no longer

with special emphasis on legal developments

in March 1939. in Graves v. New York ex rel.

partment to subject to Federal income tax the
interest received hereafter on outstanding and

subsequent to the publication of our study.
We are pleased to comply with your request
and submit the following views.

In our earlier study we expressed-th fol-

lowing conclusion

tenable said the Supreme Court

O'Keeje (306 U. S. 480). Less than a year
earlier in Heivering v. Gerhardt (304 U. B.
405) the Court had sustained a Federal tax
upon the salaries received by employees of

the Port of New York Authority The

"It is believed that there can no longer be
found in the decisions of the Supreme Court
any rule of continuing authority which would
raise a constitutional prohibition against applying the Federal income tax to State bond-

claimed immunity, If allowed, would in the

holders, officers, and employees.

The imposition of a State tax upon the
salary of a Federal employee was similarly
held in the O'Keefe case not to place an unconstitutional burden upon the employing
sovereign. Collector v. Day (11 Wall. 113),
another landmark decision like the Pollock
case, was thus overruled. The express dental
in the O'Keefe case that a tax on income was
the equivalent of a tax upon the source represented no new thought but was rather a

You are no doubt aware that since that
time the decisions of the Supreme Court on

the question of constitutional tax immunity

have all served to reinforce and confirm that

conclusion. The trend toward a limitation
of such immunity, which had developed when

we published our study in 1938. has continued without interruption to the present
date.
We are, of course, no longer concerned with

the power of the Federal Government to tax
the income of State officers and employees.
The decision of the Supreme Court in Graves

v. New York ez rel. O'Keete (306 466)

and the enactment of the Public Salary Tax
Act of 1939 have removed that problem from

the field of controversy. Taxation by both

State and Federal Governmental of the salaries

of public employees is now an accepted incl-

dent of our fiscal system. The only remaining question is whether the income received

from
State and may be
subjected to Federal taxation. In our view,
the answer is as clear and certain as the soluNo. 172

Court's opinion (p. 424) have imposed "to an

inadmissible extent a restriction upon the
taxing power which the Constitution has
granted to the Federal Government."

reiteration of a principle which had been
applied in the Court's prior decision in New

York ex rel. Cohn v. Graves (300 U. B. 308)

and in Hale v. State Board (302 U. S. 95)
There, too, it had been recognized that "income is not necessarily clothed with the tax
immunity enjoyed by its source.
The opponents of the pending proposal
urge that it would produce an unconstitu-

tional "interference" with State govern-

ments. Translated into practical terms, the
interference complained of is merely the increased cost of future public borrowing which
might be occasioned by the tax. It is sig.
nificant that this increased cost involves no

8201

discriminatory burden Rather It represents
the effect of placing income from private and

public sources upon the same plane of
equality The absence of any element of dis.
crimination would be helpful in sustaining
the constitutionality of the proposed tax.
Until the Supreme Court handed down its
decision in Alabama v. King & Boozer on

November 10 1941 (314 1). there was

room for the view that, despite the decisions
affecting public employees. a constitutional

immunity from taxation might possibly
accorded to Government bondholders Mr
Justice Stone had stated in the O'Keefe opin

ion (p. 486) that there was no basis "for the

assumption that any tangible or
certain economic burden is imposed on the

government concerned as would justify a de.
claion that the tax upon the employee's salary

was invalid. On the other hand, It is no
doubt true that the issuing government
would bear a part of the economic burden
of an income tax imposed upon the bond
holder. Nevertheless, this Department did
not attach to the statement of Mr. Justice

Stone the significance urged for it by those
who have opposed the legislation now sug
geated. The recent decision in Alabama
King & Boozer confirms our view. It is now
clearly established that the validity of a tax

upon bond interest will not be affected by
the increased likelihood that the economic
burden will in some measure be passed on to
the Government

The question in the Alabama case was
whether nn Alabama sales tax, which was to

be collected from the buyer, was unconstitutional in its application to purchases made
by a contractor engaged by the United States

under a cost-plus-a-fixed-fce contract. It
was quite clear. of course, that the entire
burden of the tax would be borne by the
Government. In fact, the Government had
agreed with the contractor that State taxes
if valid would constitute part of the cost of
the project and would be assumed and borne

by the Government Hence there was no

uncertainty as to the economic effect of the
tax as in the earlier case of James v. Dravo

Contracting Co. (302 U. 8. 134). which in.
volved a lump-sum contract The Supreme

Court nevertheless sustained the State exac.

tion. In the course of its opinion the Court
made the following observation (pp.8-9)
"So far as such a nondiscriminatory State
tax upon the contractor enters into the cost
of the materials to the Government, that is
but a normal incident of the organization
within the same territory of two independent
taxing sovereignties The asserted right of
the one to be free of taxation by the other
does not spell immunity from paying the
added costs, attributable to the taxation of
those who furnish supplies to the Govern.
ment and who have been granted no tax
immunity
Thus, the Supreme Court finally laid to
rest the theory that an economic burden in
terms of increased governmental costs in
validates a tax. The earlier opinions in Panhandle Oil Co. v. Knoz (277 U. S. 218). and
Graves Texas Co (298 U. 393), were held
untenable so far as they support the contrary
conclusion.

A decision which supports State taxation
of Federal cost-illus-a-fixed-fee contractors
would operate at least equally to sustain a
Federal tax imposed upon State bondholders.

Both relationships rest upon contract; one
involves the furnishing of supplies and services, the other money. The tax in each instance would increase the cost of governmental operations: In the case of the State

tax on the Federal contractor. to the full

extent of the tax exacted; in the case of the
State bondholders, to some extent which is

difficult of precise ascertainment Para.

phrasing the language of the Supreme Court
in the Alabama case, we may therefore con-

clude that so far as a nondiscriminatory
Federal income tax upon a holder of a State

8202

CONGRESSIONAL RECORD-SENATE

obligation enters into the cost of borrowing
that is but a normal incident of the organization within the same territory of two independent taxing sovereigns
What has been said thus far as to the power

of the Federal Government to impose a tax
upon income received from State obligations

bar to Federal taxation of the income received

from the bonds now outstanding." (Tax Immunity and the Revenue Bond, by Daniel B.
Goldberg a printed memorandum distributed
by the Conference on State Defense, March
1940.)

applies with equal force to all interest here-

The Department's study of 1938, referred
to above. reached a second and alternative

upon outstanding obligations. No constitutional question as to the validity of a retroactive tax is involved. See United States V.

conclusion that irrespective of the weakened

after received whether upon future issues or

Hudson (299 8 498). and cases cited there.

in. The proposed tax reaches only future
income and is therefore entirely prospective
in operation. It posseses the same constitutional validity as the income tax imposed by
the Public Salary Tax Act of 1939, upon the

income received after 1938 by all Federal
judges. irrespective of the date of their ap-

pointment to office.

The assumption, which was formerly prev-

alent that interest received upon State securities was immune from Federal taxation.

is analogous to the assumption of many years

standing that Under Evans v. Gore (253 U.S
245). an income tax upon the salaries of Fed-

eral judges would be unconstitutional as
diminution of their compensation The sal-

aries of some Federal judges were made sub.

ject to the income-tax laws by the Revenue

vitality of the Pollock case and Collector v.
Day, there is sound basis for a construction of

the sixteenth amendment which would remove the immunity of the State bondholder
and officer. We there examined at length the

history of the ratification of the amendment
and presented as exhibits the evidence which

would support that conclusion Accordingly
we refrain from entering into that phase of
the problem in detail. One brief observation,

however, seems appropriate

At the hearings last month before the Com-

mittee on Ways and Means of the House of
Representatives reference was made to the
fears expressed in 1910 by then Governor
Hughes, of New York, that the proposed sixteenth amendment would authorize the taxation of interest received from State and municipal obligations. Reference was also made to
the subsequent assurances of Senator Root
and Senator Borah leading to the conclusion

Act of 1932 which required that all compensation received by judges taking office after

that the amendment was adopted by the
legislatures of all the States with the views
of the latter two in mind. The statements of

taken office prior to June 6, 1932, were thus

Governor Hughes and of Senators Root and
Borah and of many others, were gathered and
commented upon in our study.

June 1932. the effective date of the act, be
included in gross income. Judges who had

given a statutory tax immunity. In the case
of the bondholder, express statutory exemp-

tion was included in the act of October 3,

1913, and this provision was repeated in later

acts. With the realization that tax immunity
of judges who had taken office prior to June
6. 1932. was not a constitutional requirement,

the Congress, by the Public Salary Tax Act
of 1939. took the final step to remove it. The

present proposal to tax future income of all
State securities is therefore consistent with
the procedure and objective of the Public
Salary Tax Act of 1939. A further illustra-

tion of the application of the income-tax

laws to future income arising out of transactions which were closed before the particular
taxing provision was adopted may be found

in Burnet v. Wells (289 U. 8. 670). The

grantor of an Irrevocable trust was there held

constitutionally taxable upon the trust income although the trust had been created

before
the
tax. the enactment of the statute imposing

There is no constitutional basis for contending that income hereafter received upon

outstanding State bonds must be free from
Federal taxation because the obligations were

issued and purchased on that implied or expressed understanding The Federal Govern-

ment was not a party to such contracts and
the power of the Congress to enact a revenue

It is significant that a large number of
public officials (some agreeing and others dis-

agreeing with the construction placed upon
the amendment by Governor Hughes) urged

that If the Hughes construction was correct,

was upheld, although applied to a preexisting

U. 591), an order of the Interstate Com-

merce Commission which increased an intra.

state railroad rate was upheld even though
the State charter had provided that a lesser
rate should be charged by the company. See

also Norman B. & R. Co. (294 U. S. 240).
It accordingly appears that no objection on

constitutional grounds can be successfully

raised against the proposal to tax the income

hereafter received upon outstanding State
obligations. Indeed the assistant secretary of

the Conference on State Defense has admitted

that If Federal taxation of income arising.or

of future issues of State bonds is constitu-

platform. The debate in this body dur.
ing the greater part of yesterday and all
of
today
high
order.has been of an exceptionally
Two questions were presented to the
Finance Committee again this year, as
they were also presented to the Ways

and Means
House:

Committee of the other

First, whether the income derived from

State and municipal bonds should be
taxed: second, if it were not deemed wise

or just to tax the income derived from
such bonds outstanding, should the income from future issues of State and

municipal bonds be taxed?
There is a question of power; that is

quite true. It has often been debated
I myself have in the past entertained
the view that the power of Congress to

tax income derived from State and
municipal bonds was involved in great
doubta I now have no serious doubt that

the Supreme Court will hold that the

Congress has the power to tax income
derived from State and municipal bonds
Mr. President, conceding the power,
the question is whether it is wise to impose the tax on the income from State
and municipal bonds. That is a debata.
ble question. It is a question on which

reasonable minds may differ. I grant

municipal bonds. That, to my mind,

father of the joint resolution submitting the
amendment to the States. It is also signincant that the New York Legislature rejected
the amendment in 1910 after the message of
Governor Hughes, but ratified it subsequently

seems to be the big question. I shall go
as far as anyone will go in trying to maintain the business machine upon which

the country must depend- by that

under the administration of Gov. John A.

mean the whole business machine, from
the humblest individual to the largest or-

Interpretation of the amendment

ganization which we permit to exist. I

Dix. who vigorously championed the broadest
The foregoing and an abundance of similar

evidence permitted the conclusion to be
reached in our study that the preponderant
understanding of the States at the time of
the ratification of the sixteenth amendment
was that its adoption would in all probability
carry with It the power to tax the income
from State and municipal bonds,

We should like to reiterate however, that
the constitutionality of the proposed legisia-

tion does not depend exclusively upon the acceptance of our construction of the sixteenth

they say, and as so interpreted clearly embrace income from Government securities.
With full confidence, the validity of our conclusion may rest upon the basic proposition
previously discussed that no implied constitutional immunity from Federal taxation attaches to interest received from State and

contract In New York v. United States (257

opinion. He certainly has had no lack
of opinion in the press and from the

Senator Brown, of Nebraaka who was the

were Frederick M. Davenport to whom Senator Root's letter had been addressed and

and a State. There are many illustrations of
this proposition. Thus, in Louisville & Nash.

ville v. Mottley (219 467). an act

American people. It a question

which almost every American has his on

that. I cannot believe that we have not
the power, and I cannot believe that it is
wrong to tax the income from State and

amendment namely, that the words "from

of Congress which prohibited the enforce.
ment of certain contracts for transportation

and municipal bonds has been before the

It furnished an additional ground for the
adoption of the amendment Among these

measure is not fettered by any agreement

between individuals or between an Individual

OCTOBER 8

tional. "there remains no constitutional

whatever source derived mean exactly what

municipal obligations

Very truly yours,
SAMUEL O. CLARK Jr.

Assistant Attorney General,

Mr. GEORGE. Mr. President. this
question has been debated in the United

States since before 1909. Thirty-three
years ago last July the two branches of
the Congress submitted the sixteenth
amendment to the several States. Its
ratification. of course, followed During
all the intervening years the question of
the wisdom and power of taxing State

shall go as far as anyone will go in maintaining the business machine upon which
we depend, upon which we shall depend
when the war ends, and upon which the

men who are fighting must depend in
order to find a job when they return
Mr. President, I think that is a shortsighted policy which would break down
the business machine and which would
let the returning soldiers find no work
and no employment, but find a period
of stagnation through which they would
have to pass, after this war shall have
ended.

So, Mr. President, paraphrasing the
expression "Keep Em Flying. I am willing to "Keep Business Trying. It is es-

sential to the life of America to keep
business trying-that is, by giving to

business a fair treatment, although not
relieving It of its proper and fair burdens,

of course.

Looking at the matter from the broad
and national point of view, I cannot see
why the position I have just stated is not
the position which should be taken by

the National Government by every
State, by every municipality, and by
every taxing district. It will not break

down the business machine, it will not
destroy the opportunity for men to find
jobs after the war ends and when the

CONGRESSIONAL RECORDSENATE

1942

soldiers come marching home, it will not
break down the business machine, it will
not destroy it, to tax income from every

source from which men derive it: and
to do so will not break down the cities,

the States, or the municipalities, nor

will it seriously interfere with their ability to finance themselves. With taxes
as high as they are, and as high as they
must go, there must inevitably be a great
scramble to secure every outstanding
tax-exempt bond or partially tax-exempt
bond and every such bond which hereafter will be issued.
So, Mr. President, It seems to me that

whatever may have been our judgment
in the past, and however we may have
been committed to it, the proposal to

tax income derived from State and

municipal bonds issued after January 1,

1943, not only squares itself with the

principle of equity. which we like to think
underlies all democracy and is in a sense

the soul and spirit of democracy. but
prevents anyone, whether he be relatively

poor, only moderately rich, or very rich,
from finding a shelter under which he

could take refuge at a time when his
country, in sheer defense of the Ameri-

can system of free institutions and of
human liberty, is straining every nerve,
taxing to the utmost every citizen. to

Clark Idaho

LA Follette

Reynolds

Clark. Mo.

Langer

Roster

Lee

Connally
Dansher

Lodge

Schwarts
Shipstead

Davis
Downey
Doxey

Lucas

Smith

McCarran

Spencer

McFarland
McKellar

Stewart
Thomas Idaho

Gerry

McNary
Maloney

Thomas. Okia.

Gillette

Maybank

Thomas, Utah

Green

Mead

Truman

Kiender
George

Taft

Millikin

Gurney

Murdock

Hatch

Tunnell
Vandenberg

Murray
Norris

Van Nuys
Wagner

Guffey
Hayden

Herring

Hill

Holman
Johnson, Calif.

O'Daniel

Wallgren

O'Mahoney
Overton

Walsh

White

Pepper

Wiley

Johnson. Colo.

Radcliffe

Willis

Kilgore

Reed

The PRESIDING OFFICER. Eighty.
six Senators have answered to their
names. A quorum is present.

The question is on agreeing to the
amendment of the Senator from Ohio
(Mr. BURTON].

Mr. GEORGE. I ask for the yeas and
nays.

The yeas and nays were ordered.

Mr. BARKLEY. Mr. President, may

we have the amendment offered by the
Senator from Ohio (Mr. BURTON] stated?

The PRESIDING OFFICER. The

8203

of refunding any of the refunded obligations:
and

(D) The aggregate principal amount of the
new issue is not in excess of the aggregate

principal
amount of the refunded obligations: and

(E) Interest on each of the refunded
obligations ceases (by reason of such obliga-

tion being called for redemption in accordance with the terms thereof as they existed
on enactment date. or the date of issue,
whichever is later) to run upon a date not
more than 7 months after the date upon
which interest on the refunding obligation
begins to run: and
(F) Interest on each of the refunded obligations, for the period at the end of which
it ceases to run by reason of such call for
redemption, is considered as interest on an
obligation issued before January 1, 1943; and

(G) The refunding obligation, in its terms,
states the exemption expiration date of, and
identifies, the refunded obligations; and

(H) The interest rate on the refunding
obligations for any period ending on or before the exemption expiration date of the
refunded obligations is not higher than the
interest rate which any of the refunded ohio
gations had. or would (if such obligation had
not been called for redemption) have had,
for the corresponding period,

then the refunding obligation shall be considered as issued before January 1. 1943. as
to so much of the interest as accrues for any

clerk will state the amendment.
The CHIEF CLERK. It is proposed to
strike out on page 34. line 1, the words
"before January 1, 1943," and beginning
on line 23, page 34, to strike out all down
to and including line 16 on page 38, as

cember 31, 1942. as to the remainder of such

one question. and that is, Is it right to

graph (1) of this subsection

bonds? If It is right, I am willing to

before January 1, 1943, the maturity of which
on the date of enactment of the Revenue Act
of 1942 (hereinafter called "enactment date")
or the date of issue. whichever is later, is later
than December 31. 1942 are, after enactment
date, changed so as to increase the principal

the others in maturity, interest rate. terms
and conditions, and recitals, but the fact
that the denominations differ, or that some

find the money which, plus what we may

be able to borrow and will be able to

borrow without breaking down our eoonomic system, will make it possible for
us to finance ourselves through the war.

I feel that I should ask myself but

tax the income from State and municipal

let the Supreme Court say whether we

have the power, for its decisions are

sufficiently involved in doubt as to justify
me in concluding that the Court will re-

solve the doubt in favor of the validity
of such an act.

So, Mr. President, I exp ess the hope

that the Senate will vote down the

amendment offered by the distinguished

follows:
(3) For the purposes of clause (B) of para-

(A) If the terms of an obligation issued

amount or interest rate or to extend the
maturity. then such obligation shall (as to

interest accruing for any period after the date
of the change or December 31, 1942, which-

ever is later) be considered as issued after

junior Senator from Ohio. Let us stop

such later date.

and municipal bonds the income from

after the enactment date and before January

now at least the future issuance of State

(B) In the case of an obligation issued

which will be exempted from our Federal

1943, such obligation shall (as to interest
accruing for any period after December 31.

In this hour the Federal Government
is supreme. It must always be able to

31, 1942, If any part of the proceeds of the

income tax.

1942) be considered as issued after December

protect its revenues against possible cur-

issue of which the obligation is a part, or
if any obligation of the issue. is devoted to

tailment by means of bonds which may
be issued in great volume before this war

the maturity of which on enactment date

ends, or immediately upon its conclusion.

So, I think it right to avoid the pos-

sibility of such curtailment, and I believe
that to do so will comport with
equity

about which we talk, and which all of
us really favor and support under our

system of Government.
Mr. President. I suggest the absence of
a quorum.

The PRESIDING OFFICER. The clerk
will call the roll.
The legislative clerk called the roll, and
the following Senators answered to their
names:

Alken

Bilbo

Austin

Bone

Bailey

Brewster

Ball

Bankhead
Barbour
Barkley

Brooks

Burton
Butler
Byrd
Capper

Brown
Bulow

Chandler

Bunker

Chaven

Caraway

the retirement or refunding of an obligation

was later than June 30. 1943. For the purposes of this subparagraph, June 30, 1943.
shall be considered the maturity, on enactment date, of an obligation the interest on
which ceases to run before July 1, 1943, by
reason of such obligation being called for
redemption in accordance with the terms
thereof as they existed on enactment date.
(4) For the purposes of clause (B) of paragraph (1) of this subsection. if an obligation
is issued after December 31, 1942 (hereinafter

called "refunding obligation"). and If-

(A) The issue of which it is a part (hereinafter called "new issue") is issued for the
purpose of refunding one or more obligations
(hereinafter called "refunded obligations"):

period ending before or on the exemption
expiration date of the refunded obligations,
and shall be considered as issued after De-

interest For the purposes of this paragraph-

(I) Several obligations shall be considered
as one issue, only If each is identical with all

are registered and some in coupon form shall
be disregarded.

(J) "Exemption expiration date" means(1) With respect to a refunded obligation
issued before January 1. 1943. the date of
maturity which the obligation had on De-

cember 31. 1942;

(11) With respect to a refunded obligation
issued after December 31, 1942. the date as

of which interest thereon would (if the obligation had not been called for redemption)
have ceased to be considered as interest on
an obligation issued before January 1. 1943.

Mr. BURTON. Mr. President. merely

that I may be sure that I understand
correctly the parliamentary situation.

and that the Senate does, I understand
that the law now provides that income
from all State and municipal securities

shall be exempt from taxation. The

committee proposes an amendment to
limit that exemption to those securities
which were issued or will be issued before

January 1, 1943. My amendment is to
strike out that date, and to strike out
the limitation. and therefore to leave
the situation as it is at present. If my
amendment shall be voted up. the situation will remain as it is now, and municipal and State bonds will remain exempt.

The VICE PRESIDENT. The yeas
and nays have been ordered, and the
clerk will call the roll.
The Chief Clerk proceeded to call the

and

roll.

(B) All refunded obligations have the same
exemption expiration date, as defined in sub-

was called). I have a general pair with

paragraph (J): and
(c) No obligations, other than those of the
now issue, have been issued for the purpose

Mr. THOMAS of Utah (when his name

the senior Senator from New Hampshire

(Mr. BRIDGES). I transfer that pair to
the senior Senator from Virginia (Mr.

CONGRESSIONAL RECORD-SENATE

8204

GLASS]. who would vote as I intend to

vote. I vote "nay." I am advised that

If present and voting the Senator from
New Hampshire (Mr. BRIDGES) would

)

vote "yea.

The roll call was concluded.

Mr. HILL The Senator from Virginia
[Mr. GLASS) and the Senator from Delaware (Mr. HUGHES are absent from the
Senate because of illness.

The Senator from Florida (Mr.

ANDREWS), the Senator from Maryland
(Mr. TYDINGS], and the Senator from
Montana (Mr. WHEELER] are detained on
official business.

States and its instrumentalities." That
is a provision by which the United States
would give consent to the taxation, under an income tax. of interest upon obligations, and dividends, earnings or other
income from shares, certificates, stock.
or other evidence of ownership of United
States-owned corporations, and so forth.
It would also apply to the second amendment passed over, beginning in line 13,
on page 531, and ending in line 13, on

page 532, which is section 510. Both
amendments were passed over, but the
action to be taken on them would seem
to be determined by the vote already
taken by the Senate. I therefore ask

The Senator from Georgia (Mr. RUSSELL and the Senator from New Jersey

that the two amendments be disposed of

(Mr. SMATHERS] are necessarily absent.

today.

pending question:

The VICE PRESIDENT. The question
is on agreeing to the amendment beginning in line 6, on page 528, and ending

TYDINGS). who would vote "nay.' with the

In line 12. on page 531.

I announce the following pairs on the

The Senator from Maryland (Mr.

Senator from North Dakota [Mr. NYE).
who would vote "yea."

The Senator from Montana (Mr.

WHEELER), who would vote "nay,' with
the Senator from New Hampshire (Mr.
TOBEY), who would vote "yea."

Mr. McNARY. The Senator from New
Hampshire (Mr. BRIDGES). the Senator
from North Dakota (Mr. NYE), and the

Senator from New Hampshire (Mr.

TOBEY) are necessarily absent.

The result was announced-yeas 52

nays 34. as follows:

YEAS-52
Austin
Balley

Gerry

Radeliffe

Ball

Gillette
Gurney

Reynolds
Roster

Bankhead

Hayden

Barbour
Bilbo

Hill
Holman

Bone

Johnson Calif. Stewart

Brewster
Brooks
Bunker

Burton

Butler

Caraway

Chavez

Connally
Davis
Doxey

Ellender

Schwarts
Smith
Spencer

Johnson, Colo. Thomas, Idaho
Lodge

Thomas Okia.
Tunnell

Lucas

McCarran
McFarland
McKellar

Van Nuys

Wallgren
Walsh

McNary
Maybank

White
Wiley
Willia

Millikin
O'Mahoney
Overton

NAYB-34
Alken

Green

Barkley
Brown

Guffey
Hatch

Bulow
Byrd

Clark,Idaho

Pepper

Herring
Kilgore

Capper

Chandler

Norris
O'Daniel
Reed

Follette

Shipstead
Taft

Langer

Thomas Utah

Lee

Truman
Vandenberg

Clark
Dansher

Mead

Downey
George

Murdock
Murray

Maloney

Wagner

Nye

Russell

Glass

Smathers

Hughes

Tobey

Tydings
Wheeler

So Mr. BURTON'S amendment to the

amendment
of the committee was
agreed to.
The VICE PRESIDENT. The question
recurs on the committee amendment on
page 31, beginning in line 1, as amended

Theto.
amendment,
agreed

and ending in line 13, on page 532.

The amendment was rejected.

The VICE PRESIDENT The next
committee amendment will be stated.

The next amendment was, on page
298, beginning in line 1, "Section 174.
Temporary income tax on individuals

Mr. McNARY. Mr. President, I call
attention of the a 'e Senator in charge

of the bill and the Democratic leader to
an understanding we had a ew days ago.

Mr. GEORGE. Mr. President, I remember it: and if it is agreeable to the
majority leader, I suggest that the Sen.
ate now take a recess until tomorrow
STIMULATION OF OIL PRODUCTION

Mr. O'MAHONEY. Mr. President, I

as amended, was

Mr. GEORGE. Mr. President, I assume that the action just taken by the
Senate will make it unnecessary to act
upon two amendments which were passed

over. The first is on page 528, Section
509. Taxation of obligations of United

surface
area
of and
40
vember 1.
1942
not included
having in a square
its
the
mouth
as

producing

oil

center

in commercial quantities the depletion and gas
lowance shall be based upon the fair market al.

value of the property at the date brought
production or within 30 days thereafter; to
allowance in all the above cases to be made such

accordance with the annual production lim.

ited to the estimated life of the

under rules and regulations to be prescribed property

by the Commissioner of Internal Revenue
with the approval of the Secretary which
allowance shall not be less than the
percent otherwise
provided in the present 27%
revenue
act.

In the absence of a stronger showing than
has already been made am opposed to
eral price increases but I do think the areas gen.

now where production and consumption are

practically in balance and the possibility of
shortage is more imminent such as the Rocky

Mountain States and West Coast States that

new production obtained after November 1.
1942, should receive a higher price due to
greater costs and as a further stimulant to
production. There is no accounting problem

really involved in such a price increase because the runs to the pipe lines are always

measured and the wells where oil is used on

the property have settling tanks which are
gaged each day.

Neither of these proposals would affect the
Treasury's revenue because they have to do

with new production so they would not impair the present estimated revenue returns

would stimulate the production of highly

critical and much needed raw materials and
produce additional revenue as well, These

recommendations are given in brief and I

would be glad to submit a detailed and com-

pleted written recommendation if the proposals are of interest to the committee and
are not found objectionable by Government
Agencies and Henderson as I have not had
a chance to consult with anyone about them.
Discussion of these principles certainly can.

not harm the situation and It seems to me
offers a tried solution without involving subsidies which are difficult to administer and

ask unanimous consent to have printed
in the body of the RECORD a telegram
which I received this morning from the
Honorable Wayne Johnson, of the War
Production Board, who sat in a hearing
of the Committee on Public Lands and

general price increases which would be very

Surveys, which was considering ways and

ate proceed to the consideration of

means of stimulating the production of

oil in the United States. Mr. Johnson
has suggested a possible amendment to

the revenue act.

There being no objection. the telegram
was ordered to be printed in the RECORD,
as follows:

NEW YORK, N.Y., October 7, 1942.

Hon. JOSEPH C. O'MAHONEY.

Senate Committee on Public Lands:

NOT VOTING-10
Andrews
Bridges

The amendment was rejected.
The VICE PRESIDENT. The question
is on agreeing to the committee amendment. beginning in line 13 on page 531

OCTOBER

difficult to justify.

WAYNE JOHNSON,

War Production Board
EXECUTIVE SESSION

Mr. BARKLEY. I move that the Sen-

executive business.

The motion was agreed to: and the
Senate proceeded to the consideration
of executive business.
EXECUTIVE MESSAGE REFERRED

The VICE PRESIDENT laid before the
Senate a message from the President of

the United States submitting several
nominations in the Army and the Army
Specialist Corps, which was referred to
the Committee on Military Affairs.

After listening to the testimony taken before your subcommittee yesterday and after
receiving a report on the testimony today. it
seemed to me that the suggestions thus far
submitted to bring about the necessary ex-

the end of Senate proceedings.)

known deposits of oil and gas were too gen-

EXECUTIVE REPORTS OF COMMITTEES

similar threatening shortage in 1918 the Con-

nominations were submitted:
By Mr. McKELLAR from the Committee

ploitation of existing prospective and uneral in their application. In order to avoid a

gress adopted a reward for the bringing in
of wells. To be sure the situation today
due to critical materials and changes in the
industry make the law and regulations as
then adopted not entirely appropriate for the

present situation but it gives a guiding prin-

ciple. I wrote the regulations under the

1918 act and subsequently saw the adminis-

tration of the act work perfectly and with

modifications it could be equally or more effective today. My suggestion is: That in the

case of mines, oil and gas wells brought
production by the taxpayer on or after into No.

(For nominations this day received. see

The following favorable reports of

on Post Offices and Post Roads:
Sundry postmasters.

By Mr. REYNOLDS, from the Committee
on Military Affairs:
Sundry citizens for appointment in the
Army Specialist Corps, established by an
Executive order; and
Sundry officers for appointment, by trans-

fer. and/or promotion in the Regular Army.

By Mr. BONE from the Committee on

Patents:

)

CONGRESSIONAL RECORD-SENATI

1942

Vernon I. Richard, to be examiner in
chief, Board of Appeals, United States Patent

The VICE PRESIDENT. Without objection, the nomination is confirmed.

Office: and

Ernest F. Klinge, to be examiner in chief.

Board of Appeals, United States Patent
Office.

The VICE PRESIDENT If there be
no further reports of committees, the
clerk will state the nominations on the
calendar.

DIPLOMATIC AND FOREIGN SERVICE

The legislative clerk read the nomination of George Wadsworth, of New
York, to act as diplomatic agent and
general of the United States of
near the Government

of Lebanon, at near
America public consul Beirut, of and of the Rethe Government of the Republic Syria,

THE MARINE CORPS

The legislative clerk proceeded to read
sundry nominations in the Marine Corps.

Mr. WALSH. I ask that the nominations in the Marine Corps be confirmed

en bloc.

The VICE PRESIDENT. Without objection, the Marine Corps nominations
are confirmed en bloc.
That completes the calendar.

Mr. BARKLEY. I ask that the Prestdent be immediately notified of all nominations this day confirmed.
The VICE PRESIDENT. Without ob-

jection, the President will be notified
forthwith.

at Damascus.

The VICE PRESIDENT Without objection, the nomination is confirmed.
POSTMASTERS

The legislative clerk proceeded to read
sundry nominations

I ask nom-

Mr. McKELLAR. of postmasters. that the

inations of postmasters be confirmed en
bloc.

The VICE PRESIDENT Without objection. the postmaster nominations are
confirmed en bloc.

THE NAVY

The legislative clerk read the nomina-

tion of John H. Towers, to be vice admiral for temporary service, to rank from
October 6, 1942.

Mr. WALSH. I ask that the nomina-

tion be confirmed.

The VICE PRESIDENT. Without objection, the nomination is confirmed.
The legislative clerk read the nomination of John S. McCain, to be Chief of
the Bureau of Aeronautics, with the rank
of rear admiral, for a term of 4 years,
effective upon the relinquishment of that
office by Rear Admiral John H. Towers.

Mr. WALSH. I ask that the nomina-

tion be confirmed.

RECESS

Mr. BARKLEY. As in legislative session, I move that the Senate take a recess
until 11 o'clock tomorrow.

The motion was agreed to: and (at
4 o'clock and 56 minutes p. m.) the

Senate took a recess until tomorrow, Friday, October 9, 1942, at 11 a. m.

8205
DIPLOMATIC AND FOREIGN SERVICE

George Wadsworth, to act as diplomatic
agent and consul general of the United States

of America near the Government of the
Republic of Lebanon, at Beirut, and near the

Government of the Republic of Syria, at
Damascus.

IN THE NAVY
PROMOTION IN THE TEMPORARY SERVICE

John H. Towers to be vice admiral for temporary service.
IN THE MARINE CORPS
PROMOTIONS IN THE TEMPORARY SERVICE IN THE
MARINE CORPS

To be major generals
Emile P. Moses

Harry Schmidt
Ralph J. Mitchell
To be brigadier generals
Earl C. Long

Pedro A. del Valle
Francis P. Mulcahy
Louis E. Woods
Field Harris

POSTMASTERS
CALIFORNIA

Gilbert G. Vann, Arbuckle.

Jacob Golden Land, Feather Falls.

Paul W. McGrorty. McCloud
NOMINATIONS

Executive nominations received by the
Senate October 8 (legislative day of October 5). 1942:

John Carlos Rose, Milpitas

Robert L Turner, Mojave.
Julia M Ruschin, Newark
Lindsey L Burke, Norwalk

Charles A. Turner, Oceanside

APPOINTMENTS IN THE ARMY SPECIALIST CORPS

Icy June Murphy Project City.

Leland Grister Gardner, executive officer,
Legislative and Liaison Division, War Depart-

Louis J. McNeill, Tuolumne

ment, Special Staff, 85,600.

Hugh McKittrick Jones, principal personnel procurement officer. field service, Seventh

Service Command, Army Specialist Corps,

$5,600.

Melvin James Snyder, principal administrative officer, Engineer Corps, Services of
Supply,No York, N. Y., 85,600.
CONFIRMATIONS

Executive nominations confirmed by
the Senate October 8 (legislative day of
October 5). 1942:

George H Treat, San Andreas.
KANSAS

Clarence O. Masterson, Wilmore
MONTANA

Oren D. Clement, Livingston.
OREGON

Euna Pearl Burke, Astoria.
Robert H. Fox. Bend.

Glen C. Smith, Independence.
Winifred G. Wisecarver, McMinnville.
DEPARTMENT OF THE NAVY

John S. McCain to be Chief of the Bureau
of Aeronautics, with the rank of rear admiral.
for a term of 4 years.

October e, 1942.

Dear Felias

20 was very good of you to 1 - a -

of your I address, as a - of complete
my sale hears. seriously, however, I - look
ing forward to reading 19 very attentively,

and I an - so will well - the time
spent upon so.

Bilmer to - - when she returns to

Washington, do will - to read ss and 1 shall
save so for has.

was vara regards,

(Signed) Henry

Justice Felia Institutes,
Supreme - of the United States,

Weshington, P. e.

GEF/dbs

File in Diary

Supreme Court of the United States
Washington. D.C.
CHAMBERS OF

October 6, 1942

STICE FELIX FRANKFURTER

Dear Henry:

Since time is likely to be hanging heavy
on your hands these days I thought I ought to supply

you with a bit of reading matter. And your Eleanor

may find a thing or two in this speech of interest to
her.

with warm regards,
Ever yours,

Hon. Henry Morgenthau, Jr.

Address by Associate Justice Felix Frankfurter at the

Inauguration of Dr. Harry N. Wright, sixth
President of the College of the
City of New York, on
Wednesday,

September 30, 1942.

Address by Associate Justice Felix Frankfurter at the
Inauguration of Dr. Harry N. Wright, sixth
President of the College of the
City of New York, on
Wednesday,

September 30, 1942.

Mr. Chairman, Mr. President, Ladies and Gentlemen:

In 1848 a movement for freedom was astir in Europe. It was short.

lived. Only America profited thereby for it brought us the pilgrims of
48 - the Brandeises, the Jacobie, the Carl Schurzes, and the rest.
But just at the time that reaction smothered the democratic ferment in
Europe, it achieved here an historic triumph. The exiled democratic
revolutionaries from Europe set foot on America as the doors of this
College were opening. This College is not only an expression of the

democratic faith. It is the creation of the democratic will. The old
red building on Twenty-third Street, not beautiful but dear to men of
my generation, with its memories of General Webb and Professors Compton,
Doremue, Herberman, Johnston, McGuckin, Mott, and Werner, to mention

only a few, stood forth as the visible symbol of the democratic reliance
on a comprehensive process of popular education from the lowest grades

to the highest. All ideas originate in some brain, and Townsend Harris
is rightly cherished as a pioneer and chief promoter of the idea of a

college like this. But the real founder of our College is the people
of the City of New York. It cannot be too often recalled that this
College was ordered to be established by direct vote of the people after

full discussion of the need for the higher education of youth in a great
democratic community like New York. Higher education was thus made

available to those capable of it not as a largesse, not as charity for
the poor, but as part of the duties of a democratic government. It was

no more free in an invidious or even true sense than government is free.
The cost of higher education for a democratic society was rightly deemed
part of the cost of government.

But it would be historically false to say that the American ideal
which gave birth to this College wholly possessed American opinion a
hundred years ago. The establishment of the College was vigorously resisted and popular approval of the measure viewed with forebodings.
Let me quote from a contemporary document:

"A calm observer of the signs of the times must distinctively
perceive in many of the passing evente of the day unerring indicatione of the spread of that Agrarianism which preceded the decline
and fall of the Roman republic.
"The determination on the part of the pauper class among us to

levy upon the active, industrious, (and, if you please, affluent),

portion of the community, the expenses of furnishing to the BONS of
the former a College education (through the Free Academy Project)
must be viewed as one of the most shameless acts which disgrace

these corrupt and degenerate times. It is a distinct and

palpable assault upon the rights of property, with not 80 much of
plausibility even as demagogues have usually been able to clothe
their designs in."
Happily Dr. Mario Cosenza rescued this letter from the oblivion of
a newspaper file nearly a hundred years old. For it was not the jeremiad
of a lonely crank, and one is compelled to note that such an undemocratic

outlook is not wholly without following in our own day. To be sure, the
effort to undo what the people of the City of New York did in 1847 in
founding this College, and which has been BO munificently sustained ever

since, has long ceased to be a practical effort. However, unless I am
misinformed, our College and the other New York City colleges are the

only institutions completely maintained by an American municipality. If
this be 80 I am at once proud and sorry. But the progress of collegiate
education in our country and more particularly the increasing recognition
of public responsibility for such education are encouraging. Whereas in
2

College age

1900 a little more than four per cent of the colliege populationn was en-

rolled in college, at the time of the last census about fifteen per cent
was so enrolled. And while in 1890, of the relatively small male college
population twice the number was in privately controlled colleges as com-

pared with those in publicly controlled colleges, that ratio has steadily
narrowed, and the 1940 census reported the male population in publicly

controlled colleges amounting to nearly half a million students as easily
outstripping the attendance of privately controlled colleges.
Opportunities for education cannot be allowed to depend on a cash

nexus. Specialized professional training for the complicated needs of
modern society on top of the unifying bond of a common social outlook is
indispensable for the more gifted members of a domocratic society. But

social differentiation in the formative years of education inevitably
creates barriers against instinctive democratic sensibilities however
subtly such divisive influences may assert themselves. To deny young

people opportunity to equip themselves fully for their place in society
merely because their parents lack financial resources, or for any other

accident of irrelevant circumstance, is to deny democracy itself. For
it meane nothing less than the denial to a democracy of the adequate use

of its talents. What kind of Americanism is it that excludes from the
fullest opportunities for one's faculties or from office mon otherwise
qualified solely because they are Catholics or Jews or Negroes. How

loyal to its professed ideals is a great university which bars one of
its best scholars from a deanship because he is a Jew? How true a

liberal is an adviser who encourages such discrimination? On this centrel issue of American democracy an observation of Senator Borah's de-

serves to become part of the American tradition. The story goes that

a former President hesitated to name a noble American for a position for
which he was uniquely qualified and gave as one of his reasons that "There

18 a good deal of anti-Semitiam abroad in the land." "Yes," replied

Senator Borah "it is true that there is a good deal of anti-Semitian
abroad in the land. But the way to deal with anti-Semitiam is not to

yield to it." The way to deal with all forces of darkness, with all enemies of true Americanism, is not to yield to them.

"This great city of ours is an ever growing gathering of the

sons of all nations, of all races, of all religions and irreligions,

of all colors and creeds; and here in this City College of New York,
they are all treated with absolute equality and absolute sympathy
and tenderness. Not one suggestion is made against any boy's re-

ligion or lack of religion, or color, or race, or creed. That con-

stitutes a very great glory of this establishment."

So spoke Joseph H. Choate when these magnificent buildings were dedicated -

long before the right to enjoy that glory was challenged by the greatest

brute force in history. When the people founded this College they little
dreamed that in order to vindicate the freedom of the human spirit of which
this College is an expression, a hundred years later American soldiers
would be Bcattered over six continents, our Nevy fighting on seven seas,
and our Air Forces engaging the enemy on nine separate fronts around the

world every flying day.
We did not go to war. War came to us. No democratic people could
be led into war to promote some social ideal. To promote even the noblest
ideale by aggression would be no less agression than to enlarge boundaries

by aggression. And 60 it is wholly accurate to say that our essential aim
in this war is to defeat the enemy. To suggest that this is merely to
fight against something and that men ultimately will only fight for something is to play with words. When we say we fight to defeat the enemy
we of course mean we fight for the kind of civilization we cherish.

To be sure, the glare of war has revealed fissures in our spiritual structure, deeper ones than we had heretofore realized. Some of these must be

promptly repaired for the more effective conduct of the war. The repair
of others cannot long be delayed after peace comes. But the kind of civilization we cherish is the society which was launched by the Declaration of
Independence, which was to move within the spacious framework of the Con-

stitution, which was rededicated by Lincoln at Gettysburg and in his

Second Inaugural. It is a society in which the dignity of every individual
is central, regardless of the accidents of antecedents; a society in which
there are no unimportant people; in which institutions are progressively
so shaped as to bring to maximum fruition the potentialities of men.
The innermoet meaning of it all is Lincoln's homely expression of faith
that the Lord must love the common people because he made BO many of them.

One does not have to think too well of what our civilization has thus far

achieved not to be ready to destroy its good together with its evil in
the arrogant hope of writing in the future nothing but good on a clean

slate. The answer to the defects of our society is not denial of the
democratic faith. The answer is more loyal practice of that faith.

To the extent that it is true that men think and feel differently
who live differently, it is a significant fact that economic inequalities

are strikingly less in Britain than they are in this country. That in
all of Britain last year there were only 80 persons to whom the tax-

gatherers left an income of £ 5000 is a fact of revolutionary implicatione - far-reaching changes peacefully accomplished, but nonetheless
revolutionary in their social consequences. They are consequences that

make of our traditional, old school-tie, Tory-ridden, class-bound, antidemocratic picture of England an obsolete caricature, but too often a

mischief-making caricature still. It is the untrue picture of England,
not unexploited by our enemies, that for too long has confused too many

minds in this country as to the nature of this conflict. This obfuscation
gave us first the era of the 80-called "phony war" and made us unaware that

the tiger was only waiting for the right moment to pounce. Later, when
the "phony war" became the most brutal of all wars, we were gulled by

poisonous talk that it was a war of clashing imperialisms. Now we see it

for what it is - not at all as a war to save either the old British Empire
or the new British Commonwealth of Nations. It is a war to save civilization itself from submergence. "If the President had listened to me",
said Father Gannon the other day, referring to his former isolationist
opinions, "China, Russia, and Great Britain would now be prostrate and
we should be facing our zero hour alone and unprepared." Those few who

are still 80 blind as not to see this no longer count, at least for the
present. But still fewer are those who strengthen the moral resources of
the nation by a candid recantation of their foreshortened views on our

relation to this struggle. Nothing would so make for that spiritual unity
which the peril of the hour demands than to have others follow the superb,
forthright example of the distinguished President of Fordham University.
I dare to avow simple ancient truths because we have forgotten to

live by them. We are desperately in need not of new truths but of passionate devotion to old truths. For a time we heard a great deal about
a new plateau of commercial values and almost imperceptibly we assumed

that ve were also being elevated to a new plateau of moral values. The

law of political and economic institutions is the law of change. But
there are eternal verities - those conditions without which freedom is

outraged and faith replaced by cynicism. Ultimately there can be no freedom for self unless it is vouchsafed to others; there can be no security
where there is fear; and a democratic society presupposes confidence and

candor in the relations of men with one another, and eager collaboration for

the larger ends of life instead of the pursuit of petty, selfish or vainglorious aims.

These conditions for a good life do not change but they now operate in

a much more complicated setting. Thus we talk glibly about the annihilation
of distance. Speed of communication does bring many advantages. But we
must not overlook the new and dangerous conditions created by these triumphs

of science. The mobility of words at the present time too often bringe in
its train immobility of reflection. We have only begun to realize the opportunities for arousing passions, confusing judgment, and regimenting opinion that are open to the new forces introduced by chain newspapers, syndicated

articles, headline reading, the movies, the radio, and private polls. But
we have a better appreciation now how alender a reed is reason - how recent

its emergence in men, how deep the countervailing instincts and passions,
how treacherous the whole rational process. The whole temper of our society,
moreover, is hurried; its atmosphere and appurtenances hostile to reflection.

Thus reason is asked to flourish when the conditions for it are least favorable.

Without respect for freedom of inquiry and freedom of opinion there is
no democracy. But no less indispensable 18 the assurance of the means by

which opinion remaine really free. Modern instruments of dissemination may

unwittingly make the public the victims either of gullibility or of cynicism
or of both. But only critically disciplined readers and listeners can generate

that healthy public opinion which a democratic government expresses. Indiapensable is an atmosphere favorable to free and informed thought out of

which issue informed opinion and free activity.
Now that the fiery furnace of war is gradually cleansing us of our pa-

thetic illusions, it is becoming clearer every day that the qualities on
which our very existence depends, the qualities without which victory is impossible, will be equally needed in the processes of peace. There may be
still those, fed too much on stories of wizardry and miracle makers, who hope

for somebody to invent a quick and easy way to win the war. But victory
depends on courage, endurance, honor, self-discipline, unselfish devotion.
And without these, though we cry "Peace, peace", there will be no peace.

How to relate intellect to character has baffled inquiry since man first re-

flected on his destiny. But certainly a fusion of character and intellect
will not be promoted if character be deemed a bit of Victorian hypocrisy.

And so it is the special function of this College and of all the colleges
throughout the land to send forth its young men and women each year equipped

with the accumulated wisdom of mankind - its teated cultural and ethical heritage. Precisely because each generation has its own needs and the future
its unknown problems to which as yet there are no answers, it is indispen-

sable to build on what all experience has vindicated and not start as though
chaoe were our heritage. Let youth gather the harvest of its ancestors.
This is not the occasion to speak of the special adaptation of colleges
to war needs and the light that war and its antecedents have shed on the

wisdom of pre-war curricula. Suffice it to say that BO profound an upheaval

is bound to stir inquiry into the extent to which traditional courses give
not understanding but fleeting and partial knowledge, and into the inadequaey of the cultural underpinning afforded to those who proceed to the

professions. We shall, I hope, make more certain that those who become doc-

tore in the future will better appreciate not only that diseases pertain to
human beinge and do not exist as abstractions, but will be made fully alive

to the social aspects of medicine. And their general cultural training should
make future lawyers more aware that law is not a system of abstract logic

but the web of arrangements, rooted in history but also in hopes, for promoting to a maximum the full use of a nation's resources and talents. War devours comforts, dislocates habits, and readjusts many peace-time requirements.
Colleges cannot escape these exactions. Indeed, they should be pacemakers

in imaginative and self-imposed contributions to the common effort. But
one thing our colleges and universities must not do - they must not lower

their academic standards. To do so is no contribution to the war and a great
disservice to the peace to come. This means also that we cannot afford to

economize in the essentiale of education. That too many of our institutions
in their physical extravagences reflected the materialism of the Babylonian
period preceding the depression is no reason for crippling ourselves to meet
bravely and wisely the awful wreckage which this war will leave behind. The
problems of the post-war period cannot be met by impairing our intellectual
and moral capital - men adequately trained to meet those problems. In in-

sisting upon trained lenders, I mean, of course, the very opposite of the socalled Fuhrer Prinzip. The revival in our day by any man or people of the

divine right to rule, particularly to rule the world, 18 a piece of humorless
blasphemy. The difference between lenders 0.8 true servants of a community

and self-designated overseers of peons is the difference between a free
society and a concentration camp.

The duty and opportunity to nurture and develop the creative minds we

shall 80 deeply need lies mainly with institutions like this. Colleges and

universities are the special guardians of the free pursuit of truth because

they are the professional pursuers of truth. It was a sure instinct that
made Hitler at the very outset burn books and BOIZE the universities.

We are told by a thinker entitled to tell us that today the whole range
of learned thought is transforming every activity of mankind. How to shape
that transformation and how to utilize the fundamental repercussions of

science upon society is primarily the job of the institutions of learning.
And this 18 not merely or even chiefly through the collaborative efforts of

specialized scientists with consciousness of the limits of their specialties.
Colleges must do their share chiefly through their products, the millions

who year after year go out from halls like this, sensitized by their training to the understanding of the social forces confronting them. They must
be aware, therefore, that the future grows out of the past but is not contained within it, that the future depends not on the cautious hoarding of the

potentialities of man but on their stimulation and bold use. God did not
unfold the eternal vision to Adam Smith in Manchester nor yet to Korl Marx
in the British Museum.

To have assumed that we could achieve security and decency by dissociating ourselves except for purposes of money-moking, from the family of peoples

who make the world, does credit neither to our heads nor hearts. Such self-

destructive isolationism has partly been the result of faulty education and
has partly influenced shortsightedness in education. Too much have we gone

on the assumption that education must concern itself predominantly with in-

terests local to our people. Indeed our education was conceived in terms not
only of our own peculiar interests but almost in opposition to the conceptions

of life and interests of other and especially competitor nations. It is
no comfort that other countries were no viser than we. Since neither nations

nor men live unto themselves alone, education appropriate to a peaceful and

gracious civilization must transcend national interests. It is necessary to
know what goes on inside our own country and also to understand what goes on

in other countries. An adequate education must promote the aspiration of
civilized peoples everywhere, must view the relations of more advanced and less
advanced peoples in a sympathetic manner and seek to bring them all into her-

mony. Such a conception of education thinks of men everywhere as entitled

to the goods of this world, entitled to their own culture, but not to the
exclusive or selfish use either of goods or of ideas.
But subscribing to progressive ideale is not a substitute for the need
of hard thinking in order to know how to realize these ideals against ob-

stinate and hard realities. It requires unyielding will to translate thought
into action. It is 80 much easier to draw a blueprint of Utopia than a
relatively smooth working measure of economic control dealing with even one of
the many problems begot by the concentration of economic power. However,

words and the best intentions are not enough for the strategy of war. They

are not enough for the strategy of peace. To give life to generalities requires imagination, understanding, planning, unremitting determination, and
bold execution.

If I may take some liberties with what John Maynard Keynes has written,
the world has the resources and the techniques if we would only create the
organizations to use them, capable of reducing to a position of secondary importance the economic problem which now absorbe our moral and material en-

ergies. Economics 18 not the whole of life. Very far from it. But on the
fair and sensible control of economic forces depends the opportunity to pur-

sue a civilized life. If only we can bring sufficient good-will and resolute
purpose to bear, the day need not be far off when the economic problem will

take a back sent where it belonge and the arena of the heart and head will
be occupied by our real problems - the problems of life and of human relations,
of creation and behavior and religion.

Let us not mouth "that they shall not have died in vain." It is an indecency to respond to the dedication of their lives with empty words. The
only possible way to ensure they shall not have died in vain is for us to see
to it that they did not do so. And by "we" I mean each and every one of us.
And what we can do about it is of the same order as to see to it that we win
this war. By "we" again I mean every one of us. In the words of another,
"To achieve Victory with a capital V is beyond us ordinary listeners. We
must break it up into a thousand little victories around our own doorstep."

It is not rhetoric but homespun truth to say that within the limits of his
powers every one of us must be his own second front.

The ideal that holds us together is our sincere respect for the common

non whatever his race or religion. If anything 18 distinctively American

it is that hospitality to the human spirit whatever its source. In this
faith America was founded; this is the faith that her poets have sung and
her seers have preached; in this faith generations of unknown millions have

labored; for this faith armies of the young have died and for this many more
will give themselves.

This, then, is yours: to build exultingly
High, and yet more high,

The knowledgeable towers above base ware

And sinful surges reaching up to lay
Dishonouring hands upon your work, and drag

From their uprightness your desires to lag

Among low places with a common gait.

That 80 Man's mind, not conquer'd by his clay,
May sit above his fate,
Inhabiting the purpose of the stars,
And trade with his Eternity.

TREASURY DEPARTMENT

INTER OFFICE COMMUNICATION

DATE Oct.8,1942.
TO

Secretary Morgenthau

FROM Mr. White

This is a comparative statement of the earnings and
expenses of the Stabilization Fund for the months of August
and September, 1942.

Earnings

August 1942

September 1948

Interest earned on investments

$ 20,110.20

$ 19,461.47

$ 44,502.04

$ 43,063.08

77,552.47

76,016.82

$122,054.51

$119,079.90

$ 19,843.34

$ 22,188.53

908.22

2,381.33

1,106.30
1,359.21

$ 24,012.15

$ 26,021.91

$ 98,042.36

$ 93,057.99

Interest earned on Yuan
Total

Profits on handling charges
on gold

Grand Total

24,391.84

23,601.61

Expenses

Salaries
Travel
Subsistence

Telephone and Telegraph
Stationery

All others

Net earnings

172.69

29.70
676.87

993.51

15.29
359.07

OCT 8 - 1942

My dear Mr. President:
In accordance with your memorandum of October 2nd

there is attached & report providing the information con-

carning the availability of supplies for the Soviet
Government.

The report lists the priority cargoes scheduled by
the Land-Lease Administration for October shipment, covering items purchased by the Treasury Procurement Division,

totaling 86,326 tons, which will be not to the extent of
85,683 tons. There is on hand and will be produced during

October 309,804 tons of materials other than priority cargo.
Yours sincerely,
(Signed) H. Morgenthau, Jr.

The President
The White House
CEM:eo:rm

10-7-42

after my

TREASURY DEPARTMENT

MATERIALS AVAILABLE FROM STORAGE AND PRODUCTION DURING MONTH OF OCTOBER 1942
(SHORT TON DESIGNATIONS)

ATAILABLE

PRIORITY CARGOES
SPECIFIED FOR OCT.
COMMODITY

STEEL BARS

SHEETS, STRIP, PLATES,
SHAPES AND MISC.
SHELL STEEL
TOOL AND DIE STEEL
RATEROAD RAYLS AND

SHIPMENT

CABLE (OTHER THAN COPPER)
WIRE PRODUCTS
PIPS AND TUBING
TIN PLATE
COPPER AND COPPER PRODUCTS
ZINC

ALUMINUM INGOTS AND SHEETS
NICKEL AND NICKEL PRODUCTS

BALANCE

14,910

4,076

3,620

15,606

34,815
7,000
1,110

75,668
1,808

16:456
1,260

22,747
22,836

97,066
18,376

2,500

467

17:598
2,856
9,382

6,760
10,300
8,000
5,750
8:500
2,500
$80

2,675

378

1,167
222

29,022
68,375
1,218

4,956
11,718

19,746

825

967

220

2,646

11,313
3,500
2,500

468

210

830

380
686

420

5,838
8,276

222

PERROBILIZODI

STORAGE TO STORAGE PRODUCTION

7,000

ACCESSORIES

RAILROAD WHEEL SETS
BARBED WIRE

IT TRANSPORT

- 97

26,111
$,632
10,827
-

67,982
70,626
-

8,419
-

1,065
672
-

MAGNESIUM
COBOLI

CHEMICALS

1,025

MERCURY

10,327

2,898

3,066

4,363

303

177

INDUSTRIAL AND CONSTRUCTION
MACHINERY, ACCESSORIES
AND PARTS

AUTOMOTIVE EQUIPMENT
AND PARTS

CONTINUED - PAGE 2

AVAILABLE

PRIORITY CARGOES
SPECIFIED FOR OCT.
COMMODITY

SHIPMENT

TIRES AND TURES
OIL FIELD MACHINERY
FIRE FIGHTING EQUIPMENT
GRAPHITE - METAL ELECTRODES
LEATHER AND LEATHER PRODUCTS
PUREITURE AND OFFICE

STORAGE

2,478
1,848

6,880
-

CLOTHING AND TEXTILES
RUBBER PRODUCTS

PLASTICS
RADIO EQUIPMENT

TO STORAGE

3,780

PRODUCTION

1,426
5

168

EQUIPMENT

PRECISION INSTRUMENTS
PROTOGRAPHIC EQUIPMENT
HAND AND MACHINE TOOLS
BALL AND ROLLER BEARINGS
PAPER AND PAPER PRODUCTS
MISC. SUPPLIES AND EQUIPMENT
(GAS MASKS, DESTINATION
CORD, ETC.)
AIRCRAFT INSTRUCTIONS
MEDICAL SUPPLIES & EQUIPMENT
GREASES AND PARAPPIN

II TRANSIT

22
25
1

90
-

3,355

278

168

4,620

935

6, 479

110
-

924

38,325

1,432
1,853

168

5,489

BALANCE

227,010

63,027

106,460

309,606

. The difference of 663 tons is caused by the inclusion of November and December allocations which have
not yet been produced.

Tennage under load not included.

October 8, 1942

My dear Mr. President:

Several days ago you requested that I furnish you

with details as to the delay in placing of orders for Russia.
I am sending you herewith two charts which illustrate
the delays in that part of the program with which the Treasury
Procurement is concerned. These charts present a crosssectional analysis as of October 5, 1942, of the time that it
takes to turn a request by the Russians for industrial materials on Lend-Lease into an order for those materials.
The requisitions covered by the charts are those that cleared
the Lend-Lease Administration in the month of August, a
period which is a representative one, and one for which data

on the histories of the requisitions were relatively complete

and readily available.

There were 203 requisitions for industrial materials
for the Russians cleared by Lend-Lease in August. The first

chart analyses 199 of these - 185 on which the orders had been
placed by October 5 (summarized by groups on the left-hand
side of the chart) and 14 on which the orders had not been
placed by October 5 (shown individually on the right-hand

side of the chart). The 4 requisitions excluded from the
chart were issued to cover entire power plants. Those items
differ from the others cleared in August in that their plans

are now in the stage of engineering development, and it may
require considerable time before these plans will have
progressed sufficiently to permit the procurement of many of
the parts needed.

The second chart focuses attention on the 48 items
cleared by Lend-Lease in August on which the elapsed time
from requisition date to order date exceeded 7 weeks.
These items are included in Chart I but their extended period
is obscured because they have been averaged in with other
requisitions, the elapsed period on which was much shorter.

-2All bars on the charts have been classified as between the time taken at Lend-Lease Administration, War
Production Board, and the Treasury Procurement Division. The
starting date for each agency was taken, in each case, as the
date when the requisition was cleared by all agencies with

prior authority. On this basis, it should be noted that part

of the period of time at Lend-Lease Administration is accounted
for, on some requisitions, by negotiations between that agency
and the War Production Board.

Sincerely yours,
(Signed) H. Morgenthan, Jr.

The President,
The White House.

Copy to Mr. Mack 10/9/42

Del. by SS Agent 3:42 10/8/42
Stamped "Strictly Conf."

File in Diary.

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

October 6, 1942
MEMORANDUM TO THE SECRETARY:

In accordance with your request, the following information

relative to the Russian Lend-Lease program has been prepared.

(a) All Russian Lend-Lease requisitions for the month of
August have been analyzed to show the time required

for processing at the Office of Lend-Lease Administration, War Production Board and the Procurement Division. The information was submitted to Mr. Tickton

this morning for the preparation of a chart.

(b) The Russian Lend-Lease requisitions received at the

Procurement Division during September and from October

1 to 5, 1942, inclusive have been analyzed to show the
time of issuance of requisitions as compared to the
time of receipt by the Procurement Division.

Requisitions received by the

Oct.

Sept.

Procurement Division

322

Above requisitions issued during months specified below:
Sept. 141

Aug.

126

July

June
May

5 322

2 83

From February 14, to July 17, 1942, 80 contracts were
placed with various manufacturers for equipment and

BUY

material totaling $6,116,097 against 64 requisitions

October 6, 1942

Page - 2

for a tire plant program. A letter from the War Produc-

tion Board dated July 7, requested that production be delayed in order that an effort might be made to provide a

suitable existing plant, pointing out that this would avoid

the use of critical materials for new equipment, and relieve the load on manufacturing facilities. No action, to
delay production, was taken on this letter until after conferences between the War Production Board and the Soviet
Purchasing Commission representatives on July 24, also

further investigation by War Production Board representatives. On August 5, the Procurement Division notified
certain manufacturers to suspend production on contracts
totaling $4,453,605. Of that amount the War Production

Board has subsequently released for manufacture items
totaling $1,112,944 and production has been resumed.

The present status is that the balance of the items under
suspension are being reviewed by the War Production Board
to determine whether suitable used equipment can be made

available and the extent to which this can be accomplished.
The matter is now in the hands of Mr. William Jeffers, Rub-

ber Director, and his letter dated Oct. 2, stated that determination would be made definitely within the next few

days.

(d) Priorities insufficient to guarantee scheduled deliveries.
The priority ratings now assigned by the War Production

Board to many Russian contracts those for in-

dustrial machinery involving 982 contracts) are insufficient to insure scheduled deliveries. At the moment, approximately 950 contracts are in the process of rerating.

We are advised by the War Production Board that this mat-

ter has been the subject of frequent discussions with the
Soviet representatives during the past several weeks and
the matter was also brought to the attention of the Office
of Lend-Lease Administration by the Soviet Ambassador at
a meeting in that office on September 25, 1942. To meet

the revised delivery schedules the highest priorities will

be required.

Clifton Chist thank E. Mack

Director of Procurement

Time Taken to Place Orders for Lend-Lease

Industrial Supplies for Russia

Attached to this memorandum are charts which present

a cross-sectional analysis as of October 5, 1942, of the
time that it takes to turn a request by the Russians for
industrial materials on Lend-Lease into an order for those
materials. The requisitions covered by the charts are
those that cleared the Lend-Lease Administration in the
month of August, a period which is a representative one,
and one for which data on the histories of the requisitions were relatively complete and readily available.
There were 203 requisitions for industrial materials
for the Russians cleared by Lend-Lease in August. The
first chart analyzes 199 of these -- 185 on which the orders had been placed by October 5 (summarized by groups
on the left-hand side of the chart) and 14 on which the
orders had not been placed by October 5 (shown individ-

ually on the right-hand side of the chart). The 4 requi-

sitions excluded from the chart were issued to cover entire
power plants. These items differ from the others cleared
in August in that their plans are now in the stage of
engineering development and it may require considerable
time before these plans will have progressed sufficiently

to permit the procurement of many of the parts needed.
The second chart focuses attention on the 43 items
cleared by Lend-Lease in August on which the elapsed time
from requisition date to order date exceeded 7 weeks.
These items are included in Chart I but their extended
period is obscured because they have been averaged in
with other requisitions, the elapsed period on which was

much shorter.

All bars on the charts have been classified as between
the time taken at Lend-Lease Administration, War Production
Board, and the Treasury Procurement Division. The starting
date for each agency was taken, in each case, as the date
when the requisition was cleared by all agencies with prior

authority. On this basis, it should be noted that part of

the period of time at Lend-Lease Administration is accounted
for, on some requisitions, by negotiations between that
agency and the War Production Board.

Attachments