Full text of Diaries of Henry Morgenthau, Jr. : Volume 669 : Part 1

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DIARY

Book 669

October 1-4, 1943

-ABook Page
Argentina
See Latin America

-BBusiness Conditions
Haas memorandum on situation, week ending October 2, 1943 10/4/43

669

445

669

38

-Correspondence

Mrs. Forbush's mail report - 10/1/43
-EExiled Governments
See Governments-in-Exile

-PFinancing, Government
War Savings Bonds:

3rd War Loan Drive:
FDR, at Cabinet, comments on cashing in of previous

bonds to buy new ones: Bell belittles situation 31

10/1/43

Poughkeepsie District (No. 6) report on sales 10/4/43

(See also Book 670. page 121)

All sales through October 4, 1943

420
421

France

Military conditions in and around Marseille reported by
Financial Attache, Lisbon - 10/4/43

470

-GGovernments-in-Exile

Treasury position on negotiations concerning use of

currency for military operations - 10/2/43

83

-HHarriman, W. Averell
Congratulated on appointment as Ambassador to U.S.S.R. 10/4/43

459

-IBook Page

Italy
Funds for diplomatic missions in various neutral countries

discussed in British Embassy-State Department-White House
669
correspondence - 10/1/43

55

-LLatin America

Argentina: Economic policy of United States toward
Argentina set forth in State Department memorandum 10/4/43

463

Lend-Lease

United Kingdom: Federal Reserve Bank of New York statement
showing dollar disbursements, week ending September 22. 1943 59

10/1/43

-M-

Marseille
See France

-NNew York, Poughkeepsie

See Financing, Government: War Savings Bonds
(3rd War Loan Drive)

-0 Occupied Territories
Financing Treasury work outlined in White memorandum 10/4/43

428

Senator Taft (Ohio)-Treasury correspondence concerning

issuance of currency for use by Allied forces in Sicily

and French North Africa - 10/4/43

431

-PPoughkeepsie, New York

See Financing, Government: War Savings Bonds
(3rd War Loan Drive)

-RRevenue Revision

Income and excess profits taxes by Federal Reserve Districts
compared for June and September, 1943 - 10/4/43

426

-sBook Page
Statements by HMJr
Before House Ways and Means Committee, on Social

Security-Income Tax integrated plan, October 4, 1943
(For drafts and discussions see Revenue Revision,
Book 667)

a) Newspaper comment - Smith analysis of - 11/12/43:
See Book 675. page 181

- TTaxation
See Revenue Revision
-W--

War Savings Bonds

See Financing, Government

669

374

1

October 1, 1943
9:42 a.m.

Operator:

Mr. Bell?

Dan

Bell:

Yes.

Operator:

The Secretary. Go ahead.

B:

Hello.

HMJr:

Hello, Dan?

B:

Yes, sir.

HMJr:

B:

HMJr:
B:

Can somebody tell me what happened last night in
regard to my tax message for Monday?

Yes, sir. Roy Blough and Paul are both here. Roy
18 ready to talk to you.
Isn't Gaston

Gaston, White, Sullivan and Mrs. Klotz are all

here.

2

HMJr:

Where's Paul?

B:

Right here.

HMJr:

Paul?

B:

Yep. I mentioned his name.

HMJr:

Well, who's going to talk to me? Blough?

B:

Blough, yes.

HMJr:

All right.

Roy

Blough:

Hello.

HMJr:

Hello, Roy?

B:

HMJr:

Yes. No thing -- really no thing happened. Fred
Smith and I took it over to Rosenman
Yeah.

-2B:

He took it and walked away with his overcoat and hat
on.

HMJr:
B:

HMJr:
B:

Uh huh.

So, he didn't ask any questions. He didn't read
it there.
Yeah.

And I haven't heard from him since. I don't know
whether Fred has or not. Fred has just come into

the room. Ben Cohen was with Rosenman at the time.

HMJr:

Uh huh. Well, can you very briefly outline what

B:

Well, Fred being the principal author and being here,

HMJr:

Suits me.

B:

All right. (Aside: Fred.)

HMJr:

Hello.

Fred

form it took?

I'd prefer he did it.

Smith:

Hello.

HMJr:

Go t any black eyes?

S:

N-no. (Laughs)

HMJr:

Well, what happened?

S:

Well, you mean on the

HMJr:

I mean what's the form?

S:

The form is this: You start out by saying you want
to present the -- the Administration suggests a tax

program but more than that you want to explain why
the program was developed because they are entitled
to know that -- not only the decisions you have made

but why you made them.
HMJr:
S:

Yeah.

Then you say that because of the huge cost of the
war and 80 on and tell how much -- uh -- that you've

got to deal in very large figures

2

-3HMJr:

Yeah.

astronomical figures

S:

HMJr:
S:

3

Yeah.

and that while you may be able to cut some of

the costs of the Government -- uh -- you certainly

can't be frugal about the war because we know that

the -- the -- the cost of the war has -- that is, the

supplying of equipment and 80 on has saved lives.

Then you go on and say -- uh -- that in the face of
these huge amounts of money that have got to be raised,
that you met with the serious problem of creating a
tax program that's fair and equitable.

HMJr:
S:

Yeah.

Uh -- and that you point out there that while you've
got to raise the amount of money -- the big amount of

money, you've still got to bear in mind that there is
a point beyond which some people can't go on paying
taxes.

HMJr:
S:

Yeah.

And that you're just saying that to remind everybody
that -- to emphasize the fact that the Treasury has

just not arbitrarily set down a figure

HMJr:

Yeah.

S:

... and then set about finding a formula to get it.

HMJr:

Yeah.

S:

Then you say that your -- that you've con -- that
you've thought of every conceivable plan and that
each of these plans has been measured against four
different things which covers pretty much the -the waterfront that you had to consider.

HMJr:

Yeah.

S:

Uh -- then you start out and say that one of the

chief considerations is the -- in setting up this
tax program was drawing off the excess spending

money.
HMJr:

Yeah.

-4S:

4

And there are the facts about that. Uh -- then you
also bring in the -- in this forty-two billion, you
subtract from the forty-two billion the seventeen

billion that you are going to get -- uh -- during
the course of the year.

HMJr:
S:

Yeah.

And then, even that seventeen billion plus the other
non-inflationary savings still leaves a substantial
amount of excess income

HMJr:
S:

Yeah.

that the xonsumer will have to spend. Uh -then you say that -- that "We at the Treasury" -"The danger of inflation mounts," is the way you
finish that paragraph. Then you say, "We at the
Treasury have made numerous recommendations over

the years to help prevent our being caught in a

whirlpool of rising prices. As far back as October
16th, the cost of living having risen then
about 2 points, wholesale prices having gone up
about 5 points

HMJr:

S:

A little slower -- wait a minute -- a little slower
and a little louder.
Okay. I'm -- I'm just reading this because it's

HMJr:

I don't know whether you're

S:

I didn't know whether you wanted to use it or not.
See?

HMJr:

S:

I don't know whether you're reading it for my pastime

or -- because I can't hear it.

Okay. (Louder) You say, "We at the Treasury have made
numerous recommendations over the years to help prevent

our being caught in a whirlpoos of rising prices."

HMJr:
S:

Yeah.

"As far back as October 16, 1940, with the cost of
living having then risen about 2 points, and wholesale
prices having gone up about 5 points, the Treasury called
attention to the incipient development of inflationary
pressure resulting from the capacity shortages then
beginning to appear in various basic material interest
-- industries. #

-5HMJr:

What is that statement on October 16th?

S:

Well, that is the -- that I took out of this

book. . It is a memorandum that was written to

you by somebody in the Treasury.
HMJr:
S:

HMJr:

Well, what did I do with it?

That I don't recall but I just quoted from it.
Well, I wonder if I didn't do anything with it,
whether you might better not start with my Boston
speech because I think that was the first public
thing.

S:

Well, that may be. What I -- what I've done here
was start with the dates. We'll have to go over
it from that standpoint.

HMJr:

Yeah.

S:

On December the 18th, then, you recommend a major

expansion in the steel program in order to combat

inflation. On the 19th you set up the Defense
Savings Staff, on March 19th. On September the 9th
you told an audience in Boston that -- and you
quote -- and then I quote from that speech.
HMJr:

I see.

S:

See? In other words, I'm just giving it an historical

background there.
HMJr:
S:

Yeah.

Uh -- then on December the 27th, you inaugurated

"the pay-roll savings plan for the regular and systematic sale of United States Savings Bonds to wage
earners. Within a year nearly 25 billion workers
were regularly buying bonds through pay-roll deduction.
HMJr:
S:

Yeah.

"They were deducting nearly 81% of their pay, or a

total of three -- over 350 million dollars. At the
present time blank million workers are deducting an
average of blank per cent of their pay or a total of

over blank million dollars a month and the figure is
rising constantly," see -- and get a plug in there.

"On March the 3rd 1942 I appeared before this committee

5

6

-6S:

Cont'd.

and proposed an increase in revenue of 7.6 billion

dollars." I stated that the chief duty of the

new Revenue Act was to help check inflation and I

quote, "Nothing in the economic field can interfere
with the war effort as much as uncontrolled rise in
prices, and inflationary price rises are the source
of grave social unjustice." Unquote. Then, "I have
given you this background to remind you that this
inflationary tendency is something that has been with

us over a period of years, something against which we
must constantly stand guard. II Then the business about
"Two-thirds of the income of the nation is now going
into pay envelopes of people earning less than
$3,000.
HMJr:
S:

HMJr:
S:

HMJr:

$5,000.

Huh? Well, we've used the $3,000 and two-thirds -it's seven-eights and $5,000

All right.
if you want to use it
All right.
and told how many million people that involves.

S:

HMJr:
S:

Yeah.

"Having this in mind, and also the need for additional
funds to finance the war, the Treasury set a goal
early this year of $12 billion. Since this goal was
set as a satisfactory figure from a fiscal standpoint,
we' ve done considerable investigating and 80 on,
checked the statistical information against the actual
situations and -- and then just -- and then we made

a small survey of income and expenditures in one war-

wealthy industrial city -- a survey of people at various

income levels. In fairness to the average American
citizen, we must say that not every one is over-earning
and over-spending. We found, too, that a great
HMJr:
S:

HMJr:

"

economic

Just a minute -- a little louder and a little slower.
"In fairness to the average American citizen, we must
say that not every one is over-earning and over-spending.
Yeah.

7

-7- - -

"We found, too, that a great economic transition has
come over this nation since the war began. # Then the
business about our coming out of the depression and

S:

paying our debts.
Yeah.

HMJr:

"But this does not lessen the danger. If after that's
but this does not lessen the danger of infla-

S:

over If

tion, for even the payment of debts could not abeorb
enough of our dangerous dollars and every dollar that is
left can be spent to absorb some part of a constantly
shrinking supply of goods and services."
HMJr:

Yeah.

S:

Then you say you've thought a great deal about the

average man, because he was making about $3,000 a

year, because he's the one who has to pay the most
of any increase in taxes. And then you explain how

you can't get any more out of the rich people -- uh
then you -- then you say, "One of the things we must
do
11

HMJr:
?

Yeah.

S:

not to satisfy the low-income person, but to
be just to him, is to make allowance for hardship cases."

HMJr:

Yeah.

S:

"And even while we are setting out to get more money

from most people, we need actually to give tax relief
to some people. Then I take an example of a married
man with two kids, making 1,500 a year, and of a

HMJr:

Yeah.

and show that they can't pay taxes, because

S:

HMJr:

#

widow with two children, making $800

Louder.

to show that they are in a very bad tax position.

S:

HMJr:

Yeah.

S:

That's to set up the business that you're not going
to make them pay taxes under this new plan.

- -8Yeah.

HMJr:

Then you go on, "The program that I present to you
today takes that into consideration, and takes also
into consideration that in view of what we have found,
we have reduced our tax proposal from $12 billion to

S:

$10.5 billion. Then you go on and say, "As a result

of our investigations among average Americans, there
is one further general recommendation that I want to
make, that every possible step be taken at this
session to reduce the complications in our tax laws

which make it necessary for the tax payer to fill
out complex and difficult tax forms.
HMJr:

Yeah.

S:

Then talk about

HMJr:

May I interrupt you a minute?

S:

Yeah.

HMJr:

The assistant editor of the Louisville Courier said if

he was going to run for office, he'd run on a program

of increased public convenience.
S:

In -- oh, I think he's right.

HMJr:

Increased public convenience.

S:

Uh huh.

In other words, to make things easier for the public
in every way. I'm just throwing that out, I mean.

HMJr:

Well, that's been -- I agree with him. I don't know

S:

how many other people do, but I do.

Well, anyway, I'm just throwing it out. "Anybody who
would run on a platform of making things simpler and

HMJr:

easier

S:

Yeah.

HMJr:

on all forms," he said, "could get elected to
any office.

"

S:

Yeah.

HMJr:

I'm just throwing that out.

8

-9S:

HMJr:
S:

Well, then -- then we talk here along that -- hello,
are you still there?
I'm still here.
We talk about having tried to make the September 15th
form simple and now we're working on the simplification

of the March form. Then you say this, "But I want to
say that it is my feeling that the public resentment
against any tax form that can meet the requirements

of the present tax law is likely to cause a great deal
of resentment among the American people.

HMJr:
S:

Yeah.

Then you go on and say that, "I'm sure that Congress

agrees there's a great deal of room for simplification
of tax laws." You can't go into details here, but
you certainly want to recommend the combining of the
Victory tax with the income tax and that is part of the

proposal.
HMJr:
S:

HMJr:
S:

HMJr:
S:

9

Yeah.

You say that the Victory tax especially serves to
complicate the return forms because the tax is complicated and is computed differently and so on.
Yeah.

Uh -- then you say, "Let me tell you about the
specific recommendations for the tax program. You
say, "I am recommending a program to increase Federal
collections by approximately $10.5 billion for a
full year of operations
Yeah.

recommending that these taxes be raised through

If

an increase in estate and gift taxes, corporations
taxes, selected excise taxes and individual income
taxes.

HMJr:

Yeah.

S:

And you talk about the estate taxes and wind up by

saying that you are going to get $400 million that
way. The corporation taxes -- just a paragraph on
that, winding up that you are going to get $1.1

billion on that. Your excise taxes

- 10 HMJr:

10

Yeah.

and then you wind up saying you're going to get

S:

$2.5 billion through that. Then you say, The tax
increases of which I have spoken, estate and gift
taxes, of $400 million, the corporation taxes of
$1.1 billion, the excises of $2.5 billions add up

to a total of $4 billion. This, of course, is no

where near enough. Collections under the existing
tax laws, during the fiscal year of 1944, are expected
to amount to $39 billion. This threatens a prospective
deficit of $70 billion, which must be met by borrowing

to the extent that additional tax revenue is not
secured. In order to reduce this borrowing load, I

am recommending increases in individual income taxes

to yield an additional $6.5 billions. With equitability

in the income tax program it is obvious that our population can pay these additional taxes as the income payment
to individuals after taxes, have in the past few years

been increased by several times the increase in income
taxes which have thus far been imposed.
HMJr:
S:

Yeah.

"Adding this $6.5 billion to the $4 billion derived
from other taxes will total $10.5 billions for a full
year of operation. Frankly, this 18 still not enough,
but it is as much as we can justifiably recommend,
realizing the limitations of taxation processes. It

is as much as we can justifiably ask without causing
undue hardship on those without an increased ability
to pay. To take care of those who have a vastly
increased ability to pay and of these, of course, there
are a great many, we must maintain at full speed our
War Loan Campaigns which we know are cutting deeply

into the increased earnings of those people who have

them. In planning a schedule to raise the $6.5 billion
tax into the income tax; the post-war credit which is
now part of the Victory tax should be maintained in
principle. However, since current offeets allowed
against the post-war credits in the Victory tax,
practically eliminate its post-war character, I propose
the introduction of genuine post-war credits to protect
the income of the lower income groups. I recommend
that this post-war credit be paid in the form of
survivors' insurance. It would supplement the insurance provision of the Social Security Act. If, however,
the tax payer didn't wish to take this refund in insurin additional income taxes, we have merged the Victory

ance, he could receive it in cash at a 25% discount
below the value of the post-war credit for the purchase
of insurance."

- 11 HMJr:

May I interrupt you?

S:

Yep.

HMJr:

That is very neat.

S:

Huh?

HMJr:

S:

11

That is making the best of a bad situation in a
very intelligent manner.

I think it 18. (Laughs) "I further suggest

(Coughs) that the post-war credit be made immediately

available for the protection of persons with fixed

incomes, especially those in the lower brackets who
might be subject to undue hardships because of tax
increases.
HMJr:
S:

Yeah.

"I should like to take a moment now to tell you
actual practice. And then you take a married person
with two dependents. If he earns $1, 000 a year, if
exactly how this income tax schedule would work in

he earns $3,000 a year, if he earne $25,000 a year.

I think I had a $5,000 in there, too. Uh --"under the
new" wait a minute -- then you go on, you say, "It
is my belief that the proposal I have just made is as
equitable as any tax so huge could possibly be. It is
inevitable that some injustices will be done but these
will be greatly modified, certainly, by the relief

HMJr:

S:

provisions which are included. By combining the
Victory tax with the income tax, we can greatly
simplify the paper work on the part of the taxpayer.
Let's go back to the beginning of that subject again,
where you start off.

"It is my belief that the proposal I have just made is

as equitable as any tax 80 huge could possibly be."
HMJr:
S:

I see.

"It is inevitable that some injustices will be done,
but these will be greatly modified, certainly, by the
relief provisions which are included. By combining the
Victory tax with the income tax, we can greatly simplify

paper work on the part of the taxpayer."
HMJr:

Yeah.

-12S:

12

"And I might add that this could be further simplified
by abolishing earned income credit, which I strongly
further recommendation I should like to make to this
recommend that the Congress consider. There's one

Committee. It 18 not a part of the tax proposal but

it bears a distinct kinship to it. I should like to

recommend as enthusiastically as I know how that you

amplify and extend the present Social Security plan.
A substantial increase in these taxes would be of

great service in diminishing the threat of inflation.
I have talked to many people who would be concerned

with the extension of the Social Security program
which would involve increases in payroll taxes.
have been met with interest and enthusiasm for
broadening the provisions of the Social Security Act.
I

HMJr:

Yeah.

S:

"I have been assured that the people who would have

to pay additional payroll taxes see the wisdom of
making necessary additional sacrifices. We have
made arrangements to reestablish our fighting men
economically when they return to build new lives on
the sound foundations.o the victory they will have
won. And now we must also keep in mind that on the
same foundation of victory, working men and farmers
and all the other people on the home front, many of
whom are not now covered by Social Security, must

also build new and better lives. Therefore, I suggest
that the Congress seriously consider widening Social
Security to cover practically all persons in the Nation,
to increase employment insurance benefits, and to
provide benefits for temporary disability and hospitalization. To do this will cost the American people,
chiefly those earning up to $3,500 approximately $3.7
billions. It is necessary -- the necessary additional
payroll tax of $1.6 billion will make a total of $5.36
billion for Social Security purposes. There is no

pretense on the part of these low income people -- low
income people that they could comfortably meet this
bill. It is known by them and admitted by us to be
a sacrifice but it is felt by the leaders and spokesmen
for these people and by those of the people themselves
with whom I have talked, that because we are expanding
Social Security's advantages and are permitting these

people to invest in their futures, this sacrifice will

be made willingly. If payroll taxes should thus be

increased, the income tax schedules involved in the
program I have outlined should be substantially
modified to avoid an intolerable tax burden in the

- 13 -

13

S:

Contd.

lower income groupe." Period. End.

HMJr:

Well, I'm perfectly delighted with it. I don't know
how the other people feel. I hope the President will
like it. Now one question.

S:

Yeah.

HMJr:

I take it that you people didn't raise the issue of

whether -- how much the post-war credit is? You've
dropped that?

S:

HMJr:
S:

HMJr:

That isn't in here now and we could put it in very
easily where I talk about the -- the -- uh -- combining

the -- wait'a minute -- the Victory tax and -- wait, I
can find it -- just a second -Well, wait a minute. Hello.
You mean the amount?

Well, I mean, did you draw it -- bring that to
Rosenman's attention?

S:

Oh, yes, yes, yes. I'm sorry. I thought you meant
in the message.

HMJr:

Mr. Rosenman's attention?

S:

That's right. It's been brought to Rosenman's
attention. I don't know what he

HMJr:

Oh.

S:

In a form of a memorandum to the President.

HMJr:

Raising that?

S:

Raising that -- that's right.

HMJr:

I mean, just the way we raised it with Vinson?

S:

That's right.

HMJr:
S:

All right.
That's right. Paul dictated it.

- 14 HMJr:
S:

HMJr:

14

Good.

Yeah.

Now, may I -- well I'm, personally, very much
pleased, but I don' t know how the others -- I'd

like to talk to two people.

S:

HMJr:

All right. Name them.

I think it's a swell job. I'd like to talk with

Bell and then with Paul.

S:

All right.

HMJr:

Anybody that wants to make any comments to me

S:

Okay.

I wish they'd please do so.

HMJr:
S:

All right. Here's Bell.

Dan

Bell:

Hello.

HMJr:

Bell?

B:

Yes.

HMJr:

What is your frank criticism?

B:

HMJr:
B:

Well, I haven't read the statement. I just heard
it here this time.
Yeah.

Uh -- my reaction was -- it raised a question as to
whether you should go over the history.of what the
Treasury has done on inflation -- that' 8 the first
part of the message -- and the other thing is whether
you should go into the Social Security set-up -- make

a recommendation on Social Security when the President
isn't going to make any statement.

HMJr:

Well, the President said we should do that.

B:

Well, as I understood, he agreed that you could do

that -- I didn'

- 15 HMJr:

B:

15

Well, I'd like to do that. I mean, that I very
definitely want to do.

Well, I raise the question of the advisability of
it because it's really a little out of our bailiwick
and I think it ought to be cleared with Social
Security Board.

HMJr:
B:

HMJr:
B:

HMJr:

Well

It seems to me you're kind of getting out on a limb.
that the President isn't backing you up on. I may be
wrong but that's the
Listen, fellow
my first
will you tell me
reaction.

B:

HMJr:

since I've been on the Treasury, where I've been
any other place but out on the end of a limb?

B:

(Laughs) That's right.

HMJr:

When were we any other place?

B:

No use picking another limb and one that's liable to
break.

HMJr:

No. But in view of all the fighting and -- and -and I'm sure Paul will agree that he said that at

the end we should make an appeal for Social Security.
(Pause) Hello.

B:

Well, I remember your statement the other day and I

thought it was -- that when he said that you could
do that, that he was going to send a message. I
didn't realize at the time, that he was not

HMJr:
B:

HMJr:

B:

Well

going to send the message.

....I will -- well, you people can think over -- let's

wait and we'll hear from Rosenman by noon. See?
Yeah. Uh huh.

- 16 HMJr:

16

Now, there's no use worrying until we hear from him.
See?

B:

HMJr:

That's right.
And what I propose to do is -- supposing Rosenman
comes back and says, "Yes, the President has read

it and approves this much but doesn't approve this.'
Well, then when I go up on the Hill and read what
he has approved -- I propose to say, "This has been
submitted to the President and he has read it and

I'm reading it with his approval -- the following

message. II
B:

I see.

HMJr:

I'm not going to be out on the end of -- I'm going

to say, 'This has been read and approved by the
President." Then I'11 go ahead and talk.
B:

HMJr:
B:

HMJr:
B:

HMJr:
B:

HMJr:
B:

HMJr:

I don't know that there's anything you can do about
it but, of course, the refundable taxes
Well....

is sort of a slap at your bond buyers
I know.

and the Third War Loan Drive.

I know. Tell that to Byrnes and Vinson.
I don't know what you can do about it. (Laughs)
There's nothing you can do about it.

Well, that's just my first reaction on it.
Pulliam -- Pulliam of Indiana told me if the tax is

going to be about the way it's been in the paper, he

was going to resign.
B:

Really?

HMJr:

He said he wouldn't go through another one.

B:

(Aside: He's Chairman of the War Finance Committee

in Indiana) Yeah.

17

- 17 HMJr:

So there's the first effect.

B:

Uh huh.

HMJr:

He said he just would resign.

B:

Well, you might get a lot of that.

HMJr:

And he's 'way over his quota.

B:

After all, you've told him that you were backing

voluntary savings.
HMJr:

I know. Well

B:

Who else? Paul, you want? Paul you want to talk to?
Yeah. I just want to know how he feels.

HMJr:
B:

All right.

Randolph
Paul:

Hello.

HMJr:

Good morning, Randolph.

P:

Good morning. Fred says to hang on to your seat.

HMJr:

Why?

:

P:

Well, we discussed this late yesterday afternoon
and
it. I indicated a good deal of disagreement with

HMJr:

Yeah.

P:

So did Roy Blough.

HMJr:

Yeah.

P:

I don't know how Herb Gaston and John Sullivan and
Harry White feel

HMJr:

Yeah.

P:

But I feel there are many things wrong about the

approach. I can't -- I don't think it's very easy
to go over them over the telephone.

HMJr:

No.

- 18 P:

18

But I -- I -- I think the whole approach 18 wrong.
There are several items, we did get some changes
yesterday that I think improved it.

HMJr:

Yeah.

P:

But I just feel that the whole approach is wrong
and I'm -- I'm -- that's one thing. The other
thing that I think is of serious consequence at
this moment, and something we may do before you

get back
HMJr:

Yeah.

is -- on this reduction of the post-war credit

P:

HMJr:
P:

HMJr:
P:

Yeah.

on principle, I don't have so much interest
whether it's one figure or another
Yeah.

but -- uh -- I do think that we ought not to
try to jam through a reduction without talking

with Byrnes and Vinson.
HMJr:

Well, I asked you the other day and you said
positively it wasn't necessary.

P:

No, I -- you asked me about submitting this message

HMJr:
P:

to them. That was different. But, anyway, it's not
too late to do it -- uh -- if you want to do it. I
mean, I think there's going to be a lot of resentment
by them that we sent a message to the President,
again ignoring them, and I think the resentment -- I
don't know what form it will take, but I do feel
that after we get started on the tax bill
Yeah.

we're going to be without, at least, Vinson as
an ally when we can certainly use him to good effect

on several things where we agree.
HMJr:

Well, the way I feel now, after having listened to
the statement, the amount of the refund -- it's the
refund, you see?

19

- 19 P:

HMJr:

P:

HMJr:

P:

HMJr:
P:

HMJr:

Yeah.

Now, whether it's black or whether it's gray doesn't

make much difference.
Yeah.

And if it would make you feel any happier, I'd just

as leave have you talk to Byrnes and Vinson.

You understand, one thing which I don't think occured
to a number of us
Yeah.

and perhaps it hasn't been called to your
attention. This insurance gadget
Yeah.

reduces the refund from the cash point of view

P:

25%. Do you see what I mean?
HMJr:

The thing that I have been unable to get over to
you, Paul, is this, Randolph.

P:

Yeah.

HMJr:

I mean, from the talk that I got in the field -- I

P:

mean -- let's be frank -- this is what you wanted,
this refund, right from the beginning.
Well, not exactly, this refund. I wanted a bigger

one, but
HMJr:

Well, anyway, you wanted -- what I can't get over
to you is that I don't know whether I'11 ever be
able to put across another volunteer thing and I

think half of my organization will resign.

P:

Well, I can understand that.

HMJr:

Yeah. And we

P:

I can understand that. And I think that there is a
good deal to be said on the point that this refund
is neither fish nor fowl. It doesn't amount to
anything. Either way -- whether it's $3.6 billion

or $2.5 billion or whatever it is

20

- 20 HMJr:

P:

As Walter George said, it just does enough -- it
doesn't do enough - it isn't enough to do any good
and it's just enough to ruin my volunteer plan.
Well, there is a good deal in that point of view.
That point of view I understand, but I - I'm going
on the basis that the President has decided on a
particular program and I think Vinson got a very
unfortunate impression at your house the other
day, that you were trying to whittle on the
President's program. Now

HMJr:

Oh, well

P:

I can understand that -- you said very frankly
that you didn't think the President was the kind of

man that ever considered a decision of his beyond
appeal

HMJr:

Yeah.

but, on the other hand

P:

HMJr:

Now, let's be also frank. He wasn't -- what he was

annoyed at was that he might be losing something.

They thought that they -- they put me in this hole
and he was afraid I was going to wiggle out of it.
P:

Well

HMJr:

He was trying to put me off.
Sure. Sure, that was understood.

P:

HMJr:

P:

HMJr:
P:

HMJr:

And he tried to put me in the worst light. And what
I told him -- I don't believe in serving the President
that you've always got to say "yes" to him.
Oh, I agree with you. I -- I feel the same way about
serving you. That's why I'm talking this way.
Yeah.

All right.
I don't -- I have no objection that -- that if -there's no use putting it up to him and if, but if

Rosenman comes back and says, "Yes" on that -- hello?

P:

Yeah.

21

- 21 HMJr:

Then I think -- I'm willing to have you talk with
Vinson and Byrnes. But there's no use taking it
to them until we hear from the President.

P:

No. Yeah

HMJr:

What?

P:

Well, time is getting to be

HMJr:

P:

HMJr:
P:

All
right. I'm willing. I don't care. I don't
want them to have
I don't want them to have a case against you on
that point.

All right. You can talk to them now.
All right. Just a minute now. Do you want to talk

HMJr:

to anybody else here? Harry is here, John
I want to

P:

....and Mrs. Klotz is here.

HMJr:

Yeah, I know. Gaston?

P:

All right. Here's Herb.

Herbert
Gaston:

Hello.

HMJr:

Herbert?

G:

Yeah.

HMJr:

As to the over-all, how do you feel?

G:

Well, I like it a good deal better than I did

yesterday. I think it's improved a good deal and
I think as a whole, it isn't bad. There is one
spot there -- this matter about debt that I think
we've got some -- uh -- a little cock-eyed economics
there. I don't think the debt, from what the boys

tell me, I don't think the reduction debt is an

important factor.
HMJr:

Well

22

- 22 -

It's a very minor thing and I think that we've got
about a page there which seems to convey the belief
that we -- that debt -- paying off debt has been the

G:

principal factor in their situation. I think we

could -- I think we could do some modification on
that page. And there are various other places where
I think

HMJr:
G:

HMJr:

G:

Well

.... the language should be modified.
Well, that's all right, but as to the approach, the

thing that Paul doesn't like -- but as to the approach
Oh. Well, then the -- there are other -- uh -- well

the general outline, I think, is all right. The
general manner of treatment, I think, is all right. I

believe there's too much on this question of what you
have done in the past.

HMJr:

No. I like that.

G:

Well, there are some things here that didn't come, I
think, to public attention at all, that were internal
in the Treasury. of course, we can't use those.
No. There I agree with you.
Yeah. We'll have to check on those.

HMJr:

Unless they brought it to public attention. Yeah.

G:

HMJr:

G:

HMJr:

Well, the general framework, with some minor improvement, I think, it can be made into a good message.

Well, I think they should keep improving it all day

long.
G:

Yeah.

HMJr:

Yeah. All right, let me have Sullivan and then White.

G:

All right.

John

Sullivan:

Good morning, Mr. Secretary.

HMJr:

Hello, John. Anything you want to say?

- 23 -

23

Well, my observation on the whole situation goes
beyond the form it takes. I think you've got
something at stake here that I don't know whether
you want to discuss over the telephone or not.

S:

HMJr:
S:

What's that?

I think you're going back or. everything you believe
in and everything you've said.

HMJr:

Well, I can't help that.
Well, that's
It isn't me. I'm up there talking for the President.

S:

Well

HMJr:

I've been all over that.

S:

Well, if that bridge is crossed, why then that's that.

HMJr:

It's been crossed, burned, and dynamited.

HMJr:
S:

S:

HMJr:
S:

Yeah, I think it certainly was dynamited.
Yeah. I agree with you, but I had to take that last week
Well....

HMJr:

All right.

S:

I commiserate with you.

HMJr:

Well, I'm beyond 1 t .

S:

Right. Here's Harry.

Harry
White:
HMJr:
W:

Hello.

Hello, Harry. Harry?
Yes, sir.

HMJr:

What have you got to say for yourself?

W:

Well, about the general approach -- I find quite

satisfactory. I think it's a very good job. There
are a couple of things I don't like. I think Herbert's
right about the debt. I wouldn't say it's cock-eyed

economics -- it's good economics. It's just exaggerated

and can be easily toned down.

- 24 HMJr:

24

Good.

I do not like that part in which you go over what
you've done to stop inflation.

W:

HMJr:

You don't?

I think it sounds like an alibi -- it's not very
strong and you'll find -- I don't think it adds

W:

to the statue of the occasion

HMJr:

Well

W:

.... but detracts.

HMJr:
W:

HMJr:

I wouldn't do it then.
Thirdly, I am not disturbed, but I suppose there
is no reason why I should be -- the same thing

that John is -- I think that you could quite
legitimately take this position in view of the fact
that that's what the President wants. I think that
Now, wait -- wait a minute -- a very important thing
has just happened in the room. Will you hold the
wire?

W:

HMJr:

W:

HMJr:

W:

Yes, sir.
My oldest son has just woke up. Will you wait a
minute? (Pause) Hello.

All right. I'll wait until you put him to sleep.
He may put me to sleep after this telephone call.
But hold the wire a minute.

I'll do that.
(Brief pause)

HMJr:

Hello. The situation is in hand and has been taken

W:

Is well in hand?

HMJr:

Yeah. (Laughs)

W:

care of.

Fine. But the one thing that disturbs me is the
same thing that disturbs Paul and, I think, disturbs
the others, that having retracted from a volunteer

program

25

- 25 HMJr:

Yeah.

what's there -- uh -- is -- I would cite Paul's

W:

phrase -- is neither fish nor smoked herrings.
HMJr:

It's neither

W:

Could easily have said nothing.

HMJr:

It's neither fish nor herring.

W:

HMJr:

That's right.
Well, listen -- uh -- as Vinson said in my house -I mean, he asked Paul for a plan and this is what
Paul gave him.

W:

Yeah.

HMJr:

And I understand -- I mean -- Paul

W:

You mean Paul is responsible for that plan?

HMJr:

What?

W:

HMJr:

Well, he's got a lot to answer for.
No, I want to -- no, Paul told me that if he asked
for an alternative -- he talked to me as I remember

it, beforehand. He can -- I can't see his face --

and he said he'd have to be prepared to give him
something.
W:

HMJr:

I see.

Is that right, Paul?

HMJr:

(Aside: Paul?) I don't know that Paul has heard what
you -- that Randolph has heard what you said. The
trouble with Paul is he ought to change his name and
make it Paul Randolph because it's so easy to -- uh -shall I ask him?
No. Well

W:

No.

HMJr:

.... that's about the thing, so that' S

W:

And about having taken this step -- if that's what

W:

the President wants, maybe I'm very unsympathetic

but about would Fesigna dn tions give THAT 988 f1 in get hell from

- 26 -

W:

Cont'd.

26

your bond salesmen on this matter. There are

plenty of other good peg heads loose. You'll have -however, providing it's a good program -- if it's
the kind of program which there is, why

HMJr:
W:

HMJr:

Well, the object of all the
you'll end up in the soup.
thing, Harry, is I'm going up there -- I'm going
to sell these volunteer people down the river, see?

HMJr:

I don't see it that way.
Well -- well

W: Jr:

However

HMJr:

Just a minute -- and then, I'm not going to get it. See?
Well, that's the trouble.

W:

W:

HMJr:

W:

HMJr:

And, with the people in the field -- uh -- I'll be,
in their name, a bad

I think that can be taken care of but I think the

other is

No, I mean -- all they'11 remember three months from

now is -- when I have my next loan is that I sold them
down the river and by that time we'll have a tax bill
that won't look any more like this than Rome looks
like New York.

W:

I'm afraid of that. I'm afraid of that second -not the first. of course, it means a little more
work, but I don't think

HMJr:

That's all water over the dam.

W:

Right.

HMJr:

I

think this -- if Fred will listen to you men

today because I'm down here and keep improving it

all day long.
W:

Yeah.

- 27 HMJr:

And

W:

All right.

HMJr:

27

and then, I don't know yet what my plans are --

and I won't know yet for a while. Is Mrs. Klotz
there?

W:

Mrs. Klotz is here but I'd like to ask you one
question on another matter before

HMJr:
W:

Yeah.

....I turn it over. On the -- getting in touch

with Rayburn about the appearance next week --

we'll hold that up until you come

HMJr:

W:

Yes, but also, you can't hold up my appearing on
the Hill before these committees though.
That's what I meant -- that's what he called about.

HMJr:

No.

W:

Pardon me?

HMJr:

He wanted some fellows to sit with us at this end.

W:

Yes, but I didn't know whether you wanted to check
them both up. Well, who would you like to arrange
for those committee meetings?

HMJr:

Well, I think John Sullivan could help you

W:

Yeah.

HMJr:

....on the Hill. Hello.

W:

Yes, who do you want to work through, Barkley and
Rayburn?

HMJr:

Yes, but you ought to do it -- try to aim for
Tuesday and Wednesday.

W:

Tuesday and Wednesday. We're having a little trouble

with the British who don't want any publicity or
notice given to the Bank plan

HMJr:

Well

- 28 until they've had a chance to -- to give us

W:

their opinions.

HMJr:

Well, Harry, 1f I'm to go up on the Hill, it's
going to have to be Tuesday and Wednesday, and

Well, then it will -- uh -- well, the British

W:

representative 18 in my office now. I'll see what

we can work out with him.
HMJr:

W:

Yeah. But I mean if I can't go then, I'm not
going to be able to go at all.
If you can't go Tuesday and Wednesday? Randolph

is asking whether you will be here tomorrow.

HMJr:

I hope not. But I'll be there Sunday night.

W:

Sunday night?

HMJr:

Yeah.

W:

I'll -- Mrs. Klotz will take over.

Mrs.

Klotz:

Uh -- Paul in

HMJr:

Hello.

K:

Paul inquired. He said the reason he asked is on
account of Judge Hand, because he's going to call
him today.

HMJr:

Well, he'll have to go over there and take Preston

K:

(Aside: You'll have to go over there and take

HMJr:

Delano with him.

Preston Delano with you.) All right.

As the only taxpayer in the room, how do you like
my message?

K:

HMJr:
K:

HMJr:

Well, I liked it very much.
Good. I have to try it out on one taxpayer.
That's right.
All the others are experts.

28

29

- 29 K:

Knowing nothing about taxes, I liked it very much.

HMJr:

Good. Good. Now

K:

(Laughs) Yes.

there's something I wanted to say -- well, I

HMJr:

don't know -- I'll be calling up later when I get
another weather report.

K:

I see.

HMJr:

At this time I've got to feed my son.

K:

Uh huh.

HMJr:

He looks very hungry.

K:

I think the son ought to feed his father.

HMJr:

Yeah.

K:

He's exhausted.

HMJr:

Now, let me just think a minute. There's something.
Oh, who -- who in the room will keep after Rosenman
to find out whether he has an answer?

K:

Smith said he would.

HMJr:

All right.

K:

Now, Mr. Gaston would like to say a word to you.

HMJr:

All right.

Herbert
Gaston:

On the couple of appointment matters, one of them --

HMJr:

Send it over.

G:

Send it over?

HMJr:

Yep.

G:

The other thing is this, that as a successor to Tom

it's only minor -- on this Commissioner thing -- if
we get -- if we get Frank Walker's agreement, do you
-- uh --

Gorman we'd like to appoint Ed Shamhart who has been
the acting Deputy Commissioner.

- 30 -

G:

It's all right with me.
All right.

HMJr:

Anything else2

G:

No You knew about the Preston Delano matter, too.
We were going to clear that with Frank Walker today.

HMJr:

You mean his reappointment?

G:

Reappointment. Yeah.

HMJr:

HMJr:

Sure. He gives me a pound of butter a month for

weeks.
G:

Oh, well.

HMJr:

The rest of you, too.

G:

Uh huh.

HMJr:

So we are all buttered.

G:

The rest of me? No.

HMJr:

We're all buttered.

G:

No, I'm not buttered.

HMJr:

Well, I am.

G:

(Laughs) All right.

HMJr:
G:

I am now going to go to bed.
Uh huh. Anybody -- nobody else -- nothing else
you want?

HMJr:
G:

HMJr:

Not -- I'll be calling up later on.
All right. Bye.
Bye

30

31

THE UNDER SECRETARY OF THE TREASURY
WASHINGTON

October 1, 1943.

REPORT OF CABINET MEETING

The President said he had nothing to report.
Mr. Berle commented on the South American situation. The
President said they ought to have someone to represent the United
States as a sort of roving Ambassador in South American countries.
He was thinking seriously of sending Summer Welles to that area
for three or four months. There is some doubt as to just which
way the Argentine Government will eventually turn.
The President then turned to me and asked me how the Bond

program was going. I said it was going very nicely, that we had
exceeded our goal of $15 billion by approximately $600 million;
that we were going well over, possibly as much as $17 billion;
while I thought we were going to make our quota of $5 billion
for individuals, there was some doubt whether we would make the

Series E Bond quota of $3 billion. That was a right tough quota

and we knew it when we fixed it. I said the total quota for

individuals was only 50% higher than what we received in the Second
War Loan Drive, while the quota for Series E Bonds was more than
twice what we received.

The President then said "Of course you know that there are a
lot of individuals who are cashing in their Savings Bonds in order

to get credit for purchases in the Third War Loan Drive." I said

I had heard that charge and I supposed there were a few cases, but

the redemptions this month are very little higher, if any, than in
July or August, in spite of the fact that September is a tax month.
I told the President I thought the people who were making those statements could just as easily have said that the redemptions were for
the purpose of paying taxes in stead of for the purpose of buying other
bonds. I also said I had heard nothing said about the fact that some
corporations sold their securities acquired during the Second War
Loan Drive in order that they might buy in this Drive and be considered patriotic on both occasions and there was a good deal more

of the latter than the former. However, I said, adding it all up,
both for individuals and corporations, it wouldn't near equal the

PORVICTORY

BUY
WAR
BONDS
STAMPS

amount of the excess over the $15 billion goal that we will eventually
get. I said I thought the American people had responded wonderfully
to the Drive and that we could all feel very well pleased with it.
The President said it sounded very good. (In the course of my state-

ment Fred Vinson turned to Jimmie Byrnes, smiled and winked.)

32

-2Messrs. Stimson, Biddle, Walker and Forrestal had nothing to
report. The President told Under Secretary Forrestal that the Navy
was again trying to advocate a reorganization in the Navy which would
virtually set up a general staff. He had turned it down a number of
times and he wanted them to understand he was still against it.
Forrestal said he thought everybody understood the President's views
on that matter.

Mr. Ickes reported that the fuel oil situation is getting no
better and the coal situation is getting worse every day. The
President asked him why the coal situation should get worse. He
said the demands for the use of coal are growing, particularly from
Italy. Italy formerly got its coal from Germany which, of course,
is now cut off. The President wondered if we could get some coal
from North Africa and ship it across to Italy. Mr. Ickes said he did
not think so, but we had been getting some from South Africa, much
of which was going to Argentina and other South American countries.

Ickes then said he would like to bring up an old question again
and that was the matter of getting $5 million for prospecting for
oil in Alaska. He said he thought the President would be justified
in spending this amount of money for this purpose when the War Department had spent $100 million on a pipeline and refinery set-up in
Canadian oil fields.
General Fleming then came into the conversation with the statement that he had just been to Canada and had seen representatives of
the Truman Committee up there who had investigated the pipeline and
refinery. They have come back convinced that the War Department has
wasted the money they have spent up there. They are also going to be
rather critical of the War Department's projects around Excursion Bay.
Jimmie Byrnes then said he had had the matter brought to his
attention by the Bureau of the Budget, which agrees with Mr. Ickes

about the expenditure of public funds for this oil installation. He
said he understood the War Department had spent approximately $60

million and the question now was whether they should continue with
the project and spend another $40 million to complete it. The
President asked Byrnes to get the different groups together on the
matter and see what could be worked out. He suggested to Mr. Ickes
that he might go back to the War and Navy Departments to see whether

or not he could get $5 million to prospect for oil in Alaska.

Secretary Wickard reported that many of the farm organizations

now coming out with statements to the effect that a little inflation wouldn't hurt the farmers too much. He said Cornell University
recently issued a pamphlet in which that was inferred all the way

are

through. He thought the President, in sending any message to Congress,
might say something about this, but at the same time he thought he
might pat the farmer on the back for what he has done in producing
the Victory crops.

33

-3The President then said that Nelson Rockefeller had come to see
him that morning and had rather an ingenious scheme for providing

Mexico with corn, of which it is very short and which, if they don't
get, will cause serious disturbances in that country. He said Nelson

suggested that our ships going to South Africa with goods should load
up with coal in South Africa, take it to Argentina, where it would be
sold, and then reload with feed cake which would be brought to this
country and substituted in many of the feeding areas for corn. This
would justify our giving Mexico some of our corn. Vinson said the
Southwest feeding areas were really quite critical and that those
areas had to be given some corn or other feed very soon. The President
said an attempt should be made by the Secretary of Agriculture and
the Secretary of State and Mr. Rockefeller to get together to work
out this program as quickly as possible.

Mrs. Perkins commented rather extensively on the workings of
the Smith-Connally Act, saying that almost everybody has been wrong

about its effect. Labor was against it at the beginning, but has

found no objections to its workings. Industry was very much in
favor of it, but is now coming around to the view that it was a
mistake to pass the legislation. She said it is a very cumbersome

piece of legislation to work under but it is not having the effect
they thought it would have before its passage.

She then said there was still quite a bit of uneasiness around
because of the newspaper articles indicating that the Social Security
program was going to be a part of the tax program. She had indicated
her views to the Secretary of the Treasury on this matter at a recent
Committee meeting in this Department and she was hoping that the
Administration wouldn't tie taxes and the social security program
together. The people who pay social security taxes do not look upon
them as taxes, but look upon them as contributions to a system for

which they will get returns later on.

Paul McNutt said he agreed with this and he had also expressed
his views at the Treasury meeting. The President told them it had
been decided that the social security program would be out of the
Administration tax program. He didn't say anything about the fact
that he had told the Secretary he might comment on the social security
program in his statement to be given to the Ways and Means Committee
next Monday.

The President asked Mr. McNutt how the legislation respecting
the drafting of fathers was coming along. Mr. McNutt said he thought
it was dying a natural death. The President wanted to know if there
was anything we should do about it. Mr. McNutt said no, there was
nothing. He thought it was losing support every day and it was his
recommendation that we leave it alone for the time being.

34

4-

General Fleming reported on his recent trip to Alaska. He said
he made the trip all the way up the Alaskan Highway. The Engineers
have done a wonderful job. There is only ninety miles of the strip
to be completed and they were completing approximately four miles every
day. They expect to finish the entire strip by November 10th. He said
at that time there will be between fifteen and sixteen thousand civilian
employees released; so far as he could tell, most of them came from
northern parts of the States of Minnesota, Montana, the Dakotas and
Michigan; very few from the West Coast. Paul McNutt told him if they
would send them all to the West Coast that they could get jobs immediately.
John Blandford said there have been a number of proposals introduced into Congress which would enable soldiers to acquire interest
in homes and farms. He thought many of the Departments and agencies
were interested in this subject and in order that there may be some
uniformity of approach to the problem, he would suggest a conference
on it. The President told Byrnes to get the groups together and work

out policy decisions on it.

Vinson and Byrnes had nothing to report.
The President asked Vice President Wallace what the temper of

the Senate is at the present time. Wallace said the temper is quiet
and there isn't very much to do. He thought by Tuesday the draft of
fathers would be definitely settled.

ours

35
These figures received from Mr Bell, at 6.05pm, October1,1943.

To be delivered to the Secretary.

7/8% cert.

3,835M

plus

137M

2%

4,443M

plus

122

21%

3,124M

plus

41

Tax Notes.

2.262M

plus

264

13,664M

plus

564.

Total.

13,664m plus 564

76 E.

E, Bonds.

1,400M

F, Bonds.

139

10

G, Bonds.

387

23 Total

Gov't Funds.

630

91

0 Total.
GRAND TOTAL.

1.926

124

.630

16,220M

6

Plus 688M

16887
SA McGrath. NYC.

667

Johnson

36

23 Wall Street

New York
R.C. LEFFINGWELL

October 1, 1943

Dear Mr. Secretary:

I cannot tell you how
pleased I am by the triumphant success of
your Third Mar Loan. Knowing as I do what

difficulties you had to confront this
success must be peculiarly gratifying to

you, as it is to your friends and to all
lovers of our country.
I am, my dear Mr. Secretary,

with great respect,

Faithfully yours

believer
The Honorable

The Secretary of the Treasury
Washington, D. C.

37

FREDERIC A. DELANO

1530 P Street,

-

Washington 5, D.C.

WASHINGTON

S7OLEXINGTON AVENUE

October 1, 1943.

NEW YORK CITY

The Honorable

The Secretary of the Treasury,
Washington, D.C.

My dear Mr. Secretary:

The President's office has kindly sent me copy of your
letter to him, under date of September 29, in regard to the very
objectionable one-cent piece that looks like a dime and 18 con-

stantly being accepted for a dime. Obviously, a coin could be
minted of the same size and weight with a one-eighth inch hole

through the center, as a slight increase in the thickness of the
coin would make up for that which was taken out of the center.
Of course, the face of Lincoln could not be used, and the coin
would have to be of a different design. If this suggestion is not
feasible, I think the brains of the Bureau of the Mint should be
applied to a different solution.
As I understand it, a Congressman has already submitted

a bill to change the coin, and the opposition to the coin 18 80
great, that something will have to be done.
Very truly yours,

38

MEMORANDUM FOR THE SECRETARY.

October 1, 1943.
Mail Report

Except for the Bond mail, all receipts have been
down during the past week. The subject of taxes receded
into the background, and the letters that were received
followed the pattern of previous weeks. There were 20 protests against increased taxes and 6 pleas for simplified
forms; a few belated sets of Form 1040 E.S.; several routine
endorsements of the CIO tax program; and the usual sugges-

tions about further sources of revenue, these including the

placing of a one-cent tax on bags of peanuts and popcorn.

À sales tax and the excess profits tax rated only 2 or 3
mentions apiece.

There were a number of telegrams replying to the
question about the percentage of defense plant employees
buying an extra Bond during September. Percentages ranged
from 0 to 90, with a few Chairmen unable to give any figures.

Difficulties besetting certain groups, such as colored

citizens, salesmen who cannot get gas, etc., have been des-

cribed in scattered letters. Ideas about new types of Bonds

and new points for emphasis were unusually heavy. There were

even a few plans for the Fourth Drive. Noninterest-bearing
Bonds are particularly popular, and annuity Bonds run them

a close second. Special small denomination Christmas Bonds

and other variations of the gift idea were frequently men-

tioned. Only 29 Bonds, 8 from Patchogue, New York, were
submitted for redemption, the lowest figure for many weeks.
Complaints from personnel of the War Department, dealing
largely with nondelivery of 1942 Bonds, ran about the same
as last week.

There was a sharp flare-up in letters complaining

against Government extravagance, and in most instances

these tied in with taxes or the Bond Drive. The scrapping

of tools worth $1,400,000.00 by the Army, as reported by

39

-2Memorandum for the Secretary.

October 1, 1943.

newspapers, was commented upon many times. There was

also a sharp.rise in letters dealing with the unpopular

new penny. According to a clipping forwarded in one
letter, a newspaper is now featuring a column of stories

about difficulties with this coin. Another group of
bitter protests dealt with the recent Treasury ruling

regulating yearly commissions to salesmen. These letters

were frequently transmitted by Members of Congress.

Of 8 letters commenting specifically on recent

speeches made by the Secretary, 6 were favorable, 2 un-

favorable. Eight violently abusive communications were
received - all but one of them anonymous.
The month's receipts from the White House were again
low, although the total rose somewhat over the August
figure. We had 374 letters, of which 137 were acknowledged
in this Division. September has always been a low month,

varying from 180 in 1939 to 519 in 1941. Last year, how-

ever, we received 1,877 communications during that month,

but this was partly due to postal card campaigns in con-

nection with income tax and the Townsend Plan.

40

General Comments

We, the People. (Postmarked - New York City.) Gosh,
as if we don't have troubles enough, you smart fellers

down there have to put out a cent to look like a dime.
Just another mess added to what we got. No wonder we
get het up!

Henry J. Abrahams, Omaha, Neb. I take pleasure in enclosing Treasury Checks #696009 and #696046, endorsed

to you, which I offer as my further contribution to
our War efforts. Also my congratulations on your
successful Drive for the Third War Loan. I also enclose

my check for One Thousand Dollars, and when it clears,

will be glad to receive two Five Hundred Dollar Series
G Bonds.

Senator Lodge forwards a letter he has received from

Allen W. Rucker, Vice President, Tailby-Mason Company,
Pharmaceutical Manufacturers, Boston, Mass., which

reads as follows: As you are aware, the Treasury has
promulgated a control affecting the earnings of commission salesmen and prohibiting any increase in the
dollar amount of those earnings without Treasury

approval. This regulation is, insofar as it affects
us, utterly disruptive. It not only requires that we
break contracts of years' standing, but it seriously

and even critically upsets our operations. It

is too well demonstrated in this industry to even admit
of question that if the physicians are not continuously
and properly called upon, they will purchase their goods
from competitors. It is also demonstrated that the
salesman with his necessary knowledge of pharmaceuticals

is the most single powerful factor in making physicians
acquainted fully with the merits of new and important
developments in the treatment of disease and injury.

To now be compelled to inform our men that despite
the added efforts required of them and the added busi-

ness which they secure, we cannot fulfill our contract
with them, will be enormously disruptive. Our firm,

41

-2in common with most others, has continuously met the
multitude of inconveniences and hardships, as well as
the added expense of following Government regulations

without complaint. This, however, is an instance
where we feel that complaint is wholly justified and
that we request your efforts to bring about a cancellation of this new Treasury regulation.

42

-3Favorable Comments on Bonds

Mrs. Walter H. Simon, West Collingswood, N. J. Please
send more forms "Record of Ownership". We have filled

five and are ready to start filling many more. We are

doing everything possible in order to buy more and more
Bonds. We have a Bond taken out every payday, but
I buy many more during the month, and I save pennies
and have a dime bank for 25-cent Stamps. All my leftover house money goes for more Stamps. I believe we

could paper a room in Bonds. I get a big kick out of
saving all I can and the most of it goes for Bonds. We
bought two $100 ones for the Third Drive, and I talk
and talk Bonds & Stamps. It is a very easy way to help
our Government, and at the same time help ourselves.

Floyd Schwartz, Sunnyvale, Calif. I buy Bonds with 55%

of my salary. I was told after the last war the people

were asked to burn their Bonds and they did not pay off

in full value. Please inform me if this is true.

H. J. Braun, St. Louis, Mo. I was fortunate in being

one of the honored guests who was present last evening

at the dinner given at the Chase Hotel in your honor,
in connection with the Third War Bond Drive. Your

message was an inspiring one and the testimony of the
members of the "Hellcat brought home to every one the
"do or die" necessity of each man and woman who loves
liberty and the Four Freedoms doing his and her best to
make the 15 billion campaign a success.
Pfc. Laurence G. Doyle, Camp Hatheway, Vancouver, Wash.

I understand that a law has been passed which allows

the Government to accept gratuities. Enclosed find

receipt for a Bond which was purchased by the Army in
my name. At the time arrangements were made to deduct
some dollars from my monthly competence it was not my

wishes to invest in Bonds but to have it sent to the
Government as an outright gift. While realizing that
the sum involved is an insignificant one, there are,
nevertheless certain principles involved, and principles
are tremendous trifles.

43

4-

Richard Stack, Carrolton, Ill. I have purchased today
from Carrolton Bank of Carrolton, Ill., one $25 War
Bond, Series E, issued as of the first day of Sept.,

1943. Bond No. is Q19176553 E. Please cancel payment.
I am sending the Bond to Gen. Douglas MacArthur some-

where in Australia with instructions to place it on

the first bomb, as postage, that he drops on Tokyo,

Japan. It is so Damn Little to give, but I will get
a Helluva Lot of Satisfaction if my wish is carried out.
Dr. Irvin A. Mathews, Kankakee, Ill. Today I have

bought another War Bond and donated a pint of blood

to the Red Cross. This seems so little to give one's

Country, compared with the millions of fellow Americans
who are giving a great deal more, even in some cases

their lives on the battlefronts of today. Buying War

Bonds and donating one's blood to the Red Cross is the
least we on the homefront can do, and I for one con-

sider it a great privilege. I wish that I could do

more. To show my great appreciation and love for my
country I wish to present to you my personal check for
$25.00 to be used for medical needs for our Armed Forces
overseas.

Max Tachna, Tachna & Pinkussohn, Counsellors at Law,

New York City. I have just received the enclosed check
for $990.00 from the Treasurer of the United States, as
a "six months' death gratuity" paid me because of the
death of our only son, Ensign Lionel Judah Tachna
At the time my son joined the Navy, early in 1941, he
told us that for him as an American there was but one

choice -- to fight, and, if necessary, die for a free
country undominated by the fear of a Nazi-controlled
world. I am sure that it would be our son's desire that

the enclosed check, paid because of his death in action,
should be devoted to carrying on the cause for which

he gave his life. His mother and I therefore wish to
invest the enclosed check in Defense Bonds and thus

help the present Third War Loan Drive. * As there

may be some technical requirements about the endorsement

44

-5of the check, will you please endorse it for me so as
to obtain these Bonds, or return same to me with instructions? What I specifically desire, however, is

that the check itself should be paid directly to the

U. S. Government for these Bonds, and that the Bonds
be registered in the names of Max Tachna and Rose
Tachna, 40 West 77th Street, N.Y.C.

Jack L. Williams, San Antonio, Tex. I owe you thanks
for your kind and courteous letter of June 22 this
year, regarding my old War Bonds. I have since heard
from Chicago that they will soon be delivered to me.
#

*

Herbert W. Forster, N.Y.C. The Army Show in Washington

is to my mind a wonderful and inspiring spectacle.

I spent nearly two full days there and then felt that
I had by no means taken it all in. It leaves me with

vastly increased respect and admiration for the magnitude of our war effort and of the technical and human

vigor of this nation. If the men and exhibits, as well
as the transportation facilities could be spared,
I think it would be a great stimulant to the entire

homefront if the show could go on tour throughout the
country.

45

-6Unfavorable Comments on Bonds

Bond Buyer -- Postmarked New York City. The War Bond

Drive is lagging for a very good reason. Just whose
super-brain evolved the brilliant idea of having the

Drive coincidental with the filing of tax declarations

and payment thereon has not been revealed, but that it

has had a great effect, there is no question. The Bonds

will all be sold, but if the Drive had been earlier,

thousands could have bought them, and then borrowed,

if necessary, against them to pay September 15 taxes.
I hope the next Drive will be at a time when other pay-

ments are not due.

Robert G. Herzog, N.Y.C. I am writing this letter to
call your attention to a condition which I feel cannot
help but hinder the sale of War Bonds through Class A

payroll deductions. I refer to deductions made by
the War Department from the salaries of civilian em-

ployees. I give my own case as an example because I am

thoroughly familiar with the details. However, I have

inquired among other employees and former employees of

the War Department and I find that my case is typical.

(Explains difficulties.) Until now, I had no
idea how seriously this affects the sale of Bonds, but

recently I was appointed, by the company for which I now
work, to the Bond Selling Committee and b ave found difficulty selling Bonds to many individuals who claim
undue delay in the delivery of Bonds.

N. T. Brice, Treasurer, Falk Credit Union, Milwaukee,
Wisconsin. We are issuing agent for the Falk Corporation. This month, because of the Third War Bond Drive,
we will probably reach a $200,000.00 total in Bonds
issued. Most of these Bonds are of the smaller denomination so it means a lot of work. The Falk Corporation
has gone to considerable expense in providing equipment

and help to the Credit Union to do this work. The

Federal Reserve Bank of Chicago has been supplying us
with a penalty window envelope for some time, which

46

7-

speeded up our work considerably, as it eliminated

addressing several thousand envelopes each month. You
can imagine our disappointment when they informed us

that no more were available as the Post Office Department could only order them. I checked with the Postmaster in Milwauke e and he said it was up to the
Treasury Department. There is no use of going into this
matter any further except to state that we offered to
print the envelopes; do anything to get them and couldn't

do so. It necessitated hiring more help, typing all

envelopes and delaying delivery of Bonds and increasing
our expenses. We hope we are patriotic Americans, but
when two of the largest branches of the Government can't
decide who will order some envelopes, it certainly

strains one's willingness to make the sacrifices that

one now has to make and is most willing to make in these

days.

C. Franklin Ward, Hollywood, Calif. In spite of my very
great admiration of your leadership, I am fully in accord
with the opinion of DeWitt Mackenzie as set forth in the
attached clipping. (Criticism of HMJr's speech, "When

if...etc. ")

G. Burton Hibbert, Chairman, War Finance Committee,

Providence, R.I. (Telegram) The action of the Treasury
Department contradicts your daily telegraphic urgings
to push sales of Series E Bonds. Rhode Island's campaign
was well in hand until news releases on dollar success
from Washington broke in local papers. The people of the
United States naturally will not sacrifice themselves
unnecessarily, and if they think you have received all
the money you asked for, no sales technique can persuade

them to buy more. Our organization of over sixty-five
thousand solicitors in Rhode Island has made an all-out
effort pointing to the last ten days of this campaign,
and success was assured which further publicity on dollar
volume (instead of numbers of purchasers) from Washington

will completely dissipate. Your cooperation is earnestly
requested.

47

-8N. Gropper, N.Y.C. You stated that the wage earner
is not buying Bonds in the quantities expected. You
know the answer to that one. No blame is chargeable
to you, for you have done an admirable job in the face
of the most criminal and corrupt bunch of legislators
that any nation has ever had to contend with.
Business is earning enormous profits out of this war,
stained with the blood of the best humans on earth.

All this despite the so-called high taxes. The wage

earner in the main is earning no more, and perhaps less,
than in pre-war period. Sure, some war workers who

put in extra hours on swing shifts roll up what looks
like a large sum, but they don't keep it up. Whereas,

the average worker with the same wage faces deductions

for higher costs for food, rent, clothing, Union dues,

taxes, pension contributions, money to boys overseas
and in U. S. Camps, contributions for war agencies, Red
Cross, etc.

Kim Collins, C.P.A., Collins & Buri, Detroit, Mich. Our
associates and clients don't feel very good about contri-

buting to the Bond Drive when they see their money thrown
away in the following manner. Recently the Army Air
Force sold $1,500,000.00 value of standard new cutting

tools for $75,000.00. The purchasers are not required to
keep any inventory control or comply with priority regulations. I understand that orders came from General
Hopkins, routed through the material command at Wright

Field. The Detroit office advises that they were ordered,
after an engine design change, to scrap this large quantity
of tools as obsolete, when actually they were standard
new cutting tools and adaptable to other purposes.
Orders cited that there was no space to store them when
actual space was enough to store all the cutting tools
in America. The sale was required to be made at once by
the Detroit office with no advertising and no competition
allowed. The Detroit office had been making good progress

in distributing this equipment to other critical material

locations where it could be used to the best advantage.

There was no reason for such an order and the manner in
which the deal was handled indicates that there is something rotten somewhere.

-9Margaret Gray, Everett, Wash. The papers have commented
upon your worry regarding Bond buying. Up to now we

"little people' have been glad to sacrifice necessities

to help OUR boys. Since a recent report regarding the

shabby treatment of General MacArthur, we are beginning
to wonder if we are helping OUR heroes or again financing

Britain's "curtain calls". If Britain wants to feature

BRITAIN -- at the expense of our brave men -- let HER pay

for it. The American people are solidly behind General
MacArthur, and if these reports are true, we are proving
ourselves a nation of ingrates. Overoptimism isn't going
to stop Bond buying, Mr. Morgenthau, but THIS sort of

thing IS going to stop it.

M. H. Mattison, Publisher, The Elk Rapids Progress, Elk

Rapids, Michigan. I have your letter of the 4th asking

me to place before the respective businessmen of my com-

munity sponsored advertising pertaining to the Third
Loan. This I have done -- contacted better than 95% of
them -- including the professional men, with the result
that I was turned down overwhelmingly. The first of the
page series, with the President's photo, I ran myself
twice in the paper, leaving the remaining three pages for
the sponsors. The price I asked for running the same in
the paper was $3.33 per signature, or sponsor, which
I really do not think excessive. Now what I am up against

is this: should The Progress run in its columns the re-

leases of the Treasury Department from time to time dur-

ing the Drive, over its own signature, in view of the
facts recited, and also in view of the fact that this

newspaper carried ALL of the First Loan Drive material

at its own expense. Since I did all the soliciting
personally, I have the first-hand facts in the case.

F. R. Peake, Berkeley, Calif. Last week I expected to
sell $100,000 of War Bonds to the trustees of a certain
institution. They finally bought $10,000. The reason?

One of them referred to a statement by Senator O'Mahoney
that Lend-Lease for which Congress appropriated 18 billion

dollars, has had added to it some 50 additional billions
transferred to it by Executive Order from funds set aside

48

49

- 10 by Congress for other purposes. The trustee said

further that the only way to stop that sort of thing

was to refuse to supply the money; that no single man
was sufficiently able to spend such a vast sum wisely,
certainly not the President and the theorists surrounding him. I ask you what answer your solicitors can
give to such statements? If you can't give me an honest
answer, don't bother to acknowledge receipt of this

letter, but if the War Loan Drives fail, the blame will
rest with the President, and not the people. Will he
ever learn?

M. A. Niedfelt, Seattle, Wash.

How do you expect

people to sell Bonds to the citizens in this state when

you find the Governor who insisted in shipping scrap-iron

to Japan, the same Governor (when he was Mayor of Seattle)

inviting and entertaining the Admirals of the Japanese

Navy, and he is now out heading the Bond sales and making
speeches in our shipyards. The same Governor who would

not respect the Anti-scrap-iron picket lines. Attached
you will find a news clipping showing that the people

here are asking for an investigation at Boeings because
the Boeing management is more interested in disorganizing the entire war program here than in building more

planes. And we know that Pearson told the truth

because we have read the Riddle of the State Department

by the Nation Magazine. Well, if our Government is semifascist why should we buy Bonds to put bonds of fascism
around us?

Miss Anna Levy, Brooklyn, N.Y. I think it was an insult
to us Americans in your speech September 22 at the War

Loan Drive ceremony. It is true that England and Russia
are our Allies, but we don't need Churchill and Stalin
to urge us to back our Bond Drive. We Americans always
do what we start out to do and we'll go over the top on
this Drive.
A Sincere War Bond Buyer, Providence, R.I. I used to

buy a new $25.00 Bond every three weeks. I accumulated
quite a number of these worthy documents, but a week ago
I was in need of some ready cash, because an emergency

50

- 11 -

arose, so I made a trip to the main Post Office Building in the heart of Providence, only to learn that I

couldn't get cash for my Bonds, but would have to send
them to the Federal Reserve Bank in Boston, Mass., and
then wait a couple of weeks for the money. This wait-

ing was, as a matter of fact, inconvenient and humili-

ating to me. I had to notify my creditor that I couldn't
meet the note, and that is the first time in my life
(I've lived a long while) that I could not meet an
obligation when it fell due. I thought that all I had
to do, when I wanted cash for one of my Bonds, was to

visit the local Post Office, present the Bond, and with

suitable identification, receive the cash. If you can
remedy this sort of situation, not only myself but many
others would appreciate it.

51

- 12 Unfavorable Comments on Taxation

Arthur Mead, Brooklyn, N.Y. These individual and other
income taxes will break the back of the Nation unless

alleviated. With no income for years, by hard night
and day work for my Government, I am in the 90% tax

bracket, and with losses the Treasury will not permit

me to deduct, I am minus thousands of dollars for my

efforts. I have had to sell Defense Bonds to prepare

for the December installment, and am generally most

disheartened and discouraged. In addition, I have
7% to pay the State. This system of taxation has
driven country after country into despair and revolu-

tion, as history proves. For God's sake give thrifty
patriotic citizens a chance to live and enjoy the
privilege and ability of being an American.

Lester C. Weisse, Attorney at Law, Sheboygan Falls,

Wisconsin. After coming up for air, following the

Declarations of income taxes, I have this recommendation

to make. I suggest that legislation be introduced
abolishing the filing of all Declarations except on
December 15th. By then, one would know his exact
income. It would be corrected as of March 15th on the
final return. Then all of the manpower wasted in the
tax department could be given guns and placed in the

fighting lines where it belongs. * # # It is a sorry

tragedy in the face of the headlines on the shortage of

manpower, that the Government should absorb more and more

men in a system that has absolutely no merit. Fifty-two

million reports were expected to roll in; fifty-two
million times four gives you over a billion. Think of
the clutter in the Post Offices of that quantity of mail;

think of the waste. What has the Government accomplished
in the great American guessing game which our income tax
law has now provided for those people who are not on a

salary or wage basis? * # I am heartily in favor of

abolishing the Victory Tax and all that computation, and
make it a single income tax. Why complicate matters,
and why try to lie to the public? We have a War on our

52

- 13 hands and we expect to pay taxes, and that is one cheer-

ful thing, not one individual, no matter how much his
tax, complained in my office as to the amount. The
only gripe was the confusion and the uncertainty of the

computation.

C. H. Tholl, Wickford, R.I. I hate to bother a busy
man like you but I wonder if you cannot find the time

to grant a boon to the small businessman, and allow us
to send in our Employer's Tax Return under the Federal
Insurance Contributions Act without their being sworn
to. We are now allowed to send in our income tax returns
in this manner and it would seem that the Employer's Tax

Return could be treated similarly. The chance for cheating is much less on payroll returns, as our payrolls are

checked and audited by our State, under the Unemployment
Compensation Act, and by the Insurance Companies under
the State Workmen's Injury Compensation Act.

F. M. White, Mayor, The City of Clarkton, Clarkton, Mo.
Almost 68 years ago I was born in this state, near where
I am now living, and have tried to be a representative

citizen, and if not a credit, at least not a discredit
to my state and country. Up to this year, I have fairly

well succeeded, but it appears I am at my row's end.
What, with the food and other restrictions which I have
managed to comply with to the best of an undernourished

man's ability, I am now faced with a law which forces

me to "make an estimate" of my 1943 income, and threatens

to penalize me if I make a bad guess. * It seems

strange that such men as you would allow laws like this
"pay-as-you-go-crazy" income tax plan, without making a

protest. Do any of you realize that the interpretation and working out of this fool law is a job of a

combination Attorney, Certified Public Accountant, and

Income Tax Expert? If anything is calculated to defeat
the Democratic Party, this income tax law will do it.
Not that the Republicans didn't also have a hand in
passing it, but the common herd, of which I am an indi-

vidual, is fed up on this kind of stuff, and getting

madder all the time. The provisions of our Constitution

53

- 14 have been kicked around until unrecognizable, and it

is about time to call a halt, or have it scrapped altogether. I am going to vote, in the next election,

against every incumbent, and work to the end that all

be, if possible, defeated. I will vote any ticket but
that which makes such laws possible.

Ruth K. Thompson, Melrose Park, Pa. Weren't you kidding
about the 30% withholding tax, or do you want to start
a revolution? We Americans have been cooperative about
everything from sending our boys to fight on foreign
soil (which we Mothers fought before Pearl Harbor with

tooth and nail) to standing half a day in line for 1/4
pound of butter, which we can't eat - kept too long.
We mildly smiled at the "pay-as-you-go", we called it,

but when you oppress these same people - watch out!
Have you ever thought we have a War to win and you need

100% cooperation, not bitterness? Of all the dumb things
to hurt our Third Bond Drive : # * * As a good Republican,
everything this Administration is doing is going to make

it swell for us for Presidential election, but as an

American, stop before you wreck our Country beyond

repair. * #

Treasury Department

54

Division of Monetary Research
Date Oct. 5, 1943 19
To:

Mrs. McHugh

This was merely for the Secretary's

information. It calls for no action or
decision on his part.

H.D.W.

MR. WHITE

Branch 2058 - Room 2141
4

2c

55

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

FROM

Randolph Paul

OCT-1

You will be interested in the attached copy of a
letter sent to the President by Mr. Berle as Acting
Secretary of State and its enclosure, an aide memoire
from the British Embassy dealing with the question of
providing money for Italian diplomatic missions in
various neutral countries.
We received these documents from the State Department informally on September 30, 1943.

this

56

September 29, 1943

My dear Mr. President:

You will note from the attached copy of an aide memoire
from the British Embassy that consideration is being given to
the question of providing money for Italian diplomatic missions
in various neutral countries which might find themselves in

financial straits. You will further note that the British

Government is endeavoring to ascertain whether the Badoglio

Government is still able to supply funds for the upkeep of
loyal missions abroad, and that if the Italian Government is
not in a position immediately to provide needed funds, it is
proposed that we share the responsibility on a fifty-fifty
basis to furnish funds for the upkeep of these missions at
least until such time as other arrangements can be made.

According to a telegram received from our mission in
Madrid, the Italian representative in that city has already
brought up the question of receiving financial assistance.

Since in the neutral countries involved (Argentina,
Portugal, Spain, Sweden, Switzerland, Finland, Turkey, and
Afghanistan), there are also German missions which undoubtedly will endeavor, by offering financial assistance, to win
over to the side of the puppet Italian Government the Italian
missions in these posts, it is felt that as an emergency matter we should be in a position to advance funds on short
notice in the event the Badoglio Government, itself, is not
able immediately to make provisions for its loyal representatives abroad.

Efforts are being made to ascertain the availability of
official Italian funds in this country which might be used to
repay any advances made to the Badoglio Government. If
official Italian funds are not available in this country for

this purpose, it is hoped that the Badoglio Government
eventually can complete arrangements to cover these expenses
from official Italian funds on deposit in one or more of the
neutral countries involved.

In order that we may be in a position to act expeditiously in this matter in the event that it proves necessary for
us to assist Italian missions to meet legitimate expenses
until other arrangements can be made, it is suggested, if you

57

-2agree to the proposal in principle, that you authorize an
not to exceed $1,000,000, however, for this purpose, on the

allocation from your Emergency Fund of various sums as needed,

understanding reimbursement will eventually be sought through
diplomatic channels.

If you concur with the British proposal, we feel that

the Soviet Government should be informed of our contemplated

action in order that they may be in a position to offer suggestions and give their approval to the plan.
Faithfully yours,
(signed) A. A. Berle
Acting Secretary

The President
The White House
Enclosure:

Copy of aide memoire from the British
Embassy dated 25th September, 1943.

(Mr. J. Jones of the Department of State advised me that he
understood Mr. Berle had added to this letter a pen note
reading as follows:
"I have asked the boys to look into the question

of using blocked Italian assets in this country. ")

58

AIDE MEMOIRE

The question of providing money for Italian Diplomatic

Missions is likely to arise in several countries. His

Majesty's Government are trying to ascertain whether the

Badoglio Government can still provide funds for their upkeep, but it must be recognised that in the present circumstances they will probably be unable to do so.
2. It could, of course, be maintained that this was a matter which does not concern His Majesty's Government or the
United States Government, and that if the Italian Government
cannot support their missions abroad these must be withdrawn

to Italy. There would, however, be advantage in maintaining
Italian missions in neutral countries provided that they support the King and the Badoglio Government, since their withdrawal might give an opportunity to the puppet Fascist Government to secure representation in neutral countries. His
Majesty's Government therefore feel that arrangements must be
made, if necessary, for their upkeep from Allied funds. No
funds should be advanced to missions suspected of supporting
Mussolini's regime.

3. His Majesty's Government feel that this responsibility

should be shared between His Majesty's Government and the
United States Government on a 50-50 basis. They would

naturally wish expenditure to be kept to the minimum, and

British and United States representatives in the countries
concerned could advise whether the Italian diplomatic or consular staffs there could be reduced by the repatriation of
unnecessary personnel to Italy. We should also secure the
removal of any Italians suspected of Fascist sympathies.
BRITISH EMBASSY

25th September, 1943.

59

TREASURY DEPARTMENT

OFFICE OF THE SECRETARY

October 1, 1943
CONFIDENTIAL

Received this date from the Federal Reserve

Bank of New York, for the confidential information of the Secretary of the Treasury, compila-

tion for the week ended September 22, 1943, showing
dollar disbursements out of the Bri tish Empire and
French accounts at the Federal Reserve Bank of New
York and the means by which these expenditures

were financed.

ELB

60

FEDERAL RESERVE BANK
OF NEW YORK

September 30, 1943.

CONFIDENTIAL

Dear Mr. Secretary:

Attention: Mr. H. D. White

I am enclosing our compilation for the week ended
September 22, 1943, showing dollar disbursements out of the

British Empire and French accounts at this bank and the
means by which these expenditures were financed.

Faithfully yours,

L. W. Knoke,

/s/ L. W. Knoke,

Vice President.

The Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D.C.
Enclosure

COPY

-

$21.1 million

/ DA 1940 to March 12, 1941) $54.9 million

England (through June 19, 1940) $27.6 million
France (through June 19, 1940) 129.6 million

See attached sheet for footnotes.
=

-

=

=

-

-

=

M

-

-

11.5

22.5

16.661

16.6(1)

2.8

31.4
5.6

31.4

6.2

19.6
5.6

+ 1.5

- 1.8

-

-

Average Wookly Expenditures Since Outbreak of War

14.0
-

5.6

2.3
2.6

5.1

2.2

0.1
4.1

6.8

18.1

1.8

0.2

5.4

7.4

22

8.9

15
8

Sapt. 1
NEEK ENDED:

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

84.4

16.0
20.0
19.0

72.3

15.1

99.1
13.0
50.4
29.1

33.6

110.7

+

-

-

84.5

+

-

11.0

67.5

109.7
21.5

59.4

5.0

105.8
50.9

8.0

-

12.9
10.8

5.5

-

-

-

-

-

-

15.0

43.9
78.2
45.5

131.5
100.5
130.7

-

-

-

-

8.0

0.4

10.1

25.5

60.6

20.5

0.5

30.1

4.4
8.8

18.5

1,276.8

57.4

5.5

38.9

125.9
13.2

705.4

16.7

+220.1

1,098.4

878.3

10.8

561.1

14.5

274.0
108.0

+299.0

(1,095.3(f)

866.3(f)

35.0

-14.1

(d)

(e)

in $ Funds

or Decr. (-)
Not Inor. (+)

(e)

Credits
Total

Debits
Total

+

+
+

- 9.7

-

(d)

in $ Funds

or Decr.
Net Incr.(+)

BANK OF FRANCE

Confidential

Strictly

Week Ended Sept. 22, 1943

416.2
(c)

Credite
Other

3.9

tralian
Aus-

Trans: fore

18.2

11,6
74,3

-

87.4

20.7

-

22.4

16.3

-

120.8

31.7
22.7

51M
125.0

12.9
17.8

35.3
87.2

20.9

168.6

58.9
51.9

19.0

21.8

1,361.5

7.7

1,193.7

2,189.8
2,793.1

223.1
407.4

904.8

3.4

1,335.8

20.9

1,792.2
1,425.6

-

-

-

52.0

51.1

33.0
31.6
90.4

81.6

-

12.0

Account

27.4

blank

83.7

-

0.3

103.4

20.0
16.1

-

57.5

-

0.2

7.2

17.1
61.1
19.3

-

0.3
0.3

0.1

16.0
14.8

-

-

120.5

2,109.5

37.0

27.4

46.7

Oct. 1 Oct. 28

37.1

56.1

Sept. 3- Sept. 30

1,235.6 Third year of war (1)
2,203.0 Second year of war (h

-

-

2,782.3

20.9

605.6

1,793.2

Account

Total

(a)

Other

Canadian

tures

Debits
Total

(In Millions of dollars)

Official

Transfers to

2

Oct. 29 - Dec.
1942

Debits

ANALYSIS OF BRITISH AND FREICH ACCOUNTS

Dec. 3 - Dec. 30

30.4

96.6

1,166.7

BANK OF ENGLAND (BRITISH GOVERNMENT

3

35.5

1,828.2

CREDITS

Apr 1 - Apr. 28
Mar L- Mar 31
Feb, 4-Mar,
Dec.1974
- Feb,

13.3

Credits

Sales
Proceeds of

June 3- June 30
Apr. 29 June

-

Gold

78FPTHARP

July 1 July 28

-

1,356.1

(6)

July 29 - Sept. 1

2

-

+ 80.4
+

R

-

-

-

-

December, 1940

War period through

First year of war (g

ExpendiGov't

DEBITS

PERIOD

red Banks.

from New York

on
changes in all dollar holder payable on and turing in one year.

Supplies, Ltd. and $6.0 million received
in short term U.S. securities.

(6.)

1941.

9.6 Husting
8.9 million.
6.2 million.

a

orFor
monthly
tabulations
priorprior
October
monthly breakdown
see tabulations
to October al

(b)

For monthly breakdown see tabulations prior to April 23, 1941,

0.3

0.3

+

0.6

02

+

0.5

=

11.2

12.6

+

13.6

27.4

+

12.5
ZIP:

-

VA
PY

-

+

0.4
0.1
2.4
0.8

0.3

5.0

-

9.0
4.5

+

4.9

$ Randa k

Dec. (-)
(+) or

19.0
15.1

16.4

15.9
10.6

39.6

7.1

15.4

51.6

-

-

-

-

95.8
-

-

-

164.6

92.1

11.7

6.1

8.0

14.1

4.3

41.0

9.4

4.7

5.5

10.2

24.3

66.4

14.6

2.3

12.0

14.3

6.6

18.1

7.5

20.5

28.0

7.3

34.9
40.4

17.2

112.2

49.8

107.2

55.5

57.4
16.7
14.5

72.2

40.5
1.6

88.5

123.9

3.4

57.9

230.2

41.0

110.7

20.9

3.9

31.2

181.7

32.4

38.7

20.9

Debits

$$unded

A/C

A/C

62.4

43.4

6.1

30.0

36.1

27.3

Credit

Sales

Other

Gold
of

Proceeds

REDITS

Credits
Total

Debits
Other

A/C

British

official

Total

to

Transfers

DEBITS

COMMONWEALTH BANK OF AUSTRALIA (and Australian Government

Week Ended Sapt. 22, 1943

Decr (-)
(+) or
Net Incr.

-

-

-

-

-

-

-

-

-

-

360.0

Credits
Other

7.7

-

For French

For Own

30

June

2

39 - June

29.0

28

101.2
217.1

35.1
52.5

2.9
14.4
16.6

43.9
80.8

48.2

51.5

44.9

13.2

53.6

46.3

198.6

566.3

525.5

412.7
Sales
Gold

462.0
707.4

29.0

-

-

-

-

-

-

0.3

460.4
460.6

306.4
Credits Debits
Total
Others
504.7

Proceeds

(In pillions or Dollars)
ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS

44.9
46.3

British

Official

3

3

Feb. 4 - Mar

Dec.
-Feb.
59.9

Dec. Dec. 30
Oct. 29 - Dec.
Oct - Oct. 28

2

Sept. P Sept. 30
Third year of war (c)

460.4

Second year of war(b

323.0

A/C

Apr.

525.8

16.6

Transfers

BANK

48.2
56.5

477.2

DEBITS
OF

52.5

1 - Apr.

Mar. Mar. 31

36.2
35.1

16.6

to

CREDITS

CANADA (and Canadian Government)

-

-

56.5

of

British A/C
Transfers from Official

Sept. 1
July 28

139.1
102.1

36.2

246.2
534.8

Sept.

53.8
79.9

79.9

-

1

102.1

95.8

-

125.0

-

42

53.8

39.6
51.6

-

31.00

-

1

22

15

77.2

61.8

-

-

16.2

50.1

Strictly

-

8.0

62.9

139.1

8.5

-

8.2

18.3

Confidential

61.6

77.2

6.3

12.3

Net Inor.

40.3

23.4

2.8

81.2

84.7

M

17.3

-

12.1

77.0

19.2
20.0
21.8

16.0
20.0

12.1

0.2

63.

-

95.0

54.4

20.1

27.6

19.9

66.1

-

18.1

+

3.2

13.8

+

15.9

-

14.6

+

9.9

-

12.5

11.0

8.0

5.0
15.0

9.4

-

2.8

22.9

13.0

0.1
4.1

2.1

-

11.7

-

27.4

15.7

0.9

9.9(c)

9.9

13.0

8.4
23.5

0.9

-

17.3

+

0.9

14.0

4.5

16.0

-

16.0

+

1.1

12.6

0.1

6.7

6.7

-

1.7

19.3

19.3

+

0.5

and

20%

2.9

0.1

22.

tures

7.70

7.26

2.2

0.3
0.2

27.3

-

6Y

-

-

15.2

-

1943)

Debits
Total

December, 1940

- perford through
First year of war (a)
PERIOD

for U. S. Army and $1.0 million for the U. S. Navy).
chandise exports and $7.0 million to be held for credit of the U. S. armed forces abroad ($6.0 million of this amount was

Includes $7.4 million apparently representing current and accumulated dollar proceeds of sterling area services and mer-

(j)

(1) For monthly breakdown see tabulations prior to October 14, 1942.
(h) For monthly breakdown see tabulations prior to October 8, 1941.

(g) For monthly breakdown see tabulations prior to April 23, 1941.
(f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(e) For breakdown by types of debits and credits see tabulations prior to March 10, 1943.
(d) Reflects net change in all dollar holdings payable on demand or maturing in one year.
receipts.

apparently represent current acquisitions of proceeds of exports from the sterling area and other accruing dollar
1939 presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
(c) Includes about $85 million received during October, 1939 from the accounts of British authorised banks with New York banks,
of our securities through December, 1940 amounted to $334 million.
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation According
early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy.

selling, substantial liquidation of securities for private British account occurred, particularly during the

proceeds to the official official British sales of American securities, including those effected through direct negotiation. In addition
(b) Estimated of figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the

Control, and Ministry of Shipping.
(a) Includes payments for account of British Ministry of Supply Mission, British Supply Board, Ministry of Supply Timber

64

NOT TO BE RE*TRANSMITTED

BRITISH MOST SECRET.

COPY NO

13

U.S. SECRET

OPTEL No. 323

Information received up to 10 a.m. 1st October 1943
1. NAVAL

HOME VATERS. Early 30th our light forces engaged R boats in the
channel.

One R boat set on fire, one of our motor gun boats slightly

damaged.

NORTHERN EATERS. Special small submarines have attacked

TIRPITZ in Alten Fjord. No definite information available regarding
attack but photographic reconnais ance shows small ship secured alongside
TIRPITZ and sea in vicinity appears covered with oil. SCHARNHORST has
moved her berth.

ITALY. A channel has now been swept into Castellammere.
2. MILITARY.

ITALY. No fresh information received.
CORSICA. German bridgehead now reduced to a strip on East

coast from Brando on Cape Corse to a point 20 miles south of Bastia.
French troops engaged with German rearguards in mountain passes West
and South West of Bastia. Enemy evacuation almost completed.
RUSSIA. In Mogilev area Russians have crossed River Sozh and

taken railway centre of Krichev (55 miles East North East of Mogilev.).
They have also advanced 6 to 8 miles opposite Gomel.
3. AIR OPERATIONS.

WESTERN FRONT. 29th/30th. 1318 tons were dropped on Bochum.

30th. Typhoons sank a lighter and seriously
damaged a 1200 ton ship and a coaster off Dutch coast. Beaufighters
left a 2000 ton ship on fire off Norwegian coast.
DODECANESE. 29th. Landing grounds on Kos attacked by 18 and

23 escorted Ju 88. Enemy casualties 1.1.1. Both landing grounds
probably unserviceable for several days. An emergency landing strip is
in use.

65

October 2, 1943
9:55 a.m.

Randolph
Paul :

Wasn't very long.

HMJr:

All right.

P:

Here's Fred.

Fred

Smith:

Hello.

HMJr:

Fred, what happened at the White House?

S:

Miss Tully has the speech

HMJr:

Yeah.

S:

HMJr:
S:

HMJr:
S:

....and she has not yet, as far as we know,

has not yet delivered it to the President.
Well, did you give her the latest?

We got the latest one over there, yes. And Gaston
called her and she didn't want to wait to get it
but she said that if we would send it over and
put it on her desk
Yeah.

.... she would get it the first thing this morning

and get it to the President.
HMJr:

I see.

S:

And all that's been done.

HMJr:

Good.

S:

All right.

HMJr:

No thing's happened since then?

S:

No thing has happened since then except I've lost
my voice.

HMJr:

Uh huh. Who have you been shouting at?

S:

Nobody anymore.

-HMJr:

Well, there isn't much use in my going up on the
Hill. The New York Times has the whole story.

S:

Really?

HMJr:

It was a wonderful idea of Doughton's to bring

S:

Ah.

HMJr:
S:

these fellows down here.

They've got it to the last detail.
Is that right?

HMJr:

Yeah.

S:

Huh.

HMJr:

66

Well, let me talk to Paul as long as he's in a

hurry.

All right. Then I want to mention something

S:

-

HMJr:

Randolph

else to you when you're through.

All right.

Paul:

Hello.

HMJr:

Yeah.

P:

You're right, the New York Times has most of the
story.

HMJr:

Yeah.

P:

Anti-climax.

HMJr:

Well, is it all set that we lower the exemptions?

P:

Yeah.

HMJr:

I see.

P:

It's all set that we lower the exemptions.
I never agreed to it, but I don't suppose that....
Of course, that -- that's dependent on the post -of having a post-war credit and also on eliminating

HMJr:
P:

-3 P:

Cont'd.

the Victory tax.

HMJr:

I say, I never agreed to it, but that's not

67

important. Well, anyway

P:

Well, that was mentioned over at the conference

at the President's.

HMJr:

I know.

P:

In fact, I fought the exemptions up higher than
the others wanted them.

HMJr:

Yeah. You say you wanted to ask me something?

P:

No, I -- I -- of course, I want to get the

decision on this post-war reserve as soon as
possible because all the schedules have to be
inserted, and
HMJr:
P:

Yeah.

all that sort of thing, but there's no thing

we can do about that now.
HMJr:
P:

That's right.
Uh -- uh -- we have -- we have -- I don't know

whether -- how you want some of the details of

this explained, whether you want it to be in

response to questions or whether you want another
statement, or what.
HMJr:
P:

Well, I'm counting on you to explain the details.
Well, I mean have you any ideas on whether it
should be done in a formal statement or just in
response to questions?

HMJr:

I think in response to questions.

P:

All right. Wait a minute. (Aside: You got any

HMJr:

I'm coming in, the weather permitting, late Sunday.
I'm counting on seeing you, Blough and Smith. I
wish you'd keep it open for me.

P:

Sunday evening?

)

-4HMJr:
P:

68

Yeah.

All right. I don't know whether you want to go
into some of the details of corporate relief. We
want to come out against reserves and in

HMJr:

I've even got this in mind, I may want Blough and
Smith to fly up and then come back with me if

they'd be willing to do that.

P:

You mean -- when -- today?

HMJr:

Sunday.

P:

Sunday?

HMJr:

Yeah.

P:

HMJr:

Well, I'm sure you'll be in agreement with our
fight against reserves and our very limited relief
to corporations but we haven't been over all of it.
Well, if I had an hour and a half or two hours with
Blough, we could cover a lot of ground.

P:

Well, you don't want to make those arrangements now?

HMJr:

No, because the weather is so uncertain.

P:

HMJr:

Oh, I see.
But I

P:

Well, I -- I don't have much doubt that you'll agree
with all these things and most all of them -- most
every one has been talked over. We have the station
ary income relief.

HMJr:

My God, a woman postmistress, R.F.D., just arrived.

I've never seen that before.

P:

Oh really? Well, they're getting -- I mean women
are getting in everything now.

HMJr:

That's nothing new.

P:

Well, I think sometimes it's around the other way.
Well, I don't know any more now. We're just waiting

for this file

-5--

HMJr:

Well

uh -- word.

P:

HMJr:

69

you know that we've put all the pressure that
we could onto the President through Grace Tully.

P:

Yeah.

HMJr:

And what he will do, I don't know. I do wish -I don't know what the memorandum of Rosenman's

said but those last two pages on Social Security,
going to say that.
I want to make damn sure the President knows I'm

P:

Yeah.

HMJr:

Did Smith hear me?

Fred
Smith:

Yeah.

Randolph

Paul:

Yeah, he heard.

HMJr:

And for the benefit of everybody, Mrs. Morgenthau
has read Smith's statement and she thinks it's

brilliant. And she said that that's the closest -she's always

P:

Will you speak a little louder? The boys can't hear
some of this.

HMJr:

Mrs. Morgenthau thinks the statement is brilliant,
and that she

P:

(Aside: Take a bow, Fred.)

HMJr:

What?

P:

Fred -- Fred's taking a bow.
And that that is the approach that she always

HMJr:

wanted me to take before Congress and never could

P:

HMJr:

get me to do it that way.
Well, maybe she's right.
She said that the statements I have given heretofore,
a handful of tax experts could understand it, but
nobody else.

-6-

P:

Yeah?

HMJr:

She is very enthusiastic as to the approach.

P:

Yeah.

HMJr

I mean, as to the approach, she is most enthusiastic,

which bucks me up.
P:

Yeah.

HMJr:

Yeah.

HMJr:

And

P:

Uh

HMJr:

... what Bell told me about the attitude of Byrnes and

Vinson at Cabinet, is 80 typical.
P:

HMJr:
P:

HMJr:

Oh, I didn't hear that story.
Well, I'11 let him tell you.
All right.

I don't want to tie you up but I'll tell you, if

you, Randolph, and Blough and Smith would be in

touch or let the telephone -- my operator know

where you are
P:

Yes.

HMJr:

....as soon as I make up my mind how I can get

P:

HMJr:

back, I'll be in touch with you.
All right.
And -- uh -- I think what Smith ought to do is to
tell Miss Carre that if anything comes from Grace

Tully on this thing, that they should get in touch

with him. Also, Mrs. McHugh and also my front
office, so everybody knows that he is waiting.
P:

Yeah.

HMJr:

And as soon as he knows, if he will whisper it to
me, I'd appreciate it.

P:

All right. Now, Fred said he wanted to say another

word to you.

70

-7 HMJr:

Now, on the Judge Hand thing, he's coming to
see you?

P:

He's probably there now. Yeah.

HMJr:

And you're having Frederic Delano in

P:

HMJr:

Yes, I am. That's all been arranged.
Well, would you tell Judge Hand I'm sorry I'm
not there and please tell him I appreciate his

kindness?
P:

Of course, I will.

HMJr:

Thank you.

P:

Do you want Fred now?

HMJr:

Yeah and you can -- you'd better go back

P:

All right.

Fred
Smi th:

Hello.

HMJr:

Yes.

S:

We just got a flash from the White House. The

speech has gone -- the new speech has gone to
Mr. Roosevelt.
HMJr:

The what?

S:

The new speech has gone to Mr. Roosevelt now.

HMJr:

I see.

S:

So he's got it. Now, there's one other thing

HMJr:

Wait a minute. Who did the flash come from?

S:

Miss Brady just called Fitz.

HMJr:

Yeah.

S:

And we just checked up -- I had Fitz check up
this morning to make sure that Miss Tully got it.
See, she was gone.

71

-8 HMJr:

Yeah.

S:

And then Miss Brady just now called back and said

72

that she not only got it but she gave it to the

President.
HMJr:

Oh.

S:

So, that's that. We're that far along.

HMJr:

Right.

S:

Now, the one other thing that I want to just ask
you about. I don't know whether you want to do
anything

HMJr:

Wait a minute.

S:

All right.

HMJr:

In case you are talking to her at any time, her

name is Mrs. Brady.
S:

All right, Mrs. Brady, then. All right?

HMJr:

Her name was Dorothy Jones, now Mrs. Brady.

S:

All right, Mrs. Brady, nee Dorothy Jones. All right?

HMJr:

Yeah.

S:

Okay.

HMJr:

Now, listen. As a publicist, public relations

S:

Yep.

etc., etc

HMJr:
S:

Yep.

HMJr:

do you think it's good or bad for the Treasury
that the whole damn thing has leaked out in the
papers?

S:

I don't know. I don't know. I -- really I don't

know.
HMJr:

What have I got you for? That's my position. That
doesn't help me any.

73

-9S:

I know, but you've got to give me a few minutes.

Itodon't
-- my first hunch is that it isn't going
be so bad.

HMJr:

Yeah.

S:

There are two reasons why I think it may not be

so bad and one of them is that -- that if it
didn't, then all of your publicity after you make

the speech would simply be on -- would be inclined
to be just on the plan. Now, you may get some

publicity on the rest of the speech. That's just off
of the top of the head. I don't know whether that's
what's going to happen or not.

HMJr:

S:

Well, of course, one thing that bothers me is that
it gives the Republicans four or five days to prepare
an answer.

That's right. That's right if they dare -- well, of

course, they had that -- they had that opportunity

as soon as those leaders were over here the other

day.
HMJr:

Yeah, but I mean -- I mean, they've been able to
work on an answer since then.

S:

Yeah.

HMJr:

And get together.

S:

That's right. But that wasn't because it came out

in the newspaper. They probably had a caucus five
minutes after they got back.
HMJr:

Yeah. What a lovely voice you have!

S:

I think that I'm going to be a man soon. (Laughs)

HMJr:

You sound like Henry Aldrich.

S:

(Laughs) All right. Mother! Well, that -- the

one thing that I wanted to ask you about was this
HMJr:

Yes, Henry.

S:

You remember you were always talking about poor
corporations that were going to go "bust" when
the war was over.

- 10 -

HMJr:
S:

74

Yeah.

I wondered if there was anything you wanted to say

in the text of the speech. You couldn't say anything

HMJr:

about your taxes because it hasn't been done. -- anything to the effect that -- that such corporations
are a matter of concern to several Departments of the
Government, not only the Treasury, and that the taxes
might -- that there might be some tax operations involved and if that is the case, sometime after this
tax bill has gone through, that you may ask for some
sort of a revision or something. It would just be
paying. lip service
I have that very much in mind.

S:

Huh?

HMJr:

I have it very much in mind.

S:

HMJr:

All right.
And I'd also throw in that particularly for the
smaller corporation.

S:

For the what?

HMJr:

For the little fellows.

S:

Yeah. Well, we've got -- we say in the actual tax
business there that we need special treatment for

the little fellow. But I don't think any treatment

has been thought of in connection with this particular
tax bill for the other people so you just have to make

words about them.
HMJr:
S:

HMJr:
S:

That's all right.
All right.
I'd throw it in.
Oh. Well, Blough says I'm crazy 80 I will find out

what they ve done.
HMJr:
S:

All right.
Well, I'll write you a paragraph and the next time
you call up, I'11 have something for you. All right?

- 11 HMJr:

All right.

S:

Now John L. Sullivan wants to talk to you.

HMJr:

All right.

John L.

Sullivan:

Good morning, Mr. Secretary.

HMJr:

Good morning.

S:

Uh -- the arrangements have been made for you to

75

appear before the three House Committees Tuesday

afternoon at 4:00 o'clock.
HMJr:

Good.

S:

I'm trying to get a hold of Barkley. I tried all

yesterday afternoon and this morning and I -- what
I had in mind was 10:30 Tuesday morning.

HMJr:

Oh-h-h. The same day?

S:

Yeah.

HMJr:

Gee, did you want to kill me?

S:

Well, you asked for it.

HMJr:

No, I gave -- now which day do I appear before
the House?

S:

Tuesday afternoon at 4:00 'clock.

HMJr:

And when do you want me to go before the Senate?

S:

HMJr:
S:

Well, I -- it doesn't make any difference to me
when you go before. I thought you wanted to get
it out of the way in a hurry.
What day did you suggest?

I haven't suggested any date because I haven't been

able to get a hold of Barkley.
HMJr:

No, I thought you said 10:30.

S:

I said I was planning to suggest to him 10:30.

- 12 -

HMJr:

On what date?

S:

Tuesday.

HMJr:

Oh, I think I'd make it Wednesday.

S:

All right. I will. Now, suppose if for any

HMJr:

Yeah, if it has to be, but I don't see why they

S:

HMJr:
S:

HMJr:

76

reason I can't get those three committees on
Wednesday, it will have to be on Tuesday?

can't do it Wednesday. They've got no thing on.

Well, it depends on whether they have or not. You
see, I haven't talked with the chairmen of those
three committees over there, because I haven't
been able to get a hold of Barkley.
Well, now, what's the name of the clerk up there?

Les Biffle.

Yeah. If you can't get him do it through
Colonel

S:

Halsey?

HMJr:

Halsey.

S:

Well, I mean -- you see, I have to talk with the

Chairman of each of the three committees anyway.

HMJr:

Yeah, but why not do -- why not go up and see
both Halsey and Biffle today?

S:

Well, I'11 be glad to do it -- I mean

HMJr:

And then sit in Halsey's office and you can do

S:

Well, I (Laughs) -- That isn't the way these

it right from there. He'll help you.

fellows like it. They like to be called personally,
the chairmen of the committees.

HMJr:

S:

I mean you can call them right from up there --

I mean -- what -- look, I don't want to let this

thing go until Monday. See?
No, I understand that and I'm planning on doing it

this morning. I'm just asking you as to which time
you wanted it. Now, as I understand it, you want
it Wednesday.

77

- 13 HMJr:

S:

That's right, but I mean if you can't -- what I'm
trying to get over 18 that if you can't get Barkley,
I'd try to consult Biffle and Halsey.
Well, I planned if I didn't get Barkley to get
right a hold of George, Connally and Wagner direct.

HMJr:
S:

It's all right with me.
That's the way they like to do it and that's the

way I've planned to do it in the House and Rayburn
suggested that I do it in the House.
HMJr:

Well, I asked you to do it because I knew you'd do

S:

Well, thank you. I'll try to.

HMJr:

All right.

S:

The Postmaster General cleared Delano yesterday as

it well.

well as Hannegan.
HMJr:
S:

Good. Good.

Incidentally, Randolph Paul's father died this

morning.
HMJr:

Well, does he know that?

S:

Does Randolph know it?

HMJr:

Yeah.

S:

Yes, he does.

HMJr:

Well, I'd like to say something to him.

S:

HMJr:
S:

He's in his own room now.
Oh, thank you.

All right.

HMJr:

I'm glad somebody told me that.

S:

Dan is here and Harry and Roy. Do you want to

talk to him.

HMJr:

Is Paul very much upset?

- 14 -

S:

HMJr:*

No, he seems to think it's a relief. His father

was a -- an invalid.
Oh. Well, I'm sorry.

S:

Muriel has gone up there.

HMJr:

All right, I'll talk to him.

S:

Anybody else here you want to talk to?

HMJr:

No. Not unless they want to talk to me.

S:

Okay. Good bye, sir.

HMJr:

Hello.

S:

Yeah.

HMJr:

I think I'm going to call up and ask Dorothy
Brady what's going on. I'll let Smith know.

S:

All right. Bye.

HMJr:

Bye.

78

79

October 2, 1943
10:15 a.m.

(Dictated by the Secretary)

I just finished talking to Mrs. Brady, and she told

me that she had not yet taken my tax statement to the
President. I asked her whether she wouldn't do it as soon
as possible, and would she please be sure to call the

President's attention to the last two pages on social
security as I wanted to be sure that that is what he
wants.

I told Mrs. Brady that I was going up on the Hill
Monday morning, and I asked her when she thought I would

hear from the President. She said, "Oh, I will have to

tell him that because I don't know whether he knows that." If

She said that she didn't think I would hear until Monday
morning, so I said, "Well, I am going to be back in
Washington on Sunday night, and I hope that you will let

copies to:

Mr. Paul
Mr. Smith

h

me know not later than Sunday night.

80

1943 OCT 2 AM 7 33

W5 (FIVE) 25
ZHWUT NEWYORK NY 642P OCT 1 1943
THE HONORABLE HENRY MORGENTHAU JR SECRETARY OF THE TREASURY
US TREASURY DEPT WASHN DC

THANKS VERY MUCH FOR YOUR WIRE TO RACING'S WAR BOND DRIVE. IT
WILL PLEASE ALL OF THE FIFTY THOUSAND PEOPLE WE WILL HAVE
THERE. REGARDS

HERBERT BAYARD SWOPE.

731A OCT 2 1943.

TANDARD FORM No. 14
APPROVED BY THE PRESIDENT
MARCH 10. 1926

TELEGRAM

FROM

BUREAU

Suy theHaston
81

CHG. APPROPRIATION

War Finance

OFFICIAL BUSINESS-GOVERNMENT RATES

October 1, 1943

Herbert Bayard Swope
745 Fifth Avenue
New York, N. Y.

Please express my thanks and congratulations to the racing

associations in New York for their generosity in sacrificing
admissions to Belmont on Futurity and Gold Cup Day tomorrow to

promote the sale of War Bonds and for their patriotic energy in

obtaining in lieu of admissions subscriptions from individuals
for War Bonds, which I am informed will reach the great total

of approximately twenty-five million dollars. This is an
extremely gratifying climax to the magnificent work done by the
War Finance Committee in the State of New York and a tribute to

the patriotism of the racing enthusiasts.
Henry Morgenthau, Jr.

Secretary of the Treasury.

82

LEND-LEASE ADMINISTRATION
WASHINGTON D. C.

E.R.STETTINIUS,JM
ADMINISTRATOR

October 2, 1943
Dear Henry,

Your kind note of the 28th has just
reached me and I appreciate from the

bottom of my heart the sentiments con-

tained therein.
Your support and your confidence
mean much to me and I am looking forward

to the closer association that my work
at the State Department will make possible.
With my best wishes always,

E

Sincerely yours,

The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.

83

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

AA

DATE October 2, 1943

Secretary Morgenthau

TO

Mr. White

FROM

HDW
Subject: Treasury Position on Negotiations with ExiledGovernments concerning use of their currency for
military operations.
With reference to arrangements with the exiled govern-

ments for the use of their currency in connection with military operations in their countries, the Treasury proposes
that if regular local or refugee currency is to be used
during the period of military control, the following conditions should prevail:
1. The currency is to be made available in such
amounts and at such times as the American and British
Forces consider necessary and the local governments will

not question the requests of the Allied Financial Officers;
and

2. Any determination or negotiation as to who shall
bear the financial costs resulting from the use of such
currency including what adjustment, if any, shall be made

between the American and British Governments on the one
hand and the governmen t-in-exile on the other with respect

to the currency will be deferred until after the area is

completely liberated and at a time mutually satisfactory to
the Governments of the various countries concerned. Careful records will, of course, be kept of all expendi tures
of the funds.

We do not feel that it is necessary or desirable to
discuss now such difficult questions as are obviously inherent in any discussion of the ultimate settlement of
expenditures involved in these military operations. We
feel that the question of final settlement for the currency
can best be dealt with in connection with the overall
settlement between the countries involved, and that such
settlement may then be made in terms of all the facts
available at the conclusion of the operation. Moreover,
it should be pointed out that any attempt to agree upon a
provisional settlement will merely provoke discussions of
other items of settlement. Further, in this country the
Congress will feel that it must be consulted in connection
with ultimate terms of settlement and objections may be

84

-2-

Division of Monetary
Research

made of any financial arrangements that prejudice the terms
of the final adjustment.

The British Treasury representatives are of the opinion
that we should, in the negotiations with the friendly governments, make a commitment that we would repay in local currency
sums expended in the area for the pay of Allied soldiers when
such pay had been advanced out of currency made available by

the friendly governments, and that against this accepted obligation would be offset such items as might be involved in an

over-all financial settlement. In spite of the fact that it
is the determined policy of our government to pay the wages

of our own soldiers in friendly countries, this suggestion is
considered to be undesirable because:

1. The governments may be more disturbed with this
commi tment than wi thout it since the commitment with respect
to the pay of soldiers implies negatively that there is no
intent to assume any obligations with respect to other disbursements such as supplies, billets, etc.
2. If we agree with respect to one item, we may be led

into discussion as to the eventual status of other items of

expenditure.

We therefore favor the acceptance and use of the currencies of the Governments-in-Exile and/or A.M. Currency under
the conditions set out on the covering page of this memorandum,

to the effect that any discussions concerning the financial
costs arising out of the use of such currency shall be
deferred to a future post-liberation date. If the State
Department agrees with us, we intend to inform the British
Treasury representatives who will thereupon transmit these
views to the British Treasury for consideration. The British
representatives have indicated that their Treasury people in

London seem to be divided on the question of whether we should
enter into any commitment on the use of friendly government
currencies. If, however, the State Department does not agree
with our views expressed herein and favors the British sugges-

tion, then we are prepared to accept it and carry out discussions with the governments on that basis.

85
Treasury Department

Division of Monetary Research
Date

11/2/83

To: Mrs. McHugh

These are copies of acknowledgments

of the letters to the finance
ministers sent out in September.
We are following the same procedure

on these as we did OR the April
acknowledgments.
ka

MR. WHITE

Branch 2058 - Room 214)

86

GOUVERNEMENT DU GRAND-DUCHE DE LUXEMBOURG

CABINET DU MINISTRE D'ETAT
PRESIDENT DU GOUVERNEMENT

MONTREAL
QUE.

September the Twenty-Ninth
1

9

4

Sir,

I take pleasure in acknowledging receipt

of your letter of September 14th with the revised draft of
the tenative proposal for an International Stabilization
Fund.

It is my firm belief that the revised
proposal will bring us nearer to the international monetary
co-operation so desirable and so necessary.

Accept with my best thanks for your ex-

pressed willingness to keep me fully informed of further
developments in the matter, the assurance of my highest
consideration.
s/ Pierre Dupong
Pierre Dupong

Mr. Henry Morgenthau,

Secretary of the Treasury,
Washington, D. C.

3

87

LEGATION OF ICELAND

WASHINGTON, D. C.

September 30, 1943

Sir:

I have the honor to refer to your letter
of September 14th, and wish to confirm the

receipt of a preliminary draft outline of a proposal for an International Stabilization Fund of
the United and Associated Nations.

I wish to express my appreciation of
being kept informed of the developments in this

matter.

As in previous cases, this information
will be forwarded to the Iceland Government and I
shall be pleased to revert to the matter when I

have received my Government's proposals and views.

Sincerely yours,
s/ Thor Thors
Thor Thors

Minister

The Honorable

Henry Morgenthau, Jr.

Secretary of the Treasury
Washington, D. C.

88

TRANSLATION

REPUBLICA DE PANAMA
MINISTERIO DE HACIENDA Y TESORO

No, 368-dav

PANAMA, September 24, 1943.

Excellency:

I am pleased to acknowledge receipt of your courteous
letter of September 14, in which there was enclosed the

revised draft outline of a proposal to establish an
International Stabilization Fund.

With my kindest thanks for your interest in keeping
us informed on this important plan, I am pleased to
remain,

Very truly yours,
(Signed) Jose A. Sosa J.,
Minister of Finance and Treasury.

His Excellency,
Mr. H. Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.

JASJ:DAV

89

COMMONWEALTH OF THE PHILIPPINES
DEPARTMENT OF FINANCE

October 2, 1943.

The Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.

My dear Mr. Secretary:-

I acknowledge receipt of
your letter of September 14, 1943, and
thank you for the enclosed copy of the
Revised Preliminary Draft Outline of a

Proposel for an International Stabilization Fund of the United and Associated

Nations.

May I assure you, Mr. Se-

cretary, that it is the policy of my

Government, in this as in other matters,
to be closely identified with the views
of the United States Government in ques-

tions of international scope.

Yours very sincerely,
s/A Soriano

Lieutenant Colonel A. Soriano,
Secretary of Finance.

90

MINISTER OF FINANCE
CANADA

Ottawa,

September 29, 1943.

Honourable Henry L. Morgenthau, Jr.
Secretary of the Treasury,
WASHINGTON 25, D.C.

My dear Mr. Secretary,

I wish to thank you for your letter of
September 14 outlining the progress which has been made

in the exploratory technical discussions on the international stabilization fund plan, initiated by your
letter of March 4 last to the Finance Ministers of the

United and Associated Nations. I am glad to have the
revised draft of this plan prepared by your experts
following the discussions with the experts of other
countries, and to know that you intend to keep me fully
informed of further developments in connection with the
proposal for international monetary co-operation.

I am also glad to learn that the contri-

butions to the discussions made by the Canadian experts
were helpful to you and your associates, and to know that
you were able to embody a number of their suggestions in

the revised draft. You may be interested to know that
they reported to me in the highest terms on the character
of the discussions in Washington, on the technical competence of your advisers and on the frankness, the
patience and the co-operative spirit which they displayed throughout.

May I express the hope that the leadership which you and your advisers have shown in this im-

portant and, to my mind, basic field of international

collaboration will be rewarded by the consummation, at
not too distant a date, of an international agreement
generally satisfactory to all the United and Associated
Nations and as a result providing a stimulus to the development of other forms of co-operation amongst the

nations.

Sincerely yours,

s/ Lisley

91

TELEGRAM SENT

October 2, 1943

DM

This tologram must be
paraphrased before boing

1 p.m.

communicatod to anyono
othor than C. Governmental

agency. (BR)
ANLEGATION
CAIRO

1456

FOR GUNTER FROM TREASURY

Mikosoll has loft for Algiers and will be in Cairo
within C fow wooks. You should make plans to moot

him there. Moro specific information will be cablod
later.
Report to Jidda.
BERLE

(Acting)
(FL)

FD:FL:PAK

92

PLAIN
TJP

Chungling via N.R.
Dated October 2, 1943

Rec'd. 3:45 p.m.

Secretary of Stato
Washington

1847, 2nd

Following published by Contral Nows Agency Chungking Octobor 1: "The Chinoso Government would uso two hundred

m llion of the US dollars fivo hundrod million loan to buy
and bring gold horo for the purposo of combating inflation
and stabilizing prices: said Dr. P. H. Chang, Counsellor
of the Exocutivo Yuan at the pross conference hold on Soptembor 20.

Askod how t 0 gold will b. used, Dr. Chang roplied that
the Ministry of Finance will doviso ways and moans which
however cannot vot be told.
A corrospondent asked Dr. Chang "whon peoplo horo are

just as roady to buy gold savings certificates and gold
onds why should gold be actually imported at all?" Dr.
Chang replied that there may o some pooplo who prefor to
have more tangible things than bonds and certificates.
The same correspondent raised another question as follows:
"In view

93

-2- 1847, October 2 from Chuncking via N.R.

"In viow of the difficult transportation, don't you think
that the available airpland space should bo bottor used for
carrying ammunition which has a direct bearing on your war

offort?" In reply Dr. Chang said, "To combat inflation and
to stabilizo prices is also to strongthon our war cffort
for sound economic conditions insido tho country are as
important as supplies of arms to our fighting forces. 11
Whon the same correspondent pointed out that whoroas

gold is bought in America at US dollars thirtyfivo or
CN dollars sevon hundred por ounce, it is sold in China
for much more than CN dollars sovon hundred per ounce and

thorofora it sooms that the Chinoso Government is making

profit, Dr. Chang comphatically declared that that is a
wrong concoption. In this war, ho and d, WO Unitod Nations

must not calculato profit and loss in dollars and conts;
it is cooporation and mutual cid which will bring about

the final victory that really counts. Ho askod if, by
solling gold, the Unitod Statos can help China most, why
she should not do so. Ho further cont ndod that sinco

the provailing price for gold in Now York is US dollars
thirty fivo por ounco and China pays it, thoro is no loss

on the part of the sollers at all."
GAUSS
MRM

94
OF TREASUN AM 921

COPY NO. 13

193 OCT TREASURY is

NOT TO BE RE-TRANSMITTED

BRITISH MOST SECRET
U.S. SECRET

OPTEL NO. 324

Information received up to 10 A.M. 2nd October.
1. NAVAL

HOME WATERS. 1st/2nd. U.S. Tank Landing Craft

sunk by enemy coast batteries in Dover Straits.

MEDITERRANEAN. 30th. A Tank Landing ship sunk

and French Destroyer slightly damaged in enemy air raid on
Ajaccio.
2. MILITARY

ITALY. 8th Army. On 29th patrols in contact with

enemy five miles North of Serra Capriola at Castelnuovo and
along Volturara - S. Bartolomeo Road.

5th Army. On 30th United States troops
completed capture of Avellino. During night 30th/lst enemy
evacuated Naples which was occupied by British troops at 0800
1st. No indications of disease or disorder. With improved
weather, unloading over beaches in Gulf of Salerno has
recommenced.

3. AIR OPERATIONS

WESTERN FRONT. 1st. 20 locomotives and a

transformer station in Northern France damaged by fighters.
1st/2nd Aircraft despatched - Hagen (Eastern Ruhr) 251 (2
missing) Witten (near Hagen) 12, Intruders 21. Good
concentration of bombing reported at Hagen although markers

were scattered at first.
ITALY. 29th. Lightnings (P 38) dropped 11 tons

on Ausonia Defile (13 miles Northeast of Gaeta) and Mitchells

(B 25) dropped
196 tons on North and Northand in Benevento

dropped 74
easttons
of Naples
roadsand
area.
and targets
bridges 29th/30th.
on roads
other
at FormiaWellingtons
(45 miles

Northwest Naples). 30th, Nearly 300 tons on communications
in Naples and Benevento areas by medium and fighter-bombers.
CORSICA. 29th. French Spitfires destroyed 6

enemy aircraft off Bastia,

95

NOT TO BE RE-TRANSMITTED
BRITISH MOST SECRET
U.S. SECRET

OPTEL NO. 325

1. NAVAL

13

COPY NO.

Information received up to 10 a.m. 3rd October, 1943

Mediterranean On first port parties arrived Castellamere and

Torre Annunziata where demolition is widespread. By afternoon 2nd a approach
channel had been swept and established at Naples.

2. MILITARY

Italy 8th Army On 1st SERRA CAPRIOLA was taken.

5th Army Further progress was made on 2nd. United States
Force captured BENEVENTO. United Kingdom Forces captured Nola and Afragola

(15 miles and 8 miles North East of Naples.) Damage to port of Naples is
extensive. Although not as bad as anticipated. 1 water reservoir intact which
should just meet needs of population.
CORSICA German bridgehead on Northeast of island has been further
reduced. More than three-quarters of German forces now evacuated.
RUSSIA 2nd Russians advanced towards MOGILEV and GOMEL and

improved their positions in Taman peninsula.
NEW GUINEA Australian forces have captured Finschhafen.
3. AIR

Western Front 1st/2nd 1104 tons dropped on HAGEN. 2nd 337
escorted Fortresses (B.17) (2 Fortresses missing) dropped 901 tons in attack

on EMDEN by blind bombing in cloud. Mustangs (B51) damaged 11 locomotives in
Northern France.

Aircraft Despatched

2nd/3rd

MONICH 296 (8 missing and 1 crashed in United Kingdom),

sen-mining 118 (1 missing)

9

GELSENKIRCHEN and COLOGNE, 8; lonflets, 21; Intruder, 30;

anti-shipping, 10.
Visibility at MUNICH good and operation "satisfactory"

12 enemy aircraft flew over Eastern England and 6 minelayers off HUMBER.
1 Ju.88 crashod in sea.
AUSTRIA and South GERMANY 1st 186 tons dropped at WEINERNEUSTADT by 92

Liberators (B24) operating from North West AFRICA. 14 Liberators missing.
An attack on AUGSBERG WGS abondoned owing to bad weather, but 29 aircraft
bombed other targets Southwest of MONICH.

CORSICA 30th 5 enemy aircraft destroyed by French Spitfires (1 missing).
ITALY 30th/1st 60 tons on coast road at FORMIA near GAETA
by Wellingtons
(1 missing).

1st Operations restricted by bad weather. Targets in Benevento
area attacked by 24 medium bombers.

202 Wd ty 100 £961
OOIS

about # /

96

MEMBERS OF CONGRESS:

We are faced with the very serious problem of creating new
tax program for the American people that is fair and equitable,
that will raise a substantial amount of money for the war, that
will tap what excess or inflationary funds may be endangering our
economy, and that will not over-burden the average American taxpayer.

future to

Probably never before have there been so many vital consider

ations in any proposed tax program. And because we are dealing in
-such astronomical figures, never before has there been such a

possibility of unfortunate injustice.

in our eagerness to

connect
raise additional money for financing the war, we were overlook
the practical consideration that there is a point beyond which the
working man cannot deduct from his pay envelope and still keep his

4fth his the business mashes a custom pount, has

family connet maintain a standard of living conducive to good

health, and to sound morale, and to the necessary high production

in the war plants, meet tax likes
I am telling you this to emphasize the fact that the Treasury
Department knows these problems exist and must be met. In our

leave asked the help

effort to meet them, we 4 in cooperation with every executive branch

of Government having any relationship to taxes, including the Army

we

and the Navy have examined I think, every conceivable plan to
raise additional taxes.

97

-2with plan
plans against: first, the abilitysto raise money; second, the degree

with

purpes of

of hardship >place upon peg fixed incomes and fixed obligations

with and

and third, their practicabl cost from the Administration standpoint.
no

plan issogood
if at
won't
wah
Refer
Because
much has
been
said and
written
during further
the past

year concerning inflation, one of our chief considerations has
been the drawing off of what has been so often called dangerous

constantly

inflationary money." It has been pointed ou that our National

income is 145 billion in the fiscal year of 1944. It is further
pointed out that the amount of goods and services available can

absorb only 78 billion of this 145 billion. It is therefore
reasoned that there is a dangerous inflationary gap of 60 billion
dollars, and this gap accumulates month after month, year after

year, as the war goes on. and production of civilian goods is

106 things H buy

decreased, and the supply becomes progressively more limited.

It has been pointed out that 7$ 7/8 of all the income of
the nation is going into the sitt pay envelopes of people Ket
earning less than five thousand dollars a year; and therefore it
is reasoned that the people earning less than five thousand dollars

a year present a great potential danger from an inflationary standpoint. It is said that they have a great deal of excess money and
that the weight of this excess money will tear down the value of
the dollar will cause undue price rises, and will completely upset
^

our entire economic system.

IN
Name

98

-3- -

also
With this in mind -- and having in mind yound

the need

for additional funds to finance this most expensive of wars -- that

the Treasury set a goal early this year, of twelve billion dollars
as the amount of money which should be raised///B by taxation in the

-bax bill which I am now about to present to you.

Since this goal(as
was
Treasury
has attracting
anse
ideal
the worth
considerable investigating. We have gone outside the Treasury

trued
and
hm
offices, outside of Washington. are or OUTSUSTED

have honesth
hand observation to find We
an answer
to this this prog.
perfectly normal question: 'If all this dangerous money is lying

phinously

tight around, then someone should have it. We should be able to

this
the
people
why
have
D.
by
find it. We should be able to see an the nature of expenditures that

-known
working people / now have more moneyythan is good for them."
this

To answer the ge questions to our own satisfaction, we made

sense

8

meme expendituees

numerous checks. We had made a/sample survey in one industrial

tixy warMealthy city, of people at various income levels, 016/4

XS/
In

la strucey
have found
the bulk we did not Find evidence of dangerous inflationary

spending, although in certain isolated cases, we, like everyone

indimitual cases

else, have seen evidences of such spending. Unfortunately, like

all irregular things these cases of irregular spending of income
have attracted wide attention and have prejudiced the public
mind.

we watched closely the behavior 5 working

people in th and drums.

99

-4--

let me

What we found -- and **YY/ say here that the surveys that
we have made ane being continued and elaborated, and are not now

not yet large enough to he

>scientifically conclusive, although I feel justified in regarding
them, in concert with other observations and facts which we have

gathered, to be a reliable indication of the I situation.
(own earning and ones -

For every one citi en who is spending without segard to season,

asin

buying

for every one who is falling silk shirts the last
are not.

war, there are thousands upon thousands who have no such opportunity,

Mosta Then have no opportunity todo any

regardless of any increase they might have in their incomes: For

the most part, the American working man is struggling to make ends

from

deducted

meet with a pay check out of which has been/belong, even before he

gets it, an allottment for War Bonds, an allottment for Social
a (Substantial
or

Security and old age pension, a twenty percent advance on his tax
bill, and perhaps other charges which are necessary in connection

with the kind of work he does.
to

And it is these people -- these many millions of good Ameri can
citizens who are turning out the materials of war in unprecedented

that
amounts, a to whom the tax program must be tailored and fitted. We

cannot punish them through excess taxation simply because one out of
how

a thousand of them has more money than he knows that to spend

intelligently. Taxation is not a medium for vengeance.

It is difficult for some to understand why the aggregate

in the gregate

don not have

working man has more money than ever before, and is not able, in the
same measure, to produce surplus or excess money. I think the

- -5 -

economists do not always understand it, e
and
sometimes they are
results
I

prone to accept the fast of mathematic rather than the results
of observations and actual research, when the two are not in
agreement. Perhaps they are right, and to them, I have but one

reply to make. If there their mathematics are right, then the

our too small -

Treasury is going to recommend impractical tax bill, because
the bill we Decement will not
it is not going to raise all the money possible

But
Ne are making this recommendation solely because we would rather

err on the side of being reasonable than 1x/x on the side of

we will not an place a hundred

being mathematically perfect mak impossible tax - on
the American people.

100

- 6-

101

important t thing which we should 11

TIK

proposal.

white

LA

great

economic transition has come over this Nation since the war began.

we came out of a depression -- out of a series of depressions -- into
this period of prosperity. That was not the case in the last war.
Before Pearl Harbor, we were a nation of people in debt. We
were in debt for money we borrowed to get along on during the lean

years. In debt for vacuum sweepers and automobiles; in debt to
the doctor and the dentist; in debt even for the clothes on our

backs in many cases. Literally millions of people were living two
and three families in a house.

large percentage of young

married couples had never been able to move out of the homes of
their parents. We were a Nation of people whose normal lives were

de

being pressed from every angle by the burden of debts. Some of it

was foolish debt, some of it was debt brought about in an effort
to maintain a typical American standard of living, and much of it
was just out and out unavoidable debt. But whatever it was, it
we entered
was there. Even before the war when it became obvious that civilian
goods would be curtailed, that automobiles and vacuum sweepers were

to go completely out of production, we wisely curtailed and stopped
installment-plan buying. Then it was that the American people -and chiefly the American working people -- began to get out of debt.
They began to be a Nation of people dealing on a cash basis. They

back

began to pick up the se debt's that had been hanging over them, in

Every things

some cases for many years. All of oun cheeks indicate that here
1. whom much of the new-found gains of the working people have gone.

to pay Those debts

-7-

102

1814, are American working ment and his wife have

them
First,
the
people
/pay up their debts. with - turned, they

and
turn

error

to repair other damages of our years of depression:

New glasses, new and long-needed dental work, long accied but

essential minor repairs on homes and property -- repairs that
necessary to preserve the property through the years of the war

warm

There are some who will it 1 s necessary for people
to pay up their debts at this time, nor to repair their property now,
essential
andiswell
amessential that they finance the War.
more
At
and
they curtail their spending -- all kinds of spending. And
perhaps, as economists, they are right. I am not sure. But I am
quite sure that as responsible leaders

leaders of society, they are not entirely just.
some
There are We who will say that we ask every sacrifice of the
men who are drafted and accordingly we should ask every sacrifice of

the people on the home front with this, in principal, I think
we all agree. War is a time for sacrifice, and this war above all

great
others will require
sacrifice. But we .have made arrangements
to re-establi sh our fighting men economically when they return to build

new
lines on the and trundation
on the victory they have won, we must also keep in mind that on that
same

Line

and now

foundation of victory - working men and people must also build
new and better lives. There is this one difference; the people
who are working today and making substantial wages can afford to

in this futures

make larger inv estmentsythan our fighting men, pay, of causes,
18

proffutty

and that name it should be ,

Already
lonking
the be people on the home front are investing in War Bonds.
During the Third War Loan, individuals invested XXXX billions of

-8-

103

Billions were
dollars in Government securities. Of the se
E Bonds, small denomination bonds. As we go down through the list of
War production plants, we will find that those who are making the
most money are investing the most in their futures -- and they

are doing this willing and without any kind of compulsion from

their Government. x stephelders areofmusting
the

It is because the se people -- because ponhops 50

who have

n ad millionsof the 60 million who and and voluntarily

th

industrial bought the se securities, thatcomped
the Treasury
is not
presenting
a
then
to same
when

compulsory savings plan in any form #o-fool that ++ would not
(workey peoples - 5/6 you The people on a paysple
be keeping fai th with thosey are the back-bone of America,

these

who se patrioti sm and wagerness to help has been the foundation of all

our successful War Loan drives, and must continue to be the foundation
of War Loan drives.

Our experience in the se drives has proyed to me beyond doubt the

heart

t

and they are mne the hally to isdo their me

the julk of the American working people are south This a precious
you
possession
protect
given
to it at
all cretawhich we have in this/country, and we should
- Have Primary consideration ****************** should be with
these people in framing a tax bill/ and that is exactly what we have
done, with the sanction of the President of the United States.
The sound, strong American must be kept strong and sound.

Hemast he from energy operation

it, to hermin a better amankan

but we mustnet let hophie

into

he than doing
Reso dysalated
own

minner

fames two would do
to

something hostailed

9th total may 2a

lengh
sent
goin to binds during a
given month,

, 2 0/0 g them pm the
auto wanted x %, the

muntin makes *%

in revelue case, wa have peen in high as 30%

and

9

104

I am dwelling here today on the American working man --

in the man who is making DAE under five thousand dollars
a year -most
because

WAN he is the one who will have to pay the hai of

any increase in taxes. Xnn the high income brackets, taxes are

already at Inshanation
levied to an extent that they cannot been well be materially

I

increased and still be collectible. Moreover, the vast majority
of people are in these lower income groups, and taxation, like

am

everything else is a production of, and subject
to the wishes of the majority. Therefore they are the ones who
to,
must be satisfied, because they are the ones who must pay the bill.

I muge add that

foreover, they are the ones whose spirits cannot be broken, and whose

incentive must be maintained, if we are to continue to get the

tremendous war production necessary to victory.
& Therefore, I will say without hesitation that the means employed

1

in the new tax bill must be agreeable to them -- as agreable as it
that
uts
our
is possible for any plan to take their money can be
my We at the Treasury have had ####### corles of discuss! one
planed

with the working people and with their leaders, and we are confident that through the proposal which I am about to make we will
be able to raise a tremendous amount of money to be used for the

sture he

war beet paid willingly and eagerly -- even though the meeting of
individual tax bills may mean discomfort -- by the American people.

-

in
1944
The Treasury recommends tha ty the indi vidual income tax be a

combination tax and social security measure. We recommend that
individual income taxes, rates as such, be raised to yield an additional

3.8 billion dollars. The greatest percentage

105
10

of

will

this may well come from people making more than thirty-five

hundred dollars a year.

We then recommend that Social Security be extended and

expended to cover practically all persons in the Nation, to
increase unemployment insurance benefits, and to provide benefits

for temporary disability and hospitalization. To do this will
cost the American people, chiefly those up to thirty-five hundred

3.7 been

dollars, approximately three billion dollars. An additional

1. 6 billion

payroll tax of teres billion dollars will yield a total of

5.36

billion dollars for social security purposes -- and for the immediate
purpose of helping to finance the war.

There is no pretense on the part of American labor that it can
known

(ddmittal

comfortably meet this bill. It is directed by them anayby us methole
will-be a sacrifice, but it is felt the by leaders and spokesmen

because
we
an
's
and
are
for labor that A expanding social security advantages, permitting
the working people to invest in their future, this sacrifice will

be

willingly

made The people will find a ways muth hill

without resentment

11

106

Now let's see what this would mean to indi vidual taxpayers.
Take, for example, a married person with no dependents.
Assuming that this man were making 1,500 a year, he will

pay $96 in taxes this year. Next year, under the present law,
with the increase of two percent in social securi ty paymen ts
ich is called for in the present law, he will pay $112. Under
the plan for which the Treasury is recommending, this man will
IN

pay $172 towards his income taxes and social security.
Take the case of a man earning three thousand dollars. This

year he will pay $435. Next year, under the present law, he would
pay $465. Under the present proposal, he would pay $672.
Finally, take the case of the man, unmarried and with no
dependents, earning ten thousand dollars. This year he will pay
$2,497. Next year, under the present law, he would pay $2,527.
Under the present proposal, he would pay $3,940.

The total result of this proposal -- the raise in income
rates, the increase in Social security paid by the employer and the
employee, would total 9.16 billions.
We propose also that corporation taxes be raised, under
certain conditions until we have an increased yield

of 1.11 billions.
We recommend that estate and gift taxes be raised to the
&

extent of 40 Millions dollars.

excise tax of
We are proposing an increased/2.53 billion dollars.
The sum total of these im reased taxes, under the

recommended proposal submitted, will to tal 876676 $13.20 billion.

107

married - 2
Income
#1500

Present
law Princillaw
schedule
+ 2%
6% M. flur
+170

#62

H:46.

3,000

297

10,000

2,238

327
2,268

#100.

458.
3,555

married
, 500

96

3000

435

10, mo

2,497.

112.

172.

465.
2527

672.
13,940.

108

- 11 There is no protense on the part of American labor that it
can comfortably meet this bill. It is known by them and admitted

by us to be a sacrifice; but it is felt by leaders and spokesmen
for labor that because we are expanding social security's advantages,

and are permitting the working people to invest in their future,

this sacrifice will be made willingly. The people will find a way
to meet the bill, without resentment.
Now let's see what this would mean to individual taxpayers.
Take, for example, a married person with no dependents.
Assuming that this man were making $1,500 a year, he will

pay $96 in taxes this year. Next year, under the present law,
with the increase of two percent in social security payments

which is called for in the present law, he will pay $112. Under
the plan which the Treasury is recommending, this man will pay
$172 towards income taxes and social security.

Take the case of a man earning three thousand dollars. This
year he will pay $435. Next year, under the present law, he would
pay $465. Under the present proposal, he would pay $672.

Finally, take the case of the man, unmarried and with no
dependents, earning ten thousand dollars. This year he will pay
$2,497. Next year, under the present law, he would pay $2,527.
Under the present proposal, he would pay $3,940.

The total result of this proposal - the raise in income
rates, the increase in Social security paid by the employer and

- 12 -

109

the employee, would total 9.16 billions.
Me propose also that corporation taxes be raised, under

certain conditions until we have an increased yield of 1.11 billions.
We recommend that estate and gift taxes be raised to the

extent of .40 billion dollars.
We are proposing an increased excise tax of 2.53 billion
dollars.

The sum total of these increased taxes, under the recommended

proposal submitted, will total 313.20 billion.

110

Fifth Draft
September 29, 1943
DRAFT OF STATEMENT FOR THE SECRETARY

INTRODUCTION

I am glad to be here today at the invitation of your Committee
to present the suggestions of the Administration for additional

taxes to help finance the war. You are so familiar with the
circumstances which call for additional taxes that I shall touch
upon them only very briefly.

The Budget for the fiscal year 1944 calls for $109 billion in
expenditures, including expenditures of governmental corporations.

Collections under existing law are expected to amount to $39 billion.

This leaves a prospective deficit of about $70 billion to be met by
borrowing. We need more tax revenue to reduce the need for such
extraordinary amounts of borrowing.
We are faced, moreover, with much more than a budgetary problem.

We are face to face with inflation. Over the past four years I have
repeatedly stressed the urgency of adopting adequate fiscal measures

to cope with inflation. In the three years 1940, 1941 and 1942,
I have recommended to the Congress tax increases totaling over

$20 billion. I am glad to say that Congress has enacted most of
these increases. The current collection of income taxes is also a

111

-2helpful measure against inflation. Since the Autumn of 1941 I have
been urging the adoption of the withholding of income taxes at the

increases

source. In addition to tax - the Congress and the
Administration have enacted and placed in operation certain direct

measured

controls such as price ceilings, rationing, and wage stabilization.

Despite all of these efforts, the index of the cost of living today
is

-

percent higher than it was in 1939. The volume of current

and accumulated spending power is - so great as to threaten the

effectiveness of stabilization measures. Additional taxes will

help to maintain stability in prices and the cost of living.
Higher taxes now are important also to protect Government

finances and economic stability in the postwar period. Our vast
accumulation of currency, bank deposits, and other forms of private
saving, when spent after the war, may cause extensive postwar price
rises. The accumulated Government debt will impose a very heavy

burden of taxes. Equity requires that we keep to a minimum the

debt and interest load. A soldier who has done his full share in
the war by fighting should not have his tax obligations after the
war increased by our failure to pay adequate taxes during the war.

We often forget that the true cost of the war is not measured
in money but by sacrifices in lives, depletion of resources, loss
of equipment, and by doing without many of the things we all need
and desire. This cost cannot be escaped and borrowing to pay for

112

-3the war does not decrease it. The function of taxes is chiefly to
distribute that inevitable cost. For our people as a whole, higher
taxes do not increase the cost of the war and lower taxes do not
decrease the cost of the war.

However, it is important in financing so huge an operation as

this war to adjust taxes to the different economic situations in
which taxpayers find themselves. The burden of heavy taxes may

dig deep into tender economic flesh unless the taxes are adjusted

to the abilities of the taxpayer. This is particularly important
with respect to taxpayers with small incomes, especially where those
incomes have not been increased.

In normal times on master so,
reductions in expenditures can be immediately translated into

reductions in tax requirements. This cannot be expected to follow
under present circumstances. You are familiar with my continued
insistence on the maximum economy consistent with sound Government

and all-out prosecution of the war. It would be no economy at all
to reduce annual war costs at the expense of lengthening the war
but certainly all possible economies should be made. However, any

reductions which can be brought about in war expenses will still

leave 80 large a war budget that the requirement for taxes will not
below the amounts university
be reduced, The need for taxes is so great that we must get all
we can, whatever the volume or pattern of wartime expenditures.

113

-4Our wartime tax systems have been extended to apply to many

millions of people who were not subject to taxes before the war,

so that our direct taxes apply to the majority part of the
population. Our people are subjected to much inconvenience in

the application of necessary wartime restrictions. It is important
that taxes be made as simple as possible 80 as not to add to this

inconvenience. I have endeavored in the past to promote simplification of taxes. The Treasury's simplified income tax return has
diminished the burden of tax computation for millions of our
taxpayers. To some extent tax simplification is the enemy of
tax equity but there are many important things we can do to

promote simplification which will either increase equity, or at
any rate not seriously disturb it.
Finally, we should have an eye on the security of the masses

of our people after the var. That security can and should be
promoted through the expansion and extension of the Social Security
medium

system. It can also be increased through the adjust Aof survivors'
insurance on an individual basis.
It is with these considerations in mind that the tax program
which I am about to outline has been developed.

114

-6- increases. I suggest furthermore that this postwar credit be paid
in the form of survivor's insurance. This would supplement the

survivor's insurance provisions of the Social Security Act. If,
however, the taxpayer did not choose to take his refundable tax

in the form of insurance he could receive it in cash at a 25 percent
discount below the value of the postwar credit for the purchase of
insurance.

I recommend the elimination of the abortive and complicated

earned normal and metax thereby

custome income credit. Consolidation of the rate scales would, A be
made hossible

facilipatedy with great results Amplification. I recommend the
thus

covertha full tax biability of

extension of withholding to more tanpayers eliminating
A

A

festimated income

unnecessary declarations and reducing the complexities of our current
A

tax payment act.

Because of the great complications of the return for next

March, complications which will ***** fortunately not recur, I
A

recommend

modification
a radical
of the Victory tax for the year

1943 to permit as much simplification as possible for the return due
on March 15. 1944.

To protect persons with fixed incomes, especially those in
the lower brackets from undue hardship because of tax increases I

recommend provision for the current use of the postwar credit to
provide relief for such persons.

115

-7- Estate and gift taxes

I recommend that the estate and gift taxes be increased to

raise an additional $400 million on a full year's basis.
Estate taxes have been a part of our Federal tax structure

since 1916 but their contribution to the total revenue has always
been unduly small. In this period ahead when great additional
revenues are necessary, estate taxpayers should contribute their

share to the cost of the var along with other groups of taxpayers.
Increases in the estate taxes offer a way to raise money without a
direct check on incentive to work and without threatening to upset

wage and other cost levels. Also additional estate taxes will
further one of the original purposes of the estate tax, namely,
to check the undue concentration of wealth.

Specifically, it is suggested that the exemption for the
estate tax be reduced from $60,000 to $40,000; that estate and gift
natus
taxes R be increased throughout the scale.
Corporation taxes

It is recommended that corporation taxes be increased to

raise an additional $1.1 billion. Despite recent heavy increases
in taxes the net income of corporations remaining after taxes has

steadily risen since 1939 at the rate of $1 billion a year. After
paying dividends, corporations with net income will have added to

116

- 8their capital out of earnings an estimated $16 billion during the
years 1941, 1942, and 1943. We can safely impose the recommended
increase

but

small corporations should be given more favorable

treatment than corporations generally. In order to protect
corporations in the adjustment period immediately after the war, I
recommend the strengthening of the two-year carryback of net

operating losses and unused excess profits credit and provision for
more prompt cash refunds.

Selected excise taxes

I recommend that approximately $2.5 billion additional be
raised by increasing excise tax rates and imposing new excises.
In time of war, increases in excise taxes have much to commend them.

Little or no increase in administrative machinery is required. I
have taken care to avoid taxes on the necessaries of life. The items
selected are luxuries or commodities and services which need to be

conserved for war purposes, or optional items of expenditure such as
liquor and tobacco. The tax rates suggested have been fitted to
the wartime conditions of supply and demand for each item separately.
When these conditions change, I shall recommend revision of the tax
rates.

117

-

CONCLUSION

There are many desirable changes in the tax system which I have

not mentioned. Important loopholes still remain to be eliminated,
including the lower taxes on married couples in community property

States, the tax exemption of interest on State and local securities,
the subsidy to oil producers through percentage depletion, and the

double deduction of intangible drilling expenses. You all know my
views on these loopholes, and it is not necessary for me to do more

than reaffirm my belief that they should be eliminated. I realize,
however, that it may be impossible to deal with them in the short time
remaining before the end of the year. Moreover, there are many technical

matters which are important for the improvement of the tax laws. I
suggest that the consideration of such matters at this time may unduly

delay the passage of this bill.
I am sure the Committee is well aware of the necessity for

expeditious action. The imposition of retroactive taxes is never
entirely satisfactory and with the new current payment legislation in
operation retroactive taxation is not necessary and would be difficult
to apply. This means that the tax bill should become law in time to
place the increases in operation on January 1, 1944.
The Treasury stands ready as always to give such help and
cooperation as the Committee may wish and Mr. Paul and the Treasury

staff are prepared to do their utmost to assist you.

118

-5II. TAX RECOMMENDATIONS

I am recommending a program to increase Federal collections by

approximately $10.5 billion for a full year of operation under conditions anticipated for the near future.
Individual income tax

Of this amount I recommend increased individual income taxes

to yield additional gross collections of $6.5 billion. I put this
emphasis on individual income taxes because through them we can

best achieve our standards of justice and fairness in taxation.
Moreover, our population generally can readily pay this increase
as the income payments to individuals after taxes have in the past
few years increased by several times the increases in income taxes
which have thus far been imposed.

beginning
with
I recommend that the Victory tax be merged into the income
tax, 1944.
which was passed last year
The Victory tax was not considered by the Ways and Means Committee
it was

(from #

as/ in toduced in the Senate. The Victory tax has different deduc-

tions and different exemptions It has a postwar credit which varies
in percentage according to marital and dependent status. Current

offsets allowed against this postwar credit practically eliminates

its postwar character. To replace the Victory tax I suggest a slight
lowering of personal exemptions and the introduction of a genuine
postwar credit to protect the lower income groups against undue

119
Amounts and effective rates
ofSchedule
tax under"DD"
present law and under
revised
Married person, two dependents

Exemptions: Present lawt $1,900

Revised Schedule "DD", $1,700
L

Revised Schedule "DD" 2/

:

tax

credit

:credit
:

:

:

tax

Gross
tax

Increase
Net

Gross
tax

Net

tax

tax

:

:

Net

tax

:Postwar:

:

Present law 1
Victory
Gross

:

Net income:
before
personal
execution

3/

Amounts of tax
1,000
1,500
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
25,000
50,000
100,000

3

800

6$

13 $
25
52

11

23

93

35

206

47

327

60

569

838

1,112
1,735
2,439
10,171
27.592
69.003

84

108
133
182
231
597

1,200
1,200

-

-

-

-

-

-

-

-

-

$

7

14
29

58 $
159
267

41 $

81 $

40

19

1,000
1,500

2,000
2,500
3,000
4,000
1,000

6,000
8,000

10,000
25,000
0.000
100,000

1.6%

2.5
3.5
4.7
8.2
10.9
14.2
16.8
18.5
21.7
24.4
40.7
55.2
69.0

- 14
29

- 18

225

63

163

384

78

306

57

39

153

4

485

753

115

638

184

730

1,163
1,588
2,523
3.555
13,750
35,037
81,435

156

1,007
1,389
2,231
3,160
13,250
34,537
80,935

325

277

476

410

788

678

1,116

952

979

1,553
2,208
9.574
26,392
67,803

199

292
396
500
500
500

Effective rates
800

13 $ - 7

- 25
- 52
- 12

0.8%

0.9

1.1
1.5

1.4

1.8

1.9
2.9

1.9

6.4

2.0
2.1
2.2
2.2
2.3
2.3
2.4
2.4
1.2

8.9

12.1
14.6
16.3
19.4
22.1
38.3
52.8
67.8

-

-

-

-

-

-

-

-

-

4.1%

9.0
12.8
18.8
23.3
26.5
31.5
35.5
55.0
70.1
81.4

reasury Department. Division of Tax Research

2.0

2.0

2.5

6.5

2.6
2.9
3.1
3.3

10.2
15.9
20.1
23.2
27.9
31.6
53.0
69.1
80.9

3.7

4.0
2.0
1.0
.5

3,579 3,676
7,445 8,145
12,432 13,132

- 1.6% - 0.9%

- 2.5 - 1.4
- 3.5 - 1.9

- .6 - .9
.8

.2

1.9

1.3

4.6
6.5

3.8
5.5

7.9

6.8

9.9
11.2
14.3
14.9
12.

8.5

9.5
14.7
16.3
13.1

September 17. 1943

1 Kaximum earned income credit answer. Victory tax net incone assumed
to be ten-ninths of net income.

Victory tax integrated: earned incone credit eliminated.
75 percent of the first 350 of tax: 25 percent of the next $50: and
percent of the balance, the maximum credit not to exceed $500.

120

Comparison of surtax rates under present law and under revised
Schedule "DD". designed to raise approximately $6.5 billion

:

:
13
13

-

2

-

4

16

-8
-

6

8

10
12
14
16
18
20
22
26

44
50
60
70
30

- 10
- 12
- 14
- 16
- 18
- 20
- 22
- 26
- 32
- 38

- 50
- 60
- 70
- 80
- 90

- 100
100
- 150
200
150
200 and over
90

24
27
30
35

20
24

45

28

49

32

53

36

40
43

46

49
52
55
58
61
63

66

57

61
65

68
71

74
77
79
81

83
85
86

69
72

87

88
75
77
79
81

82

Treasury Department, Division of Tax Research
1

21%

6

38 - 44

32

1

40

2

4

Revised Schedule "DD"

:

13%
13

1.5

-

1

1.5

:

.5 1

law

.5

0

$

Present

:

Surtex net income
(in thousands)

89

90
90
90

September 17. 1943

Under Schedule "DD" the Victory tax is integrated; exemptions
are $500 - $1,100 - $300 instead of the present $500 - $1,200 $350; earned income credit is repealed: and a postwar credit

aggregating approximately $3.5 billion is allowed as follows:
75 percent of the first $50 of tax, 25 percent of the next
$50 of tax, and 10 percent of the balance of the tax, the total
credit not to exceed $500.

121

Amounts and effective rates of tax under present law
and under revised Schedule "IDD"

Single person - no dependent
$500

Exemptions: Present law

Revised Schedule "DD" $500

tax

: credit

Net

: credit:

:

tax

:Postwar:

Gross
tax

3/

tax

:

Amounts of tax
$

800

65

1,000
1,500
2,000

113

$
$

Increase
Gross
tax

Net

tax

:

:

execution :

:

personal

Net

:

Gross
tax

1

before

1 Revised Schedule "IT" 2/1

Present law
:Victory

:

Net income

81

$ 45

36 $

16 $ 26

107

135

54

82

22

220

285

69

217

52

-3

97

32

62

$

$

3

6

25

233

13

353

20

333

450

85

365

27

446

630

103

157

81

473
608

527

2,500
3,000

34

574

835

124

712

227

138

48

165

1,167
1,477
2,155
2,914
10,983
28,558
70,165

62

1,081
1,472
1,886
2,782
3,754
14,210
35,605
82,075

252

4,000
5,000

877

368

6,000
8,000

10,000
25,000
50,000

100,000

76

103
131
339

500
500

829

1,105
1,401
2,052
2,783
10,644
28,058
69,665

1,245
1,680
2,140
3,135
4,215
14,710
36,105
82,575

208

254
354

462
500

500
500

513

367

663

485

980

730

1,301
3.727
7,547
12,410

971

3,566
7,547
12,410

Effective rates
800

1,000

1,500
2,000
2,500

3,000
4,000
5,000
6,000
8,000

10,000
25,000
50,000
100,000

8.1%

11.3
15.5
17.7
18.9
20.3
21.9
23.3
24.6
26.9
29.1
43.9
57.1
70.2

0.4%

0.6
0.9
1.0
1.1

1.1
1.2
1.2
1.3
1.3
1.3
1.4
1.0

0.5

10.1%

5.7%

4.5%

2.0%

- 3.3%

10.7
14.7
16.7
17.8
19.1

13.5
19.0
22.5
25.2
27.8

8.2

3.5

4.9

1.6

6.3
7.6
9.2

3.2
4.6

31.1
33.6
35.7
39.2

14.4
18.3
21.1
23.7
27.0
29.4
31.4

- 2.5
- 0.2

20.7
22.1
23.4
25.7
27.8
42.6
56.1
69.7

5.4
4.6
4.3
4.1
4.1
4.1
4.2
4.2
4.4
4.6

2.2

10.3
11.1
12.3
13.0
14.9

7.3

7.8%

42.2
58.8
72.2
82.6

Treasury Department, Division of Tax Research

2.0

1.0
0.5

34.8

37.5
56.8
71.2
82.1

15.1
12.4

6.3
8.1
9.1

9.7

14.3
15.1
12.4

September 17, 1943

Maximum earned income credit assumed. Victory tax net income assumed to be
ten-ninthe of net income.

Victory tax integrated earned income credit eliminated.
75 percent of the first $50 of tax; 25 percent of the next $50 of tax: and
10 percent of the balance, the maximum credit not to exceed $500.

122

Amounts and effective
ratesSchedule
of tax under
revised
"DD"present law and under
Married person - no dependents

Exemptions: Present law $1,200
Revised Schedule "DD" $1,900

: credit :

Gross
tax

Increase
Gross
tax

Net

: credit:
:

:

tax

3

:

Net

Post-mars

tax

:

:

Victory

: tax

1

:

Gross
tax

Revised Schedule "DD 2

:
:

Present law 1,

:

Net income:
before
personal
exemption :

Net

tax

Amounts of tax
-

-

8
5

13

-

800

$

$

$

-8

$

-25

-15
-22

25

10

15

100

21

79

220

32

188

255

66

190

35

340

43

297

417

82

335

77

38

459

54

405

594

99

495

135

90

723

76

647

999

140

859

276

212

993

99

894

334

1,173
1,780
2,467
10,035
27,075
68,584

1,228
1,638
2,506
3,457
13,730
35,071
81,505

416

121

1,409
1,864
2,829
3,885
14,230
35,571
82,005

181

570

465

210
543

1,000
1,000

-

165

-

1,294
1,945
2,677
10,578
28,075
69,584

$

108

51

4

226
323
429
500
500
500

-

1,000
1,500
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
25,000
50,000
100,000

-13

$

$

57

$

8

2

884

726

1,208
3,652
7,496
12,421

990

3,695
7,996
12,921

Effective rates
1,000
1,500
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
25,000
50,000
100,000

1.6%

0.6%

2.5

1.0
1.4
1.6
1.7
1.8
1.9
2.0
2.0

6.7

11.0
13.5
15.3
18.1

19.9
21.6
24.3
26.8
42.3
52.2
69.6

2.1
2.1

2.2
2.0

1.0

1.0%

1.5
5.3
9.4
11.9
13.5
16.2
17.9
19.6
22.3
24.7
40.1
54.2
68.6

-1.6%

-

-

-

800

-

-2.5

-1.0

-1.5
-1.5

3.4

3.8.
9.5

1.8

.1

1.5
3.0
5.3

35.4
38.9
56.9
71.1
82.0

4.0
4.3
2.0
1.0
0.5

13.4
16.5
21.5
24.6
27.3
31.3
34.6
54.9
70.1
81.5

3.1

31.1

3.3
3.3
3.3
3.5
3.6
3.8

7.2%

12.8
16.7
19.8
25.0
28.2

.5

4.5
6.9
8.3
9.5

11.1
12.1
14.6
15.0
12.4

6.7
7.8
9.1

9.9
14.8

16.0
12.9

September 17, 1943
Treasury Department, Division of Tax Research
Maximum earned income credit assumed. Victory tax net income assumed to be
ten-ninths of net income.

Victory tax integrated; earned income oredit eliminated.

75 percent of the first 50 of tax: 26 percent of the next $50; and 10 percent of the balance, the maximum oredit not to exceed 500.

123
SUMMARY OF TAX PROGRAM IN SECRETARY'S
STATEMENT TO WAYS AND MEANS COMMITTEE

social Se

I

Need for More Revenue

With governmental expenditures of $109 billion and our
present tax system, about $66 billion must be borrowed

2.5

from the banks and the public during the fiscal year
1944 if no further tax measures are enacted.

1. So much deficit spending threatens a further rise
in prices.

2. A large accumulation of purchasing power also
threatens prices and postwar stability.
3. The postwar interest-carrying charges are lessened
by additional taxes.

4. Borrowing does not lighten the real economic sacrifice
of the war, which is doing without wanted things.
II
Excise Taxes

The recommendation is $2.5 billion new revenue from raising
excise tax rates and imposing new excises.

1. The sales tax may be criticized on several grounds.

(a) That it affects necessary expenditures of
the average family, which excises do not;
that it is not compatible with wage and

price stabilization; that it imposes severe

administrative difficulties; and that it

bears heavily on persons with low incomes.

124

-22. There is a very strong demand for cigarettes, distilled
spirits, admissions, etc., showing that added taxation

is possible.

3. Excise taxes and the new rates suggested should not be
permanent.

4. A sales tax with personal exemptions, or at a graduated
rate, and a luxury purchasing tax of the British type
is not practical.

III
Estate and Gift Taxes

The recommendation is $400 million on a full year basis
through an increase of rates and a reduction of exemptions.
IV

Corporation Taxes

The recommendation is an additional $1.1 billion by raising
the combined surtax and normal tax rates to 50% for the

large corporations and 29 to 33% for small corporations.

1. Corporate profits are so high that these additional
taxes can be paid.

2. Small corporations deserve special treatment as to
rates, and should be permitted to cash their postwar
credit immediately on termination of the war up to
$25,000.

3. We oppose corporate postwar reserves, but advocate
a carryback system for late war expenses which will
give adequate relief.

125

-3V

Individual Income Tax

A. Social Security Program. -- The preferred recommendation
is that the Social Security program should be extended and
expanded to cover practically all persons now uncovered,
to increase unemployment insurance benefits, and to provide

benefits for temporary disability and hospitalization, but
not medical care.

1. This would require an increase in the employee payroll
tax of 2 percentage points and an increase in the
employer payroll tax of about 1 percentage point.

2. In this way there will be provided for the civilian

population somewhat the same kind of postwar security

outlined by the President for the armed forces.

3. These increased payroll taxes will check inflation
during the war.

4. The individual income tax increases proposed have been

adjusted for this 2-point increase in the employee
payroll tax.

B. The Individual income tax. -- The recommendation is

that there be increases in the income tax, integrated
to the above Social Security program, which, together with

the Social Security program, will yield from $6.5 billion
to $8 billion of additional revenue, the net increase in
income tax revenue being from 3 to 31 billion with postwar

126

-4credits being substituted to the extent that the Social
Security increases recommended above are not adopted.

C. Postwar Credits. -- Postwar credits are recommended

in the event that the Social Security program is not
extended.

1. To the extent that a postwar credit is allowed, it
should be returnable primarily to the low income

group.

2. The credit should be currently available in part to

those whose incomes remain fixed, or who have heavy
commitments for debt repayment and life insurance
contracts.

D. We have completed a study of the possibility of taxing
increases in incomes and have decided not to recommend

such a tax. The study is offered for the record.
E. To simplify the individual income tax law and the
income tax return it is recommended that the Victory tax
be repealed.

F. It is recommended that personal exemptions should be
lowered from $1200 to $1100 for married persons and the

dependency credit from $350 to $300, leaving the single
exemption unchanged at $500. This recommendation assumes

the repeal of the Victory tax and the allowance of postwar

127

-5rebates. With such repeal, married persons with very

low incomes will still be benefited.
G. Assuming the repeal of the Victory tax, it is recommended
that the present falsely-named earned income credit be
repealed.

H. It is recommended that the additional revenue required
be raised through an increase of the surtax rates throughout
the scale.
VI

Conclusion

While important loopholes should be eliminated, it may be

impossible to deal with them in this bill because of
time limitations.

Many technical matters important for simplification and

the relief of hardship could be taken up in next year's
revenue bill. In the meantime, to avoid retroactive
taxation, the present bill should become law in time to
place tax increases in operation on January 1, 1944.

128

22.3 if 944

mild

129

Treasury Department

Division of Research and Statistics

Date 10/1
To:

Mr. Murphy

From:

Mrs. Eaton

1943

I have checked the 17 billion

figure for sales of Federal securities
to individuals during the calendar year

1943 with Mr. Tickton by telephone.

Mr. Tickton states that this figure

is not to be found in any written memorendum, but was able to state that the

17 billion figure is correct, as the

latest estimate for the calendar year

1943. (I will give you details on this
figure when you get back to the office).

130

H 51 3
MEMBERS OF CONGRESS:

I want to present to you today the Administration's
suggested program for raising additional taxes to help pay for

the war. But more than that, I want to explain why this program was devised in its present form. I think you are entitled
to know not only the decisions we have made, but our reasons
for making those decisions.

Because of the huge cost of the war, it is necessary for

us to deal in astronomical figures. The budget for the fiscal
year 1944 calls for 109 billions in expenditures. And while it
may be possible, and I hope it is, to curtail some governmental
expenditures, we cannot be frugal about the war. We know by
now that our willingness to spend the necessary funds, no

matter how large, has had a definite effect on the lives of our
men in battle. The superior fighting equipment which we have
produced and bought has of course been expensive, but it has

saved the lives of thousands of American fighting men.
The money that is expended on lend-lease to keep the enemy

engaged on dozens of fronts all over the world -- that has saved
untold lives.
These things, in the aggregate, have helped to build the
war cost to its present huge proportions, but I am sure you

will agree, and I am sure the American people agree, that it is

oh

-2-

131

worth while.

In the face of huge amounts of money to be raised, we are

met with a very serious problem of creating for the American
people a new tax program that is fair and equitable.
We must raise huge amounts of additional money for financing
the war and combating inflation, and yet in doing it we cannot
overlook the fact that there is a point beyond which some people
cannot deduct from their pay envelopes or farm incomes and still

keep a family going. There is a point beyond which they cannot

meet the tax bills and still maintain a standard of living which
will permit them to continue to help in the effective prosecution

of the war, or of their duties in the civilian economy which is
necessary to support the war.
2

I am telling you this to emphasize the fact that the Treasury
Department has not arbitrarily set down a figure as the amount to
be raised, without regard to the problems which exist, and which
must we met.

in

:

we

the past several months, asked the

help of every executive branch of government having any relation-

ship to taxes, including the Army and the Navy. And I think we
have examined every conceivable plan to raise additional taxes

as equitably and efficiently as possible.
We have measured these plans against;

First, the ability of the plan to raise money, and

132

-3its effect on the inflation problem.
Second, the degree of hardship the plan places upon

people with fixed incomes and with fixed obligations; and
upon people with inadequate incomes; and

Third, the degree to which it might interfere with
war production, and

Fourth, its practicability and cost from the standpoint

of its administration. No plan is good if it won't work,

if it is impractical for the government to handle, or if
it further tries the patience of the taxpayer who is already
burdened with too much and too complicated paper work.

One of our chief considerations in developing a tax program
has been the drawing off of what is called "excess spending
money." It has been estimated that income payments to individuals
53

will amount to 152 billion dollars in the fiscal year of 1944.
The amount of goods and services aval lable can absorb only about
3

89 billion of this 152 billion. Personal taxes will reduce this
figure by 21 billion at the present rate, leaving a total of
above 43
above 42 billion dollars. Of this 42 billion dollars we expect
23

66 draw off a substantial amount in the sale of War Bonds to
individuals -- but how much can be drawn off in this way we can-

not, of course, foretell at this point. We do know that
during
two
the calendar year 1943 -- that is to say, through the three

133

4-

drives which we have had, and the regular Bond sales which
blankgo

on month after month -- we will have absorbed at least 28 billion
dollars of this dangerous money in this way.

Even taking into consideration other forms of non-inflationary
savings, that still leaves a substantial amount of excess income
that the consumer will have to spend; and as the production of
civilian goods is decreased, and the supply of things to buy
becomes progressively more limited, the danger of inflation
mounts.

We, at the Treasury,have made numerous recommendations over

the years to help prevent our being caught in a whirlpool of rising
prices. As far back as October 16, 1940, with the cost of living
having then risen about two points, and wholesale prices having

gone up about five points, the Treasury called attention to the
incipient development of inflationary pressure, resulting from
the capacity shortages then beginning to appear in various basic-

material industries. Steel, zinc and copper had already gone up
in price, and consumer purchasing power was on the rise. It
became obvious even then that we would need to restrict purchasing

power or increase production, if this bud of inflation were to be
nipped.

the

Something over a year later, on December 18, 1940, I said,
in recommending a major expansion in the steel program, "My

interest in forestalling potential inflationary developments

134

-5that would reflect unfavorably on the economy of the country, as
well as our whole fiscal program, and in guarding against possible
shortages of defense materi als, leads me to express my serious

concern over the growing congestion in the steel industry. It
seems to me that an immediate major expansion program for the

steel industry is clearly called for."
On March 19, 1941, I set up the Defense Savings Staff and on
May 1 introduced the series E, F and G Savings Bonds in an effort

to absorb individual savings and to forestall the potentially
inflationary effects of the expenditures of these funds for
consumers' goods.

On September 9, 1941, I told an audience in Boston that --

and I quote -- "If we fail to use the controls at our disposal
now, if we fail to do the specific things which are in our power
to check inflation now, if we allow prices to go on rising as
they did from 1916 to 1920, we may find that food, fuel, shelter,
and clothing which now cost a dollar will once more cost almost
twice as much before the process has ended." At that time I
suggested specific anti-inflationary measures including:

(1) extension of Social Security;
(2) control over bank credit and selected capital
expenditures; and

(3) reduction of non-essential governmental expenditures.
A few weeks later I appeared before the Banking and Currency

Committee on the Price Control Bill and called attention to the

135

6-

terrible urgency of the inflation problem. I then pointed out
the alarming similarity of the present price pattern to that of

the first World War. I said -- and I quote -- "It is true, of
course, that price control alone will not conquer inflation.
This Bill alone cannot stop price rises. Every government that
has attempted to check inflation has found that direct price
controls alone cannot hold down the lid when the income of the
consuming public is increasing and the amount of goods available
VI

to the consumer is decreasing. Additional steps are necessary.

"If we are to be sure of victory in the fight against
inflation, we must prepare further to increase taxes. We may
have to extend the general controls over bank credits. We shall
certainly have to reduce capital expenditures for non-defense
needs, and widen the sale of Defense Savings Bonds and Stamps."

On December 27, 1941, we inaugurated the Payroll Savings

plan for the regular and systematic sale of United States Savings

m

Bonds to wage earners. Within a year, nearly twenty-five billion
workers were regularly buying Bonds through payroll deduction.
about

They were deducting nearly eight and one-half per cent of their

pay, or a total of over 350 million dollars.per month.
At the present time 27 million workers are deducting an
approximately

average of 10 per cent of their pay, or a total of over42@million
dollars a month, and the figure is ricing-constantly,

136

-7 On March 3, 1942, I appeared before this committee and

proposed an increase in revenue of 7.6 billion dollars. I
stated that the chief duty of the new revenue act was to help

check inflation, and -- I quote -- "Nothing in the economic
field can interfere with the war effort as much as an uncontrolled

rise in prices. An inflationary price rise is a source of grave
social injustice."
I have given you this background to remind you that this
inflationary tendency is something that has been with us over
a period of years, something against which we must constantly
stand guard.

Today, two-thirds of all the income of the nation is
going into the pay envelopes of people earning less than three

thousand dollars a year; and for this reason the people earning
something over a subsistence wage, but less than three thousand

dollars a year, present a great potential danger from the

inflationary standpoint. In the aggregate, this huge group

million -of people -- a group estimated to number around 58
possess a great deal of inflationary money, and it is the weight
of this money that can cause undue price rises, and can
completely upset our entire economic system.

Having this in mind, and also the need for additional funds
to finance this most expensive war, the Treasury set a goal early

-8-

137

this year of twelve billion dollars as the amount of additional
revenue which should be raised by new taxation.

Since this goal was set as a satisfactory figure fromsa
fiscal standpoint, the Treasury has done considerable investigating. We have gone outside the Treasury offices, outside of
Washington. We knew that twelve billion dollars was a great deal
of money, and as we progressed in our investigations, we became
more and more cognizant of the problems we would have in levying

so huge a tax on anything like an equitable basis.

In order to check statistical information against the actual
situation in which the American taxpayer finds himself under war
conditions, we made actual observations in the field. We talked
to families; we talked to actualpeople -- people who pay rent,

feed their families, and meet the extra bills which wartime living
saddles upon them. We checked closely the response of working
people and farmers and other groups in the Bond Drives. We made
a small survey of incomes and expenditures in one war wealthy

industrial city; a survey of people at various income levels.
In fairness to the average American citizen, we must say
that not everyone is over-earning and over-spending.
We found too that a great economic transition has come over

this nation since the war began. We came out of a depression --

out of a series of depressions -- into this period of prosperity.
This was not the case in the last war.

138

-9Before Pearl Harbor, we were a nation of people in debt.
We were in debt for money we borrowed to get along on during

the lean years. In debt for vacuum sweepers and al tomobiles;

in debt to the doctor and the dentist; in debt even for the
clothes on our backs in many cases. ( We were a nation of people
whose normal lives were being depressed from every angle by the
burden of debts.

Some of it was foolish debt, some of it was debt brought
about in an effort to maintain a typical American standard of
living, and much of it was just out and out unavoidable debt.
But whatever it was, it was there. Even before we entered the
war, when it became obvious that civilian goods would be curtailed, that automobiles and vacuum sweepers were to go completely

out of production, we wisely curtailed/and stopped installments
plan buying. Then it was that the American people -- and chiefly
the American working people -- began to get out of debt. They
began to be a Nation of people dealing on a cash basis. They
began to pick up these back debts that had been hanging over

them, in some cases for many years. ( Everything indicates that
a large part of the new-found gains of the working people has
gone to pay those debts.

But this does not in any sense lessen the danger of inflation,
for even the payment of debts could not absorb enough of our

- 10 -

139

dangerous dollars -- and every dollar that is left can be spent
to absorb some part of a constantly shrinking supply of goods
and services.

I am talking a great deal here today about the average
American, the man who is making about three thousand dollars a

year -- because he is the one who will have to pay most of any
increase in taxes.

In the high income brackets, taxes are al ready levied at

such a rate that further increases will not yield substantial
sums nor materially aid in the battle against inflation.
One of the things we must do -- not to satisfy the low income person but to be just to him -- is to make al lowance for
hardship cases. Even while we are setting out to get more money

from most people, we need actually to give tax relief to some
people.

a

Take, as an example, the average married man with two
dependents making $1500 a year -- and there are hundreds of

thousands like him throughout the country. To this man, making

less than $30 a week, a tax of $50 a year is a burden -- a burden many times heavier to him than one much larger would prove

to be to a person making a few hundred dollars more a year. The
seriousness of this problem deepens as we find the man making a

thousand dollars or the widow supporting her children on $800
and there are many like them.

140

- 11 -

The program which I will present to you today takes that

into consideration, and takes also into consideration that in
view of what we have found, we have reduced our tax proposal

from 12 billion dollars to 10.5 billion dollars.
As a result of our investigations among average Americans,

there is one further general recommendation that I want to make --

that every possible step be taken at this session to reduce the
complications in our tax laws which make it necessary for the

taxpayer to fill out complex and difficult tax forms.
We spent a great deal of time attempting to simplify the
September 15 forms. I think we made it as simple as it was
possible to make it under the terms of the very complicated law
passed in the last session. We are now working on the simplifi-

cation of the March 15 form, but I want to say tha t/it is my
feeling that the public resentment against any tax form that
can meet the requirements of this present tax law is likely to
cause a great deal of resentment among the American people.

I am sure that Congress agrees that there is a great deal

of room for simplification in our tax laws. I can not here go

into the details of simplification, but I want certainly, to
recommend the combining of the Victory Tax with the Income Tax.

141

- 12 -

That is part of our proposal. The Victory Tax serves especially
to complicate return forms. The Tax in itself is complicated and

it is calculated differently and on a basis of different exemptions
from the income tax. Consequently, there is no present way of

simplifying it on a tax form to such an extent that the man in

the street can and will take it in his stride.
Let me tell you now about our specific recommendations for
the tax program which I sincerely hope can be passed before the

end of this year, thereby making it possible to spare the public
the complication of retroactive taxes.
I am recommending a program to increase federal collections

by approximately 10.5 billion dollars for a full year of operation
under conditions anticipated for the near future.
I recommend that these taxes be raised through an increase
in Estate and Gift Taxes, Corporation Taxes, Selected Excise
Taxes, and Individual Income Taxes.
Estate Taxes

Estate taxes have been a part of our federal tax structure
since 1916, but the total contribution has been unduly small.
In this period ahead when great additional revenue is necessary,

estate tax payers should contribute as heavily as possible to

the cost of the war along with other groups of taxpayers. I am
suggesting that the exemption for Estate Taxes be reduced from

142

- 13 -

$60,000 to $40,000; that Estate and gift tax rates be increased
throughout the scale. By so doing, we can raise an additional

400 million dollars on a fullyyear's basis.
Corporation Taxes

It is recommended that corporation taxes be increased.
net income
Despite heavy increases in taxes, the net income of (corporations
average

remaining after taxes have risen since 1939 at the, rate
of one billion dollars a year. After P4 ing dividends, corporations with net incomes will have added to their capital out of
15.4

earnings, as estimated billion dollars during the years of
1941, -42 and -43, We therefore recommend that corporation taxes

in general be raised, but that small corporations should. be given
more favorable treatment. Our schedule for increasing corporation
taxes has been worked out along this line and will raise an

additional 1.1 billion dollars.

143

- 14 Excise Taxes

It is the belief of the Treasury Department that an increase
in excise tax rates, and the imposing of any excises, is an
acceptable way to raise additional money during a war period. Little
or no increase in administrative machinery is required. Items
can be selected that are commodities and savings which need to be

conserved for war purposes and additional taxes can be placed
upon optional items of expenditure such as liquor and tobacco.

The tax rates that we are suggesting have been fitted to the war
time conditions of supply and demand for each item separately.
When these conditions change, I shall recommend revision of the

tax rates. Under the schedule which we will present to you in

detail, we can raise an additional 2.5 billion dilars through
increases in present excise tax rates, and through new excises.

The tax increases of which I have spoken -- the Estate and

Gift taxes of four hundred million dollars, the corporation taxes

of 1.1 billion dollars and the excises of 2.5 billions add up to
a total of 4 billion dollars. This, of course, is nowhere near
enough. Collections under the existing tax laws during the
fiscal year of 1944 are expected to amount to 39 billion dollars.

This threatens prospective deficit of 70 billion dollars, which
must be met by borrowing to the extent that additional tax revenue
is not secured.

144

- 15 In order to reduce this borrowing load, I am recommending

increases in individual income taxes to yield an additional

6.5 billions. With equitability in the income tax program it
is obvious that our population can pay these additional taxes,
as the income payments to individuals after taxes have in the
past few years been increased by several times the increase in
income taxes which have been thus far imposed.

Adding this 6.5 billion to the 4 billion derived from other
taxes, would total 10.5 billions for a full year of operation.
Frankly, this is still not enough but it is as much as we can
justifiably recommend, realizing the limitations of taxation
processes. It is as much as we can justifiably ask without
causing undue hardship on those without an increased ability to

pay. To take care of those who have a vastly increased ability
to pay -- and of these, of course, there are a great many -we must maintain at full speed our war loan campaigns, which we

know are cutting deeply into the increased earnings of those
American people who have them.

In planning a schedule to raise this 6.5 billion dollars
in additional income taxes, we have merged the Victory Tax
into the Income tax.

145

- 16 -

The post-war credit which is now part of the Victory Tax,
should be maintained in principle. However, since current

offsets allowed against the post-war credits in the Victory Tax
practically eliminates its post-war character, I propose the
introduction of genuine post-war credits to protect the income
of the lower income groups.

I recommend that this post-war credit be paid in the form
of Survivors insurance. This would supplement the insurance

provisions of the Social Security Act. If, however, the taxpayer didn't wish to take this refund in insurance, he could
receive it in cash at a 25% discount below the value of the pestwar credit for the purchase of insurance.

I further suggest that this post-war credit be made
immediately available for the protection of persons with fixed
incomes, especially those in the lower brackets who might be
A

subject to undue hardships because of tax increases.

I should like to take a moment now to tell you exactly how

this income tax schedule will work in actual practice.
Take, for example, a married person with two dependents;
under the present law, the exemption would start at $1,900; under
the proposal, exemptions would start at $1700.

A person having a net income of a thousand dollars a year will
pay a gross tax under the present law of $25, of which $11 is his
refundable

146

- 17 Victory tax credit. Under the new proposal, he will not be
required to pay tax.

If such a person is earning $3,000 a year, he is now paying

a gross tax of $327, of which $60 is his refundable tax credit.
Under the new proposal, he would pay $384 gross tax, of which
$52 would be refunded. He is thus paying $57 more in gross

taxes, or $65 more in not taxes. A married person with two
dependents earning $8,000 a year is now paying at the rate of

$1,735 of which $182 is his Victory tax refund credit. Under
the present proposal he would pay $2,523 of which $159 is refundable.
He would thus pay $788 more in gross tax or $811 in net tax
At $25,000 per year, a married person with two dependents
is now paying $10,171 of which $597 is refundable.
Under the new proposal he would pay $13,750, of which $250 the maximum allowable under the proposed program - would be

refundable. He would thus be paying $3,579 more, or a net tax
increase of $3,926.

It is my belief, that the proposal I have just made, is as
equitable as any tax so huge could possibly be. It is inevitable
that some injustices will be done, but these will be greatly
modified certainly by the relief provisions which are included.

147

- 18 .
By combining the Victory Tax with Income Tax we can greatly

simplify paper work on the part of the taxpayer - and I might
add that this bould be further simplified by abolishing earned
income credit, which I strongly recommend that the Congress
consider.

There is one further recomendation I should like to make

to this Committee. It is not a part of the taxproposal but it
bears a distinct kinship to it.
I should like to recommend, as enthusiastically as I know
how, that you amplify and extend the present Social Security
plan.

A substantial increase in these taxes would be of great

service in diminishing the threat of inflation.
I have talked to many people who would be concerned with

extension of the Social Security program which could involve

increases in payroll taxes. I have been not with interest and
enthusiasm for broadening the provisions of the Social Security
Act. I have been assured that the people who would have to pay
additional payroll taxes see the wisdom of making the necessary

additional sacrifices.

148

- 19 We have made arrangements to re-establish our fighting
men economically when they return to build new lives on the sound
foundations on the Victory they will have wan; and now we must
also keep in mind on that same sound foundation of Victory,
working men, and farmers, and all other people on the home front,
many of whom are not now covered by Social Security, must also

build new and better lives.

Therefore, I suggest that the Congress seriously consider

sidening Social Security to cover practically all persons in the
Nation, to increase employment insurance benefits, and to provide

benefits for temporary disability and hospitalization.
To do this will cost the American people, chiefly those
earning up to $3,500, ap proximately 3.7 billions. The necessary
onemployer

additional payroll tax of 1.6 billion dollars will make a total
additional Taxes

of 5.36 billion dollars (for Social Security purposes.
There is no pretense on the p rt of these low-income people

that they could comfortably meet this bill. It is known by
them, and admitted by us to be a sacrifice; but it is felt by
the leaders and spokesmen for these people, and by these of
the people themselves with whom I have talked, that because we are

expanding Social Security's advantages and are permitting these

people to invest in their futures, this sacrifice will be made
willingly.

149

- 20 If payroll taxes should thus be increased, the income tax
schedules involved in the program I have outlined should be

substantially modified to avoid an intelerable tax burden in
the lower income groups.

On page 4. the item referred to under date of October 16,
1940, was a memorandum from Mr. Hans to Secretary Morgenthau. It

is not strictly accurate, therefore, to say that the Treasury "called
attention to the incipient development of inflationary pressure".
It is not indicated from what base the cost of living and wholesale

price indices have risen. Both indices were slightly less in
October 1940 than in September 1939.

On page 4. the item under date of December 18, 1940, is only

two months later rather than something over a year later.
On page 5. the ommission of material before the last sentence

of the quotation should be indicated.
On page

. the President's budget message for the fiscal year

1044 asked for $16 billions of additional taxes. The reduction of
this goal to $12 billions was first reported in the New York Times
for June 18, 1943. on page 1.

150

Draft # 2

151

9-30

MEMBERS OF CONGRESS:

I want to present to you today the Administration's
suggested program for raising additional taxes to help pay for
the war. But more than that, I want to explain why this pro-

gram was devised in its present form. I think you are entitled
to know not only the decisions we have made, but our reasons
for making those decisions.

Because of the huge cost of the war, it is necessary for

us to deal in astronomical figures. The budget for the fiscal
year 1944 calls for 109 billions in expenditures. And while it
may be possible, and I hope it is, to curtail some governmental
expenditures, we cannot be frugal about the war. We know by

spend

now that our willingness to supply the necessary funds, no

matter how large, has had a definite effect on the lives of our
men in battle. The superior fighting equipment which we have

produced and bought 1 medical equipment, the sulfa drugs

/ has been ex58 come

but it has

pensive, saved the lives of thousands of American fighting men.
The money that is expended on lend-lease to keep the enemy

engaged on dozens of fronts all over the world -- that has saved
untold lives.

These things, in the aggregate, have helped to build the
war cost to its present huge proportions, but I am sure you

-2-

152

will agree, and I am sure the American people agree, that it is
worth while.

In the face of huge amounts of money to be raised, we are
met with a very serious problem of creating for the American

people a now tax program that is fair and equitable.
We must raise huge amounts of additional money for financing

the war and combating inflation, and yet in doing it we cannot
overlook the fact that there is a point beyond which some people
cannot deduct from their pay envelopes or farm incomes and still

keep a family going. There is a point beyond which they cannot

meet the tax bills and still maintain a standard of living which
will permit them to continue to help in the effective prosecution

of the war, or of their duties in the civilian economy which is
necessary to support the war.

I am telling you this to emphasize the fact that the Treasury
Department has not arbitrarily set down a figure of 20.5 Billion
vollars as the amount to be raised, without regard to the
problems which exist, and which must be met. We have, over the

past several months, asked the help of every executive branch

of government having any relationship to taxes, including the
Army and the Navy. And I think we have examined every conceivable

plan to raise additional taxes as equitably and efficiently as
possible.

-

3

-

and

it

153

effect

on

We have measured these plans against:

First, the ability of the plan to raise money problem
Second, the degree of hardship the plan places upon

people with fixed incomes and with fixed obligations; and
upon people with grosely inadequate incomes;and
DIRTH

Third, its practicability and cost from the standpoint

of its Administration. No plan is good if it won't work,
or if it further tries the patience of the taxpayer who is
already burdened with too much and too complicated paper
work.

One of our chief considerations in developing a tax program
has been the drawing off of what is called "excess spending
money." - It has been estimated that income payments to individuals

will amount to 152 billion dollars in the fiscal year of 1944.
The amount of goods and services available can absorb only about

89 billion of this 152 billion. Personal taxes will reduce this
figure by 21 billion at the present rate, leaving a total of
about 42 billion dollars. of this 42 billion dollars we expect
to draw off a substantial amount in the sale of War Bonds to
individuals -- but how much can be drawn off in this way we can-

not, of course, foretell at this point. We do know that during
the calendar year 1943 -- that is to say, through the three
drives which we had had, and the regular Bond sales which go

154

-4non inflatement

on month after month -- we will have absorbed at least 17 billion
dollars of this dangerous money in this way.

Eventaking
intostill
consideration
oth form
seavings,
That of anness
leaves a substantial
amount
of money
that the consumer will have to spend; and as the production of

civilian goods is decreased, and the supply of things to buy
becomes progressively more limited, the danger of inflation
mounts.

We, at the Treasury, have made numerous recommendations

over the years to help prevent our being caught in a whirlpool

of rising prices. As far back as October 16, 1940, with the
cost of living having then risen about two points, and wholesale prices having gone up about five points, the Treasury called

attention to the incipient development of inflationary pressure,
resulting from the capacity shortages then beginning to appear

in various basic-material industries. Steel, sinc and copper
had already gone up in price, and consumer purchasing power was

on the rise. It became obvious even then that we would need to

restrict purchasing power or increase production, if this bud
of inflation were to be nipped.
Something over a year later, on December 18, 1940, I said,
in recommending a major expansion in the steel program, "My

interest in forestalling potential inflationary developments
that would reflect unfavorably on the economy of the country, as
well as our whole fiscal program, and in guarding against possible

155

-5shortages of defense materials, leads me to express my serious

concern over the growing congestion in the steel industry. It
seems to me that an immediate major expansion program for the

steel industry is clearly called for."
On March 19, 1941, I set up the Defense Savings Staff and
on May 1 introduced the series E, F and G Savings Bonds in an

effort to absorb individual savings and to forestall the
potentially inflationary effects of the expenditures of these
funds for consumers' goods.

On September 9, 1941, I told an audience in Boston that -

and I quote -- "If we fail to use the controls at our disposal
now, if we fail to do the specific things which are in our power

to check inflation now, if we allow prices to go on rising as
they did from 1916 to 1920, we may find that food, fuel, shelter,
and clothing which now cost a dollar will once more cost almost

twice as much before the process has ended." At that time I
suggested specific anti-inflationary measures including:

(1) extension of Social Security;
(2) control over bank credit and selected capital
expenditures; and

(3) reduction of non-essential governmental expenditures.
A few weeks later I appeared before the Banking and Currency

Committee on the Price Control Bill and called attention to the

-6-

156

terrible urgency of the inflation problem. I then pointed out
the alarming similarity of the present price pattern to that of

the first World Mar. I said -- and I quote - "It is true, of
course, that price control alone will not conquer inflation.
This Bill alone cannot stop price rises. Every government that

has attempted to check inflation has found that direct price
controls alone cannot hold down the lid when the income of the
consuming public is increasing and the amount of goods available

to the consumer is decreasing. Additional steps are necessary.

"If we are to be sure of victory in the fight against
inflation, we must prepare further to increase taxes. We may
have to extend the general controls over bank credits. We shall
certainly have to reduce capital expenditures for non-defense
needs, and widen the sale of Defense Savings Bonds and Stamps."
On December 27, 1941, we inaugurated the Payroll Savings

plan for the regular and systematic sale of United States Savings

Bonds to wage earners. Within a year, nearly twenty-five million
workers were regularly buying Bonds through payroll deduction.

They were deducting nearly eight and one-half percent of their

pay, or a total of over 350 million dollars.

At the present time million workers are deducting an
average of

percent of their pay, or a total of over million

dollars a month, and the figure is rising constantly.

-7 -

157

On March 3, 1942, I appeared before this committee and

proposed an increase in revenue of 7.6 billion dollars. I
stated that the chief duty of the new revenue act was to help

check inflation, and -- I quote -- "Nothing in the economic
field can interfere with the war effort as much as an uncontrolled

rise in prices. An inflationary price rise is a source of grave
social injustice."
I have given you this background to remind you that this
inflationary tendency is something that has been with us over
a period of years, something against which we must constantly
stand guard.

Today, two-thirds of all the income of the nation is
going into the pay envelopes of people earning less than three

thousand dollars a year; and for this reason the people earning
something over a subsistence wage, but le SS than three thousand

dollars a year, present a great potential danger from t he

inflationary standpoint. In the aggregate, this huge group
of people -- a group estimated to number around - million --

inflahman

possess a great deal of conses money, and it is the weight
of this excess money that can cause undue price rises, and can
completely upset our entire economic system.

Having this in mind, and also the need for additional funds
to finance this most expensive war, the Treasury set
a goal early
additional revenue
this year of twelve billion dollars as the amount of meany
which
A
should be raised by new taxation.

158

-8-

u satisfactory figure for afrecal standport
Since this goal was set as ideal WOT th sproaching, the
Treasury has done considerable investigating. We have gone out-

side the Treasury offices, outside of Washington. We knew that
twelve billion dollars was a great dealof money, and as we
progressed in our investigations, we became more and more cognizant

of the problems we would have in levying so huge a tax on anything

like an equitable basis.

In order to check statistical information against the actual
situation in which the American taxpayer finds himself under war
conditions, we made actual observations in the field. We tal ked

to families; we talked to actual people -- people who pay rent,
feed their families, and meet the extre bills which war time living
saddles upon them. We checked closely the response of working
people and farmers and other groups in the Bond Drives. We made

8 small survey of incomes and expenditures in one war wealthy

industrial city; a survey of people at various income levels.

of

In fairness to the average American citizen, we must say

hot
that for everyone who is over-earning and over-spending for

everyone the to buying silk shirts" as in the last war, there
are hundreds upon hundreds who are noty regardless of what
increase

income

have

had

in

their incomes.

theme

banket there are million whom

159

-9We found too that a great economic transition has come

over this nation since the war began. We came out of a de-

pression -- out of a series of depressions -- into this period
of prosperity. This was not the case in the last war.
Before Pearl Harbor, we were a nation of people in debt.
We were in debt for money we borrowed to get along on during

the lean years. In debt for vacuum sweepers and automobiles;

in debt to the doctor and the dentist; in debt even for the

clothes on our backs in many cases. Literall killions of
people were living two and (three families in a house A

large

percentage of young married couples had never been able to

move out of the homes of their parents.

We were a Nation of

people whose normal lives were being depressed from every angle
by the burden of debts.

Some of it was foolish debt, some of it was debt brought

about in an effort to maintain a typical American standard of
living, and much of it was just out and out unavoidable debt.
But whatever it was, it was there. Even before WG entered the
war, when it became obvious that civilian goods would be curtailed, that automobiles and vacuum sweepers were to go completely

out of production, we wisely curtailed and stopped instal lment-

plan buying. Then it was that the American people -- and chiefly
the American working people --began to get out of debt. They

160

- 10 began to be a Nation of people dealing on a cash basis. They
began to pick up these back debts that had been hanging over

them, in some cases for many years. Everything indicates that

a large part

muh of the new-found gains of the working people have gone to
pay those debts.

But this does not in any sense lessen the danger of inflation,
for even the payment of debts could not absorb enough of our

dangerous dollars - and every dollar that is left can be spent
to absorb some part of a constantly shrinking supply 6B goods
and services.

I am talking a great deal here today about the average
American, the man who is making about three thousand dollars a

year -- because he is the one who will have to pay most of any
increase in taxes.

In the high income brackets, taxes are already levied at

three not yeald substantial suns nor the "

such a rate that they earned he materially, increase and AND
be collectible.

Moreover, the vest majority of people are in

these lower income groups, and taxation, like everything else

in America is a product of, and subject to, the wishes of the
ma jority. Therefore they are the ones who must be satisfied,
because they are the ones who must pay the bill.

I might add that they are the ones whose spirits cannot be
broken, and whose incentive must be maintained, if we are to
continue to get the tremendous war production necessary to

161

- 11 -

victory. Therefore, I ill say without hositation that the means
employed in the knew tax ill should be agreeable to them

as

agreeable as 10 Is possible for any plan that sots out t take
their money.

One of the things we must do -- not to satisfy the low incomo person but to be just to him -- is to make allowance for
hardship cases. Even while we are setting out to get more money

from most people, we need actually to give tax relief to some
people.

Take, as an example, the average married man with two
dependents making $1500 a year -- and there are hundreds of

thousands like him throughout the country. To this man, making

less than $30 a week, a tax of $50 a year is a burden -- a burden many times heavier to him than onemmuch larger would prove

to be to & person making a few hundred dollars more a year. The
seriousness of this problem deepens as WC find the man making a

thousand dollars or the widow supporting her children on $800 and there are many like them. In the face of unavoidable price

rises, in the face of increased living expenses all along the

line, it is my feeling that those people need relief far more
desperately than the Nation needs the pittance we could get from
them in taxes.

- 12 -

162

The program which I will present to you today takes that

into consideration, and takes also into consideration

in view
what we have found, we have
that As a result of our investigations among average Americans,

there is one further general recommendation that I want to make --

that every possible step be taken at this session to reduce the
complications in our tax laws which make it necessary for even

the smallest taxpayer to fill out highly complex and difficult
tax forms.

We spent a great deal of time attempting to simplify the
September 15 forms. I think we made it as simple as it was
possible to make it under the terms of the very complicated law

passed in the last session. Part of our simplification was
accomplished, very frankly, by postponing many of the difficult
celculations until the March 15 filing. We are now working on

the simplification of the March 15 form, but I want to say

frankly that it is my feeling that the public resentment against
any tax form that can meet the requirements of this present tax

is like to

law will cause a great deal of resentment among the American
people.

I am sure that Congress agrees that there is a great deal

of room for simplification in our tax laws. I cannot here go

into the details of simplification, but I want certainly, to
recommend the combining of the Victory Tax with the Income Tax.

- 13 -

163

That is part of our proposal. The Victory Tax serves especially

to complicate return forms. The Tax in itself is complicated

and it is calculated differently and on a basis of different
exemptions from the income tax. Consequently, there is no

present way of simplifying it on a tax form to such an extent

that the man in the street can and will take it in his stride.
To combine this tax with the Income tax " will be necessary
to raise the $624 exemption limit now on the Victory Tax, but

it will not have to be raised out of reason. And any loss of
revenue which the Government may suffer by this means -- and

there is not a great don't is far less important than the
of the American taxpayer. That's why I am urging that
It be done.

Let me toll you now about our specific recommendations for
the taxprogram which I sincerely hope can be passed before the

end of this year, thereby making it possible to spare the public
the complication of retroactive taxes.
I am recommending a program to increase federal collections

by approximately 10.5 billion dollars for a full year of operation
under conditions anticipated for the near future.
I recommend that these taxes be raised through an increase
in Estate and Gift Taxes, Corporation Taxes, Selected Excise Taxes,
and Individual Income Taxes.

164

Estate Taxes

Estate Taxes have been a part of our federal tax structure
since 1916, but the total contribution has been unduly small.
In this period ahead when great additional revenue is necessary,
Rayers
estate tax balances should contribute as heavily as possible to

the cost of the war along with other groups of taxpayers. I am
suggesting that the exemption for Estate Taxes be reduced from

$60,000 to $40,000; that Estate and gift tax rates be increased
throughout the scale. By so doing, we can raise an additional

400 million dollars on a full year's basis.
Corporation Taxes

It is recommended that corporation taxes be increased.
Despite heavy increases in taxes, the not Income of corporations

remaining after taxes have steadily risen Since 1939 at the rate

of one billion dollars a year. After paying dividends, corporations with net incomes will have added to their capital out of
earnings, as estimated 16 billion dollars during the years of
1941, 42 and 43. We therefore recommend that corporation taxes

in general be raised, but that small corporations should be given
more favorable treatment. Our schedule for increasing corporation
taxes has been worked out along this line and will raise an

additional 1.1 billion dollars.

165

14
15

Excise Taxes

acceptive
It is the belief of the Treasury Department that anas
increase

Mr.

in excise tax rates, and the imposing of any excises, is (deal
way to raise additional money during a war period. Little or no
increase in administrative machinery is required. Items can be
selected that are commodities and savings which need to be
conserved for war purposes and additional taxes can be placed

upon optional items of expenditure such as liquor and tobacco.

The tax rates that we are suggesting have been fitted to the war
time conditions of supply and domand for each item separately.
then these conditions change, I shall recommend revision of the

tax rates. Under the schedule which we will present to you in
2.5

detail, we can raise an additional 215 billion dollars through
increases in present excise tax rates, and through new excises.

The tax increases of which I have spoken -- the Estate and

Gift taxes of four hundred million dollars, the corporation taxes

of 1.1 billion dollars and the excises of 2.5 billions add up to

a total of 4 billion dollars. This, of course, is nowhere near
enough. Collections under the existing tax laws during the

fiscal year of 1944 are expected to amount to 39 billion dollars.

This threatens prospective deficit of 70 billion dollars, which
must be met by borrowing to the extent that additional tax revenue
is not secured.

- 16

15

166

In order to reduce this borrowing load, I am recommending

increases in individual income taxes to yield an additional

615 billions. With equitability in the income tax program it
is obvious that our population can pay these additional taxes,
as the income payments to individuals after taxes have in the
past few years been increased by several times the increase in
Income taxes which have been thus far imposed.

Adding this 6.5 billion to the 4 billion derived from other
taxes, would total 10.5 billions for a full year of operation.
Frankly, this is stillmnot enough but it is as much as we can
justifiably recommend, realizing the limitations of taxation
processes. It is as much as well can justifiably ask without
causing undue hardship on those without an increased ability to

pay. To take care of those who have a vastly increased ability

to pay -- and of these, of course, there are a great many -we must maintain at full speed our war loan campaigns, which we

know are cutting deeply into the increased earnings of those
American people who have them.

In planning a schedule to raise this 6.5 billion dollars
in additional income taxes, we have merged the Victory Tax
into the income tax.

17

16

167

The post-war credit which is now part of the Victory Tax,
should be maintained in principle. However, since current

offsets allowed against the post-war credits in the Victory Tax
practically eliminates its post-war character, I propose the
introduction of genuine post-war credits to protect the income
of the lower income groups.

I recommend that this post-war credit be paid in the form
of Survivors insurance. This would supplement the insurance

provisions of the Social Security Act. If, however, the taxpayer didn't wish to take this refund in insurance, he could
receive it in cash at a 25% discount below the value of the postwar credit for the purchase of insurance.

I further suggest that this post-war credit be made
immediately available for the protection of persons with fixed
Incomes, especially those in the lower brackets who might be
subject to undue hardships because of tax increases.

I should like to t ake a moment now to tell you exactly how

this income tax schedule will work in actual practice.
Take, for example, a married person with two dependents;

under the present law, the exemption would start at $1900; under
the proposal, exemptions would start at $1700.
have a net income of
A person saming a thousand dollars a year will pay a gross

tax under the present law of $25, of which $11 is his refundable

168

- 18 !
Victory Tax credit. Under the new proposal, he will not be
required to pay tax.

If such a person is earning $3,000 a year, he is now pay ing

gross tax of $327, of which $60 is his refundable tax credit.

8

Under the new proposal, he would pay $384 gross tax, of which

$52

128 would be refunded. He is thus paying $57 more in gross
#65
taxes, or see more in net taxes. A married person with two
dependents earning $8,000 a year is now paying at the rate of

$1,735 of which $182 is his Victory tax refund credit. Under
159

the present proposal he would pay $2,523 of which test is refundable.

#11

He would thus pay $788 more in gross tax or in net tax.
At $25,000 per year, a married person with two dependents
is now paying $10,171 of which $597 is refundable.
Under the new proposal he would pay $13,750, of which

#250
$890

the maximum allowable under the proposed program -- would be

refundable. He would thus be paying $3,579 more, or a net tax
13,926
increase of 10,670.

It is my belief, that the proposal I have just made, is as
equitable as any tax so huge could possibly be. It is inevitable
that some injustices will be done, but these will be greatly
modified certainly by the relief provisions which are included.

169

- 19 v.
By combining the Victory Tax with Income Tax, we can greatly

simplify paper work on the part of the taxpayer -- and I might
add that this could be further simplified by abolishing earned
income credit, which I strongly recommend that the Congress
consider.

There is one further recommendation I should like to make

to this Committee. It is not a part of the tax proposal but

it bears a distinct kinship to it.
I should like to recommend, as enthusiastically as I know
how, that you amplify and extend the present Social Security

taxes. plan

A substantial increase in these taxes would be of great

service in diminishing the threat of inflation.
I have talked to many people who would be concerned with

extension of the Secial Security program which would
SEL increase) in Social Security taxes. I have been met with

regive
interest and enthusiasm, wherever Social Security has been

for nondeming The monsions of the
suggested as a seens of raising accounta floht and

our Security act

to-lay the groundwork See the coming peace. I have been assured

keywell cares

that the people who would have to pay this additional^ tax

see the wisdom of making the necessary additional sacrifices.

In my estimation, this is the best possible solution to

- a)
20 -

170

to the problem white which we are faced, the problem of getting
still more money from the people who have new money -- and

getting it without arbitrarily taking it away simply because
they now happen to have it.

We have made arrangements to re-establish our fighting
men economically when they return to build new lives on the sound
foundations on the Victory they will have won; and now we must
also keep in mind on that same sound foundation of Victory,
working men, and farmers, and all other people on the home front,
many of whom are not now covered by Social Security, must also

build new and better lives.

Therefore, I suggest as the Chief Fiscal Officer of this
Government, that the Congress seriously consider raising more

money, over and above the present tax proposal widening

Social Security to cover practically all persons in the Nation,
to increase employment insurance benefits, and to provide benefits

for temporary disability and hospitalization.
To do this will cost the American people, chiefly those
earning up to $3,500, approximately 3.7 billions. The necessary

additional PV roll tax of 1.6 billion dollars will make a total

of 5.36 billion dollars for Social Securi ty purposes for
the

immediate

MATE

171

- 21 -20
There is no pretense on the part of these low-income people

that they could comfortably most this bill. It is known by
them, and admitted by us to be a sacrifice; but it is felt by
the leaders and spokeumen for these people, and by those of the
people themselves with whom I have talked, that because we are

expanding Social Security's advantages and are permitting these

people to invest in their futures, this sacrifice will be made
willingly.

The people will find a way to meet the additional bunden
without

of haysroll Taxes should Thus

be increased the income
tax schedules invened in the pergan
I have outlined should he supatam

Tially modified to - avril

an internable tax hunden in the

Gorever income groups.

#

Dropt # 3
MEMBERS OF CONGRESS:

didnitus work

cright dont menty
computer 172

about

We are faced with the very serious problem of creating for
the American people a new tax program that is fair and
theequitable,

that will raise more money for the war, that will

what

excess or inflationary funds may be endangering our economy, and

that will not break the back of the average American taxpayer.
Probably never before have there been SO many vital factors

to consider in any tax program. because we are dealing in
astronomical figures, never before has there been such a possi-

their In
done
an ill advised
two program
bility of unfortunate injustice,
our by
eagerness
to raise
additional money for financing the war, we must not overlook the
fact that there is a point beyond which the working man cannot

deduct from his pay envelope and still keep his family going.
After his tax burden reaches a certain point, he cannot meet

his tax bills and still maintain that standard of living and that
morale essential to the effective prosecution of the war.
I am telling you this to emphasize the fact that the
Treasury Department knows the se problems exist and must be met.

In our effort to meet them, we have asked the help of every
executive branch of Government having any relationship to taxes,
including the Army and the Navy. We have examined, I think,

every conceivable plan to raise additional taxes.

and because our - present such removing

wide to variation in ability

day threejin

Mary

173

-2Since the 1943 taxible was introduced, at least
During the course of the last nine months, than
eighty-five specific plans have been suggested, developed, and
examined against what we believe is the only yardstick that makes
any sense in this year of war, 1943. We have measured these
plans against:

First, the ability of the plan to raise money;
Second, the degree of hardship the plan places upon people

of fixed incomes and with fixed obligations
andand
upon people with susal
madequote

Third, their practicability and cost from the Administration
memos;

standpoint. No plan is good if it won't work, or if it further
tries the patience of the taxpayer who is already burdened with
too much and too complicated paper work.

Because SO much has been said and written during the past year

in developing a tux program

concerning inflation one of our chief considerations\has been the

exum spending money

drawing off of what has been so often called "dangerous inflationary

estimated
amount to about 152
is 145 billion dollars in the fiscal year of 1944. It is further

money." It has been pointed out constantly that our National income
pointed out that the amount of goods Personal
and services
available can
taxes wellaccount
hand 89

152

absorb only 78 billion of this 145 billion. It is therefore
money of hour42

ford

reasoned that there is a dangerous inflationary gap of 60 billion
excess spending money

dollars, and this gap accumulates month after month, year after
year, as the war goes on, and production of civilian goods is
decreased, and the supply of things to buy becomes progressively
more limited.

about 21 billion at present

rate leaving our spending

174

-3It has been pointed out that four-fifths of all the income of
the nation is going into the pay envelopes of people earning less
than three thousand dollars a year; and therefore it is reasoned
that the people earning less than three thousand dollars a year

present a great potential danger from an inflationary standpoint.
It is said that they have a great deal of excess money and that the
weight of this excess money will cause undue price rises, will tear
down the value of the dollar, and must of necessity completely upset
our entire economic system.

With this in mind -- and having in mind, also, the need for
additional funds to finance this most expensive of wars -- the

Treasury set a goal early this year, of twelve billion dollars as
the amount of money which should be raised by taxation.

Since this goal was set as an ideal worth approaching, the
Treasury has done considerable investigating. We have gone outside

the Treasury offices, outside of Washington. We knew that twelve

billion dollars was a great deal of money, and we were fully cognizant of the problems we would have in levying so huge a tax on

anything like an equitable basis. We fully realize that designing
this tax, in the last analysis, was going to require a process
different from any we have ever tried before. We knew we had to

balance off the economists figures with actual observations in the

field, since there is a great difference between the statistical
working man, and the working man who pays rent, feeds his family

- 3a -

healthful food, and meets all extra bills which war time living
sudden
settles upon him.

To help us in this direction, we made numerous checks.

175

-4-

to

176

answer this at estion to our OWII satisfaction, we made
checked
response
cheeks. We watched closely the behaviour of working

people in the bond drives. We made a small sample survey of

incomes and expenditures in one war-wealthy industrial city, a
survey of people at various income levels. in by the and bulk large we have

little. actual

not found evidence of dangerous inflationary spending, although
spots
in certain isolated cases, we, like everyone else, have seen

which

individual cases of such spending 8 Unfortunately, like all iregular

under

things these eeses have attracted wide attention and have pre judiced
the public

mind. meet B

A great economic transition has come over this Nation since
the war began. We cane out of a depression -- out of a series of
x

-6-

176. A

3
depressions -- into this period of prosperity. That was not the
case in the last war.

Before Pearl Harbor, we were a nation of people in debt. We
were in debt for money we borrowed to get along on during the lean
years. In debt for vacuum sweepers and automobiles; in debt to

the doctor and the dentist; in debt even for the clothes on our
backs in many cases. Literally millions of people were living two

5

and three families in a house. A large percentage of young married
couples had never been able to move out of the homes of their
parents. We were a Nation of people whose normal lives were being
depressed from every angle by the burden of debts.

Some of it was foolish debt, some of it was debt brought about

in an effort to maintain a typical American standard of living, and
much of it was just out and out unavoidable debt. But whatever it was,
it was there. Even before we entered the war, when it became obvious
that civilian goods would be curtailed, that automobiles and vacuum
sweepers were to go completely out of production, we wisely curtailed
and stopped installment-plan buying. Then it was that the American
people -- and chiefly the American working people -- began to get out
of debt. They began to be a Nation of people dealing on a cash basis.
They began to pick up these back debts that had been hanging over

them, in some cases for many years. Everything indicates that
much of the new-found gains of the working people have gone to pay
those debts.

that

we found let here that the surveysthenthat

177

we have made ar being continued and elaboraged, and are not now

large enough to be scientifically conclusive, though I feel justified
in regarding them, in concert with other observations and facts which
we

t

have

gathered

to

furly

of the situation.

For every one Citizen who is over-earning and over-spending,

for every one who is buying silk shirts, as in the last war, there
are thousands upon thousands who are not Most of them have no

opportunity to de 00, regardless of any increase they might have in

not
too
easy
elruggling to make ends meet with a pay check from which has been
their income SOP for the most part, the American working man is

deducted, even before he gets it, an allotment for War Bonds, an

allotment for Social Security or old age pension, a substantial

3A

However, they do not ask for compa and 178

luxing which the nation is at was

advance on his tax bill, and perhaps other charges which are
necessary in connection with the kind of work he does

And it is to these people -- these many millions of good
American citizens who are turning out the materials of war in
unprecedented amounts -- that the tax program must be tailored and
are of
me
fitted. We cannot punishythem through excess taxation simply
because one out of a thousand of them has more money than he knows

how to spend intelligently. Taxation is not a medium for vengeance.

our was from Drives
Our experience in these drives has proved to me beyond doubt

19

that the hearts of the American working people are sound and they

are more than willing to do their part. This is a precious possession

-9-

180

which we have in this free country, and we should protect it at
all costs. Primary consideration should be given to these people

in framing a tax bill; and that is exactly what we have done, with
the sanction of the President of the United States.
The sound, strong American must be kept strong and sound.
He must be given every opportunity to become a better American, but

we must not let him be legislated into doing less than he would
do on his own simply because one of his neighbors, somewhere has

failed to live up to his obligations.

about 3
I am dwelling here today on the American working man --

the man who is making under five thousand dollars a year -because he is the one who will have to pay most of any increase
in taxes.

In the high income brackets, taxes are already levied at

such a rate that they cannot be materially increased and still be
collectible. Moreover, the vast majority of people are in these
in

lower income groups, and taxation, like everything else to Americans

is a ,product of, and subject to, the wishes of the majority. Therefore they are the ones who must be satisfied, because they are
the ones who must pay the bill.

I might add that they are the ones whose spirits cannot be
broken, and whose incentive must be maintained, if we are to con-

tinue to get the tremendous war production necessary to victory.

- 10 -

Therefore, I will say without hesitation that the means employed
in the new tax bill must be agreeable to them -- as agreeable

as it is possible for any plan that sets out to take their money.
We at the Treasury have discussed various plans with the
working people and with their leaders, and we are confident that
through the proposal which I am about to make we will be able to
raise a tremendous amount of money to be used for the war. It

will be paid willingly and eagerly -- even though the meeting of
the individual tax bills may mean discomfort -- by the American
people.

181

Draft #4

9- 30 182

MEMBERS OF CONGRESS:

I want to present to you today the Administration's
suggested program for raising additional taxes to help pay for
the war. But more than that, I want to explain why this program

was devised in its present form. I think you are entitled to know
not only the decisions we have made, but our reasons for making
those decisions.

Since the 1943 tax bill was introduced, at least 85 specific
plans have come under the examination of the Treasury Department.

All of the met for ones have been exhaustively studied because it

< abvious that there have hever been so many vital factors to
huge

consider in any tax program.

Because of the/cost of the war, it

is necessary for us to deal in astronomical figures. The budget

for the fiscal year 1944 calls for 109 billions in expenditures.
I do not need to say tell you that this is a huge amount of money
almost a fantastic amount. And while it may be possible, and I
hope it is, to curtail some governmental expenditues expenditure
we cannot be frugal about the war. We know by now that our

willingness to supply the necessary funds, no matter how large,

has had a definite effect on the lives of our men in battle.
Superior fighting equipment which we have been able to produce
tought

and buy the medical equipment, the sulfa drugs and the blood
of which
plasma

-- all this has been frightfully expensive, has
found thousands of

saved the lives of American fighting men. The money that is

-2- -

183

expended on lend-lease that to used to keep the enemy
engaged on dozens of fronts all over the world -- that
controll

saved lives.

cost

have

has

Those things, in the aggregate, helpalto build for th

war amount, / to its present huge proportions, but I am sure
you will agree, and I am sure the American people agree that every

sent is well spont. it is worth while
In planning a tax bill for 1944, we have been in a very

difficult

position. In the the of huge ammuts of money

We are a very problem of creating for the

to be raised faced we with are met serious

American people a new tax program that is fair and equitable 1 that
will raise more money for the war, that will absorb excess and
inflationary funds which may be endangering our economy and that

will not sent into bankruptey substantial portion of the American
people.

must

We faced with a necessity of raising huge
amounts of additional money for financing the war and combating

inflation, And yet in doing it we cannot over look the fact that
there is a point beyond which some working people cannot deduct

in farm memes

from their pay envelopes/and still keep a family going. There are

- some
a in this country whose tax burdens can reach only a certain
^point, beyond which they cannot meet the tax bills and still main-

tain a standard of living which will permit them to continue to

help in the effective prosecution of the war, or of their duties
in the civilian economy which is necessary to support the war.

184

-3-

arbetwain

I am telling you this tb emphasize the fact that the
Treasury Department has not simply set down a hagenber figure
of

10.5 billion dollars w the amount to heraised

to be met, without regard to the problems which ****** exist,
and which must be met. I might say further that in our effort
to meet these problems, the have, over the past several months,
asked the help of every executive branch of government 100

having any relationship to taxes, including the Armya and the
Navy. And I think we have examined every conceivable plan to

as as

raise additional taxes equitable poinloasly professionally and
We have measured these plans against:

First, the ability of the plan to raise money.
Second, the degree of hardship the plan places upon people

with fixed incomes and with fixed obligations; and upon people
with grossly inadequate incomes; and

their its

and

Third, the practicability in cost the standpoint
of the Administration. No plan is good if it won't work, or if
it further tries the patience of the taxpayer who is already
burdened with too much and too complicated paper work.

One of our chief considerations in developing a tax program
has been the drawing off of what is called "excess spending money."

It has been estimated that income payments to individuals will

amount to 152 billion dollars in the fiscal year of 1944. this
further pointed out that The amount of goods and services available

can absorb only about 89 billion of this 152 billion. Personal

185

-4- -

reduce thistigmety
taxes will account 21 billion at the present rate,
leaving a total of about 42 billion dollars. Of this 42 billion
dollars we expect to draw off a substantial amount in the sale of
sun

War Bonds to individuals -- but how much can be drawn off this way

we cannot, of course, foretell at this point. We do know that
through
during the calendar year 1943 -- that is to say during the three
drives which we have had, and the regular Bond Sales which go

on month after month we will have absorbed at least 17 billion
dollars of this dangerous money in this way.

That of course still leaves a substantial amount of money
that the consumer will have to spend; and Kax as the production
and

of civilian goods is decreased,/the supply of things to buy
becomes progressively more limited, the danger
of inflation mounts.
Selected
About the only way we can cope with this money is through

taxes and over the past four years have repeatedly
stressed the argency of animated fiscal measures to sop with

inflation In 1940 and 1941 and again in 1942 I recommended
be

to Congress that the taxes by substantially increased and these

increases something over twenty billion dollars, most of
which Congress has enacted.

We, at the Treasury, have been cognizant of the threat of
inflation for more than four years, and have made numerous t
recommendations over the years to help prevent our being caught

in a whirlpool of rising prices. As far back as October 16, 1940,

186

-5with the cost of living having then risen about two points,
and wholesale prices having gone up about five points, the

called cleating to

Treasury investigated the incipient development of inflationary
pressure ******** resulting from the capacity shortages then

beginning to appear in various basic-material industries/tt
Steel, zinc and copper had already gone up in price, and
consumer purchasing power was on the rise. It became obvious

even then that we would need to restrict purchasing power or

increase production, If this bud of inflation were to be nipped.

I and in

something

Little over a year later, on December 18, 1940, the Treasury
my

strongly recommended a major expansion in the steel program.
in

said at that time, "My interest for forestalling potential

inflationary developments that would

reflect unfavorably on the economy of the country, as well as our
while fiscal program, and in guarding aginst possible shortages
of defense materials, leades me to express my S erious concern over the

growing congestion in the steel industry. It seems to me that an
immediate major expansion program for the steel industry is clearly
called for."
On March 19, 1941, I set up the Defense Savings Staff and
on May 1 introduced the series E, F and G Savings Bonds in an

to absorb individual and to forestall

effort any savings the Protectively

and inflation

effects aspects of the expenditures thesefruids

for the goods.

--6-

187

On September 9, 1941, I told an audience in Boston that --

and I quote -- "If we fail to use the controls at our disposal
now, if we fail to do the specific things which are in our power

to check inflation now, if we allow prices to go on rising as they
did from 1916 to 1920, we may find that food, fuel, shelter, and
clothing which now cost a dollar will once more cost almost twice
as much before the process has ended." At that time I suggested

specific anti-inflationary measures indulung: (1) control over
bank credit and selected capital expenditures; (2) extension of
and

Social Security:/(3) reduction of non-essential governmental
expenditures.

A few weeks later I appeared before the and/t Banking and

the Price Control Bill

Currency Committee and called attention to the terrible urgency

/ then

of the inflation problem and pointed out the alarming similarity

of the present price pattern to that of the first World War. I
said -- and I quote -- "It is true, of course, that price control
alone will not conquer inflation. This Bill alone cannot stop
price rises. Every government that has attempted topcheck inflati
has found that direct price controls alone cannot hold down the
lid when the income of the consuming public is increasing and the
amount of goods available to the consumer is decreasing. Additional
steps are necessary

188

-7 "If we are to be sure of victory in the fight against
inflation, we must prepare further to increase taxes. We may
have to extend the general controls over bank credits. We shall
certainly have to reduce capital expenditures for non-defense
needs, and widen the sale of Defense Savings Bonds and Stamps."
On December 27, 1941, we inaugurated the Payroll Savings

plan for the regular and systematic sale of United States Savings

Bonds to wage earners. Within a year, nearly twenty-five million
workers were regularly buying Bonds to through payroll deduction.

They were deducting nearly eight and one half percent of their

pay, or a total of over 350 million dollars.
At the present time X million workers are deducting an

average of X percent of their pay for a total of over X million
dollars a month, and the figure is rising constantly.
On Lest March 3, 1942 I appeared before this committee and

proposed an increase in revenue of 7.6 billion dollars. I
stated that the chief duty of the new revenue act was to help

check inflation, and -- I quote -- "Nothing in the economic field
with
can interfere in the war effort as much as an uncontrolled rise

in prices. An inflationary price rise is a source of grave social
injustice. 11

(space)
I have given you this background to remind you that this
with no

inflationary tendency X is something that has been mounting over
a period of years, something against which we must constantly
stand guard.

- -8- -

Something
wage,over
but a subsistence

Today, two-thirds of all the income of the nation is going
the

into pay envelopes of people earning less than three thousand

dollars a year; and for this reason the people earning less than

three thousand dollars a year, present a great potential
danger from the inflationary standpoint. In the aggregate, this
huge group of people -- a group estimated to number around XX

million -- possess a great deal of excess money, and it is the
weight of this excess money that can cause undue price rises,
and can completely upset our entire economic systems and having
this

and

in mind also the need for additional funds to finance this

most expensive

wars the Treasury set a goal early this

year, of twelve billion dollars as the amount of money which
should be raised by new taxation.

Since this goal was set as an ideal worth approaching, the
Treasury has done considerable investigating. We have gone outside the Treasury offices, outside of Washington. We knew that

twelve billiondollars was a great deal of money, and - we progressed
in
unrealigation 5. we because more and more
fully cognizant of the problems we would have in Left levying so

huge a tax on anything like an equitable basis. In order to
check statistical information agai nst the actual situation in
which the American taxpayer finds himself under war conditions,

we made actual observations in the field. We talked to families;
we talked to actual people -- people who pay rent, feed their
fa

130

-9-

families healthful food, and meet the extra bills which wartime
response

living saddles upon them. We checked closely the *****************
of working people and farmers and other groups in the Bond Drives.
We made a small survey of incomes and expenditures in one war

wealthy industrial city; a survey of people at various income

If

levels. In fairness to the average American citizen, we must
say that for everyone who is over-earning and over-spending;

for everyone who is buying "silk shirts" as in the last war,
and there are hundreds upon hundreds who are not / regardless
of what increase they might have had in their incomes.

We

1 found too that a great economic transition has

date come over this nation since the war began. We came out of a

depression -- out of a series of depressions -- into this period
of prpsperity. This was not the case in the last war.
Before Pearl Harbor, we were a nation of people in debt. We
were in debt for money we borrowed to get along on during the

lean years. In debt for vacuum sweepers and automobiles; in debt

to the doctor and the dentist; in debt even for the clothes on our
backs in many cases. Literally millions of people were living
two and three families in a house. A large percentage of young
married couples had never been able to move out of the homes of

their parents. We were a Nation of people whose normal lives were
being depressed from every angle by the burden of debts.

191

- 10 Some of it was foolish debt, some of it was debt brought
about in an effort to maintain a typical American standard of
living, and much of it was just out and out unavoidable debt.
But whatever it was, it was there. Even before we entered the
war, when it became obvious that civilian goods would be curtained, that automobiles and vacuum sweepers were to go completely

out of production, we wisely curtailed and stopped installmentplan buying. Then it was that the American people -- and chiefly
the American working people -- began to get out of debt. They
began to be a Nation of people dealing on a cash basis. They
began to pick up these back debts that had been hanging over

them, in some cases for many years. Everything indicates that
much of the new-found gains of the working people have gone to
7

pay those debts.

But this does not in any sense lessen the danger of inflation,
Even the payment of debt could not about enough of in dange
for every dollar that to ie spont, no matter how wisely, ie a dollar

befeft can he spent

spent to absorb some part of a constantly shrinking supply of goods
and services.

talker a great deal about

an here today or the average American, The man

I

A

who is making about three thousand dollars a year -- because he is

the one
who will have to pay most of any increase in taxes.
the
In x high income brackets, taxes are already levied at such

a rate that they cannot be materially increased and still be

collectible. Moreover, the vast majority of people are in these

- 11 -

192

lower income groups, and taxation, like everything else in
America is a product of, and subject to, the wishes of the
majority. Therefore they are the ones who must be satisfied,
because they are the ones who must pay the bill.

I might add that they are the ones whose spirits cannot
be broken, and whose incentive must be maintained, if we are to
continue to get the tremendous was production necessary to

victory. Therefore, I will say without hesitation that the means
should
employed in the new tax bill must be agreeable to them -- as

agreeable as it is possible for any plan that sets out to take
their money.

193

wraysed

I will go stop Arther, I will say that NO not only need to get more

One ? the things hemust do - not Even to salisfy While the every

money from most people, but we need actually to give tax relief to some people.
Take, as an example, the average married man with two dependents making

$1500 a year -- and there are hundreds of thousands like him through out the
country. To this man, making less than $30 a week, a tax of $50 a year is
a burden -- a burden many times heavier to him than a one much larger would

prove to be to a person making a few hundred dollars more a year. The seriousness
of this problem deepens as we find the man making a thousand dollars or the

many

widow supporting her children on $800,00 there are thousands like them. In
the face of unavoidable price rises, in the face of increased living expenses

all along the line, it is my feeling that these people need relief far more
desperately than the Nation needs the pittancez we could get from them in
taxes.

will

The program which I want to present to you today takes that into
consideration.

- on mustigations among average Americans

There is one further general recommendation that I want to make -- that

that every possible step be taken in at this
session to reduce the complications in our tax laws which make it necessary for

even the / smallest

whe taxpayer to fill out highly complex and difficult tax forms.

it
I think we made it as simple as it was possible to make under the terms of the

We spent a great deal of time attempting ton simplify the September 15 forms.

very complicated law / passed in the last session. Part of our simplification
was accomplished, very frankly, by postponing many of the difficult calculations
until the March 15 filing. We are now working on the simplification of the

March 15 form, but I want to say frankly that it is my feeling that the public
resentment against any tax form that can meet the requirements of this present
tax law will cause a great deal of resentment among the American people.

-

194
I am sure that Congress agrees that there is a great deal of room

for simplication in our tax laws. I can not here go into the details of

certainly

continue

simplification, but I want to recommend the companation of the Victory Tax
with
into the Income Tax. That is part of our proposal. The Victory Tax serves
especially to complicate return forms. The Tax in itself is complicated and

it is calculated differently and on a basis of different exemptions from the
income tax. Consequently, there is no present way of simplifying it on a tax

form to such an extent that the man in the street oan and will take it in his
stride.

To combine this tax with the income tax it will be necessary to raise the
$624 exemption limit now on the Victory Tax, but it will not have to be raised
out of reason. And any loss of revenue which the Government may suffer by this

means -- and there is not a great deal -- is far less important than the goodwill of the American taxpayer. That's why I am urging that it be done.
Let me tell you now about our specific recommendations for the tax program
which I sincerely hope can be passed before the end of this year, thereby making

it possible to spare the public the complication of retroactive taxes.
I am recommending a program to increase federal collections by approximately

10.5 billion dollars for a full year of operation under conditions anticipated
for the near future.

I recommend that these taxes by raised through an increase in Estate and

Gift taxes, corporation taxes, selected taxes, and dividual income
taxes.

Estate Taxe
Estate Taxes have been a part of our federal tax structure since 1916,
but the total contribution has been unduly small. In this period ahead when
great additional revenue is necessary, estate tax balances should contribute

as heavily as possible to the cost of the war along with other groups of taxpayers.
I am suggesting that the exemption for Estate taxes be reduced from $60,000 to

-3195
****

CORPORATION Taxe

$40,000; that Estate and gift tax rates be increased throughout the

scale," by so doing, we can raise an additional 400 million dollars
on 8 full year's basis. It is recommended that corporation taxes
in

be increased. Despite heavy increases

taxes, the net income of

the into of
have sleading usersince 1939 one
billion

corporations remaining after taxes

dollars 8 year. After paying dividends, corporations with net
incomes will have added to their capital out of earnings, an estimated
16 billion dollars during the years of 1941,42, and 43. We therefore

in genape

recommend that corporation$ taxes be raised from 40% to 50% in

general, but that small corporations should be given more favorable
treatment than corporations general. Our schedule for increasing
corporation taxes has been worked out along this line and will

raise an additional 1.1 billion dollars. In order to protect
corporations in the adjjustment period after the war, I recommend

the streng thening of the two-year carry back OI the provision for
more cash refunds.

Exase , are

It is the belief of the Treasury Department that

can increase in excise tax rates, and the imposing of any excises,

is an ideal way to raise additional money during a war period. In

-

such & time, increases in these taxes farx have much to recommend

Little or no increase in administrative machinery is required.

Items can be sleected that are commodities and savings which need
to be conserved for war purposes and additional taxes can be placed upon

-4-

196

optional items of expenditure such as liquor and tobacco. The
fitted
tax rates that we are suggesting have been settled to the war

on

time conditions of supply and demand and each item separately.
When these conditions

change recommend
- shall revision of the tax
will

rates under the schedule which we have presented to you in detail,

we can raise an additional 215 billion dollars through increases in

new
present excise tax rates, and through any excises.

s PACE

The tax increases of which I have spoken -- the Estate and

Gift taxes of four hundred million dollars, the corporation taxes

of 1.1 billion dollars and the excises of 2.5 billions add up to
a total of 4 billion dollars. This, of course, is nowhere near
enough. Collections under the existing tax laws during the 'iscal
year of 1944 XXX are expected to amount to 39 billion dollars. This

which

thente

revenue is e prospective deficit of 70 billion dollars, #
0

must

be met by borrowing to the extent that additional tax revenue is
not secured. In order to reduce this borrowing load, I an recommend-

ing increases in individual income taxes to yield an additional
memo

proper

6.5 billions. With any sort of equitability in the tax structure,
these additional taxe
it is obvious that our population can

pay

this increase, as

the income payments to individuals after taxes have in the past
few years been increased by several times the increase in EXEX
income taxes which have been thus far imposed.

5-

197

Adding this 6.5 billion to the 4 billion derived from other
taxes, would total 10.5 billions for a fullyear of operation.
Frankly, this is still not enough but it is as much as we can
justifiably recommend, realizing the limitations of taxation processes.
It is as much as we can justifiably ask without causing undue hard-

ship on those without an increased ability to pay. To take care
In
of those who have a vast increased ability to pay -- and of these,
of course, there are a great many -- we must maintain at full speed
our war loan campaigns, which we know are cutting deeply into the
increased earnings of those American people who have such earnings

In setting and planning a schedule to raise this 6.5 billion
dollars in additional Xtaxes, we have merged the Victory Tax into

the income tax beginning with 1944 The post war credit which is
now part of the Victory Tax, and which varies in percentage according
should

to the parental and marriage status, will be maintained in principle.
However, since current offsets allowed against the post-war credits

in the Victory tax practically eliminates its post-war character,
I propose the introduction of genuine post-war credits to protect
INX the income of the lower income groups.

SXXEEXXXXX Since, however, it would be impractical to start

income as low as 1624, sugges slight increase
these expenstions which amounts also to a Towering of personal
exemptions in the income tax.

198

-6Insurance

I recommend that this post-war credit be paid in the form
of the

of Survivors insurance. This would supplement the

Social Security Act. If, however, the taxpayer didn't wish to
take this refund in insurance, he could receive it in cash at a
25% discount below the value of the post-war credit for the purchase
of NAXXY insurance.

I further suggest that this post-war credit be made immediately
available for the protection of persons with fixed incomes,
especially those in the lower brackets who might be subject to
undue hardships because of tax increases.

I should like to take à moment now to tell yonexactly how
this income tax schedule will work in actual practice.

Take, for

example, a married person with two dependents; under the present
law, the exemption would start at $1900; under the EXEREAX proposal,
exemptions would start at $1700.

A person earning a thousand dollars a year will pay a gross
tax under the present law of $25, of which $11 is his refundable

Victory tax credit. Under the new proposal, he will not be re quired to pay tax.

If such a person is earning $3,000 ayear, he is now paying

8 gross tax of $377, of which $60 is his refundable tax credit.
Under the new proposal, he would pay $384 gross tax, of which

$78 would be refunded. He is thus paying $57 more in gross taxes,

--

199

or $39 more in net taxes. A married person with two dependents
earning $8,000 a year is now paying at the rate of $1,735 of which

$182 is his Victory tax refund cr dit. Under the present proposal
he would pay $2,523 of which $292 is refundable. IXMXX he would

thus pay $788 more in gross tax or $678 in net tax.
At $25,000 per year, a married person with two dependents
is now paying $10,171 of which $597 is refundeble.
Under the new proposal he would pay $13,750, of which $500
under the insured moman
******** the maximum allowable in any one year would be refundable.

He would thus be paying $3,579 more, or 8 net tax increase of $3,676.

spree

It is my belief, and the bolief of the Treasury Department
that the proposalI have just made, te raise 10 up billion dollars
in additional taxee, is as equitable as any tax so huge could
X

possibly be. It is inevitable that some injustices will be done,
but these will be greatly modified certainly by the relief provisions
which are included. By combining the Victory tax with Income

Tax, we can greatly simplify paper work on the part of the taxpayer --

and I might add that this could be further simplified by abolishing

that the concern consider

earned income credit, which I strongly recommend to the Congress
to consider.

I am sure that Congress realizes that there are many

changes in the tax syste which have no men tioned. Important

loop-holes still remain to be eliminated. I realize however, that

-8-

200

it may be impossible to tell dea ith most of these loopholes,
we may need befor the end of the year, and therefore consideration

of such matters at this time may unduly delay passage of this bill.
I am sure the Committee is well aware of the necessity of

expeditious action. The imposition of retroactive taxes is never
entirely satisfactory and under our new current payment legi lation,
retroactive taxation would be difficult to apply. This means that
the tax bill should become law in time to place the increases in
operation on January 1, 1944.

The Treasury stands ready as always, to give such help and

cooperation as the Committee might wish. Mr Paul and the Treasury

staff are prepared to do their utmost to assist.

201

last part

There is one further recommendation I should like to

make to this Committee. It is not a part of the tax proposal
but it baree bears a distinct polat knship ionship to it. I should like to

recommend, as enthusiastically as I know how, ********* that
d

you

you enect on amplifi y ation and extension the present Social

Security lawe taxes,
or
A substantial increase in this tax would be of great service

in diminishing the threat of inflation.
It could be used to abserb at least three billion dollars, and
these three Dillion dollars would came from the dangerous areas

many
Sound

I have tal ked to a great number of people ****** who would
be concerned wi th - an increase in ^ taxes. I have been met with
enterest and enthusiasm wherever Social Security has been

suggested as a means of raising money to fight the war, and

bane been assured

to lay the groundwork for the coming peace. I em mine that the
people who would have to pay this additional tax can see the

( henreson

wisdom of mak ing additional sacrifices, 50 meet the bill

Ar my estimation, this is the best possible solution
20

to the problem with which we are faced; the problem of getting

still more

new

a great deal of money from the people who have any money --

and getting it without arbitrarily taking it awaysimply because
they now happen to have it.

We have made arrangements to re-establish *** our fighting
men economically when they return to build new lives on the sound

2 last part

202

foundations on the Victory they will have won; and now we must
also keep in mind

on that same sound foundation of Victory, working men, and

on the home that many wan are

)

farmers, and all other peoplerant now covered by Social Security
must also build new and better lives.

Therefore, I suggest as the Chief Fiscal Officer of this

seriously

Government, that the Congress sincerely consider raising more
money, over and above the present tax proposal, by widenting

SocialSecurity to cover practiallyall persons in the Nation,
to increase employment insurance benefits, and to provide benefits

for the temporary disability and hospitalization.

To do this

will cost the American people, chiefly those earning up to
$3,500, approximately 3.7 billions. The necessary additional

payroll tax of 1.6 billion_dollars will mate a total of

5.36

dollars for Social Security purposes -- and for the immediate
purpose of helping finance the war.

1 these low-meme paper
There is no pretense on the part of American working

people and farmore and add the there that they could CO :fortably

meet this bill. It is known by them, and admitted by us to be
a sacrifice; but it is felt by the leaders and spokesmen for

themselvis

these people, and by those of the peopley with whom I ha e tal ked,
that because we are Speeding expanding Social Security's

advantages and are permitting these people to invest in their

futures, this sacrifice will be made willingly. The pepple will

additional bunder

find a way to meet the bill without resentment.

#
5

203

MEMBERS OF CONGRESS:

I want to present to you today the Administration's
suggested program for raising additional taxes to help pay for

the war. But more than that, I want to explain why this program WAS devised in its present form. I think you are entitled
to know not only the decisions we have made, but our reasons
for making those decisions.

Because of the huge cost of the war, it is necessary for

us to deal in astronomical figures. The budget for the fiscal

year 1944 calls for 109 billions in expenditures. And while it
may be possible, and I hope it is, to curtail some governmental
expenditures, we cannot be frugal about the war. We know by

now that our willingness to supply the necessary funds, no

matter how large, has had a definite effect on the lives of our
men in battle. The superior fighting equipment which we have
produced and bought -- the medical equipment, the sulfa drugs

and the blood plasma -- all of which has been frightfully expensive, saved the lives of thousands of American fighting men.
The money that is expended on lend-lease to keep the enemy

engaged on dozens of fronts all over the world -- that has saved
untold lives.

These things, in the aggregate, have helped to build the
war cost to its present huge proportions, but I am sure you

- -2 -

204

will agree, and I am sure the American people agree, that it is
worth while.

In the face of huge amounts of money to be raised, we are
met with a very serious problem of creating for the American

people a new tax program that is fair and equitable.
We must raise huge amounts of additional money for financing

the war and combating inflation, and yet in doing it we cannot
overlook the fact that there is a point beyond which some people
cannot deduct from their pay envelopes or farm incomes and still
keep a family going. There is a point beyond which they cannot

meet the tax bills and still maintain a standard of living which
will permit them to continue to help in the effective prosecution
of the war, or of their duties in the civilian economy which is
necessary to support the war.

I am telling you this to emphasize the fact that the Treasury
Department has not arbitrarily set down a figure of 10.5 billion
dollars as the amount to be raised, without regard to the
problems which exist, and which must be met. We have, over the
past several months, asked the help of every executive branch

of government having any relationship to taxes, including the
Army and the Navy. And I think we have examined every conceivable

plan to raise additional taxes as equitably and efficiently as
possible.

-3-

205

We have measured these plans against;

First, the ability of the plan to raise money.
Second, the degree of hardship the plan places upon

people with fixed incomes and with fixed obligations; and
upon people with grossly inadequate incomes;and

Third, its practicability and cost from the standpoint

of its Administration. No plan is good if it won't work,
or if it further tries the patience of the taxpayer who is
already burdened with too much and too complicated paper
work.

One of our chief considerations in developing a tax program
has been the drawing off of what is called "excess spending
money." It has been estimated that income payments to individuals

will amount to 152 billion dollars in the fiscal year of 1944.
The amount of goods and services available can absorb only about

89 billion of this 152 billion. Personal taxes will reduce this
figure by 21 billion at the present rate, leaving a total of
about 42 billion dollars. of this 42 billion dollars we expect
to draw off a substantial amount in the sale of War Bonds to
individuals -- but how much can be drawn off in this way we can-

not, of course, foretell at this point. We do know that during
the calendar year 1943 -- that is to say, through the three
drives which we had had, and the regular Bond sales which go

206
-

on month after month -- we will have absorbed at least 17 billion
dollars of this dangerous money in this way.

yours way
That of course still leaves a substantial amount of money

that the consumer will have to spend; and as the production of

civilian goods is decreased, and the supply of things to buy
becomes progressively more limited, the danger of inflation
mounts.

We, at the Treasury, have made numerous recommendations

over the years to help prevent our being caught in a whirlpool

of rising prices. As far back as October 16, 1940, with the
cost of living having then risen about two points, and wholesale prices having gone up about five points, the Treasury called
attention to the incipient development of inflationary pressure,
resulting from the capacity shortages then beginning to appear

in various basic-material industries. Steel, zinc and copper
had already gone up in price, and consumer purchasing power was

on the rise. It became obvious even then that we would need to

restrict purchasing power or increase production, if this bud
of inflation were to be nipped.
Something over a year later, on December 18, 1940, I said,
in recommending a major expansion in the steel program, "My

interest in forestalling potential inflationary developments
that would reflect unfavorably on the economy of the country, as

well as our whole fiscal program, and in guarding against possible

207

-5shortages of defense materials, leads me to express my serious

concern over the growing congestion in the steel industry. It
seems to me that an immediate major expansion program for the

steel industry is clearly called for."
On March 19, 1941, I set up the Defense Savings Staff and
on May 1 introduced the series E, F and G Savings Bonds in an

effort to absorb individual savings and to forestall the

potentially inflationary effects of the expenditures of these
funds for consumers' goods.

On September 9, 1941, I told an audience in Boston that --

and I quote -- "If we fail to use the controls at our disposal
now, if we fail to do the specific things which are in our power
to check inflation now, if we allow prices to go on rising as
they did from 1916 to 1920, we may find that food, fuel, shelter,
and clothing which now cost a dollar will once more cost almost
twice as much before the process has ended." At that time I

suggested specific anti-inflationary measures including:

(1) extension of Social Security;
(2) control over bank credit and selected capital
expenditures; and

(3) reduction of non-essential governmental expenditures.
A few weeks later I appeared before the Banking and Currency

Committee on the Price Control Bill and called attention to the

208

-6terrible urgency of the inflation problem. I then pointed out
the alarming similarity of the present price pattern to that of

the first World War. I said -- and I quote -- "It is true, of
course, that price control alone will not conquer inflation.
This Bill alone cannot stop price rises. Every government that
has attempted to check inflation has found that direct price
controls alone cannot hold down the lid when the income of the
consuming public is increasing and the amount of goods available

to the consumer is decreasing. Additional steps are necessary.

"If we are to be sure of victory in the fight against
inflation, we must prepare further to increase taxes. We may
have to extend the general controls over bank credits. We shall
certainly have to reduce capital expenditures for non-defense
needs, and widen the sale of Defense Savings Bonds and Stamps."
On December 27, 1941, we inaugurated the Payroll Savings

plan for the regular and systematic sale of United States Savings

Bonds to wage earners. Within & year, nearly twenty-five billion
workers were regularly buying Bonds through payroll deduction.

They were deducting nearly eight and one-half percent of their

pay, or a total of over 350 million dollars.
At the present time
average of

million workers are deducting an

percent of their pay, or a total of over million

dollars a month, and the figure is rising constantly.

209

-7 On March 3, 1942, I appeared before this committee and

proposed an increase in revenue of 7.6 billion dollars. I
stated that the chief duty of the new revenue act was to help
check inflation, and -- I quote -- "Nothing in the economic
field can interfere with the war effort as much as an uncontrolled

rise in prices. An inflationary price rise is R source of grave
social injustice."
I have given you this background to remind you that this
inflationary tendency is something that has been with us over
a period of years, something against which we must constantly
stand guard.

Today, two-thirds of all the income of the nation is
going into the pay envelopes of people earning less than three
thousand dollars a year; and for this reason the people earning
something over a subsistence wage, but le ss than three thousand

dollars a year, present a great potential danger from t he

inflationary standpoint. In the aggregate, this huge group
of people -- a group estimated to number around million

--

possess a great deal of excess money, and it is the weight
of this excess money that can cause undue price rises, and can
completely upset our entire economic system.

Having this in mind, and also the need for additional funds
to finance this most expensive war, the Treasury set a goal early
this year of twelve billion dollars as the amount of money which
should be raised by new taxation.

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210

Since this goal was set as an ideal worth sproaching, the
Treasury has done considerable investigating. We have gone outside the Treasury offices, outside of Washington. We knew that
twelve billion dollars was a great dealof money, and as we
progressed in our investigations, we became more and more cognizant

of the problems we would have in levying so huge a tax on anything
like an equitable basis.

In order to check statistical information against the actual
situation in which the American taxpayer finds himself under war

conditions, we made actual observations in the field. lie tal ked
to families; we talked to actual people -- people who pay rent,

feed their families, and meet the extra bills which wartime living
saddles upon them. We checked closely the response of working
people and farmers and other groups in the Bond Drives. We made

8 small survey of incomes and expenditures in one war wealthy

industrial city; a survey of people at various income levels.
In fairness to the average American citizen, we must say
that for everyone who is over-earning and over-spending; for

everyone who is buying "silk shirts" as in the last war, there
are hundreds upon hundreds who are not, regardless of what

increase they might have had in their incomes.

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We found too that a great economic transition has come

over this nation since the war began. We came out of a de-

pression -- out of a series of depressions -- into this period
of prosperity. This was not the case in the last war.
Before Pearl Harbor, we were a nation of people in debt.
Te were in debt for money we borrowed to get along on during
the lean years. In debt for vacuum sweepers and automobiles;

in debt to the doctor and the dentist; in debt even for the
clothes on our backs in many cases. Literally millions of
people were living two and three families in a house. A large
percentage of young married couples had never been able to

move out of the homes of their parents. We were a Nation of
people whose normal lives were being depressed from every angle
by the burden of debts.

Some of it was foolish debt, some of it was debt brought
about in an effort to maintain a typical American standard of
living, and much of it was just out and out unavoidable debt.
But whatever it was, it was there. Even before we entered the
war, when it became obvious that civilian goods would be curtailed, that automobiles and vacuum sweepers were to go completely

out of production, we wisely curtailed and stopped instal lmentplan buying. Then it was that the American people -- and chiefly
the American working people --began to get out of debt. They

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- 10 began to be & Nation of people dealing on a cash basis. They
began to pick up these back debts that had been hanging over

them, in some cases for many years. Everything indicates that
much of the new-found gains of the working people have gone to
pay those debts.

But this does not in any sense lessen the danger of inflation,
for even the payment of debts could not absorb enough of our

dangerous dollars -- and every dollar that is left can be spent
to absorb 80.10 part of a constantly shrinking supply 65 goods
and services.

I am talking a great deal here today about the average
American, the man who is asking about three thousand dollars a

year -- because he is the one who will have to pay most of any
increase in taxes.

In the high income brackets, taxes are already levied at
such a rate that they cannot be materially increased and still

be collectible. Moreover, the vast majority of people are in
these lower income groups, and taxation, like everything else

in America is a product of, and subject to, the wishes of the
majority. Therefore they are the ones who must be satisfied.
because they are the ones who must pay the bill.

I might add that they are the ones whose spirits cannot be
broken, and whose incentive must be maintained, if we are to
continue to get the tremendous war production necessary to

- 11 victory. Therefore, I will say without hesitation that the means
employed in the new tax bill should be agreeable to them -- as

agreeable as it is possible for any plan that sets out to take
their money.

One of the things we must do -- not to satisfy the low income person but to be just to him -- is to make allowance for
hardship cases. Even while we are setting out to get more money

from most people, we need actually to give tax relief to some
people.

Take, as an example, the average married man with two
dependents making $1500 a year -- and there are hundreds of

thousands like him throughout the country. To this man, making

less than $30 a week, a tax of $50 a year is a burden -- a burden many times heavier to him than anonauch larger would prove

to be to a person making a few hundred dollars more a year. The
seriousness of this problem deepens as we find the man making a

thousand dollars or the widow supporting her children on $800 --

and there are many like them. In the face of unavoidable price

rises, in the face of increased living expenses all along the

line, it is my feeling that these people need relief far more
desperately than the Nation needs the pittance we could get from
then in taxes.

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- 12 The program which I will present to you today takes that
into consideration.

As a result of our investigations among average Americans,

there is one further general recommendation that I want to make that every possible step be taken at this session to reduce the
complications in our tax laws which make it necessary for even

the smallest taxpayer to fill out highly complex and difficult
tax forms.

We spent a great deal of time attempting to simplify the
September 15 forms. I think we made it as simple as it was
possible to make it under the terms of the very complicated law

passed in the last session. Part of our simplification was
accomplished, very frankly, by postponing many of the difficult
calculations until the March 15 filing. We are now working on

the simplification of the March 15 form, but I want to say

/?

frankly that it is my feeling that the public resentment against
any tax form that can meet the requirements of this present tax
law will cause a great deal of resentment among the American
people.

I am sure that Congress agrees that there is a great deal

of room for simplification in our tax laws. I cannot here go

into the details of simplification, but I want certainly, to
recommend the combining of the Victory Tax with the Income Tax.

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- 13 That is part of our proposal. The Victory Tax serves especially

to complicate return forms. The Tax in itself is complicated
and it is calculated differently and on a basis of different
exemptions from the income tax. Consequently, there is no

present way of simplifying it on a tax form to such an extent

that the man in the street can and will take it in his stride.
To combine this tax with the income tax it will be necessary
to raise the $624 exemption limit now on the Victory Tax, but

it will not have to be raised out of reason. And any loss of
revenue which the Government may suffer by this means -- and

there is not a great deal -- is far less important than the
good-will of the American taxpayer. That's why I am urging that
it be done.

Let me tell you how about our specific recommendations for
the taxprogram which I sincerely hope can be passed before the

end of this year, thereby making it possible to spare the public
the complication of retroactive taxes.
I am recommending a program to increase federal collections

by approximately 10.5 billion dollars for a full year of operation
under conditions anticipated for the near future.
I recommend that these taxes be raised through an increase

in Estate and Gift Taxes, Corporation Taxes, Selected Excise Taxes,
and Individual Income Taxes.

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Estate Taxes

Estate Taxes have been a part of our federal tax structure
since 1916, but the total contribution has been unduly small.
In this period ahead when great additional revenue is necessary,
payers

estate tax balances should contribute as heavily as possible to

the cost of the war along with other groups of taxpayers. I am
suggesting that the exemption for Estate Taxes be reduced from

$60,000 to $40,000; that Estate and gift tax rates be increased
throughout the scale. By so doing, we can raise an additional

400 million dollars on a full year's basis.
Corporation Taxes

It is recommended that corporation taxes be increased.
Despite heavy increases in taxes, the net income of corporations

remaining after taxes have steadily risen since 1939 at the rate

of one billion dollars a year. After paying dividends, corporations with net incomes will have added to their capital out of
earnings, as estimated 16 billion dollars during the years of
1941, 42 and 43. We therefore recommend that corporation taxes

in general be raised, but that small corporations should be given
more favorable treatment. Our schedule for increasing corporation
taxes has been worked out along this line and will raise an

additional 1.1 billion dollars.

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Excise Taxes

It is the belief of the Treasury Department that an increase
in excise tax rates, and the imposing of any excises, is an ideal

way to raise additional money during a war period. Little or no
increase in administrative machinery is required. Items can be
selected that are commodities and savings which need to be
conserved for war purposes and additional taxes can be placed

upon optional items of expenditure such as liquor and tobacco.
The tax rates that we are suggesting have been fitted to the war
time conditions of supply and demand for each item separately.
when these conditions change, I shall recommend revision of the

tax rates. Under the schedule which we will present to you in

detail, we can raise an additional 215 billion dollars through
increases in present excise tax rates, and through new excises.

The tax increases of which I have spoken -- the Estate and

Gift taxes of four hundred million dollars, the corporation taxes

of 1.1 billion dollars and the excises of 2.5 billions add up to

a total of 4 billion dollars. This, of course, is nowhere near
enough. Collections under the existing tax laws during the
fiscal year of 1944 are expected to amount to 39 billion dollars.

This threatens prospective deficit of 70 billion dollars, which
must be met by borrowing to the extent that additional tax revenue
is not secured.

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In order to reduce this borrowing load, I am recommending

increases in individual income taxes to yield an additional

615 billions. With equitability in the income tax program it
is obvious that our population can pay these additional taxes,
as the income payments to individuals after taxes have in the
past few years been increased by several times the increase in
income taxes which have been thus far imposed.

Adding this 6.5 billion to the 4 billion derived from other
taxes, would total 10.5 billions for a full year of operation.
Frankly, this is stillnnot enough but it is as much as we can
justifiably recommend, realizing the limitations of taxation
processes. It is as much as wen can justifiably ask without
causing undue hardship on those without an increased ability to

pay. To take care of those who have a vastly increased ability
to pay -- and of these, of course, there are 8 great many -we must maintain at full speed our war loan campaigns, which we

know are cutting deeply into the increased earnings of those
American people who have them.

In planning a schedule to raise this 6.5 billion dollars
in additional income taxes, we have merged the Victory Tax
into the income tax.

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- 17 The post-war credit which is now part of the Victory Tax,
should be maintained in principle. However, since current

offects allowed against the post-war credits in the Victory Tax
practically eliminates its post-war character, I propose the
Introduction of genuine post-war credits to protect the income
of the lower income groups.

I recommend that this post-war credit be paid in the form
of Survivors insurance. This would supplement the insurance

provisions of the Social Security Act. If, however, the taxpayer didn't wish to take this refund in insurance, he could
receive it in cash at a 25% discount below the value of the postwar credit for the purchase of insurance.

I further suggest that this post-war credit be made
3

imediately available for the protection of persons with fixed
incomes, especially those in the lower brackets who might be
subject to undue hardships because of tax increases.

I should like to t ake a moment now to tell you exactly how

income
actual
this tax schedule will work in practice. but
Take, for example, a married person with two dependents;

under the present law, the exemption would start at $1900; under
the proposal, exemptions would start at $1700.

A person earning a thousand dollars a year will pay a gross
tax under the present law of $25, of which $11 is his refundable

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220

Victory Tax credit. Under the new proposal, he will not be
required to pay tax.

If such a person is earning $3,000 a year, he is now pay ing

8 gross tax of $377, of which $60 is his refundable tax credit.
Under the new proposal, he would pay $384 gross tax, of which

$78 would be refunded. He is thus paying $57 more in gross

taxes, or $39 more in net taxes. A married person with two
dependents earning $8,000 a year is now paying at the rate of

$1,735 of which $182 is his Victory tax refund oredit. Under
the present proposal he would pay $2,523 of which $292 is refundable.

He would thus pay $788 more in gross tax or $678 in net tax.
At $25,000 per year, a married person with two dependents
is now paying $10,171 of which $597 is refundable.
Under the new proposal he would pay $13,750, of which $500 -the maximum allowable under the proposed program -- would be

refundable. He would thus be paying $3,579 more, or a net tax
increase of $3,676.

It is my belief, that the proposal I have just made, is as
equitable as any tax so huge could possibly be. It is inevitable
that some injustices will be done, but these will be greatly
modified certainly by the relief provisions which are included.

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- 19 By combining the Victory Tax with Income Tax, we can greatly

simplify paper work on the part of the taxpayer - and I might
add that this could be further simplified by abolishing earned
income credit, which I strongly recommend that the Congress
consider.

There is one further recommendation I should like to make

to this Committee. It is not a part of the tax proposal but
It bears of distinct kinship to it.
I should like to recommend, as enthusiastically as I know
how, that you amplify and extend the present Social Security
taxes.

A substantial increase in these taxes would be of great

service in diminishing the threat of inflation.
I have talked to many people who would be concerned with

an increase in Social Security taxes. I have been met with
interest and enthusiasm wherever Social Security has been
suggested as a means of raising money to fight the war, and

to lay the groundwork for the coming peace. I have been assured
that the people who would have to pay this additional tax can
see the wisdom of making the necessary additional sacrifices.

In my estimation, this is the best possible solution to

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222

to the problem with which we are faced; the problem of getting
still more money from the people who have new money -- and

getting it without arbitrarily taking it away simply because
they now happen to have it.

We have made arrangements to re-establish our fighting
men economically when they return to build new lives on the sound
foundations on the Victory they will have won; and now we must

also keep in mind on that same sound foundation of Victory,
working men, and farmers, and all other people on the home front,
many of whom are not now covered by Social Security, must also

build new and better lives.

Therefore, I suggest as the Chief Fiscal Officer of this
Government, that the Congress seriously consider raising more
money, over and above the present tax proposal, by widening

Social Security to cover practically all persons in the Nation,
to increase employment insurance benefits, and to provide benefit

for temporary disability and hospitalization.
To do this will cost the American people, chiefly those
earning up to $3,500, approximately 3.7 billions. The necessary

additional pay roll tax of 1.6 billion dollars will make a total
of 5.36 billion dollars for Social Security purposes -- and for
the immediate purpose of helping finance the war.

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- 21 There is no pretense on the part of these low-income people

that they could comfortably meet this bill. It is known by
them, and admitted by us to be a sacrifice; but it is felt by
the leaders and spokesmen for these people, and by those of the
people themselves with whom I have talked, that because we are

expanding Social Security's advantages and are permitting these

people to invest in their futures, this sacrifice will be made
willingly.

The people will find a way to meet the additional burden
without resentment.