Full text of Diaries of Henry Morgenthau, Jr. : Volume 680 : Part 1

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DIARY

Book 680

November 25-28,1943

-cBook

Page

Correspondence

Mrs. Forbush's mail report - 11/26/43
Currie, Lauchlin
See Occupied Territories: Army Planning Board in

680

74

London, England

-7Financing, Government

War Savings Bonds: Redemption of Bonds - Likert (Department

of Agriculture) survey - 11/26/43
a) Discussion by Treasury group - 12/21/43:

11

See Book 686, page 19

-HHarrison, George L.
See Occupied Territories: Army Planning Board in
London, England

-LLend-Lease

United Kingdom: Federal Reserve Bank of New York statement
showing dollar disbursements, week ending November 17,
1943 - 11/26/43

102

Likert, Rensis (Department of Agriculture)

See Financing, Government: War Savings Bonds
(Redemption of Bonds)
-M-

Morgenthau, Henry, Jr.
Dairy Farm: Changes, including deal with neighbor named

Orme and auction of cattle, discussed with Clarence LeHan 11/27/43

159

-0 Occupied Territories
Army Planning Board in London. England:
See also Book 655

HMJr-George Harrison conversation concerning Treasury

representative - 11/27/43

Stimson-HMJr conversation - 11/29/43: See Book 681,
page 1

(See also Book 682. pages 128.130.179)
FDR-HMJr conversation concerning Harrison. Currie, and
Landis - 12/21/43: Book 686, page 31
a) Currie-HMJr conversation: Book 686, page 139

b) War Department dissatisfaction with Currie

recommendation reported to HMJr by McCloy 1/3/44: Book 689, page 136 ; Book 690. page 13

McCloy tells HMJr "all planning postponed by jurisdictional
row" - 12/23/43: Book 686, page 242

156

-RBook Page
Redemption of Bonds
See Financing, Government: War Savings Bonds

(Likert survey)

Revenue Revision
1943 Revenue Bill
See Book 679

See also Statements by HMJr (Book 680)

Statements by HMJr

Before Senate Finance Committee, on 1943 Revenue Bill,

November 29, 1943
See also Book 679: Revenue Revision

Conferences of Treasury group to discuss drafts 680

11/27-28/43

168,284

a) Blough draft

212

b) Gaston

230

.

c) Smith

242

d) Vinson to be shown finished draft (see page 324)

323

e) Smith's additional drafts - 11/29/43:
See Book 681, page 7

f) Reading copy - 11/29/43: Book 681. page 140
1) HMJr took with him
a) Sullivan memorandum concerning cost of

administration of retail sales tax:
Book 681, page 136

b) Comparison of excise taxes and postal
rates under present law, Treasury
proposal, and House bill: Book 681,
page 129

c) War expenditures, 1943, including

Government corporations: Book 681,
page 134

d) Comparison of new estimate of income

payments to individuals for fiscal
year with tabulation for last few

years: Book 681, page 135
e) Redemption of United States Savings
Bonds through October 31, 1943:
Book 681, page 137

f) Paid advertising for bonds: Record of
Senate Finance Committee votes:
Book 681, page 139

g) Discussion of testimony by Treasury
group - 11/29/43: Book 681. page 158
1) Lack of attendance of Committee
members indicates "they have already
made up their minds"

h) Newsreel statement - drafts of 11/30/43: Book 681. page 239

-WBook

Page

680

273

War Manpower Commission

Withholding of taxes at source in connection with
importation of workers from foreign countries
discussed in correspondence between Commission

and Treasury - 11/27/43

War Savings Bonds
See Financing, Government

1

0

DEPARTMENT OF STATE

P

Y

Washington

N REPLY REFER TO

November 25, 1943

D 102.1/9496

The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses a letter
dated October 22, 1943 addressed by the Honorable Jan H.

Hofmeyr, Minister of Finance of the Union of South Africa,

to the Secretary of the Treasury, in reply to the latter's

letter of September 14, regarding the revised draft of the
proposals for an International Stabilization Fund.

Mr. Hofmeyr's letter was transmitted under cover of despatch no.360 dated October 26, 1943 from the American Legation
at Pretoria.
Enclosure:

Letter addressed to the
Secretary of the Treasury
dated October 22, 1943.

2

Ref: F.S. 1/99/1

C

0

P

Treasury,

Y

Pretoria,
22nd October, 1943.

My dear Mr. Secretary,

I write to acknowledge receipt of your letter
dated September 14th, together with the revised draft of the tentative

proposals for an International Stabilisation Fund. I have taken a
keen interest in the proposals for stabilising currencies, which we

all hope will lead to the forging of an effective instrument for
dealing with the currency dislocation resulting from a great war.
The new proposals and the development of the idea of currency stabili-

sation will be carefully studied by me in conjunction with my technical
experts.

I have noted with pleasure your reference to

Dr. Holloway. I am very glad to know that his visit to Washington

was helpful from your point of view. It was certainly most helpful
from ours.

Yours sincerely,
/s/ Jan H. Hofmeyr

The Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
WASHINGTON, D.C.,
U.S.A.

3

Chungking

CM

This telegram must be
paraphrased before being
communicated to anyone
other than a Governmental

Dated November 25, 1943

Rec'd 11:54 a.m.

agency. (SCOO)

Secretary of State,
Washington.
must

U.S. URGENT

110

guarded.

2235, November 25, 10 a.m.

(1) Dr. Chi, General Secretary of Board and of
Exchange Control Commission called on ME yesterday

morning and informed ME he had just been instructed

by Kung to clarify the following points on Kung's behalf (from Adler to Secretary Treasury only refer
Embassy's 2231, November 24 and your 1672 November
20)

(a) While Kung had no Dijection in principle to
sale of gold in China on our account he deemed it
inadvisable on additional ground that other governments
had raised question and if he agreed in our case he
could not refuse them.

(b) HE would have to review questions raised in
conversation of November 23 with Generalissimo and

Cabinet before being able make final decision (correction foregoing paragraph should be lettered C
repeat c).

4

-2- #2235, November 25, 10 a.m. from Chungking
repeat c).

(b) repeat (b). . HE wished to make it clear in
connection with his offer of forty to one (Embassy's
2231, paragraph 4-b) that what he had in mind was
China's eventually crediting the amount OVER and above

the official rate paid to us for United States currency
to reverse Lend LEASE.

(2) Called on Kung yesterday EVENING and he confirmEd above. No comment is necessary.
GAUSS

WSB

5
0
a

NOT TO BE RE-TRANSMITTED
COPY NO.

12

BRITISH ST SEBRET
U. SECRET

OPTE No 386

Information received up to 10 A.M., 25th November, 1943.
1. NAVAL

NORTHERN WATERS. Heavily escorted convoy of 19 ships has ar-

rived in North Russian ports without incident.
MEDITERRANEAN. 23rd. One of H.M. Minesweepers was sunk and

minad off MADDALENA (N. SARDINIA). One of H.M. Submarines is overdue in
AEGEAN and considered lost.
2. MILITARY

ITALY. Bridgehead over SANGRO now extends 6 miles inland from

coast. North of CASTEL DI SANGRO our troops met stiff opposition from enemy
who is also holding heights N.W. of ALFEDENA. PIZZONE (5 miles S. of ALFEDENA)
clear of enemy.

RUSSIA. Russians have gained ground north of GOMEL, west of
RECHITSA and have reached KHEINIKI (50 miles S.W. of GOMEL). German attacks

S.W. of KIEV have been repulsed.
3. AIR OPERATIONS

WESTERN FRONT. 23rd/24th. 1,239 tons dropped on BERLIN.

24th. Typhoons damaged four minesweepers off Brittany Coast. Mosquitoes
made low level attacks on power stations at VANNES and STHERBOT (S.E. of BREST).

24th/25th. Aircraft despatched - BERLIN 6; Intruders 3; anti-shipping 3;
leaflets 9.
ITALY. 22nd/23rd. Wellingtons (one missing) dropped 64 tons

effectively on airfield and railway station at CIAMPINO (five miles S.E. of
ROME)

ALBANIA. 23rd. Escorted Spitfires bombed roads and mechanised
transport in area of VALONA.

6

November 26, 1943
MEMORANDUM

TO: Secretary Morgenthau

FROM: Mr. Gaston

I talked to Dave Lawrence and to Paul Wooten today.

I think Dave is opposed to any substantial additional

taxes and willing to string along with the House bill, but
he wouldn't say so. His main idea was that we should try

to get agreement with the Senate leaders on a fixed ratio of
taxes to budget expenditure, whether it be 33-1/3 per cent,

40 per cent, or 60 per cent, and then attempt to lay it in
the lap of Congress to enact a bill to reach that ratio. He

said one of the chief factors creating resistance to demands
for higher taxes was uneasiness about the post-war situation.

He thought that businessmen feared that extraordinary war

taxes would carry over into peace-time and that if we really
intended that the added taxes we propose now would terminate

after the war we ought to say so very plainly. Businessmen,
he said, are greatly troubled about insufficient reserves and

conversion costs. I told him it was my opinion that the cost
of orderly liquidation both of personnel and material involved

in war contracts ought to be borne on a fair basis by the
Government and I didn't think that problem was a tax problem,
to which he agreed. He thought we ought to overhaul adminis-

tration of the Bureau of Internal Revenue. The great difficulty
facing the business taxpayer, he said, is delay in adjudication
of tax matters so that it is years after the event before they
know their actual liability. He told me his corporation was
in the excess profits area and he didn't complain about the

excess profits but he did complain about knowing where he stood.

He said also that lawyers advised their clients to under-pay

rather than over-pay their tax liabilities since it was so extremely difficult to get a refund. Also he stated the tendency

of our agents and Bureau representatives before granting a

refund to rake through the taxpayer's books to try to find
some counterclaim to offset against it. He didn't think the

7

-2-

Bureau was at all political but that this sort of thing was

the result of the career men's efforts to make a good record
in protecting the revenue.
Paul Wooten is a Democrat from New Orleans; is sympathetic

with the Administration and sympathetic with our desire to get

substantial additional taxes. He is, as you know, Chief

Correspondent and representative here for McGraw-Hill Publications, including Business Week, as well as correspondent for
New Orleans newspapers. He is close to Senator Overton, who

is a strong advocate of the sales tax. I summarized our

objections to it, which he seemed to recognize as having
validity. His main ideas regarding your appearance before
the Senate were: (1) a strong general statement without too

much detail as to our definite suggestions; (2) rallying
Administration forces behind our position. It was news to
him that we had consulted representatives of various other
departments before presenting our suggestions to Congress.

He

had suggested this as something we should have done and was

surprised to know that we had actually done it. He thought
we ought to whip principal officers of the Cabinet and heads
of independent agencies into line as an Administration matter
to go up and present a solid front on our demand for additional
taxes. He was surprised, as were others to whom I have talked,
to learn that our income tax proposals would have imposed the
chief burden on the income group below $5,000. I gave him

figures of approximately 3-1/2 billion out of the 6.6 billion
as falling on incomes up to $5,000 and he made note of the
figures. I also explained to him the status of the 9 million

who would have been excused and explained to him the complications of the House Committee minimum tax plan.

wr.

AK

November 26, 1943

MEMORANDUM FOR THE SECRETARY

You inquired about the comparison of taxes and
expenditures made by Godfrey N. Nelson in the New York
Times of November 7, 1943. Upon analysis the figures
presented by Mr. Nelson prove to be very misleading.

1. Ratio of revenues to expenditures
Mr. Nelson asserts the ratio of revenue to
expenditures for all government bodies to be 49 percent
in the United States and 52$ percent in the United King-

dom for fiscal 1944. Allowing for legitimate differences
of opinion, his revenue estimate for the United States is
several billion above the highest reasonably likely figure.
The British ratio, on the other hand, is biased downward
by failure to include extra budgetary funds for social
security and war risk insurance, and to recognize that
the British budget figures include substantial items not
requiring domestic finance. Social security is already
accounted for in the United States figures, and expenditures not requiring domestic finance are too small to
affect the ratio appreciably.
Mr. Nelson's ratio of 49 percent for the United
States 18 about 3 percentage points too high and the
ratio of 52 percent for the United Kingdom is approximately 10 percentage points too low. The difference
is about 15 percentage points in favor of the United
Kingdom, instead of 3 as given by Mr. Nelson.
2. Per capita comparisons
Mr. Nelson repeats the usual misleading comparison of revenue and expenditures on a per capita basis

with the faint qualification that "the significance of
these comparisons is not easily appraised." He thus
fails to allow for the fact that our per capita income

18 much higher than the British and also fails to note
the arbitrary nature of comparisons resting on exchange
rates.

8

9

-2-

3. Ratio of government expenditures to national income

Mr. Nelson arrives at a ratio for government
expenditures to national income of 76 percent for the
United States and 60.5 percent for the United Kingdom.
This difference results entirely from the use of noncomparable measures of national income for the two
countries. The ratio for the United States is based on
a figure of $152 billion which Mr. Nelson erroneously
describes as "national income," although it actually
represents "income payments to individuals. His estimate
for the United Kingdom is based on a figure which is aimed
as an estimate of "net national income at market prices"
although as such it is apparently too high. Had Mr. Nelson
presented estimates for the United States on the basis used

for the United Kingdom he would have had to show the United

States ratio lower than the British.

The object of comparing government expenditures with

national product is to establish what proportion of national
output the government is absorbing for the war. For this

purpose the appropriate comparison is between "government
expenditure for domestically produced goods and services"

and "gross national income at market prices.' The resulting
ratios on this basis are 54 percent for the United States
and 51 percent for the United Kingdom, a difference of
3 percentage points in contrast to the 15 percentage points
difference given by Mr. Nelson.

4. The "slant" of the Times article
It is interesting to note that the headline of
the Times article reads "U. S. Taxation Goal Overtops
British" although in the text the ratio of revenues to

expenditure is shown to be 49 percent for the United States
against 52 percent for the United Kingdom.

On the basis of the erroneous comparison of government
expenditures to national income, Mr. Nelson makes the astounding argument that our government expenditures on the basis of

British experience are excessive in the amount of nearly

$24 billion, and from this concludes that the Treasury's tax
goal is inadvisable.

Rough Stough

10

The New York Times.
NOV 1943

respect to the avoidance of a major

Inflation, our aggregate expenditures should not exceed 601/2 per
cent of our national income, in
amount $91,975,200,000, as against
actual expenditures of $23,847,800.

TAXATION GOAL
OVERTOPS BRITISH

Figures for United States
The latest estimate by the Treas

ury of Federal revenues for the

current fiscal year ending June 30.
1944, is $41,500,000,000. Current
rate of revenues, however. indicate
total of $45,000,000,000. For sev-

eral years the annual revenues of
the States and local governments

Revenues Here Put at 49%

have been running at the rate of

of Expenditures, Against

ditional $2,000,000,000 from new
Federal taxes, our aggregate rev-

521/2% for United Kingdom
PER CAPITA RATES HIGHER

$10,000,000,000. Counting on an ad-

enues should be $57 1000,000,000. On

the basis of the total expenditure
figure of the Economic Record
($115,823,000,000), our revenues
should be over 49 per cent of expenditures.

Considering that our war dis-

bursements have been averaging

Morgenthau's Comparison of

about $7,162,000,000 a month ($21,-

000 in excess of that amount: and
it will be noted that this excess in

itself is almost equal to the total
expenditures of the United King
dom. These staggering comparisons

show the inadvisability of Secretary Morgenthau's taxation goal
and make one ponder over the
economic effect of the Treasury's
planning

It is reported that two tax modifications are in contemplation, one

affecting corporations and the
other Individuals. The corporate
proposal is that the excess profits
tax be increased from 90 to 95 per
cent. estimated to yield a revenue
of about $600,000,000. Apart from

the fact that any extremely high
rate of tax encourages waste and

extravagance and discourages econ-

omy and efficiency, the excess
profits tax exaggerates inequali.

Instead of increasing further the
excess profits tax it is suggested
that the differential over the rate
of 90 per cent be allowed as a be
serve for post-war readjustments,

By GODFREY N. NELSON

500,000,000 for the first quarter)
It is unlikely that we can expend,
for all purposes, the amount of the
President's budgetary estimate of
$106,000,000,000. It is not unlikely, therefore, that our ratio of revenues to expenditures will exceed
that of the United Kingdom.

Means Committee responds to the

these ratios, however, is the rela-

the tax would be unimportant as

Levies Analyzed-All Forms
of Taxes Included

When the House Ways and
Treasury's call for $10,500,000,000

A more important aspect of

tive effect they will have upon

raise not more than $2,000,000,000.

our economy. In meeting our outlay, we are making per capita ex-

the question whether taxes are not
now high enough calls for serious

for the British, and we are raising
per capita revenues of over $420,

of more taxes with a proposal to

thinking. One way of answering

the question as to whether the peo-

ple should pay more taxes is by
weighing the effect of the present
tax load upon our fiscal economy.
Secretary of the Treasury Henry

Morgenthau Jr. suggests that be
cause the United Kingdom is raising by taxation over 50 per cent of

its national expenditures, we should

do likewise. Despite the fact that
we are spending more than four
and a half times what the British
are spending, we are not far behind them in the ratio. In order to
make this comparison, from available statistics we must include
revenues and expenditures of "all
governments" of each country.
According to the June issue of
Economic Record. published by the

National Industrial Conference

Board, the estimated revenues of
the United Kingdom for fiscal year
ending March 31, 1944, are £3,176,-

000,000 equal, at $4 to the pound
sterling, to $12,704,000,000; and
their expenditures are £6,051,000.-

000, equal to $24,204,000,000. Thus

their revenues are nearly 52 1/2 per
cent of their expenditures.

penditures of $846, as against $500

as against $260 by the British.
While the significance of these
comparisons is not easily appraised, it bears directly on the

ties and compounds hardships.

in addition to the 10 per cent post-

war excess profits credit. It would
appear that the additional yield of

U.S. TAXATION GOAL
OVERTOPS BRITISH
Continued From Page Seven

degree of sacrifice our people are

compared with the beneficial ef-

Expenditures Here Higher
Another prevailing impression is

period of transition from a war to

asked to bear.

that we are spending for the war
and for the support of the Federal
and local governments a smaller
proportion of our national income
than the United Kingdom. Accepting the Treasury's estimate of our
national income for the current
fiscal year of 152,000,000,000, and
the Economic Record's expenditure
figure of $115,823,000,000, the ex-

penditures are 76 per cent of our
national income; whereas, estimat-

ing the national income of the
United Kingdom at $40,000,000,000,

their expenditures are only 601/2
per cent of their national income
the national income is based on
Economic Record's figure for 1942

dt £8,603,000,000, plus an estimated

increase of nearly 7 per cent for

fects on business obtainable in the
a peace basis.

The second contemplated tax
modification is a proposal to de-

crease the personal exemptions and

credits for dependents. The purpose
of the proposal la to reach the vast
amount of national income not now

within the taxable brackets of the
income tax. The Injustice of this

method of raising new taxes should

be obvious: While new taxpayers
would be added the Impact upon
those already paying taxes would

be more than ten to one: every

million dollars collected from new
taxpayers would place an addi-

tional load of ten millions on

present taxpayers. A retail sales
tax is the only levy which would

yield a substantial amount of

the years 1943 and 1944)

revenue and would spread the burden according to purchasing power

economic program appears to have

Mr. Nelson, scho is an authority on

Thus, if we accept the British
experience as a criterion, whose

kept them on a fairly even keel in

The opinions expressed herein by

taxation, are his own and not nec.
essarily those of THE NEW YORK
TIMES.

11

Finished

TREASURY DEPARTMENT

CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE Nov. 26, 1943
TO

FROM

Secretary Morgenthau
Mr. Haas

AM

I am transmitting herewith a memorandum prepared

by Dr. Rensis Likert of the Department of Agriculture
covering the results of a survey which investigated

the circumstances under which people redeem savings
bonds. The survey was made by means of interviews
with persons who had redeemed a $25 savings bond late

in June or early in July. These redemptions passed
through the Federal Reserve Banks between July 6 and
July 12, and it was from the record of payments that
the names of persons interviewed were taken. A total
of 293 interviews was conducted, and they took place

in the following six cities: New York, Chicago,

Detroit, Grand Rapids, New Haven, and Peoria.
I. The Typical Bond Redeemer

Dr. Likert summarized the results of the survey
by preparing a description of what he calls the "typical
redeemer". This person is described in the following
excerpt from the report:
"The typical redeemer earns less than $3,000
a year and has a family somewhat larger than
average.

"He buys bonds through the payroll deduction
plan, putting in a somewhat smaller percentage of his pay than do other people on pay-

roll deduction.

"War bonds make up the only liquid reserves
which he possesses.

12

Secretary Morgenthau - 2

"He finds himself in a situation in which he
feels an urgent need for cash. Most fre-

quently this situation is an emergency caused

by illness. Sometimes it is the falling due
of some obligation for which available funds
are inadequate. Other times current bills
pile up too high to be met with available funds.
"Since War Bonds are the only reserves available, he cashes some of his bonds. He does not
redeem all of his bonds, nor does he stop buying on the payroll deduction plan.
"He regrets having to cash his bonds, but he is
grateful that he has accumulated liquid reserves
which can carry him through his emergency." =

II. Statistical Summary of Reasons for Redemption

Dr. Likert drew the foregoing picture of the "typical

redeemer" from a study of the reasons the persons interviewed gave for cashing bonds. These may be of interest
to you, and they are shown on the following pages. In
looking over these reasons it might be well to remember
that Dr. Likert also found that most people do not redeem

all the bonds they own. Three persons out of five interviewed, for example, said they still owned more than five
$25 denomination war savings bonds.

13

Secretary Morgenthau - 3
Uses of Money Received from the Redemption of War Bonds

(As Reported by those Interviewed in the Department

of Agriculture's Survey)

1. To meet emergency expenditures

49%

This general category is composed of
the following:
Expenses caused by illness

35%

Expenses brought about by child-birth
Cost of treatment for teeth or eyes

Expenses caused by death and burial
Cost of unexpected and necessary travel
Current expenses during unemployment
Total

2. To meet necessary and predictable large
expenses

23%

This general category is composed of
the following:
To make income tax payment
To make other tax payment
To make payment on old debts
To purchase coal

To purchase clothing
To purchase household furnishings
To make needed repairs on house
To meet moving expenses
Total

3. To meet current expenses in face of a
shortage of cash

The reasons for the shortage of available

cash are difficult to ascertain precisely.
From one-third to a half of these families
appear to have no money after the basic
needs of food, shelter, and clothing are
tended to Their bond purchases are made

11%
1

3

2

2

2

1

1

23%

17%

14

Secretary Morgenthau - 4

out of a feeling of patriotism, a desire
to go along on the payroll deduction
plan, or a hope to be able to save, but

the pressure of meeting basic needs is
too great to avoid cashing some or all
of the bonds. The remaining half to twothirds of this group appear to have found
themselves short of available cash due to
misplanning or mismanagement. A large

proportion of them tend to spend their

money as impulses to do SO arise and they
find themselves pinched whenever bills
pile up.

4. To make non-essential expenditures

4%

Vacation expenses make up the bulk of

this item. There are a few other uses
such as buying jewelry or other luxury
items.

5. For miscellaneous uses
The major components of this group are the
following:
To make a down payment on a house
To meet business expenses
To change ownership of bond
Other personal reasons
Total

6. Total

7%

2%
1

1

3

7%

100%

15

Secretary Morgenthau - 5
III. Recommendations for a Policy Toward Bond Redemptions

Dr. Likert says that the findings of his survey point

to the conclusion that any direct pressure to prevent sav-

ings bond redemptions through the medium of a publicity
campaign would probably cause more harm than good. He

arrives at this conclusion in the following manner :
1. "The principal causes of redemption at the present
time are:

(a) "Genuine and unexpected emergencies.

(b) "The use of bond money for purposes
which ordinarily would be met from
other forms of saving or borrowing
if the person did not put all of his
reserves into bonds.

(c) "The overbuying of bonds by a small
group of people with low incomes or
with heavy obligations.
(d) "Mismanagement of personal finances.
2.

"Pressure against redemption will have no effect on
the first group other than that of encouraging them
to keep liquid reserves in other forms than bonds.

3.

"On the second group, pressure against redemption

4.

"The third group can be made to reduce redemptions

5.

will certainly discourage the use of bonds as the
principal form of saving.

only through reduction of purchases.
"The fourth group can be effectively reached only
through getting them to manage their finances in a
more systematic way. Public encouragement of budgeting and assistance in doing so would help reduce redemotions among this group of redeemers.

16

Secretary Morgenthau - 6
6.

"There is no reason to believe that, at the present

time, pressure upon people to buy bonds has become
excessive. Most bond redeemers cash only a portion

of their bonds and they continue to purchase after

redeeming. The number of bonds redeemed by people

who cash regularly is still small. Although re-

demptions will undoubtedly increase as people put
more and more of their reserves into bonds, the
point has not yet been reached where a large pro-

portion of the sales do not "stick". Any policy
which reduced sales pressure or which made people
reluctant to put all of their reserves into bonds

would undoubtedly reduce the number of bonds which
these people own - even after redemption.

7.

"The problem of rumors that bonds will not be redeemed is closely connected with policy toward current redemptions. Those people who know that they
can now redeem their bonds are much less likely to
pass along rumors that bonds will not be repaid.
A clear understanding on the part of the public
that the Government is willing to have them redeem
their bonds if they really need to will go far to
counteract rumors that bonds will be frozen or not
repaid. If

17

UNITED STATES DEPARTMENT OF AGRICULTURE

Bureau of Agricultural Economics

A SURVEY CONCERNING THE REDEMPTION OF BONDS

Division of Program Surveys

November 6, 1943

SECRET

18

SECRET
INTRODUCTION

The survey reported here was conducted by the Division of Program

Surveys of the Department of Agriculture at the request of the

Treasury Department. People who have recently redeemed bonds were

interviewed to find out the reasons they had for redeeming in

order that the Treasury Department might have a clearer understand-

ing of its responsibility toward these people.

A full discussion of the technical details of sampling and of

interviewing may be found in the technical appendix attached to

the end of this report.

19

SECRET
The Typical Bond Redeemer

For purposes of convenience, the major trends of the survey may be
phrased in terms of the "typical urban redeemer".

The typical redeemer earns less than $5,000 a year and has a family
somewhat larger than average.

He buys bonds through the payroll deduction plan, putting in a
somewhat smaller percentage of his pay than do other people on
payroll deduction.
War Bonds make up the only liquid reserves which he possesses.

He finds himself in a situation in which he feels an urgent need
for cash. Most frequently this situation is an emergency caused
by illness. Sometimes it is the falling due of some obligation for
which available funds are inadequate. Other times current bills
pile up too high to be met with available funds.
Since War Bonds are the only reserves available, he cashes some of
his bonds. He does not redeem all of his bonds, nor does he stop
buying on the payroll deduction plan.

He regrets having to cash his bonds, but he is grateful that he has
accumulated liquid reserves which can carry him through his
emergency.

20

Recommendations for a Policy Toward Bond Redemptions

Any policy toward the problem of bond redemptions must, of course,
be based upon all of the known facts which have bearing upon the

problem. The findings of this survey, however, point rather
clearly to certain major conclusions.

The most important conclusion is that direct pressure against the
redemption of bonds by publicity will probably cause more harm
than good.

The principal causes of redemption at the present time are:
1. Genuine and unexpected emergencies

2. The use of bond money for purposes which ordinarily
would be met from other forms of saving or borrow-

ing if the person did not put all of his reserves
into bonds

3. The overbuying of bonds by a small group of people
with low incomes or with heavy obligations
4. Mi management of personal finances

Pressure against redemption will have no effect on the first group
other than that of encouraging them to keep liquid reserves in
other forms than bonds.

On the second group, pressure against redemption will certainly
discourage the use of bonds as the principal form of saving.
The third group can be made to reduce redemptions only through
reduction of purchases.

The fourth group can be effectively reached only through getting
them to manage their finances in a more systematic way. Public
encouragement of budgeting and assistance in doing so would help
reduce redemptions among this group of redeemers.

21

There is no reason to believe that, at the present time, pressure
upon people to buy bonds has become excessive. Most bond redeem-

ers cash only a portion of their bonds and they continue to

purchase after redeeming. The number of bonds redeemed by people

who cash regularly is still small. Although redemptions will

undoubtedly increase as people put more and more of their reserves
into bonds, the point has not yet been reached where a large pro-

portion of the sales do not "stick". Any policy which reduced
sales pressure or which made people reluctant to put all of their

reserves into bonds would undoubtedly reduce the number of bonds
which these people own - even after redemption.

The problem of rumors that bonds will not be redeemed is closely
connected with policy toward current redemptions. Those people
who know that they can now redeem their bonds are much less likely
to pass along rumors that bonds will not be repaid. A clear
understanding on the part of the public that the Government is
willing to have them redeem their bonds if they really need to

will go far to counteract rumors that bonds will be frozen or not
repaid.

22

TABLE OF CONTENTS
Page

Introduction
The Typical Bond Redeemer

Recommendations for a Policy Toward Bond Redemptions

I. Uses Made of Money Received from Cashing Bonds

II. Some Illustrative Families
III. How Many Bonds Has Each Redeemer Cashed?

IV. Financial Reserves Held by Bond Redeemers

V. Financial Situation of Bond Redeemers
VI. Spending Behavior of Bond Redeemers
VII. The Bond Buying of Bond Redeemers

VIII. Fear that Bonds May Not Be Repaid in the Future
IX. Occupation and Nationality of Bond Redeemers
Technical Appendix

1

3

10

11

12

13

14

15

16

23

I

USES MADE OF MONEY RECEIVED FROM CASHING BONDS

24

The solution to the problem of bond redemptions can best be guided
by an understanding of the purposes for which people now cash bonds.
What uses of money do people now see to be important enough to
bring them to cash their bonds? How is the money paid out by the
Treasury in bond redemptions being spent?
The following table presents the uses made of money received from
bonds as reported by those interviewed in the survey:
1. To meet emergency expenditures - 49%

This general category is composed of the following:
Expenses caused by illness
Expenses brought about by child-birth

35%
3

Cost of treatment for teeth or eyes

5

Expenses caused by death and burial
Cost of unexpected and necessary travel 2
3

Current expenses during unemployment

5

2. To meet necessary and predictable large expenses - 23%

This general category is composed of the following:
To make income tax payment
To make other tax payment
To make payment on old debts
To purchase coal

To purchase clothing
To purchase household furnishings
To make needed repairs on house
To meet moving expenses

11%
1

3

2

2

2

1

1

3. To meet current expenses in face of a shortage of
cash - 17%

The reasons for the shortage of available cash are

difficult to ascertain precisely. From one-third

to a half of these families appear to have no
money after the basic needs of food, shelter, and
clothing are tended to. Their bond purchases are
made out of a feeling of patriotian, a desire to
go along on the payroll deduction plan, or a hope

25

-2
to be able to save, but the pressure of meeting
basic needs is too great to avoid cashing some

or all of the bonds. The remaining half to twothirds of this group appear to have found themselves short of available cash due to misplanning
or mismanagement. A large proportion of them
tend to spend their money as impulses to do so
arise and they find themselves pinched whenever

bills pile up.

4. To make non-essential expenditures - 4%
Vacation expenses make up the bulk of this item.
There are a few other uses such as buying jewelry
or other luxury items.
5. For miscellaneous uses - 7%
The major components of this group are the following:
To make a down payment on a house
To meet business expenses
To change ownership of bond

Other personal reasons

2%
1

1

3

26

II
SOME ILLUSTRATIVE FAMILIES

27

-3-

To illustrate the more typical situations which bring people to

cash their bonds, some of the people interviewed in the survey are

here described.

Emergency Expenditures

In this family of six, living in Grand Rapids, Michigan, the father
and mother are both working. The mother is an inspector in a fac-

tory making parachutes and the father is a furnace man in the same
plant. Between them they are now earning $77 a week.

The oldest child of ten looks after the younger children when the
parents are not at home.

The house is a dilapidated duplex, badly in need of paint. The
porch steps are broken down. The house is bare; the linoleum rug
no longer shows a pattern.

The family was on relief for a period during the depression, and
so the war has brought it relative prosperity. The wife is working for the first time since she was married. They have more food,

more clothes, have ordered some coal for the winter (something
which they have never been able to do ahead of time before), and

they have now paid off all of their bills.

Both the husband and wife buy bonds through the payroll deduction
plan, their combined allotment amounting to approximately 10 percent of their combined income.
During June both the husband and wife became ill and each had to

have an operation. At this time both were out of work for over

three weeks. To meet these expenses they cashed some of their
bonds, since they had no other form of savings.

28

Emergency Expenditures

This 50-year-old steel worker in Buffalo, New York, feels that he
is much worse off financially than he was before the war. Due to
a change in the method of computing his wages from piece rates to
an hourly rate, his weekly income has been reduced. At the same

time, prices for all the things he purchases have risen sharply.

To add to his difficulties he suffers from chronic bronchitis.
This illness makes it necessary for him to miss periods of work
rather frequently. Although he lives by himself and has no family

expenses to draw on his weekly pay-check of $40, whenever he is ill
he is forced to hire someone to bring him meals and look after his
needs. Whenever these periods of illness come closely together he
finds himself in a serious financial emergency.
Despite the fact that these extra demands upon his income seen

almost certain to continue in the future, he feels that he should
keep on investing five dollars a week in bonds through payroll
deduction. Even when he is able to work only part of the time,
he has this amount deducted from his paycheck.

On four occasions in the past when his income was reduced he
found expenses piling up so that he felt compelled to cash a bond.
Expressing regret about cashing bonds, he told the interviewer,

"Naturally a man don't like to dig into his savings, but when you
can't do no better what can you do?"

Even with the redemptions which he has made, he still owns ten
$25 bonds. This money, he says, he would never have saved had he
not bought bonds through the payroll deduction plan.

29

Necessary Large Expenses

This Detroit family is made up of a father, mother, and two small
children under five years of age. The father is employed as a
deliveryman for a department store and earns $48 a week.

Due to OPA regulations upon store deliveries, he is unable to get
any over-time work and so his total weekly wage is now lower than
it was before the war. This decrease in income, combined with
increased taxes, rising prices, and the arrival of the second

child in the family, have made it difficult to make ends meet. To
add to the difficulties, illness prevented the father from working
for a period of two months about a year ago.

In order to adjust to these financial pressures, the family car
was sold. Also, the family moved from their rather nice apartment
into an old house which they owned and had been renting to another
family.

To realize this long-term economy, however, it was felt necessary
to make repairs on the house so that it would be comfortable this
winter. Since all of the family's reserves were in War Bonds,
two bonds were cashed to meet the repair bill.
Twelve $25 bonds are still held, and the parents hope to keep them

to help send their children to college.

30

Necessary Large Expenses

The war has hit this middle-aged woman rather hard financially.
Doing office work for the telephone company, her weekly income of
$28 has not been increased since the war began. She is feeling
the pinch caused by the higher cost of living, by higher taxes,
and by her allotment to War Bonds.
To meet these pressures she has moved into a cheaper apartment.
She has had to do without new clothes this summer, which hurts

her very much. She has even curtailed her buying of fruits and
vegetables. She feels keenly deprived and is acutely aware of her
lower standard of living.
Bonds are the only form of saving she has. Under considerable
pressure, she puts 10 percent of her income into bonds. It is
almost certain that she would have no savings if she did not buy
bonds.

On four occasions she has felt it necessary to cash bonds. She
cashed her first bond eight months ago to meet current bills,

then she redeemed two for income taxes, one for moving expenses,

and, finally, one to buy coal for the winter. Since she has been

buying bonds she has not had enough left over from regular living
expenses to meet these large payments.

At the present time she owns four $25 bonds and she still buys on
the payroll deduction plan.

31

-7-

Current Expenses

Even before the war, things were not easy for this Italian family
of seven. The father, working in one of New York City's clothing
factories, found that he was getting too old to earn more than
$30 a week.

Shortly before America's entry into the war, the oldest son began
working, and he was able to help feed and clothe his four younger
brothers and sisters.

A little over a year ago, however, this financial assistance was
lost when the son was drafted. With rising prices and growing
children this family's budget became more and more strained. It
became necessary to open charge accounts, to buy things on time -

a practice entirely new to these people.

The father was asked at this time to buy bonds through payroll
deduction at his work and, even though he felt that he could not
afford to do so, he did not want to seem uncooperative or unpatriotic. So he agreed to have seven percent of his pay withheld for
bonds.

When the first bonds were brought home, the mother immediately saw
an opportunity to buy some clothes for the children, an expenditure

which she felt was very urgent. Since this first redemption,

$18.75 has become "ripe" at roughly two-month intervals, and each

time the children have been in need of clothing.

The oldest daughter has, within the last month, taken a job as a
clerk for the Government. Her earnings will supplement the family
income, but even so, the mother feels that the next bond will
probably have to go for the children's clothes.
"Bonds are a good thing if you can save and put a little away,"
the mother says, "but I can't. If we didn't have to cash them.in
I would like to save them for after the war. Maybe my husband,
who is so old, won't be able to work. Then we could have something
to live on."

32

-8-

Non-Essential Expenditure

This Chicago chemist and his wife have one young child and manage

to meet their needs on $40 a week. Prior to the war, they say,
they never thought of saving; they would spend their money as they

got it. Since the war and the arrival of their daughter, however,
they have begun to think of the future and of the security which
savings will bring them.

When asked at his work to start payroll deduction, the father saw
several advantages in doing 80. As he put it, "Bonds are O. K.
They are a good investment and it is a good deed to the country.
A Government man came to our place and spoke. He said the more

bonds we could buy, the better it would be for the boys overseas.
We're about 98 percent signed up down at our place. I put in
seven percent of my salary."
From time to time he has put extra money in bonds so that he now
owns $450 worth. Apart from insurance, bonds constitute his only
important savings.
In June, when his vacation came, he found that he had no ready

cash with which to enjoy his vacation. Rather than spoil this
time, he cashed one of his bonds. He feels that he took such a
little share of his total savings that it made no real difference

and that he can make it up again sometime when he doesn't want the

money so much.

33

-2
Miscellaneous Uses

The situation in which this family found itself represents only one
of the many different kinds of miscellaneous reasons people have

for cashing bonds.

The family is made up of a father, mother, and one child. Both
parents are now working and both are making considerably more money

than before the war. The war has brought many new opportunities to
Negroes in Detroit.

Even though they resent the increased cost of living, they find
that they have quite a bit of money left for savings. This money
is going into War Bonds and into the mortgage on their new house

"so that we won't lose it if we don't have work after the war".

They have bought $400 worth of War Bonds. Aside from the money

put into these savings, they have no other reserves.

The Detroit riot came as a severe blow to this family. Although
they were not directly involved in the violence, they were greatly
intimidated. For two weeks the husband could not get up courage
enough to go to work. With this loss of income there developed a
temporary financial crisis. It became necessary to get some cash
to meet the on-going expenses. Since bonds were the only source
available, three $25 bonds were cashed.

34

III
HOW MANY BONDS HAS EACH REDEEMER CASHED?

35
-10-

Do people who cash bonds do so regularly or only on occasion? Do

they cash all of the bonds they own or do they keep part of the

bonds that they have purchased?

It is highly significant to find that only eight percent of the

bonds redeemed were cashed by people who admit to redeeming

regularly.
Thirty-three percent of the bonds were cashed by people who claim
to have redeemed on more than one occasion (but not regularly).
The remaining 59 percent of the bonds were cashed by people who
claim never to have cashed a bond before.

These figures indicate that the problem of the regular redeemer,
the person who cashes just as soon as he is allowed to, has been
over-played in rumor. Nor is he always the high-paid war worker,
as frequently alleged. Although the number of regular redeemers
interviewed is too small to permit accurate estimates of income
and occupation, the number of regular redeemers who cash only
because of extreme financial pressure seems high. The Italian

family described in the preceding section is rather typical of
this group.

The great majority of people who have redeemed bonds still own
some bonds. Only eight percent of those interviewed report that
they have cashed all of their bonds.

Approximately a third of those interviewed report that they still
hold from one to five $25 bonds, and about six out of ten state
that they own more than five.

It is clear from these results that even among bond redeemers a
portion of the sales have "stuck". Even though some of these
people may have been "oversold", they keep a fairly large portion
of their bonds.

For only a very small proportion of the population is there evidence that bond sales have been pushed too strongly.

36

IV

FINANCIAL RESERVES HELD BY BOND REDEEMERS

37

-11-

Do bond redeemers have other liquid reserves which they could call
upon in face of the need for cash or are bonds the only available
source of ready money short of borrowing? Do people cash bonds
because they have put all their financial reserves into bonds?
The answers to these questions may be seen in the following figures:
79% of the redeemers say that bonds are their only reserve
8% of the redeemers say they also have less liquid reserves
13% of the redeemers say they have other liquid reserves
The one outstanding fact about bond redemptions is that most people
who cash bonds have no other source of funds other than borrowing.

In formulating policy affecting bond redemptions, this fact should

be kept foremost in mind.

The typical picture of bond redemptions appears, thus, to be as
follows:

A person finds himself in need of cash for one of the
reasons listed in Section I above, his War Bonds are the
only reserves which he has, and so he cashes his bonds.
Since the reasons for cashing have, for the most part,
a great personal urgency and since bonds are the only

source of funds easily available, the pressure on these
people to redeem their bonds is great.

38

V

FINANCIAL SITUATION OF BOND REDEEMERS

39
-12-

It has been seen above that bond redemptions usually arise out of
some financial crisis and that people who redeem ordinarily have
no reserves other than bonds. Do bond redeemers come from lower
income groups or do they tend to be people at each income level who

are having financial difficulty?

The evidence indicates that the second hypothesis is more nearly
true. If one compares the income of bond redeemers with a crosssection of bond owners from cities of similar size, only minor
differences will be found. In other words, bond redeemers have
roughly the same income as people who do not redeem.

Bond redeemers, however, have somewhat larger families than do

other bond owners. While 51 percent of the bond redeemers' families
contain more than three members, only 41 percent of the bond owners'

families are this large. Maintenance costs and susceptibility to

emergency both increase with larger families.

Another fact indicates that the income of bond redeemers is not an

adequate representation of their financial situation. Although

two-thirds of the redeemers are now earning more money than two

years ago, only 39 percent of them feel that their total financial
situation is better than before the war. Three out of ten actually
feel that they are in a more difficult financial situation than
before the war.

In summary, the following facts may be cited:
Among those with incomes under $100 a week, bond redeemers

do not tend to fall disproportionately in any particular

income group;

As in the total population, approximately three-quarters
of the redeemers earn less than $3,000 a year;

Redeemers, by having larger families, are susceptible to
greater financial hasards.

40

VI

SPENDING BEHAVIOR OF BOND REDEEMERS

41

-18-

Are bond redeemers people who spend their money without concern for

long-term needs, or are they simply overwhelmed by financial pressures which they could not be expected to avoid?

The answer to this question is difficult, and no final answer may
be given from this survey. Some suggestive findings, however, are
available. On the basis of an extended interview with each
redeemer an attempt was made to characterize the spending behavior
of each family.

Forty-five percent of the redeemers appear to control their spending

by consideration of their total financial situation, taking into
account their obligations, their financial prospects, and their

long-run needs. These people try to plan and to spend their money
conservatively.

An additional 21 percent of the redeemers seem to spend their
money as wishes arise. They live "from day to day", as they themselves frequently express it. If they have the money when they
think of something they would like to have, they buy it. These

people characteristically assert that, were it not for payroll
deduction they would not now be saving money.

For another 24 percent of the redeemers, the basic needs of food,
clothing, shelter, and medical care take all of the money the wageearner can bring home. It is not known whether or not these people
would plan if they had more money because they have no choice but
to spend all they receive.
For 10 percent of the redeemers, no characterization seemed to be

clearly correct.

These data suggest two conclusions:

1. The bulk of the people who redeem bonds attempt to
handle their finances in a conservative way.

2. There remains, though, a sizeable group who could
avoid financial crises much better if they could be
induced to take a different approach toward spending.

42

VII

THE BOND BUYING OF BOND REDEEMERS

43
-14-

How do bond redeemers purchase their bonds? Do they buy regularly?

Do they feel that they are being forced to buy? How large a portion
of their incomes goes into bonds?

Nearly nine out of every ten bonds redeemed were purchased through

the payroll deduction plan. This means, of course, that bond
redeemers are for the most part regular buyers. Only six percent of

the bond redeemers who were interviewed purchase their bonds irregu-

larly, whereas 26 percent of a cross-section of bond owners in cities

of similar sise buy irregularly.

Considering only regular buyers, it is clear that bond redeemers put
a smaller percentage of their income regularly into bonds than does
a cross-section of regular buyers. Forty percent of the redeemers
regularly invest less than 10 percent of their income in bonds, while
only 15 percent of regular buyers invest this small an amount.
In summary, bond redeemers buy more regularly than other bond

owners, but they invest a smaller percentage of their income than
do other regular buyers.
In an attempt to evaluate whether redeemers were being submitted
to too much pressure to buy, each person was asked whether he felt
that he was being forced to buy too many bonds. Twenty-two percent
of those who have redeemed bonds state that they are being forced
to buy too many. Somewhat less than half of these people indicate
any resentment about the pressure. The great majority of redeemers

feel that they are free to buy the amount they choose or not to buy

at all if they wish.

While it is true that "overselling" accounts for some of the
redemptions, particularly among the regular redeemers, there is

little evidence that selling activities should be diminished. Even
among bond redeemers resentment against high-pressure techniques
has not become widespread.

44

VIII
FEAR THAT BONDS MAY NOT BE REPAID IN THE FUTURE

45
-15-

How important an influence upon bond redemptions is the fear that
bonds may not be redeemed in the future? Does this fear lead any
appreciable number of people to redeem their bonds while the war

is still going on?

Out of a total of 293 interviews with bond redeemers only one
stated specifically that he had redeemed bonds out of a fear of
non-redemption. This person stated that he cashed his bonds to

make a payment on his mortgage when he heard a rumor that bonds
were not going to be any good. The speed and ease with which
he was able to cash his bonds, however, served as a demonstration
to him that the Government was now able and willing to cash the

bonds. After a short time he found that other people were also
able to cash their bonds promptly, so he decided that his fear

had been unfounded and he has reinvested a considerable sum of
money in bonds.

This single case suggests that the present demonstration of the
ready redeemability of bonds may, for a large part of the population, allay fears that bonds will not be redeemed eventually.

To test this suggestion, it is possible to see whether bond

redeemers have greater confidence in the eventual redeemability

of bonds than do other bond owners. While there is no differ

ence between these two groups of people in the number who state

directly that they fear that bonds won't be good, there is a
significant difference in the number who pass on the report that
others express this fear. Only three percent of the redeemers
assert that others fear that bonds won't be repaid in contrast to
13 percent of a cross-section of bond owners.

In other words, the situation seems to be as follows: For a very
small segment of the population, fear of non-redemption of bonds
has lead to cashing of bonds. The concrete demonstration, however,
that bonds are now redeemable acts as a convincing counter-argument

against those who pass along the rumor that bonds will not be
redeemed.

The implication of these findings for bond promotion seems rather
clear. Any publicity which puts pressure upon people not to cash
their bonds is apt to stir up greater fear that the Government
will not redeem the bonds. On the other hand, a feeling that
bonds may be cashed whenever it is necessary undoubtedly makes

many people more willing to put all of their reserves into bonds.

46

OCCUPATION AND NATIONALITY OF BOND REDEEMERS

47
-16-

Are bond redeemers found disproportionately in any particular
groups in the population? Do they tend to concentrate in any
single occupational or nationality groups?
It was seen in Section V that, within the range of income under
$100 a week, bond redeemers do not come heavily from any single

income group. In regard to occupation, however, there are two
tendencies worth noting.

Fewer of the bond redeemers than of the non-redeemers come from

the professional and managerial groups. While 17 percent of the

bond owners fall within this classification, only seven percent
of the bond redeemers do 80.

More of the bond redeemers than of the non-redeemers are semi-

skilled or unskilled workers. Thirty-seven percent of the

redeemers are classified this way in comparison to 24 percent of
bond owners.

For other occupational groups, the proportion of bond redeemers
is that expected from the proportion of bond owners in these
groups.

There is no evidence that people of foreign extraction or that
people from Axis countries are more likely to redeem bonds than
are "old Americans". While evidence is available only for New York,
Detroit, and Chicago, it would appear that "old Americans" are much
more apt to redeem bonds than are these other nationality groups.
While 16 percent of the bond redeemers come from Axis nationalities,
32 percent of the bond owners do so. This relationship contrasts
sharply with that found among "old Americans" where it is found that
53 percent of the bond redeemers are "old American" but that only
32 percent of the bond owners are classified in this way.

Although it is possible that some of the people from Axis nation-

alities reported their nationality background incorrectly, it is

extremely unlikely that enough of them did 80 to account for these
differences. People of foreign extraction seem to feel much
greater social pressure upon them to buy and keep bonds. While
"old Americans" may be criticised as unpatriotic if they cash
bonds, people of Axis nationalities are more likely to be called
enemy sympathizers if they do so.

48

TECHNICAL APPENDIX

49

I

INTRODUCTION *

The tables in the following pages are based principally upon 293 inter-

views with people who have redeemed Series E bonds or with close relatives of these redeemers. These interviews were conducted in the following cities: New York, New York (86), Buffalo, New York (66), New
Haven, Connecticut (21), Detroit, Michigan (32), Grand Rapids, Michigan

(17) Chicago, Illinois (60); and Peoria, Illinois (11) **

The interviews were distributed in such a way as to represent the dis-

tribution of the population in all cities whose population is greater

than 100,000 in the Federal Reserve districts of New York, Boston, and

Chicago.

Respondents were selected randomly from bonds which were being processed
by the Federal Reserve Banks from July 6 through 12. The interviews were

taken the last two weeks of August and the first two weeks of September.

The implications of this method of sampling should be clearly understood.
Strictly speaking, the sample is one of bonds redeemed rather than of
bond redeemers. It is a cross-section of bonds redeemed regardless of
magnitude and regardless of the number of pieces redeemed by the same

individual. Thus, the percentages given in the following tables refer
most strictly to the pieces redeemed. In Table 3, for example, it should
be stated that 35 percent of the bonds redeemed were redeemed because
of illness.
The method of sampling just described tends to load the sample with
people who redeem regularly or who redeem larger numbers of bonds more
heavily than would be the case in a cross-section of the population.
In some of the tables are presented additional data obtained in May from

a national cross-section of bond owner living in cities whose population
is greater than 100,000. Although these people were selected as a random
selection of bond owners (not weighted by the number of bonds they own),
this sample may be taken as a gross basis for comparing bond owners with

bond redeemers.

This study was conducted for the Treasury Department.
An additional 80 interviews were made with people whose names were
drawn from oi ty directories and telephone books. These names were
included in the total sample so that the interviewer wouldn not know
in advance whether or not a particular respondent had redeemed bonds.
Since names drawn in such a manner do not represent a cross-section

of the population, they are not tabulated here.

50

II
FINDING REDEEMERS AND GETTING THEM TO TALK ABOUT REDEMPTION

The basic problem in this survey was to find the person who had redeemed a bond and to get him to talk frankly about the redemption. In
discussions with representatives of the Treasury Department prior to
the survey, it was agreed that every possible precaution would be taken
to conduct the survey in such a way that no feelings of distrust or resentment could be aroused. For this reason it was impossible to insist
too strongly upon seeing a particular individual at the given address
or to press too strongly about the reasons for redeeming.

Table 1 presents the obtained distribution of respondents by their re-

lation to the redeemer. It will be seen that in the great bulk of

cases the interviewer was successful in talking directly to the person

who redeemed the bond.

In Table 2 it will be seen that approximately eight out of every ten

persons interviewed said that at least one bond had been redeemed by
some member of their family.

On the whole, therefore, even though the situation of interviewing was
delicate, it was possible in most cases to interview the person who
redeemed the bond and to obtain a frank discussion of the redemption
from him.

One further difficulty in obtaining a completely adequate sample of
bond redeemers lies in the fact that some of the addresses supplied by
the Treasury were erroneous or non-exist nt. This problem was not
acute in any locality, but in New York City it was impossible to locate
a fairly large number of people first chosen from the list. Due to this
difficulty the sample probably underestimates transients and people who
have reason to disguise their addresses.

51

Table 1. Relation of the Person Interviewed
to the Redeemer

Relation to Redeemer

Percentage

of Interviews

Redeemer was interviewed

77%

Wife or husband of redeemer

13

Other relative of redeemer

10

100%

N=293

52

Table 2. Admission of Redemption by
Respondent

Statement concerning redemption

Percentage of Interviews

States that at least one bond has
been redeemed

82%

Redeemer not interviewed but other
member of family states that no
one has redeemed

Redeemer interviewed but he denies
that he has redeemed

7

11

100%

N=293

53

III
USE OF MONEY FROM BONDS AND FREQUENCY OF REDEMPTION

For each respondent who stated that bonds had been redeemed the used
made of the money were ascertained. These uses are summarized with

their frequency of occurrence in Table 3.
Table 4 presents the reported frequency of redemption by the people
interviewed. About six out of every ten bonds redeemed are redeemed
by people who state that they have cashed their bonds on only one
occasion. Somewhat less than one bond in ten is redeemed by people
who report cashing regularly.
In attempting to appraise the percentage of bond owners who redeem

regularly, two facts should be kept in mind. First, there is probably

a slight tendency for people to report fewer redemptions than have
actually occurred, leading to an underestimation of the number of bonds
which are redeemed regularly. Second, by sampling bonds rather than
individuals, the more frequent redeemers have a greater likelihood of
being included in the sample, producing an over-estimation of the
number of people who redeem regularly

Although there is no quantitative way of evaluating precisely the magnitude of these two counteracting effects, it would appear safe to assert that considerably fewer than ten percent of bond redeemers cash
their bonds regularly.

54

Table 3. Use of Money from Redeemed Bonds as Reported
by Bond Redeemers
Use

Percentage of Intervi ows

Emergency Expenditure

Expenses caused by illness
Expenses brought about by child-birth

35%)
3

Cost of treatment for teeth or eyes

3

49%

Expenses caused by death and burial

3

Cost of unexpected and necessary travel

2

Current expenses during unemployment

3

Necessary and Predictable Large Expenses
Other tax payments
Payments on old debts

11

1

Income tax payments

3

Cost of coal

2

2 23%

Cost of clothing
Cost of household furnishings

1

Cost of needed repairs on house

2

Cost of moving

3

1

Miscellaneous
Down payment on house
Business expenses
Other personal reasons
Change ownership of bond

4

1

Non-essential Expenditures

17

2

Current Expenses in Face of Shortage of Cash

1)

100%

N=240

55

Table 4. Frequency of Redemption Reported
by Bond Redeemers
Percentage

Frequency of Redemption

of Interviews

Reports redeeming only once

59%

Reports redeeming more than once

33

Reports redeeming regularly

8

100%

N=240

56

IV

THE FINANCIAL SITUATION OF BOND REDEEMERS

Tables 5-11 present material descriptive of the financial situation
of bond redeemers, comparing them, whenever possible, with a oross-

section of bond owners in cities of similar size.

In Table 5 it is seen that there are no significantly consistent differences in the weekly income of bond owners and bond redeemers.

There is a possibility, however, that due to the sampling procedure
the income of bond redeemers is overestimated. This possible bias
would operate in the following way: People who cash larger numbers
of bonds are represented more frequently in the sample. People with
larger incomes own larger numbers of bonds and, consequently, are in

a position to cash larger numbers of bonds if they need to. It is probably due to this fact, for example, that relatively few redeemers earn
less than twenty-five dollars a week. They own so few bonds that they
cannot cash many.

Two-thirds of the redeemers are earning more money now than two years

ago (Table 6). This fact does not mean, however, that two-thirds of
the redeemers feel that they are in a better financial situation than

at that time. In Table 7, it is seen that only 39 percent of the redeemers feel that their total financial situation is now better than
before the war. Three out of ten actually feel that they are in a
more difficult financial situation than before the war.
There is no significant difference between bond owners and bond redeemers in the number of members of their families who are employed
(Table 8).

The financial hazards of larger families are reflected in the fact
that the number of individuals in the families of bond redeemers is
slightly larger than in families of bond owners (Table 9). Larger
families not only regularly cost more to maintain, but they also increase the family's susceptibility to financial emergencies.
The great bulk of bond redeemers have no financial reserves other than

bonds (Table 10). For people in this position the only alternatives
in the face of financial crisis are the redemption of bonds or the borrowing of money.

At attempt was made, on the basis of the complete interview with bond
redeemers, to describe their spending behavior in terms of the type

of considerations which control expenditures. In Table 11 the distribution of bond redeemers along such a dimension is presented.

57

Table 5. Weekly Income of Bond Owners and of
Bond Redeemers

Percentage of
Weekly Income
$0-25

Bond Owners

Percentage of
Bond Redeemers

15%

10%

26-35

15

16

36-45

20

25

46-55

22

20

56-75

18

22

5

76-100

Over $100

Not ascertained

4

2

0

3

3

100%

100%

N=339

N=293

58

Table 6. Family Income Now Compared to Two Years
Ago as Reported by Bond Redeemers

Relative Family
Income

Percentage

of Interviews

More now

67%

About same

17

Less now

15

1

Not ascertained

100%

N=293

59

Table 7. Financial Condition Now Compared to
Before the War as Reported by Bond
Redeemer

Relative Financial
Condition

Percentage of
Interviews

Better now

39%

Same as before

29

Worse now

30

2

Not ascertained

100%

N-29 3

60

Table 8. Number of Individuals in Family Gainfully
Employed

Percentage of
Number Employed

Bond Owners

Percentage of
Bond Redeemers

One

63%

63%

Two

22

23

8

Four

Number not ascertained

9

Three

4

2

3

3

100%

100%

N=339

N-293

61

Table 9. Number of Individuals in Families of Bond
Owners and of Bond Redeemers

Number in Family

Percentage of

Percentage of

Bond Owners

Bond Redeemers

Three or less

59%

48%

Over three

41

51

0

1

Not ascertained

100%

100%

N=339

N=293

62

Table 10. Financial Reserves Reported by Bond
Redeemers

Reserves

Bonds only

Percentage of
Interviews
79%

Bonds plus less liquid reserves
Bonds plus other liquid reserves

8

13

100%

N=293

63

Table 11. Rating of Spending Behavior of Bond
Redeemers

Spending Behavior

Percentage of
Interviews

Spending controlled by total financial
situation, obligations, needs,prospects, etc.

45%

Spending controlled by immediate wishes and

desires, little influence of long range prospects

21

Basic needs of food, clothing, shelter, etc. require entire income

No rating possible

24

10

100%

N=293

64

V

OCCUPATION AND NATIONALITY OF BOND REDEEMERS

Comparing the occupation of bond redeemers with bond owners,
two differences emerge. Bonds are redeemed somewhat less frequently by professional and managerial people than would be
expected, from the number of these people who own bonds. On
the other hand, bonds are redeemed more frequently by semiskilled and unskilled workers than would be expected.

From previous surveys for the Treasury the nationality background of bond owners is know for New York, Detroit, and
Chicago. It is possible to compare with these figures the
nationality of bond redeemers in the same cities. In Table
13 it is seen that many more of the fathers of bond redeemers
were born in the United States than were fathers of bond owners.
In other words, considerably fewer of the bonds are being redeemed by first or second generation foreigners than would be
expected from the number of them who own bonds.

65

Table 12. Occupation of Bond Owners and of Bond
Redeemers

Percentage of
Occupation

Bond Owners

Professional and managerial

17%

Clerical and sales

12

Service

Percentage of
Bond Redeemers
7%

15

8
6

Semi-skilled and unskilled

24

37

Skilled

31

29

Retired, students, unemployed
Not ascertained

4

4

5

1

100%

100%

N=339

N=293

66

Table 13. Father's Birthplace of Bond Owners and
of Bond Redeemers in New York, N. Y.,

Detroit, Mich., and Chicago, Ill.*

Nationality

Percentage of

Percentage of

Bond Owners

Bond Redeemers

United States

32%

53%

Axis countries

32

16

Allied and occupied countries

27

20

Neutral countries
Not ascertained

6

3

11

0

100%

100%

N=184

N=178

Only bond redeemers in these three cities are considered
here since comparable data are available for bond owners

in only these cities.

67

VI

THE BOND BUYING OF BOND REDEEMERS

The great bulk of people who have cashed bonds report that they
purchase their bonds through the Payroll Deduction Plan. The
percentage of bond redeemers who buy through the Payroll Deduction
Plan is significantly larger than the percentage of bond owners
who use this method of purchase (Table 14).
Bond redeemers who buy regularly invest a smaller percentage of
their income in bonds than do other regular bond buyers. (Table 15).
Each person interviewed concerning the redemption of bonds was
asked whether he felt that he was being forced to buy too many

bonds. Thirteen percent report that they are compelled to buy,
but they appear to accept the compulsion without resentment. Nine
percent report that they are compelled to buy and that they resent
the compulsion (Table 16). The great majority feel that they are
free to buy the amount they choose or not to buy at all if they
wish.
Most of the people who have redeemed bonds still own bonds after

their last redemption. Only 8 percent report that they have no
bonds left (Table 17).

68

Table 14. Usual Method of Purchase by Bond Owners and by
Bond Redeemers

Percentage of

Percentage of

Method of Purchase

Bond Owners

Bond Redeemers

Payroll deduction

66%

87%

Regular - own system

Irregular
Not ascertained

6

27

1

4

6

3

100%

100%

N=339

N=293

69

Table 15. Usual Feroentage of Income Invested in Bonds
by Regular Buyers and by Bond Redeemers Who
Buy Regularly
Percentage of
Income Invested

1 5%

Percentage of

Percentage of

Bond Owners

Bond Redeemers

8%

6 9%

7

10%

65

Over 10%

20

21%

19

51

9

100%

100%

N=240

N=248

70

Table 16. Felt Compulsion to Buy Bonds as Reported by
Bond Redeemers

Report of Compulsion

Percentage of
Interviews

Reports that he is compelled to buy,
but accepts the compulsion

13%

Reports that he is compelled to buy,

Not ascertained

70

8

Reports that he is not compelled to buy

9

and resents the compulsion

100%

N-293

71

Table 17. Maturity Value of Bonds Owned by Femilies of Bond
Redeemers After Last Redemption

Maturity Value of Bonds
Has none left

Percentage Owning
Each Amount
8%

$25 $149

32

$150 - $349

38

$350 - $649

13

$650 and over

Amount not ascertained

5

4

100%

N=293

72

VII
FEAR THAT BONDS WILL NOT BE FULLY REPAID

For a number of months the Division of Program Surveys has recorded in its various surveys for the Treasury Department all
spontaneous mentions of the fear that bonds may not be fully
repaid.

In Table 18 are presented comparative figures of the frequency
of spontaneous mentions of this fear by bond redeemers and by
a cross-section of bond owners interviewed last May. While the
difference between the two groups of those who state that they,
themselves, fear that bonds will not be redeemed is not statis-

tically significant, there is a significantly smaller number of
redeemers who mention that other people hold this fear.

73

Table 18. Fear of Non-Redemption of War Bonds as Spontaneously
Expressed by Bond Owners and by Bond Redeemers
Fear

Percentage of

Percentage of

Bond Owners

Bond Redeemers

States that he fears that the
Government will not fully repay
States that others fear that the
Government will not fully repay
Mentions neither

3%

13

5%

3

84

92

100%

100%

N=339

N=293

74

MEMORANDUM FOR THE SECRETARY.

November 26, 1943.

Mail Report

Though heavier than it was last week, fan mail

was still a disproportionately small part of the
total receipts.

The usually firey subject of taxes hardly drew a

spark. One correspondent suggested taxing cigarettes
an additional 5c a package; several favored business

or transaction taxes; 2 wanted a retail sales tax; and
so on. A few church officials continued to urge support of the Bill authorizing deduction of anticipated

charitable contributions prior to the levying of the

withholding tax. There were a number of routine inquiries in regard to collecting withholding taxes,
possible refunds, etc.

Increasing interest in the Fourth Bond Drive was
evident in the mail toward the end of the week. Slogans,
sales ideas, and a few samples of promotional material
indicated that both the public and those who will be in

charge of local drives are beginning to think about its
details. Late replies to the telegram asking about
types of securities preferred by business continue to
pick one-year certificates almost exclusively. The 70

Bonds submitted directly for redemption came from
widely separated communities. Complaints were low,
with only 21 reports of delayed Bonds from personnel
of the War Department, and a few complaints about in-

terest not yet received.

The miscellaneous mail was dominated by reports
of foreign-owned property and questions concerning this
census. The Salary Stabilization Amendment and the

steel pennies have practically disappeared from the

mail.

GEFFibush

75

General Comments

Reuben A. Nagel, House o f Representatives, Commonwealth

of Pennsylvania, Harrisburg, Pa. I am enclosing a page
from the December 1943 issue of the Farm Journal and

Farmer's Wife. I have marked an article on this page
that might lead people to think you are not sincere in

your advice and statements. * # * I am a Democrat and

a loyal supporter of President Roosevelt and will appreciate an explanation on this Dairy Matter. I refuse to
believe anything the Farm Journal prints that has to
do with the present Administration until I have verified it from other sources. The Farm Journal hates the
New Deal. I have been told that Joe Pew of the Sun Oil
Company in 1936 acquired a large interest in this farm
magazine presumably to poison the minds of rural people
against F.D.R. They fear they are doomed to endure
another four y ears of what they are pleased to call
dictatorship.
Harry B. Wissmann, Washington, D. C. (In re refund

of $7.04 on Tax Notes not properly figured.) I think
the action exemplified by this letter is fair and square

and certainly shows that not everybody in Washington

officialdom is the cartoonist's idea of a bureaucrat.
I understand why this check came to me, but did not

realize that I had any claim to this sum. Hats.off to

whoever was responsible for handling the whole business

of these Tax Notes, and this aspect of it in particular.
I shall be happy to add the necessary cash to this

check to buy a War Bond that otherwise would not have
been bought.

A. William Emsheimer, The McLure Hotel, Wheeling, W. Va.
Was surprised today when I read in the New York Times
that Leon Frasher advocated we loan England gold, who
defaulted her last War debts. We had our experience
with New York Bankers during the Cleveland Administra-

tion. Europe was taking our gold, which caused a panic.
J. P. Morgan loaned us 100 millions in gold and the

panic collapsed.

76

-2F. D. Marshbanks, Post Office Clerk, Winston Salem,
N. C. At the suggestion of the Wachovia Bank & Trust

Co., I am forwarding to you mutilated currency in the
amount of $17.00. The denomination of the bills is a

ten, five, and two one dollar bills, respectively.
I was instructed to state the cause of the mutilation.

It happened in this manner: While working around the
barnyard, the currency dropped out of my shirt pocket.

I placed it in a can of nails I was using, and very

soon I noticed that it had disappeared. I observed

that a goat was standing by chewing on something.
I opened her mouth and recovered the bills before she

had swallowed them. It is hoped that I am not to be
the GOAT in this instance, and that you will direct
that I be reimbursed in the above amount.

77

-3Favorable Comments on Bonds

Wm. Hume Logan, President, Logan Company, Louisville,

Ky. I congratulate you on reducing the size of the
$100 Bond. You, however, made a little error in the

width. The length is all right, but it is about a
quarter of an inch too wide to fit the standard

envelope. Perhaps you can reduce the width as much

without considerable expense. It will save marring
the looks of the Bond and the inconvenience of folding to fit the envelope.

78

-4Unfavorable Comments on Bonds

Copy of letter addressed to the Division of Loans &

Currency, Chicago, Ill., by William E. Pimentel for
Mrs. Jane MacArthur, Detroit, Michigan. * # * It pains
me to write a letter like this, which I am writing on
behalf of my daughter, Mrs. Jane MacArthur, but your

system of red tape, lack of initiative, unthoughtful-

ness, and everything else combined, gives the average

American citizen who tries to be patriotic and help,
the idea of the utter helplessness of the men who are

blowing through the radio, newspapers, etc., and preach-

ing to us what to do and what not to do. In the first

place, the United States Government sold these Bonds to

us, and failed to make delivery. In the second place,

the United States Government has agencies in every town,

hamlet, village, in these United States. Your issuing

agents messed up this entire affair, not Mrs. MacArthur.
Therefore, the least thing you can do, after six months'
effort, is to determine YOURSELF who is to blame, and
not continue to send forms, blanks, directions to run
around to the other side of town, (and gas rationing on),
and Mrs. MacArthur with two small children that must
be fed and taken to school; while, to follow your

directions, she is running thirty miles roundtrip to
the Anthony Wayne School, or to some branch of the

Detroit Bank, (incidentally, you did not mention what
Branch), to unravel the mess that it should take one

hour's time to straighten out, if it was worked intelligently from your office.

Mrs. Angelina Schanel, Little Ferry, N.J. I have been
working in a defense plant for one year - The Isolantite,

Incorporated, Belleville, N. J. In May of this year the

11 p.m. to 7 a.m. shift was abolished so I had to give
up my job. I could not work days on account of my
children. I have been the personal support of them, and
have called the office four times on the telephone for

79

-5 three days' pay and also War Bond money the company

owes me since May. The only answer I got, "You will
get a check shortly, don't worry". Now six months

have passed and I did not receive my Bond money or my
three days' pay.

Mrs. Alice M. Foss, Trenton, N. J. While a civilian

employee of the Federal Government, I signed for a payroll deduction for Bonds on June 15, 1942, in the amount
of $5.00 per pay period. On October 15, 1942, I increased this deduction to $6.25 per pay period, and
this continued up to, and including January 15, 1943.
As yet I have not received any Bonds. About the first
of May, I wrote to the Federal Reserve Bank of Philadelphia, and they referred me to my Paymaster at the
Tilton General Hospital, Fort Dix, New Jersey, who referred me to the Army War Bond Office, Chicago, Ill.
They, in turn, referred me to the Paymaster at Fort Dix,
who, in answer to my inquiry, wrote me a letter, a copy

of which is enclosed. (The letter reads as follows:)

"In reply to your letter dated 13 September 1943, please
be advised that no settlement of Bonds or Bond balances
for the year 1942 have been received from the Treasury
Department. Immediately upon receipt of same, amount

due you will be forwarded without further delay." Any
advice or assistance you could give me in this matter

would be greatly appreciated.

Archibald McMillan, Edward Lowber Stokes & Co., Boston,
Mass. On September 16 I ordered directly from you $1,000
21% Victory Loan of 1964/9 for my sister Mary McMillan,

a repatriate on the Gripsholm. The check which I enclosed was cashed on September 25, but I have not received the Bond. Not very good service to say the least.
My sister is due home soon and it would be nice if
I could show her something for her $1,000.

80

-6P. Randolph Harris, Gibboney & Harris, 70 Pine Street,

N.Y.C. I wish to call to your attention a ruling of

the Amateur Athletic Union of the United States, which

controls, or purports to control, amateur sports.
The A.A.U. has ruled, as I understand it, that any
person who participated in a rifle match in which
prizes are offered, consisting of War Bonds or U. S.

War Savings Stamps, thereby automatically becomes a

professional athlete and consequently ineligible to
participate in future amateur competitions, whether

rifle shooting or any other sport. Even if the

participant refuses to accept the prize which he or

she may have won, consisting of a $1.00 U. S. War
Savings Stamp, such participation is nevertheless in
the eyes of the A.A.U. a professional athlete, because

he or she has taken part in a competition in which other
participants have received a prize considered by the
A.A.U. to be equivalent to cash. This seems to me a

rank injustice. If the ruling stands, it will prevent
practically every active civilian rifle shooter in the

United States from competing in any amateur sport, including participation in the Olympic games.

Several thousand rifle clubs are in existence all over
the United States. These clubs promote the shooting
game. They train men for entry into the armed forces
of the United States. Many of them give regular
organized instruction to persons who expect in the

near future to be inducted into the Army. * The

practice of offering War Bonds or U. S. Savings Stamps

as prizes in rifle competitions has extended rapidly

all over the United States. It has stimulated the

financial program of your Department. It has promoted
the program of National Defense which is envisioned by
the Act of 1920. It should not be hamstrung by the
A.A.U. ruling to which I have referred.
B. M. Edwards, President, The South Carolina National
Bank, Columbia, S.C. It just seems to me that every

time anybody makes a move up in Washington that they
get the Treasury Department messed up. The newspapers

81

-7are carrying big accounts now of the fact that the
Army is going to save and return some eighteen billion
dollars, and that the Navy is expected to return about
five billion, and they have the public all crossed up
and we are hearing a lot of gossip to the effect that
if all of this money is being returned to the Treasury,
that why is there any necessity for another War Loan
Drive in the immediate future. If these people had
only stated that they were marking off a book transaction and let the people know that the money they are
talking about returning had never been borrowed or

otherwise provided, I think the public generally would
have understood the proposition. These reports are
particularly disturbing to the man who carried the
bulk of the real work in the Third War Loan Drive, and
who expected to do a similar job in the coming drive
which I understand will be sometime the latter part
of January.

The following letter addressed to the President by

Harry Adams, Medina, N.Y., has been forwarded to the

Treasury by the White House: I am writing to you

relative to a matter that I think should be brought to
the attention of the Congress, due to the fact that
U. S. War Savings Bonds are still being sold with the

understanding the buyer can name any beneficiary he

wants, and the entire resources of the U. S. will back
such a sale. Well the Supreme Court in Brooklyn re-

cently ruled the opposite in the Deyo-Adams case which
involves my mother, a widow 72 years of age. # * * My
mother was left $7,000 in U. S. Savings Bonds by her
twin brother in September 1940, when he died, and to
date she hasn't been able to use the Bonds, due to
being sued for the Bonds. Her brother married several
months before he died at 69 years of age, and previous
to that, my mother had taken care of him and their

aged mother for years, while both were ill, and as a
result he left these Bonds to her for her old age.
This suit will be no doubt carried up to the Appellate

82

- -8 -

Division, State Court of Appeals, and U. S. Supreme

Court, and after paying her attorney and the cost of
printing, might as well forget about ever collecting
on the Bonds.

Both my mother's attorney and my

attorney, as I am co-executor of the estate, have received many calls, telegrams and letters from banks,
attorneys and others from all over the United States
interested in the matter, as the Government is still
selling Bonds under the same rules, especially to
service men, knowing that the rules won't hold in the
State Courts. Here is an example of one case I heard
of. A soldier took out Bonds when he first joined the
Army, and about a year later married and kept his
marriage a secret. He wanted his mother to have the
Bonds in case anything happened to him, but after his
death, his wife claimed the Bonds and filed suit, which
under the New York ruling she can do and collect the
proceeds of the Bonds, instead of the Bonds going to

the soldier's mother. I think the Government should
step in, pay the cost of any suits involving such
Bonds, to back up their sales talks so that both mothers

and service men's wives, children and others should be

protected. #

Joe Menges, Cashier, Alta Vista State Bank, Alta Vista,
Iowa. On October 7 we sent a number of U.S.A. Treasury
Bonds, called for payment October 15, 1943, to the
Continental Illinois National Bank and Trust Company
for payment on October 15. We wrote them on October 23
asking why we hadn't received remittance for the Bonds,
and on October 26 they wrote us that the Federal Reserve
Bank of Chicago had advised them that it would be from
two to five weeks before payment was received on the

Bonds. It is November 20 today, five weeks since the
Bonds were called and we still haven't heard from these
Bonds, and it certainly isn't making the people that
have these Bonds feel very good about it. We have had
some Bonds that were sent later, already paid. These
people feel, and well they should, that if they owed
this money to the United States Government, that they
would have had to pay interest, as well as a good stiff

83

penalty, if they waited to pay their obligations, as

has been done in this case, or delinquent five weeks,

and still only pay interest to October 15.

Representative John J. Cochran, Missouri, sends a

letter he has received from Leslie K. Curry, of St.

Louis, Mo. This man is a banker but he does not use

the letterhead of the institution with which he is

connected. I wish you would let me have your reaction
to what he has to say. The people are irritated and
complain about little things they would never look

into at other times. There is no doubt but that there
is a scarcity of paper. I rather agree with him that

we should not be advertising private corporations.

(The following is quoted from Mr. Curry's letter.)

This morning I received a franked package from the
Treasury Department, War Savings Staff, which weighed

2 1/2 pounds, and on which first class postage would
have been from 80g to $1.20, depending on whether it

would carry the local or out-of-town rate. Multiplied
by the thousands of like packages that were probably
sent out, the postage alone would have been consider-

able. Worst of all, the package contained posters
and envelope stuffers relating to a War Bond contest.
The accompanying letter states that the contest is

sponsored by the Missouri War Finance Committee. The

posters carried the additional information that these

prizes ($1,000) of War Bonds are donated by the Seven-Up

Company of St. Louis. * I am not opposed to prize

contests, but there are more important considerations

involved: The abuse of the franking privilege. The
needless waste of paper. * As a business institution,
we are having difficulty in supplying our minimum paper
requirements, and newspapers, I understand, are being

drastically rationed as to newsprint. St. Louis news-

papers in the past have conducted prize contests and
were denied the right to send papers through the mails

which contained any of the price contests or material.
Under what pretense then can the mails be used for this
contest? Perhaps most of all, I object to the adver-

tising of a specific private enterprise at public
expense.

84

- 10 Miss C. Agnes McHugh, Christodora House, N.Y.C. Can

you tell me why you set War Loan Drives on dates which
cause savings depositors such great loss in interest

if deposits are withdrawn during interest periods?
The last drive closed the day before one could withdraw savings without losing three months' interest -September 30. New York interest dates are January 1,
April 1, July 1, and October 1. Drives should be on
same days. You lost thousands of purchases by these
intermediate date drives.

Mary D. Ellett, Richmond, Va. Five weeks ago my
Treasury Bond, 3-1/4 of 1943-45 was sent to Washington
for redemption as it was a Registered Bond. I am
wondering why it has not been attended to in that
length of time, and am anxiously awaiting the check

as it should be invested and I am losing interest
every day. *

#

#

85

- 11 Unfavorable Comments on Taxation

Capt. S. E. Hallagan, Ft. Myers, Fla. Appeal is made

to simplify the income tax returns. It is utterly

ridiculous the amount of economic Greek one has to
wade through to make payments or supplementary pay-

ments, as the first figure can never be figured out

right. The reason many of us don't buy more Savings
Bonds is we're just scared to do business with the
Government.

Sarah Schofield, Huntington Station, Long Island, N.Y.
May I place my letter of complaint before you for your
consideration and action? In March I sent my income
tax returns and thought I was exempt. I received a
reply stating I had to send $14 and some cents, also

stating I could ask for a refund, all of which I did.
I waited for a few weeks, hoping for the refund,
which did not materialize. After writing several

letters to Mr. Pedrick, to which I received no answer,
until July, I wrote explaining it would be a hardship
for me to go in to New York as it meant an outlay of
nearly $8.00, carfare and pay; also asking why I should

be called into the city. This letter and several others
sent to Mr. Pedrick were ignored until October, when

I received the other letter which I am enclosing. (No
refund until after March 15, 1944.) I cannot understand their attitude, and having to give up working,
I could use the money at this time.

Anonymous -- Postmarked Batesville, Miss. I see in
the papers that Congress is contemplating putting a
$10 per gallon Revenue Tax on hard liquors. I suggest
that they raise this to $50 per quart to "New Dealers",
and perchance this might sober them up and curtail
their squandering the people's money like drunken

sailors (as is their present occupation).

86

- 12 Yale M. Leavy, Certified Public Accountant, A.P.O. 619,
Miami, Fla. The undersigned, who has served for the
past year and a half as Chief Project Auditor on War
Department contract work for overseas construction,

would like to call your attention to certain wide-

spread abuse of income tax obligations arising from
a serious defect of the present Revenue Act. The current Act allows American Nationals residing outside
the United States for a full year to have complete
exemption from payment of any income tax on income

earned in the foreign country. It would seem

ridiculous to exempt any United States citizen whose

wages were paid either directly or indirectly by our

Government. Yet this is exactly what is happening on
contracts let by the War and Navy Departments to
American contracting firms for projects in foreign
countries. On these contracts, notably the cost-plus
type, salaries of all contractor employees are reimbursed in full by the Government. Nevertheless,
American Nationals who are employed on the foreign

contract work for a full year, even though they have
been transported to the contract site at Government
expense solely for the duration of the contract, and
are in reality paid out of U. S. Treasury funds, are
permitted complete exemption from income tax. The

situation is illogical and the abuses are manifold.

Needless prolongation of contract employment is encouraged. In cases where contractor employees are

terminated prior to the end of the year, they are
tempted to reside outside the United States during
the balance of the year in order to avoid payment of

income tax. * It should be the policy of the State

Department not to grant or revalidate passports where
the obvious purpose is to complete the year's residence
outside the United States in order to avoid payment
of income tax.

John M. Caffery, Columbia Store, Franklin, La.

When I make a payment of Retail Dealers' Excise Taxes

over $10.00, I must swear to the correctness of the
return before a Notary Public. In making my return
for income taxes, almost a thousand times greater,
I am not required to swear to the truth before a

Notary. I do that when I sign the return. Is there
any law under which we are compelled to go before a
Notary in making these returns on Form 728 A? You
must realize that these petty annoyances mount up
during the course of a year and tend to make a good

citizen almost curse at the many petty tyrannies of
the Government. The purpose of this letter is to ask
if you are compelled by law to require these fool
affidavits? The Government seems to insist upon

treating its citizens much as if they are Al Capones.

<

- 13 -

(

87

88

November 26, 1943.

Dear Mr. Lubell,
On November 15th you forwarded to Secretary Morgenthau

a program for the orderly disposal and disposition of surplus government stocks which had been prepared by the Central

Council of National Retail Associations.
I an enclosing herewith a copy of a memorandum to - from

Clifton E. Mack, Director of Procurement.
Sincerely yours,

(signed) John T. Sulliven
Mr. Samuel Lubell,

Office of War Mobilisation,
323 Washington Building,
Washington, D. C.

JLS.kb

89

COPY

November 24, 1943.

MEMORANDUM TO MR. JOHN L. SULLIVAN:

SUBJECT: Discussion of A PROGRAM FOR THE ORDERLY DISPOSAL AND
DISPOSITION OF SURPLUS GOVERNMENT STOCKS. Presented

by The Central Council of National Retail Associations.
The "Program for the Orderly Disposal and Disposition of Surplus
Government Stocks", submitted to the Secretary for comments by Mr. Samuel
Lubell of Mr. Byrnes' office, is the same document submitted to you by
Mr. Rivers Peterson with his letter of November 2. The proposed program
represents the recommendations of the Central Council of National Retail

Associations, an affiliate of the American Retail Federation.
This proposal represents the thought of responsible businessmen

at the "retail" level of business, and in principle is commendable. It

is designed to protect the economy of established retail business, through
a process of disposal by the Government that will preclude "dumping" stocks
of supplus merchandise and equipment on the open market where it may be
bought un by unscrupulous individuals and firms for speculative purposes.
In general the proposed program is commendable; however some of the

details of arriving at the desired end are worthy of comment and discus-

sion leading to further consideration and clarification. For simplification
I will comment on the numbered paragraphs in the proposal.
1. No comments

2. The intent of this paragraph is commendable, i.e., the disposal
of all property in the same classification (in this case, consumers goods)
should be made the responsibility of one opereting Federal agency, to
which all other agencies would declare property surplus. This is essential
to uniform procedures of disposal and general administration under established policy.

3. The practicality of functionally selling all property from one

central level in Washington is doubtful. The magnitude of the inventory
to be disposed of & will determine whether or not this plan is practical.
However, it is agreed that the policies and methods of sale should be
prescribed from central administration. Apparently this recommendation
is made to facilitate publication in the Federal Register, notices of
all sales, as well as to afford National Trade Associations the onnortunity to cooperate at the central level with the selling agency in
determining which retail dealers should receive invitations to bid.
Cooperation with Trade Associations in the disposal of pertinent items
would be possible at the central level, without functionally selling the
property at that level. See additional comments under paragraph 11.
4. No comments.

-2-

90

5. That part of this recommendation that has to do with simplifying
the condition description of items to be sold is commendable. The Procurenent Division is currently condidering this same proposition. The recommendation made provides for the following condition descriptions of property
available for sale:
(a) New
(b) Used

(1) Serviceable in present condition.
(2) Unserviceable in present condition, but repairable.

Under average conditions, these descriptions should suffice for the type

of property classed as consumers goods.

That part of the recommendation defining "Serviceable" property available for sale as being either "Surplus" or "Excess", is not understood as
having meaning related to the purposes of the proposed program. These terms
are the same used in the current War Department Procurement Regulation No. 7,
and for the purposes of the War Department, they have understandable meaning.

6. It is believed that recommendation numbered 6 needs clarification.
It is the apparent meaning of the opening sentence to prohibit any retailer
from offering goods to the public, under a business name such as "Army and
Navy Store" which would imply that the prime activity of the store is to
dispose of Army or Navy surplus goods. The second sentence would require a
retailer to identify goods as being "new government surplus" or "used government surplus". The two sentences are apparently not in common agreement.

It is also believed that after any government surplus consumers type
of property has been disposed of to any commercial firm for resale to the
public, that such property should no longer be identified as being former
government property. A wheelbarrow would be 3 wheelbarrow.

Other types of property indelibly identified with Government markings,
or that is of a type that could have been manufactured originally only for
a governmental activity could logically be identified AR "Government surplus"
by any retailer offering the goods to the public. Such items might include
fire-arns, blankets, clothing and similar goods, the identity of which could
not be changed.

7. The intent of this paragraph is commendable, i.e., certain items
currently owned by the Government should be disposed of at once in the interest

of meeting civilian requirements that have suffered due to the acquisition by
the Government for war needs, of all of certain types of consumers goods. It
is believed that this paragraph would be more appropriate if it applied to
"Excess" property as defined in paragraph 5, rather than to "Surplus" property.

Certain types of consumers goods right exist in Government war stocks, as
a protection against a reasonable subsequent need that may not be immediately
foreseeable. Such items might, for the want of a better term, be considered

as "Excess" but not necessarily "Surplus". If the civilian requirements for

such items exceed the apparent "stockpile" need in Government, a controlled
quantity of the goods could be made available to retailers through an established
motive outlet. When this is done, the released goods should never be identified for sales purposes, as former Government property, either surplus or

excess.

91

-38 and 9. The subject of these paragraphs is related to the policy
to be established by the Congress or other authorized regulatory office.

No comments are made relative thereto.

10. The recommendations made in this paragraph are believed to represent
good sould practice. Subparagraph (vi), which recommends specification of a
minimum unit of measure or quantity in which any item will be sold, is related
to paragraph 13.

11. The magnitude of the inventory to be disposed of will determine
the practicability of the part of this recommendation proposing that a

condensed statement be made in the Federal Register, "that bids are to be
received" when property is to be sold. This recommendation assumes that

all sales will be arranged for at the central level in Washington, as in-

cluded in recommendation numbered 3. The recommended practice could not be

restricted to "consumers" goods, and if the surplus Federal inventory reaches
the estimated postwar magnitude, it is highly probable that it would be im-

practical to publish notices of all sales in the Federal Register.

That portion of the paragraph recommending that lists of property to be
offered for sale be furnished to National Trade Associations is considered
an excellent idea, and should produce desired results. This could be done
whether or not sales are arranged centrally or in decentralized offices, and
whether or not notices of sales are advertised in the Federal Register.
12. No comments necessary.

13. This paragraph presents certain elements believed to be worthy
of consideration when surplus inventories reach appreciable proportions.
The meaning of this paragraph is connected with the recommendations made

in paragraph 10(iv). Advertisements of property for sale would invite bids
on the basis of "single items, dozen, hundred, gross, etc.", consistent
with the normal packaging of the items. It is proposed that the property
be sold on the basis of the price bid, "the highest bidder receiving the first
allotment, and so through the list of bidders, and without regards to the
quantity bid for so long as it is not less than the minimum specified".
The meaning of the language quoted is not fully understood. If it means
that bidders could purchase any quantity in the unit of measure advertised,

i.c., dozen, gross, hundred, etc., at the highest price bid, and providing
the highest bidder did not desire the full quantity available, the proposal

would seen to have merit. Under this method, competitive bidding would be
for the purpose of determining a sales price satisfactory to the Government

and any retail dealer desiring to purchase any of the property available at
the price thus established, could do so.

If this is what the MXXX paragraph intended to recommend, it would require
appropriate rewording.

/s/ Clifton F. Mack

Director of Procurement

OFFICE OF WAR MOBILIZATION
WASHINGTON DC

November 15, 1943

Byrnes

Dear Mr. Morgenthau:

Mr. Baruch has asked me to send

you the enclosed program for disposing of
surplus goods which was sent in to us by a

group of retailers. He would like to have
the thoughts of the Treasury Department,

particularly the Procurement Division of
the Treasury, on the various suggestions made

in this program.
Sincerely yours,
Enc.

Honorable Henry L. Morgenthau

Secretary of the Treasury
Washington, D. C.

93

A PROGRAM

FOR THE ORDERLY DISPOSAL AND DISPOSITION
OF SURPLUS GOVERNMENT STOCES

Propared and presented by

The Central Council of National Retail Associations
(Affiliate of the American Retail Fuderation)
Through its Committee on

"Disposal of Surplus Government Stocks"

At a moeting in Now York City on October fifth, this committee

(representing eighteon national retail associations covering the country's

retail field) after considorable proliminary study presents the following
program as its unanimous recommondation for the handling of the problom of

distributing surplus United Statos government stocks, both currently and after
the war:
1.

Those recommondations apply only to those types and kinds of morchan-

diso and equipment which are normally sold through rotail establishments to consumers.
2.

The power to dispose of all surplus government goods of whatever
kind, regardless of which governmental agency purchased and holds
them (such as Army, Navy, Reconstruction Finance Corporation, Lend-

Loase, etc.) shall be vested in the Procurement Division of the
United States Treasury.
3.

All offers to sell, invitations to bid, etc., shall be issued from
the Treasury Department in Washington and all offers and orders for

shipment to a buyer shall be handled from that central office in
contrast to the policy of pormitting employees in charge of various
warehouses, depots, etc., to undertake to offer and dispose of the
merchandise under their direct individual supervision.

1us Stocks

4.

-2.

To assist in proparing inventories, lists of offers, and other duties
connected with the disposal of such merchandise, the Procurement

Division shall employ a staff of assistants who aro familiar through
actual experience with the kinds of goods to be sold and the general

trade practices of the types of distributors who handle them.
5.

In compiling inventories and lists of accumulated surplusos there

shall be a clear distinction, by using separate lists and by informative headings, botween products which have been unused and those

which by reason of use, damago or deterioration cannot be offered
by the government, or purchasers from the government, as "new".

All used" proporty shall also be classified in respect of degreo
of serviceatility as serviceable and/unserviceable. Serviceable

property is proporty which is suitable for use in its existing condition. Unsorviceable property is property which is unsuitable for

use in its existing condition. Unserviceable property shall bc
devided into repairable property and non-repairable property: - (1)
repairable property is unservicoable property which can in the best
interests of the government be amended or restored to serviceability;
(2) non-ropairable property is unserviceable property which cannot
in the bost interests of the government be monded or restored to

serviceability. Non-repairable property includes, but is not limited
to, obsolute property. All servicoable property 3hall be classified
in respect of state of supply as authorized, excess and surplus: (1) authorized is the maximum stock level authorized for a particular
organization, supply point, or technical service, and, the amount
for which there is an immediate or dofinitely foresoeable nood for

use in the function, activity, project or industrial operation in
connection with which the property was acquired or accrued (2)
excess is any amount above the authorized amount; (3) surplua is an

Chipplus Stocks

amount declared by competent authority to be, or deemed to be, abovo

the amount for which there is an immediate or definitely foresoeable
need for use in the War, Navy, or other department or bureau.
6.

For the protection of consumers against deception and exploitation,

there shall be a dofinito prohibition against any purchaser of such
goods offering them to the consuming public from any establishment
which by reason of its name (such as "Army and Navy Storo") or

other designation or representation implies that its prime activity
is that of disposing of Army or Navy, or other government surplus
goods. For the further protection of consumers against deception

or exploitation and to prevent unfair competition, all Army, Navy
or any other United States Government surplus merchandise offered

for sale to consumers or other purchasers shall be designated as
"new government surplus" or "used government surplus", and such dos-

ignation shall appear in all advertising, including placards, price
tickets and other display advertising within the establishment offering auch merchandise for sale.
7.

Allocation or disposal of availablo surplus products shall begin as
soon as permissivo logislation is enacted and a propur staff of
assistants has been employed - instead of waiting until the war has
onded.

8.

Proliminary to offering any such products through trade channels at

any level (manufacturer, wholesaler, retailer, others), the Procuremont Division shall allocate the surplus supplies, in varying percontagus according to known or estimated requirements, into the following
groups:

(a) To be rotained for future use of the armod forces or other
governmental agencies.

(b) To be donated immediately, or hold for future use of the
American Red Cross in any of its activities throughout the
world.

Surplus Stocks

(c) To be given, or sold for use in the rehabilitation of the
suffering peoples of the war-torn nations.

(d) The remainder to bo disposed of through established channels

of trade in 3 fair and equitable manner which will offer

the least possible deterrent to speedy full reemployment
of labor as industry converts from war to peace activities.
9.

With respect to (a), (b), and (c) in Paragraph 8, particular attention
shall be given to surplus supplies which have been used but which are

still serviceable with the definite objective of reducing to a minimum
the "second-hund" products which will be sold under section (d), Paragraph 8.

NOTE: The remainder of these proposals arc directed entirely to disposal
of products under section (d) of Paragraph 8.
10.

Disposo of all products in section (a) of Paragraph 8 in accordance

with the following plan:
The lists prepared by the Disposal Section will in all instances:
(1) Indicate whether or not the products are new or used, serviceable
or unsorviceable.

(11) Give location of the warehouse or depot from which shipment will
be made.

(111) Rc sufficiently descriptive, through use of the maker's name,
product size, or number, or both, or by other means, to onable
the prospective buyer to determine the nature and ordinary markot

value of the product without personal inspection of it.
(1v) Show quantity in the shipping container as it is warehoused,

i.e., single item, dozon, hundred, gross, etc., or, if held in
bulk, so specify.

(v) Show total quantity ofagiven product offered from that particular
location.

splus Stocks

-5-

(vi) Specify the minimum quantity of the item on which a bid will
bc considered. (In the case of products packed in shipping
containers ready for reshipment, such minimum quantity should

not be less than the amount in such shipping container. In
the case of products in single unit shipping casos or cartons,
or in bulk, the minimum quantity should not be so large as to

preclude the possibility of the average retail establishment
submitting a bid for, ut least, one minimum unit.)
11. Give the widest possible dissomination to such prepared lists, including a condensed statement in the Federal Register that bids are

to bc received and that a descriptivo list may be obtained upon
application for same to the Procurement Division in Washington.

Upon written application of any national trade association, such

association shall be supplied, as issued, with all lists of items
normally distributed by that particular trade. Such lists shall be
mailed to the headquarters of such national trade association at tho

time of filing with the Federal Register.
12. Establish a minimum waiting period of 45 days from date of publication

in the Federal Register of the information that the bids are to be
received and the acceptance of such bids as may be submitted.

13. Accept bids which are submitted, to the extent that the products remain available, on the basis of the price offered; the highest bidder

receiving the first allotment, and so through the list of bidders,
and without regards to the quantity bid for so long as it is not
loss than the minimum spocified.

98
FOREIGN ECONOMIC ADMINISTRATION

FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D. C.

November 26, 1943

MEMORANDUM

To:

The Honorable Henry Morgenthau

From:

Bernhard Knollenberg

Executive Advisor to the Administrator

Subject: Executive Reports

Transmitted herewith, for your information,
are copies of the Executive Reports on lend-lease
operations, as of October 31, 1943.

99
CONFIDENTIAL
Executive Report No. I

ALLOCATIONS, OBLIGATIONS AND EXPENDITURES
LEND-LEASE FUNDS APPROPRIATED TO THE PRESIDENT
Report as of October 31, 1943
(Thousands of Dollars)
Appropriation Category

Adjusted

Appropriation.

Cumulative to October 31, 1943
Allocations
Obligations
Expenditures

$ 1,692,306

$ 1,684,048

$ 1,503,973

$ 1,245,616

2,679,625

2,676,283

2,497,639

2,018,917

739,273

692,472

628,388

603,248

3,871,703

2,755,158

2,175,560

1,921,357

354,288

353,733

303,336

238,190

1,104,688

1,102,488

1,058,003

918,059

12,608,929

10,413,065

8,238,825

6,291,607

Servicing, Repair of Ships, etc.

790;818

674,112

494,812

478,799

Services and Expenses

800,000

409,446

305,792

241,910

28,999

24,931

23,770

23,313

24,670,629

20,785,736

17,230,098

13,981,016

Ordnance and Ordnance Stores

Aircraft and Aero. Material
Tanks and Other Vehicles
Watercraft

Misc. Military Equipment

Production Facilities
Agric. and Indust. Commodities

Administrative Expenses
Total

Procuring Agency

Cumulative to October 31, 1943
Allocations
Expenditures
Obligations
$ 5,746,926

$ 5,269,767

$ 4,600,636

Navy Department

3,248,828

2,573,114

1,936,883

Maritime Commission and War Shipping Admin.

2,688,015

1,999,266

1,977,701

Treasury Department

3,897,660

3,020,548

2,139,310

Department of Agriculture

5,185,586

4,351,424

3,312,618

18,721

15,979

13,868

20,785,736

17,230,098

13,981,016

War Department

Other

Total

0-07-44

100
CONFIDENTIAL
Executive Report No. 2

STATEMENT OF LEND-LEASE AID
Report as of October 31, 1943
(Thousands of Dollars)
Type of Aid
Goods Transferred

Cumulative to
Oct. 31, 1943

Sept. 30, 1943

$15,164,930

$14,136,745

$ 1,028,185

$ 1,120,996

383,033

359,377

23,656

31,797

1,297,765

1,251,328

46,437

42,333

602,615

601,317

1,298

167

84,538

82,561

1,977

1,519

2,367,951

2,294,583

73,368

75,816

17,532,881

16,431,328

1,101,553

1,196,812

Servicing, Repair of Ships, etc.
Rental of Ships,

Ferrying of Aircraft, etc.

Month of

Production Facilities in U. S.

October

September

-

Miscellaneous Expenses

Total Services
Total Goods and Services

Data on Goods Transferred include value of goods procured from lend-lease appropriations
to the President and to the War and Navy Departments.

Cumulative to October 31, 1943
Other

Total

3,018,684

293,282

15,164,930

1,825

59,408

60,996

383,033

12,385

187,995

125,385

1,297,765

China

11,694,972

157,992

Servicing, Repair of Ships, etc.

260,804

Rental of Ships

972,000

1,186

2,464

-

-

Total Goods and Services

50,983

-

Miscellaneous Expenses

-

Production Facilities in U. S.

-

Ferrying of Aircraft, etc.

-

Goods Transferred

U.S.S.R.

29,905
-

Br. Empire

-

Type of Aid

602,615

84,538

17,532,881

0-0784 PS sabe

101
CONFIDENTIAL
Executive Report No. 3

LEND-LEASE GOODS TRANSFERRED
Report as of October 31, 1943
(Thousands of Dollars)
Cumulative to October 31, 1943
Total

China

U.S.S.R.

Other

531,330

15,547

147,928

51,212

746,017

Ammunition and Components

1,130,393

22,188

324,759

26,121

1,503,461

Aircraft

1,341,878

54,961

662,338

70,031

2,129,208

739,550

6,655

22,367

5,690

774,262

1,430,344

923

275,236

28,073

1,734,576

366,264

25,505

367,242

16,025

775,036

Watercraft and Parts

1,485,857

4,447

156,656

23,347

1,670,307

Foods

1,593,950

246,912

8,846

1,849,708

Ordnance (Excl. Ammunition)

Aircraft Engines, Parts, etc.
Tanks and Parts

Motor Vehicles and Parts

-

Br. Empire

402,454

Other Agric. Products

398,019

41

4,394

Machinery

396,002

4,261

247,461

4,017

651,741

Metals

623,186

10,064

250,994

2,077

886,321

Petroleum Products

644,846

2,565

30,988

1,246

679,645

1,013,353

10,835

281,409

56,597

1,362,194

11,694,972

157,992

3,018,684

293,282

15,164,930

and Manufactures
Total

-

Miscellaneous Materials

0-0754 23 nebu-final

102

TREASURY DEPARTMENT

OFFICE OF THE SECRETARY

November 26, 1943
CONFIDENTIAL

Received this date from the Federal Reserve
Bank of New York, for the confidential informa-

tion of the Secretary of the Treasury, compila-

tion for the week ended November 17, 1943, showing

dollar disbursements out of the British Empire and
French accounts at the Federal Reserve Bank of

New York and the means by which these expenditures
were financed.

EMB

103

FEDERAL RESERVE BANK
OF NEW YORK

November 24, 1943.
CONFIDENTIAL

Attention: Mr. H. D. White

Dear Mr. Secretary:

I am enclosing our compilation for the week ended
November 17, 1943, showing dollar disbursements out of

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

Faithfully yours,

/s/ L. W. Knoke
L. W. Knoke,

Vice President.

The Honorable Henry Morgenthau, Jr.,

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

COPY

Other

tures

Debite

(a)

1,993.2

609.6

304.
3

Total
Credite

-

THE

1.166.7

$1,828.2

1,356.1

20A

1,134.6

2,793.1

223.1 1.362-5
280.9 $1,012.3

7.2

Credits

or Than(
in S Funda

(e)

Gold

20.9

HALK

Other

436.2

52.0

3.9

2,309.5

1999

108.0
210.0

16.7

21.8

5.5

27.4

0.5

155.1

916.2

14.5

561.1

Total
Credite

Not Inor. (o)
or Dear. (-)
in 8 Funds
(d)

(o)

35.0

866.3(G)

1,095.3(0)

299.0

10.8

878.3

1,098.4

+220.1

Lab

-14.1

13.4
125.9
+308,3

705.4
1,276.8

Total
Debite
(o)

(a)

+

Total

OTHER
Fit

+

-

HBD

adidas

TO

312.7

170.4

46.3

$5.5

10.6

20.2

78.1

16.0

64.1

59.5

35.3

0.1

24.1

128.4

41.5

86.9

68.9

5.8

0.8

32.4

+ 26.6

17.5

11.7

38.9
18.5
10.3

1.0

-30.1
-

9.3

1943
+

2- Seat

made
Determine 22

Novamber

21.2

November 10
Noxambar 17

24.5

19.9
12.7

12.6

7.4

5.0

32.4

0.1

1.2

29.2

5.4

6.1

26.5

5.2

21.9(k)

Bookly Amenditures Since Outbreak of War
June 19, 1940) $19.6 Million
Resland (through June 19, 1940) $27.6 million
Enzland (June 20, 1940 to March 12, 1941) 854.9 million
million
$20.7
England (eloga March 12, 1941)

26.5
21.90

+

+

31.8

8.0

2.0
9.3

See attached sheet for footnotes,

(a) for of Middley Maxion, Writish Supply Board, Ministry of Supply Timber
Control, and Entoly of Shipping,

(b) figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
of official Brittah sales of American securities, including those effected through direct negotiation. In addition the
the official selling, substantial liquidation of securities for private British account occurred, particularly during

months of the war, although the reotipt of the proceeds at this Bank cannot be identified with any accuracy. According
early to date supplied by the Treasury and released by Secretary Morganthan, total official and private British liquidation
of our securitied through December, 1940 amounted to $334 million.

(n) Residence about 885 million received during October, 1939 from the accounts or British authorised banks with New York banks,
reflecting the requisit landing of private dollar balances. Other large transfers from such accounts at nce October,

1939 parently present duffent acquisitions of prooseds of exports from the starling area and other accruing dollar
See

below,

(d) Bottomer not check in all dollar holdings payable on demand or maturing in one year.

(e) For by types of debite and credits see tabulations prior to March 10, 1943.
(5) Adjusted to eliminate the effect of $20 million paid out on June 25, 1940 and returned the following day.
(a) For southly breakdown see topulations prior to April 23, 1941.
(h) For anthly broakdgun DOG tabulations prior to October 8, 1941.
(1) For monthly breakdopm 800 tabulations prior to October 14, 1942.
(3) For worthing breakdom 666 tabulations prior to September 29, 1943.

(a) Includes 8 3.3 million apparently representing current and accumulated dollar proceeds of sterling area services and
marchantise exports, and $16.5 million to be held for credit of U. S. armed forces abroad.

OF CANADIAN AND AUSTRALIAN ACCOUNTS

(In Millions of Dollars)

CREDITS

Total
Debits

First year of TAP ()

A/C

Net Incr.

Total
Credits

Gold

For Own

Debits

Sales

A/C

For French

Other

Credits

A/C

323.0

16.6

306.4

504.7

412.7

20.9

38.7

32.4

477,2

16,6

460,6

20.9

110.7

41.0

Second year of war(b)

460.4

246.2

$25.8
723.6

0.3

3.4
7.7
170.4

123.9

firrd year of war (c)

460.4
525.5
723.6

707.4
462.0
566.3
958.8

534.8

-

88.5
360.0
741.3

46.4

65.1

31.5

83.9

8.0

21.6

period through

December, 1940

Fourth year of war( (a)

198,6
47.1

-

n$Punde(e)

Total
Debits

+181.7

31.2

Decr.(-)

Proceeds

to

official

(+) or

of

Others

CRYDITS

Transfers

British A/C

Proceeds

to

PERIOD

DEBITS

Transfers from official

Transfers

Official
British

BANK OF AUSTRALIA

CANADA (and Canadian Government

OF

DESITS

Weak Ended Hozember

British
A/C

3.9

of

Other
Debits

Total

Gold

Credits

Sales

27.3

36.1

Net Incr.
(+) or
Other
Deer.(-)
Credi in SRinds(e)

30.0

6.1

4.9

57.9

14.5

43.4

62.4

50,1

12.3

4.5

72.2

16.7

55.5

81,2

57.4
155.1

49.8

9.0
5.0

41.9

112,2
200.4

18,3
95.0

+ 235.2

107.2
197.0

62,9
17.2

200.4

3.4

54.5

+ 18.7

15.8

14.0

1.8

4.8

4.8

11.0

83.8

+ 52.4

44.9

41.5

3.4

41.7

21.6

+ 13.6

+ 230,2

+ 1.6
+ 40.5

-

1943
-

0.1

-

-

8.0

Noxember 3

7.2

7.2

16.8

Novambar 10

5.0

5.0

47.2

November 17

2.960

2.8

16.1(f)

vera colley - tares for

0.1

First year of war
Second year of war

Third year of war
Fourth year of war
Fifth year of war (through November 17, 1943)

-

-

-

JABAN L

0.1
5.7
-

6.2 million.
8.9 million.
10.1 million.
13.9 million.
7.8 million.

16.7

-

9.6

-

19.5

17.5

2.0

15.5
0.7

41.7

-

-

0.1
1.0
0.1
+ 42.2
1.0
0.9
1.0
16.10 + 13.2
(a) For monthly breakdown see tabulations prior to April 23, 1941.
(b) For monthly breakdown see tabulations prior to October 8, 1941.
(c) For monthly breakdown see tabulations prior to October 14. 1942.
-

41.5

-

-

-

-

15.5

15.5

0.7

18.8

1.0

0.9

0.9

0.1
I

10.6

-

+

-

A

GOOD

31.5

-

-

Sept. 30 Nov. 3
Dec.
2 Dec. 29

46.4

-

Sept. 2 Sept. 29

(d) For monthly breakdown see tabulations prior to September 29, 1943.

(.) Reflects changes in all dollar holdings payable on demand or returing in one year.
(f) Does not reflect transactions in short tera U. S. securities.
(g) Includes $

6.9 millien deposited by Bar Supplies, Ltd. and $9.0 million

received from New York accounts of Canadian Chartered Banks.

107

CORRECTION

November 26, 1943

RCC

In telegram No. 2235, November 25, 10 a.m., from
Chungking.
(FROM ADLER TO SECRETARY TREASURY, ONLY)

Page 2, line 6, delete "currency" insert "dollars".
DIVISION OF COMMUNICATIONS AND RECORDS

NOTE: Correction from Embassy at Chungking
NPL

105
NOT TO BE RE-TRANSMITTED
U.S. SECRET

COPY NO

BRITISH MOST SECRET

12

OPTEL No. 387

Information received up to 10 A.M. 26th November, 1943.
1. NAVAL

Apti-Submarine
U-Boat N.S.
of AZORES.

Operations. 25th. 2 of H.M. Frigates probably sank

2. MILITARY

Italy. No reports received.
Russia

25th. Russians held their ground west and north west of
KIEV and advanced to upper Dnieper in area S.S.E. MOGILEV.

3. AIR OPERATIONS

Western Front

Medium, light and fighter bombers dropped 257 tons
on military objectives near GRIS NEZ and on CHERBOURG

PENINSULA. 6 squadrons of Thunderbolts (P47) bombed 2 airfields at ST. OMER.
3 Power Stations in NORMANDY and shipping at CHERBOURG were also attacked by a

total of 14 Mosquitoes and Whirlwinds. Enemy casualties 6:3:5. Ours 7 fighter-

bombers and fighters.

25th/26th. Aircraft Despatched: FRANKFURT 262, BERLIN 3, Sea-Mining

48 (one missing), Leaflets 25, Intruders 32, Anti-

shipping 6. Reports on FRANKFURT not yet received but not more than 12 aircraft
are missing. 10 enemy aircraft over KENT and EAST ANGLIA. Pombs in scattered
places, damage slight, no casualties.
South France 24th. 105 escorted Fortresses (3.17) dropped 315 tons on

TOULON submarine base. 15 Fortresses (B.17) dropped 45 tons on ANTHEOR Visduct

Italy and Sardinia 24th. 184 medium. light and fighter bombers
attacked enomy targets in battle area. Light

bombers dropped 6 tons on CIVITAVECCHIA docks. 25 enemy aircraft attacked
MADDALENA losing 4 A/C but sinking an M.T.B.

Bulgaria
24th. 17 escorted Liberators (3.24) dropped 38 tons on SOFIA
5
railway centre. enemy casualties 4:2:0, Ours 2 Liberators
3
and 1 Fighter.

27

NON

1945

109

November 27, 1943
9:30 a.m.
TAXES

Present:

Mr. Bell

Mr. Gaston
Mr. Paul
Mr. Smith
Mr. White

Mr. Sullivan
Mr. Haas

Mr. Blough
Mr. Surrey

Mrs. Klotz

H.M.JR: I haven't read the Budget thing.

MR. BELL: It didn't get in the paper today. I
tried to get them to put it in the morning paper. After

talking it all around over there they decided on tomorrow
morning's paper. They thought they would get a better
coverage.

MR. GASTON: That is applesauce.

MR. SMITH: Why don't you have a press conference

today?

MR. GASTON: .I haven't seen the thing.

MR. BELL: I don't think there is any harm as far as

we are concerned.

H.M.JR: Why should they stall 80 long on it?

MR. BELL: They didn't get it out until late yesterday

afternoon. They thought that Saturday morning being an
important morning for a paper it would be reduced to about

half its size. They thought it would give the boys a

110

-2-

chance to get a story on it if they put it out forty-eight

hours in advance. That is the usual Budget policy.
H.M.JR: It will be buried with the comics.

MR. BELL: Wayne Coy is a newspaper man, 80 he thought
he knew what he was talking about.

H.M.JR: I just read the beginning. Can you sum it up
for me, what it says? You have seen it, haven't you?

MR. BELL: Yes. The thirteen billion dollars in
reserve has no effect on the expenditures from here out,
but it did have an effect on the expenditures revised
last August and made public. They have, however, reduced
expenditures from here out, but not because of the thirteen
billion, but because they haven't reached the levels in
expenditures that would have enabled them to reach that
hundred and four billion dollar budget. So they have
reduced expenditures of the war activities, including
Governmental corporations from a hundred billion down to

ninety-two, and that makes your deficit fifty-six point
eight instead of sixty-seven point seven as it was in
the August 1 estimate.

H.M.JR: How much?

MR. BELL: Ten billion, nine hundred million.

H.M.JR: They will say it is ten billion.
MR. BELL: Roughly. With the reduction in your

deficit--

H.M.JR: (Intervening) They will say it isn't
thirteen, but ten.
MR. BELL: Savings. No, they undertake to explain
the thirteen billion dollars and also the Navy end.

H.M.JR: But won't the fellows say that in August the
Budget said we had spent how much for this fiscal year?

111

-3MR. BELL: A hundred billion.
H.M.JR: And now on the 28th of November they say

how much?

MR. BELL: Ninety-two. -

H.M.JR: So it is eight billion dollars.
MR. GASTON: By the way, this figure they give us now

is exactly what the House Ways and Means Committee used

in their report on the tax bill. They said fifty-seven
billions. Fifty-seven is the estimated deficit for the
current year in the Ways and Means Committee Report on

the tax bill, and that is correct according to the Budget's
latest figures.
MR. BELL: The House used fifty-seven.
MR. GASTON: They made that calculation before this

thirteen billion stuff came out.

MR. BELL: What happened in August is, they reduced

the Army expenditures six billion dollars, but they increased
the Navy expenditures six billion dollars, so they kept the
same figures for expenditures on war activities.
Now they have reduced the over-all expenditures from

a hundred billion down to ninety-two. They practically

used our figures on war expenditures. We have ninety-two

billion six in our financing deficit.

H.M.JR: When did I appear before the House Ways and

Means?

MR. BELL: September 4, wasn't it?
MR. GASTON: No, it was October 4.

H.M.JR: What I am trying to get at is this: Since

October 4 to November 29, what has happened? Has anything

happened which is different from what the Budget said in
August? The only thing is they have reduced the expenditures.

112

-4MR. BELL: And the revenue has gone up a little bit.
They have increased their revenue from thirty-eight billion

to forty-one billion. It has gone up two billion nine

hundred million.

H.M.JR: This isn't going to help from my standpoint.
I am delighted that they a re going to spend less money,
but for my purpose they will throw it right back at me.
They will say that it wasn't thirteen. The Budget says
it is how much less? What is the deficit?

MR. BELL: Fifty-six eight.

H.M.JR: Let's call it fifty-seven. And what was it

last August?

MR. BELL: Sixty-seven, seven.

H.M.JR: So it is ten and one half instead of thirteen,

which is exactly the tax bill. Isn't that lovely? (Laughter)
I don't see how it could be any worse.

MR. BELL: I think it is helpful in this respect, it

keeps you from discussing Budget figures on which you were

going to be asked all kinds of questions on the estimates.

H.M.JR: My dear Mr. Bell, the savings and deficits
from August to date is exactly the amount I am asking in

the tax bill.

MR. BELL: But you are also saying in here that
savings and reductions in expenditures are not equivalent
to a tax measure.

H.M.JR: That doesn't get you anywhere. What they have

told the country is - and this is what the State chairmen
call it - how are we going to face the thing if there are

thirteen billion dollars more? This is worse. This is the
net deficit figure. The net deficit is reduced by the exact
amount I am asking for taxes.

MR. GASTON: Of course, this has been obvious for a
couple of months.

113
5-

H.M.JR: It may be obvious, but all week I have
lived in a pleasant atmosphere. We told those Congressmen

and Senators - I mean at lunch - you did, too.
MR. BELL:

I don't think I did.

MR. GASTON: The thirteen billion figure is entirely

false. It doesn't affect the picture at all. But the

fact is, the estimates of expenditures have been reduced

from the August summation.

H.M.JR: Well, if you didn't - I sat there and I said

that the picture hasn't changed any since August.

MR. BELL: I realized that, and I couldn't correct

you. I didn't know exactly what you meant when you said

the picture hadn't changed. I am sorry if you got that
from what I said. I made it plain that the six billion

was taken off in August from the Army, but it was added

to the Navy. I said there was going to be a further

revision of the budget which we hoped to have out Friday.

H.M.JR: But you didn't carry it to thiseMR. BELL: I didn't know. I couldn't get it from

the Treasury.

H.M.JR: But you didn't with me, either, Danny Boy.

MR. BELL: No, but I think I have made it plain to

you since September that my estimates on war expendi tures

have been ninety-two and a half billion in financing.

We told Stacy May that.

H.M.JR: Yes, but the deficit is going to be ten and
Oh well - I am in a hell of a spot.

a half billion less. You must have Revenue figures, anyway.
MR. GASTON: Where did the House get their figures,
mainly from us?

MR. BELL: No, they didn't get them from us at all.
I don't think they got their revenue figures from us nor
their expenditure estimate.

114

6-

H.M.JR: It tallies exactly ten and a half.
MR. GASTON: The House estimated the fifty-seven

billion dollar deficit in their report, and that is a
very good estimate, very close to the present estimate,
within a couple hundred million. This thirteen billion
stuff came out after they had put out that estimate.

MR. BELL: I think you would be in a very bad position
if you went up now and talked about the budget estimates

in August and they didn't get this bill through by January 1,
even If they did and the budget came out in January with

this ten or eleven billion dollar reduction in the deficit.

I think they would be accusing you of giving them wrong

figures the first of December.

H.M.JR: Isn't it in there in that statement?
MR. SMITH: It will be out tomorrow, won't it?
MR. BELL: Isn't it much better to go before the

Committee with this out than to go before the Committee
on the basis of the August 1 estimate and be faced with a
budget figure on December 31?

H.M.JR: But who raised hell here all day Tuesday
to get these things when I came back? I wanted the
figures. Because the figures didn't work out the way I
expected them to doesn't make any difference, but I wanted
them out.

MR. BELL: I thought you were arguing the other way.

I think it is much better to have them out.

H.M.JR: No, I mean all week I have been going on
the assumption that there was no change.
MR. GASTON: We knew they were off.

H.M.JR: Did you, Fred?

MR. SMITH: I didn't know it. I knew there was some
change because Wes had said something about it, but I

didn't follow at all.

115
7

H.M.JR: I didn't know-MR. BELL: I didn't know they were going to accept
the ninety-two. You knew I was using ninety-two and a

half, and they knew it. They first had this figure in a
changing rate from ninety to ninety-five. When I saw that
on paper yesterday, I said, "That just won't do. You
are going to take a terrible risk if you put the revenue

from forty to forty-two and the expenditures from ninety
to ninety-five. It seems to me you ought to hit some round
figure, say it is a rough estimate."
Yesterday afternoon they called me and said that they
were going to accept the ninety-two.

H.M.JR: Let me think out loud a minute. This has
completely thrown me off my feet. If you don't mind,

don't interrupt me for a minute, just let me talk. It

seems to me the way to start this thing out is to take the
wind out of their sails and simply say that the Budget
figures - we will use the Al Smith technique, and instead

of saying, "Let's look at the record, say, Let's look

at our balance sheet and see where we stand as of today.
Through the Budget figures released yesterday, we are going

to spend at the rate of ninety-two billion dollars. Our
receipts will be so much, which will give us a deficit of
if fifty-seven billion dollars, which is ten and a half billion
dollars less than it was estimated last August." Let's
just throw that right at them. "Now, before coming up here
we in the Treasury have given this thing very, very careful
consideration as to whether or not due to this reduction
in deficit we should ask for less taxes than before I
appeared before the Ways and Means Committee. We have come

to the conclusion we should ask for the same amount for

the following reasons, see? I am going to be brutally
frank. I am not going to let them squeeze this thing out
of me.

Facing a fifty-seven billion dollar deficit, we have

to borrow 80 many hundred million dollars a day. You will
have to use some tax figures. Let's decide whether the
present one or the one that passed the House or the one

116
8-

we are going to forecast - take the worse one, which will
end us up on June 30, 1944 with a two hundred million

dollar debt. Every billion dollars extra that Congress
votes in the form of taxes means that the debt will be
reduced by that amount. And I think it is very important
that we keep the debt as small as possible, in the first

place so that we have to borrow less, and in the second
place so that we hand on to the next generation and to
the soldiers who fought this war a minimum debt, and so

forth, and so on. Emphasize the soldiers.

"Now, I have another reason why I would like to see

it ten and a half billion dollars, and that is this question
of inflation.' " Incidentally, all through here - this

fellow Lee Wiggins, I thought, made an excellent suggestion.
He said he thought our whole psychological approach had
been wrong. Every time we asked for increased taxes

instead of talking excess profits, and so forth - every
time use war taxes. I want ten and a half billion dollars
of additional war taxes. Keep driving that thing home to

the people. You say that you don't want to pay war taxes?

Say it is only for the war. All the way through say war
taxes.

MR. GASTON: That is pretty close to what Dave Lawrence
told me, that if they could have some assurance that these

taxes were only for the duration of the war it would be

very reassuring.

H.M.JR: Right. I ought to say about a hundred times,

"war taxes.

Then I want to say that unfortunately for the country

I want to get in the inflation business. I didn't like,
frankly, the way you handled the inflationary gap. I
didn't understand it when you got through. You were
condensing too much in too little space.

MR. SMITH: I thought we should talk about it even
though the deficit was reduced by ten and a half billion
dollars. There is no indication that the amount of goods

available for civilian people will be increased, and it

117

-still looks as though the figure is eighty billion dollars. I don't know whether that is right. That is the
figure you used. Reducing the deficit by ten and a helf
or twenty - still there is no indication for the balance

of this year that by and large there will be more than

eighty billion dollars; going from the ultimate deficit
to the private deficit of civilian goods, no one has reduced the amount of the national income. In fact, they
constantly revise it upward, and nobody has increased
the amount, the estimate of the amount that is going to

civilians. So that figure has remained practically

static on the private side, and the shortage of goods
and extra amount of money; that is just where it always

was.

So the pressure to buy the amount of goods will be
just the same whether the Government deficit is ten and a

half or twenty and a half. If I am correct-MR. BELL: That may be changed a little.

H.M.JR: If I am correct, here you have a Governmental

picture. Fine. I am delighted that the deficit is ten

and a half, but let's look at the thing from the standpoint of civilians. Has that changed? The national income will
be about the same, won't it?

MR. BELL: It might go down a little as a result of

this reduction in expenditures.
down.

MR. GASTON: If it does, your tax receipts will go

H.M.JR: Just a minute, though. I think you paint

here the picture of the Governmental thing, and here is

the picture on the other side, the private thing. Now,

how much does the ten and a half deficit release the pressure
to buy scarce goods? We ought to get an argument on that
to show.

MR. SMITH: Four billion dollars, from one hundred

fifty-two billion to one hundred forty-eight billion.

118

- 10 H.M.JR: But how about the tax receipts?
MR. BELL: Well, they won't go down. They would be

a very small part. Let's say some people - the extreme
estimate that we can get is, it will go down four billion
dollars; and what is four billion dollars as between

eighty billion or seventy-six billion?

MR. SMITH: Actually excess income will go from forty-

two down to thirty-six billions according to our figures.

H.M.JR: How is anybody going to estimate that as to
results it is going to have? Now, since I appeared on
October 4 to date the cost of living has gone up one and
one half percent, and so forth.
I am going to stop in a minute and review what I have
said. It seems to me the only way is to go up and hit

it and say, "Sure, it is this much.' " Don't let them drag
it out of me. And so what! In what way does this affect

us? Why should we take less tax money? What do you
think?

MR. GASTON:I wouldn't start with it.

MR. SMITH: I wouldn't.
MR. GASTON: I would use these figures, as much as

you have in the speech, but I wouldn't make that your
appeal. You have a negative start there, and they will
interpret it as the Secretary practically concedes that
there has been sufficient reduction so that the House is
right, we don't need new taxes. But I would make the

general appeal first before I went into the figures.
We are talking about forty-two billion in tax receipts
now without the House bill. Why don't we make it fortyone?

MR. BELL: It is forty-one.
MR. GASTON: That is the safer figure. You add the
two of the House figures, which brings it out to an even
one hundred.

MR. BELL: It is forty-one in the budget.

119

- 11 MR. GASTON: That would make a total of forty-three

percent. If we asked for fifty percent it would be seven
billions. The point is, it seems to me, general appeal
for higher taxos and that seven billions, bringing It up to
fifty percent ought to be the very minimum.
H.M.JR: Say it again.

MR. GASTON: The present appearance is about an even

hundred billion dollar budget with four billions in taxes,
including the House two billions; forty-two billion on the
present basis, and two billion added by the House, making

it forty-three and fifty-seven of deficit. Now to get the

fifty percent you would have to have seven billions, but
I would make a general appeal for all the taxes that we

can stand. It doesn't change our belief. Lay the fact
before them. 10 get to fifty percent, if they think that is

a proper percentage, we have still got to have seven billions

more than the House has voted, which would make a nine billion

dollar total. But laying that aside - that is an arbitrary

figure - we still think we ought to pay now in justice to
the future, to prevent inflation, and in justice to the

soldiers, all we possibly can. We believe that we can safely
bear the amount of taxes which we propose, which is in the
neighborhood of ten billions.
H.M.JR: Let me see if I understand.
MR. GASTON: Actually to bring it to fifty percent,

there is only a difference of one billion or a billion and

a half between what we propose and the present situation,

forty-one billion of revenue without the House bill, fortyone billion in revenue on a hundred billion dollar budget.

To bring that to fifty billions or fifty percent you would

have to have nine billions, of which the House voted two.
We should stand out for an additional seven billion; a
total of nine is the very minimum which in our opinion the
Congress ought to give us. And we still think that we
could stand the full schedules that we proposed without
danger to the Army, and that we ought to do that in justice
to our immediate and our distant future.

H.M.JR: I think your approach is better than mine.
MR. SMITH: I think you are making a mistake by getting
all tangled up in figures, because these guys are going to
turn around and get a whole new batch of figures, even if

they pull them out of the air, and get things all tangled up.

120

- 12 -

H.M.JR: No, you are wrong. I was so happy when I

left here. I don't want to go over it again. I got the

wrong impression; I thought this thing was all right and
now this is like a piece of ice down my back.
I am willing to withdraw my suggestions, I think
Herbert's is much better. We stick on the fifty percent
line, and instead of asking for ten and a half, which is

the same as reduction, we reduce our request to nine. We

make that much concession.

MR. GASTON: You see, in our original figuring of ten
and a half to make fifty percent, we discounted the Budget
summation of September. We discounted it to win a billion

and a half.

MR. BELL: You had forty-eight or forty-nine billion

taxes.

MR. GASTON: We didn't say it was fifty percent, but
we did, in effect, arrive at what we then thought was

fifty percent, and we came within a billion and a half of
the present estimate.

MR. BELL: I think your figures are a little off,
Herbert, but your argument is good. It is only ninetyeight billion now, as a total, instead of a hundred, so
you need forty-nine billion in taxes.
MR. GASTON: I don't get your fifty-seven billion

deficit. Oh, that is without including the House bill.
You are taking forty-one and fifty-seven for ninety-eight right?

MR. BELL: To make fifty--

H.M.JR: (Over the inter-phone to Fitzgerald) From
Mr. Bell's desk, get me a couple of copies of the Budget
release.

MR. FITZGERALD: Yes, sir.

121

- 13 MR. GASTON: That would make seven billion as the minimum

instead of nine.

H.M.JR: You mean seven more?

MR. BELL: To make fifty percent you would have to have
eight billion of which the House has provided two.
MR. GASTON : Yes.

MR. BELL: That is two and a half instead of the
billion and a half. You see, the total Budget estimate
of expenditures now is ninety-eight, and the revenue is
forty-one, so that you would need forty-nine to get fifty
percent; forty-nine of revenue would be eight billion
dollars additional revenue instead of the ten and a half.
Now, the House has provided two, so the Senate would have

to find six billion more in order to make fifty percent.
I think the additional sentence you made is very

important, that even to get the fifty percent, they would
have to provide six more; but the ten and a half is still
important.

MR. GASTON: All we can stand is - should be - the

goal, not fifty percent.

MR. BELL: Nothing is sacred about the fifty percent.
(Document entitled "Budget Director Reports on Reserves
and Announces Revised Budget Estimates" handed to the
Secretary, copy attached.)

H.M.JR: Rather than looking at this thing-- Boy!

This is something to come home to! Gentlemen, certainly the
President, or Jimmy Byrnes, or Vinson - I will leave Vinson
out - the Budget isn't going to come up and help me.

Now, let me just see if I have got this thing straight.

Boy, oh boy, oh boy! Wiggins said we made a mistake. We

have not called this thing war taxes instead of excess.
I want to make a note on this: "No man should make any

122

- 14 -

money out of this war." Let's find out what I have said
about this thing previously. I have said it before and I
want to say it again.
Will you (Bell) make a note of F and G Bonds? He
brought that question up.

But this question - I have said it before and I will

again; when the thing is over - when the war is over nobody should be any richer due to the war. I would like
to say it about three times.
MR. GASTON: Of course, that isn't going to happen.

A lot of people are going to be a lot richer as a result
of the war, and there is nothing we can do to stop it.

H.M.JR: Let me be a little demagogic about it; may
I, Herbert? I want to throw this thing down the peoples'
throats.

MR. SMITH: I think you could treat this whole Budget
operation back in the part of the speech where you are

talking about saving money, because there you have a chance

to explain that no matter how much you save, it still
isn't going to have any perceptible effect on inflation.

I think you cover it and let yourself out. I just don't
think it is smart to alibi it.
H.M.JR: I am not going to alibi it. You don't know

what. I am going to do. What are the expenditures?

MR. GASTON: Total budget of ninety-eight billions;
an estimated revenue under present law of forty-one

billions, leaving a deficit - present estimated deficit
on the basis of present tax laws - of fifty-seven billions.
H.M.JR: Right. And that is fifty-seven.
MR. GASTON: Then, to make that a fifty-fifty proposition, you should have forty-nine of revenue, and that would

leave you forty-nine of deficit to make the ninety-eight.
That would make it necessary to add a total of eight billiors
in new taxes instead of the two billions which the House
has proposed.

123

- 15 H.M.JR: Present revenue is how much?
MR. GASTON: Forty-one.

H.M.JR: With an additional eight, makes forty-nine;
plus forty-nine, equals ninety-eight. Now, the House
passed two. An additional six-MR. GASTON: I don't think we should treat it on the

basis of adding six to the House bill. I think the old

House bill should be scrapped and give us a bill yielding

eight billions.

H.M.JR: Instead of asking for ten and a half, I
would say eight? I would retreat to eight?
MR. GASTON: I wouldn't retreat altogether. I would
argue generally for all the taxation we can stand and

safely pay. We still feel that we could safely pay the full
schedule as presented to the House. "If you want to take

the arbitrary basis of fifty percent, then you certainly
should give us not less than a total of eight billions in

this bill."

H.M.JR: I am willing to say it that way, but they
will cut out everything you have said except that the
Administration asks for eight instead of ten and a half.
MR. GASTON: That is pretty realistic, because we are

not going to get the eight.

H.M.JR: Well, I am thinking; I am not going to go
off half-cocked on this thing - The Administration reduces
its request from ten and a half to eight.
MR. BELL: "In spite of this reduction in expenditures,
I strongly recommend a ten and a half billion dollar
program. And that is still the Administration's recommendation.

MR. GASTON: Yes.

124

- 16 MR. SMITH: I think you either have to focus on this

year, or on the two hundred billion dollar debt. If you
focus on the two hundred billion dollar debt, then you can
go right back and get your ten and a half. If you focus
on your cut in expenditures this year, then aren't you

up against the possibility that maybe the Navy or somebody
will decide, even on a piece of newspaper, that they can

cut their expenditures another five billion dollars, or

something? They will say, "Well, that brings you down so

we only have to do two."

MR. BELL: You could say, "This deficit is on the basis
of the programs of the military authorities today; that

program may change within a month, which will cause your
expenditures to increase."
MR. SMITH: Yes, but they may also decrease.

H.M.JR: Now look, Fred-MR. BELL: They are not going to decrease very much,

because they are on a level today which will pretty
nearly make that ninety-eight billion. They are going
to be the highest this month of any time, probably.

MR. SMITH: If we had this situation before the House,
they would have subtracted that thirteen billion dollars
right then and there, and gotten away with it.

H.M.JR: Why not let me once be a little popular? I
am not addressing it to you. The fact remains - let's be
practical - we are not going to get the eight, are we?
MR. SMITH: No.

H.M.JR: Then why should I always be the S.O.B. in
this thing? The picture has changed and I have said I
want fifty percent revenue; supposing I go up and ask ten

and a half - let's take that angle. And Barkley, who I
notice was the fellow who said, 11 All right" - he is smart somebody figures it out for him, he is not that smart he says, "You ask for ten and a half; that means you are

125

- 17 going to get more than fifty percent; have you changed

your position? Wouldn't you be satisfied with fifty percent, Mr. Morgenthau?"

"Yes, I would."

"Then why don't you only ask for eight?"
MR. GASTON: I don't think fifty percent was ever a
sound position, and I don't think that was the position
you took. We compared ourselves with the Bri tish, at some
times, and said, "We ought to do as well as they, which
was fifty percent. But we called for what people were able
to pay and could pay, without the economy suffering. I
think that should be your position.

You could call attention to the fact that even on
the basis of fifty percent, which many people think is
a desirable ratio, we are still six billions under it on the basis of the House bill - and we need a total of
eight billions.
H.M.JR: Why make me go through the motions of asking

for ten and a half and then say out of the side of my
mouth that I am willing to take eight?

MR. GASTON: Well, of course, you are willing to take
what you can get. You won't get, probably, over five at the most optimistic-H.M.JR: Would you mind bringing in some of the boys?

I will try to be as neutral as I can, and let's see how it

hits them.

MR. SMITH: I think you are wrong in thinking you are

being more popular asking for eight instead of ten. I
don't think it will make a damned bit of difference. I

think the newspapers will sock you, because they are going

along with the ten and a half.

H.M.JR: They haven't seen these figures.

126

- 18 -

MR. SMITH: But they like the idea of your fighting
for it. They know and you know you are not going to get it,
but a least you are putting up a good story and trying to
get as much out of it as you can.
H.M.JR: That was the thing I was sold on all week,
and then this thing comes along.
MR. SMITH: If you are still focused on the two hundred

billion dollars. If you focus on this, then you are caught,
because any way the wind blows between now and the tax bill

is voted on, is subject to change. Your two hundred billion

dollars isn't.

MR. GASTON: Incidentally, that two hundred billion

dollars which you may have gotten from me is based on a

scaling down to about this point of the deficit.

MR. BELL: One hundred and ninety-seven, isn't it?
H.M.JR: You keep saying in the speech that I recom-

mend a saving of two billion dollars; I didn't. It was
one billion.

MR. BELL: The whole approach to this problem is really
to make a record. You know you are not going to get anything.

is

MR. GASTON: To make the argument for much more drasti
taxation than the House has proposed.

MR. BELL: You are laying before the country, really,
your reasons for asking for more revenue.
MR. SMITH: Make it just as hard as possible for them

to alibi out. I think that is the real basis of the
speech.

MR. BELL: Even the forty-nine billion dollars deficit fifty-seven billion dollars deficit - even if you got eight

billion in taxes, the forty-nine billion dollars deficit
would still be a big figure to borrow.

127

- 19 -

MR. SMITH: There is another thing to think of.
MR. GASTON: We are talking about this fiscal year,
aren't we? How much was the net increase in the debt

over the fiscal year?

MR. BELL: It has been about thirty-five or thirtytwo billion.
MR. GASTON : Twenty-five billion more to go.

MR. SMITH: There is another whole factor in this,
psychologically; if we go out too much on this saving, that

eight billion dollars is going to look so big they will
forget the one hundred and fifty billion, and everything
else. Seven billion is an awful lot of money to save.
It is much better to think of saving seven billion.

MR. GASTON: Of course, "saving" is a bad word. You
want to make the most approximate estimate of expenditure.

(Mr. Paul, Mr. Haas, Mr. Sullivan, Mr. White, Mr.Surrey,

and Mr. Blough enter the conference.)

H.M.JR: Good morning, everybody. It is a lovely

morning - for somebody!

The way the Budget figures boil down this morning -

I haven't a copy of the budget - the total expenditure for

the rest of this fiscal year will be at the rate of ninetyeight billions; revenue forty-one and deficit fifty-seven.
MR. PAUL: what is the total?
MR. GASTON: Ninety-eight.

MR. PAUL: You said at the rate of - for the rest of
the year.

H.M.JR: That is correct, what I said.
MR. PAUL: All right, I don't want to argue about that.

128

- 20 MR. GASTON: The estimate of total expenditures for

fiscal 44 is ninety-eight billion. The estimate of revenue
is forty-one; the estimated deficit is fifty-seven billion.
MR. PAUL: Practically up to the hundred, then.

H.M.JR: The point is, it changes the picture. The
deficit is now fifty-seven as opposed to - what was it
before?

MR. BELL: Sixty-eight in round figures.

H.M.JR: It works out that the deficit has increased
approximately by ten and a half billion dollars.
MR. PAUL: I still don't understand one point. The

total expenditures for the year, instead of being a hundred
billion, will be what?
MR. BELL: Ninety-eight - no, you are talking about
war expenditures. The total expenditures for the year will
be ninety-eight billion as opposed to one hundred and six

billion.

MR. PAUL: The war expenditures have been dropped from

a hundred to ninety-two.

MR. BLOUGH: At what rate will we be spending toward
the end of the year?

MR. BELL: For war, probably at a rate of somewhere

around eight billion dollars.

MR. BLOUGH: So that the calendar '44 would run sub-

stantially over a hundred billion dollars at this rate.
MR. BELL: No, I shouldn't think so. It might run

well above ninety-two, but not over the hundred, I don't
think.

MR. BLOUGH: I don't me an war, but total expenditures.

129

- 21 -

MR. BELL: Might, for the calendar year.

MR. PAUL: It would run at about ninety-six, if it
is eight billion a year.
MR. BELL: It might, but I doubt it would average

more than that. We don't know what the program will be

next year.

MR. PAUL: Where does the rest of the Secretary's

ten billion, and dropping the deficit, come in? That is

only a drop of war expenditures of eight.

MR. BELL: There is an increase in revenue from

thirty-eight to forty-one - three billion.

H.M.JR: Instead of wrestling with the thirteen
billion dollar figure - we are faced with the cold fact
that the Bureau of the Budget thinks the deficit will be
ten and a half billion dollars less than they said in
August.

MR. PAUL: We have got to meet that argument squarely,

because you can't pass that off.

H.M.JR: It is a fact.
MR. PAUL: We have got to face it.

H.M.JR: The fact we have been talking about here is--

1/s

130

- 22 -

MR. PAUL: The only argument left is that the ten

and a half billion is necessary for safe financing, even

with that reduction.

MR. BLOUGH: Fifty-seven billion is a lot of money.

H.M.JR: Let me throw you another figure: If we

wanted to keep the thing fifty-fifty, take forty-nine
billion dollars' worth of revenue, or an increase of eight
over the present. We need eight billion dollars.

war.

Mit. PAUL: That is fifty-fifty on the total, not the
MR. BLOUGH: That is fiscal '44.

H.M.JR: Forget the war; we are talking total expendi-

tures, total revenue, deficit.

I want to sink in the figure; if we wanted to get
it on a fifty-fifty basis, we needed another eight billion

dollars.

MR. PAUL: But just talking of war expenditures, which
we have estimates of in the past, it would only be half of
ninety-two.

MR. BLOUGH: Plus all of the rest.

H.M.JR: But that doesn't help us any right now, not
with the Budget figures all being out in tomorrow's papers.

- 23 -

MR. GASTON: If you figured it on that basis, that
we should have half of the war expenditures, plus
all the normal, that would be forty-six pius six, which
would
fifty-two,
dollars be
more
revenue.which would require eleven billion.
MR. PAUL: Yes.

H.M.JR: I can't talk war. I have got to talk
total receipts and expenditures. That is the only thing
I can talk. The point I wanted to get is that the net

deficit as forecast by the Budget now is ten and a half

billion dollars less; and the other figures I want to

get over to you is that if we wanted to ask to keep the
thing on a fifty-fifty basis I need an additional eight
billion
dollars revenue and not an additional ten and a
half.
Now, what I want is some advice without trying to

plant any seeds.

MR. WHITE: I think the approach might be a little
different. Certainly the emphasis has to be different,
in view of the fact that the original request was based
on figures which were eight billion larger, and you have

to justify, now, asking for approximately the same amount
or a billion or two less, even though you are informed

that the figure will be eight billion less. Either you
didn't ask for enough before, or you should ask for less
now, unless there is a shift in emphasis. And I think
that shift in emphasis can take place and you can keep
some of the best paragraphs here; namely, that to do

with the public finance aspects of paying off the debt,

and not the inflationary aspects. The more emphasis you
place on inflationary aspects, the more you place

yourself either in the position of not having asked

enough before or being on weak ground now, because you

have a reduction of eight billion in expenditures.

On the other hand, if you took the position-- if you
maintain the position--that what you asked for was as

much taxes as you thought they could pay in order to keep

the public debt from rising or to pay as much of the debt
off at the very time when it is most easy to do so, then
you can take the position that the reduction in expenditures
is a very welcome assistance in the fight against inflation,

131

132

- 24-

but it is of no assistance in your demand that the
proper fiscal procedure- or as close to it as possibleshould be pursued; namely, that you want to get as much

taxes as you can in order to maintain the fiscal position.
In the first place, I think those are the soundest
paragraphs. I think the paragraphs on inflation are
theoretical and exaggerated, in order to bring your point

home. And I wonder whether you aren't placing yourself

in that kind of a bungled position; because if you claim
that there is just as much danger of inflation now as
there was before, even though there is eight billion
dollars less expenditure, how do you justify your not
having asked for more before? How do you justify more
drastic action? You can say something about inflation;

I don't mean to say you can ignore it. But you have to
soft-pedal that and increase the emphasis on the other.

H.M.JR: Let me just take that line for a minute.
All right, White, you feel you want another ten and
a half billion dollars so that the debt on June 30
won't be two hundred billion dollars. If you don't get
it, what do you think will happen?

MR. WHITE: No thing serious. I think those are the
facts of the case.
=

H.M.JR: All right, Mr. White, and you think nothing
will happen. Then why put this extra strain on the people?
MR. WHITE: Because they can bear it best now, and

because it is fairest to the soldiers.

I think there are some excellent paragraphs on that.

In other words, I don't think you can expect to get ten bill

dollars because you can show the people that unless they

pay that extra ten billion there will be disaster. I
personally don't think there will be disaster, and I

don't think any reasonable-minded person would feel that
it makes any difference whether your public debt is two

hundred and fifty billion or two hundred billion from the
point of view of disaster.
H.M.JR: I happen to agree with you, see? But I
can get quite alarmed about the inflationary aspect; but

25 I

can't get very much excited when the public debt is

one hundred and ninety or two hundred or two hundred and

twenty-five billion.

MR. GASTON: I just wanted to say, Harry says there

won't be any disaster. That is right. You might put it
this way: If ten million soldiers are preparing to go to

the battle-fronts, you have just taken a thousand dollars
out of each one's pockets. It won't cause any disaster,

but if you are happy about that, all right.

MR. WHITE: I agree with you that you have a lot of
good arguments, whether you put it in that form or not.
There are a lot of good arguments for expecting the ten
billion dollars or more. But there is many a governmental
policy that you defend strongly because it is wiser

policy of which the alternative is not disaster, merely
that it is much wiser fiscal policy. You have enough
good arguments. There are many good ones here.

H.M.JR: A disaster happened this morning. When I
was up there for lunch--before the Senate--I told them

that I felt the situation, as far as the deficit having

changed any, wouldn't change any; that would be cleared
up. I went away very happy.

MR. PAUL: That is what you were told, wasn't it?

H.M.JR: That is the impression I had. Bell said I

had the wrong impression. Anyway, that is the impression
and nobody contradicted me.

MR. WHITE: That is the impression I had, merely
from the last meeting. I haven't heard anything between

then and now, but in the last meeting I thought that the

change which was made was merely one involving certain
bookkeeping transactions which had been done before, and

you were merely going to check up on that.

MR. SULLIVAN: That is true about the thirteen

billion.

MR. PAUL: Budget has been telling me for the last
two months there wouldn't be any reduction to any extent

in that hundred billion.

MR. GASTON: They haven't been telling you the truth.

133

- 26 MR. HAAS: Dan has been using that ninety-two for

months.

MR. GASTON: They all knew that the estimates had

been scaled down.

MR. PAUL: I have had at least five sessions with

Colm in which he has assured me -

MR. WHITE: I don't know whether that should bother

you very much. You are not responsible for that estimate.
H.M.JR: You know, all of these things are emotional.
You go before eleven Senators. I told them, "By Thursday

night you are going to get this statement that this thing
isn't changed one bit.' And now the thing is changed.
I don't mind being made a monkey of; I'm used to that.
But the fact remains, I was all set to go up there and

say the thing hasn't changed. I have told it here. I

am glad Paul and White were under that impression; and
now suddenly it has changed to the exact amount I am

asking. I'm in the damndest spot I have been in in years.
I am not going to get sick over it, though.
MR. PAUL: One part of Harry's argument I don't

understand.

MR. WHITE: Is there another way out of this,
Mr. Secretary? I understand how you feel.
H.M.JR: Now, may I say what I wanted to do? The

boys (Gaston, Bell, Smith) aren't with me. I wanted to

do this thing differently. You are not going to kid

anybody, and before they get through they are going to

have the facts. I mean, they are going to know just
what the facts are.

Now, what I want to say is this, and the first group
don't agree with me: "Look, gentlemen, the Bureau of the
Budget has just announced a new series of figures, which,
frankly, were just as much of a surprise to me as they

were to everybody else. Now we find that the deficit is
reduced by ten and a half billion dollars, which is most
pleasing to me. I am delighted. On the governmental

side we find--now get this thing!-- there are ninety-

eight billion dollars of total expenditures, estimated
revenue of forty-one billion dollars--that is before you

134

- 27 take in the House."
MR. GASTON: Yes.

H.M.JR: "Leaving a deficit of fifty-seven billion
dollars, which is a reduction in the deficit as estimated
between now and last August of ten, nine--practically

eleven billion. I think that is fine. That will make

my job very much easier.

"Now, that is on the governmental side. Let's
look on the civilian side and see what has happened. On
the civilian side the national income will possibly go
down, maybe four billion dollars. Now, how about the

production of goods? We are going on an estimate of

eighty billion dollars, and so far I haven't been able
to get any estimate of increase in civilian goods; so

the amount of money in the hands of the people, instead
of being one hundred and forty-three--don't check my

figures, it may be one hundred and thirty-nine--billion
dollars, when you get into those astronomical figures,
how can you tell how much difference four billion dollars
make? But the fact remains, there is going to be practically no more civilian goods. So the pressure is going
to be practically the same on the civilian side from now
on. Therefore, I say that the need for taxes to relieve
that pressure is just as important as when I appeared
before the Ways and Means. And I say to you that the
people of this country can stand another additional ten
and a half war taxes.
MR. PAUL: I think that is a good argument.
H.M.JR: Now, my consumer goods--maybe there will be

one or two. But when you are talking in figures, whether

the pressure is thirty-six billion dollars or forty

billion dollars, what the hell! Nobody can figure them
in those figures. But we know, and I think I am correct-George, have you heard of increase in civilian goods for

the rest of this fiscal year?

MR. HAAS: We have revised it since July.
H.M.JR: Since October 4, when I appeared before
Ways and Means?

MR. HAAS: I don't think so.

135

- 28 -

MR. WHITE: What is going to happen to this eight

billion dollars that is being saved? Are they to be

unemployed or producing civilian goods?

H.M.JR: Those are two different arguments.

And then I want to go into this whole talk. "I
agree. I don't think that the inflation thing has been
done as well as it could be done, but I want to talk
about this thing that creeps up on you and nobody recog-

nizes it until it is too late; that is the history of

inflation. This thing is increasing. Last month the
cost of living went up one and a half percent. In the

rest of the world, some places, it went up five percent
a month. And this, gentlemen, is the thing that I am
worried about, and it is the only thing I am worried
about in the economy picture.

MR. PAUL: What was the objection to that argument?
It sounds good to me.
MR. SULLIVAN: You had another first paragraph about

how this was all to the good, and you were surprised but

delighted. I think you can amplify that a little bit

and attract a lot of support you haven't had. In other

words, you have been just as much concerned as everybody

else. You didn't know what this debt was going to be,
but you knew that it would get into pretty nearly unmanageable figures. And here is the first break we have had
since Pearl Harbor, and here is a saving. That is fine.
Now, let's make another savings in that national debt of
ten and a half, and we have started on the road to get
that back where we can handle it and where the annual

financing charge will not be so large. And when you went
up there and recommended the ten and a half, you didn't
recommend that because you felt that that was what you
needed to keep the debt down as low as it should be; you
recommended that because that was the amount the American

people could afford to pay in additional wartime taxes,
and they can still afford to pay that amount.
MR. PAUL: That is right.

H.M.JR: Personally, I am just one in fifteen, but
I think on that front there is something--on the front
that Harry is talking about and Fred Smith is talking about,
that I could just stand up there and beg for another ten

136

- 29 and a half to keep the public debt from going up that much-oh, no.

MR. WHITE: Why approach it that way? Why not

approach it from the point of view, not of making a

dramatic plea or anything bordering on it. It is the

Secretary of the Treasury coming up and saying what he
regards as wise policy, what he regards as important

policy, and the wisdom and the importance lie in the fiscal field of collecting ten billion more, because they
can afford it, because it is desirable on fiscal ground,
and because it is fair to those who are in the Services.

Those are three important arguments.

Then you can also say that from the point of view of
the inflation, nobody knows what is going to happen to
prices. We know only one thing, that the less money
people have in their pockets to spend, the less danger

there is of inflation.

Your first introductory paragraph about what you

are very happy to have heard, that is fine. I certainly

wouldn't say I was afraid the debt would become unman-

ageable in proportion, because it certainly wasn't going
to. I wouldn't say it was excellent news they were cur-

tailing expenditure, because that may not be good
news--but that they have bungled the production. I would

say on the inflation front that we expect there will be

more consumers' goods produced, otherwise you will have
more unemployment, in which case you have got to take
that into consideration. You can make a good argument it
and be restrained.

H.M.JR: You are trying to rationalize the consumer
goods thing, when it isn't happening.
MR. WHITE: The point I am making is when you say

they are going to spend ten or eight billion less on war
goods in the next year, there is one of two things which

must follow: Either you are going to have more unemployment than you expected, or they are going to produce

more consumers goods. The reasonable assumption is you

will have a little of each.

MR. BLOUGH: There is a third. The real thing is
that the economists just didn't come through with the
amount they thought they could get.

137

- 30 MR. WHITE: I doubt that.
MR. BLOUGH: That is what Nelson said last fall--

it was going to go up about twenty billion dollars.

H.M.JR:
Wait a minute, Harry, let's explore that
a little
bit further.
MR. BLOUGH: Harry says there are two alternatives:
First we have more unemployment; second, more consumers

goods. I think the more probable thing is that they

expected the economy to produce more than the manpower,

materials, and so forth, have been there to produce, and
that is the reason we have a lower expenditure and that

is the reason for the deficit.

MR. WHITE: Are you aware of the plants they are

shutting down?

H.M.JR: I think he is talking facts.
Harry, you say very wisely this: Less for war,

more for civilians or unemployment. Now, what is the
answer. I think he (Blough ) has got the answer.
MR. WHITE: Let's examine the answer and the premise--

MR. HAAS: I have something, Harry, that might add
to the discussion. Colm called me, and he has called

me several times about it. This figure that was in the
August revision was an estimate of what they thought

the country's potential was, production potential.

In other words, it would be a hundred percent war, and
that was their estimate of what a hundred percent war
meant to the country. You had this conference over here,
and Harold Smith was over, about a month ago. Somebody
asked him, "Do you think you are going to make those

expenditure figures? He frankly admitted, "No," and he
just got through issuing the budget.
H.M.JR: That got back to the President, and the
President was angry. But the fact remains that Harold
Smith was right.

MR. HAAS: They were estimating the potentials.

Colm was to come over Wednesday, and got tied up with the

revision. He was all disturbed about it, because we have

138

139

- 31 to use another basis for estimating expenditure. I want

to know what their expenditure estimate was to be, because

I couldn't estimate the receipts, otherwise.

We in the Treasury, in our Sources of Funds and all
the material we had and Dan's estimating for the Drive
and financial requirements have used the exact figure
which they put out--ninety-two.

H.M.JR: I know that, and I am not, also, going to

say--because it makes me look stumped--that it comes as
a surprise.

MR. GASTON: And I think you had better look at

your statement before the Ways and Means to see whether

a change in front is necessary. I doubt it very seriously.
MR. HAAS: You take Fred's statement. When he wrote
that statement he knew these new figures.

H.M.JR: No, he did not.

MR. HAAS: I thought he did. It sounded like it.
it.

H.M.JR: No, no more than White or Paul or I knew

MR. HAAS: That is funny. I read it, and thought
he did. Except for some of the theatricals--you ought
to cut down the inflation part, and you have a good
statement.

MR. PAUL: You have the whole problem of post-war

inflation in your shift of emphasis. No figure has cut

down the individual savings, has approached that; you
still have that problem in addition to the one you made
about only a small reduction in national income.
H.M.JR: What I wanted to throw in as a suggestion,

in order to make this thing on a fifty-fifty basis-fifty revenue, fifty borrowing--I have got to get fortynine billion, which means I have to get eight billion

more. What do you gentlemen think--instead of saying,

"All right, in view of this estimate, instead of asking
for ten and a half, I am asking for eight"?

- 32 MR. GASTON: I am not. I would use both ends, but

I would center on the capacity to pay, in justice to our

own future.

MR. PAUL: One more thing is the fact that we
couldn't go above ten on account of all the stationary
incomes.

MR. GASTON: That is right. It is a question of

capacity.

H.M.JR: What Hamilton Fish could have said about

me if we had gone the original eight, eight.
MR. PAUL: That was the individual.
MR. GASTON: What I say about the Secretary's pro-

posal to start with the statement that there has been a

new savings--the new budget summation--and this changes

the situation; I say it doesn't change the situation.
You ought not to dignify it by giving it that importance.
You still ought to concentrate on your main arguments
and review the Budget figures later in the speech; but

to start out by saying, Here is a totally different
situation, here are the new Budget figures, '--it is

ruinous to our hopes of getting any additional revenue.

MR. WHITE: It is all in how you say it. I certainly

think he ought to say that this news about a reduced
budget is good news to him. How can he say other than

that, when you are cutting the deficit eight billion?

Now, you can, however, then go along the line you
have proposed. I don't think there is any disagreement
on where we are. But I do think you have got to play
down inflation, because how can you take the position

that you have taken, namely, an eight billion dollar
cut in consumers' expenditures, practically, or a large
part of that, and say that even now the situation is as

dramatic as this?

MR. PAUL: What is going to be the national income?

MR. WHITE: That relates to the capacity to pay.

MR. PAUL: It relates to inflation, too. It relates

to the amount in excess of available goods, civilian goods.

140

- 33 -

10

MR. PAUL: I wouldn't do it.
MR. HAAS: I wouldn't.
MR. WHITE: I think you have to come down, if you
make the argument on inflation, because I don't under-

stand this. If there is more purchasing power that
worried you--the potential was larger--, you have been

informed that it is eight billion dollars less and you

still asked for more, I can't understand why either you
didn't ask for enough before or you ought to ask for less
now. I don't think you ought to ask for the same amount.
MR. PAUL: You know why we didn't ask for enough

before.

MR. WHITE: How is he going to answer the question

that there are ten billions less spent than you knew
when you presented us this tax bill? You now tell us
there is going to be eight billion less spent than when
you were going to ask for the other.
MR. GASTON: That argument is very easy to answer,

Harry. We didn't base this on any arbitrary percentage.

We based it on the moral ground and the prudent fiscal
ground that we ought to levy in taxes now all that we can

afford to pay without disturbing the economy, in justice

to the returning soldier, in justice to our own future,

in justice to the inflationary dangers, the huge amount
of excess money that is about. We ought to levy all we
can possibly levy.
We said plainly that we first considered income

tax schedules of eight point eight billions. Then we

examined the impact of those and thought they would be

too heavy. We have adjusted our taxes on the level of

what we thought was the reasonable capacity to pay and
the minimum amount of what our people should now pay in

justice to their future and the future of the soldiers.

And that hasn't changed.

MR. WHITE: You haven't said a word that I wouldn't
accept, and I didn't think we wouldn't agree with you on.
But you are introducing, and the Secretary has in mind
introducing, something beyond that, and that is to make

the big play on the inflationary prospects.

141

- 34 -

142

12

MR. WRITE: Then I maintain your figures before were
wrong; your national income figures should have been

ten billion larger.

MR. BLOUGH: The figures on the amount needed never

were expected to be ten and a half billion. The President
approved temporarily, and then changed a budget request

which would have called for over twenty billion dollars of
taxes in enforced savings.

MR. WHITE: I still don't see. Either your national

income would have been eight or ten billion in August let's assume they didn't make this mistake in potential,

which is doubtless part of it - then, either there would

have been a greater inflationary pressure, and your national
income should have been larger, or the national income
should have been the same and your consumer goods produced
should have been lower.

MR. BLOUGH: George said he was using figures like
the Budget was using.

MR. BELL: We have been using ninety-two to ninety-four.
MR. WHITE: Then you shouldn't have been using it. You
can't have an eight billion dollar change and have your
figures the same.

MR. PAUL: That is what George did. He suspected the

figure.

H.M.JR: He suspected it, and ever since Tuesday we
have been working on something without suspicion.

MR. WHITE: How could he do that without being

informed?

MR. HAAS: Evidently we weren't careful enough to tell
him that was changed.

H.M.JR: It isn't only me; leave me out. Paul has

been working on his statement for two weeks.

MR. PAUL: That didn't come into my statement, but I
have had many conferences with Colm going over these figures.

13-s

143

- 35 MR. HAAS: Colm always maintained the other. He

called us up and didn't like our using something new.
H.M.JR: You fellows remind me of a lot of chefs
who are going to prepare the dinner and fatten the OX

before the dinner. I am the OX. I don't think it tastes
as good, but let's hear it.
MR. WHITE: If I understand the discussion, and what

you have said, I think there is substantially enough

agreement so that Fred could now go and draft this thing,
and wit another conference among ourselves, we could draft
something that could meet with your requirements and

agree with us.

MR. SMITH: I say you have got to emphasize the two

hundred billion dollars for mechanical reasons. If you
shift the emphasis to what is going to happen this year,

then they can pull something out of a hat and throw the
whole business into a tailspin.

MR. WHITE: I certainly would never emphasize the two

hundred billion, because it doesn't make one iota of
difference.

MR. SMITH: I mean from the standpoint of paying off;

not leaving it for the soldiers.
at.

MR. GASTON: It something to stick up there to look

MR. BLOUGH: I think it makes a substantial difference,
incidentally.

MR. PAUL: I am assuming it doesn't; but it still goes

big with Congress.

MR. WHITE: It seems to me the Secretary can be sound,

conservative.

H.M. JR: You say ninety-eight percent in a very quiet
kind of melodious voice. Now tell me what you think it is.

144

- 36 -

MR. WHITE: Yes, I will tell you. I can't state it
better than Herbert stated it, which is, I gather, a little
less spectacular - emphasis on inflation by elimination of

some of the paragraphs; an introductory statement somewhat

along the lines that you stated; the emphasis upon the necessity to get as much as you can, that you would have asked
for more before, because you knew it wasn't enough in view

of both your alternatives, except that you recognized certain practical limits of what you can get, and that that
was the practical limit; and that the cut in the budgetary
expenditures, being desirable, doesn't alter what the
American people can pay and what they should pay under
present circumstances, because of these various reasons.

H.M.JR: Well, let's see how Herbert would state it.
MR. GASTON: Well, I think I went over the main lines.
I would go up and make the strong appeal for drastic additional taxation. "We presented detailed estimates to the
House Committee calling for revenue of ten and a half

billions; it is still our opinion that the American people
can and should pay that amount."

I would use the two hundred billion dollar debt figure
that we are facing at the end of this next year, a debt of

two hundred billion dollars. "It is our moral duty to
keep that debt to the lowest possible limits. It is our

debt to our own future, to the future of the men who come
back from the war, to keep the debt to the lowest; to pay
every cent we possibly can without interfering with the
functioning of our economy. The proposals we make, while
they would pinch some people, will not cause suffering;

they will not lessen the supply of goods available to the
people of the United States.
Then I would use a little of the inflationary argument,

which I think is still valid, but not to the extent that
it is used in this draft.

I would revert to the figures after laying out our
general position. Then I would allude to the figures brought
out by the Budget and explain that this, being lower than

144

- 36 -

MR. WHITE: Yes, I will tell you. I can't state it
better than Herbert stated it, which is, I gather, a little
less spectacular - emphasis on inflation by elimination of

some of the paragraphs; an introductory statement somewhat

along the lines that you stated; the emphasis upon the necessity to get as much as you can, that you would have asked

for more before, because you knew it wasn't enough in view

of both your alternatives, except that you recognized cer-

tain practical limits of what you can get, and that that
was the practical limit; and that the cut in the budgetary
expenditures, being desirable, doesn't alter what the

American people can pay and what they should pay under
present circumstances, because of these various reasons.

H.M.JR: Well, let's see how Herbert would state it.
MR. GASTON: Well, I think I went over the main lines.
I would go up and make the strong appeal for drastic additional taxation. "We presented detailed estimates to the
House Committee calling for revenue of ten and a half

billions; it is still our opinion that the American people
can and should pay that amount."

I would use the two hundred billion dollar debt figure
that we are facing at the end of this next year, a debt of

two hundred billion dollars. "It is our moral duty to
keep that debt to the lowest possible limits. It is our

debt to our own future, to the future of the men who come
back from the war, to keep the debt to the lowest; to pay
every cent we possibly can without interfering with the
functioning of our economy. The proposals we make, while
they would pinch some people, will not cause suffering;

they will not lessen the supply of goods available to the

people of the United States.

Then I would use a little of the inflationary argument,

which I think is still valid, but not to the extent that
it is used in this draft.

I would revert to the figures after laying out our
general position. Then I would allude to the figures brought
out by the Budget and explain that this, being lower than

145

- 37 we estimated, doesn't affect our capacity to pay, and it

doesn't affect our obligation to pay all that we can possibly
pay, and we still have a great inflationary pressure which
has been held in check by a variety of controls, but which
needs to be; there is still some inflationary effect, and
we need to apply all the tax pressure that we can to reduce
it."
MR. PAUL: I wouldn't even weaken too much on inflation-

ary pressure, either; it is still there.

H.M.JR: Blough, where do you differ?
MR. BLOUGH: I am right with Herbert on that.

MR. BELL: I like that approach, too. I was wondering
when you come to the Budget figures if you couldn't say that

this ten and a half billion dollar reduction only affects
one fiscal year, that you still have a large deficit of

fifty-seven billion dollars, and when you go into the next
year, you are going to have almost equally as large a
deficit, and what you are doing is piling up inflationary
figures which, if they are not effective now, will be.
MR. PAUL: That is very important - savings figures.
H.M.JR: Here is about where I stand now. Do you (Smith
want to get out your pencil?

I think the important thing is this, that the Treasury

has continuously been studying what they feel is the maximum
amount that the economy of this country can stand during the

war of war taxes; and that we came to the conclusion, after
very careful study, that they could stand an additional ten
and a half billion dollars, and nothing has happened in
the picture to make us change that estimate.
Then go on and answer that; explain the benefits that
come to the economy from having additional ten and a half;

add inflationary, reduction of public debt, so forth and so
on.

Now, where do we differ?

146

- 38 -

MR. PAUL: I think that is all right.
MR. SULLIVAN: There is no difference at all.
H.M.JR: Do you have anything?
MR. BELL: No.
MRS. KLOTZ: No.

H.M.JR: Surrey?

MR. SURREY: I want to add one thing. I think part

of the difficulty we have gotten into here is due to the

fact - I mean, I would recognize that the House has turned

down the Treasury in a very startling fashion. I don't
think we are going to get very far in the Senate. I think

the document before the Senate should be a sound fiscal
document, and not a theatrical document. I would give them

a statement which I think would stand scrutiny next year
as a true picture of why we need this money. I would leave
out the theatrical, and so forth, and just say we have been
called upon to reexamine this because of what the House
did to our program, and then go on to that in a sober
statement of what the situation is, because I think that

will be the only effect of this statement.

H.M.JR: Well, some of the theatrical will be good.
I like, for instance, the part where they quote President
Coolidge, the three months before the crash.

MR. PAUL: I don't like that; I think you will be
accused of politics. It was a different sort of economic
picture in the '20's, it wasn't inflation.
MR. WHITE: You didn't have inflation in the '20's.
It depends upon a very erudite and technical definition of

inflation, which is not the kind of inflation you are

talking about now. You didn't have rising prices.

MR. SURREY: I think the tone of the document is very

important.

147

- 39 -

MR. PAUL: But it is all wrong from beginning to end.
Certain ideas, I think, are very good, but I don't like
the way they are expressed. I think the document is full
of tactless statements which will be seriously resented in

Congress. I think it is too theatrical.

MR. WHITE: I don't want to be with you on that. I
think there are more good things in there than there are
the others.

MR. GASTON: I agree with Randolph. There are some
things that need to be changed. We make some direct slaps
at the Ways and Means Committee.

H.M.JR: We tweak their noses too much.
MR. GASTON: They gave no consideration to the fact

we are going to have that two hundred billion dollars,
and so forth. They are accusing them of not looking at

any of the essential facts in the picture. I don't think

we can do that, but say we think they gave inadequate
attention.

H.M.JR: Well, let Fred go into his huddle. Then

let Blough and Surrey go in by themselves and see what they
can do, you see, separately. Do you two work together?
MR. BLOUGH: Fine. Haven't scratched yet.

H.M.JR: I don't need a finished document. Could I
have an outline right after lunch again, rather than giving

me something you are not satisfied with?

MR. BLOUGH: We will be ready for you.

H.M.JR: I will wait. You people want one kind of
tone. I take it Paul wants - I am not excluding you, but
I want somebody to go to drafting. Let Fred and Herbert do you want to give Fred some talk, or maybe Fred wants

to consult with you - will you be available?
MR. GASTON: Yes, I will be available.

148

- 40 H.M.JR: Fred, you consult with Gaston and go ahead.
Then we will have you fellows.
MR. BLOUGH: We can consult with Gaston, too.

H.M.JR: You might even consult with me.
MR. BLOUGH: He is a neutral observer.

MR. GASTON: I will be available.
MR. PAUL: The great white father.

H.M.JR: It is a terrific shock. I came back in the

grandest humor. I was never happier than when I left the
Hill. Then George coming out with his statement was very

nice.

MR. HAAS: That is why I think it is important that

you go Surrey's way.

H.M.JR: I don't know, but there is enough talent
here. Let's approach it. Then after lunch if you boys
aren't ready I will go for a walk and come back. I warned
you all. I didn't know it would be as bad as this, but
I can now see where it will be two o'clock Sunday morning
before we put the thing to bed.

You (Mrs. Klotz) had better speak to Norman Thompson.
Who does that mimeographing?

MR. SMITH: Public Relations.

MR. PAUL: They are all on notice.
MR. SMITH: They will be here all day Sunday.

MR. HAAS: Could I tell you something a bout this fifty
percent, that rule of thumb you mentioned up here? These
figures which the Budget put out applied to the fiscal

year ending June 30. When you are considering expenditures

from an inflationary standpoint, you consider what is ahead

149

- 41 -

of you, rather than behind. Roy mentioned, what is the
situation going to be by the end of the year? You can
have a budget by day or year. At the end of the year

the war will be about six; then add to that - it will be

one hundred ninety-two. I would keep away from it. But
the Secretary doesn't have to be stuck on the thing.

MR. PAUL: That is very true, George. It is the post-

war emphasis.

H.M.JR: One thing, in writing the thing, when we talk
about increased taxes, let's call them increased war taxes.

You don't call that theatrical, do you?
MR. SURREY: No, that is right.

H.M.JR: All right, boys.

150

EXECUTIVE OFFICE OF THE PRESIDENT
BUREAU OF THE BUDGET

For release, all newspapers,
Sunday morning, November 28, 1943

FD

No. 1

Budget Director Reports on Reserves and
Announces Revised Budget Estimates

Harold D. Smith, Director of the Bureau of the Budget, last night
issued a clarifying statement on the relationship between current war
expenditures and the $13 billion of reserves which have been set up for
the War Department. The estimate of war expenditures for the fiscal
year 1944 is being revised at the present time, but this revision is
neither due to nor measured by the reserves which have been set up against
appropriations.

"The $13 billion of reserves which have recently been set up against

appropriations for the War Department do not reduce estimated War Department expenditures for the fiscal year 1944, as announced in the President's
Budget Summation of August 1, 1943," the Budget Director stated. He
added, however, that "revisions of the over-all war program since August

now indicate that the $100 billion estimate of war expenditures for all
Federal agencies in the current fiscal year should be reduced to $92 billion.
Such revisions, as they occur, may make possible the placing of additional
appropriations in reserve.

"Recent statements about the $13 billion of War Department reserves
have been very misleading. The original January estimate of War Department

expenditures for this fiscal year was $62 billion; after program revision

it was reduced to $56 billion as announced in the President's Budget
Summation. Thus, $6 billion of these reserves resulted from a decrease
in the War Department program for the current fiscal year which was
reflected in the revised expenditure estimates announced by the President
on August 1,

"Another $4.5 billion of these reserves has been set up against
1944 appropriations which were intended for expenditure in the fiscal
year 1945 or thereafter.

"The final $2.5 billion in reserves was due to an increase in the
estimated amount of unobligated appropriations carried over from the fiscal
year 1943. In acting upon the War Department appropriation bill for the
fiscal year 1944, the Congress made available unobligated 1943 appropriations.
These appropriations thus carried forward for use this year were then estimated
at $12.5 billion. Amounts by which these appropriations carried over from
1943 exceeded the estimate used in formulating the appropriation bill for
1944 can be put in reserve.

151

-2"Thus, these reserves reflect savings which have already been
taken into account in the August revision of estimated expenditures

for the fiscal year 1944, or they reflect a reduction in expenditures
of previous or future fiscal years. It would be erroneous to deduct

these reserves from present expenditure estimates for the current
fiscal year.

"In addition to these aggregate reserves of $13 billion against

appropriations of the War Department, the question has been raised as
to similar reserves for the Navy Department. The answer is that the
program for the Army has been curtailed while the program for the Navy
has been expanded. As a matter of fact, the Navy Department will require
additional appropriations in 1944. Although very substantial cuts have
been made in certain items of the Navy program, such as escort vessel
construction, these cuts have been more than offset by additions in other
items, such as additions to the authorized personnel and expansion of the
landing craft program.
Revised Estimates of Total 1944 Expenditures and Receipts
"Careful reexamination of the war program has been continued since
August 1. A special Joint Production Survey Committee under the Joint
Chiefs of Staff has been established to review the program in close

collaboration with the Director of War Mobilization and the procurement
agencies. As a result, the war program is being continually revised.
Additional reserves will be established whenever downward revisions
make it possible.

"In the original Budget of January, total war expenditures for
the fiscal year 1944, including net outlays of Government corporations,
were estimated at $100 billion. In the subsequent Budget Summation of
August, expenditure estimates for the Army were revised downward and
estimates for the Navy and other war activities were revised upward,

although the $100 billion total was left unchanged.

"During the first four months of the current fiscal year starting

July 1, 1943, total war expenditures were running at an annual rate of
about $87 billion. During this month they have been running at an annual

rate substantially above $90 billion. They are likely to increase still

further as the strength of the armed forces increases and as aircraft and
shipbuilding production is further expanded.
"Because the reexamination of the war program is still in process,

it is difficult to give a definite revised figure of war expenditures
at the present time. It appears likely, however, that total 1944 war

expenditures will approximate $92 billion, or about 8 percent below the

last estimate of $100 billion. A revised estimate will be included in the
President's Budget to be transmitted early next January.

"Estimates of expenditures for interest on the public debt and all
other expenditures are not being revised at this time since little change
is indicated from August estimates shown in the following table.

152

-3- "Net receipts for the fiscal year 1944 were estimated at $38.1
billion in the Budget Summation of August 1. Recent estimates of 1944
receipts amount to $41 billion.
"The following table compares the deficit computation resulting

from Federal receipts and expenditures as now estimated, and those
presented in the Budget Summation (in billions):
Fiscal Year 1944

NET RECEIPTS

: Budget Summation
Estimate,
Aug. 1, 1943

:

Estimate,
Nov. 26, 1943

:

Revised

$41.0

$38.1

92.0
2.7

100.0
2.7

4.3

4.3

-1.2

-1,2

97.8

105.8

56.8

67.7

EXPENDITURES:

War (incl. net outlays of
Government corporations)

Interest on the public debt
Other:

General and special accounts

Govt. corp'ns (excess of receipts)

Total expenditures
Excess of expenditures over
receipts

"Summarizing income and outgo developments," the Director of the

Bureau of the Budget stated, "the prospective deficit from operations
for the current fiscal year has decreased from an August estimate
of $68 billion to an estimate of about $57 billion.
"As a result of these operations, the outstanding public debt,
which amounted to $72.4 billion at the close of the fiscal year 1942

and $136.7 billion a year later, will rise to about $194 billion at
the end of the fiscal year 1944. Another $3 billion of direct debt is
required for the refunding of guaranteed obligations of Government

corporations during the current fiscal year."

153

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

"in_
DATE Nov. 27, 1943

Secretary Morgenthau

TO

FROM

Mr. Haa OH

Subject: Revised Outlook on Excess Income of Individuals
for the Fiscal Year 1944.
A revised statement on the 1944 Budget will be
released tomorrow. With confidential advance figures from
the Budget Bureau, we have made new estimates of income
payments to individuals for the fiscal year 1944 and of
the amount of excess funds expected to be in their hands.
The new revised budget estimates call for total
Federal expenditures (including corporations) of $98 bil-

lions, $8 billions less than in the August summation. The
total is divided between $92 billions of war expenditures
and $6 billions of non-war expenditures (including interest).
The whole reduction is thus applicable to war expenditures
Net revenues are now estimated at $41 billions, up $3 billions from the August estimate. The deficit for the fiscal
year is now estimated at $57 billions, down $11 billions
from the August summation. We have been anticipating such
a reduction in the deficit for some time, and allowed for
it in preparing our sources of funds material for the

Fourth War Loan.

Using this new information we now estimate that income

payments to individuals will amount to $148 billions for
the fiscal year. This compares with the $152 billions
estimate we provided for your use in the House hearings on
the tax bill. The reduction reflects the decrease in

anticipated war expenditures brought out in the new budget
statement. In making the new estimate, it has been assumed

that the stabilization front will hold.

There have also been changes in the estimates of the
disposition
of income payments, as is shown in the following
table:

154

Secretary Morgenthau - 2

Estimates for
House

hearings

Income payments to individuals

Less: Direct taxes on individuals

(In billions of dollars)

(present law, Federal,
State and local)
Equals: Disposable incomes
Less: Available goods and services.

Equals: Excess incomes (or liquid
savings of individuals)

Revised

estimates

$ 152

$ 148

21

22

131

126

89

90

42

36

The reduction in estimated excess incomes from $42 bil-

lions to $36 billions would indicate some alleviation of the

problem of controlling excess funds. The amount of these

funds is still 80 large, however, that this reduction is of

little significance. Current excess incomes to the extent
of something like $36 billions must be immobilized and this
immobilization is made more difficult by the fact that past
accumulations exist in huge amounts. While we have been
relatively successful in immobilizing excess funds during
the war period, the funds have been placed to an unhappy
extent in money forms of savings. This tends to indicate
that the intention of the holders to really save is none too
firm.

As you know, we have consistently urged that the concept
known as the "inflationary gap" be abandoned. The term is
widely misunderstood and it is extremely difficult to make
satisfactory estimates of the amounts involved. One method

consists of comparing the rate of liquid savings of individuals
during a period in the recent past with the total of excess
incomes in a future period and labeling the difference as
"inflationary gap" For example, liquid savings of individuals
at an annual rate of $32 billions during the fiscal year 1943
would be considered as "normal" and would be compared with
$36 billions of excess incomes for the fiscal year 1944; the
difference of $4 billions would represent the 'inflationary
gap". We believe this to be a misleading statement of the
problem. The level of new liquid savings of individuals in a
past period is hardly normal when it includes a large amount
of impermanent savings in the form of currency and checking
accounts which may break loose at any time. In other words,
there is no assurance that the past level of savings will
continue on an even keel in the future, let alone increase,
without new measures of control.

155

Secretary Morgenthau - 3

The following table compares our new estimate of income

payments to individuals for the fiscal year with tabulations
for the last few years. The totals are broken down according
to the three principal categories of uses to which income
payments are put.

Uses of Income Payments to Individuals
Calendar Years 1939-1943 and Fiscal Years 1943-1944

(In billions of dollars)
Fiscal years

Calendar years

1944

1942

1943

116

142

130

148

7

18

10

22

:

:

1941

;

:

1940

1943

:

:

1939

1/

Income payments to

individuals

71

76

3

3

92

Less: Direct taxes on
individuals (Federal,
State and local)

4

Equals: Disposable
incomes

68

73

88

109

124

120

126

64

68

77

84

90

88

90

11

25

34

32

Less: Available goods
and services

Equals:

Liquid savings of

individuals, or

Excess incomes

4

5

36

Estimates based on the Budget statement of November 26, 1943, and

on the usual assumption that the stabilization front will hold.

1

cc-Dr. White.

HMJr:

George L.

156
November 27, 1943
11:14 a.m.

Hello.

Harrison:

Hello, Henry.

HMJr:

Good morning.

H:

How are you, sir?

HMJr:

Pretty well. George, GitzGerald says you are going
to be in New York Tuesday.

H:

That's right. I have to go back. I had planned to

go back Monday, then I changed on that, hoping I might
see you then, but I understand
HMJr:

H:

Well, I've got to make an appearance on the Hill
Monday. How urgent is this?

Well, I'll tell you. They've got to make this
appointment of this fiscal advisor on the Civil
Affairs Group there in London.

HMJr:

Yeah, they've been fussing with us over three months.

H:

Well, I know they have and McCloy is away.

HMJr:

Yeah.

H:

And they are getting cables now from London: "For

goodness sakes send us somebody. #
HMJr:
H:

Yeah.

So, I don't like to stall on it any longer than is

necessary.
HMJr:

Yeah. Well, couldn't Hilldring come over Tuesday?

H:

Well, the difficulty is that I con't think he knows

the personnel or the personalities as well as I do.
That was all. What we want to do -- may I talk just

a half a minute now?
HMJr:

Surely.

H:

They -- of course, they tried Frazier. Frazier
can't do it. I, personally, explored just on a

purely tentative basis Charlie Spencer, thinking
that he would be agreeable to you and I think he'd

-2-

157

H:

Cont'd.

do a good job, but he's got a situation which
apparently makes it impossible for him to do it.
Sproul was one of our first thoughts on it,
and I think Sproul would be "tops" at it. The
only difficult ty is whether he could be spared
in New York. That I don't know. Another name,
and all of these are pretty much in one bracket,
18 Jay Crane, whom you used to know

HMJr:
H:

Yeah.

and who probably is one of the ablest and best
behaved and best negotiative and who was able to get
more with the British and the French than anybody
I know that's gone over there for a long while.

HMJr:

Yeah.

H:

I have great regard and respect for him and I

think he's a terribly able fellow.

HMJr:

Yeah.

H:

So, if Sproul were out, I think that the next best

bet would be to try Crane, but I think the important
thing is to get somebody over pretty soon.
HMJr:

Yeah. Well, I've -- I've been waiting to hear from
McCloy. He never came back.

H:

Oh, well, I didn't know. You see I -- it was all
left high and dry when I got here.

HMJr:

Well, he never came back on this thing.

H:

Yes.

HMJr:

H:

HMJr:

Well, I frankly can't put my mind on it now. I've
got this very difficult statement to prepare.
Yes. Well, I know you have.
And I can't hit it, George, much before Tuesday.

H:

I see.

HMJr:

I'm sorry.

H:

Well....

-3HMJr:

158

But I mean, they have been actually -- it's somewhere
between two and three months.

H:

I know.

HMJr:

Yeah.

H:

And then there's one -- you went away and then McCloy

went away and the thing is just hanging fire
HMJr:
H:

HMJr:

Yeah.

And
it's one of the things that I'd like to get
cleaned up if I can.
Yeah. Well, I've got -- I can't do more. I did
my financing last week and there's taxes this
weel

H:

Yeah.

and after Monday I can talk about this.

HMJr:
H:

All right. Well, now, I'11 talk to Hilldring
again and then call FitzGerald back as to

HMJr:

Yeah.

whether he'll come over alone on Tuesday or not.

H:

HMJr:

Okay.

H:

If that's all right.

HMJr:

Right.

H:

First rate.

HMJr:

Thank you.

H:

Bye.

159
November 27, 1943
11:19 a.m.

HMJr:

Clarence

Hello.

LeHan:

Hello.

HMJr:

Morgenthau speaking.

L:

Yes, sir. Good morning.

HMJr:

How are you?

L:

Fine, thank you. And you?

HMJr:

Very well.

L:

That's good.

HMJr:

Look, LeHan, in the first place, thanks for
cleaning up the Hickman place for me.

L:

Yes.

HMJr:

Now, I've got another deal on with a neighbor
of mine by the name of Orme. I think you spell
it 0-r-m-e.

L:

0-r-m-e?

HMJr:

Yes.

L:

Yes.

HMJr:

Have you got a pencil?

L:

Yes, sir. I have it right here, Mr. Morgenthau.
Well, this is the thing: He has decided that he

HMJr:

wants to rent my dairy.

L:

Yes.

HMJr:

And he will take the cow-barn and the house that

L:

Yes.

HMJr:

Plus the same fields, with the exception that I've

Hoose lives in. Hello?

taken out about 75 acres which I've plowed up for
an orchard. You may have read about that.

-2L:

Yes.

HMJr:

Now, he wants to start April 1st.

L:

Yes.

HMJr:

And he has agreed to pay me $800

L:

Yes.

and he wants two options of two years each,

HMJr:

so he could take it for three years if he wanted
it.
L:

Two options?

HMJr:

Yeah, of one year each.

L:

Oh. One year each.

HMJr:

One year each.

L:

Yes.

HMJr:

He has agreed to keep up the house and the cow-barn

L:

Yes.

HMJr:

which isn't very good. He also agreed to keep
the hedge rows -- fence rows in as good condition

in as good repair as it is now

as they are now.
L:

Yes.

HMJr:

Now, the important thing from my standpoint in this
deal is that I can take all of the manure if I want
to and put it on the orchard. I have an option on

all of it
L:

Yes.

if I want it. If I don't take it all, why, he

HMJr:

will spread it on the farm.
L:

Yes.

HMJr:

But I have the right to all of it if I want it.

160

-L:

HMJr:

161

Yes.

Now the other thing -- I didn't mention this to

him, but I think I should -- I think I should put
a
limit on how much land he could plow up in any
one year.

L:

Yes.

HMJr:

And I think that Hoose used to plow forty so I

L:

Yes.

HMJr:

And that before he plows another fifty acres, say

think if I said fifty acres, that would be the
limit.

the second year, he would have to seed down what
he had plowed up the previous year. You see?
In other words, I don t want him to plow up my
whole farm and not seed it down.

L:

HMJr:

Not seed it down -- surely. Yes.

I think that that is, very roughly, the deal.

He's a contractor. He's a man of outside means.
He's got two dairies that he's going to combine
and put them in mine.

L:
HMJr:

Yes.

Frankly, I'm very anxious to have this cleaned up

before the 11th of December when I have my sale

L:

Yes.

HMJr:

so that when they say that -- I could announce
it at that time that while I am selling these COWS
off, another 50 COWS are coming in to take their
place.

L:

Yes.

HMJr:

See?

L:

Yes.

HMJr:

And from my standpoint it's very important
Well, I can certainly have it ready, Mr. Morgenthau.

L:

-4HMJr:

Right. Now, the other thing is that I told him he

could have access to the premise any time he wanted

it.

L:

Access to what?

HMJr:

The premises.

L:

Yes.

HMJr:

I mean any -- he doesn't -- I mean if he wants to

move in part of it before the first of April, he
can.

L:

Yes.

HMJr:

But he wants the lease to run from April to April.

L:

Yes.

HMJr:

Now, I think what you'll have to do when you get

ready -- get it drafted -- would be to send for

him and Bailey -- James Bailey.
L:

Uh huh. Where?

HMJr:

Bailey -- Bailey is my -- looks after my orchard.

L:

Oh, yes.

HMJr:

Do you know James Bailey?

L:

HMJr:

L:

HMJr:
L:

HMJr:

No, I don't.
Well, he's been present at all of the talks that
I 've had with Orme and he knows all about it.

Yes, and his address is just Fishkill?
Well, it's Hopewell Junction.
Hopewell Junction?

That is, Orme's 18. I mean if you want to get

hold of them
L:

Yes.

HMJr:

Bailey's number is 3-4-3

162

-5L:

3-4-3.

HMJr:

Party F-2-3.

L:

F-2-3.

HMJr:

Yeah.

L:

Yeah, that's Hopewell Junction?

HMJr:

That's Beacon.

L:

Beacon?

HMJr:

163

Yeah. And it's best to get -- call Bailey between
12 and 12:30. That's the best time to get him.

L:

All right.

HMJr:

Or after 5 o'clock.

L:

Yeah.

HMJr:

But if you could rush this thing through, I just -I don't want anything very complicated, but I --

I thought we ought to
L:

Now, what description am I going to use, Mr.

Morgenthau?
HMJr:

Gee, I don't know. The only thing I thought -- it's
the same fields that have been turned over to the

tenant before with the exception of this block
L:

Except the 75 acres that you have plowed?

HMJr:

Which we have plowed.

L:

Yeah, that was the same one that you had in the
other lease.

HMJr:

Yep.

L:

All right. And then I can use that description and

then say, "except that," . and he'd have the COW -- he'd
get the cow-barn and the house.

HMJr:

Yeah. He gets -- there are other houses which he
doesn't get, you see?

-6-

L:

HMJr:

164

Yeah.

He
just gets the cow-barn and the house at the
cow-barn.

L:

At the cow-barn?

HMJr:

Yeah.

L:

Yes. All right. I think I can get it out for you.

Itwo
canof--uswe're
in. very short today. There's only about

HMJr:

Well, you've got until the 11th of December.

L:

Oh, well, I'11 have it out then -- I'll have it

HMJr:

Well, I'11...

L:

HMJr:
L:

out before that.

I'11 get it out next week.
Yeah, and so I could sign it, too.
Oh, yes, I'll have it down there and -- do you want
me to send you a draft down below?

HMJr:

Yeah.

L:

I'll do that.

HMJr:

L:

HMJr:

L:

And listen, young fellow, when are you going to -when you going to -- I want to see it before he
signs it.
Oh, by all means. I'11 send it down to you.
And when are you going to send me a bill for all
this you've been doing this year?

Oh, I'll -- we'll get around to that, a little

later.
HMJr:

Well, don't wait too long.

L:

All right.

HMJr:

There may not be any money left.

-7 L:

HMJr:

L:

HMJr:

(Laughs) All right, we won't worry about that.

Well, incidentally, when this bill -- I'd like to
get it into this year's -- uh -- I'd like to pay
it out of this year's income.
All right. I'11 talk to Judge Mack about it.

I may not have any money next year, but I've got

a little left this year.

L:

All right, Mr. Morgenthau, I'11 talk to Judge Mack.

HMJr:

Thank you.

L:

Thank you.

HMJr:

Give him my best regards.

165

166
November 27, 1943
11:54 a.m.

Operator:

Go ahead.

HMJr:

Hello.

Dan

Bell:

Yes.

HMJr:

Dan?

B:

Yes, sir.

HMJr:

I didn't understand -- did you call up Lee
Wiggins or did he call you?

B:

He called me, after he had talked to you.

HMJr:

I see.

B:

Yeah.

HMOr:
B:

Well, at the right time we can take this up?
Oh, I think so. There really doesn't -- we
didn't put it in our statement as F and G and
we've discussed it here with our own boys and
we thought we'd let them stand, but it really
doesn't make any difference. If they want F
and G, I don't see that

HMJr:

Well, would you

B:

.... we should quarrel about it.
talk to me about it sometime Tuesday?

HMJr:
B:

Yeah. When we get ready to put out our circulars,

why then we should make a decision on both of those
points.

HMJr:
B:

Okay.

What they should get and also the formula. I
told him that I didn't agree with his formula
at all on the savings accounts.

HMJr:

Yeah.

B:

From which we can get a potential billion and six or
seven hundred million.

-2HMJr:

I can forget about it?

B:

Yep. For the moment.

HMJr:

You will remind me Tuesday?

B:

Yes, sir, I will.

HMJr:

I thank you.

B:

All right.

167

168

November 27, 1943
2:30 p.m.
TAXES

Present: Mr. Bell

Mr. Paul

Mr. Sullivan

Mr. Smith
Mr. White
Mr. Gaston
Mr. Haas

Mr. Blough
Mr. Surrey

Mrs. Klotz

H.M.JR: This is a terrible situation. All of
Gamble's chairmen keep calling up wanting to have a bond

drive.

MR. SMITH: The United Press man was in and says he

has already written a story and says we can't possibly ask

for more than five billion on this fifty percent operation.

He said that you made it clear and the President made it
clear that you were talking about war expenses. Three
billion more than the House gave us is all we can ask for.

MR. BLOUGH: Just don't pay any of the other expenses?

H.M.JR: Who has a draft that is ready?
MR. SMITH: I have some stuff that is reorganized

that would be pretty jittery yet, if anybody wants to

hear it, and I think Roy has one.

MR. GASTON: I dictated a draft before lunch. My

secretary has not quite finished writing it. It is about

ten pages triple-spaced.

MR. PAUL: There are eight pages in yours?

169

-2-

MR. BLOUGH: I cannot tell a lie. I wrote a draft
yesterday, and this morning after this meeting Stanley
and I put some more in it.

H.M.JR: Let's do this, if you don't mind, anybody I am familiar with yours (Smith's) as it was; I am not
familiar with theirs.
You have asked them to bring yours in as soon as
possible?
MR. GASTON: Yes.

MR. BLOUGH: Could we have that ribbon copy for the
Secretary?

H.M.JR: I would like you to read it out loud.

MR. BLOUGH: All right, if I can still read.
H.M. JR: You wrote it yesterday, knowing what was in
the budget?

MR. BLOUGH: No, no, but I wrote a draft yesterday.
(Distributes copy of draft entitled "Proposed Statement

of Secretary Morgenthau before the Senate Finance Committee,"
copy attached.)

H.M.JR: I was going to say, I wish you had taken

Paul and me into your confidence.

I called up Gamble and said, "The Budget is getting

out a swell thing. Five State chairmen have called up.
I said, "You get hold of that Budget statement as soon as
you can. That will take care of you."
MR. BLOUGH: This is the first half, just about. The

last half will be in before I am through with the first
half. Let me indicate the point of view from which it
was written first. It was written from the point of view
of a statement largely for the record. We hope it is
readable, but largely it is a statement for the record.

170

-3We made some changes since this morning's meeting.

(Reading draft) "When I appeared before the Ways and
Means Committee of the House on October 4 to present the

Administration's suggestions for increased war taxes, I
gave to that Committee as best I could a picture of the
financial position of the nation and its wartime revenue

needs. I stated that the fiscal situation required additional war taxes of at least $10.5 billion. The Ways and

Means Committee and the House reached a different result

and approved a bill increasing revenues by only $2 billion.
In view of this wide difference on a matter so important
to the present and future welfare of this nation, I have

carefully reviewed the fiscal situation. I am appearing
before you today to present my conclusions.

"A vital part of fighting a war is paying for it in
the right way. That is the fiscal sector of the war. How

well we are doing in the fiscal sector is measured in part
by how much we are paying through taxes, how large is the

deficit and how big a debt we are accumulating. It is our
duty to the returning soldiers and to future generations
to keep the deficit and the debt to a minimum. In doing
so we not only help ourselves and our children after the
war but we help stabilize the cost of living today.
"Let me present the reasons why sound fiscal policy
requires much higher wartime taxes than are provided under

existing law. One reason is a matter of simple arithmetic.
Last month (October, 1943) the Federal Government spent
dollars more than it collected in revenue. In the
fiscal year 1943 it spent over $55 billion more than the
revenues. In the fiscal year 1944, under present law
and the most recent budget estimates, we shall spend $57
billion more than we receive in revenue.

"The need for revenue is seen also in our mounting
public debt. On October 31 the outstanding public debt

was

billion dollars. On June 30, 1944, the outstanding

public debt is expected to be billion dollars. The
annual interest on that debt is about billion dollars.

As the war continues, the debt, the interest, and the
problems of repayment will grow larger and larger.

171

4-

"Paying now through taxes a much larger part of the

financial cost of the war will reduce the deficit and hold
down the debt. It will do more; it will also help now to
protect us against rapid and burdensome increases in the
cost of living. About half of American productive effort
is going into war equipment and supplies for cur armed

forces. These products are not available for civilian consumption. Yet our people are being paid for all they
produce. They thus have far more money to spend than

there are goods on which to spend it. There is a large
surplus of income over goods. In 1944 it is expected to

amount to $ billion. If this surplus income should be

spent the necessary and inevitable results would be black
markets, ruptured price ceilings, substantial increases
in prices and the cost of living, followed by tremendous
pressures for high wages and farm prices, which would set

in motion further forces in the spiral of inflation.

"Thus far, through admirable self-restraint and by

price ceilings, rationing, credit controls, wage stabilization, war bond drives, and other measures, as well as by

taxes already imposed, spending has been held down and

prices have risen only gradually. But the continued and
growing surplus of income over goods, to which might be

added at any time some of the $ billion of private
savings accumulated over the past three years, is fire
under the boilers of inflation.
If

H.M.JR: Make it "fuel" instead of what it is.
MR. GASTON: Make it "fuel for the fires of inflation.
MR. BLOUGH: "Day after day the continued pressure of
surplus income has been cracking our price controls a

little here and a little there and threatens to produce a

major explosion. Our stabilization program is threatened
at its foundations.

H.M.JR: What is the difference between the first and
second paragraphs?

MR. BLOUGH: One is income, the other accumulated
savings.

172

-5(Mr. Blough completes the reading of the first section
of his draft through page 8.)
MR. BLOUGH: I have the rest here.

H.M.JR: It is a very good job.
MR. GASTON: Yes, a very good job.

(Mr. Bell entered the conference.)
MR. GASTON: I have some "purple passages" in mind that

I like, but as a whole I think this is much better.

H.M.JR: (To Mr. Bell) Blough has read the first half of his.
MR. BLOUGH: I am sorry, I have given out all the copies.
(Commences reading of second section, page 9) "Another

argument against higher taxes is that the American people do

not believe in the dangers of inflation. If by inflation is

meant the type where money becomes worthless, I agree that
only a much harder, longer war than is commonly expected

would bring us to that cataclysm. The danger now is not of

that character. It is rather the danger of substantial and
continuous and, at least in part, permanent rises in prices

that would undermine standards of living and reduce the value
of investments. Unwillingness to believe in the danger of
inflation does not remove that danger. There are few indeed
who have followed with care the developments of the recent
past who are not concerned over the possible breakdown of the
stabilization program. Much higher taxes are a requirement
for meeting that danger. Taxes obviously cannot win the game
alone, but they are a prominent member of the team.
"At another extreme the curious argument has been

made that the deficit is so large, the Government debt so
huge, and the infl ationary possibilities of surplus income
and accumulated private savings so great, that $10.5 billion
would not help much and that therefore we might as well

avoid the unpopularity of imposing additional taxes. If
this point of view were seriously entertained by a majority,
we would indeed be lost to the ravages of inflation. It

173

-6would mean that we had given up even trying. But $10.5

billion is large enough to have very important effects
on the deficit, the debt, and the inflationary pressure.

It is almost exactly the total of all the reductions that

took place in the Federal public debt over a 12-year period

after World War I. In its direct effects on spending, in
the assurance it gives that the Government takes its debt

seriously, and in the sobering influence it will have on
public understanding of the true cost of the war, the
$10.5 billion increase will be immensely beneficial.
"It has been said that the American people cannot
bear this additional tax burden because our per capita
taxes are above those of our allies, Canada and Great

Britain. The conclusion does not follow in any event, but
the statement itself is misleading. It is the amount of

income from which the tax is paid that determines how
burdensome the tax will be and personal incomes here are

larger than in Canada or Great Britain. If practically any
citizen of the United States lived in Canada or Great Britain

and had the same income there, his taxes would be sub-

stantially higher.

"I hope you agree with me that the excuses given for
not raising taxes are not worthy of serious consideration
in the face of the serious needs for increased revenue.

"I shall not go into the details regarding the
Treasury proposal or the House Bill. I shall leave such
matters for Mr. Paul to bring to your attention. There

are, however, a few basic points that I wish to emphasize

here.

"The first point concerns the distribution of the

burden of additional taxes. Under the Treasury income tax
proposals about one-half (ck.) of the proposed increase
would fall on persons with incomes of less than $5,000
and about one-fourth (ck.) would fall on persons with

less than $3,000. For all the tax proposals combined,

the distribution among these income groups of the increased

burden would be approximately the same.

H.M.JR: All tax proposals combined?

174

-7MR. PAUL: Including the corporate and the excises.
MR. BLOUGH: It makes the ten and one-half billion.

"This proposed distribution of tax increases was
determined on after studying the problems of equity and of
inflation. Basic minimum standards of living are necessary
if morale and production are to be maintained. Tax policy
must seek to protect these minimum standards. It is the
surpluses of spending power above the basic minimum that

present the inflationary problem and the possibility of its

solution. The income tax exemptions suggested by the
Treasury represent this minimum on the average: if anything

they may be too low. Although about four-fifths (ck.)

of the total income is received by persons with incomes
under $5,000, less than two-thirds (ck.) of the income
above exemptions is received by this group. Likewise,
although about 60 percent (ck.) of total income is received
by persons with incomes under $3,000, only about 40 percent
(ck.) of the income above exemptions is received by this
group. When it is considered that the higher incomes

represent greater ability to pay and give rise to less
important spending, the proportions of burden distribution

proposed under the Treasury proposals are, we believe,
reasonable and sound."

H.M.JR: Just one thing, what were the exemptions
under the Victory Tax?
MR. BLOUGH: Six hundred twenty-four.

MR. GASTON: For everybody, married or single.

H.M.JR: What did we recommend in this bill?
MR. BLOUGH: Eleven hundred - five hundred for indi-

viduals, and eleven hundred for married couples. It was
three hundred for dependents.

H.M.JR: What was that before?
MR. BLOUGH: Twelve hundred. We raised it from six
hundred twenty-four to eleven hundred.

175

-8MR. GASTON: Twelve hundred and three-fifty. We
could cut it to eleven hundred and three hundred.
H.M.JR: What?

MR. BLOUGH: Individuals were left the same at five
hundred. Married couples were previously twelve hundred
under the income tax, and we made it eleven hundred.
Dependents were previously three hundred and fifty, and
we made that three hundred. The effect, of course, was
not the way it sounds, because the effect was-H.M.JR: Are we going to do that again?
MR. BLOUGH: I certainly think we must if we expect
to get the Victory Tax and minimum tax out of the law. As

a matter of fact, it does not raise taxes for people under
eleven hundred seventy-five dollars even with all our tax
increases, which we won't get. Married couples begin to

pay higher taxes even with our increases only at eleven hundred seventy-five. Married couples with two dependents
would begin to pay taxes only at about sixteen hundred and

fifty dollars, so it is not what it looks like.
H.M.JR: Are the tables coming along?
MR. BLOUGH: Yes.

MR. SURREY: We are going down on the income tax, but

coming
up on the Victory Tax, and that about meets the
eleven hundred.
MR. PAUL: There are only two alternatives now.

MR. BLOUGH: We have the original, two alternatives,

the charts the Secretary asked for, and so forth.

MR. PAUL: The Secretary spoke of several plans at lunch.
That would make a total of three. You really can't have much
more than three and make the variation significant.
MR. BLOUGH: (Reading) "The second point I would like to

discuss about the Treasury proposals is the fact that they do not
include a general sales tax. The sales tax has been held out to

176

-9the American people as the great panacea, the one source
from which the war can be financed. Let us see what the
facts are."

I have some misgiving about having this, or as much

as this, but I will go through it if you wish.
H.M.JR: Yes, let's do.

(Mr. Blough continues reading from page 13 through 17.)
MR. GASTON: Not repealed.

MR. BLOUGH: Well, eliminated.

(Mr. Blough finishes reading of his draft.)

H.M.JR: Well, I think it is very good. This is my

first impression: I would go through page 8 and then I
would skip to 18. I would leave out from 9 through 17.
MR. GASTON: You would leave out the sales tax?

H.M.JR: Leave out everything.
MR. PAUL: Let me say this-H.M. JR: Leave out everything from page 8 to 18.
MR. PAUL: There are several things on those pages

that I can cover if you don't want to.

MR. WHITE: I would like to make a plea for not doing

that for this reason: This is not a speech, and therefore
the time factor is not as important as it is in a speech.

It is what the last paragraph has indicated, a sober, restrained statement by the Secretary of the Treasury on an
extremely important matter. For the record, I think that

the Senate will study it. I think they will read it. I

think others will read it. I don't think there is the same

necessity for cutting as there would be usually in your
statements. I think it can be cut in part, but I think
there would be some loss in deleting it.

177

- 10 H.M.JR: I don't know whether I am right, but my
thought is that what I am doing in nine pages here is to

make a plea for ten and a half billion dollars and giving
them good reasons. Then the rest of the thing goes into
questions and methods. I just question as to whether I
should go into the methods.

MR. PAUL: I would like to make two suggestions. I
would like to see you on record on that simplification
issue, a short statement, perhaps even shorter than the
one there. On the part in between simplification and page
eight, I think those things ought to be said. They ought

to be on the record. I don't think it is vital that you
say them.

H.M.JR: I am willing to say that or anything else.
MR. WHITE: I would go further, Mr. Secretary; I think
not only is it important that you stress the total magnitude
as you do up to page eleven, but it is also important as

to what tactics, or at least important as to the amount. I

think the argument begins here against a sales tax with
certain minor changes. The argument that is given here of

simplification is simply stated. There are parts in which

it drags, because the minute you begin to get into figures

but again, I don't think that is important in this kind of
a statement as it would be in a speech. I think that the
additional time which is called for for these four or five
pages - I think the content is worth it with some polishing

and fixing up. I think that not only is it all right in
here, but I think it is your responsibility to take the

position on major matters like a tax of the character of
the sales tax which is in the forefront of everybody's
mind, and also in favor of simplification.
MR. PAUL: I am inclined to agree with Harry about

the sales tax. I was thinking of some of those other
rebuttal arguments.

MR. BLOUGH: The distribution of four out of five.

MR. PAUL: I was first inclined the other way, but
here is the way my mind is working on the sales tax: You
are going to get asked anyway. You might just as well put

-

178

- 11 it in your statement and have it in mature form so you

don't have to pull it all together at the last minute.

H.M.JR: Of course the advantage to reading a statement is, they always let me read it without interrupting

me. Chances are, papers like the Times and Tribune are very

apt to run this thing in full, but when you begin to get
into arguments--

MR. PAUL: That is another argument with the same
effect.

H.M.JR: The chances are, whatever I say will be run
in full by papers like the Times and Tribune.
MR. WHITE: There were a couple of points in which

this could be improved. It drags because the material is
more difficult, particularly when you get to the distribution
of the various taxes, and I am sure that Fred and Herbert
could improve that. I would be sorry to see much of this
left out.
MR. PAUL: I agree with you about the sales tax, which

is the long part of that.

H.M.JR: Well, you have changed then, haven't you?
You were opposed to my saying anything on the sales tax.

MR. PAUL: I wasn't too much opposed, but I am inclined

to think you should now. Clark told me the other day Senator Clark was sitting next to me at the luncheon - he
said, "He is going to get the questions; he might just as
well say it." He has strongly emphasized that you bring
out that argument which is set forth there, about how you
whittle away with exemptions and have nothing left.

MR. WHITE: Isn't the decisive argument the fact that

that is apt to get before the public, whereas if it isn't

in this speech It has the less chance of getting before
the public?

MR. PAUL: That is a good reason for putting it in.
The only question in my mind is whether the Secretary should

179

- 12 answer arguments which have been made against it; and I

don't think that is very important. If we can get it in
there, I can put it in, or we can.
MR. SURREY: I think that is part of the picture,
Randolph. I think the statement of his reasons and
turning around and answering the objections that the
Congress has raised and that part of the press has raised
should all be in one document.

MR. WHITE: This isn't too long. For a task of this

kind, appearing before the Senate on an important issue of

this character, I don't feel that eighteen or twenty pages

is too long. It needs a few "purple passages" somewhere

along in there to kind of lift them up.
MR. GASTON: I like it very well as it stands.

H.M.JR: John, you have raised your finger three times,

I am nervous.

MR. SULLIVAN: I am not. I have a suggestion; I don't
know whether it is any good or not. When it was first read,
I thought it would be a good idea to take out the sales
tax discussion, and the reason I thought so was because the

rest of it flows along so well; and the rest of it, as you
suggested deleted, makes one of the most effective short

pleas for additional revenue that I have ever heard. I
think it is a perfectly grand job. Now I am more or less

inclined to agree with Randolph, that one of the purposes

of this talk is to lay the ghost of the sales tax and get

it before the people. Now, I wonder if you can accomplish
both of those things by having a deleted talk as you suggested and then also have another statement already mimeo-

graphed.

H.M.JR: No, no good, John.

MR. PAUL: That won't get in the papers.
MR. GASTON: I don't think so.
H.M.JR: Whatever they want to put in from the mouth of
the Secretary of the Treasury, it had better be in one

statement.

180

- 13 MR. SULLIVAN: Then I would have to vote to include

it in there, Mr. Secretary. The people of the country

still think this is the white rabbit, the sales tax.

I assume though you have checked those figures, but I
don't see how you get down to eight hundred million.
MR. SURREY: You get down there all right.

MR. SULLIVAN: It is too good to be true.
H.M.JR: Have you something about this? Do you

like it the way it is?

MR. SURREY: Oh, yes.

MR. PAUL: He helped write it.

MR. SURREY: I think it is the right tone and the
right approach at this time.

MR. HAAS: I like it, Mr. Secretary. I feel strongly

that the sales tax element should be in. There are many

thinking people, not politically minded at all, that think

the Administration isn't serious about this tax question,

because why are they opposed to sales tax. Many an economist

used to advocate that. I think we have to dispose of it,
and it is done very well in there.
H.M.JR: There is one argument I am surprised nobody

used, overlapping with municipalities on the sales tax.

MR. PAUL: That isn't too good an argument. It is

rather an effective argument with Congress, though. We
have used it when we were up against the wall.

H.M.JR: I am just throwing it out.
MR. WHITE: It doesn't imply they couldn't use the

sales tax.

MR. SULLIVAN: It means you get unequal treatment in

different States.

181

- 14 MR. PAUL: You do, without a sales tax.

MR. SULLIVAN: But I mean that disparity is handled

there.

MR. PAUL: You might have a sentence there that it is
hard to integrate, because it appeals to some of those
people.

MR. GASTON: We do overlap on other taxes.

MR. PAUL: You get the right answer to the wrong reason

sometimes.

MR. GASTON: We overlap on excise taxes.

H.M.JR: You haven't said anything.

MR. WHITE: I think it is fine. I think it does an

entirely different job from the job we were talking about
three days ago; and as such, I think it is a good document.
It is a good document for the record. I don't think there
is anything in it that will be picked up by newspapers for

propaganda value, but probably it won't do you any good,
anyhow.

H.M.JR: Let's put it another way, Fred. Let's put
it on the straight basis of trying to get something done,

see? We think that this approach has a chance of Impressing.

MR. SMITH: Honestly, no. I tell you why: I think

the only possibility of getting anything done is to crowd

the newspapers up around the Senate. I mean, you have to

talk right over their heads and talk to the newspapers and
make it as embarrassing for them as possible to alibi out.

In order to do that, you have to talk very straight, and
I think - it is just my impression - you have to make a
statement that is calculated to do that, a propaganda

statement purely and simply, which this isn't. But I

don't think you are going to get anywhere anyway, so you
might just as well have a good record. I mean you might
as well make a solem document.

182

- 15 -

MR. WHITE: Don't you think this would impress the

editors?

MR. GASTON: I think so.

MR. SMITH: I think it would impress a lot of editors

of the New York Times caliber, but nobody would read it

after it got in the papers. Having it appear is one thing,
but having anybody read it after it appears is something
else again. That is the big catch in this whole business.

MR. WHITE: Is it your thought that there ought to be

a few paragraphs they could pick out?

MR. SMITH: It is my thought that if you are going to

aim at that you might as well do a good job and make a
propaganda speech and not a document. I don't think you
can mix the two.

MR. WHITE: Then I certainly would vote in favor of
this kind.
MR. PAUL: I think we can get some of the things in
your speech, Fred.

MR. SMITH: I am talking about the whole approach, not
my speech.

MR. PAUL: You are talking about no compromise between

the two, but there is.

MR. SMITH: You won't do either job very well when
you are through.

H.M.JR: I agree with Fred. It ought to be one or
the other, and I won't mix it. I would either have it

a document, a statesman-like document in the character of

the form of Secretary of the Treasury, or I would give a
straight propaganda speech directed to the public.
MR. SULLIVAN: This is a sound, dignified, serious,
considered statement. I think a "purple paragraph" will

spoil it.

183

- 16 MR. GASTON: In the spot you are in now I think this

is the kind of statement that is called for.

H.M.JR: I don't want to impress, but I think Fred

is being a good sport; I don't know whether I would be as
good. I have been calling you up three times a day to do

the kind of thing you did, and it was a swell job. Fred

is only doing what I have asked him to do. I have been
calling him up all hours of the night giving him suggestions,
and the Coolidge business and all that was my idea.

But in view of all of this change in the Budget picture,
I would like advice as to which approach to take.
MR. SMITH: My advice on that isn't very good, because
I am a publicity man and I would normally choose the other
way, the same as Roy would choose this way. But I am out-

voted, and this is a democracy so I certainly will go along

with the crowd. As a matter of fact, as I say, it doesn't

make a hell of a lot of difference anyway, because you are
not going to get it. So you can make up your mind in a
democratic sphere which way you want to do and do it.

H.M.JR: The only thing that bothers me is, it takes

courage to write the one you wrote at my instigation and
I feel I am running away from it when I do the one that
Roy has written.

MR. SMITH: The one that I wrote was overdone. It
very much overdid the business of tweaking the tail of the
House. I wouldn't recommend that you do that, either.

But at the same time it is a question, as I say, of taking

your choice.

MR. WHITE: I don't regard this speech as in any way
running away from a problem. On the contrary I think you
are meeting it squarely and making the kind of statement

which I feel - I am not as good a judge as you, but it

seems to me this kind of a statement has a better chance

of stirring the Senators up to a realization of what they
are confronted with. It is a kind of sober statement,
and I would like to put in a few caveats about some of
these things. It is even an understatement, which is

184

- 17 -

very effective, and it is the sort of thing which it

appears to me a Senator reading after he gets through
listening would shake his head over; and it gives them

pause. I think the kind of spectacular speech which is
good over the radio to the public goes over their heads

like a tent. They are used to that stuff. They discount

it.
is

MR. SMITH: They are talking to the public, and that

the only think that they are afraid of. You can't

convince these Senators, because they have to be elected

and be popular, and they won't want a raise in taxes.
The only thing you can do is put them in a corner.

MR. SURREY: If you want to go on the air and make

your kind of speech, that is the place for it. There is

a place for your kind of statement and a place for Roy's.
Your statement is the kind you make over the air.

MR. SULLIVAN: This statement has more simplicity
and will be more readily understood and appreciated by the
man on the street than any Treasury statement I have ever
read. You don't have to know anything about taxes.

MR. WHITE: The point is, nobody will read it.
MR. SMITH: That is my point. The only other thing
that occurs to me is that our basic signals on this were
that we weren't going to make any - you weren't to make any

specific proposal. You were going to ask for ten billion
dollars and leave it up to the Committee. I think if you
are going to leave it up to them you ought to leave it

up to them or change your mind. That was the last time we
had any signals.

H.M.JR: I think I ought to call up Colonel Halsey;

if he isn't there, I'll tell him, Biffle, that when I met with
them for lunch this week and told them I thought the Budget
was going to come out with these figures that is what I
thought, and I am terribly embarrassed because I told them
this and I wish he would get word to them before I meet
with them Monday.

185

- 18 MR. WHITE: I wouldn't say I was embarrassed, Mr.
Secretary, because that sounds as though-H.M.JR: I am embarrassed.

MR. SULLIVAN: There is no use of saying that, but
you have to get to every one of them, because if you
don't, the minute you finish the statement they are going
to ask you about the same thing and think they are being
helpful, following up the conversation you had with them.
MR. WHITE: Are you going to talk to each one per-

sonally?

H.M.JR: I will ask Halsey to do it briefly.
MR. WHITE: How many did you talk to?

H.M.JR: Eleven.

MR. WHITE: You don't think you could tell them
personally?

H.M.JR: That is Biffle's job, anyway. They have a
good organization up there.

MR. WHITE: I think it is a good suggestion.
MR. SULLIVAN: They will be caught flat-footed and

will ask you questions, thinking they are helpful.

H.M.JR: I called up Ted Gamble and said, "Ted, be

sure to get hold of the Budget statement; it will answer
all your State chairmen." There are fifty-one State chairmen.
Heavens, you couldn't get anything between him and a floor

today, he was so flat. I have to do something for him, but

I don't know what.

MR. BELL: I don't see how you got the impression

there wasn't to be any change.

MR. PAUL: I got that impression, Dan.

186

- 19 -

MR. BELL: I mean in our conversations here. I don't
see how any impression could have gone around here that
there had been no change.

MR. PAUL: A very insignificant change.
MR. BELL: I don't know how we could put out a Budget
summation like the last one.
MR. WHITE: We said, "Has it been done before?"

You said, "I don't think it was the same amount," that
"that was almost a regular practice.
MR. BELL: There is no change in the Budget situation

as a result of the thirteen billion. That statement still
stands.

MR. WHITE: There was nothing else to my knowledge

that entered in.

MR. SULLIVAN: I think we thought the thirteen was an
addition to the other thing we knew about.
MR. BLOUGH: My impression was this: Up until the
last time we met here I thought there was going to be a
substantial change. At this meeting I got the impression
that I was mistaken and that the Budget had already made
the change last August.

MR. BELL: So far as the thirteen billion was concerned.
MR. BLOUGH: That probably carried over, because I

did have the impression. I was mistaken.

(The Secretary placed a call for Colonel Halsey.)

(The Secretary placed a call for Mr. Biffle.)
MR. WHITE: I think there is something else, Mr.
Secretary, I might mention about this speech.

187

- 20 -

H.M.JR: Let me wait a second, will you.
Where is yours, Herbert?
MR. GASTON: It is here.
MR. PAUL: Some parts of yours could be worked in here.

MR. GASTON: As I say, mine is not a complete job. I

did it in less than an hour. I wouldn't suggest it as a
substitute for Roy's. I think his is a good, thorough,

comprehensive job, and the kind of statement you ought to

make. I think further Roy's statement as a long-run job
of public relations will be better for you than a statement
which uses words and phrases which might hit the headlines
tomorrow.

Do you want me to read this?

H.M.JR: Yes, but before you do it I want to say one

thing. Now, talking there, Paul sitting next to Clark,

changed Paul over to the importance of my saying something

about sales tax. You see? It converted you. What was
going through my mind is, I think it would be terribly
helpful if somehow or other we could show this to one or
two Senators tomorrow before I read it. They are always
so friendly; and there is no use showing it to George.

He always agrees, anyway.

Has anybody ever shown anything to Biffle before we
went on the Hill?
MR. SURREY: No, not that I know of.

H.M.JR: How intelligent is Biffle?
MR. SURREY: I don't know him very well.
MR. GASTON: He is a very able fellow.
MR. SULLIVAN: If you show it to anybody, you have to
show it to Senator George.

H.M.JR: But you could show it to Biffle.

188

- 21 MR. SULLIVAN: I agree with Herb, he is a very able fellow,

and I am very fond of him. But I doubt if he would be helpful.
H.M.JR: Well, I don't know. I don't agree with you. This
experience I had up there at lunch today - if you could go into
the Judge's Chamber before you appear before him and have a
little
talk-MR. SULLIVAN: But the judge is those eleven Senators,

not Les.

MR. BLOUGH: But Mr. Biffle between now and Monday

morning at eleven, or whatever it is, will not have a chance

to talk with the eleven Senators. If you want to get it
to them, you have to take it to them.

MR. GASTON: The only one you can take it to is George.
MR. BLOUGH: Barkley, perhaps.

MR. SULLIVAN: He is in Kentucky today.

H.M.JR: Go ahead, Herbert. Did you want to say something,
Harry?

MR. WHITE: I have one further addition as to why I think
this is the type of statement - it seems to me that you are
responsible in a discussion of this kind to the Senators, and

I don't think it is in your province to talk over the heads of

the Senators at this stage. If you want to talk to the people,
you go on the air; but this message is one from an administrative
Cabinet Officer to the Senate; that is in defense of this type.
H.M.JR: May I have the last word? I agree with you, but
if you want to get something done, see, on this front, then
you have to go over their heads. Mind you, it would make them
sore and most likely ruin my effectiveness, but if you really
wanted to get something done you have to go over their heads.
Now, I asked yesterday - I was asking this fellow, Lee Wiggins

a small town fellow - about a seventy-five thousand dollar
capitalist - a damned shrewd fellow - I said, "How do they
feel, the constituents?" He said, "Everybody is for higher
taxes as long as it doesn't hit him."
MR. PAUL: That is a cross-section of America.

MR. BLOUGH: Do you consider going on the air at all?

-

189

- 22 H.M.JR: I haven't considered doing anything beyond
making my appearance. I haven't seen Paul's statement.

I take it Paul will dovetail his in with mine.

MR. PAUL: Certainly. That is one reason why I want
to find out what you are going to cover. I can take out
some things, or--

H.M.JR: Let's go ahead with Gaston before we
break up this afternoon.
(Mr. Gaston commences reading of draft of statement,

attached)

(The Secretary held a telephone conversation with
Colonel Halsey, as follows:)

190
November 27, 1943
3:08 p.m.

HMJr:

Hello.

Operator:

No one answers in Colonel Halsey's office.

HMJr:

Well, now, see if you can locate Mr. Biffle.

Operator:

Mr. Biffle? All right.

HMJr:

He is

Operator:

Yes, I know him.

HMJr:

You know who he is?

Operator:

Uh huh.

HMJr:

It's quite important and-even if he's at home

Operator:

All right. I'll get him.

HMJr:

Biffle.

I want to talk to him.

3:17 p.m.
Operator:

Go ahead.

HMJr:

Hello.

Edwin A.
Halsey:

Hello.

HMJr:

Halsey?

H:

Yes.

HMJr:

Morgenthau.

H:

Yes, sir.

HMJr:

I hope I haven't disturbed you.

H:

Not at all.

HMJr:

Are you at home?

H:

Yes, sir.

2-

HMJr:

191

Look, when I came up there the other day at that
luncheon which you were kind enough to arrange,

I told the Senators that I was under the impression
that the net result of the change in this Army
$13 billion would be that we would be just where
we were before. In other words, that we were going
to go ahead and spend just as much.

H:

HMJr:

H:

Yes, sir.

Now, the Budget late last night got out a revised
estimate of their expenditures
Yes.

which will be released in tomorrow morning's

HMJr:

papers.

HMJr:

That's right.
And we now find that -- I'm afraid the impression
I gave them was wrong and that the deficit is going
to be reduced by about $11 billion.

H:

Uh huh.

HMJr:

Now, I want your advice

H:

H:

HMJr:

Yes, sir.
because I don't want those people to feel that

I willfully misled them.

H:

No.

HMJr:

Because I never was treated nicer.

H:

Well

HMJr:

And on the other hand, how can I get that to them
before I have to appear before them on Monday at
ten o'clock?

H:

Well, this -- this happens to be Saturday at "four
twenty".

HMJr:

Yeah, I know.

H:

I'm taking into consideration the exact time.

-3HMJr:

Yeah.

H:

That's Monday.

HMJr:

Yeah.

H:

I don't know.

HMJr:

Could Biffle do something bright and early Monday

morning?
H:

Who?

HMJr:

Biffle.

H:

No.

HMJr:

No?

H:

Forget it.

HMJr:

Forget it? Well, think it over, will you?

H:

Where are you?

HMJr:

I'm at the Treasury.

H:

Where are you going to be all evening?

HMJr:

Home.

H:

Well, give me your number.

HMJr:

North 8-8-9-8.

H:

North 8-8-9-87

HMJr:

Yeah.

H:

8-8-9-87

HMJr:

Yeah.

H:

Let me call you a little later.

HMJr:

Right.

H:

Right.

HMJr:

Thank you.

192

193

- 23 MR. GASTON: When he (Halsey) said "evening" he meant

the way the Southerner did. Evening begins at one o'clock.

H.M.JR: He is tight.
MR. SURREY: He said it was four-twenty, didn't he?

(Laughter)

H.M.JR: He says, "Where are you?"
(To Gaston) Go ahead.

(Mr. Gaston continues reading of paper)

(The following interpolation occurs on Page 3, line 6.)
debt.

H.M.JR: You (Blough) didn't say anything about the

MR. BLOUGH: I had to use blanks; that is why it didn't

sound like anything.

(Mr. Gaston completes reading of paper)
MR. SULLIVAN: Very good, Herbert.
in.

MR. PAUL: Certain parts of that I think could be worked
MR. WHITE: Certain sentences I think should be included.
MR. GASTON: This is not a complete statement.

Mit. BLOUGH: There is a lot in there that is better

than in mine.

H.M.JR: How can we meld this thing?
MR. BLOUGH: Turn it over to Herbert.

MR. GASTON: I would turn it over to Roy. He has a
good sound foundation there.

194

- 24 -

MR. BLOUGH: But you can put some life into it.

MR. SMITH: I wouldn't. I would turn it the other way.
I like that one better. If he has the time - I have done
the best I can. I would like to see him put some life
into it. I recognize I write stuff pretty dead, and he has
some lovely material.

MR SURREY: Yours has an orderly arrangement which is

easier to follow,but I think Herbert's way of putting things
is better.
H.M.JR: As people seem to like the way Roy handled
it, why not take Blough and Stanley and let them take

Gaston's, you see? After all, what we are trying to do is
take some of the good things and meld into your statement.

Right?

MR. BLOUGH: May we not use some of Fred Smith's, too?

There is some very good stuff in that statement which I
would like to use.
MR. SMITH: I would keep it documentary.

H.M.JR: What I would do is this, Roy: When do you
think you would be available again? When do you want to

see me again? It is half past three, now. Half past

eight?

MR. BLOUGH: I think we ought to be in position by
that time, surely - perhaps sooner.

MR. PAUL: I would like to ask you two things.
MR. GASTON: Then you fellows want to come in and
show it to me?

MR. BLOUGH: Yes.

MR. PAUL: May I ask two questions?

195

- 25 -

H.M.JR: They will show it to you before eight-thirty?
MR. GASTON: I was thinking, if they got ready with

some of this amalgamation by five or five-thirty, they

might want to show me something.
MR. BLOUGH: Yes.

MR. PAUL: I wanted to ask you whether your decision
is to keep in two items, because I don't know whether to
cover them or not. There is one item on page--

H.M.JR: I think, Herbert, when they come to see you

I think it would be nice if Smith would sit in. I would
like him to sit in on that conference.
MR. PAUL: There is an argument on page ten based

on the per capita taxes, Great Britain, Canada, and this
country (referring to rough draft of Mr. Blough's).
MR. BLOUGH: I would gladly drop that paragraph.

MR. PAUL: I think it ought to be said.
MR. SULLIVAN: I had marked that to take it out.

MR. PAUL: I can cover it if you want to.
MR. BLOUGH: I would much prefer to leave it out.

MR. SULLIVAN: You just start a fight and you are not
going to get anywhere with it.

MR PAUL: Do you think I ought to do it? It is in

the Committee report.

MR. BELL: What is the difference?
MR. WHITE: They should follow us.

H.M.JR: What do you think, Bell?

196

- 26 -

Mr. BELL: I would like it out altogether. I don't

know why we keep saying what Great Britain and Canada does.

MR. WHITE: I agree with that. We ought to set our

own standards.

MR. PAUL: Well, it will be out of yours. I haven't

got the answer as to whether I should take it up.
MR. BELL: I would leave it out of both.
MR. SULLIVAN: I would, too, Randolph.

MR. PAUL: I don't think so, where you can ignore something of which a great point is made from the Committee's

report.

The other part is the part on page eleven about the
five thousand dollars and how much impact there is on incomes below five thousand, which has been one of the
criticisms.

MR. WHITE: It is not good as it is here. If it can't

be improved - it drags here, and it had better be taken
out and put in yours.
MR. PAUL: I have something prepared on it.

MR. BLOUGH: The answer is, we are not in too strong
a position. We have a much better answer than the public

knows about.

MR. WHITE: This is the place where it drags the most.
Unless it can be simplified and heightened, it ought to

be left out.

MR. BLOUGH: The question is, does the Secretary want

to say something about the distribution of the burden of
the program.

MR. BELL: I think Herbert's general statement - make
it general.

197

- 27 MR. GASTON: But I think we might include in there a

statement that fifty-three percent of the additional income
that we proposed - additional income tax - was in the
brackets below five thousand dollars.

H.M.JR: If you say that, Herbert, that fifty-three

percent is below the five thousand, then I would like to

break the fifty-three down into one other figure. If,
roughly, five and a half or six billion out of ten and a

half we are asking for below five thousand, then--

MR. GASTON: Yes, and then you want to say how much

is below three thousand.

MR. SULLIVAN: Part of your ten and a half is corporation taxes.

H.M.JR: You are right. Anyway, if the fifty-three

percent is below five, then make one more for me from three

to five, or two to five. I don't care which.

MR. BLOUGH: Why not zero up to two or three? That

is what I have got here - three.

MR. GASTON: Below five thousand and below three
thousand.

H.M.JR: Couldn't you say, instead of from zero to
three, from one to three? Where would it be?
MR. BLOUGH: Just say, " up to three."
MR. GASTON: Incomes up to three thousand or below
three thousand.

MR. BLOUGH: If you want to emphasize how little below,

we can do it. But I think that might not be emphasized.

H.M.JR: Which is the one they are levelling criticisms
at me all the time.

198

- 28 MR. BLOUGH: Four out of five is below five thousand

dollars. You have forgotten that entirely.

MR. GASTON: Instead of taxes in the group below five
thousand, you are letting nine million people out without

paying anything.

H.M.JR: How are you going to hit that?
MR. GASTON: Simply by saying that these taxes we

have proposed, we have proposed more than half - fifty-

three percent, in fact, was in the group below five thou-

sand dollars.

MR. SMITH: That isn't much of the argument, because
eighty percent of the money is under five thousand, and

fifty percent of the taxes. Wouldn't you do better to
raise that to, say, seven or eight thousand dollars?

MR. GASTON: I think you had better deal with that
group.

H.M.JR: Aren't you having a chart prepared to show
this thing?
MR. BLOUGH: I have a chart, but it is too complicated

in its present form.

H.M.JR: I am going to do charts tomorrow morning.

Why don't we do it this way? These people I would like

to see at eight-thirty: I would like to see Blough,

Surrey, and Smith and Gaston, and Paul, unless you have
some social date.

MR. PAUL: I have no social date. I only have to work.
H.M.JR: I don't have to see you.
MR. PAUL: Let's see if I can get enough progress

on the other, then I will be in.
MR. BLOUGH: Here?

199

- 29 -

H.M.JR: At the house. And John, if you want to
volunteer, you will be welcome.
MR. SULLIVAN: I would be perfectly glad to come.
H.M.JR: You would have a better chance tomorrow

morning. I will be honest; you be honest.

MR. SULLIVAN: Frankly, I think the shape this thing
is in now, I go along with everything Roy and Herbert had
to say. I will be glad to come if you want me. I don't
think I will be able to make much of a contribution.
H.M.JR: I would like to have you here tomorrow morn-

ing, too, at ten o'clock. That goes for you, and you

(Mrs. Klotz and Mrs. Dickinson), and George. What I want to

do, if the speech is finished, then I want to fire questions.
I want a seminar here, particularly on the sales tax, with
these charts and what-have-you. I mean, I have got some

questions I want to ask. I would like to get this thing
down. I think it is all right. What do you think, Herbert?

Is that all right?

MR. GASTON : Yes.

H.M.JR: Do you go to early Mass?

MR. SULLIVAN: Late. I used to go at seven o'clock

to play golf; now I don't have to go until nine.

H.M.JR: I called up George naas Sunday and said,
"If you could come to the house about a quarter of twelve,

would that interfer with church?" He said, "Well, I was
going to go to early Mass, anyway." The net result was,
George had to get up and go to eleven o' clock Mass.

MR. HAAS: It turned out to be High Mass.
H.M.JR: Can you all do that tomorrow, then? You
(White) don't have to come tonight. Can you come tomorrow?
MR. WHITE: Do you want me here tomorrow?

200

- 30 H.M.JR: No.

MR. WHITE: I don't think I can make any contribution,

but if you want me, I will be glad to.

MR. PAUL: Too early in the day to provide you with
proper stimulants.

H.M.JR: Are you going to see this thing again?

MR. WHITE: I would like to. There are a few points

here that trouble me. I will tell Roy what they are this
afternoon.

H.M.JR: Let me just ask Mr. Paul a question. I
read a statement by A.F. of L. last night in which they

say there is a joker in this bill in which the Treasury

would be permitted to examine their books. And I am
asking you - I am Senator Barkley, Mr. Paul - "Are you in
favor of the Treasury Department having this power to examine
the books of the A.F. of L?"

MR. PAUL: I would first say that that provision of
the bill did not apply only to the A.F. of L. or even only
to labor organizations, but it applies to all corporations

exempt under Section 101 from paying tax, except religious,

educational, charitable, and scientific - even scientific

are excluded.

MR. BLOUGH: Isn't it true you now have the power to

do this?

H.M.JR: Yes. But,Mr. Paul, you didn't answer my
question.

MR. PAUL: I wanted to make any answer in the proper
framework.

(The Secretary held a telephone conversation with
Colonel Halsey, as follows:)

201
November 27, 1943
3:40 p.m.

HMJr:

Hello.

Operator:

Go ahead.

HMJr:

Hello.

Edwin A.
Halsey:

Ed Halsey.

HMJr:

Morgenthau.

H:

Yes, sir. Would you be available Monday to come
up for luncheon?

HMJr:

Yes, but that will be after I testify.

H:

Well, what can I do to help you then?

HMJr:

I see. You think between now and ten we can't help,

huh?
H:

HMJr:

H:

HMJr:

I don't know. It looks awful -- awful short time.

Yeah. Well, I guess -- I'll -- I guess the thing
that I -- all I can do is: I'll drop in and see
Walter George a little bit before I go on the Hill.
Well, I was thinking, if you could postpone your
real testimony until afternoon
No.

that you could come in for lunch and I could

H:

have a group there
HMJr:
H:

No.

and we could sort of work the thing out and
then you could make your real testimony on the

afternoon
HMJr:

No. I -- I appreciate your suggestion but I'm
afraid it wouldn't work.

H:

It would not?

HMJr:

No.

H:

Uh huh.

-2HMJr:

202

I know this is tough but I -- I'11 drop in -- I guess
the best thing is to go in and -- a little early and
see Walter George.

H:

HMJr:

H:

Well, I could get him over the week-end, for that
matter. He lives at the Mayflower. I could get
him if you

Oh, I don't want to upset him and -- I -- I'll just
call up and say that I'll get there a little early.
Uh huh. Well, but if you reconsider and would like
to drop in Monday

HMJr:
H:

HMJr:

H:

Uh

it will be perfectly agreeable.

Well, I'm afraid after -- I don't think so, but if
I change my mind, I'll call you up.

If you could stall off -- now, we all have tricks
of the trade -- if you could just sort of make a

non compos mentis or just a -- a -- an answer of
nothing in the morning and then give the real facts
in the afternoon.
HMJr:

Yeah. Well, I'm afraid that isn't going to be

possible. I'm afraid I'm going to have to give them
the works in the morning.

H:

Uh huh. Well, let me know if I can help.

HMJr:

Thank you so much.

H:

Righto.

203

- 31 MR. SULLIVAN: Rigor mortis, not non compos mentis.
(Laughter)

H.M.JR: What is non compos mentis?

MR. SULLIVAN: That means you are a little bit "whacky,"
boss. (Laughter)
MR. PAUL: Well, the Treasury did not recommend this
provision, was never consulted about the provision, and

expressed no opinion; so this that I say now, is the first
time the Treasury has ever said anything about that provision. It is this: That we see no particular need of
the provision, but whether the information is called for is
really a question for the Committee to determine. It is
not a--

H.M.JR: But, Mr. Paul, I am asking your advice.
MR. PAUL: The reason I am being a little cagey is this -

remember, we have called for information before-MR. SURREY: Not from Labor.

MR. PAUL: But from other organizations under that

section. I don't want to say that we think that such

organizations never should be asked for information about
their income, because we have already done it.
H.M.JR: Are you willing, when they ask me that questiq

that I refer them to you?
MR. PAUL: Sure.

MR. SULLIVAN: I think you better know what your answer
is before tomorrow morning.
MR. GASTON : I think the answer is that the powers of
and the Commissioner of Internal Revenue

are
to such reports as are
the Secretary adequate require necessary exempt to

establish the non-profit character of these organizations, and that no additional legislation is necessary.

204

- 32 -

H.M.JR: This is awfully important.
MR. SURREY: Mr. Gaston, when we wrote our original

regulations requiring returns from 101 corporations, we
required it from a great number of the doubtful cases the business leagues and social clubs. We did not include
labor organizations, or farm organizations, or religious,

or, in the main, educational or charitable. Now, this bill

was written for a slightly different purpose in the House.
It was written ostensibly to get information as to the

amount of income they have, not as to whether they are
probably exempt or not. Therefore our reason, necessarily,
doesn't hold.
We wrote to Congressman Robertson that the reason

we did not include labor organizations was because it was
not necessary for our purposes at that time, because labor
organizations are exempt, and you don't have to know their
income to find out whether they are exempt. This is a
slightly different question. The Congress wanted to know

the financial status of labor organizations.
MR. WHITE: For what purpose?

MR. SURREY: To see whether they should levy a tax
on the income of labor organizations and farm co-ops,

and that is it.

MR. PAUL: They put up the proposal - ten percent tax.
We said he could have it.
H.M.JR: Whom did you put it up to?

MR. PAUL: Stam put it up to us: "Will you take a
ten percent tax on all these corporations?"
We said, "No, you can have it. You can make that
proposal. We are not going to join with you in any such
proposal as that.
MR. SURREY: I think you can make this statement:

"I think the question of returns from the labor organiza-

tions is not properly a tax question. It is a political

205

-33question with over-all relationship to labor organizations,
and is going to be decided in that field and not the tax
field.
H.M.JR: Now, listen, boys; come a little cleaner,
see? That goes for you both. In the family, here -

don't spar with me.

MR. SURREY: I am not sparring.

MR. GASTON: Can I clean that statement up a little

bit? If the information is wanted to establish the exempt
character under the law of the organization, then it is

not necessary. We have adequate powers to get that infor-

mation.

Now, if it is for some other purpose, we can express
no opinion, because we don't know what is in the Congressional mind.

MR. SURREY: Of course, I wasn't sparring, but I

still would go further and say that it is a question of
labor unions submitting financial statements, and has
been up before in the non-tax field. It has been in
most of the labor bills that have been up in the last
Congress. It has been a political labor question, not

a _tax question. The fact that it happens to come up in a
tax bill doesn't authorize the real basic question.
MR. WHITE: Am I correct, Mr. Secretary, that the
Treasury took a very definite stand on this, maybe two

years back? I don't see that the situation resulted.

I, personally, don't see much of a distinction between
a fraternal organization getting together for certain
social purposes, and organizations getting together for
religious purposes. And why be maneuvered into a position
of making a distinction between charitable organizations,
labor unions, or religious organizations.

I like Herbert's answer. Tell them what you want it

for, and then you will be in a position to judge. Until

you know, you can't.

206

- -34 -

MR. SURREY: They told you. They want to get information as to the income status of these exempt organizations
to see whether it would be advisable to place a tax on them.
MR. WHITE: Then why are they asking the Secretary

whether it is desirable to get information or tax them?

What do they want to know from the Secretary?
MR. SURREY: That is right.

MR. SULLIVAN: The real question is, do you object
to the people of the country finding out how much of a
surplus the labor unions have built up.

MR. PAUL: The real point that is behind it, the
real question is, do you think we ought to find out how
much income these people have, so we will know whether to
tax. That is their answer.
H.M.JR: No. Now, if the C.I.O. can raise seven
hundred thousand dollars to devote for political purposes,
can we stop them?

MR. SULLIVAN: Yes, just how much of a surplus have

they got?

H.M.JR: It is straight politics, and how can we keep

them from spending seven hundred thousand dollars on reelecting Roosevelt?

MR. WHITE: Let them say that.

H.M.JR: No, but Harry, you see, I started with Paul.

After all, whether he does it or I do it, I think we ought
to be forthright on this thing. It was on the front page
of the Star last night.
MR. PAUL: They put that proposition of a tax.

H.M.JR: I think Gaston's answer is this, that for

the moment we have all the powers and all the authority we

need to determine whether a labor union is entitled to
be exempt or whether it isn't.

207

- 35 -

Now, if you want to find out as to the financial status
of a labor union, that is something else; and that isn't

my job.

MR. WHITE: How can you pass judgment unless you know

they have the information?

(The Secretary held a telephone conversation with
Colonel Halsey, as follows:)

208
November 27, 1943
3:50 p.m.

HMJr:

Hello.

Edwin A.
Halsey:

This is Halsey again.

HMJr:

Yeah.

H:

I just talked to Senator George.

HMJr:

Yes.

H:

And he's at his phone

HMJr:

Yes.

Metropolitan 3-2-9-2

H:

HMJr:
H:

Yes.

or District 3000, and he'd be most happy to
hear from you and he thinks it would be very
advisable to talk before you come before him on
Monday.

HMJr:
H:

Just give me those numbers again, please.

Just a second, now, I've put the book up. Just a
second. Metro -- it's Metropolitan

HMJr:

Yeah.

H:

3-2-9-2.

HMJr:

Yeah.

H:

Or District 3000.

HMJr:

Well, I'11 call him right away.

H:

Will you, right away?

HMJr:

Yeah.

H:

I talked to him and I told him that it was just
one of those things that you'd like to clear up

before you come up before him, and he said he'd

be very happy. Most -- he thought it was most
talk to you.

advisable to -- in fact -- to have the chance to

-2HMJr:

Well, I'm ever 80 much obliged and I'11 call him

H:

Righto.

HMJr:

Thank you.

right away.

209

210

- 36 (The Sucretary placed a call to Senator George.)
MR. PAUL: Vinson, I wanted you to know, was present
at one occasion when Stam put up that ten percent tax

proposition. He agrees with us.

MR. HAAS: It is not a tax matter, then.
MR. WHITE: I think Herbert's answer is perfect. As

you say, how can you answer them, whether the information

is necessary, unless you know what they want it for?

H.M.JR: Then let's stick to that rather than the
first way you put it up to me, Paul.
MR. WHITE: And it isn't a tricky answer, Randolph.
It is the answer. They are asking his judgment whether he
should get certain information. If anybody asks you that
question, "Why gentlemen, what do you want the information
for?"

MR. SULLIVAN: So far as the Treasury is concerned, we

can always get it. If it is meant for something else, that
is different.
MR. BELL: Supposing they ask you, do you get it?

MR. SULLIVAN: We got the C.I.O., didn't we, within

the last year? We went all through them on that Illinois
case.

MR. PAUL: No, you didn't go through the C.I.O.

income account.

MR. SULLIVAN: We went all through their books.

H.M.JR: We understand it clearly.
We will meet here. White will be excused tomorrow.

MR. WHITE: I haven't the slightest hesitation of
being here.

211

- 37 -

H.M.JR: I haven't the slightest hesitation to ask you.

I know what Sunday means to you. And George, you get here.
But you (White) are going to make the suggestions?

MR. WHITE: Several things I would like to talk over
with Roy.

H.M.JR: I guess we are all clear.

212

Wr Blough
Draft A

November 27, 1943

PROPOSED STATEMENT OF SECRETARY MORGENTHAU
BEFORE THE SENATE FINANCE COMMITTEE

When I appeared before the Ways and Means Committee

of the House on October 4 to present the Administration's

suggestions for increased war taxes, I gave to that
Committee as best I could a picture of the financial
position of the nation and its wartime revenue needs.

I stated that the fiscal situation required additional
war taxes of at least $10.5 billion. The Ways and Means
Committee and the House reached a different result and

approved a bill increasing revenues by only $2 billion.
In view of this wide difference on a matter 80 important

to the present and future welfare of this nation, I have
carefully reviewed the fiscal situation. I am appearing
before you today to present my conclusions.

A vital part of fighting a war is paying for it
in the right way. That is the fiscal sector of the
war. How well we are doing in the fiscal sector is
measured in part by how much we are paying through taxes,

how large 18 the deficit and how big a debt we are

accumulating. It is our duty to the returning soldiers
and to future generations to keep the deficit and the

213

-debt to a minimum. In doing so we not only help ourselves

and our children after the war but we help stabilize the
cost of living today.
Let me present the reasons why sound fiscal policy
requires much higher wartime taxes than are provided

under existing law. One reason is a matter of simple
arithmetic. Last month (October, 1943) the Federal
Government spent
dollars more than it collected in

revenue. In the fiscal year 1943 it spent over $55 billion
more than the revenues. In the fiscal year 1944, under
present law and the most recent budget estimates, we shall
spend $57 billion more than we receive in revenue.
The need for revenue is seen also in our mounting

public debt. On October 31 the outstanding public debt
was

-

- billion dollars. On June 30, 1944, the outstanding

public debt is expected to be billion dollars. The
annual interest on that debt is about
billion dollars.
As the war continues, the debt, the interest, and the
problems of repayment will grow larger and larger.
Paying now through taxes a much larger part of the

financial cost of the war will reduce the deficit and
hold down the debt. It will do more; it will also help
now to protect us against rapid and burdensome increases

214

-3in the cost of living. About half of American productive
effort 18 going into war equipment and supplies for our
armed forces. These products are not available for
civilian consumption. Yet our people are being paid for
all they produce. They thus have far more money to spend

than there are goods on which to spend it. There is a

large surplus of income over goods. In 1944 it is

expected to amount to $ billion. If this surplus
income should be spent the necessary and inevitable results

would be black markets, ruptured price ceilings, substantial

increases in prices and the cost of living, followed by
tremendous pressures for higher wages and farm prices,

which would set in motion further forces in the spiral

of inflation.
Thus far, through admirable self-restreint and by

price ceilings, rationing, credit controls, wage stabilization, war bond drives, and other measures, as well as by
taxes already imposed, spending has been held down and

prices have risen only gradually. But the continued and
growing surplus of income over goods, to which might be

added at any time some of the $ billion of private
savings accumulated over the past three years, is fire

under the boilers of inflation. Day after day the

215

-4continued pressure of surplus income has been cracking

our price controls a little here and a little there and
threatens to produce a major explosion. Our stabilization
program 18 threatened at its foundations.
The presence of this surplus of spending power means

not only that the people as a whole can afford to pay
now much more of our huge war bill, but also that in
paying more now they will be benefiting the country and
themselves by helping to hold down the cost of living.
There is another important reason for paying much

higher taxes during the war, that of fairness and equity.
The postponement of payment of any part of the war bill
that can be borne through war taxes now means an unfair

distribution of the burden of the war. It means that
the members of the armed forces are giving several years

of their lives to fight the war and then will come back
and help pay what we should and could have paid while

they were gone. That is not equitable war finance.
These are the reasons that sound fiscal policy
requires much higher wartime taxes. The other half of
the picture concerns how much additional wartime taxes

should be raised at this time. Here a limiting factor
is the capacity of the people to pay increased taxes.

216

-5This ability of the taxpayer to pay additional war
taxes must be considered in the light of the outstanding
fact that we are at war.

It is a great fallacy to suppose that we can
fight history's greatest war to save what we hold most
dear without financial sacrifice. Inevitably we shall
have financial sacrifice. Taxation now, during the war,
16 the easiest way to make that sacrifice.
We are not now fighting an all-out war on the

fiscal front. The ability of the American people to
pay increased taxes is far from being exhausted. The

income of the people as a whole, after taxes, is at its
highest point in the history of the country. Goods are
scarce. Personal economy is expected. Wearing last

year's clothes 18 fashionable. This is the ideal time

to pay, once and for all, up to the limit for this war.
There is no escape from the costs of war. The
American people today are paying for the war in taxes,

in loans, and in rising prices. The total burden of
the war on the people as a whole is not made less by

holding down taxes. Higher war taxes will not decrease
the goods and services which we can have during the war.

217

6-

Moreover, simple arithmetic makes clear that the

people have the ability to pay additional taxes.
Consider their incomes. In 1939 individuals had

-

incomes, after personal taxes, of billion. In
1944, under existing law, it is estimated that individuals
billion.
will have incomes, after personal taxes, of
That is, after paying taxes, incomes after taxes of
individuals in the United States will have increased
billion since 1939.
Again, consider the savings of individuals. In

-

1943 individual savings are expected to amount to

billion. In the past years accumulated
individual savings have increased dollars.
Obviously the people of the United States have

the means to pay an additional $10.5 billion in wartime
taxes, particularly if measures are taken to protect
those who have not shared in the increased incomes.
These are the reasons why the Treasury suggested
to the Ways and Means Committee proposals to raise an

additional $10.5 billion of wartime revenue. They are
the reasons why I am profoundly disappointed in the

fact that the House Bill before you raises only
$2 billion. They are the reasons why I renew my
recommendations to your Committee.

218

-7Many excuses have been given for not passing an

adequate tax bill.
It is said that governmental economy is a substitute
for higher taxes. Economy 18 always an important objec-

tive and a tax bill makes it neither more nor less

desirable. But if we are to fight the war to a speedy
conclusion we cannot relax our fighting or our production.
That means we cannot significantly relax our spending.
In the revised estimates for the fiscal year 1944,
issued yesterday by the Bureau of the Budget, the

expenditures are estimated at $98 billion, revenues at

$41 billion, and the deficit at $57 billion. That
deficit is more than $400 for every person in the country.
Yet this figure represents a decrease in estimated
expenditures of $8 billion from the estimates issued

last August. It is understood that this decrease in
expenditures represents a combination of changes in the
war program and a delay in reaching the production goals
of some items. The estimated increase in revenues takes

into account the decrease in expenditures and in the

main reflects an expectation of larger profits and
income payments than were anticipated earlier,

219

-If no one had expected more than a $57 billion

deficit it would appear tremendous, which it truly is.
It is no less so by representing a reduction from a
higher figure. The decrease in expected deficit of
$11 billion will, of course, make the problem of raising
the money for this year's budgetary requirements sub-

stantially less than anticipated. However, $57 billion
is greater than last year's record deficit, and is three
times the deficit of 1942. Moreover, the rate of war
spending is still expected to rise beyond the present
level.

There is nothing in the new budget figures to cause

a reduction in the goal below $10.5 billion. That goal,
as I pointed out to the Ways and Means Committee, was

the amount that we believed could be fairly distributed
without undue sacrifice and hardship. The changed
budget estimates do not affect that amount. From every
point of view it was a minimum. It was never considered
to be an adequate fiscal program in the light of the

deficit, the accumulated debt, and the inflationary
pressure. The reduced budget estimates will make

$10.5 billion more nearly adequate, but that is all.

--

220

Another argument against higher taxes is that the

American people do not believe in the dangers of inflation.
If by inflation is meant the type where money become S
?

worthless, I agree that only a much harder, longer war than
is commonly expected would bring us to that cataclysm. The

danger now is not of that character. It is rather the
danger of substantial and continuous and, at least in part,
permanent rises in prices that would undermine standards

of living and reduce the value of investments. Unwillingness to believe in the danger of inflation does not remove
that danger. There are few indeed who have followed with
care the developments of the recent past who are not con-

cerned over the possible breakdown of the stabilization
program. Much higher taxes are a requirement for meeting
that danger. Taxes obviously cannot win the game alone
but they are a prominent member of the team.
At another extreme the curious argument has been

made that the deficit is so large, the Government debt so

huge, and the inflationary possibilities of surplus
income and accumulated private savings so great, that

$10.5 billion would not help much and that therefore we

might as well avoid the unpopularity of imposing additional

221

- 10 -

taxes. If this point of view were seriously entertained
by a majority, we would indeed be lost to the ravages of

inflation. It would mean that we had given up even

trying. But $10.5 billion is large enough to have very
important effects on the deficit, the debt, and the

inflationary pressure. It is almost exactly the total of
all the reductions that took place in the Federal public
debt over a 12-year period after World War I. In its
direct effects on spending, in the assurance it gives that
the Government takes its debt seriously, and in the sober-

ing influence it will have on public understanding of the

true cost of the war, the $10.5 billion increase will be
immensely beneficial.

It has been said that the American people cannot

bear this additional tax burden because our per capita
taxes are above those of our allies, Canada and Great

Britain. The conclusion does not follow in any event,

but the statement itself is misleading. It is the amount
of income from which the tax is paid that determines how
burdensome the tax will be and personal incomes here are

larger than in Canada or Great Britain. If practically

222

- 11 any citizen of the United States lived in Canada or
Great Britain and had the same income there, his taxes

would be substantially higher.
I hope you agree with me that the excuses given for

not raising taxes are not worthy of serious consideration
in the face of the serious needs for increased revenue.

I shall not go into the details regarding the
Treasury proposal or the House Bill. I shall leave such

matters for Mr. Paul to bring to your attention. There
are, however, a few basic points that I wish to emphasize
here.

The first point concerns the distribution of the
burden of additional taxes. Under the Treasury income
tax proposals about one-half (ck.) of the proposed
increase would fall on persons with incomes of less than
$5,000 and about one-fourth (ck.) would fall on persons

with less than $3,000. For all the tax proposals combined,
the distribution among these income groups of the
increased burden would be approximately the same. This
proposed distribution of tax increases was determined on

after studying the problems of equity and of inflation.

223

- 12 Basic minimum standards of living are necessary if morale
and production are to be maintained. Tax policy must

seek to protect these minimum standards. It is the surpluses of spending power above the basic minimum that

present the inflationary problem and the possibility of
its solution. The income tax exemptions suggested by the
Treasury represent this minimum on the average; if any-

thing they may be too low. Although about four-fifths (ck.)
of the total income is received by persons with incomes

under $5,000, less than two-thirds (ck.) of the income
above exemptions is received by this group. Likewise,

although about 60 percent (ck.) of total income is
received by persons with incomes under $3,000, only about
40 percent (ck.) of the income above exempti ons is

received by this group. When it is considered that the
higher incomes represent greater ability to pay and give

rise to less important spending, the proportions of burden
distribution proposed under the Treasury proposals are,
we believe, reasonable and sound.

The second point I would like to discuss about the

Treasury proposals is the fact that they do not include
a general sales tax. The sales tax has been held out to

224

- 13 the American people as the great panacea, the one source

from which the war can be financed. Let us see what the
facts are.

-

The form of sal es tax which would produce the most

revenue and cause the least rupturing of price ceilings

is the retail sales tax. The highest rate I have heard
mentioned is 10 percent. That is over three times KMX as

high as the rate now in force in any State.
A 10 percent sal es tax with no exemptions for neces-

sities of life would raise at current sal es levels about
$6 billion, or about one-tenth of this year's estimated
deficit.
Such a tax would be very harsh, especially on low

income families with children. It is completely lacking

in any relation to ability to pay because it hits
families much harder than single individuals at the same
income levels and it hits people with small incomes much

harder than people with larger ones. Such a tax would be
opposed to every principle of tax equity and would in my

opinion interfere with the war effort.

225

- 14 -

There are many proponents of the sales tax who
would agree with criticisms and who propose to meet them

by allowing exemptions of the necessities of life. Such
exemptions would indeed improve the character of the tax

although they would still leave the discrimination
against large families. However, the exemptions would

quickly remove so much of the tax base as to leave little
more than an empty shell. Thus, the exemption of food

would reduce the yield by $2.4 billion; the exemption of
medicine would reduce the yield another $200 million;
the exemption of clothing would reduce the yield by

another $1.1 billion. Those exemptions do not include

all of the necessities of life, but let us stop at that
point. A sales tax with such exemptions would yield
about $2.6 billion. However, of that amount about $1.2
billion would come from goods and services already subject

to Federal excise taxes. The tax yields from the sale
of these commodities can be increased or decreased by

adjusting the excise tax rates. No sales tax is needed

to produce revenue from them. All that is left after
excluding such commodities is $1.4 billion. Nearly

226

- 15 -

$600 million of the $1.4 billion would come from equipment,
chemicals, and materials used in business and thus enter-

ing into the costs of doing business, with resultant
increases in the costs of doing business and in prices to
the Government and to the public.

Most of the remaining $800 million tax would be on

items that might properly be subject to sales taxation. It
is hardly necessary to point out that the expenses to
21 million businessmen and increased costs to Government,

as well as the use of precious manpower, would not be

justified by yields of this kind when there are other
methods of raising money at hand which do not call for heavy

increases in costs of administration and compliance.

It is very doubtful if a general sal es tax without the
exemption of necessities of life would really be helpful

in financing the war or restraining inflationary price
rises. The imposition of a substantial sales tax would
almost surely be the signal for widespread demands for

higher wages and farm prices which, if allowed, would result
in large additional costs to Government and increases in
the cost of living over and beyond the amount of the tax.

227

- 16 These dangers are much greater in the sales tax than in

excise taxes or income taxes. Excise taxes touch in
only minor respects commodities that are necessities of
life, while income taxes have personal exemptions which
protect minimum living standards.
Personal exemptions could be introduced into the

sales tax, but the inconvenience of distributing and
using exemption coupons and the resultant reduction in
revenue would be serious factors. Even the most simple
sales tax would require the use of much precious manpower
and machines by Government and business. I do not know how
that manpower and those machines could be secured without

interfering with the war effort.
After all, the sales tax is just another way to
tax incomes. We have a good income tax with a current

payment system. Why not use it instead of turning to
a new and unsatisfactory form of tax?

The other point that I wish to stress concerns the

simplification of the income tax. It is generally agreed
that the Victory tax has proved to be too complicated in

practice. While the House Bill repeals the Victory tax,
it fails to remove the complications inherent in that tax.

228

- 17 -

In order to preserve about 1 percent of the individual
income tax revenue and to maintain on 9,000,000 taxpayers

an income tax burden ranging from a few cents up to about
$30 and averaging less than $18 each, the House Bill
maintains annoying and entirely unnecessary complications

for the other 35,000,000 taxpayers and for the hard-pressed
staff of the Bureau of Internal Revenue.
These 9,000,000 people are already paying substantial

Federal taxes in addition to State and local taxes. It is
estimated that, exclusive of the Victory tax, they now pay
or an average of $

each. Under the Treasury

$

proposals they would pay an average of $

each while

under the House Bill they would pay an average of $
each.

Since the revenue involved is of minor amount and
since these people are paying a substantial amount in

other Federal taxes in addition to Stat e and local taxes,

the possibility of achieving greater simplicity seems to
me to be the compelling consideration. I feel strongly
that the minimum tax of the House Bill should be repealed.

229

- 18 -

In conclusion I should like to make it clear that
I am not here either to demand that you increase taxes

or to beg you to increase taxes. I have endeavored to
perform the duty placed on the Secretary of the Treasury
by law and tradition. I have endeavored to show you as

soberly and as clearly as I can that a tax program of the
magnitude of $10.5 billion is necessary to protect the
financial and economic future of this country during the

war and after the war. It is my conviction that the provision at this time of additional wartime taxes of that
magnitude will promote the general welfare of the people
of the United States.

In placing the need before you I have done all I can

do. The responsibility is yours. The House of
Representatives initiates revenue legislation but the

Senate has equal responsibility for the laws finally
passed.

There is time to do this job right. It would be far
better to pass an adequate bill, even if its consideration
should extend into next year, than to accept the bill as
it passed the House.

11-27-43

230

Mr. Maston
Proposed draft of Statement by Secretary Morgenthau to the
Senate Finance Committee.

I come before you today to recommend on behalf of the
Administration, as I did when I appeared before the Ways and
Means Committee of the House of Representatives on October 4,

additional taxes to pay a substantially higher proportion of
the costs of the war than we are now paying out of revenue.
In my appearance before the Ways and Means Committee I made

detailed proposals on behalf of the Administration which would

have yielded in a full year, according to our estimates, a

total of 10) billions of dollars in addition to present
taxes. My proposals included increased income taxes to

yield a total of 61 billion dollars, additional estate and
gift taxes to yield 400 million dollars, additional corporation
taxes to yield 1.1 billion dollars and excise taxes to yield
21 billion dollars. The House of Representatives has enacted

231

-2a bill carrying only $2,138,000,000 of additional revenue,

of which less than 155 million dollars is in individual income
taxes.

The House bill in my opinion falls far short of even an
attempt to meet our fiscal needs in anything like a realistic
or courageous way. Nothing has occurred since I appeared
before the Ways and Means Committee to cause me to revise my

estimate of the amount of new wartime revenue we ought to

raise in justice to ourselves and in justice to the men who

are fighting our battles on foreign soil. A measure of what
we should pay in wartime taxation is in my opinion the measure

of what we are able to pay. If we pay in taxes any less
than we can afford to pay without interfering with our
capacity to produce, we shall be doing a gross injustice to
those who must face the accumulated bill after the war has
been fought and won.

232

-3-

That bill will be stupendous. On that point there
can be no quibbling. We are accumulating debt right now at

the rate of close to 200 million dollars a day. On the basis
of any estimates we can now make we cannot foresee a public

debt at the end of the present fiscal year of much less than
( Interpolation:)

200 billion dollars. < On such a debt the interest charges
alone, even at the extremely low rates we now enjoy in
Government borrowing, cannot be much less than 4 billion

dollars a year. It may be said by some that a few billions
of dollars more or less in the debt accumulated for this year

will not make a great deal of difference, that the debt will
be huge anyway, but I think that a poor explanation to give

to the returning soldier who will be interested in knowing
what sacrifices we incurred here at home to protect his future.
We have the ability to pay more. There can be no doubt of

233

-that. All the estimates of national income, by whomever
made, bear eloquent testimony to that fact. There is a huge
discrepancy between the amount of income available for expenditure by individuals and the amount they need to spend

and can spend for current living. The evidence is before us
not only in the statistics but in what we see about us every

day. Expenditures not merely for necessities of living but
particularly for luxuries are running at a higher rate than
at any peacetime period. I do not know by what species of

logic we can avoid in such a situation the conclusion that
we have no right not to tax ourselves far more heavidy than
we are paying today. The problem which I think we should
face is not the problem of whether we need and should impose,

and are morally obligated to impose, far heavier taxation but
the problem instead of how to distribute that taxation by the

234

-fairest possible method.

It was that problem to which we

in the Treasury, with the assistance and counsel of other
officers of the Government, addressed ourselves in preparing
the proposals which, with the President's approval, we submitted to the Ways and Means Committee.

In making my plea to this Committee today I don't limit
myself to the exact amounts, or the exact proposals we
presented before the Ways and Means Committee. I ask you

candidly and earnestly to examine our capacity to pay as a

people and to revise the bill which is before you so that
it will yield far greater revenue, an amount of wartime revenue

limited only by the ability of the people to pay it without
sacrifice that goes to the point of suffering, but without
disturbing or impairing our wartime productive effort.

I believe it entirely possible that after such an exami- nation of the capacity of the American people to pay it may

235

-6be possible for you to devise a system of additional wartime

taxes which will substantially exceed in total the Adminis-

tration's recommendations. I sincerely hope you will be

able to do that. I believe you could do that without imposing on the American people any hardships that they will

not willingly bear as a part of their war effort. I do not
say that it would not require some sacrifice, but are we to
win a victory in the greatest war in which we have ever engaged, the most crucial war for all humanity, without some

slight sacrifice as a token to offer to those who are making
supreme sacrifices?

There are two principal considerations that urge upon
us the necessity for much higher wartime taxes.

I have

touched upon the first of them - the need for heavy additional
taxes as a matter of ordinary fiscal prudence and as a matter

236

-7of justice to those who will have to face and deal with the
debt which we are amcumulating. The other is the problem

of inflation and it is not less urgent. In this field we
deal both with estimates and with proven facts. If we look
at the best estimates of national income paid out and to be
paid out during this calendar year they come to an amount in

excess of 140 billion dollars and it is calculated that
income paid out in the calendar year 1944 will be considerably

in excess of 150 billion dollars.

It is not necessary, nor

is it particularly useful, to indulge in any arguments about
a so-called inflationary gap, but what we do know is that
income after taxes and after all allowances for planned and
secure savings will exceed by many billions the amount of goods

and services which will be available for purchase at anything
like present prices.

We have had increases in prices, but

237

-8-

not

not at a dangerously inflationary rate. We are adequately
protected in the light of the excess income in prospect

against increases in prices that will be genuinely infla-

tionary, that will be dangerous, that will interfere with
our productive effort and that will leave a dire heritage
to the postwar period.

Up to this point we have avoided disastrous increases

through a variety of controls. Taxes have had their effect,
rationing and price ceilings have had their effect, wage
and salary controls have had their effect. The campaigns
for the sale of Government securities through their emphasis
on the need for saving have had an important effect, but

we can not expect these controls to hold indefinitely. There
is plenty of evidence that here and there the effect of the
controls is weakening.

We can strengthen these controls by

238

-9- - -

adequate taxation, taxation that is within our capacity
to pay. We are deliberately courting danger if we do not
do all that is possible through the tax mechanism to strengthen
these controls.
In my appearance before the Ways and Means Committee I

said that we had not arbitrarily set down a figure as to
the amount of additional wartime taxation that we should
propose, but that we had attempted to measure very carefully

needs against capacity to pay. I am not now of any different opinion on this point. At the time I appeared before
the Ways and Means Committee we had access to figures which

indicated that total expenditures for the fiscal year 1944
might be something less than the 106 billions contained in the

most recent budget estimate. I was compelled then to rely

on the last budget figures available. I said then that "while

239

- 10 -

it may be possible, and I hope it is, to curtail some
Governmental expenditures even that will not lesson our need

for getting at this time all that the American people can

possibly give us in additional taxes." That is still my
position. Confirming our expectations the Bureau of the
Budget has just released estimates that total expenditures
for the fiscal year 1944, which ends next June 30, will amount

to 98 billion dollars instead of the 106 billions in the last
prior budget estimate, that the present revision is the result
of some changes in the character and quantity of war materials

under contract and in part to the inability of the entire
national productive machine to supply the full quantities
and kinds of material contemplated in the prior budget estimates.
These revisions do not in any degree affect our capacity to
moral

pay; they do not in any degree affect our/obligation to meet
now all of the costs of the war that can be met by current

240

- 11 taxation and they do not affect in any significant degree
the serious inflationary danger that faces us for the balance

of this fiscal year, for succeeding fiscal years as long as
the war shall last and the inflationary danger in the postwar period.

There has been a great deal of talk, and I fear at times
irresponsible talk, about economy in Governmental e xpenditures

as a substitute for taxation. I am in full and complete and
hearty sympathy with any measure that can be adopted to reduce

Governmental costs, to reduce even war costs, so long as the

reductions do not impair our war effort. I am not in sympathy
with any measure, or any proposal, to cut expenditures in
any way that will make our war production anything less than

an all out effort, but economy - savings in any degree or
amount - does not lessen by one nickel, or one red cent,

241

- 12 -

our obligation to do all that we can now to pay for this war
and to avert the dangers of inflation.

Gentlemen:

problem.

uv 271143

242

At the time I presented to the House Ways and Means

Committee the Administration's suggestions in connection with

the new tax bill, I made it clear that the Administration felt
we should ask for an additional 10.5 billion dollars in taxes
next year.

Our basic reason for making this suggestion arose out of

the obvious fact that the war is costing two hundred million
dollars a day more than our present tax receipts. We are

piling up a debt of two hundred million dollars a day which
some day must be paid. By the end of this fiscal year -- and
between now and then, there is no indication that either the
Army or the Navy contemplates any reduction in expenditures --

we will have accumulated a bill of two hundred billion dollars.

I hope you will keep that two hundred billion dollars in
the forefront of your minds.
When the House passed a bill calling for two billion
dollars in increased revenue, and when they provided minority

and majority reports attempting to prove that we don't need
10.5 billions in taxes because of contemplated economies, they

gave no consideration to the fact that we are going to have
that two hundred billion dollars to pay no matter what happens.

They gave no thought to the fact that in future years the
United States Government will have to set aside four billion

-2dollars every year for interest payments alone on that debt.

If the Senate fails to take the responsibility of voting a
sizable tax bill now, we will have to add four billions to
the cost of Government every year after next July. And this
does not contemplate paying off the debt, which of course must
be done, and will be done, and will add many more billions each
year.

That is why I have come here today to renew the Administra-

tion's request for a tax bill that will help pay off that two
hundred billion dollar war debt at the rate of an extra 10.5

billion dollars a year.
I don't believe this is an unreasonable request.
It seems to me that such a proposal is much easier to

justify than the proposal that we decline to pay off a more
sizable proportion of our debt at the very same time that our
aggregate earnings are higher than they have ever been in all
history.

It seems to me that in the eyes of future generations it

will be much easier to justify such a request than it is to
justify the hollow argument that this 10.5 billion dollars will
ham-string business and throttle the public, when it is common
knowledge that the people are saving money at a phenomenal rate

and corporation earnings are up over 26 billions. The public's

243

-3-

244

savings in the banks today are five times as large as this

10.5 billion dollars that we are asking for.
It certainly is much easier to justify asking for 10.5

billion dollars than it is to justify passing this debt along
to the returning soldiers, and their children and ours, and
ask them to pay it when they may be far less able to meet tax
bills than we are today.

Does anyone doubt that it is vital to the maintenance of
a sound Government fiscal policy that we finance a much greater

portion of the war through taxation than at present? The huge
cost of guns, ammunition, war equipment, training our soldiers,
sending them abroad and taking care of them -- this bill must

be met either by taxation or by borrowing. And every dollar

that we raise through taxation is a dollar less that will have
to be returned, with interest, when the war is over. Therefore,
securing additional taxes at this time would not only improve

our present position, but would put us in a far better position
at the conclusion of the war, when we will be faced with vast
and expensive problems in connection with reconstruction and
readjustment of our economic system.

Since making the presentation to the Ways and Means Committee

I have talked to many of our soldiers overseas -- to the men

-4-

245

who are actually fighting the war -- men who for the most part
are trying to live on a base pay of $50 a month and hold
together their families and as many of their possession as

possible until they can get back, get jobs, and pick up the
broken threads of their lives.

I can tell you that if they had the power to pass a tax

bill, this 10.5 billion dollars would whizz through without
question. And I think they have earned the right to have their
feelings in the matter considered seriously.

To the extent that we fail to raise this 10.5 billion
dollars, these returning soldiers will inherit an unnecessary

portion of the bill for the war they risked their lives to
fight. That is a fact that will live as long as the memory
of this war. And the memory of our excuses may live as
long.

If I know soldiers, they will not be too happy about
receiving a glib explanation that instead of raising taxes in
the midst of plenty to Chelp pa; off a two hundred billion
dollar debt, we asked the Army to revise its estimates of the
.

amount of money it needed. I can assure you that we will have

a job on our hands if we attempt to explain how projected
economies in war expenditures can substi tute for the collection
of taxes. If these returning soldiers should be faced wi th

inflation-bloated prices, or if their mail from home tells

-5-

how difficult it is to live in the midst of rising prices on
soldier's pay, we will have a hard time demonstrating how we
are fighting inflation by asking bookkeepers to change some

figures, perhaps only temporarily, on the books for 1944 and

1945, instead of raising taxes.

The futility of this dodge should be self-evident.
Certainly it is evident to the Washington Post. A few days

ago the Post exploded the myth in an editorial. It said:
"the fact that the Army over-estimated the amount of funds
it would require this year does not mean that we can regard
its unexpended appropriation as 'savings' warranting a relax-

ation in our efforts to cover more of our war costs from tax
revenues." The Post then continues, "If Congress wants to
make such excess appropriations an excuse for inadequate

taxation, all it need do is to approve over-liberal appropriations and recapture them at the end of the year. By such
means 'savings' could easily be boosted so high that we might

conclude that we don't need to collect any taxes at all."
When I presented the Administration's suggestions to the
House Ways and Means Committee, I pointed out that the tax bill

this year has two purposes. First, to increase revenue so we
can pay off a larger part of the huge war costs while we have

246

-6-

247

the money. Second, to combat inflationary trends which have
threatened ever since we launched upon our huge war production
program.

Let's discuss this inflation threat on a strictly commonsense basis.

First of all, let's dispose of the troublesome term,

"inflationary gap". That is a very difficult term to define to
the satisfaction of everybody, and I think we can do very well
ithout it. The fact remains, however, that our National income

for 1943 is going to be 145 billion dollars, and the supply of
oods and services upon which this money can be spent is severely

limited, as you well know. A safe estimate of the value of
these goods and services might be 80 billion dollars. The
difference between these two figures is 65 billion dollars.
Some of that 65 billion dollars is in war bonds -- 21 billions

of it. Some of it is in the banks. Some of it is under the
mattress. Much of it is in life insurance and other such
investmen

There seems to be a great deal of confusion as to the

inflationary potentialities of all these repositories of the
people's funds. But the common-sense facts of the matter are

that any or all of these repositories are as inflationary and as
non-inflationary, as the people want them to be.

7-

248

Up to this point, the American people have handled this

extra money with a great deal of intelligence. They have put

it into war bonds and left it there. They have put it into banks
and insurance, and left it there. If they c ontinue in this course,
we arefairly safe, because money that people do not choose to

spend is certainly non-inflati onary money, even if they have it

jingling in their pockets.
On the other hand, we would be shirking our duties, I am

very sure of that, if we calmly supposed that this thin framework of public psychology is sufficient bulwark against inflation

-- an inflation which, with 65 billions let loose, could uproot
our economic system and tear it to shreds -- and could do it,
under certain circumstances, with all the shock and suddenness
of the 1929 crash.

We have tried to set up inflation controls to fortify
ourselves against a possible reversal of this public psychology,
a reversal like that which came a few years ago when lifelong bank depositors suddenly turned on the strongest banks
in the Nation and demanded their funds. That is why we stress

the importance of this 10.5 billion dollars tax proposal as an
anti-inflationary measure. It would be more accurate to

describe it as potentially an ant1-inflationary factor, for its value
would become most evident only if we were to need the extra

precaution it represents.

--

249

Some time ago, when I mentioned that the purpose of this

bill was to raise revenue and to combat inflation, a gentleman
promptly asked me how much of the bill was for one, and how much

for the other, as though he expected me to say that the proposal

is divisible by two, and a certain number of dollars are allotted
to revenue, and a certain number to avoid inflation.
Obviously, when we say this bill does a double-headed job,

we don't mean to infer that it can be divided into two parts.

It is all one bill. It is big -- 10.5 billion dollars -- because
there is every indication that people can pay that much under an

economy that will bring them 145 billion dollars during this year.
Purely as a corollary advantage, is the fact that ten and a half
billion dollars deducted from spendable income automatically

puts us on safer ground as far as inflation is concerned. 10.5

billion dollars won't stop inflation. We cannot collect 10.5
billion dollars in taxes, and then calmly walk away and leave
the barn door open and expect the horses not to run wild. But

it definitely is a step in the right direction. And it is perhaps the one step that will be left to take by the time we have
finished breaking down all the other barricades we have thrown

up against the wild horses of inflation.
I am well aware that many American people, as well as many

legislators, are not concerned about the possibility of inflation
overtaking us before the end of the war, and staying with us to

make doubly difficult the job of reconstruction.

-9-

250

There seems to be some feeling that we are very wise these
days, and because of our wisdom we will avoid, by some magic,

any such situation as we suffered during and after the last war.

There seems to be a strong feeling that inflation is out of date,
like the term we used to use to explain it -- the high cost of
living.

Let me assure you that this is not the fact, and that
Congress is shirking its responsibility to the American people
and to the future of the American Nation by hiding its head in
the sand.

. I talked to an officer of the Quartermaster Corps in French
Morocco about three weeks ago. I asked him about food supplies
where he got them, and whether he was having any trouble supplying his needs.

The officer said: "Well, of course Mr. Secretary, we don't

buy any food here at all. The prices are too high. The troops
around here have bid the prices up. So the Quartermaster Corps

ships in the food we need. It would break the Army's treasury
to buy anything at the prices they ask around here."
Three or four days ago I read an Associated Press report

from Bari, Italy. This report said that a suit of clothes in
the cheapest quality had risen to about 3,000 lire during the
war and in the last two months had increased in cost to twice
that amount. A couple of months ago you could get a pair of

- 10 -

251

shoes for 500 lire, but now they cost 1,800 lire. Not long ago
you could buy shirts for 100 lire but now they cost 350 lire.
Yesterday I received a report from Algiers concerning

living conditions in France. It stated that eggs were selling
for 40 francs a dozen, and chickens cost 200 francs, for any
fortunate being who had that much money.

Back of these steep price rises, lies just one simple
phenomenon. New money has come into these areas and the supply

of goods is limited. So prices shoot up.
And the common people of Morocco, Italy and France -- and

Greece and China for that matter -- are not finding it easy to
live. They are up against a nearly impossible situation.
This should serve to remind us that inflation is not something that civilization has outgrown during the past twenty

years. Inflation can happen today. It is happening, with
exceedingly dire results to low income people, almost every-

where. And it can happen not in the creeping way we see it today, but disastrously here at home.
Our inflation probably would be less extreme than that

which now tortures the people in countries abroad. But the

principle is the same, and a fifty percent rise in the cost

of living is well within the realm of possibility. This would
prove most destructive to us, and would require drastic and

252

- 11 -

expensive action on the part of the Government. Certainly it
would cripple business and throw hardship on the American

people to an infinitely greater extent than 10.5 billions of
new taxes, which is one of the reasons the House chose to give

for trimming down the suggested 10.5 billions to two billion.
In principle, the extra money which stimulated production
has brought to the people of America today can play the same
havoo in our economy as the soldiers' spendable dollars are

causing abroad. The principle is the same. We have a shortage of goods, exactly as they have abroad -- not to the same

extent, but to a great enough extent to cause trouble. The
only thing that we have which they haven't is an OPA, and Fred

Vinson, whose responsibility is to sit on the lid.
How long Judge Vinson and people working with him will be

able to hold prices in line under present circumstances is a
question. He is doing everything he can, but the wild horses
of inflation are growing wilder every hour, and no one seems

disposed to give him any help. Our economic picture at this
writing seems to be a galaxy of punctured ceilings, tottering

wage formulae, and political viewing-with-alarm or

with-

timidity.

It is easy to underestimate the possibility of inflation,
and to disregard the necessity for taking protective measures.

- 12 The fact that we have done as well as we have in controlling

the cost of living up to this point makes a great many people
over-confident.

But this is not the first time in our recent national
history that we have failed to heed warnings. It is not the
first time that we have chosen to be optimistic about the
future at the expense of being thoughtful of the present.
I'd like to read to you a paragraph from the President's
message to 70th Congress of the United States, sent up in

December, 1928. The following October you will recall, we

suffered the greatest financial crash in history.
"No Congress of the United States ever assembled,"

the President said, while all this was brewing; "on
surveying the state of the Union, has met with a more
pleasing prospect than that which appears at the present

time. In the domestic field there is tranquility and
contentment

The great wealth created by our enter-

prise and industry, and saved by our economy, has had
the widest distribution among our own people, and has

gone out in a steady stream to serve the charity and
the business of the world. The requirements of existence
have passed beyond the standard of necessity into the

region of luxury. Enlarging production is consumed by

253

- 13 -

254

an increasing demand at home and an expanding commerce

abroad. The country can regard the present with satisfaction and anticipate the future with optimism."
There is no indication here that any threat lay in the
wind. There is no indication that the golden dream of 1928

could be anything but an accepted way of life. It has all the
complacent assurance of the recent report from the Lower House

on the tax bill.
But that was not the fact. Many people back in those
days knew that, as Walter Lippman pointed out a few days ago,
National leadership was turning a blind eye and a deaf ear to

the inflationary forces then present. The Nation had been
warned by the very man who later, as President, reaped the

fruits of this optimism. Three years before, he had called
attention to certain national policies, and said, "... ... it means
inflation with inevitable collapse and will bring the greatest
calamity upon our farmers, and workers and legitimate business."

But in those days the Nation and its leaders preferred

to see the sunny side. Even the financial crash itself failed
to jolt some of our National leaders into looking at the
problem realistically. Three months after the crash, the
Secretary of the Treasury told the public: "I see nothing
in the situation which warran ts pessimism ... there is plenty

of credit available."

255

- 14 -

It is like our saying today, "The inflation isn't bad,
let's forget it. Let's get rid of our present controls and
set up no new measures -- they're a nuisance.'

In renewing the Administration's request for a tax bill

that will help pay off our war debt at the rate of an extra
10.5 billion dollars a year, I want to emphasize that by

draining off a sizable portion of our national income, it will
help to stabilize our economy, and will give Fred Vinson a
hand in trying to keep prices down to the point that the
lowest income groups will be able to sustain themselves through
the remainder of the war.
And this cannot be done by any practical or possible move
in the direction of economy. There is much misunderstanding

on this point. The first misunderstanding is that any real
economies, that will effect spending during 1933 or 1934, are
contemplated. The Army and Navy have revised their budgets,

as they are constantly doing, in keeping with the principles
of good business. There is nothing new about it. Since last
August they have revised it downward

billions. The

Army, in addition, has placed 13 billions in a reserve fund --

which however is still on call if the Army needs it. All
Government departments have the same sort of reserve. The

Navy, it appears, will have to ask for additional funds -- so

- 15 -

256

any reserve it has will certainly be used, and more will be
needed. Consequently, the reports that the armed forces have

saved up to 18 billions is pure fiction.
But even if it weren't -- even if actual economies were

possible -- they would not be likely to affect the inflation
situation.

The reduction of inflationary pressure resulting would be

only a slight fraction of any cut in expenditures.
The only way these economies could be made affective from

an inflation standpoint would be if they should release men
and materials for the manufacture of consumer goods, in order
to increase the amount of materials upon which people can spend

their incomes. But there is no indication that we can afford
yet to release either men or materials from vital war production, regardless of any economies which can safely be made

at this time.

So it is certainly safe to say that savings -- even real
savings -- are not an alternative for new taxes at this particular time. They are practically without influence in combating
inflation, and they certainly will not reduce the considerable
bill we have already created.
If we can save money, if we can reduce our expenditures --

either war or non-war -- it ought to be done. I am sure you

- 16 know where I stand on that. You may remember that most of
my recommendations to the Byrd Committee, were adopted and

contributed considerably to the two billion dolla rs of savings
that have been made over the last two years. I have consistently urged that we cut costs everywhere it can be done

without interfering with the war effort.
In that connection, I took a stand definitely against the
Bankhead Bill, which the Senate recently passed, with the

possible result that the Government will waste fifteen million
dollars each year to do very badly a job which the Government

is now doing very effectively at practically no cost to the
American taxpayer. The Senate would break down the voluntary

cooperation of advertisers and newspapers and other publications

and radio, who, at practically no cost to the Government, pro-

vided thirty million dollars worth of advertising during the
three weeks of the Third War Loan. There are no possible

grounds upon which this waste of fifteen million dollars can
be justified. I shall keep my record for economy consistent
and continue to oppose the passage of this bill in the House.
I should like to discuss now the proposals which we made
to the House Ways and Means Committee, and those which I am

going to make here, today, to you.

257

- 17 -

258

On behalf of the Administration, I suggested to the House

that we get 10.5 billion dollars in additional revenue.
I want to repeat that suggestion today.

I suggested to the House a definite plan for raising that
amount of money. We provided schedules showing how 2.5 billions

could be raised in new, selected excise taxes. This included
excise taxes on such things as soda-pop and chewing gum and

candy, which seemed to us to be very reasonable and logical
sources of revenue, because they cannot be considered essentials

of living; but apparently the House thought differently.
We suggested a tax schedule that would raise 1.1 billion
dollars from corporations, which seemed little enough in the

face of a 26 billion dollar increase in their income.
Believing that estate and gift taxpayers were not contributing as much as they might, in comparison to other taxpayers,

to the war program, we suggested an increase in rates to produce four hundred million in new revenue from this source.
Finally, we presented a recommended income tax schedule

that would produce 6.5 billion dollars in increased levies on
income. At that time, I also presented to the Committee a
recommendation for handling this program.
Today I am not going to make all of these recommendations

to you. I am not going to give you a blue print. Instead, I

- 18 -

am going to ask you to raise 10.5 billion dollars and hope,

from the bottom of my heart, that you will raise it in such
a way that the cure will not be worse than the disease.
I recommended to the House Ways and Means Committee that

they take important steps toward simplification of the tax
laws by discontinuing the Victory Tax and the earned income
credit. I make the same recommendation to you, because the

American public is entitled to simplification of its tax laws.
We don't have the right to ask every taxpayer to become a
bookkeeper, and under the present circumstances, a person

outside the range of a simplified tax form is faced with some
very perplexing problems and calculations. We at the Treasury

are doing everything in our power to simplify the returns. We
have managed to clarify, to an extent never before achieved,

the simplified returns required of taxpayers earning up to
$3,000. Beyond that, however, the toils of a most complicated

tax law has us at its mercy.

I implore you, therefore, to keep simplification in the

forefront of your minds while considering the new tax bill. I
hope you will not drop the Victory Tax, and then add in its
place a new tax which will make returns for the average tax-

payer equally as complicated. This the House did in its Tax

Bill.

259

260

- 19 If you simply drop the Victory Tax, and leave the income

tax exemptions where they stand, you will relieve 11 million

people of paying taxes. At first glance, it seems strange
that anyone would even think of relieving people of tax
liabilities at the very time that we are demanding more

taxes; but careful examination of the facts indicates that

there is a great deal of justice in relieving of tax liability
many of the people who are now subjected to the Victory Tax.

There are, for example, 21.5 million people -- a third of all
the Nation's salary and wage earners who make less than a

thousand dollars a year. These 21.5 million people earn an
average of less than 18 dollars a week, and today approximately

of of these people are paying the Victory Tax. The aggregate
tax that they pay to the Treasury amounts to about

million

dollars. In addition to this amount which is paid directly to
the Federal Treasury, these same people pay an estimated

million dollars in State, city and hidden taxes. These taxes
will be with them no matter what is done concerning Federal

policies and will increase with increased excises.
We need not worry about this group contributing to inflation

if they are relieved of their present direct Federal taxation.
In the face of constantly rising prices, they cannot make

inflation; they can only suffer as a result of it, and their

261

- 20 -

suffering will get progressively worse as the cost of living
rises. These people should be relieved of their federal tax
liabilities and the 700 million dollars which they now pay can
be distributed among the remaining

million taxpayers.

As I have pointed out before, we are not going to recommend

any particular schedule that you follow in allotting these
new income taxes. Our Division of Tax Research has prepared
several schedules. You may use any one of these, or suggest

that others be drawn up. Most of our schedules are based on

the fact that the bulk of the money that we would get is in
the hands of the people who make enough to come within our

income tax exemptions but less than $5,000. In the schedule
which we presented to the House Ways and Means Committee, 53%

of the total tax increase came within this group.
During the House hearings, we were asked whether we felt it

was so necessary to get 10.5 billions that the Administration
would change its position on the sales tax.
I should like to say here and now that the Administration
will not change its opinion of the sales tax as a means of
raising revenue. Moreover, I sincerely believe that most of
the adherers ants of the sales tax, particularly among the newspaper

editorial writers, and the general public, would change their
own minds about the sales tax if all the facts were presented

- 21 -

262

to them.

I should like to take a few moments to present those facts.
I have heard a great deal, and have seen a great deal in
the newspapers, about a sales tax being a sort of white-rabbit

that Congress can pull out of a hat -- if the Administration

would permit it -- and get 6 billion dollars with the greatest
of ease.

It is true that if we put a 10% tax on everything that
everybody bought, the tax might produce as much as 6.3 billions.

But I am sure that even the most ardent sales tax enthusiasts

can see the unlikelihood of placing a 10% tax on all food. The

public wouldn't stand for it. The 21.5 million people who are
making an average of $18 a week would be called upon to make

a sacrifice unequalled by all the rest of the people on the
Home Front combined.

If you exempt food from the sales tax, you lose 2.4 billions

of this tax yield. This brings the total yield to 3.9 billions.
There is certainly no justice in taxing medicines. If you
exempt medicines, you lose another 200 millions, bring the total

to 3.7 billion dollars.
There is no conceivable way that you could put a ten per-

cent tax on all clothing, whether it be luxury goods, or just
common everyday work clothes. And judging from the tax yield

- 22 -

263

on luxury clothing during the last war, most clothing purchases
are necessities. Exempt clothing, and you lose another 1.1

billion dollars. This brings the yield of this 10% sales tax
to 2.6 billions.
Under the present laws, a large number of goods are

heavily taxed by excises. It is unlikely that you could add
another 10% to these at the point of sale. Exempt all of them,
and you lose another 1.2 billion.

This brings the total yield of a 10 percent sales tax to
1.4 billion dollars -- and even this figure would be reduced
somewhat by such things as rent, and by materials included
which are used for business, and which accordingly would not

be subject to a retail sales tax
Looked at from a practical point of view, a ten percent
sales tax, therefore, simply means that the Government would

be required to set up an elaborate new system of collecting

and policing a new kind of tax, the total revenue from which

would be pitifully small.
And to bring up one more complication, we might point

out that State tax laws usually permit a deduction of sales
taxes paid during a taxable year. This means that anyone
with money enough to pay a state income tax would get credit
for his sales tax; while anyone whose income placed him below

- 23 -

264

the exemptions, and who by the very nature of things would

be hit hardest by a sales tax, would not have the opportunity
to recoup any of his sales tax payments.

It is because of this combination of facts that the
Treasury feels that a sales tax is futile, and that much more
satisfactory results with far less trouble and expense can be
secured by increasing the number of goods upon which excise
taxes are placed.
In our proposal to the House Ways and Means Committee, we

suggested increasing excise taxes, largely by increasing the

number of taxable items, by a total of 2.5 billions. The list
could be expanded, and the rates could be higher, according to

the luxury rating of the items; but even this 2.5 billions
comes within a hundred million dollars of producing as much

as a sales tax exempting only food, medicines and clothing.

In view of this, it is difficult to see why anyone would
want to struggle with a sales tax. Even overlooking the
injustices inherent in such a tax; even overlooking the fact
that the controls of our economy are based upon a cost of living
index which would be thrown completely off balance by a sales

tax, and would automatically launch a spiral of higher prices

and higher wages, the very futility of the sales tax as a
revenue producer should be enough to recommend it for oblivion,

once and for all.

- 23a -

If you want to consider a sales tax under these circum-

stances, it is your privilege. The Administration, on the
basis of the facts, opposes it. But you are the elected
representatives of the people. You are the lawmakers. In
the final analysis, you must draw up this bill, and you must
suffer the consequences of any mistakes in judgment which you
may make.

Finally, I hope you will give thorough considerati on to

265

- 24 -

266

the long-term significance of this tax bill before you decide
upon a course of action. The House has sent up to you a bill which

contributes little toward paying off our huge war bill and can
contribute practically nothing toward stemming the tide of

inflation.

I hope you will not lose sight of the fact that to the

extent that the 10.5 billion figure is reduced, just to that
extent we will be levying additional future taxes upon the men
who are fighting the war, and upon their children and ours.

I hope you will also remember that every dollar taken in

taxes is one less dollar which can contribute to an inflation

that will unnecessarily increase our war bill, and that will
make the job of reconstruction infinitely harder, once the war
is over.

And I hope, that you will not be mislead by the idea that
anything reclaimed from the estimated budgets of the Army and

the Navy as a substitute for new taxes. I am sure that our
soldiers will not be so easily deluded. Some day they will be
back -- many millions of them -- and the day they make their

first income tax payment, they are going to ask: "Why didn't
you people back here pay off more of this bill while you were
making all that extra money?" Coming from six or eight million
men, that can be a very embarrassing question.

267

- 25 -

As the elder statesmen of this Republic, I hope you will

shoulder the responsibility that is unquestionably yours. I
hope you will take stock of what is happening all around you.
Remember that we will have a two hundred billion dollar

debt by next July -- a debt that will cost us four billion
dollars a year in interest alone.
Remember that our cost of living is rising. The latest
available figure when I made my proposal to the Ways and Means

Committee, was for September, and put the cost of living at

123.9. The latest available figure today is for October, and
is 124.4. And this has happened while most of our inflation

controls are still active.
Remember that our savings are consistently rising. They
have gone up

billion dolla rs since I made the presentation

to the House Committee.

And our national income, on the basis of last Saturday's
summation of the budget, will drop about

billions of

dollars -- not enough to have any perceptible affect on the

inflation front if the spiral should once start in earnest.
While all this is happening, our inflation controls -the only forces we have to keep this economic disease in

check -- are fast crumbling.
Within the past week, Congress has seen fit to disregard

- 26 the message from our Commander-in-Chief, pointing out that

subsidies were the keystone of our battle against inflation.
Forces in Congress are calling for a reduction in the
powers of OPA, which might well result in the elimination of
any control of commodity prices.

The Little Steel Formula, which up to this time has held
wages in line, has been broken through, and its future cer-

tainly is not bright.
Gentlemen, these are the facts.
Perhaps our last opportunity to take any precaution

against the calamity of inflation that has hit practically
every country in the world to a greater or a lesser degree,

is the passage of a tax bill of sizable proportions -- a tax

bill that will keep at least 10.5 billions out of circulation.

It is your responsibility. If you refuse to take it,
God help America.

268

269
November 27, 1943
3:52 p.m.
HMJr:

Operator:
HMJr:

Hello.

Senator George will call you back in about three

minutes.

Thank you.

Operator: Right.
3:54 p.m.
HMJr:

Hello.

Operator:

Senator George.

HMJr:

Hello.

Operator:

Go ahead.

HMJr:

Walter?

Walter
George:

Yes.

HMJr:

I hope I'm not bothering you this afternoon.

G:

No, not at all. I got home from the office a
little earlier than usual.

HMJr:

G:

HMJr:

Well, you know when I was up there and had
lunch with you gentlemen?
Yes.

I'm afraid that I left the impression with you
that the deficit would not be decreased. I don't

know whether I left that impression or not.
G:

Well, no. I don't know that you did. I think you -you mean on this $13 billion thing?

HMJr:
G:

HMJr:

Yes.

No, I didn't understand it that way.
Well, I

-G:

HMJr:
G:

HMJr:

270

I understood
was
justified. that you didn't think that that amount
I see.

And
at the end of the fiscal year it might
all bethat
absorbed.

I see. Well, of course, the thing is: The Bureau

of the Budget has got out a statement which will
appear, now, not until tomorrow morning.
G:

Oh, yes. I hadn't seen it.

HMJr:

Well, it was released for Sunday papers.

G:

oh, yes.

HMJr:

And they have revised their estimates as to the

G:

Oh, yes.

HMJr:

And I didn't want to feel that there was any mis-

G:

No, I don't think so, Henry. I didn't misunderstand.

HMJr:

Yeah.

G:

deficit and they're going to show the deficit for
the fiscal year '44 decreased by about $11 billion.

understanding or -- as between you and the other
gentlemen I met with and myself. I mean

I understood that

that they, temporarily, were reserving, say
$13 billion.

HMJr:

Yeah.

G:

But that that was not a final determination

HMJr:
G:

HMJr:

G:

That's right.
and it had to go until the end of the year.
But I didn't leave with you the impression as to
what the final thing on the deficit was going to be?
No.

271

-3HMJr:
G:

Well, that's what bothered me.

Oh, I don't think 80 at all.

HMJr:

Well, that was all that was worrying me.

G:

Well, don't worry about any of it.

HMJr:

(Laughs)

G:

We've just all got problems. That's all there
is to it, you know.

HMJr:

Well, plenty of them.

G:

Yeah, that's right.

HMJr:

Thank you so much.

G:

All right.

HMJr:

Thank you.

G:

Good bye.

272

Route #1

Accord N.Y.
27 Nov 1943

Henry Morgenthau Jr.,

Secretary of the Treasury,

Main Treasury Bldg.,
Washington, D. C.

Dear Mister Secretary:

It is good news that Mr. Hart is going
to file the shackle around my ankle and set me free
to go to work for you in January. Kidding aside, it
is a generous thing for him to do, too - not because
I am so valuable,as because he is badly under-staffed.
There is so much that I ought to do for him that I had
Intended to ask you if I might dash from Washington to

Wilmington for a few hours a week. There is a little
fat man, given to lavender shirts, who pinch-hits for

me when I am not in Wilmington, and he can get things
into the God-awfullest mess in three weeks of any human

being - I give him the benefit of the doubt - I ever
saw.

Yes, I took the Secretary of the Treasury's
advice and sold my 800 hens. I took a small loss, but
there is always the comforting thought that it might
have been larger. If you regard this as sufficient evidence of financial acumen which is somewhat do ubtful,

I would consider employing you on a consulting basis.
We can offer light work and friendly surroundings, and

you will be treated as one of the family. (Being treated
as one of the family, so far as my own experience goes,
is something that shouldn't happen to a dog.)
Seriously, your address to the advertising

men had its frightening side. The success of the drives
adds further evidence to the fact that advertising is a
tremendous power. What if, after the war, this power is

given to 'selling' the point of view of a powerful, reactionary minority? I wish legislation could be framed
now to prevent such a thing from happening.
With kindest regards

Qr.

273

25

NOV 27 1943

My dear Mr. McNutt:

Your letter of November 25 with reference

to withholding of taxes on certain non-resident
aliens has been received. Our respective staffs
have discussed the possibility of an amendment
of Section 143 (b) of the Internal Revenue Code,
whereby the withholding at the source on wages

and salaries of non-resident alien individuals
brought into the United States under the authority of the War Manpower Commission for temporary

employment essential to the war effort shall be
at the rate of 10 percent. The Treasury Department has no objection to the enactment of such

legislation and will be glad to so inform the

Senate Finance Committee.

For your convenience, a copy of the text of

the proposed amendment is enclosed herewith.
Sincerely yours,
(Maned) W. Morgenthan, Jr.

Secretary of the Treasury
Honorable Paul V. McNutt
Chairman, War Manpower Commission

Washington 25, D. C.
Enclosure

274

Section 143 (b) of the Internal Revenue Code

(relating to withholding of tax at source) is
amended by adding at the end thereof the following sentence:

"In respect of the compensation for
services performed by nonresident alien

individuals brought into the United States
under the authority of the War Manpower
Commission for temporary employment essen-

tial to the war effort and subject to withholding under this subsection, the deduction

and withholding shall be at the rate of 10
per centum, and there shall be no deduction
of

or withholding under section 1622."

OFFICE FOR EMERCENCY MANAGEMENT

WAR MANPOWER COMMISSION
WASHINGTON, D.C.

NOV 25 1443
PAULAN McNUTT

dear Mr. Secretary:

Certain provisions of the Internal Revenue Code pertaining to with-

holding of taxes at the source present difficult problema to this

Commission in connection with the importation of workers from foreign
countries and from territories and possessions of the United States.
During the past several weeks, conferences have been held between

members of my staff anderepresentatives of the Office of the Tax
Legislative Counsel Division, Treasury Department, and of the Chief
Counsel's Office of the Bureau of Internal Revenue, for the purpose
of developing an appropriate amendment of the Internal Revenue Code

with respect to withholding of taxes at the source from compensation
for services performed by non-resident alien individuals brought into
the United States under the authority of the War Manpower Commission

for temporary employment essential to the war effort.
War Manpower Commission and your representatives, including Bureau of
Internal Revenue representatives, agreed, on November 11, to the

language of an appropriate amendment to section 143 (b) of the Internal
Revenue Code. It was tentatively agreed at that time that the proposed
amendment should be recommended when the tax bill is considered by the
Senate Finance Committee, and that it would be most helpful to the War
Manpower Commission if the Treasury Department would join with the War
Manpower Commission in supporting the amendment before the Senate Finance

Committee. I would very much appreciate being able to transmit the text
of the amendment with a letter indicating your concurrence and that of
the Commissioner of Internal Revenue.

I have informed the Chairman of the Senate Finance Committee, Senator George,
of the proposed amendment and of the need for its early enactment from the
far Manpower Commission program standpoint. I am, however, reluctant to

o forward with a request for the introduction of the amendment without
in affirmative reply from your Department with respect to the text of the
Amendment and your concurrence in the amendment. An early reply will,
herefore, be very much appreciated.
Sincerely,

The Honorable

The Secretary of the Treasury
Washington 25, D.C.

Chairman