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This article is protected by copyright and has been removed. The citation for the original is: New York Times, “Punishing the Thermometer,” March 27, 1945. TELEPHONE HANOVER CABLE 2-3822 I ADDRESS " G O D S O N " GODNICK AND SON M E M B E R S P U T &C A L L B R O K E R S AND D E A L E R S A S S N . , 30 BROAD INC. STREET NEW YORK 4 . N . V. March 28, 1945 Hon. Mariner S. Eccles Chairman of Federal Reserve Bank Washington, D. G. Dear Sir: I take this opportunity to present to you some facts regarding your recent proposal to tax speculative gains ninety per cent and also some observations on the rumors that the Federal Reserve Bank will soon stop marginal trading. I know full well the reasons behind such moves and would like to bring to your attention these random but none the less true observations on both subjects. Inflation is not a state of mind. It is a condition of too much money in the hands of the people and too few consumer goods on which to spend that money. The end of marginal trading would not hurt the wealthy class in this country who trade usually only on a cash basis but would hurt the small- man who has speculative investments. The end of marginal trading would create a black market in money as no rule to restrict the lending of money could be applied to xion banking individuals who have tremendous amounts of cash available for sound investments. The end of marginal trading would raise interest rates as "Black Market Money" is not interested in 2%, 2 o r 2.9% interest. Speculators are not deterred by a high interest rate. The end of marginal trading would result in the cashing in of at least one hundred and fifty million dollars worth of B bonds by individuals who would rather continue to speculate than to hold government bonds. In the matter of ninety per cent tax on speculative profits such a law would have the following effects: 1. It would stop -- not diminish -- trading and put out of business the entire financial industry. Hon. Mariner S. Ecoles -2 March 28, 1945 2. It would wreck real estate values in New York and other financial centers in this country. 3. It would increase the holding of securities by the big fortunes in this country as they would be the only ones able to assume the risks of stock ownership. 4. It would ruin markets in equities and cause declines in the prices of stocks and bonds. Equities would sell at such hish yields that government bonds would be dumped for s-ound securities yielding six to twenty per cent. I realize the problems that beset the administration but the malady seems preferable to the remedy,.,: Other mora rational f-oi»ms of control can and must be brought tob ear. An Individual post war:tax refund in the style of corporate taxation might be the cure for an aggravated situation rather than the end of marginal trading and the ninety per cent tax would create a condition worse than that which they are to cure» Very truly yours BERTON W. GODNIGK BWGrîGK March 31, 1945. Mr. Bert on Godnick, Godnick and Son, 30 Broad Street, New York U, Wew York. Dear Mr. Godnick: On behalf of Mr. Iccles who is temporarily out of the city, I wish to acknowledge your letter of March 28. You may not have seen 1 the full, text of the statement that Mr. Iccles gave out on this subject and, accordingly, I enclose a copy. He would agree with you as to what constitutes inflation and as to the fact.that high interest rates are not a.deterrent to,speculators. Certarinly they were not in the late 20*s. He would not agree, however, that the capital gains tax would have the effects that you foresee. But I think you and he are fairly close together on the idea of positive incentives for risk capital in the postwar. In this connection, Mr. Eccles recently wrote to a Member of Congress as follows: "In the postwar, however, what would really give encouragement to investments; that result in production and employment would be to put a tax premium on productive investment and a penalty on mere speculation that furnishes neither production nor employment, but results only in economic instability. In-order to induce venture capital to take risks in enterprise that furnishes production and employment, I would reduce the excess profits tax from the present 95 per cent maximum to, say, 70 per cent, and make the normal corporation tax 25 per cent without the corporate surtax. I would then exempt from the'normal 25 per cent tax profits paid out in dividends, since they would be taxed in the hands of the recipients. Ahis would avoid the double taxation that is a real deterrent to the investor in productive enterprise. At the same time, I would grant an exemption of $25,000 to all corporations under the excess profits tax. This would not matter so much so far as the large corporation is concerned, but it would be a tremendous boon to the smaller and medium-sized concerns. Mr. carton ».• uodnicK. - Harch 31, 1945 U) M»>ith s u c h p o s i t i v e inducement t o r e a l i n v e s t m e n t , t h e c a p i t a l ¿¿ains t a x would be i n s i g n i f i c a n t « n d , i n f a c t , t h e r e i s m u c h t o b e s a i d l o r r e t a i n i n g a c a p i t a l g a i n s i>ax t h a t would penalize t h e speculator looking f o r a quick turnover a n d n e n c e i ' u r t n e r e n c o u r a g e t n e baft4 . t i d e i n v e u t d r s e eKingincome o r ±oor,er-r«nge a p p r e c i a t i o n . The low c a p i t a l g a i n s t a x o f t r i e l a t e k.O*s9 1 ' s c i r o m e n c o u r a g i n g v e n t u r e c a o i t a l g o i n t o new p r o d u c t i o n , was a p o s i t i v e i n c e n t i v e f o r l u r i n g c a p i t a l i n t o s t o c n u i a n c e t s p e c u l a t i o n t o maice m o n e y t n e e a s y way." Eceles on h i s «ili, I Know, oe i n t e r e s t e d in seeing return« Sincerely yours, Elliott Tnurston, A s s i s t a n t t o the onainaan* Enclosure ET:b your to letter
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