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EXEC UTIV E OFFICE OF TH E PRESIDENT BUREAU OF THE BUDGET WASHINGTON. D. C. O F F IC E O F T H E D IR E C T O R February 11, 1942 Dear Marriner: You may be interested in the attached letter to Mr. George A. Kuhn, President of the Indianapolis Chamber of Commerce, which is a copy of my response to a critical letter from him concerning your speech before the Conference of Mayors. Sincerely yours, Hon. Marriner S. Eccles Chairman Federal Reserve System Washington, D. C. Enclosure. February 18, 19 Dear Harold: Your note of February 11 enclosing the reply to George a. Kuhn, President of the Indianapolis ^amber of Commerce interested me very much indeed, not only because of the effectiveness of your answer, which backs up the position I have taken, but also because of the citations from the statement preoared by the Tax Committee of the Council of State Governments. This I had ndtpreviously seen and I am particularly glad to have it. The speech to which Kuhn took exception repeated in substance what I had previously said about the importance of State and local govern ments maintaining taxes and reducing their debts in this period. I am venturing to enclose a marked copy of the talk I gave last October 14 be fore the National Tax Association meeting at the University of Minnesota. I undertook to stress then the fallacy in the idea of reducing local taxation in order to'make it easier to pay. Federal taxes and to emphasise the vital importance, both now and in the future, of close coordination of Federal and local fiscal-policies if we at*e to achieve reasonable economic stability. Hence, I am on record somewhat in advance of the statement from the Council of State uovemments, Kuhn sent me-a copy: of his letter and the White:House also re ferred the original to me. I have written two letters to Kuhn, though I do not imagine from his reply to my first one that there is much use in discussing the subject with him. Your letter, I think, is particularly effective and I need, not add that I greatly appreciate it. Sincerely yours, (Signed) M. S. Eccles Honorable Harold D. Smith, Director, Bureau of the Budget, Executive Office of the President, Washington, D. C. Enclosure ET:b January 2 % 1942 Ur« wsorge A* Kuhn, President* Indianapolis 'h&s&er of Ooisserce, Indianapolis* intlena, Dear sir* Kuhn* lour letter oi January 1$* Addressed to t o President, dis cusses issues in whlcb X m jartlculi«r1^r interested fend u; on which sora© clarifying •'Oiaaent sema warranted. In his address before the* conference o£ Hsycrs which was the occasion for four letter* ^r* Eccles did recowaend* as you reporter?, that lo^al poveraments should maintain tax rates* sut the record shows that he did not say, as jour letter lilies he did* that ex penditures of loefcl ¿ovemfljent should be maintained at present levels. Indeed* iw was esphatlc in ur *in ; expendi ture reductions* Tour letter seems to treat state and local toea as synonymous with state and local expenditures» Use whole point of Mr* Ecoles * reraarfca, as I read tbs record* was that state end local ¿overraaents should, as an anti-infl&ilonsry nssours* increase the a&rgln between revenues «fid expenditures by reducing expenditures and taaintaining tax rates* thus aecuisulating cash, or credit to offset grow ing inflationary pressure now m d to counter a possible postwar de pression* ince newspaper reports may have conibeed the point* I enclose a cuotation of the pertin^nt paragraphs fro*» the speech* (Enclosure No* 1*) without detracting in any way fresi the appreciation due Mr* Eccita* I think 1 may point out that that# suggestions for state and local lis cui policy are try no m a m his exclusive contribution* a matter of fact, several Is^din^ state and local officials have expounded the saiae ideas ever m axtenaed period* the uj&rd of manager$ of the ouncil of State Goremnents end the executive ioamittee of the governors* Conference on Dtea&er 13 adopted a state ment reoo«ttendinv to all state end local governments the identical policies suggested to the ’»syors a month later by Hr* Moles« The governors* memorandum was published in full in l&aialpal Finance New,*? (Municipal finance Officer*1 Association, Chiesago)* Issue of January 1* 1942* but it ^ay not be readily available to you* There fore 1 quote from it on an enclosure soma text paragraphs and its six specific neooaraendalions (enclosure $c* 2)* Governor Swassen of Minnesota is chairman of the Governors * conference executive committee* Us announced recently that his state* ooafor ir^ to the coimi&»ee recm andation* hi*» set aside >4 million in s ftrvd for postwar public works snd expects to raise the total to at least 15 million by June 30, 1943. Ilia states of California and Virginia arc mttmg others accunulating reserve* sr aeoelerttir,; debt reps-¿wen* so its to counter inflationary pressure now and deflationary pressure later* oettered cities are doing the sam ting* California* ashington* Oregon* and Hoe Sork have ¿state law» permitting cities to aecrusmlate reserves for future capital improvements* ioMr states s psrently do not need statu* tory prevision* depending, onl^ on local action* 1 ti'ink the suggestions in Use covernors* 'onference corsssittee ’ .ae&praa&m anti in Mr* H-eelas* speech ore souni* It is precisely oeoeuse we isast direct every resource to the winning of the *ar that f.e sroot avoid s discrganiaing snd possibly disastrous rise of prices* Rising prices seon increased expenditures, not only for personal necessities, but also ior the tanks* the ;lanes, the S«ns* the ships that are essential ior victory* Th^t is ishy I, &s arector of the -utjei* feel iicpello to ur^e the5, every available counter-inflt tionary measure shall be employed by all types of ¿overnsscnt, by private enterprise* and by individuals* Sales of defense bones, formal price control, rstioni*£ ar.-4 related Erasures will net su ifice to control prices* They ^ust be reenforced, and the state and local govemasnts* au a very substantial segsent of c ur economy* can play a v ita l part* Action along the foregoing lines will help greatly in winnie^ this war* Therefore I hope that your or can!action will lend its influence and support to the adoption of these forward-looking, poli cies by all state and local gcnr«mr>en ts* On the financial front, as or the production end military fronts, victory require* a easplete and united effort. Very tr^ly yours, (Signed) HAROLD D. SMITH Director* fncloeures*
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