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Hay 15 9 1936*

From: Mr* TJpham

Mr* Socles

I an attaching a memorandum which I gave to the Secretary
Wednesday, May 13th*
Yesterday I gave copies of your memoranda on the tax bill
to the Legislative Counsel of the House and to L*H* Parker*
Chief of Staff of the Joint Committee on Internal Revenue Taxation*
I told them that in my opinion your memoranda contained
a great deal of sound sense and that I was very decidedly of the
opinion that they would find it of value and merit and would C O S H
elude that it was worthy of serious thought and consideration*
I suggested to Mr* Parker that he pass a copy along to the Chair*m m of the Committee, Senator Harrison* I now learn that he did
this9 and the memoranda were read to the Senate Finance Committee
in Xxecutive Session yesterday afternoon* It is possible for
newspaper men waiting in the outer office to hear some things
which transpire in the committee room* Some of them did overhear
enough to know that the memorandum being read had been submitted
by someone at this end of the Avenue*
By inquiring of certain Senators on the committee they
learned that the memorandum came from you* Senator Harrison
denied that you had sent him any memorandum, and when confronted
with the statement that other Senators had revealed the existence
of a memorandum prepared by you, he stated that he requested your
views* He has skated positively to them that you are not inter*
fering with the tax bill or volunteering your 'dews on it*
I am prepared to accept full responsibility for bringing
your memoranda to the attention of the committee and the experts*
I think it would have been unfortunate had consideration of the
tax proposals gone further without them having had the benefit
of your views* and I believe that the presentation of your views
has been of some benefit*

Mr* Parker tells me that he is convinced that there is such
merit in your proposal to grant a $15f000 exemption to small
corporations. He told me that he was sure if you could sit down
with him and the other experts on the Hill an interchange of views
would be helpful and clarifying* It is felt that your proposed
amendments would remove some of the complexities of the present
bill, but that it would retain others and add some new ones*
There is very little sympathy among the members of the
Senate Finance Committee for economic theory of forced distribution
of earnings* Indeed there is very strong opposition to any tax
on undistributed earnings at all*
I am sorry that your name got into the papers this morning*
I appreciate your attitude about not wanting to seem to be
injecting yourself into the tax, situation* It seems that nothing
can happen in an Executive Session of a Congressional Committee
that (toes not get into the papers

May 15, 1936.

For the Secretary:

I give you herewith an extremely brief digest of the
Eccles memorandum on the tax bill, without the supporting arguments.

I can easily elaborate it, if you wish. There are some

questions which can be raised about his proposals, but they are
highly worthy of serious study.

It is a well-reasoned document.

I should like to see revenue estimates based on it.
One conclusion I greatly doubt

that the Eccles

amendments will reduce the complexities. They may increase them.
Relief provisions and cushions are what cause complexity. The
only way to eliminate complexity is to be hard boiled, impose a
tax, and then let it do what it may to the taxpayers.

Wy experts are helping me to study the proposals.

Eccles on the tax bill.

Taxation of undistributed earnings of large corporations is desirable.
Forcing distribution of such earnings will aid recovery.

The House bill does not achieve "equality of tax burdenj
ly complexj

the public will not understand itj

it is excessive-

and revenue yield under

it is questionable.

Certain changes should be made, the most important of which are:
1. The present corporate income tax should be retained, thus assuring
the continuance of revenue of over a billion dollars a year,
2. The superimposed tax on undistributed earnizjgs should be applied to
the small group of large corporations which make a practice of ploughing back earnings. To accomplish this, the first |15,000 of corporation
income should be exempted from the super-tax. Over 90 per cent of all
net income is earned by less than 10 per cent of the corporations. The
super-tax should be concentrated on them.

If they retain less than 50

per cent of their earnings, tax the retained portion at 40 per cent. If
they retain more than 50 per cent of their earnings, tax the retained
portion at 60 per cent.
3. The tax on undistributed earnings should be high (see rates of 40 and
60 per cent above), to force distribution. Big corporations can distribute, because they have access to the capital market, for new capital;
small corporations do not have that access, and should be favored by
substantial exemptions•