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L IB R A R Y
ROOM 5030
JUN 141972
TREASURY DEPARTMENT
In his interview, published in'the Saturday Evening Post
January 5, 1924, Mr. Mellon said:
i
0
f,ïïe have had many interesting discussions in the Treasury
regarding the surtaxes as to where thé point of maximum return
would be - that is, how low could we make the surtax and yet
get the maximum amount of revenue# Some of our statisticians
place the maximum as low as 15 per cent, none of them puts it
as high as 25 per cent. The present maximum surtax rate is 50
per cent. I recommended 25 per cent because I did not feel
warranted in going to an extreme.
I félt it. was clear beyond
discussion that it would prove wise to reduce the maximum sur
tax to 25 per cent, making with the normal tax a total of 31
per cent*“
The question, of course, is one which is presented to every
business man when he is called upon to make an investment.
Be considers,
first, what the net return of the investment should be before income
taxes.
He then deducts from this investment return his income tax and
determines how much he would actually get net to him.
If this last
return is too small as compared with the risks of the investment , he puts
no money in the proposition.
As an example, a man with $200,000 income
would only have 5 per cent net to him out of an investment which would
return about 12 per cent, and only 6 pef cent net to him out of an
investment which would return 14J per cent.
H ot/, investments with these
high returns are ordinarily speculative, and a prudent man will hot go
into a speculative investment which returns him only 5 or 6 per cent.
On the other hand, with a 31 per cent peak of ’taxation- - being 6
per cent normal tax and 25 per cent surtax - one can get a 6 per cent net
to the taxpayer on an 8 2/3 per cent return and a 5 per .Cent net to the
taxpayer on a 7J per cent return.
If you have a total tax of only 20 per
cent, the taxpayer can get 6 por cent net to him out of a
per cent
investment and 5 per Cent net to him out of a 6-J per cent investment.
- 2
There can he no definite line drawn between a tax which will
permit an investment and a tax which will deter an investment, because
in each case the investor determines for himself whether the risk in
the investment is greater than justified by the return which the investor
will receive after his taxes.
would consider an
to a
4§
11
It is 'perfectly clear that no prudent man
per cent return before taxes as the equal in safety
per cent municipal bond, and yet, if his income is large, tinder
present rates he would have for his own use the same money from each,
Tihen this country really gets bach to a peace-time basis of tajta**
tion’it is probable that, including normal and surtax, a total tax of
10 per cent will yield to the Government the most revenue with the
least disturbance to business#
This is the Tithe of the ancient Hebrew
scripture which has always been considered a fairly heavy tax.
January 3, 1924,
BEmmeW.
FOE r.EKEASE, for publication,
Thursday afternoon, January 17, 1924,
in newspaper editions appearing
after 3:00 p, m.
SPEECH OF
HON*
GWMMD
33. WINSTON
WNEER SECRETARY OF THE TFJJASUT.Y
before
CHANBEA OF CQl&ffi&CE OF the
united states, eastern division,
at Philadelphia,
January 17, 1924,
Eiere is no reason why the subject of taxation cannot be approached
from a purely non-partisan viewpoint.
The outstanding features. of the
Mellon plan is the Secretary*s recommendation for a reduction of the high
surtaxes.
Similar recommendations have been made by the last two
preceding Secretaries of the Treasury, both of whom held their offices
under a Democratic President.
a sound basis of taxation.
There is nothing political in recommending
It is simply common sense*
Let us, then, look at this subject as each one of you would soberly
consider it, without the play of crowd psychology, which is the political
method of approaching a subject.
a war it needs much money *
The Government is the people.
To fight
To conduct its manifold activities in time of
peace, it still needs money, but in lesser amount.
it must take from the people.
Whatever it does need,
There is no other source of income and no
other means of taking except taxes*
How, taxes have a history of
ultimately finding their way down to the consumer.
True,', in the earlier
years of the imposition of a new tax' the person upon 'whom the burden directly
falls pays the tax, but he immediately casts around for means to shift this
burden from his shoulders to another*s, and with this shift is almost
invariably added something of additional profit.;
I have never understood,
for instance, that an excessiprofits. tax upon a corporation influenced it
to decrease its. profit and thus its tax.
On the contrary, it either quit
business because unprofitable when compared with the risk, or it sought.an
undue profit so as to have more left when the tax collector was through.
taxes have always meant a high price level, and the tax is really /'
paid by every nan, mama.- and child in the country, and not alone by the
persons actually giving their checks to the Govemaent.
It is for this oasic reason that the present question of tax reform
is not how'much each individual taxpayer reduces his direct contribution,
although this, of course, os a powerful influence upon the individual
affected, the rear problem to determine is chat plan results in the least
burden to the people and the most revenue to the Government.,
As a preliminary to any tax reduction the needs and commitments of
the Government must be assured,
annot extend.
a e s e fix the minimum below which relief
in the last few years.the Government has so cut down its
expenses by strict economy through an intelligent budget system, and
increased its revenues by the restoration generally of a more prbsperous
condition in the country, that for the past two years it has shown a surplus
of about $310,000,000 a year, and the estimated surplus for the fiscal year
1934 is $329,000,000.
This is the margin available.
1 wish to say just a word about Government surplus, for many seem to
look upon it as a deposit of cash in bank which would be available for
expenditure to-day.
Such is not the case.
At the peak of the public debt
ue owed about twenty-six and one-half billion dollars, and we now owe just
less than twenty»two
dollars*
of this public debt* about one
billion dollars is in short-tine certificates, having a maturity of less
y ar, and four billion dollars in notes maturing during the next four
y ars.
on each of the four quarterly tax-payment dates the Government issues
its Treasury certificates to keep stable the money market during tax payments
and to give the Government funds' with which to operate until the nextpayment.
In other wora,s, at least four times a year the Government is borrowing money.
So an excess of receipts over expenditures for any 3-*mon.ths period
simply results in smaller ’borrowing for the next period* And not at all
in an accumulation of cash.
It is. an automatic reduction of debt*
Just
as in your business, if you were heavily in debt to the banks* you would
renew your paper for lesser amount each ninety days els you accumulated
funds*
\
It is true, therefore, that every new expenditure must be paid
out of new borrowings*
The sinking fund, Thick. is part of the Budget
v
of rec^ular Governmental expenditures, now takes .care of about $300,000,000
a year* and the British repayments and other less important items bring :*•;
the amount of debt reduction, annually to about half a billion dollars per
year*.
It is felt that the desirability of further debt reduction out of
surplus receipts is not so great as the right of the people to share in
the greater prosperity of the Governement by a lessening of their tax
burden*
Based upon these premises, the Mellon plan of comprehensive tax
reduction was worked out*
I
of you*
need not go into the details, which must by now be known to all
Mr* Mellon.first stated his recommendations generally in his
letter of November 10th to Mr, Green.
He supplemented this in his letter
of December 17th, transmitting the draft of the Treasury bill embodying
these recommendations and giving a statement of the substantial changes
made.
Since then, the bill itself and a detailed explanation of the
reason and effect of all the changes have been printed in the newspapers,
I believe that on no previous occasion have recommendations for new
legislation been given such complete publicity while the draft of the bill
was still pending in Committee and not yet introduced in the Congress*
The Treasury stands in the open and submits its case in every particular
to the public.
Briefly, the bill gives a credit of 35 per cent for earned income,
reduces the normal and surtax rates, rakes changes in the interest of
simplicity and clarity, eliminates methods of tax avoidance, and provides
a more satisfactory method of determine tax liability,
In addition,
M r * Hellon c o m m e n d e d the repeal of the telegraph and admission taxes.
These recommendations were notdr&tm with the idea of favoring one
class over another, but every payor of a personal income tax is benefited.
About 70 per cent of the loss of revenue to the Government from the
recommendations comes in the brackets of income under $10,000 a year,
and only
per cent of ¿he I 033 of revenue from income in excess of
$100,000 a year, and it is estimated that even this 3| per cent will be
more than made up in the second year of the operation of the law.
It is
not a rich man*s bill; it is not a poor manfs bill; it is fair to all.
The reception of ilr. Mellon*s recommendations is worthy of the
courage and statesmanship of their author.
have been favorable.
Both the press and the public
it is true, of course, that attacks have been made
on the bill for purely political purposes,
Senator Johnson charges
the Administration with overtaxing the people, apparently because receipts
under the law now sought to be amended exceed present expenditures, which.
have been reduced by the strictest governmental economy, and he proposes
as a remedy the reduction only of the tax paid directly by the smaller
taxpayer.
Bhis ignores completely the higher taxes paid indirectly by
those seme persons through the economically unsound basis of taxation
which Mr* Mellon now seeks to correct.
Mr* Garner, the minority
representative upon the Ways and Means Comitte, presents a plan, the
m 5 «•
S^d^dng principle oi which is tno complete exemption of the largest
number of taxpayers from any tax at all* and again ignores utterly the
economic feature of taxation*
Mr* Freer* of T/isconsin* proposes to
restore all high war taxation and to put on the books taxes ineffective
to produce revenue*
I shall not discuss che details of these plans*.
two distinct lines of political opposition»
There are* however,
These are represented by
those in favor of the bonus, who seek to ride two horses,and those who
feel that because a nan of large income also receives the benefit, on
that ground alofis#the plan must be wrong, irrespective of its benefit
to the country as a whole.
The popular demand for tax reduction has become so insistent that
even the bonus advocates cannot ignore it.
Effort has, therefore, been
made to show that we can have both bonus and tax reduction* eat your cake
and have it.
The Treasury is concerned solely with the fiscal effects
of a bonus commitment, and it is from this viewpoint alone that I shall
approach the subject,
The bonus bill, in the form that it was vetoed
by President Harding, has been reintroduced in the present Congress, and
X understand is the one which the .American Legion expects Will be passed*
This bill has three options: vocational training, farm and home aid, and
the certificate plan.
Since it is now five years after the war has closed
and the men have gone into civilian employment, it is not expected that many
will take vocational training, nor is it likely that a large number will
desire the farm and home aid.
option*
The certificate plan will be the popular
Accordingly, it was assumed, in the preparation of the Treasury^
figures, that 1 per cent would take vocational training, 9 per cent farm
home aid, and 90 per cent the certificates, it is this certificate plan
therefore, which is the most important,
wfeose
if we eliminate the 400.000 men
bonus parent would be less than $50 and who would receive their
..
paymentin cash, there are something over four million men entitled to cer
tificates,
The certificate base is the number of days in service at $1 a
day in this country, and $1.25 a day abroad or afloat, less thé $60 bonus
the men were discharged,
P
"
*aSe iS thSn Sdded 25
She average base is $408 per man,'
So
th,. whole is compounded at 4* per
cent per annum for twenty years. The figure thus obtained is the amount
"hich each man will receive at the expiration of twenty years or his heirs
'»ill receive upon his earlier death,
she average maturity value' is
$1,230 per man, or a total of about $4,500,000,000. So ouch for the certificates themselves* Thi<?
fius is twenty-year endowment insurance. 17e come'
now to the cash feature.
She holder of a certificate may borrow on it for the first three years
anhs,
-At the end of three years the Government must take these
loans up from the banks and thereafter the Government uniat make the Joans..
^ is this three-year shifting of the governmental burden to the banks which
6i7eS thS l°W aPpearance of
*« toe Government in the first three years.
If you will notice, in the bonus arguments the average cost is taken for
the first three years and not for the first four years, and in no such
figures has any amount been set aside annually for the payment of more than
$3,000,000,000 on maturity in twenty years.
Looking at the problem on the expected percentage of .'selection between
e various options and a reasonable assumption that c e r t a i n certificate
holders wiW
borrow so as to realise cash in t h e ^ r e s « ^ it is L u r e d by
•
that the total cost to the Government will he over
^000,000,000,
Of ^ i c h a billion dollars comes in the first four years,
d take ah average of $311,000,000 a year to meet payments and sinking
the first twenty years, leaving something over $600,000,000 payment
for which would drag along in the succeeding years and which could he taken
of by new legislation. How* it must he obvious to you all that a comitment involving a direct cost, to the Government in the next fo?tr years of
$ 1,000,000,000 is inconsistent with any comprehensive plan of tax reduction.
y . *s with the greater reason because I have mentioned only the
direct cost, the indirect cost cannot he definitely calculated. I might
indicate, however, two of the most conspicuous elements which would have
their effect, During the next five years the Government has maturing over
$8,000,000,000 of its securities. At least $6,000,000,000 of these will have
to be. refunded.
The borrowing on the bonus certificates is likely to raise
the general, interest rate which the Government as well as,.the public.will
psy*
The mere passage of the act will depress Government securities
and raise the rate of return on them which the Goiefnment must meet when it
gx
into the market with new Iponds*
/
It has been the experience in those
Spates where a bonus was paid that the majority of the recipients spent it:
\, ^
^ was my own-observation when, the $60 bonus was paid on mustering
o'ut. of^.the Array that the men did not go to work until the money was spent.
We.
ve these two conditions then, of increased demand and,decreased production; the.effect on the general price level is inevitable.
And again, the Govern
ment as well as all of the people would be required to meet this'level,
I
think you.will agree that under these circumstances, if such a bill becomes
a law, Mr. Mellon»s statement that we will not see a comprehensive plan of
reduction in this generation is a sound prediction*
I
come now to surtaxes.
It ia the aim of a sound scheme of taxation
to bring money into the Government with the least disturbance to the
people, and not to dry up the sources from which this revenue flows.
During
the war the Government imposed taxation at rates so high that except for
the patriotic willingness of all the people to share in the burden, the
rates would have become completely ineffectual* Since the close of the War
nd the restoration of p e a c e t i m e conditions of business and thought, this
motive has ceased to be material and all people have pome to look on taxes
not as a patriotic duty, but as a business expense,- which they treat in a
business way and avoid as much of this expense as is possible. It has always
the teaching of history that taxes inherently excessive are not paid,1
We have no reason to.-expect different results here in .America.
"'- We now have on our statute books an income tax, normal and surtax, .
aggregating 56 per cent on incomes over $100,000, and 58 per cent for in
comes over $200,000. Shis is; a remnant o f w a r time taxation, and is
upon the theory that it is the best way to get revenue consistent with the'
ability of the citisen to pay.
let us consider how this theory works out in
practice, tte last figures available in statistical form are those for the
taxable year 1931 returned in 1922.
$300,000 and over and the
if .we take as a class incomes of*' ■.
six-year period during which income -taxes have
been really material, we can learn whether the tax will continue to be a
revenue producer to the Government, or whether it is drying up the very
source from which the Government derives its revenue.; In 1916 there were.about
0 men in this class. B y 1921 that number had dropped to less than 250.
1916 the total income of this Class was nearly
last of the. six-year period it was $150,000,000.
$1,000,000,'000. in the
This, of course, doe's not
in
4
•* 9
m
mean that the country had less incone in the later year than in the
earlier year.
As a natter of fact, #he income reported in the first
year by all classes was some $6,000,000,000, and in the last year sone
$19,000,OCX),000*
If now we take the total surtax collected from all
classes, we find that in 1916 the $300,000 class paid 66 per cent of the
total surtaxes, whereas in 1921 it paid only 20 per cent*
There nay he
slight variation^ in the figures, depending upon years of unusual prosperity
or the reverse* hut the trend is continuous and all one way* ‘If any
statistical curve of diminishing return can he computed which gives us an
insight into prohahle ultimate results, I think the figures on high surtaxes
give this curve for the Government*s revenues*
It is tine we got hack to
peace-time taxation*
Mr* Mellon proposes a 25 per cent surtax and 6 per cent normal tax,
a total of 31 per cent*
determined*
The Treasury has heen asked how this figure was
The situation again is one in which ordinary business experience
must give the answer*
If you are manufacturing a motor-car or a hairpin,
you will endeavor to fix a price for your articls at a point which will yield
you a profit and at the same time stimulate demand for your product*
If you
put your price too low, your sales are large hut your profits small; if yot*
put your price too high, your profit for each article is high hut your
sales so fall off thah your total profit again is low#
Somewhere between
these extremes is the price at which you will make the most money*
How, an
income tax is no more than the price which the Government charges for the
privilege of having taxable income.
If the price is too low, the Governments
revenue is not. large enough; if the price is too high, the taxpayer , through
the many means ..readily to hand, avoids a taxable income , and the Government
—*
J-
10
-
..
gets less out of a hi^i tax than it would;- out of a lower tax.
what is, the. proper figure between these extremes is one not
with absolute accuracy,
determinable
It is the opinio* o.f some authorities on taxation
that this figure is.below 15 per cent.
per cent.
Again, -
Hone of them goes as high as. 25
Clearly, 58 per cent is excessive.
For example, an investor
is offered a prospect of going into a business returning, before
11 per cent.
taxes;,
He can buy a municipal bond paying 4§ per cent, and if his
income is large he gets the same return from the bond as from his business.
Now, no business returning
bond.
11
per cent net is as sound as a municipal
As a consequence, the investor puts his money into tax-exempts,"
the Government gets no tax at all,' and productive business is starved.
Each of you must have known of at least one new project which was never
consummated for no other reason than high surtaxes.
With the Mellon
rate of 31 per cent, being 6 per cent normal and 25 per cent surtax, an
investment yielding 6^ per cent would be the equivalent of the 4| per
cent tax-exempt *
with reasonable assurance of such a return
can be. found, tdth the speculative probability of greater return.
The
investor, with the chance of making more, will accept the business and
reject the tax-exempt.
As a consequence., he has a taxable income in
ifthich the Government shares, instead of an income giving no revenue
lihatsoever to the Government.
An interesting illustration of this
Situation is that in.:1916, with surtax rates running up to 10 per cent as
a maximum, the Government collected from the $300,000 class $81^000,000
in-surtaxes.
In 1921, with the surtax reaching 65 per cent, the Government
collected from the same class of taxpayers $84,000,000.
In other words, the
Government got substantially the same from high, incomes on a 10 per cent
surtax as it got on a 65 per cent surtax.
When there is peace in taxation
- l i
as well as internationally, it is probable that ten per cent, the old
Hebrew tithe, which, was always considered a heavy tax, will yield the
most revenue with the least drying up of the source.
If high surtaxes were simply becoming ineffective, we might let
the system stand until the Government should be obliged to seek other
sources of revenue, but there is a much more serious harm involved.
Initiative has always been the most valuable .American characteristic.
It was this spirit in our ancestors which brought them to this country.
It was this spirit which peopled and developed the West,
It is this
spirit extended into business which has made America the prosperous
nation that it is,
our future,
To kill or to throttle this spirit is to destroy
A man who has acquired wealth and now possesses it, need
not and does not worry about high surtaxes*
There are $12,000,000,000
'
of fully tax-exempt securities available to the public to which present
wealth can be diverted.
income,
There are other ways of avoiding a taxable
But it is the man who is making wealth upon whom the full
burden of the tax rests and who is without opportunity of avoiding any
share of its weight.
Under the present law, at $50,000 a man pays 31
per cent, at $75,000 43 per cent, at $100,000 56 per cent,
The high
surtaxes, therefore, are borne not only/fhe extreme incomes, but by the
middle incomes.
To share not at all in a man*s losses and to take one-
half of his gains, making him work three days out of six for the Govern
ment, is to impose odds too heavy to be borne,
More and more the business
adventure becomes too hazardous and the high spirit of initiative
disappears in discouragement.
An economic system which permits wealth
in existence to escape its share in the expense of the Government and
wealth in creation to be penalized until the creative spirit is destroyed,
12 «
cannot be the right system for imerica.
Ho idea has evef been piei3ehte<i withoiit its be&tig sUbjefct to
attack in its details,
fe all knot? how easy it is from one motive or
another to complain that one feature of a plan should be this instead
of that, and how difficult it is to establish a plan as a whole.
the difference between a constructive and a destructive mind.
It is
There are
details in the plan which I might wish to change; there are some which
you may wish to have different; but I can say to you frankly that the
Treasury bill has been prepared without favor and without prejudice.
represents the experience of the United States Treasury.
partisanship in its make-up.
It
There is no
You cannot succeed with a multiplicity
of conflicting remedies for an intricate situation.
If you believe the
bill is fair and on a sound basis, it should have your unqualified backing.
SOUSES, AIDS, BENEFITS* AND EXEMPTIONS GRAFTED
SY THE UNITED STATES GOVERNMENT* THE VARIOUS STATES*
AND CERTAIN FOREIGN COUNTRIES TO THEIR EX-SERVICE MEN
Only the bonuses, aids*, benefits and exemptions granted
to able-bodied veterans by the various countries are
summarized in this manuscript* No attempt is made to
show the nature or extent of the aid given to tho dis
abled veterans or to the dependent relatives of the men
in service.
Prepared by
SECTION ON STATISTICS,
TREASURY DEPARTMENT,
January 17, 1934*
1
OUI'LIITE
Summary for c o l t r i es ....................................
2
United States
federal Government
Cash payment . ........ ................... .
Civil Service preference ........
Clothing ......................................
Insurance *...................................
3
3
4
4
State Governments
Cash p a y m e n t s .......
5«6
Bonus legislation pending ...................
7
Bonus referenda pending ..................
7
Summary of cost to States ..... ..............
8
Bonus legislation declared unconstitutional ..
8
States which have not adopted cash "bonus measures
9
Aids, "benefits, privileges, and exemptions ...
10-13
-
Great Britain
Gratuity ....
13
Burlough and clothes ..........................
Out of work donation policy .............
Repatriation ..........
13-14
14
G r a t u i t y ....................................
Expense money .................................
Clothes .......
Land settlement ................................
Insurance .......
Civil Service preference ...............
Repa.triati on .................
15
16
16
17-18
18
Gratui ty .....................
Land settlement .............
19-20
14
Canada
16-17
17
Australia
19
ITew Zealand
G r a t u i t y .......
Land settlement ...............
Assistance in "business ......
20-21
21-22
22
I?ran ce
G r a t u i t y ...................................
23
■
S I M A R Y OP 3SE AMOUNT 0? CASH BONUSES OR ADJUSTED COMPENSATION
PAID BY THE VARIOUS C Q O i m T r a . ~
Country
Total ost i m t o d
cost (1)
United States
Pcderal Government ...... ..»..$248,333,400
Various State Governments
358,045*402(2)
Total for United States ........ ........ .
Australia
Canada ................ .
Prance ..............
Groat Britain (includes furlough)
How Z e a l a n d .... ....... ..........
$606,378,802
105,000,000
147,600,000
372.371.150
417.753.151
18,290,650
(1) At the tine the major part of the above payments
wore made the rate of exchange on Great Britain
was $3«50, Canada $.90, Australia $3,50, 3fpw
Zealand $3,50, and Prance ,075.
These rites
were used for purposes of conversion into dollars.
(2) Includes a $45,000,000 bond issue authorised by ITew
York State on November 6, 1923,
It is not possible to show in summary form comparable
cash estimates for other aids, benefits, and exemptions
granted by the various countries, the details of which are
given in the following pages.
3
UNITED STATES
Cash bonus or adjusted compensation -paid by the
F ederal Government to veterans of the W o r ï d W â x :
. ,
Act of
a cash
listed
nr.?« accordance with section 1406 of the Revenue
1918, approved February 24, 1919, (40 Stat, 1151)
payment of $60 was made to each officer and en>*
man upon discharge*
Payments on this account have been as follows:
■Army to May 10, 1923 (1)
Navy up to date (2)
Marine Corps to Doc. 31,1923(3)
Coast Guard to Dec. 31,1923 (4)
T o t a l .............,
(1)
(2;
.
(3)
(4;
$215,294,940
28,876,200
3,808,200
354*060
$248,333,400
Memorandum for the Adjutant General of the Army, May 10, 1923.
Memorandum from the Navy Department, Bureau of Supplies
and Accounts, January 4, 1924,
Memorandum from Paymaster o f ‘the Marine Corps, January 5, 1924.
Memorandum from Headquarters United States Coast Guard,
January 3, 1924,
Civil Service Preference:
Under the Deficiency Appropriation Act of 1919, approved
February 25, 1919, (40 Stat. 1164) it was provided that all former
government employees who had boon drafted or who had
edlisted in
the military service of the United States in the War with Germany
should, on application, be reinstated to their former positions,
provided they had received honorable discharge and were properly
qualified for the positions.
On March 3, 1923, the President issued an order amending
the rules governing preference in appointments to the classified
mmmmsm
- 4 -
service allowod to veterans under existing laws.
The nature of the
preference relates mainly to the appointment to and the dismissal
from the service, reduction in grade or salary, and the examination
grade necessary for eligibility*
Tip to Juno 30, 1923, 250,000 claims
for preference in appointment to classified positions were allowed.
Of those 165,000 became eligible and over 63,000 have actually been
appointed*
(.Annual Report of tho Civil Service Commission, 1923,
p* XL 11 and XIV,)
_
Clothing!
Each enlistod man in the Army, Navy, and Marino Corps, upon
honorable discharge, was allowed to retain one complete suit of outer
uniform, including an overcoat, (40 Stat, 1202.)
Insurance:
In October, 1917, term insurance convertible into Government
level premium insurance was made available to each soldier upon applica
tion,
Of the 4,600,000 policies issued there are now in force 554,904,
ncluding both War Risk torm and United States Government life (converted),
representing $2,830,026,673 of insurance.
There is no level premium participating, insurance, providing
equal benefits with an equal guarantee of safety, offered at a premium
rate as low as the Government rate*
Soldiers who have allowed their policies to lapse may reinstate
thoir insurance, upon proper evidence of insurability and upon payment of
two monthly premiums.
It is estimated that the majority of those who
are now carrying policies sufferod no physical disability as a result of
service.
-5Cctsh i>pnus or Adjusted Condensation raid
by_.State Gove rimonta to their Veterans of
the World War* (X)
~ ~ ~
A brief statement of the terns, amounts paid or being paid each
veteran in U* S. service during the war and the total estimated cost
to the State.
State
Brief Statement of Provisions
Illinois
50 cents per day of service, in
case of service in excess of 2
months. Maximum amount $300
Iowa
50 conte per day.
$350.
Kansas
Paid $10 per month to all below the
commissioned grades for service bo—
tween February 3, 1917, and January
*5, 1918
A bonus of $100 flat.
Maine
Awarded a flat bonus of $100
Michigan
$55,000,000
Maxirran amount
$1 p e r day for all in United State 3
service.
Massachusetts
Total cost
estimated
Paid $15 per month of service up to
August 1, 1919
22,000,000
25,000,000
22,275,000
3,211,397
30,657,576
Minnesota
Paid $15 por month of service and frac
tion therof. Minimum amount $50.
23,500,000
Missouri
Paid $10 for each month of service.
Maximum amount $250.
Hew Homo s h i m
(2)
Paid a flat bonus of $100
— w Jorscff
gortfa Pafrota
15,000,000
1,961,423
P&i& $10 per month of service. Maximum
amount $100
11,250,000
'
Pald $25 per month of service. Tho nor.oy
received VTOrS to be used within the
Stato
(2 )
11,000,000
subject have been obtained from letters roccivod
^.officials, digests of Stato laws, and official memoranda.
,*A~? onus is also paid to resident citizens T/ho served in the allie
forces during the period the United States was at war.
*Fh
v
State
Brief statement of provisions
Ohio (1)
Paid $10 for each month of sorvico.
Maximum amount $250#
Oregon
Total estimated
cost
$32,500*000
Paid $15 a month for oach month of
service to those who served longer,
than 60 days or in lieu of which
any veteran could accept a loan upôn
real estate of not loss than $500
nor exceeding $3,000 in the aggregate*
Bhodo Island
U)
South Dakota
Vermont
20,000,000
Granted a flat bonus of $100
2,588,000
Paid $15 for each full month and 50
cents for oach additional day to all
in XS%S* services vho served for at least
60 days » Maximum amount $400.
6,000,000
Paid $.10 a month for oach month of sorv*
ice to all below the commissioned grades *
Maximum amount $120*
1,500,000
(i)
Washington
Wisconsin
Paid $15 per month for each month of
service.
13,500,000
Paid $10 por m«nth for each month*s service* Minimum amount $50*
16,102,006.
Total estimated cost to the States which,
have paid and arc paying cash bonuses or
adjusted compensation*
o r
See note 2 at bottom of page 5
$313,045,402
Bonus Legislation Pending:
In a referendum held November 6, 1923, New York
ratified an amendment to the Constitution authorizing
a bonded indebtedness to be incurred for the payment
of the veterans*
The measure has not yet been enacted.
The total estimated cost is $45,000,000.
Bonus Referenda Pending;:
In the following States bonus bills have been
passed by the legislature.
These measures will be
submitted to referendum at the next general election
in 1924:
Colorado
Montana
Proposed to pay $15 per
month for each month of
service*.
Proposed to pay $10 per
month for all in service
between April 6, 1917, and
November li, 1918. Maximum
amount $200.
Estimated
cost
$ 8 ,000,000
4,500,000
Pennsylvania Proposed to pay $10 for each
month of service of the grade
of captain and below who served
at least 60 days. Maximum amount
$200.
Total estimated cost
35.000,000
47,500,000
s
Summary of the Estimated Cost of Bonus or
Adjusted Compensation Legislation?
Estimated
cost
1*
2*
States which have paid or are in
the process of paying bonus.
States in which bonus legislation
is pending.
Total
3*
$313,045,402
45,000,000
'$358,045,402
States in which, bonus m e a s u r e d will
be submitted to referendum.
Total estimated cost of all
bonus legislation to date
47,500.000
$405,545,402
Bonus Measures Declared Unconstitutional:
In Montana, New York, and Maryland thâ Supreme Courts have
declared bonus legislation as enacted, unconstitutional.
In New York a constitutional amendment authorizing a bonus
has been ratified by referendum*
In Montana a new bill will be submitted to the voters at the
next general election.
In Maryland no further action has been taken,
States which have not adopted cash bonus measures»
In the following States the cash bonus or adjusted compen
sation has not been adopted and no referendum is pending;
Alabama» Arizona, Arkansas, California,
Connecticut, Delaware, Florida, Georgia,
Idaho, Indiana, Kentucky, Louisiana,
Maryland, Mississippi, Nevada, Nebraska,
New Mexico, North Carolina, Oklahoma,
South Carolina, Tennessee, Texas, Utah,
Virginia, West Virginia, .and Wyoming*
In the following States bonus or adjusted compensation
legislation was proposed but failed to become law;
... .
Arizona
iM
v V
\ .
The Senate failed to pass the bill
... which the lower House enacted*
Delaware
« *11 ■ ■■ .
The measure was defeated.
Indiana
The State legislature in January, 1923,
passed a bonus act, which the Governor
vetoed in March*
Kentucky
Bonus bill was discussed in the 1922
legislature.
It failed to pass*
Nebraska
A bill authorizing a bond issue of
$5,000,000 was proposed, but was de
feated by the Senate in 1922.
Oklahoma
The bonus measure approved by the legis
lature failed to receive the required number
of votes when submitted to referendum at a
special election held October 2, 1922*
-
10-
Aidst benefits, Privileges and Exemptions:
Preference in Civil- Service appointments for
veterans has “been granted in the following
States:
California, Connecticut, Illinois,
Indiana, Iowa, Kansas, Massachusetts,
Michigan, Minnesota, Nevada, Hew Jersey,
South Dakota, Washington, and Wisconsin.
Partial exemption from taxation has been granted
hy the legislature in the following states:
California, Connecticut, Georgia,
Indiana, Iowa, Maine, Massachusetts,
Mi chi gan, ITevada, Hew Haepshi re, Hew
Jersey, How Mexico, north Dekota,
Oklahoma, Ehode Island, South Dakota,
South Carolina, Tennessee, Texas, and
Wyoming.
Educational assistance is given to veterans who de
sire to continue their education, in the following
States:
California, Colorado, Illinois, Kentucky,
Minnesota, Ohio, Oregon, South Carolina,
and Wisconsin.
Assistance in buying homes and settling on farm's and
also other land settlement claims have been granted
by the States enumerated:
Arizona, California, Colorado, Idaho,
Indiana, Minnesota, Missouri, Hevada,
How Mexico, Worth Carolina, Oregon,
South Dakota, Tennessee, and Wyoming.
Veterans Welfare Commissions or Boards have Been
instituted in the following States:
Idaho9 Iowa, Minnesota, Montana, Oregon,
Bhode Island, and Washington*
Aid is given to veterans in finding employment in
the following States;
Georgia, Illinois, Indiana, Massachusetts,
Missouri, Montana,' Nevada, New Hampshire,
New Jersey, North Carolina, Oregon, and
Tennessee*
Exemption from the payment of peddlers* and havakers*
licenses is granted to disabled veterans in the fol
lowing States:
California, Georgia, Kansas, Massachusetts,
Minnesota, New Hampshire, New York, Oklahoma,
and Pennsylvania*
Funds have been instituted out of which loans may be
given to veterans in the following States:
Minnesota, Montana, North Carolina, and
South Dakota*
Relief for needy veterans is granted in the followiig
States:
Connecticut, Idaho, Maine, Massachusetts,
Minnesota, Nebraska, New Hampshire,- New
Jersey, New York,. Ohio, Oklahoma, Oregon,
Rhode Island, South Dakota, Washington,
West Virginia, and Wisconsin.
¿¿mission to State hospitals, insane asylums,
soldiers' homes, and hospitals for the tubercular is
generally provided for in all States.
Almost every
State will also pay part or all of the funeral expensos*
Assistance is granted in tho following States to
veterans to prosecute disability claims:
Georgia, Idaho, Kentucky, and Washington*
Ehe legislatures of California and New York have passed
resolutions memorializing the United States Congress to
pass adjusted compensation*
- 13 *
GREAT BRITAIN
Gratuity; ,
Provision for the ex-servioo men of Groat Britain
'as mado by a Boyal Warrant of December 17, 1918, which was
issued as Army Order Ho. 1 7 ,
1919.
This order provided a basic payment
to each onlistcd man
and supplemental payments dependent upon the nature and length of
service*
E
10 basic
p a y m e n t w o r e made to all ealiatedmon who had served
an six months, and to thoso who had sorvod six months or loss
ken a portion of the servico m s overseas.
£5 in the case
These payments ranged
of a private to 1,15 in the case of a warrant
officer,, first class,
They constituted the entire gratuity for the
months Of servico, after the completion of which the supplemental
payments began.
These supplemental payments, which were limited to 48
installments, were paid at the rate of
10
shillings per month for over-
soas service and 5 shillirgs per month for domestic servico.
Officers received from £35 in the case of a Second lieutenant to
£370 in the case of a Lieutenant General.
August 6, 1919, the House of Commons appropriated £585,000 to
£0
issued as grants, varying from £10,000 to £100.000. to military and
naval leaders. (Parliamentary A b a t e s , House of Colons. Vol. 119, Ho. Ill,
P* 207 ff.),
Th0 total gratuity paid according to A r ^ and Havy annual
accounts was £79,358»043.
Furlough and Clothog;
In addition to tho basic gratuity as described above some four
million persons wore granted four weeks' furlough on full pay and
allowance.
The expenditure to the government on this account was
- 14
about £40,000,000,
Plain clothes, or an allowance in lieu
thereof, were given to each man upon discharge*
occasioned an expenditure of about £10,000,000.
This
(Memorandum
from the office of Military Attache, November 5, 1931.)
Out of work donation policy:
To provide against unemployment an insurance policy
known as an »out of work donation policy«- was given each veteran
below commissioned rank, upon discharge*
This policy was valid
for one year and entitled the holder to a donation, in case of
unemployment*
(Ministry of Labour Pamphlet D. 14, October, 1919.)
The cost of donations granted under these policies was, according
to the office of the Military Attache, about £451,000.
Repatriation:
Provision was made also for the repatriation of those
who had come from other countries to serve under the British
colors.
Pree transportation home was given to the men and their
families, and in some cases to the widows and orphans of those who
had been killed*
Over 35,000 persons and the families of those
who were married were repatriated at a cost of about £1,130,000.
Gratuity:
Provision for a gratuity to Canadian soldiers was made
in accordance with Orders in Council December 2l, 1918, February
8, 1919, June 23, 1919, December 1, 1919.
Q?he amount of compensation was calculated in terms of
additional gay and allowances for from 31 to 183 days, varying
according to the length and nature of service, rank, dependents,
etc*
Uo, man entitled to a gratuity received less than $70 and
not less than $100, if with dependents.
Gratuities were paid
as follows:
Additional
me
For '3 years
From 2 to 3
'From 1 to 2
Less than 1
service, any part of which was in the theatre
IS
it It
it
t!
years ,{
»
n
n
it u
II
it
n
years **
It
ti
it
II
u
n
» .... w
year **
it
II
of war
u
it
n
n
u
#
For 3 years Canadian service
it
For 2 years
H
w
For 1 to 2 years**
183
153
122
92
92 days
61 days
31 days
The total cost of tnege gratuities to the Canadian govern
ment was about $164,000,000.
days
days
days
days
(Canadian Tear 3ook, 1920, p. 40)
-
16
Expense Money:
Each Canadian soldier upon departure from France was
given $ 10, ship and train money *1
was $3,879,410*
The amount paid on this account
(Based on figures given in memorandum of Depart
ment of Soldiers» Civil Reestablishment, Ottawa,.October 20, 1923, to
U* S* Veterans Bureau*)
Clothes:
Each enlisted man received a $35 clothes allowance on
retirement from the service.
(Memorandum of Capt* C.!B* Wilson,
U* S* A*, to Col* C* A. Gibson, Acting Chief of Statistical
Branch, October 11, 1919.)
The amount paid on this account was
$18,615,940 (Based on figures given in memorandum mentioned under
expense money above.)
Land Settlement:
In 1917. the. Dominion Government passed a Soldier Settle
ment Act (7-8 Geo. V.' Ch* 21) to assist returned soldiers in
settling on land and to increase agricultural production*
On February 1, 1918, the Board of Commissioners created by this
Act was appointed and placed under the Minister of the Interior*
The main provision of the Act was that it granted to each ex-soldier
160 acres of Dominion Lands on settlement conditions and made it
possible for him to secure as much as $250(X> to .assist him in* opera
ting and stocking his land*
*
• “Xl'*
Ir* 1919 a further Act was passed (9-10 Geol
emended May
11,
7,
Ch. 71)
1920* (10-11 Geo a 7* Ch. 19) changing the con
ditions as to the amount of land vàlidi night be acquired and
the amovL-.it of the loan cccurable thereon#
This Act provided
also for aosiotanco to soldiers who desired to purchase land,
provided they could make a
10 p e r
cent cash payment#
UFp to March 31, 1922, 63,323 applications had been re
ceived and 45,180 had beer, accepted as qualified.
Loans had been granted to 21,394 applicants as follows:
Prince Edward Island
XTova Scotia
Hew Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Total
¿lumber
336
400
568
416
1,628
3,378
5,336
6,260
3,072
21,394
$
Amount
924,438
1,365,569
1,757,388
2,092,482
7,001,765
14,495,488
21,586,288
25,580,812
13,724,767
$88,528,997
(Canadian Tear Book, 1921, p* 809)
The estimated expenditures on land settlement for the
1922-1923 were $12,000,000# (Ectimatesl923, Geo# 7, Sessional paper,
ITo# 3, page 59.)
Insurance;
tinder the Returned Soldiers 1 Insurance Act (10-11 Geo# 7,
Ch# 54, Statutes 1920, assented to July 1, 1920, as amended by
11-12 Geo# 7, Ch# 52, assented to June 4, 1921) a- system of
life insurance at very favorable rates was established for exservice men wio might not be considered insurable by ordinary
«
life iasurar.ee companies,
to
$.000
Under this Act policies from $500.
are procurable at rates considerably lower than those
quoted by insurance companies for similar policies. Ihey cannot
be u„ed
.5
collateral for loans,
the beneficiaries under the
policies receive an amount not exceeding
$1000
upon the death
of the insured and the balance in annual instalments, according
to the choice of the insured#
Up to December 31, 1921, the number of applications received and approved was 7,980.
®ie premiumsreceived amounted to
$352,769, and the face of the policies amounted to $19,589,500.
Beath claims to that date had been settled to tho amount of
$645,000 in 180 cuses«
(Canadian Year Dook, 1921, page 808.)
Civil Service Preferences
By Orders in.Council, February, 1918, Civil Service preference was given ex-service men.
Repatriation*
Ifcon the outbreak of the war and the departure of Canadian
soldiers for overseas, many wives and other dependents accompanied
their husbands or fathers in order to be near them.
flhen the war
closed there.were some 50.000 to 60,000 dependents of Canadian
soldiers abroad.
Free transportation back to Canada was provided
for wive», and children under eighteen.
on this account up to.March 31,
1921,
Die amount of expenditure
was $2,800,000.
(Canadian Year Book for 1920, page 42.)
- 19
AUSTRALIA
Gratuity:
Gratuities to Australian soldiers and sailors were
provided under acts assented to April 30 and May 29, 1920.
The gratuities provided hy these acts are in recognition
of honorable services and cannot he claimable or recovered as a
matter of • right.
Members of the naval and military forces who
served overseas received Is.
received Is. per day.
6d.
per day, and those who did not,
These gratuities were made payable, with
certain exceptions, in 5J- per cent Treasury bonds maturing not later
’than..May 31, 1924.
Provision was made, however, that in necessitous
cases they should be in cash if the veteran so desired*
The first
gratuities were made available about the beginning of June, 1920.
By July 2, 1921, £5,157,110 had been paid in cash, and bonds to the
amount of £20,585,746 had been issued.
It was estimated that about
360,000 payments would be m a d e 'aggregating £30,000,000.
(Official
Year Book Commonwealth of Australia, Uo. 15 (1922) p. 930.)
Land Settlement:
In addition to the cash gratuities as described above,
Australia has established a land settlement plan for ex-service men.
In 1917 at a Premiers’ Conference in Melbourne it was agreed that the
States should undertake the work of .settling soldiers on the land but
that the Commonwealth should finance them for this purpose.
S&Q original arrangement provided that the Commonwealth
should take the responsibility of finding up to £500 per settler
as working capital for improvements, implements, seed, etc.,
an amount which was subsequently increased to £625 per settler.
At a Premiers* Conference held in January, 1919, definite
proposals were put forward by the States at the request of the
Commonwealth Government and the latter agreed to finance the
States to the amount of £34.820,793, of which there was advanced
£33,153,272.
As the number of applicants exceeded the estimates, the
States sought further assistance from the Commonwealth.
!The
basis of the agreement arrived at (Premiers* Conference, July,
1920) was that the Commonwealth Government should advance the
States a flat rate of £1,000 per settler - £625 per settler
(on the average) as working capital and
£375
per settler (on the
average) for resumptions and works incidental to land settlement,
approved by the Commonwealth.
(Official Year Book of the Commonwealth of Australia, No. 15,
1922, pp, 935—936)
TO
ZEALAND
Gratuity
Provision for ex-service men of New Zealand was made by
Section 7 of the Expeditionary Forces «Amendment Act of 1918.
ïha gratuity provided for in this act could not be claimed
21
as a right and could not “be recovered in a court of la1«?.
It
was to be considered merely as a free gift of the State in
recognition of honorable service-.
Orders in Council of
September 19, 1919, provided for a payment of Is.
6d
per day
of service to any member of the New Zealand naval force engaged
in the war with Germany or any other person living in New
Zealand who served overseas with any portion of ”His Majesty 1s
Forces.”
Up to May 20, 1920* payments to the amount of £5*225,900
had been made to 88,932 persons.
Some 2,000 claims had been set
tled in London.
(New Zealand Year Book, 1920, page 84.)
Land Settlement;
Under provisions of the Discharged Soldiers 1 Settlement
Act of 1915* and amendments thereto, any person who served in
a New Zealand Naval or Expeditionary Force who had received an
honorable discharge, (provided that those who served abroad re
turned to New Zealand) and bona fide residents of New Zealand
who served with a British force, were made eligible to apply,
for advances for land purchase.
Under Section 3 of the Dis
charged Soldiers 1 Settlement Amendment Act of 1917, it was
provided that one or more discharged soldiers might apply to the
Land Board with a view to securing land from the government.
If the land desired by the soldier could be bought by the Crown
it was then sold to the soldier makirg application to purchase.
-
22
-
OThe maximum amount that might ho advanced to any one person for
any purpose was placed at »2500, with an additional further advance
of £750 for improvements, etc,
[Repayments of advances may he securied
*by 10-year 5 per cent flat mortgages or hy
6
per cent SSj-year in
stalment mortgages.
In case of need of help in the purchase of a residence
site with dwelling on it, an allowance of not exceeding
£1000
might he made, or, in case the site is owned hy the applicant, £900
might he made for the purpose of erecting a dwelling.
of advances of this character might he secured hy a flat
Repayment
5
per cent
ton-year mortgage or hy a 7 per cent 25-|-year instalment mortgage.
»750 for specified purposes might 'he loaned in the case of those who
already owned or leased land administered hy the Board.
Up to March
31, 1922, advances made under provisions for soldiers* settlement on
land amounted to £19,744,950, of #iich £1,457,659 had been repaid and
the n-umher of acres of land procured hy about
20,000
persons was
1,367,761*
(New Zealand Year Book, 1923, p . , 345 ff.)'
Assistance in Business;
Discharged soldiers may also receive assistance in
establishing themselves in business.
Loans up to £425, of which
£175 may he interest free, can he advanced to those who desire to
enter business.
Ehe interest rate chargeable is
5
per cent.
Under this arrangement loans up to June 20, 1922, amounted to
£1,839,543, and about 21,153 persons had been assisted.
(New Zealand Year Book, 1923, page 507 ff.)
«*►23«»
PPAITCE
Gratuity;
33ic provision for a bonus to Prench soldiers and
sailors is contained in Sections 1 to 7 of the Act of
March 22 , 1919, (Journal Officiel, March 29, 1919, page
3218),
It provided that 250 francs should be paid to
all enlisted men and officers up to the rank of captain i/ho
$ad served for ct;least three months between August 2, 1914,
and Uovenber 11, 1918*
I n addition to this a bonus of
15 franco per month for service in the rear and 20 francs
per month for service at the front was provided* îhe
maximum amount in pensions, premiums, etc*, payable to each
nan was placed at 5000 francs per year*
increased by
1000
teen years of age*
(This maximum was.
francs for each dependent child under six*
(Letter from U, S* Military Attach^,
Paris, Prance, to TJ.S. War Department, December 14, 1922*)
Gratuities to demobilized soldiers and sailors up to the
grade of captain amounted, up to April 30,' 1921, to 4,964,948,670
francs*
(Journal Officiel de la Republique française, 1919-1921.)
ieleased for use by morning papers on January 21, ]924*
BFlPARTMBlvT OF OQliMEBCS
WASHINGTON
TAXES COLLECTED BY TEE FAT IOil, BY STATE GOVSRNMENTS, BY COUNTIES, AND
BY ALL CIVIL DIVISIONS HAVING- POTTED TO LEVY AND COLLECT TAXES: 1922.
Washington, D. C., January 21, 1924,— -The Department of Commerce has issued a
jtatemont in regard to the specified revenues of the National Government, of the 48
States and the District of Columbia, and of counties, cities, towns, villages, school
districts, townships, drainage .districts, park districts, and other civil divisions
laving power to levy and collect taxes.
The grand total of these revenues is $7,433,081,000* or an average of J68.37
for each person. Of this total $3,204,133,000 represent the revenues of the National
lovernment, consisting of customs, $562,139,000-; Internal Revdajue (1) income and
■refit tax, $1,691,050,000 and (2) miscellaneous taxo*.,. $935.,639,000; tax on circu
lation of National Banks, $4,304,000; and Federal Reserve Franchise tax, $10,851,000.
The total of the revenues of states, counties, cities, townships, and other
local political units is $4,$i?S,948,000, or an average of $33,90 for each person.
If this total $3,329,380,000, or 78.7 per cent come frea general property taxes.
Special taxes, including inheritance, income, etc., contribute $258,034,000; poll
taxes, $29,190,000; licenses- and permits, $408,597,000; and special assessments,
1203,747,000.
Specified Revenues of the States, Counties, Incorporated Places,
Townships, School Districts, and All Other Civil Divi
sions, 1922, and of the National Government, 1923.
(Totals expressed in thousands.}
Civil
divisions.
¡IState governments.
[Counties ........
JIncorporated
places .......
[Townships ..... ..
¡[School districts..
[All other civil
divisions ....
General
Spe cial
property
taxes.
taxes.
867,468 \JT~ 348,290' 1“$196,081
742,331
.603,898
4,785
Total.
$
1,627,329
151,318
738,433
1,344,316
140,625
734,994
52,84?
3,029
r
iOOO
Licenses
poli
1
- and
taxes .
•permits.
3305,365
$ 8,324
9,200 ! 25,251
7<",19o
-19* !
1,682
2,036
.
I
256
77,247
102,069 1
752
i\.-r... H....
i
Total ....... 1 4,228,948 1 3,329,300 [ 258,034 1 29,190
i
1
Î
National Government 3,204,133
Grand total
!
k
7,433,081
Special
assess
ments .
$ 9,408
19,197
73,233
3,256
1*132
149,732
1,906
345
23,469
408,597
203,747
r7
OD
faxes—
2,
- Comparison, 1922 and 1912.-- The
lensus of wealth, debt, and taxation
a\ *
-i
v,^
^
*
given f o m part of the 1922
fevenues of the National Oovornaent and^of a l f l J t e s ^ d
1912 includod thc
[ities, included only those having „
S
st^ tGS
counties; hut as regards
jan he made only for the revenues of *hc
?f °Ver 2 ’500* Accurate comparison
f the counties. ^
c
o
^
r
i
"
^
i
^
Btato
ts,
H " S °'rer 2.500 population if allowance is
f o r ^ f 4 *f p c°rPorate'i Places
saving that-population in 1910 and hnvinn- ? + - ~ °r tilG fact tnat ttle places not
f thG 1912 revenues-- a diffcrenco rhirh Wo U a ^ 2°
included in the 1922 hut not
fomparahility of the totals.
'
•onld nave very little effect on the
b 1912 toP$3'204?i33lo.30ein°i922?
£5“ i667.038,000
ithm this period increased 183 -oer cent thr
* pcr cent. The state revenues
pnicipal revenues for places of 2 m o h * i °.0OTmty revenues 141 per cent, and the
ftal of the above classes of rovemes infSe
t P * incr°c-sed 80 per cent. The
f,346,332,000 in 1922. 0r 198 plr cent ^
^
f™ V 2 >131.402,000 in 1912 to .
l the United States of $58.37 in 1922 r.nd of^ 2 1 . 9 6 ^ 1 9 1 2 . t0 ** aVoras° pcr per30n
Specified Hevenues of the States normt/rW
* T
1922 and 1912, and cf the I h i i o n a r V ^ incorporated Places Over 2,500,
the ITatl0nal Government, 1923 and 1913.
— _____
k.totals expressed in thousands.)
Civil Divisions.
1922.
$
¡¡unties ............
»rporatod places over 2,500
j
1912.
067,463
742,331
1 532,400
j
103
141
30
1 464,364
115
667,033
380
■ -
1 3 142,199
,
[tional Government .........
|
I
,
3 204,133
,
j*"—* - ■■
Grand total ..
306,521
307,872
049,971
y
,
Total ..... ;...........
i
| ■
6 346,332
|
,
j
Per cent of
increase,
!- - - - - - - - - - -- - - - - - - - - ...
2 131,402
,
198
February 5, 1924*
Bear Sir:
Under date of February. 1st you. referred to me a clipping from the
Hew York World» in which Mr* John R. Quinn, Rational Commander of the
.American Begion, is quoted on certain matters with reference to the
Treasury of the United States » and have asked my comments thereon*
(1)
Mr. Qainn states that in December, 1922, the Treasury estimated
a deficit of $650,000,000 for the fiscal year ending June 30, 1923, where
as at the end of the fiscal year there was a surplus of $313,000,000#
The President used figures which showed a possible deficit of
$697,000,000 in his speech delivered July 11, 1922, to the business or
ganizations of the Government.
This figure was made up from tentative
figures furnished by the Treasury and other departments and establish
ments, and did not include an estimated expenditure of $125,000,000 for
accrued discount on War Savings Certificates,
These figures were for
the fiscal year ending June 30, 1923, and were, therefore, made a year
in advance of the close of the fiscal year#
At the tine for the Secre
t a r y ^ Annual Report in November, 1922, sufficient improvement had been
made in the general business conditions of the country to i'equire a re
consideration of these tentative figures, and the estimated deficit for
the fiscal year ending June 30, 1923, was reduced to $273,000,000*
A
surplus or a deficit is the difference between the receipts and the expenditureSof the Government and is affected by any change either in the
receipts or in the expenditures#
depression of
1921
The recovery of the country from the
was much more rapid than had been anticipated*
A new
• 2 ~
tariff law had just gone into effect, and the revenue from this source,
developed into the highest in the history of the Government and was en
tirely unanticipated.
On account of these two changes in conditions
which brought additional revenue to the Government, actual revenues were
some $4004000,000 in excess of the revenues estimated in Hovember, 1922.
A like but not so marked change took place in the expenditures.
The
principal item was a saving of $230,000,000 ih expected expenditures on
account of railroads by a reduction in what was actually spent And a
alisation on railroad securities owned.
Since the Government»® accounts
are kept on a cash basis, and capital items received are treated as ordi
nary receipts, or ae reductions of ordinary expenditures, it was diffi
cult for the Government to estimate accurately its receipts when it was
holding so many realizable capital assets in its Treasury.
Due to these
oreseen circumstances, the estimate made by the Treasury in November
necessarily varied from the actual results determined by the following
June, but Mr. Quinn is, however, in error in saying, that there was a
deficit of $650,000,000 estimated in December,
(3)
1922.
Mr. Quinn states that the Treasury officially estimated the cost
of the bonus as $80,000,000 and it now estimates it to be $250,000,000 as
the average for the first four years.
The original figures were prepared by the Government Actuary
the instructions of and upon the basis determined by Senator McCumber,
author of the bonus bill.
Based as Senator McCumber requested, the
Government Actuary figured. Oncost of the bonus for the first four years
a-s follows:
- 3 m
1923
1924
1925
1926
I
i
—
$7?,440,889
92,177,729
73,100,962
370,239,885
trpoa a basis of what is now considered would be the probable exercibe
of the options given by the
1*1114
the Treasury figures the cost of the
bonus for tho first four years as follows:
1924
1925
1926
1927
(3)
$161,729,002
111,336,378
92,676,005
661,545,183
Mr. Quinn states tJst the Treasury has ignored the $160,000,000
Creat Britain is paying annually on its debt.
In the Seeretaryis Annual Eeport for 1933, page
1C7,
under "Miscol-
eous receipts! Proceeds of Government owned securities - Foreign ob
ligations - Principal," is estimated $60,533,000, of which $33,000,000
is British refunding, and "Interest" estimated at $160,488,004, of which
$137,655,000 is British refunding interest,. These estimated miscel
laneous receipts are part of the general receipts of the Government on
which the estimated surplus for 1934 is determined.
(4)
Mr, Quinn states that the British payment could be used to pay
the bonus.
Great Britain has the right under the debt settlement to pay its
obligations either in notes or bonds of the United states or in cash.______
This -amounts to no more than a mutual cancellation of debts, that is,,
we cancel our claim against Great Britain for $161,000,000 upon Great
Britain:s cancelling claims against us, that is, bonds of.the United
States and accrued interest, to an equal amount.
As an illustration of
—
/
the effect o f this prevision,, of the $92,000,000 duo from Great Britain
on December 15th last, the United States received all in its own bonds
and accrued interest thereon, except the sum of $22.16 in cash.
If the
bonus were to be paid out.of this debt settlement, there would be available, therefore, only $22,16.
(5)
Mr, Qdinn states that the Treasury ignored the proposed cut in
ernmental expenditures, which he says will save another $230,000,000
annually.
The estimated surplus is the difference between the estimated re
ceipts and estimated expenditures.
In determining the estimated surplus
of $329,000,000 for the fiscal year 1934, the Treasury of necessity took
ccount the reduction in expenditures,
No other course would have
been possible and even a cursory examination of the Secretary»s
Report must have made this obvious*
x
I trust this will answer your inquiry.
Very truly yours,
(Signed) <&• ft* ME1L0H
Secretary of the Treasury.
W. S. Woods, Esq.,
Editor, The literary Digest.
354 Fourth
Hew York,
H, Y,
<«.«1
DEMOORaTIC FLAN.
—
■■■,: ■■Mft
..... **--- -
Estimated effect upon the revenue of the proposed changes in the individual income tax law, upon the base of return^'for the second year
after the law is in full effect.
„ *
loss in tax as cornered with estimated tax for
Incone tax
brackets.
i
:
.
*
*
*
:
♦
Humber
f t ? 1?«
nax
in
each.
bra<£ket.
1923.
¥
: Normal tax
:
Surtax
(Loss)
(Loss)
Capital
:
losses
•
provision*:
♦
: Earned
: income
; provision.
J
:
(Loss)
i
:
(Gain)
Certain ;
deductions
limited to
nontaxable
: income.
(Gain)
É
m
.
:
; Community
'
: property
• provisie».
:
(Gain)
:
%
5
?
1
•.
%
■
tinder ~ - » - - 5,000
$5,000 to
10,000
10,000
2010CC
50,000
100,000
150,000
¿00,000
300,000'
500,000
Over *
*
w
*
«
»
«
n
*
20,000
50,000
100,000
150,000
200,000
300,000
500,000
1 ,000,000
,00 0 ,0 0 0
;
:
:
:
:
:
:
i
;
«
1,$10,000
610,000
230,000
80,000
11,000
1,870
'
n o
370
ITO
70
20
4159,500,000
;
:
:
;
:
37,500,000
3,800,000
U, 900,000
6 ,200,000
2,Ug o ,000
%
800,000
:
:
$
15,700,000
27,762,000
53,235,000
900,000
36,230.000
33,160,000
16,050,000
19,280,000
1,5 0 0 ,0 0 0
600,000
500,000
19 ,3 8 0 ,0 0 0
17 ,2 0 0 ,0 0 0
17 ,6 8 0 ,0 0 0 .
0,
*
Gain:
%
: - - - -
j - - - - -
Loss.:
.j Hi» —
»• -C — •
: 2 18 ,6 0 0 ,0 0 0
-
- * * - * - - 2 5 5 ,6 7 7 ,0 0 0
- 5$ 8,800,000
: 8,150,000
: 7,150,000
: 16,720,000
: 15,UlO,GOO
: 5,570.000
: 2 ,220,000
: 1 ,9 2 0 ,0 0 0
: 1,2 0 0 ,0 0 0
: 1,080,000
:
U80.000
*
600,000
:
;
800,000
i
:
:
1
- - - . :
;$68,700,000
UOO.OOO
300,000
i
1,900,000
2,350,000
2.,Ù50,000
2 ,6 0 0 ,0 0 0
1,7 0 0 ,0 0 0
1,3 0 0 ,0 0 0
1,1 0 0 ,0 0 0
1,000,000
500,000
850,000
850,000
1,200,000
:
:
:
:
;
:
:
;
:
:
:
3rOOO,OCO
2 ,000,000
1,U 50 ,0 0 0
1*250 ,0 0 0
1,U 00,000
1,5 0 0 ,0 0 0
$ 15 .5 0 0 ,0 0 0 ;
$ 15 ,0 0 0 ,0 0 0
+
:
:
:
:
;
:
:
:
:
r
t
1
~
*.
-
$
— ——
—/ * 4 5 H . 97t .000
m
*
*
É;
*
.?
:$l67,250,000 »
f 61,050,000 :
* | 37.762.OOO :
: 72;3O5.O0O :
1 53,7U0,00p J
s 35.730,000 :
: 1 U, 720,000 :
...
« *
5 18 ,0 50 ,0 0 0
:
~
— t 1 9 ,1 3 0 ,0 0 0 :
*> «*
: . 16 ,18 0 ,0 0 0 :
- - — : 16 ,0 6 0 ,0 0 0 :
4
•
♦*
.
*
500,000 •
550,000
600,000
200,000
900,000
1,000,000
50,000'
100,000
* $
*
*
’
*
*
Net re: duction
:
i in tax
‘ .* ;
: collected.
i
l
loss.
>—
FOE IMMEDIATE
Thursday, February 14, 1924*
The President today gave publicity to the following
letter from the Secretary of the Treasury*
February 13, 1924.
Dear Mr. President:
I am writing to advise you of the situation which has
developed in connection with the charges made by Mr* Charles B*
Brewer as to alleged duplicate issues of Liberty bonds and other
alleged frauds affecting the public debt*
Mr* Brewer has been
conducting his investigations for over two years and he has made
his report under date of January 15, 1924*
This report reached
me on January 26th, and the Treasury has since been checking it
up, with a view to answering it item by item at the earliest pos
sible moment*
In the meantime, however, the report has become pub
lic through proceedings brought by Mr* Brewer in the District of
Colombia courts against the Secretary of the Treasury and the Attorney
General, and since it is calculated to disturb the public mind by
suggesting doubts as to the integrity of the public debt, I believe
it is time to make a clear statement of the facts and answer once
and for all the charges which Mr* Brewer has brought against the
Treasury.
Mr. Brewer charges in substance that there have been large
issues of duplicate Liberty bonds, and at least implies that there
has been a conspiracy, affecting even the higher officials of the
Treasury, to suppress the facts and make it possible for the guilty
parties to realize on the duplicate bonds.
His charges cover prin
cipally the issue of temporary bonds during the years 1917, 1918, and
1919, and, as appears from the report, were made first by Mr,
J. W* McCarter, of South, Dakota, in letters published, in Sep
tember, 1920, in the name of the »McCarter Corporation11, a
family corporation organized by McCarter in the interests of
the Non-Partisan League,.
It appears from the records of the
Treasury that Secretary Houston made a thorough-investigation
into the matter at the time, and subsequently statëd in two let
ters which were made publie on September 28, 1920, that the charges
were without foundation,^.that they were manifestly based on misinformation and misunderstanding, and that though there were in
stances of duplicate seria-i-numbers on Liberty bonds, no evidence
had been found of any duplicate issues or other fraudulent over
issue of Liberty bonds or other Government securities.
It appears
further from the records that McCarter had been for a time Assist
ant Register of the Treasury under the Democratic Administration,
that hiô conduct in office had been inefficient and generally un
satisfactory, and that in July of 1920 he had been permitted to re
sign, though Secretary Glass had first asked and obtained authority
from President Wilson to remove him from office, for reasons which
he summarized as follows:•
11X am obliged to ask yôur authority to remove from
y .
• office James W, McCarter, Assistant Register of the Treasury,
He had conducted himsejf in his office in a manner not only
wholly inefficient but grossly offensive to the members of h i s i
organization.
He has been given warning and ample opportunity
to amend his ways and I feel that nothing but peremptory action
will make it possible to restore the efficiency*of the organi
sation».
3
Shortly after his withdrawal from office McCarter published his
charges of duplication in the issues of Liberty bonds, and Brewer,
to whose attention they subsequently came, has .since been endeavor
ing to develop them through his investigations.
f o r the most part, the charges of McCarter and Brewer re
late to matters preceding my administration of the Treasury, as to
which I have no personal knowledge.
X have made independent in-
•*
▼estimation, however, with all the facilities at my command, and I
am satisfied that the charges are unfounded, that there has been
no fraudulent duplication or over-issue of the public debt, and that
there is no occasion for any public uneasiness as to the integrity
of either the Governments outstanding obligations or those branches
of the Treasury service which have been engaged in the handling of
the public debt securities,
The Treasury has been on the alert at
all times to guard against fraudulent dealings in public debt secu
rities, and has been at the greatest pains to provide for handling
both security issues, and security redemptions in such a way as to
safeguard the Govemmentts interests at every point.
Its record in
this regard invites the fullest inspection, and the results which it
has achieved in dealing with the unparallelled issues of war bonds
and other securities do.it the greatest credit.
**
It should be clear in the first place that the securities
to which the charges principally relate are the so-called temporary
/
Liberty Bonds, which were issued in 1917 and 1918 with only the
first few coupons attached, and the Victory notes which were issued
in 1919,
1923#
The Victory notes have since matured and "been paid off in
The temporary Liberty bonds became exchangeable for permanent
bonds, with all coupons to maturity attached, in 1919 and 1920, and
the exchanges of temporary for permanent bonds are now practically
complete, only about $37,000,000 face amount of temporary bonds being
still outstanding out of a total of nearly $15,000,000,000 of out
standing Liberty bonds#
in other words, the Liberty bonds now in
the hands of the public are practically all permanent bonds, which
are not in any way affected by the charges, so that there is no
occasion for any public uneasiness in this regard#
The exchange of temporary for permanent bonds has also given
an excellent check upon the integrity of the issue of temporary bonds,
and it furnishes a conclusive answer to the charges of duplication
in the public debt.
It has involved practically a complete turnover
of the coupon Liberty bonds originally issued, as a result of which
the temporary bonds have been surrendered to the Treasury for retirement
Over 101,000,OCX) pieces of temporary bonds were delivered in the first
instances by the Bureau of Engraving and Print!zg.
Of these, there
were outstanding in the hands of the public on November 30, 1923, only
481,241 bonds, having an aggregate face value of $37,108,450#
other words, over
100,000,(X)0 pieces
In
of temporary bonds have already
been retired and delivered to the Begister of the Treasury for final
examination and audit«
The examination of these millions of
pieces is practically current « and since it involves a check in
each case against the numerical records, it would be certain to
disclose duplicate issues if any had been made.
As a matter of
fact | the examination has not disclosed any duplication, and shows
that the issues and retirements check up, by loans and denominations,
without any over-issue.
Another check on the integrity of the Liberty Loan issues
is furnished by the accounts of the interest accrued and unpaid on
the public debt«
Jhese figures indicate that instead of the excessive
payments of interest which would be expected if there were large du
plicate issues of bonds, the interest payments as a matter of fact
have constantly been far below the actual accruals upon the out standi
ing public debt.
Por example, according to the public debt statement
for November 30, 1933, the latent available, there were outstanding
on that date matured interest coupons and interest checks to an aggre
gate amount of $64,604,005.85. _
m
other words, instead of an over
payment of interest, the Government has actually had to pay consider
ably less interest than has accrued on the bonds and other securities
which are admittedly outstanding,
The public debt statements,moreover,
are made up on a cash basis, the amounts shown as issued being taken
up only against cash actually received.
The figures for the Public
debt on this basis agree with the figures reached independently by the
Division of Loans and Currency on the basis of securities issued, p^d
this of
issues.
furnishes conclusive proof that there have been no overr
.Beyond all. this, the audits which have Been made of the
paper accounts .of the Bureau, of Engraving and Printing over the
whole period since the Beginning of the war show that there are no
discrepancies in these accounts Beyond the petty discrepancies that
would naturally Be expected in transactions involving several hundred
million pieces of distinctive rpape.r*. She Balances of distinctive
paper for which the Bureau of Engraving and Printing is accountable
appear on the Books of the Treasury* and from time to time it is
the practice to check and verify these Balances t h r o n g audit By
an independent commit toe. Security paper issued to the Bureau has
to be accounted for either By deliveries of perfect securities
to the Division of loans and Currency, or By imperfect or spoiled
securities which are destroyed# There have Been three audits of the
the paper accounts covering the period in question, the first in
1920, after the issue of the last liberty loan, when Secretary
Glass designated a committee to verify the Balances of security
paper charged to. the Bureau of Engraving and Printing. This committee
submitted its report on August 5, 1920, after having made a complete
verification of all open Balances of paper and examined By actual
count all paper at the Bureau* Ho substantial discrepancies appeared,
most of the differences Being found t© Be accounting errors# . In
April of 1922, I designated another committee to make examination
of the security paper accounts* The report of this committee, as of
April
8,
1922, showed there were no substantial discrepancies in the
distinctive paper accounts, and that the total differences affecting
-7-*
the original issues of Liberty bonds and Victory notes (including
the items shown by the 1920 report above-mentioned), were as follows:
a net shortage of 49 sheets for the First 3§»s; a net shortage of 28|
sheets for the First 4»s and Second 4*s; a net overage of
for all of the
1
3/6 sheets
per cent Liberty bonds; a net overage of 5^ sheets
for Victory notes. It is estimated that the differences in the 3| per
c nt First Liberty Loan paper accounts could not involve a money value
of over $3,690. while the differences in the First 4 per cent and
Second 4 per cent paper could not involve a money value of over
. $2,783.41.
.Against these shortages there are, as stated, overages
in the 4^ per cent bond paper and in the Victory note paper accounts.
Hhe conclusions of this report were substantiated by the report of
the auditors of the Department of Justice which made an independent
examination as of the same date and found substantially the same dis
crepancies.
ihe check which has thus been made in the paper accounts
of the Bureau of Engraving and Printing conclusively negatives
the possibility of any material duplication or over-issue, of any of
the. Liberty Loans, or other public1debt securities since the beginning
of the war.
as a matter, of fact, the audits show that the Bureau of
Engraving and Printing printed-ajid delivered in connection with the
war issues over 215,000,000 pieces of securities, with an aggregate
face value exceeding $137,000,000,000.
The percentages of differences
in relation to these totals is insignificant and certainly not more
than would be expectediin operations of this magnitude.!’
After printing and delivery “by the Bureau of Engraving
and Printing the bonds and other securities all received a critical
examination, the seal of the Treasury was affixed and they were
initialled by examiners.
In the various processes the securities
were subjected to successive piece counts, and adequate checks were
imposed at the Treasury and The Federal Beserve Banks to insure that
no deliveries would be made except against payment therefor in proper
form#
During the course of examination, and before issue, thousands
of imperfectly printed bonds, including many bonds and notes with im
perfect or incorrect serial numbers, were detected by the examiners
and returned to the Bureau of Engraving and Printirg for destruction#
Undoubtedly some imperfectly printed and some imperfectly numbered bonds
were not detected and ultimately reached the public, but only against
payment therefor in regular course, so that there was no duplication
or over-issue of the public debt on this account.
Undoubtedly, also, there have been bonds and other secur
ities with duplicate serial numbers, and contrary to Mr# Brewer*s
assertions, there have been such duplications of numbers with registered
as well as coupon, bonds.
Even how duplications occasionally occur
in pri nt i qg, through variations in the numbering machinery.
All the
duplicate serial numbers discovered by the Treasury are checked up as
promptly as possible, and none has yet been found to involve any
duplication, whatever in the public debt.
For the most part, the
duplicate numbers have been found, on investigation, to result from
mechanical errors in numbering, either through aberrations in the
m
,,
machinery or through mistakes in numbering make-up bonds, or to he
only apparent duplications, resulting from errors in recordation*
In many other cases, it appears that the numbers have been altered
while the bonds were outstanding, thus creating an apparent
duplication in numbering when returned to the Treasury*
is remembered that there were over
100,000,000
When it
pieces of temporary
Liberty bonds alone issued by the Treasury, each with a serial
number, it is not surprising that duplicate numbers should occasion
ally appear, the total up to date being only about three thousand*
When it is remembered also that in the ordinary course of business
United States coupon bonds and other bearer securities are handled by
the public without regard to their serial numbers, and that even in
the Treasury the serial numbers a^e important only for purposes of
original issue and again on final audit when received for retirement,,
it will be appreciated how little significance for practical purposes
attaches to the duplications in serial number which have been dis
co ve red*
Ho case ii&iich the Treasury has yet investigated in the
course of its examination of the Brewer report throws any doubts on
those conclusion^ or indicates any duplication or over-issuo of the
public debt*
Many of the specific cases mentioned, in fact, had .
already boon fully explained to Mr* Brewer, and had no proper place
in the report*
The examination will be finished to completion as
rapidly as possible, and I will advise you further as to the final
results.
-
10
*
Z think in the meantime the public can rest assured
that there has been.no over-issue of Government securities and
that the integrity of the public debt cannot be attacked.
faithfully yours,
(Signed)
A. W # MELL02T
Secretary of the Treasury.
The President,
Tlie White House
February 18, 1924
Boar Colonel Miller:
You are quoted by the Hew York papers as saying in a speech in New
York yesterday that a «hi^i Treasury official« had told you that the
Treasury Department estimates of the cost of the soldiers* bonus had been
«juggled».
You are further quoted as saying that you had been informed by
the »high Treasury official« that this had been done because »it was felt
necessary at the Treasury Department to use stronger and stronger arguments
against the bonus each time it came up«*
Please advise mo, (1) do these
quotations substantially represent what you said in your speech in New York?
(2) if so, what is the name of the. »high Treasury official» vho is the source
of your information?
X am unable to find any ono in the Treasury who could have givon you
the infomation which you are said to have received.
Tho statement alleged
to have boon received from the »high Treasury official« is false.
The figures
given publicity by the Treasury Department with respect to the bonus cost
were prepared by tho Government Actuary and represent his calculations as
to the probable cost of tho bonus.
They represent the Treasury*s views of
this cost without ulterior purpose.
We have had within tho past week an example of a man of public
prominence who made statements in a speech without verification of their
accuracy.
Such cases should be promptly dealt with, for the public is
entitled to know tho truth.
I will appreciate, therefore, an immediate
answer to m y request for this information.
Very truly yours,
(Signed)
Honorable Thomas W* Miller*
Alien Property Custodian,
Washington,
D. 0*
A. W. MELLON
Secretary of tho Treasury.
March 1, .1924.
THE TREASURY UTOER A REPUBLIC.«! ADMHgSTWATTOfl.
toong the outstanding achievements of the present administration is the
success with which it has handled the Government*s fiscal affairs.
Important
economies in expenditures have been effected, the tax burden has been reduced,
the budget has been kept balanced, substantial progress has been made in the
liquidation of the debt, the first phase of the refunding operations has been
completed, and a satisfactory settlement of the debt due the United States
from the British Government has been effected.
The reduction in expenditures during the fiscal year ending June 30, 1923,
np red with tne previous fiscal year, was approximately $1,700,000,000,
while the surplus for the year amounted to about $300,000,000.
That this was
accomplished in tne face of the unfavorable prospects that confronted the
Treasury at the beginning of the year is due to the unremitting efforts of the
Government departments and establishments under the leadership of the President
reduce current expenditures to the utmost consistent with proper administra
tion.
And it is no mean accomplishment, for current expenditures during the
year were about 600 million dollars less than the spending departments them
selves estimated would be necessary at the outset of the year.
At the begin
ning of the fiscal year 1923 the prospects were again unfavorable, and the
Government faced a threatened deficit of nearly $700,000,000 exclusive of
$135,000,000 accrued interest on war savings certificates due January
which was not embraced in the estimate made in July, 1922.
1,
1923,
At the close of
fiscal year, however, it was found that ordinary receipts for the year
amounted
to about $4,007,000,000 on the basis of daily Treasury statements,
while the total expenditures chargeable against ordinary receipts amounted.to
2
atout $3,697,000,000 thus showing a surplus of receipts over expenditures
amounting to about $310,000,000.
public debt was reduced during the
year by nearly $403,000,000 on account of the striking fund and other debt
I retirements chargeable against ordinary receipts and by $211,000,000 out
of the surplus, making a total debt reduction for the year of about
I $514,000,000.
m
ji m
receipts.
This fortunate result was due in large part to the increase
Customs receipts during the year were much larger than for
previous yeax iB the history of the Gover m e n t , aggregating almost
$562,000,000 as compared with $356,000,000 during the fiscal year 1922, the
previous high reoo.a.
Income end profits tax receipts also exceeded expects
ticns, aggregating about $1,679,000,000 as compared with the estimate of
$1,500,000,000 submitted in the Budget last December.
revenue receipts amounted to $946,000,000.
Miscellaneous interna
This is a showing which gives
m c h reason for encouragement, and it means better prospects for the future
all concerned will continue to exercise the utmost economy in Government
expenditure and avoid new projects that would drain the public Treasury.
Ehe following table shows for the fiscal years 1920-1923, on the basis
of daily Treasury statements, the ordinary receipts of the Government,
expenditures chargeable against ordinary receipts, and the surplus of
receipts over expenditures.
Estimates for the fiscal years 1924 and 1935 are
also included:
Receipts
1920
$6,694,565,339
1921
5,624,932,961
1922
4,109,104,151
1923
4,007*135,480
l924(Est.) 3,894,677,712
1925 (Est*) 3,693,762,078
Expenditures
$6,482,090,191
5,533,209,189
3,795*302,500
3,697,478,020
3,565,038,088
3,298*080,444
Surplus
$212,475,198
86,723,772
313,801,651
309,657,460
329,639,624
395,681,634
The determined efforts for economy made it possible nearly two years
!
^
^
prooeed Wlth a revision of internal taxes with a view to reducing
the tax burden for all classes of the community.
The result is that the
revenue act of 1921, approved November 23, 1921, made a substantial re
daction in the tax burden, running over $800,000,000 for the fiscal year
I
1923’
I
“* ^
38
C°mPared *ith what
^ v e been collected under the old law,
thS SSme time Provided
the repeal or reduction of several of
the most vexatious and burdensome taxes and for the simplification of the
taxes that remain in force.
It is on the basis of estimated surpluses during thé next few years
that the Treasury«s recommendations for further tax revision have been
worked out, and any deviation from the policy of economy, through authorisatxens for new and unexpected expenditures, such as a soldiers, bonus, would *
make impossible the adoption of such a tax program.
i'
asury s tax program are:
The principal features
(1) make a 25 per cent reduction in the
tax on earned income; (2) where the present normal tax is
*xce it to 3 per cent, and where the present normal tax is
it to
6
4
per cent re-
8
per cent reduce
per cent; (3) reduce the surtax rates by commencing their application
at $ 10.000 instead of $ 6,000, and scaling them progressively upwards to 85
Per cent at $100,000; and (4) repeal the tax on telegrams, telephones,
admissions, and also the nuisance taxes.
The f o l l o w ^ table shows the
effect of the proposed income tax c h a f e s on the income of the typical
salaried tax payer, married and having two children.
m— i— m-4
Income
$
•
4,000
5.000
6,000
7.000
8.000
9,000
10,000
Present tax
-
Pi'oposed tax
28.00
15,75
38*25
72.00
99.00
144.00
189.00
234.00
68.00
128,00
186.00
276.00
366.00
456.00
Saving to
taxpayer
12,25
29*75
56.00
87.00
132.00
177.00
222.00
One of the principal problems facing the administration at the outset
was the handling of the public debt, -which at that time amounted to about
$34,000,000,000.
Of that amount about seven and one-half billion dollars
was short-dated debt maturing within 3§ years.
The administration.s policy
with respect to this short-dated debt was expressed by the President in his
first address to Congress as one of
»orderly funding and gradual liquidation",
Confronted by the necessity of relieving business and industry from the
staggering tax burden imposed during the war, it was evident that a large
part of this ¿hort-dated debt had to be refunded.
The liberty roans had
been floated under the stimulus of the war enthusiasm through great popular
drives and with the help of a qountry-wide liberty loan organisation that
comprised 3 million persons.
To conduct refunding operations on a similar
scale in time of peace, to the amount of over
ta*
7
billions of dollars, was a
°f mparallelled magnitude, and yet the Bepublican ¿¿.ministration has
not only effected the gradual refunding of practically all of this short-dated
debt without disturbance to business or interference with the normal activities
of the people, but by March 1, 1934, had also effected a reduction in the gross
public debt of about $2,369,000,000,
- 5 -
Shortly after the administration came into power steps were taken to
ward the refunding of a large part of the early maturing debt by successive
Issues of Treasury notes in moderate amounts with maturities of from three
to five years, in order to distribute the short-dated debt through the years
between the maturity of the Victory liberty loan in 1923 afld the maturity
of the Third tiherty Loan in 1928,
Beginning in dune; 1931; the Treasury
has floated nine issues of Treasury notes, maturing at various dates in 1934,
1925, 1926, and 1927, to an aggregate amount of about $4,250,000,000.
The Treasury also offered on October 16, 1922, as part of its refunding
program, an issue of 4^ per cent Treasury bonds of 1947-52.
The offering
was $500,000,000, .or thereabouts, with the right reserved to allot additional
bonds against exchanges of 4 3/4 per cent Victory notes and other maturing obli
gations.
This refunding issue of bonds met with an immediate response from
investors all over the country, and was promptly over-subscribed.
allotments on the offering aggregated slightly over
Total
$763,000,000.
Thus all the old seven and one-half billion dollars of short-dated debt
has been retired or refunded, and in its place there is a new class of shortdated debt, aggregating on March 1, 1924, about $5,340,000,000, consisting of
(1) $900,000,000, or thereabouts, of Treasury certificates of indebtedness,
maturing on various quarterly tax-payment dates within the year;
(2) about
$4,050,000,000 in the aggregate of Treasury notes, maturing on various quar
terly tax-payment dates in the years 1924, 1935, 1926, and 1937; and (3)
about $390,000,000
of War Savings
Certificates and Treasury Savings Certifi
es, maturing in moderate amounts each year.
These maturities are arranged
permit -heir refinancing with the minimum of disturbance to bueiness
-
6
-
and industry, and. with the Government balancing its budget each year and
shoving a reasonable surplus, it should be possible to retire them gradually
out of surplus revenues, in titoe to avoid embarrassment to the- heavy re
financing that will be necessary in connection with the maturity of the
flhird liberty loan, on September 15, 1928.
In addition to the refunding operations the Administration ha* effected
substantial reductions in the M b t .
In fact the Government has now firmly
established the principle of including in its o r d i m r y budget certain fixed
debt charges, including the sinking fund, and these fixed debt charges must
before the budget can balance.
as given on page
2
she expenditures of the Government
of this statement, for example,, include debt retirements
&s follows:
Fiscal year
1920
1921
1922
1923
1924 (estimated)
1925 (estimated)
Debt retirements
chargeable against
ordinary receipts,
$ 78,748,000
422.282.000
422.695.000
402.850.000
511.968.000
482.277.000
in addition to these retirements included in the ordinary budget, the
surplus receipts,
except for temporary fluctuations in the net balance in
the general fund,
are applied directly to debt reductions.
Total debt re
ductions since the
present Administration came into office are as follows:
/
7 «
Fiscal Year
Debt Reduction
1921 (Feb* 28 to
June 30) *.--- .... $
74,234,000
Ï922
|,
.....
1,014,069,000
1 9 2 3 ___ i.
i*
613,674,000
1924 (8 months)
; 567.741.000
Total from Feb. 28, 1921
to March 1, 1924.
$2,269,718,000
Thus the Republican Administration has not only effected a material re
duction in the gross public debt but by sound financii^ it has already com
pleted the refunding of the old seven and one-half billions of short-dated
debt, without either disturbance to business or strain on the financial
market,
on the contrary, what has been done has tended to relieve the
markets of the fear of spectacular Government operations and has been help
ful to the recovery of business.
Moreover, the Government*s financing has
been conducted on a strict investment basis and at the lowest possible rates
consistent with the proper distribution among the investing public of the
securities offered.
All new offerings of bonds, notes and certificates have
been met with a ready response from investors and all issues are selling to
day in the open market at or about par*
liberty bonds have risen about
twelve points since March 1921, reflecting the improvement which has taken
place in the Governments finances and in the general investment market.
Passing from the field of domestic finance, the most striking accomplish
ment has been the settlement of the indebtedness of the British Government to
the tinited States.
This settlement was approved by an Act of Congress,
February 28, 1923, and the formal proposal by the British Government, .embodying in detail the terms of the agreement, was received by the Treasury on
¿fane 19, 1923, and was signed by the Secretary of the Treasury as Chairman
~ 8 -
°f the World War Foreign Debt Commission.
Bonds of the united Kingdom in
the aggregate principal amount of $4,600,000,000 issued pursuant to the terme
Of thé proposal and acceptance, were received by the Treasury on July 5, 1923,
Ehe Treasury thereupon canceled and surrendered to the British Government,
through the British Embassy at Washington, demand obligations of Great
Britain in the principal amount of $4,074,818,358.44, in accordance with
the provisions of the proposal and acceptance.
The settlement provides for
the repayment in full of the British debt to the United States over a period
of 63 years, with interest for the first ten years at three per cent and for
the remainder of the period at three and one-half per cent.
The world
War Foreign Debt Commission in its report to the President has well expressed
the significance of the settlement in the following terms;
f,The Commission believes that a settlement of the
British debt to the United States on this basis is fair
and just to both Governments and that its prompt adop
tion will make a most in^ortant contribution to inter
national stacility.
The extension of payment both of
the principal and interest over a long period will make
for stability in exchange and promotion of commerce be
tween the two countries.
The payment of principal has
oeen established on a basis of positive instalments of
increasing volume, firmly establishing the principle of
repayment of the entire capital sum. The payment of in
terest has been established at the approximately normal
rates payable by strong governments over long terms of
years* It has not been the thought of the Commission
yhat it would be ¿ust to demand over a long period the
hi$i rate of interest naturally maintained during the
war and reconstruction, and that such an attempt would
defeat our efforts at settlement. Beyond this,* the Com
mission has felt that the present, difficulties of unem
ployment and high taxation in the United Kingdom should
be met with suitable consideration during the early years,
and, therefore, the Commission considers it equitable and
desirable that payments during the next few years should
be made on such basis and with such flexibility as will
■encourage economic recuperation not only in the countries
immediately concerned but throughout the world. ’
- 9 -
“This settlement ’between the British Government
and the United States has the utmost significance*
It is.a "business settlement, fully preserving the in
tegrity of the obligations, and it represents the first
great step in the readjustment of the intergovernmental
obligations growing out of the war.11
A settlement of the indebtedness of Finland to the United States,
amounting to about $9,000,000, has been effected on terms similar to those
of the British settlement.
3?he obligations of various foreign governments held by the Treasury
on March 1, 1924, aggregated $10,555,454,718.39 principal amount.
Total
cash receipts by fiscal years from 1920 to date on account of principal
and interest on foreign obligations are as follows:
Fiscal year
---- ----- --- -— ,
—
1920
1921
1922
1923
1924
(8 months)
Total - -
Principal
Payments_____
$71,045,188.47
84,128,723.38
49,070,107.46
31,616,907.64
60,626,706.14
$296,487,633.09
Interest
Payments______
$
Total
4,487,821.11
31,826,863.30
27,758,162.42
201,311,960.77
91,032,508.05
$ 75,533,009.58
115,955,586.68
76,828,269.88
232,928,868.41
151,659,214.19
$356,417,315.65
$652,904,948.74
During 1923 an agreement was signed by the Allies and the United
States for the payment of the cost of the American army of occupation.
The settlement provides that the amount due the United States shall be
paid in twelve annual instalments out of future cash payments credited to
Germany, and it may be estimated roughly that the annuities will amount to
approximately $20,000,000 yearly.
\
Letter from Secretary Mellon to the Editor of the American Bankers
Association Journal with respect to the interest rate on government securi
ties.
March 17, 1924.
Dear Sir:
I received your letter of March 10, 1924, commenting on the address
of Senator Shipstead of Minnesota on the floor of the Senate, February 1*
1924, in which he charged that the people of the United States are paying
about one per cent too much interest on the public debt, and requesting a
statement as to how the Treasury fixes the rate of interest on its borrowings.
The factors which the Treasury must always take into consideration in
floating a new issue of securities are practically the same as those which
must be considered by any investment banker in floating new issues for his
clients.
All Government offerings are made on a strict investment basis.
The Treasury always aims to sell its securities at the lowest possible inter
est rate consistent with their successful distribution among investors, and
with this in view it always gives close attention and consideration, in
connection with the determination of the amount and terms of each issue,
to the market quotations on outstanding securities and to prevailing money
market.' conditions.
No one realizes better than the Treasury that the
burden of paying the interest on the public debt falls on the country’s tax
payers, and' I can assure you that every effort is made to minimize this
burden*
On the other hand, it is necessary to meet market conditions in
carrying on refunding operations and in securing funds to meet current activi
ties,
If Treasury certificates and notes should be offered at rates of in
terest lower than market conditions warrant they would not prove sufficiently
- 2 -
attractive to investors and the funds necessary to carry on the Governments
activities would not he available*
The Government can no longer appeal to
the public to purchase its securities at less than market rates on grounds of
patriotism*
In the Government financing which took place on December 15, 1933, the
Treasury required to meet maturing obligations and to carry it over the period
to March 15, 1924, about $350,000,000,
One-third of this could be thrown into
June 15, 1924, maturities, when maturing obligations were somewhat lower than
expected receipts, and two-thirds placed in December 15, 1924, maturities, on
which date there were no other maturing obligations*
A summary of the market
situation December 10, 1923, when the December 15th financing was announced with
the maturity dates, the amount of short-term issues then outstanding, and their
return based on the market price, follows:
M&foyj-tg
March
June
Sept.
Dec.
March
15,1924
15,1924
15,1924
15,1924
15,1925
Amount outstanding
$570,946,500
311,088,600
377,681,100
______
598,355,900
Return
3.85$
4*04
4.20
___
4.39
Obviously the above market situation called for an interest rate of 4 per cent
on the six months1 certificates maturing June 15, 1924, and 4^ per cent on the
certificates maturing December 15, 1924.
That in spite of over-subscriptions
the interest rate was correctly fixed is shown by the fact that in the week
succeeding their issuance large amounts of the new issue of each series changed
hands at par.
The March 15th certificates were offered Monday morning, March 10th, and
the previous Saturday the price of Government short-term obligations indicated
the following returns on the maturity dates:*
—• 3 —
June 16, 1924
September 15,1924
December 15,1924 .
March 15, 1925
June 15, 1925
December 15,1925
3,60
3,83
3.85
4,00
4.13
4.14
Faced with this market situation, a 3^ per cent rate was too low for a nine
months' certificate.
convenient rate.
To have made this 3-7/8 would have "been to adopt an in
It was determined, therefore, to issue twelve months' cer
tificates on a 4 per cent basis, which exactly hit the market,
It is possible, of course, that the Treasury might at times have issued
its securities at a somewhat lower rate and have appealed to the Federal re
serve banks to support the market through heavy purchases of such securities
in case the proper distribution should not be effected*
To pursue such a
course in peace times, however, would seem to me to be inexcusable.
It
would create an artificial situation in the investment and money markets and
tend to produce inflation.
It may be noted in this connection that the
Treasury has succeeded in borrowing on its certificates of indebtedness at a
lower rate than even states and cities have been able to borrow on their fully
tax-exempt short-term bills, though in substance the Treasury certificates are
exempt only from the normal income tax.
During the whole of February, for ex
ample, the City of Hew York paid 4-1/8 and 4-1/4 per cent on its short-term
bills, while the Treasury is now offering one-year certificates at 4 per cent.
Moreover, the Treasury's long-term bonds not wholly tax-exempt do not bear
higher rates than the average on municipal bonds issued during and since the
war which are wholly tax-exempt.
The Treasury's wholly tax-exempt securities
bear a rate nearly one per cent lower than municipal tax-exempt securities,
A
glance at the Public Debt Statement will show that the great bulk of the out
standing public debt bears 4^ per cent or less,-
During the heavy refunding op
erations of 1921 and the early part of 1922 when the money market was tight and
- 4 -
interest rates high, it was necessary, of course, to issue securities at somewhat higher rates, hut it will he noted that none of these issues have long
maturities*
,
They all mature within the next few years and can soon he replaced
.
Dy issues at lower rates according to the conditions of the market.
In fact the
two series of notes which biear the highest rates mature during the current cal
endar year and will he paid off or refunded at the market rates.
The principal evidence in support of the contention that the Treasury is
paying too high rates seems to he that the various offerings were over-suhscrihed,
hut if one will take the trouble to examine the market it will he found that there
are comparatively few successful offerings of securities of any kind which are
not over-suhscrihed.
In fact, if they are under-subscribed the offering is in
part a failure and reflects on the judgment of those who made it.
The invest-1|
ment market is an exceedingly delicate affair and a very small difference in
rate will mean the differnce between success and failure of the offering.
Refer
ence was made to the Treasury notés of January 15, 1923, hearing 4§ per cent
and the notes of May 15, 1923, hearing 4-f per cent.
The daily quotations,
which are of course the best index of what the market will take, show that soon
after the issue of the 4§ per cent notes in January they dropped below par and by
May when the next issue was due they were selling at a yield of over 4,60.
The
May issue was an unusually large one, amounting to nearly $700,000,000, and I do
not believe anyone familiar with the market would contend that the issue would
have been successful at a lower rate.
You will recall the violent criticisms
which were directed against the Treasury after the war when the Liberty bonds
sold below par on the ground that the rates on the loans were too low.
In comparing the rates on acceptances with the various types of Government
securities, the differences in the nature of the issues, in maturity dates.
-5size of issues, changing market conditions, and other fundamental factors
were wholly ignored#
Bates on acceptances are for 90-day hills, and it
might he noted that in December 1923 the Treasury issued six-months securi
ties at 4 per cent and is now offering an issue of twelve-months securities
at 4 per cent, vhile the.market rate on hills was 4-1/8 to 4-1/4 on the
former date and is now 4-1/8,
A compilation of interest rates shows that
the rate on six^months certificates has conformed fairly closely to the rate
on 90-day hills since 1921, and that the rate on commercial paper has run
approximately three-quarters to one per cent higher l
Much of the criticism of the Treasury and the Federal reserve hanks clearly
betrays a lack of understanding of the fundamental economic principles which
determine interest rates#
The impression seems to prevail that conditions in
the money market are due entirely to the rates paid on Government securities
and to the discount rates of Federal reserve hanks, and that these rates can
he fixed arbitrarily at a higher or lower level, thus determining market condi
tions at will#
On the contrary, both the rates paid on Government securities
and the discount rates of Federal reserve hanks reflect conditions in the money
market rather than cause them#
Fundamentally, interest rates are determined
by the demand for and supply of capital.
The comparatively high money rates
which continue to prevail are the result of economic conditions which exist
throughout the world.
The demand for capital everywhere following the de
struction of the war is so great that high rates mast he paid by those who
wish to secure the limited supply.
The return to normal rates mast neces
sarily he a gradual process depending upon the rapidity with which the supply
of capital is replenished#
A scarcity of capital is something beyond the
power of the Treasury or hanks to prevent.
It is a persistent fallacy that
financial and credit institutions can create capital or make it cheap#
They
/•*
-o«»
can manufacture credit, but only in a limited sense carl credit take the place
of capital.
Capital can he created only hy increased productivity and in
creased savings.
With reference to the effect of the Federal reserve bank rate on condi
tions in the Northwest, statistics show that in the Minneapolis District the
average rate charged b y member banks to customers on paper which they in turn
rediscounted rose from 7.65 per cent in December, 1921, to 7.99 per cent in
December, 1923, although the discount rate of the Federal Reserve Bank of
Minneapolis declined from 6|- to 4-J- per cent.
On the latter date the spread
between the discount rate and the rate charged by member banks to their cus
tomers was 3-J- per cent. This would hardly bear out the contention that the'
plight of the banks in that district is due to the discount rate of the
Federal Reserve Bank.
A similar situation prevails in some of the other
districts, particularly in the agricultural districts*
Many banks have long
been accustomed to charge the maximum rate allowed by the usury laws of the
State, especially on the smaller loans*
In some sections of the country these
rates range from 6 to 10 per cent and are still paid by many borrowers i'tt spite
of the discount rate of
per cent.
In many agricultural sections, moreover,
a great majority of the commercial banks are not members of the Federal reserve
system, and under such conditions it would be difficult for the Federal re
serve banks to exercise any great influence'over the higher level of interest
rates for those districts.
In fact, the discount rates of none of the Federal
reserve banks can be said to be effective at the present time in the sense that
they are a controlling factor in the general level of interest rates#
It
should be noted in this connection that discount rates of Federal reserve
banks are not fixed with the idea of enabling member banks to make a profit.
V7Commercial banks are not primarily borrowing institutions; they are lenders,
and foi tnem to borrow in order to lend at a profit is universally recognized
as unsound practice.
The primary purpose of reserve institutions is to as
sist commercial banks in times of unusual or emergency demands rather than
to extend a permanent line of credit on which member banks can make a profit.
In connection with this whole q u e stio n of discount rates and the function
of reserve institutions, it is significant that in England and other European
countries the bank rate is almost constantly higher than market rates on
discountable paper.
Since the entrance of the Whited States into the ïïcrld
War in 1917, however, the rates of Federal reserve banks have been lower than
rates charged by member banks on practically all paper rediscounted,
Tihile the Treasury welcomes any public discussion or suggestions with
reference to its policies, I realize that much harm has been done by charges
against the Federal reserve system by those who are neither familiar with
the facts nor the fundamental economic principles involved.
These charges
have inflamed the minds of the public in certain sections with wholly imagin
ary evils and injustices, and any contribution that you can make towards the
better understanding of our banking and financial system will be a public
service.
I fully appreciate the conditions in certain agricultural districts
but in my opinion the farmer*s greatest enemies to-day are those who, posing
as his champions, lead him into the belief that his ills can be cured by pot'cal measures rather than through the necessary economic adjustments and who
to divert him from facing the facts in the case by indiscriminate attacks
on existing institutions.
What the f a ^ e r needs above all eise at this tJj##
is sound constructive statesmanship.
Very truly yours,
(Signed) A* W. M&lLOïî,
Secretary of the Treasury,
Mr, James E* Clark,
Editor, .American Bankers
Association Journal,
110 East 42nd Street,
New York City.
¡äm-- -
2 b
f l Z f
The Growth o f Tax Exempt S e c u r it ie s in the U nited S ta te s
• The amount of State and local securities outstanding in
the United States has increased with greater rapidity than the
amount of corporate and other securities (exclusive of United
S ta te s Government s e c u r it ie s ) during the p a st few y e a r s , as
shown in the following tables:
Table 1 .
Total Securities floated in the United States,
Total State and Local Securities, and . .
Per Cent of State and Local to
Total 1912 - 1923.
(000,000 omitted)
Year
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
Total Securities Floated
in the United States (ex
clusive of U. S. Gov*t.
obligations)
$ 3,952(1)
2,952(1)
2,998(1)
3,998(1)
5,438(1)
3,641(1)
2,877(1)
4,286
4,010
4,204
5,245
4,986
T o ta l S ta te and Local
S e c u r it ie s F lo a te d in
th e U nited S ta te s .
$
387
403
474
499
457
451
297
692
683
1,209
1,102
1,032
Per cent
o f S ta te
and L ocal
to T o ta l.
9.79
13.65
15.81
13*48
8.40
12.39
10.32
16.15
17.03
28.76
21.01
20.70
(1) The figures of total securities floated in the United States 1912-1918 are
estimates made by the Harvard University Committee on Economic Eesearch
based upon data from various sources. They are supposed to include ^bo *h
foreign and domestic securities, new and refunding, floated in the United
States during the period in question. All other figures are taken from
the Commercial and Financial Chronicle.
-2MISJI,
Hovr Capital Issues of Corporations and States and Munìcipnlities
in thè United -States
1913 - 1933
Year
Amounts
Corporate
State and Local
securities
securi^ipe
inles timbers (1919 basis)
Corporate
State and Local
securities
securities
1913
$ 1,646,000,000
$ 376,234,691
71
55
1914
1,437,000,000
464,727,871
62
69
1915
1,435,000,000
466,433,730
62
69
1916
2,187,000,000
433,735,031
95
64
1917
1,530,000,000
435,873,593
66
64 '
1918
1,345,000,000
286,831,077
58
1919
2,303,328,636
678,187,262
100
100
1920
2,710,011,385
671,765.574
118
99
1921
1,823,004,851
1,199,396,561
79
177
1923
2,335,734,207
1,070,901,057
101
158
1923
2,730,796,153
1,013,786,164
119
149
4
42
••
I Corporate issues 1913 * 1918 from Review of Economic Statistics (Harvard University
|Press) May 25, 1921, p, 98. Includes "both new and refunding issues; these figures
include only those which have been reported and not additional estimates. All
other figures from the Commercial and Financial Chronicle,
Table I shows that state and local securities have constituted a much larger
proportion of the securities floated in the United States since 1919 than they
did in earlier years. Table II differs from Table I in that only corporate se
curities have been used in the first eoitau and that refunding issues have been
omitted wherever possible.
In the eleven years shown the amount of state and local
securities issued annually has Increased with greater rapidity than the amount of
corporate securities.
The index numbers show that the great increase in the state
and local securities issued in the last three years has not been paralleled by
issues of corporate securities.
Table III
Estimated .Amount of Wholly Tax: Exempt Securities in
the United States, Exclusive of those held in
Treasury, Sinking and Trust Funds. 1912 -1923(1)
December 31
1912
1913
1914
1915
Tax Exempt Securities
$
4,086,000,000
4,338,000,000
4,789,000,000
5,188,000,000
1916
5,623,000,000
1917
7,994,000,000
1918
7,707,000,000(2)
1919
8,506,000.000(3)
1920
9,804,000,000
1921
10,586,000,000
1922
11,321,000,000
1923
12*309,000,000
(1) The figures for state and local debt for 1912 and 1922 are based on the
ensus compilations* For the intermediate years interpolations have
^a6^8 of aimual issues. The actual amounts of Federal
government and Farm loan tax-exempt issues have been added to the es
timates for each year.
(2) The decline in 1918 was due to the fact that very few state and local
*ssue^»
over half a billion of wholly tax-exempt First
niDerty 3f per cent bonds were converted during the year to 4's o r # « s
. .
which are not wholly tax-exempt.
(3) This does not include the Victory 3f per cent notes outstanding, as
l f:l f f t S for,th® Victory 3ji s and 4j*s were not available for
1919. The Victory 3§<s are included in 1920 and 1921, hut not in 1922,
as they matured before the end of the year.
- 4 —
Table III includes all wholly tax-exempt securities outstanding
except those in the United States Treasury, sinking funds and trust
funds#
Both in 1912 and in 1922 the state and local securities composed
about three-fourths of the total tax-exempt securities outstanding.
Reliable figures as to the amounts of all other securities outstanding
are not available.
Treasury Department
April 5» 1924.
ESTIMATED AMOUNT OF T7HQLLY TAX EXEMPT SECURITIES OUTSTANDING
" FEBRUARY 29. 1924.“
-7
( 1)
(Revised basis)
Issued “by
Amount held in , Amount held outTreasury or in
side of Treasury
____________ ___________________ _____ sinking funds
and sinking funds
States, counties,
cities, etc,
Gross Amount
(2)
$ 11 378 000 000
$ 9 671 000 000
$1,707 000 000
Territories, insular
possessions, and
District of Columbia
125 000 000
20 000 000
United States Govern
ment
2 294 000 000
755 000 000
Federal land hanks,
intermediate credit
hanks, and joint stock
land hanks
1 310 000 000
Total Eeh, 29,1924
$15 107 000 000
104 000 000
$2 586 000 000
1 206 000 000
$12 521 000 000
Comparative totals:
December 31, 1923
$14 885 000 000
$2 564 000 000
$12 321 000 000
December 31, 1922
13 652 000 000
2 331 000 000
11 321 000 000
December 31, 1918
• 9 506 000 000
1 799 000 000
7 707 000 000
December 31, 1912
3 554 000 000
1 468 000 000
4 086 000 000
(1*)
(2)
(3)
(4)
(5)
(3)
105 :000
. . 000
#
(4)
1 539 000 000
( 5)
Since issuing the estimate of January 1, 1924, the method of estimating
has been revised and as a result both the gross amount of securities
outstanding and the amount held in sinking funds have heen substantially
increased hut the net amount outstanding except for the normal growth
has heen changed hut slightly,
Total amount of state and local sinking funds.
Total amount of sinking funds and amount held in trust by the Treasurer
of the United States*
Amount held in trust by the Treasurer of the United States.
See Hote (4), also partly owned by the United States Government,
G p ^ Z j? S , / ? * > V .
Strike out from line 15, page 38, to line 16, page 40, inclu
sive, and insert in lieu thereof the followiig:
1 per centum of the amount by which the net income exceeds
$10,000 and does not exceed $12,000;
2 per centum of the amount by which the net income exceeds
$12,000 and does not exceed $14,000;
3 per centum of the amount by which the net income exceeds
$14,000 and does not exceed $16,000;
4 per centum of the amount by which the net income exceeds
$16,000 and does not exceed $18,000;
5 per centum of the amount by which the net income exceeds
$18,000 and does not exceed $20,000;
6 per centum of the amount by which the net income exceeds
$20,000 and does not exceed $22,000;
7 per centum of the amount by which the net income exceeds
$22,000 and does not exceed $24,000;
8 per centum of the amount by which the net income exceeds
$24,000 and does not exceed $28,000;
9 per centum of the amount by which the net income exceeds
$28,000 and does not exceed $32,000;
10 per centum of thé amount by which the net income exceeds
$32,000 and does not exceed $36,000;
11 per centum of the amount by which the net income exceeds
$36,000 and does not exceed $40,000;
12 per centum of the amount by which the net income exceeds
$40,000 and does not exceed $44,000;
13 per centum of the amount by which the net income exceeds
$44,000 and does not exceed $48,000;
14 per centum of the amount by which the net income exceeds
$487000"ah& does not exceed $52,000;
15 per centum of the amount by which the net income exceeds
$52,000'and does not exceed $56,000;
16 per centum of the amount by which the net income exceeds
$56,000 and does not exceed $60,000;
17 per centum of the amount by which the net income exceeds
$60,000 and does not exceed $64,000;
18 per centum of the amount by which the net income exceeds
$64,000 and does not exceed $68,000;
19 per centum of the amount by which the net income exceeds
$68,000 and does not exceed $72,000;
20 per centum of the amount by which the net income exceeds
$72,000 and does not exceed $76,000;
21 per centum of the amount by which the net income exceeds
$76,000 and does not exceed $80,000;
22 per centum of the amount by which the net income exceeds
$80,000 and does not exceed $84,000;
23 per centum of the amount by which the net income exceeds
$84,000 and does not exceed $88,000;
24 per centum of the amount by which the net income exceeds
$88,000 and does not exceed $92,000;
25 per centum of the amount by which the net income exceeds
$92,000 and does not exceed $96,000;
26 per centum of the amount by which the net income exceeds
$96,000 and does not exceed $100,000;
27 per centum of the amount by which the net income exceeds
$100,000 and does not exceed $150,000;
28 per centum of the amount by which the net income exceeds
$150,000 and does not exceed $200,000;
29 per centum of the amount by which the net income exceeds
$200,000 and does not exceed $250,000;
30 per centum of the amount by which the net income exceeds
$250,000 and does not exceed $300,000;
” •.31 per centum of the amount by which the net income exceeds
$300,000 and does not exceed $350,000;
3
32 per centum of the amount by which the net income exceeds
$350,000 and does not exceed $400,000;
33 per centum of the amount by which the net income exceeds
$400,000 and does not exceed $450,000;
34 per centum of the amount by which the net income exceeds
$450,000 and does not exceed $500,000;
35 per centum of the amount by which the net income exceeds
$500,000 and does not exceed $750,000;
36 per centum of the amount by which the net income exceeds
$750,000 and does not exceed $1,000,000;
37 per centum of the amount by which the net income exceeds
$1 ,000 ,000 *
w.
of Secretary Mellon to tlie President in connection
WiUl the 1 investigation of the Bureau of Internal Revenue.
April 10, 1924.
Beiar Mr. President;
On March 12, 1924, by S. Res. 168, the Senate appointed a
special committee to investigate the Bureau of Internal Revenue
and suggest corrective legislation.
spirit of the resolution.
Senator Couzens was the moving
In urging the appointment of the commit
tee his purpose was ostensibly to obtain information upon which to
recommend to the Senate constructive reforms in law and in adminis
tration.
With such a purpose I am entirely in accord.
From the
line of investigation selected b y Senator Couzens and by the at
mosphere which he has seen fit to inject into the inquiry, it is
now oovious that his sole purpose is to vent some personal griev
ance against me,
All companies in which I have been interested
have been sought out.
I have aided in obtaining from them the
iver of their right to privacy and in the delivery of their in
come, tax returns in complete detail to the committee.
This inves
tigation has disclosed that no company in which I may have been in
terested has received any different or better treatment than any
other taxpayer.
The inquiry, so far as showing that I favored my
o n interests, has failed completely.
Any constructive purpose of
the committee has now been abandoned.
At a meeting of the committee yesterday Senator Couzens car
ried a resolution, against the objection of the two Republican
2 w*
members, empowering F ra n cis J . Heney to assume charge o f the
in v e s t ig a tio n and to conduct the exam ination o f w itn e s s e s , w ith
the understanding e x p r e s s ly s ta te d in the r e s o lu tio n th at n e ith e r
th e committee nor the Government pay Heney's compensation.
In
e f f e c t , a p r iv a te in d iv id u a l i s a u th o rized to in v e s t ig a te g e n e r a lly
an E xecu tive department o f the Government.
S h is in d iv id u a l i s p aid
not by th e Senate or i t s committee, but Senator Couzens a lo n e .
As S e c ie ta r y o f th e Treasury I have charge o f the fin a n ces o f
the n a tio n .
The Treasury touches d i r e c t l y o r in d ir e c t ly every
person and in the sound conduct o f i t s b usiness a f f e c t s th e i n .
strial life of the United States,
g
Already the present investi-
ion has greatly injured the efficiency of the income tax or
ganization and the sufferer is not the Government but every tax
payer.
Attacks such as these seriously impair the morale of the
60,000
employees of the Department throughout the country.
Gov
ernment business cannot continue to be conducted under frequent
interference by investigations of Corgress, entirely destructive
in their character.
if the interposition of private resources
to permitted to interfere with the Executive administration of
Government, the machinery of Government will cease to function.
X owe to you and to the people of the United States the duty
to see that the Treasury conduct efficiently and faithfully the
great tasks continuously presented to it, that its integrity be
preserved, and that its future be insured.
!Ehi8 has been my sole
•
3
-
thought as head of this Department*
When, through unnecessary in
terference, the proper exercise of this duty is rendered impossible,
X must advise you that neither X nor any other man of character can
longer take responsibility for the Treasury,
Government by investi
gation is not Government,
Faithfully yours,
(Signed)
A* W, MELLON
Secretary of the Treasury
The President,
The White House.
Letter of resignation of Dr* Adams to the Sendte Committee
Investigating the Bureau of Internal Revenue*
Washington, D* C., .April 11, 1924*
Hon* James E. Watson,
Chairman, Select Committee to investigate
the Bureau of Internal Revenue*
My dear Senator Watson:
When I agreed to assist in the work of your Committee, it was
understood that I should confine my efforts largely to the constructive
work of the Committee*
Recent developments within the Committee indi«*
•
cate that its constructive work is likely to he postponed indefinitely,
and on this account I request the Committee to accept ray resignation
to take effect on the receipt of this coraraimication*
!Ihe important shortcomings of the Bureau cf Internal Revenue lie
on or near the surface.
They are known to hundreds of people conversant
with the work of the Bureau*
They are grave, hut they are obvious*
To
exploit them gratuitously, to probe for the sake of probing, impresses
me - if I may say so without offense - as a particularly demoralizing
form of child*s play.
The task worth attempting, the man*s work in this
connection, is to devise and institute adequate remedies.
The Bureau of Internal Revenue is charged with the responsibility
of administering, throughout
nation of 110,000,000 people, some of the
t
most complicated and burdensome taxes ever adopted by a self-governing
people.
The Bureau employs in its work over 19,000 persons, who assess
and collect $2,500,000,000 taxes, and at the present time are authorizing
for payment over $100,000,000 refunds, annually*
Under such circumstances
there must inevitably occur mistakes in judgment, instances of favor-,
it ism, and sporadic cases of actual graft,
difficulty in finding cases of each kind*
The Committee will have no
But they signify nothing,
unless there is reason to believe that graft and favoritism are wide
spread and chronic in the work of the Bureau*
I am not familiar with,
and therefore cannot speak about, the prohibition-enforcement work of the
Bureau.
But I have been rather intimately familiar with its tax
functions since the summer of 1917;
2 know that the personnel of the
Bureau has been singularly clean; that its responsible officials have been,
with few exceptions, zealous and intelligent; that its leaders have fought
with v.jgor and success the interjection of politics and politicians of the
undersirable type.
The Bureau deserves the respect and gratitude of the
American people,
Remember this crucial fact about the work of tax officials*
They
are called upon to decide, in wholesale quantity, extremely complicated
cases, which frequently turn upon distinctions of metaphysical nicety,
or upon new points which can be decided almost as easily one way as
another.
The men who decide these questions are caught in a barrage of
cross-fires*
if they decide against the taxpayer, they bring down upon
themselves tue taxpayers enmity and frequently the enmity of his political
friends.
If they decide against the Government, they expose themselves
not infrequently to whispered accusation and slanderous attacks from
some disgruntled subordinate * who because he has not been promoted as
rap-dly as he thinks just or, for other reasons, nurses a suppressed
grudge against his superior officer,
And on top of this is the danger of
investigation by harassed Congressmen who can not possibly take time to
investigate these decisions as thoroughly as they must be investigated to
pass fair judgment upon them.
üíÉÉaÉÉÉ
~
3
-
l2he Bureau does not deserve and can not bear* without
demoralization much more buffeting.
The brief investigation
already made has practically stopped some of its most important
activities.
Decisions and settlements which should be made,
either to collect needed revenue for the Government or to relieve
harassed taxpayers from further apprehension, are being held up,
throughout many sections of the Bureau the attitude towards the
taxpayer has become strained and unnatural,
timid type are evading responsibility.
Officials of the
Others have stiffened their
attitude and are now deciding points against the taxpayer which a
few weeks ago they would have decided in his favor.
Officials
of the belligerent type are tempted to let down the bars in sheer
defiance of what they regard as unmerited criticism#
Intricate tax
laws can not be fairly administered in an atmosphere charged with
suspicion, misconstruction of motive, and accusation of graft.
The federal income tax, as it actually works, is not
merely defective; it has reached a condition of inequality the
gravity of which could scarcely be exaggerated.
But the ovil
goes bacic not to administrative inefficiency or personal dereliction,
but to the complexity of the lav; and the fundamental, conditions of
public service in the United States.
How long will it- bo before
Congress seriously undertakes to solve these difficult problems?
Must hiere be laid upon the legislative altar the burnt sacrifice of
smirched reputation and blasted character, before anything adequate
will bo done?
Have jre reached the stage where nothing short of scandal
and graft will prompt remedial action?
1
If so* there are evils even more menacing than the
degeneracy of the federal income ta x with which the .American
public must cope*
Yours very truly,
(Signed)
s* m m s
Remarks by Secretary Mellon at the Dinner of the
Pittsburgh Chamber of Commerce, Pittsburgh, Saturday Evening,
April 12, 1924*
It is hard to find words to express my deep appreciation of
the honor done me by your organization, composed as it is of my
friends, neighbors and associates, and I set high value upon and
shall always greatly prize this token of your regard for me.
I am not given to public speaking but even if I were blessed
with great ability in that regard I am afraid ray effort could
not do Justice to my sense of obligation for your kindness,
I
think the great pleasure of one’s life comes from retaining the
cherished friendship and regard of our old friends.
I have thought you would like to have me say something bearing
upon my work in Washington,
So I have prepared a few remarks for
which I ask your indulgence as I read them.
Government is more than a theory.
In the handling of the
affairs of a country as great as ours, its multitude of details,
its number of servants, and its effect upon the private life of
every citizen, it is a business and can only be run upon business
principles.
ployees.
The Department of which I am the head has 60,000 emv
In customs and internal revenue it collects over three
billion dollars a year.
In the Internal Revenue alone there are
20,000 employees, and it is in their prompt administration of law
that every taxpayer is vitally interested.
You gentlemen are familiar with large businesses and know the
difficulties under the best conditions of securing efficient operation.
To appreciate the additional hardens which Government business mast hear,
Just add to your troubles these factors;
from the Civil Service.
Your employees mast be selected
Once in, it is difficult to remove any one, and
political pressure is continually being applied to the promotion or
retention of undeserving employees.
Your salaries to your principal men
are limited and are inadequate to procure able men or to retain those men
who have shown ability in the service.
tions is very high.
Labor turnover in the key posi
The housing facilities are inadequate and in Wash
ington the Internal Revenue is in nine buildings scattered about town.
These are our ordinary difficulties.
To these there recently has
been added government by investigation of Congress,
I can show you
briefly what it means to have the Legislature depart from the sphere
given it under the Constitution and proceed to take apart the machinery
of the Executive.
A month ago a select committee of the Senate was appointed to inves
tigate the Bureau of Internal Revenue.
Its purpose was laudable - to
recommend improvements in the law and its administration.
Its real
purpose seems to be a personal attack upon me or an effort to develop
scandal.
What have been the effects in one month?
In the Income Tax
Unit, production, that is, determination of disputed tax liability, has
dropped fifty per cent.
In the Natural Resources Division, where values
are obtained, work has practically ceased, and the time of the division
is devoted to furnishing information to the Senate committee, Employees
throughout the Bureau are more interested in reading about and discussing
the investigation than in work, and adequate supervision can scarcely be
maintained.
In any close case, a man, because he fears that he too may
he criticised, refuses to act impartially and automatically decides the
question in favor of the Government, leaving the taxpayer to such relief
as the courts may ultimately give him,
Ho one knows when a prosecutor,
under Government authority and private pay, may haul him before a commit
tee and pillory fr^m on the stand.
The morale of the expire organization
Sr
is destroyed,
Unless some end is "brought to this unnecessary inter
ference, government will cease to function,
Let us consider for a moment what the investigation has accomplished
to date.
The committee has made inquiry into every company in which I
may have been interested,
Nowhere has it been shown that a company has
been favored because X happen to be a stockholder.
is probable that the reverse has been the case.
On the contrary it
As a matter of fact,
X think the investigation has shown that favoritism through connivance of
Government employees is practically impossible.
Too many different di
visions and too many different employees in each division, each jealous
of his opinion, have to pass on every claim.
Certainly no fraud has been
shown, although nearly every discharged employee has rushed to present
his suspicions to Senator Couzens,
We have, then, added to the ordinary difficulties of Government
business, Congressional investigations, disingenuous in nature and
paralyzing in effect.
It has been my experience in Washington that there is a sense of
service and a pride in position which have "brought to the Government a
better, a more honest, and a more honorable class of servant tban private
industry can command upon anything like the same terms.
The value of
-4~
this asset is incalculable, hut it is rapidly being destroyed.
Public
service is now a target for public abuse, not an honor*
However, I hope and, believe that it is a passing phase which may
soon disappear, to he succeeded by a return to orderly procedure,
I thank you for your kind attention and again for your delightful
and cordial reception,
4*21-24
SURTAK HATES IMPER POTEBSMÉ PP-AHS
Gainer Longviorth
1-1/2$
0$
Brackets
10,Ô5Ô
12.000
14.000
16.000
18,000
20,000
-
$"12,000
14,000
16,000
18,000
20,000
22,000
22.000
$4,000
26.000
28.000
30.000
32.000
-
34.000
36.000
38.000
40.000
42.000
44.000
1»
♦Sii&ffions: Mellon t Propose
;
t
1$
1
2
3
4
5
:
S
t
x$
2
8
4
5
6
i
i
ïf ~
2
t
3
4
5
6
1
2
3
4
5
2*ï/4
3
3-3/4
4-1/2
6
24,000
26,000
28,000
30,000
32,000
34,000
6
7
8
9
10
11
6-S /4
7-1/2
8- 1/4
9
9- 3/4
11-1/4
6
7
8
9
10
10
7
8
9
10
11
12
7
8
8
9
9
10
-
36,000
38,000
40,000
42,000
44,000
46,000
12
13
14
15
16
17
11-1/4
12
12-3/4
13-1/2
14-1/4
15
11
12
13
13
14
15
13
14
14
15
15
15
10
11
11
12
12
13
46.000
48.000
50.000
52.000
54.000
56.000
*
*
-
48,000
50,000
52,000
54,000
56,000
58,000
18
19
20
21
22
23
15-3/4
16-1/2
17-1/4
18
18-3/4
19-1/2
16
17
18
19
.19
20
16
16
16
17
17
17
13
14
14
15
15
16
58.000
60.000
62.000
64.000
•-
60,000
62,000
64,000
66,000
20-1/4
21
21-3/4
22-1/2
23-1/4
24
21
21
22
23
24
25
18
18
18
19
19
19
16
17
17
18
18
19
-
70,000
24
25-26
27-28
29-30
31
32
‘ «
-
72,000
74,000
76,000
78,000
80,000
82,000
33
34
35
36
37
38
24-3/4
25-1/2
26-1/4
27
27-3/4
28-1/2
26
26
27
28
28
29
20
20
20
21
21
21
19
20
20
21
21
22
84,000
86,000
88,000
90,000
92,000
94,000
39
40
41
42
43
AA
1*
29-1/4
30
30-3/4
31-1/2
32-1/4
33
30
31
31
32
33
34
22
22
22
23
23
23
22
23
23
24
24
25
96.000
98.000
35
36
36
37
37
38
24
24
24
25
25
25
25
26
26
27
28
29
66,000...
68.000
I
70,000
72.000
74.000
76.000
78.000
I 80,000
82,000
84,000
86,000
88,000
90,000
92,000
i
68,000
-
a *
-
mm
s
100,000
150.000
150.000
£> 200,000
200.000
44
44
44
44
AA
jrx
250.000
44
33-3/4
34-1/2
35-1/4
36
36-3/4
37- 1/2
38
39
39
39
39
40
25
25
25
25
25
25
l
44
44
44
44
.44
'S "**.*.
: 37-1/2
: 37-1/2
: 37-1/2
: 37-1/2
î 37-1/2
i
î
40
40
25
25
i
:
94.000
96.000
98.000
* z z z ,occ
300.000
350.000
400.000
450.000
500.000
750.000
Over - -
—
~
—
100,000
-«anyt aq p f r w r
350.000
400.000
450.000
500.000
750,000
1 ,000,000
1 ,000,000
■■*-—
1
:
:
:
:
:
: 44
î 44
37-1/2
37-1/2
î
i
:
:
:
30
31
32
33
34
35
36
37
4-21-24
ESTIMATED REVEHUE FROM SURTAX RATES, .APPLIED TO
ESTIMATED IRGOME TAX RETURNS.
1923 returns.
Plan.
Second year
after passage.
$438,000,000
$286,000,000
Lorgnerth
391,000,000
380,000,000
Simrrons
373,700,000
370,000,000
Mellon
332,700,000
439,000,000
Proposed
338,600,000
400,000,000
Garner
&
Treasury Department
May 3, 1924.
ESTIMATED MOUNT OE WHOLLY TAX EXEMPT SECURITIES OHTSTANDING
March 31, 1924.
Kec'icO (^)
(Revised ‘
Issued by
ates, counties,
Pities, etc.
pritories, insular
possessions', and
District of Columbia
Amount held in
Treasury or in
sinking funds
Gross Amount
$ 11,454,000,000
Amount held out.side of Treasury
and sinking funds
$ 1*718,000,0Co(2) ' $
9*736,000,000
125,000,000
20,000,000(3)
105,000,000
lied States GovernBent .
2,294,COO,00J
757,000,000(4)
1,537,000,000
ieral land banks in
termediate credit
banks and joint stock
(Land banks- ■
> •’
1,313,000,000
104,000,000^'
1,209,000,000
lal March 31,1924
15,186,000,000
fcparative totals'; .
December 31, 1923..
$ 14,285,000,000
..
$ 2 ;599,000,000 >
$ 12,587,000,000 -
$ 2,564,000,000
$ 12,321,000 9000
December 31, 1922
13,652,000,000
December 31, 1918
9,506,000,000
..1,7.99,000,000
7,707,000,000
December. .31, 1912
5,554,000,000
• 1,468,000,000 .
4,086,000,000
2,331,000,000- -
11,321,000,000 •
i Since issuing the estimate of January 1* 1924, the method of estimating
has-been revised and as a result both the .gross amount of securities, out
standing and the amount held in sinkirg funds have been substantially .
I increased but the. net amount outstanding-except for "the normal growth has
been changed but slightly...
To-* > amount of state and.-locai-sinkirg funds&
*
Total amount of_ .sinkirg. funds and amount held in trust bv the Treasurer
of the United States.
| Amount held in trust by the Treasurer of'the United States.
I See Uote (4) , also partly owned by the'United States Government.
Sy/LAAl Ii
TO
THD HOÜSB OF REt^ERTATIVES:
Herewith is returned, without approval, K. R* 7959, f> oill'*to
provide adjusted compensation for veterans of tho \7oril War, and for
othor purposes,”
The bill provides a bonus 1 e r bhc v e t e r a n s o f th e World War and
dependents of those who fell.
To certain of it? beneficiaries whose
TnflyTnirm benefits do not exceed $50, this bonus is to ha paid tinnediately
in cash*
To each of its beneficiaries who arc net t o receive such im
mediate cash payment, there is to be provided iree insurance under a
twenty-year endowment plan.
The face value of each pcxicy will be based
upon the military service, the average amount being at lesvt $982, payable
at the expiration of ifiK^y^arn
at death prior thereto*
-After the
lapse of two years the holder of s policy nay borrow thereon from barhs
at reasonable rates of interest.
If amounts
Dorrcwed are not repaid
by the veteran the Government is obligated to pay so the banks this in
debtedness which ultimately reduces the maturity value of the policy.
An appropriation cf $!<&€,u00,000 for the fiscal year 1925 »/ill be
required to provide the prorated annual cost of the insurance snn to meet
cash payments to
those
not receiving such insurance.
clude administrative costs, which will amount
the first year«
This does not in
rpproxinaiely $6,500,000
For the fiscal year 1926 an appropriation of #135*300,000
will be required and the annual appropriât5.one for the twenty-year period
will aggregate, according to the lowest estimate, $2,,2SO,758,542-
Thèse
and the other figure's herein are from the Veterans* Bureau, but the Treasury
estimates are materially more*
That part of tho annual appropriation not required to meet the
cash bonus or to pay policies maturing on account of death will he invested
in (Jovernment bends*
Tho face value of tho bonds thus acquired plus the
interest thereon reinvested will equal during the twepfcy-yoar period the
maturity value of the insurance policies, aggregating at tne lowest estimate
$3.145,000,000*
</
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The money spent for the acquisition Of these bonds manifestly
cannot be spent for any other purpose, nr> «?atter how urgent our other
requirements may be*
In other words, we will be coirmitting this naticn
for a period of tv/onty years to an additional average annual appropria
tion of $114*000?Q00*
This of itself should require most serious
reflection, but if we are to have such commitment it should be in some •
form which would be in harmony with recognised principles of Government
finance*
The provisions of this bill are not so in harmony.
Under it
the Government will not have in the fund in 1945 two and a h$lf billions
of dollars*
Alliit will have will be its own obligations, and it will
owe two and a half billions of dollars cash*
It will then be necessary
to sell to the public this two and a half billions of bonds —
a major
operation in finance which;may be disastrous at that time and ray
jeopardize the value of Federal securities then outstanding«.
v‘
/o have no money to bestow upon a class of people that is not taken
from the whole poopuo.
Our first concern must be the nation as a whole*
This outweighs in its importance the consideration of a class and the
latter must yield to the former«
The one compelling desire and demand
of the people todays irrespective of party or class, itf for tax relief.
The people have labored during the last six years under a heavy tax
burden*
This was necessary to meat the extraordinary costs of the war*
This heavy assessment has been met willingly and without complaint*
We
have now reached a financial condition which permits us to lighten this
tax burden.
If this bills beccmes law, we wipe out at once almost all
the progress five hard years have accomplished in reducing the national
debt*
If we now confer upon a class a gratuity such as is contemplated
by this bill we diminish to the extent of the expenditures involved the
benefits of reduced taxes Y/hich will flow not only to this el&ss, but to
the entiro vpooplo. When it is considered that loss than $40 a year would
pay for the average policy provided by this bill, th0re is strong ground
to assume that the veterans themselves would bo better off to make that
small payment and be relieved of the attendant high taxes and high living costs which such legislation would impose upon them*
Country woild*
Certainly the
We have hardly an economic ill today Y/hich cannot be
attributed directly or indirectly to high taxes*
\
L prosperity of the nation, which is the prosperity of the people, rests
primarily on reducing the existing tax burden*
iourage business*
agriculture*
penditures
No other legislative p n n . c . w o u l d do so much to relieve
The drastic executive campaign for economy in Government ex
has but one purpose - that its benefits may accrue to the whole
people in the form of reduction in taxes*.
purpose*
No other notion would so en-
I carpet recede from this
I am for the interests of the who"e people.
The expenditures
¡proposed in this bill are against the interests of the whole people*
I do
¡not believe they are for the benefit of the veterans*
The running expense,?, of the Government for services and supplies
must be met*
Certain other obligations in the nature of investments for
improvements and buildings are necessary, and often result in a saving.
The
debts of the nation must be pa id, The sum of all these is a tremendous
amount*
At the present rate it is nearly C35 for each resident of our
country, or $175 for each average family every year* and must be for some time*
This bill calls for a further expenditure in the aggregate of nearly $35 for each
inhabitant, and lays nearly £175 more on each family, to be spread over a
period of twenty years*
No one supposes the effort will stop here*
Already
suggestions are made for a cash bonus, in addition, to be paid at once«
action logically would be encouraged, if this bill becomes law*
rich nor the profiteers will meet this expense.
Neither the
All of this enormous sum
has to be earned by the people of this country through their toil.
taken from the returns of their production*
Such
It is
They must earn it, they must
pay it* The people of this country ought not to bo required by their Govern
ment to bear any such additional burden.
treatment*
They are not deserving of any such
Our business is not to impose upon then, but to protect then*
If this bill be considered as insurance, the opportunity for such
a provision had already been provided*
Nearly £3,000,000,000 of war risk and
government life insurance is now outstanding, and over £500,000,000 has
I been paid on such policies/* When this provision was made in 1917, it was
1
on the explicit understanding of the Congress that such insurance was to
relieve the Government of subsequent contributions*
The then Secretary of
the Treasury said in relation to the proposed insurance act:
"it ought to
check any further attempts at service pension legislation by enabling a nan
now to provide against impairment through old age, total disability or death
resulting from other causes, and to give all this protection to those kindred
who may be dependent upon him and who do not share in the Government compen
sation*" This opportunity was afforded all those v/ho entered the service,
It was distinctly understood that it covered every obligation on the part
of the Government*
The intent of this hill now to provide free insurance
lacks both a legal or moral requirement, and falls into the position of a
plain gratuity.
Considering this bill from the standpoint of its intrinsic merit,
I see no justification for its enactment into law,
\7e owe no bonus to able- •
bodied veterans of the \7orld T/ar* The first duty of every citizen is to the
nation*
The veterans of the ’.orId Tfer performed this first duty.
To confer
upon them a cash consideration or its equivalent for performing this first
duty in unjustified.
It is not justified, when considered in the interests
of the whole people; it is not justified when considered alone on its own
merits.
The gratitude of the nation to these veterans cannot be expressed in
dollars and cents,
¡Jo way exists by which we can either equalize the burdens
or give adequate financial reward to those who served the nation in both civil
and military capacities in time of war.
The respect and honor of their
country will rightfully be theirs for evermore.
But patriotism can neither
be bought nor sold.
It is not material, but
spiritual.
It is not hire and salary*
It is one of the finest and highest of human virtues,
To
attempt to pay money for it is to offer it an unworthy indignity which
cheapens, debases and destroys it.
Those The would really honor patriotism
should strive to match it with an equal courage, with an equal fidelity to
the welfare of their country, and an equal faith in the cause of righteous
ness,
I am not unmindful that this bill also embraces within its pro
visions the disabled of our veterans and the dependents of those who fell*
To
state that the disabled veterans and these dependents are entitled to this
additional gratuity is to state that the ration is not meeting its obligation
to them.
Such a statement cannot truthfully be mde*
The nation has
spent more than two billion dollars in behalf of disabled veterans and
dependents of those vho died.
It is now spending for compensation, training,
insurance and hospitalization more than *400,000,000 annually.
Solicitude
for the disabled veterans and the dependents of those vflio lost their lives
is the ration’s solicitude.
Th minister to their every need is a sacred
obligation which will be generously and gratefully met.
ready to ©spend any amount needed for their proper care.
object of this bill.
The ration stands
But that is not the
-5'
America. entered. the World War v/ith a higher purpose than to secure
material gain.
Not greet*, but duty, was the impelling motive.
veterans as a whole Responded to that motive.
Our
They are not asking as a
whole, they do not want as a whole, any money recompense.
Those who do
seek a money recompense, for tho most part of course, prefer an immediate
cash payment.
this bill.
We must either abandon our theory of patriotism or abandon
Patriotism which is
bought and paid for is not patriotism*
Our country has maintained the principle that our Government is establish
ed for sometning higher and fines vhan to permit those who are charged
with the responsibility of office, or any class whose favor they might
seek, to get whsfcfcythey can oat* of it«
war means sacrifice.
revere it,
Service to our country in time of
It is for that reason alone that we honor and
To attempt to make a money payment out of the earnings of j\
the people to those who are physically well and financially able is to
abandon one of our most cherished American ideals.
noople belongs to the people.
To take it from them by taxation cannot
be justified except by urgent public necessity.
be recognized our country is no longer secure,
free.
The property of the
Unless this principle
our people no longer
This bill would condemnthose who are weak to turn over a part of
their earnings to those who are
strong,,
The veterans as a whole do not want it*
opposed to it*
All our American principles are
There is no moral justification for it.
CALVIN COOLIDGE
THE WHITE HOUSE,
May 15, 1924,
Ourcountry cannot afford it.
May 28, 1924,
My dear Mr, President:
X return herewith the Revenue Bill of 1924.
As a permanent expression of Government fiscal policy
this hill contains provisions which, in my opinion, are not only
unsatisfactory hut are harmful to the future of this country.
Ihe reduction of high surtaxes from SO t o -40' per cent
is quite immaterial to accomplish a real improvement in the law,
tte resolution for a constitutional amendment giviig to' the States
and the Federal Government reciprocal rights of taxation on se
curities issued hy the other, which you urged in your
sage to Congress, failed of passage.
Mes_
The suggestion of reaching
in part the abuse of tax-exemption by limiting the deduction for
interest of a non-business character to the amount that such
interest exceeds the tax-exempt revenue of the taxpayer, haw not
been adopts^.
With some $12,000,000,000 of tax-exempt securities
now outstanding, and $1,000,000,000 of new issues each year, it
is idle to propose high surtaxes.
A man with large inherited or
accumulated capital is told he must pay one-half of his income to
the Government if he invests it in productive business, but he is
invited to be relieved of all tax by the simple expedient of with
drawing from, business and investing in tax-exempt securities.
!
j
'
'
|
'*
}
-
i
!
••
/
This
2 -
does not mean that wealth in existence is taxed; it is not*
escapes*
It
It does mean, however, that initiative and new enter
prises are throttled.
While the inconsistency of high surtaxes existing side
by side with a lawfully authorized means of avoidance is obvious,
it is not simply through tax exemption that high surtaxes are
uneconomical,
The experience for the few years under high surtaxes
shows the increasing failure of these taxes as a source of revenue.
There are many means of escaping the tax, and with the settlement
of conditions abroad we may anticipate the movement of capital from
this country to other parts of the world where income is not so
penalized.
Ways will always be found to avoid taxation inherently
excessive.
We are presented,then, with a plan of taxation which
punishes energy and initiative and must decrease revenue.
Such a
plan will ultimately work harm to the country and should not be
permitted to continue much longer.
The cure does not lie in attack
ing the symptoms by other unsound penalties worse than the disease
itself, such as an undistributed surplus tax, but in correcting the
cause.
The remedy is such a reduction in the peak of the surtaxes
as will attract capital to new enterprises and prevent the continual
diminution of taxable income in the higher brackets.
In this way
alone can high living costs, the indirect tax paid by all of the
people, be reduced and the productivity of a graduated income tax
maintained.
The principles applicable to high surtaxes apply similarly
to high estate taxes.
The bill raises the estate tax to 40 per cent.
~ 3 ~
As a concomitant is added a gift tax which is a further invasion of the
rights of the citizen, both unusual in nature and ofcbubtful legality.
When there is added to this the inheritance taxes levied by the States,
there amounts to a practical confiscation of capital.
To meet these
taxes executors must realize cash on forced sales of property
with a
general lowering of all values upon which the credit structure of our
country is based, and diminishing the very source from which this
revenue comes.
It is proposed to take capital and to use it in the
ordinary operating expenses of Government,
We are thus to live, not
on income, but on principal, and to that extent we exhaust our resources
and prevent the industrial expansion essential to our increasing
population and our high standard of living.
Heretofore estate taxes
in the Federal Government have been war measures.
to use these reserves in times of peace,
It is now proposed
They should be kept for
emergencies,
The States have a very real interest in this tax.
heritance taxes constitute a material part of State revenue.
are a comparatively small factor in Federal revenue.
In
They
As the Federal
Government invades this sphere, belonging primarily to the States,
it will cut down the flow of income to the States from this tax, and
thus force the States to higher taxes from other sources, which will
mean increased land taxes.
For the sake of $12,000,000 of additional
revenue the Federal Government in its strength should not further
handicap the States, already heavily burdened with expenditures
which can be met only by taxation,
I believe also it would be ad
visable to call a conference of the taxing authorities of the States
- 4 -
and the Treasury and give consideration to some comprehensive plan
of division of this field of taxation between the various States and
the Federal Government and the el i m i m t i o n of overlapping and unfair
taxes«
Our institutions guarantee to our citisens sanctity in
their private affairs, a right giving way only to the needs of
Government,
Under the law as it now exists, the Treasury has access
to all information useful in determining the liability of the tax
payer.
For the needs of revenue, publicity is unnecessary.
While
bill purports not to give full publicity this is scarcely true,
and it still sacrifices without reason the rights of the taxpayer.
In each postoffice the amount which the citizen contributes to the
Treasury must be exhibited to the curious and to the taxpayer's
business rivals.
Committees in Congress have access to returns and
other private papers, without any restriction as to their publication
open committee or on the floor of Congress, the most certain means
of publicity.
if a taxpayer desires a hearing before the Board of
Tax Appeals he must expose to the public the complete details of
bis income.
To put this price upon the fair determination of tax
liability in its regular administrative course, is entirely unjustifiable,
Jet, such is done in the publicity provisions of the Board of Tax
Appeals.
It is not alone in the unwarranted interference with the
right of the citizen to privacy that these provisions are hurtful.
It is believed that far from increasing revenue, the desire to avoid
~
5
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tiis gratification of the idle curiosity of -»others or the exposure
of one*s personal affairs to oners competitor will result in the
concealment of millions of dollars of income which would otherwise
be reported.
This means a change in the fundamental policy of our
laws, violative of private rights, and harmful to Government revenues.
Criticism of the income tax and a large part of the dis
satisfaction with it are the result of delay and uncertainty in the
final determination of a taxpayer1s liability,
Taxes can usually
be paid within a short time after the receipt of the income on
which the tax is based without serious embarrassment.
The payment,
however, of a large additional tax on income received several years
previous and which may have since its receipt either been wiped out
by subsequent losses or invested in nonliquid assets may force a
taxpayer into bankruptcy and often causes financial sacrifice and
hardship.
Provision should be made for the prompt and final deter
mination of a taxpayer1s liability and such was the purpose in the
suggestion for a Board of Tax Appeals,
The provisions of the bill, however, with reference to
the Board, make it in all its essentials practically a court of
record.
The Board is to be bound by formal rules of evidence and
procedure.
In each case a formal record must be prepared and all
oral testimony in cases involving more than $10,000 must be re
duced to writing and an opinion in addition to the findings of
fact and a decision must be written*
A taxpayer is entitled to
-
6-
appeal to the Board “before any assessment can be made.
The reduc
tion in the salary of the members of the Board from $10,000 as
\
recommended by the Treasury to $7500 and the reduction of the term
of office of the original appointees from the 10 years recommended
to 3 years, make it difficult to secure for membership on the Board
men with training, experience, and ability,
This Board of Tax
Appeals, unable to secure the proper type of men for membership,
hampered and burdened with rules of procedure and evidence and
forced to prepare a record, a finding of fact, and a decision in
practically every case,"will be unable to handle the business which
will come to it.
The result ,!,'ill be greater delay in the final
settlement of tax cases, and may ultimately result in the complete
breakdown of the administrative machinery for the collection of
taxes.
The purpose of a tax bill is to provide the Government
with revenue, and the primary consideration on tax reduction is
the probable receipts and expenditures of the Government after the
bill becomes a law.
We shall close the fiscal year ending June 30,
next, with a surplus, but it is the next fiscal year that must have
consideration,
By far the greater part of the loss of revenue
which win be brought about by the bill is in income taxes*
Aside
from the 25 per cent credit in 1924 taxes the bill applies to
incomes received in 1924, the tax on which is payable in the
calendar year 1925,
So this income tax reduction will not be felt
pntil the last half of the fiscal year 1925.
It has been the
experience of the Treasury that 55 per cent of the total income
tax receipts for any calendar year are received in the first six
months of such year, which are the last six months of the Govern
m e n t s fiscal year. The fiscal year 1925 will receive, therefore,
55 per cent of the income tax receipts for the calendar year 1925
and will feel only six months of this tax reduction.
Under these
circumstances, after giving effect to the bonus law and the re
ductions contemplated by the bill, and provided no further com
mitments in large amounts are made by the Congress, the Treasury
may reasonably expect to conclude the fiscal year 1925 without a
deficit.
Looking beyond 1925 to later years, there are certain
factors which deserve consideration.
The excess profits and income
tax laws of the war period were new in principle and exceedingly
complicated in practice, The Treasury has not yet become current
in the ascertainment of tax liability and collection of taxes for
this period,
During the present fiscal year back taxes should add
$550,OCX),000 to Government revenue, in 1925 they should amount to
$300,000,000, and thereafter rapidly diminish.
Certainly by the
end of the fiscal year 1926 this source of revenue will be sub
stantially exhausted.
By the sale of war supplies and other war
,assets, which now constitute no material part of present revenue,
and by the collection of back taxes,an asset not yet fully spent,
the Government has been living upon capital stored up in the past,
and the surpluses which have been shown by the Treasury each year
~8ri.
would not have existed had the Government met current expenditures
solely out of current revenues.
We must, therefore, consider the
establishment for the future of such a policy of taxation as will
insure the maintenance of the sources of taxation without the aid
of these reservoirs which will soon be empty.
This means that the
policy must be so framed that it will encourage the creation of
income subject to tax, will close the most obvious methods of
avoidance, will not diminish by excessive estate taxes the very
values upon which the Federal and the State Governments must rely
for revenue, and will bring about a reduction in the high cost of
living as a means of meeting world competition.
Of the 110,000,000
people in this country less than 4,000,000 pay income taxes directly.
The remaining 106,000,000 who pay no such direct taxes are given no
relief from what they pay indirectly in everything they buy.
too must have tax reduction.
They
These conditions the present bill
does not meet*
High taxes were adopted as a war measure in 1918.,
We
have had but six years* experience under them and their detrimental
effect upon our fiscal structure is not yet fully appreciated.
To
the intelligent observer tendencies are already apparent which
indicate the stress to which this structure is being put,
I mention
as an instance the increased cost of capital for new industrial
enterprises,
prosperity.
These influences are being felt even in our present
During the after-the-war period of adjustment, the
other great nations of the world have been disturbed more than this
country.
They are not yet restored.
As a consequence, we have
been relieved of much of the world competition.
When other
-9countries return to productivity and become again the serious commercial
rivals of our people, and when we experience those periods of depres
sion, which normally follow periods of prosperity, we shottld have our
house in order by so establishing our tax system that its economic effects
will be beneficial and not harmful,
not tax reform.
T h e & 1 1 represents tax reduction,
If we are to maintain the American standard of living
and hold our place in the world, we must adjust our taxes upon an
economic and not a political basis.
The bill is presented to you for consideration less than
two weeks before the contemplated adjournment of Congress and it
provides for a credit on 1934 taxes which should become effective
before June 15th next.
journment,
No different bill can be passed before ad
The question before you is the present law or the bill
in the shape it has passed the Congress, As it stands, in its adminis
trative features generally it is an improvement on the existing law.
It will meet the needs of revenue at least through the fiscal year
1925,
The immediate relief by credit on 1924 taxes is due, is expected
by the people, and should be promptly given, and the determination
of the taxes to which 1924 incomes will be subject should be made
certain whild the income is still,being received.
As I have said, the bill'does not represent a sound per
manent tax policy and in its passage has been subject to unfortunate
influence which ought not to control fiscal questions. Still, in spite
of its obvious defects, its advantages as a temporary relief and a
temporary adjustment of business conditions, in view of the uncertainty
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of a better law within a reasonable time, lead me to believe that
the best interests Of the country would be subserved if this bill
became a law.
A correction of its defects may be left to the next
Congress.
Faithfully yours,
(Signed)
A. W. MELLON,
Secretary of the Treasury,
The President,
The TUhite House,
1 enclosure.
June 2, 1924.
statelibiit
concmmia t :i
;73ïïU£ BILL 31 PBSSIBSUT COOLIBGSt
The pass&ge of a new Revenue Bill was required for two reasons, the reduc
tion of taxation and the reform of taxation. ‘The bill as passed provides a cer
tain amount of tax reduction. It improves some of the features of administrât ip
Put it is not only lacking in tax reform, it actually adds some undesirable
features to the present law. As a permanent expression- of Government fiscal
policy this bill contains provisions which, in my opinion* are not only unsatis-?
factory but are harmful to the future of this country.
The reduction of high surtaxes from 50 to 40 per cent is quite immaterial t
accomplish a real improvement in the law. The resolution for a constitutional
amendment giving to the States and the ¿federal Government reciprocal rights of
taxation on securities issued ty the other, which was urged in my Annual Message
to the Congress, failed of passage. The suggestion of reaching in part the
abuse of tax-exempt ion by limiting the deduction for interest of a non-business
character to the amount that such interest exceeds the tax-exempt revenue of the
taxpayer, has not been adopted. With some $12,000,000,000 of tax-exempt securi-^
ties now outstanding, and $1,000,000,000 of new issues each year, it is idle to
propose high surtaxes. A man with large inherited or accumulated' capital is tol
he must pay one-half of his income to the Government if he invests it in pro
ductive business, but he is invited to be relieved of all tax by the simple ex
pedient of withdrawing from business and investing in tax-exempt securities.
This does not moan that wealth in existence is taxed; it is not. It escapes.
It does mea$»however, that initiative and new enterprises are throttled.
While the inconsistency of high surtaxes existing side by side with a law
fully authorized means of avoidance is obvious, it is not simply through tax
exemption that high surtaxes are uneconomical. The experience for the few years
under high surtaxes shows the increasing failure of these taxes as a source of
revenue. There are many means of escaping the tax, and with, the settlement of
conditions abroad we may anticipate the movement of capital from this country
to other parts of the world Y/here income is not so penalized. Ways will always
be found to avoid taxation inherently excessive. We are presented, then, with
a plan of taxation which punishes.onorgy and initiative and must decrease re
venue. Such a plan will ultimately work harm to tho country and should not bo
permitted to continue much longer. Tho cure does not lio in attacking the
symptoms by other unsound penalties worse than tho disease itself, such as an
undistributed surplus tax, but in correcting tho cause. The remedy is such a
reduction in the peak of tho surtaxes as will attract capital to new enter
prises and prevent the continual diminution of taxable income in the higher
brackets. In this wciy alone can high living costs, the indirect tax paid by
all of tho people, bo reduced and tho productivity of a graduated income tax
maintained.
I
Tho principles applicable to high surtaxes apply similarly to high estate
taxes. The bill raises the estate tax to 40 per cent. As a concomitant is
added a gift tax which is a further invasion of the rights of the citizon, both
unusual in nature and of doubtful legality. When thero is added to this the
inheritance taxes levied by tho States, there amounts to a practical confisca
tion! of capital. To meat these taxes executors must realize cash on forced
sales of property, with a general lowering of all values upon which tho credit
structure of our country is based, and diminishing the very source from which,
this revonuo conies. It is proposed to take capital and to use it in the ordi
nary operating expenses of Government. We arc thus to live* not on income,
but on principal, and to that extent wo exhaust our resources and prevent the
'Udu-strial expansion essential to our increasing population and our high
standard of StvlngtT''
been war measures. It is now proposed to uso these reserves in times of peace.
They should bo kopt for emergencies.
The States have a. very real interest in this tax. Inheritance taxes con
stitute a material part of State revenue. They are a comparatively small
vfactor in Federal revenue. As the Federal Government invades this sphere, be
longing primarily to the States, it will cut down the flow of income to the
States from this tax, and thus force the States to higher taxes from other
sources, which will mean increased land taxes. For the sake of $12,000,000 of
additional revenue the Federal Government in its strength should not further
handicap the states, already heavily burdened with expenditures which can be
met only by taxation. I believe also it would be advisable to call a confer
ence of the taxing authorities of the States and the Treasury, before the next
session of the Congress, to give consideration to some comprehensive plan of
Our of
institutions
to between
our citizens
sanctity
in their
division
this fieldguarantee
of taxation
the various
States
and private
the Federal
affairs, a and
right
way only
the needs of
Government
thegiving
elimination
ofto
overlapping
andGovernment»
unfair taxes.Under the law as
it now exists, the “
Treasury has access to all information useful in determining
the liability of the taxpayer. For the needs of revenue, publicity is unneces
sary,. While the bill purports not to give full publicity this is scarcely true,
and it still sacrifices without reason the rights of the taxpayer* In each post *
office the amount which the citizen contributes to the Treasury must be exhibi
ted to the'curious and to the taxpayer* s business rivals. Committees in Con
gress have access to returns and other private papers, without any restriction
as to their publication in open committee or on the floor of Congress, the most
certain means of publicity. If a taxpayer desires a hearing before the Board
of Tax .Appeals he must expose to the public the complete details of his income]
To put this price upon the fair determination of.tax liability in its regular
administrative course, is entirely unjustifiable. Yet, such is done in the
publicity provisions of the Board of Tax Appeals.
It is not alone in the unwarranted interference with the right of the cit
izen to privacy that these provisions are hurtful. It is believed that far from
increasing revenue, the desire to avoid the gratification of the idle curiosity
of others or the .exposure of ono*s personal affairs to oneis competitor will
result in the concealment of millions of dollars of income which would other
wise be reported. This moans a chango in the fundamental policy of our laws,
violative of privaba rights, arid harmful to Government revenues.
Criticism of the income tax and a largo part of the dissatisfaction with
it are the result of delay and uncertainty in the-final-determination of a tax
payer* s liability. Taxes can usually be paid within a short time after the re-»
ceiptof the income on which the tax is based without serious embarrassment.
The payment, however, of a large additional tax on income received several
years previous and which may have since its receipt either been wiped out by
subsequent losses or invested in nonliquid assets may force a taxpayer into
bankruptcy and often causes financial sacrifice and hardship* Provision.should
bo made for tho prompt .and final determination of a taxpayer*s liability and
such wa,s the parpóse in the suggestion for a Board of Tax Appeals.
Tho provisions of the bill, however, with reference to the Board, mako it
in all its essentials practically a court of record. The Board is to be bound
by formal rulos of evidence and procedure. In each core a. formal record must
be prepared and all oral testimony in canes involving more than $10,000 must bo
reduced to writing and an opinion in addition to tho findings of fact and a de
cision must bo written. A taxpayer -is entitled to appeal to tho Board before
any assessment can bo made. Tho reduction in tho salary of tho members of tho
Board from $10,000 as recommended by tho Treasury to $7500, and tho reduction
of tho term of office of tho originad appointees from the 10 years recommended
to 2 years, make it difficult to secure for membership on the Board men with
training, experience and ability. This Board of Tax Appeals, unable to secure
the proper type of moil for membership hampered and burdened with rules of pro
cedure and evidence and forced to preparo a record, a» finding of fact, and a
decision in practically every cane, will be unable to handle the business
which will come to it. The result will bo greater delay in the final settle
ment of tax canes, and may ultimately result in tho complete breakdown of tho
administrative machinery for the collection of taxes*
The purpose of a tax bill is to provide the Government with revenue, and
the primary consideration on tax reduction is tho probable receipts and expendi
tures of tho Government after the bill becomes a lav/. Wo sha.ll close tho fis
cal year ending Juno 30th, next with a surplus, but it is the next fiscal year
that mast have consideration. By far tho greater part of the loss of revenue
which will be brought about by the bill is in income taxes. Aside from the
25 nor cent credit in 1924 taxes tho bill applies to incomes received in 1924,
‘■Haiga
1.
[duction will not be felt until the last half of the fiscal year 1925. Under
;hoso circumstances, after giving effect to tho bonus law and the reductions
contemplated by the bill, and provided no further commitments in large amounts
arc ma.de by tho Congress, tho Treasury may reasonably expect to conchudo tho
fiscal year 1925 without a deficit.
Looking boyond 1925 to later years, there are certain factors which de
serve consideration. The excess profits and income tax laws of the war period
were now in principle and exceedingly complicated in practice. The Trea,sury has
not yet become current in the ascertainment of tax liability and collection of
taxes for this period* Wo must, therefore, consider tho establishment for the
future of such a policy of taxation as will insure the maintenance of the
sources of taxation without tho a„id of those reservoirs which will soon be
ompty. This moans that the policy must be so framed that it will encourage tho
creation of income subject to tax, will close the most obvious methods of avoid
ance, will not diminish by excessive estate taxes the very values upon which the
Federal and the State Governments must roly for revenue,and will bring about a.
reduction in the high cost of living as arncens of mooting world competition,Of
tho 110,000,000 people in this country,lcssf4,000,000 pay income taxes di
rectly. The remaining 106,000,000 who pay no such direct taxes are given no
— o —
relief from what they pay indirectly in everything they buy. They too mast have
| tax reduction*. These conditions the present hill does not meet.
high taxes were adopted as a war measure in 1318. We have had hut six years
experience under them and their detrimental effect upon our fiscal structure is
not yet fully appreciated. To the intelligent observer tendencies are already apI parent which indicate the stress to which this structure is being put. I mention
as an instance the increased cost of capital for new industrial enterprises. Those
I influences
are being felt even in our present prosperity. During the aftor-the-w&r
p&rlKi. of adjustment, the other great nations of the world have been disturbed more
than this country. They arc not yet restored. As a consequence, wo have been re
lieved of much of the world competition. When other countries return to produc
tivity and become again the serious commercial rivals of our people, cud when wo ;
experience those periods of depression, which normally follow periods of prosper
ity, wo should have our house in order by so establishing our tax: system that its
I economic effects will be beneficial and not harmful. The bill represents tax reI duction, not tax reform. If we are to maintain the American standard of living
and hold our placo in the world, we must adjust our taxes upon an economic and
not a political b asis.
,
The bill comes to me for consideration less than two weeks before the contemplate!
adjournment of Congress, and it provides for a credit on 1924 taxes
I which should
become effective before June 15th next. Wo different bill c#n be
passed before adjournment. The question before me is the present law or the
bill in the shape it has passed the Congress. As it stands, in its administrative
i, features generally it is an improvement on the existing law. It will meet the
I needs of revenue through the fiscal year 1925, and probably be sufficient for
some time if no unforeseen expenses arise. The immediate relief by credit on
1924 taxes of 25 per cent is due, is expected by the people, and should bo
I promptly given, and the determination of the taxes to which 1924 incomes will bo
( subject should be made certain while the income is still being received.
As
I have
said, are
tho supported
bill doesby
not
represent
sound permanent tax policy and
These
opinions
the
TreasuryaDepartment,
in its passage has been subject to unfortunate influence which ought not to con
trol fiscal questions. Still, in spite of its obvious defects, its advantages as
a temporary relief end a temporary adjustment of business conditions, in view of
the uncertainty of a hotter law within a reasonable time, load mo to believe that
the best interests! of the country would bo subserved if this bill became a law. A
correction of its defects may be left to tho next session of the Congress, ^1
trust a bill loss political and more truly economic may be passed at that time.
To that end I shall bond all ny energies.
THE WHITE HOUSE,
June 2, 1924.
\s
Treasury Departeen
June 4, 1924.
ESTIMATED AMOUNT OF WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
April 30, 1S24
Issued by
States, counties,,
cities, etc.
Gross Amount
Amount held in
Treasury or in
sinking funds
Amount held out
side of Treasury
and sinking funds
a)
$ 11,564,000,000
$ 1,735,000,000
127,000,000
30,000,000
United States Govern
ment
2,294,000,000
757,000,000
Federal land banks in
termediate credit
banks, and j oint
stock land banks
1,324,000,000
104,000,000
1,220,000,000
Total April 30, 1924
$15,309 ,000,000
$ 2.616,000.000
$12,693,000,000
Comparative totals:
December 31, 1923
$14,885,000,000
$ 2,564,000,000
$12,321,000,000
December 31, 1922
13,652,000,000
2,331,000,000
11,321,000,000
December 31, 1918
9,506,000,000
1,799,000,000
7,707,000,000
December 31, 1912
5,554,000,000
1,468,000,000
4,085,000,000
Territories, insular
possessions, and
District of Columbia
(l)
$ 9,829,000,000
(B)
107,000,000
(S)
1,537,000,000
(4)
iotal amount of state and local sinking funds.
-Otal maount of sinking funds and amount held in trust by the Treasurer of
the United States.
(a)
(4)
Amount held in trust by the Treasurer of the United States,
oee Hote (3), also partly owned by the United States Government.
June 5, 1924.
Dear Mi* Chairman:
Mr* Means* testimony on May 29th and 3lst before yOur
Committee, while not material to the subject of the investigation,
was obviously intended to give the impression that my conduct of
the treasury since I have been Secretary is subject to criticism.
It is difficult to reply concisely to statements which are either
partial, misleading, or false, and ■which depend for their entire
effectiveness on innuendo and not on facts, but for the record
some answer should undoubtedly be made.
So far as I gather from
the testimony, the following specific subjects were discussed by
Mr« Means:
(1)
Pittsburgh.
He refers to the Guokenheimer Distillery in
The owners of this distillery, through forged and
counterfeited permits, withdrew and sold whiskey in violation of
the National Prohibition Act,
They were indicted and for the
past three weeks have been on trial in the Federal courts*
This
is simply a case of violation of law and its prosecution by the
properly constituted authorities.
I was never interested in the
distillery and the only interest I or the
Treasury has in this
case is the enforcement of lav/, which is being done*
(2)
Mr. Means states th»* banks, particularly the line
of backs with which. 1 was formerly connected, have large loans
secured by whiskey certificates; that these banks are therefore
interested in realizing on what Mr* Means calls "frozen assets"
and therefore in "bootlegging"*
Since prohibition none of these
banks has made or held any loan whatsoever on the security of v
whiskey certificates.
Since the collateral cannot be realized
upon and, therefore, loans secured by such collateral would not be
sound loans for a bank to make, I question whether such loans exist
in this country to any material extent,
(3)
Mr# Means states that I had some arrangement with
Mr# Rex Sheldon for the issuance of wholesale drug permits, con
ditioned upon contributions from the holders of these permits to
the Republican campaign fund*
Mr* Sheldon once did còme to see
me but as 1 recall not in connection with permits*
I understand
that his request, about which there was nothing unusual, was not
granted by the official of the Treasury to whom I referred him#
Senator Bursum did come to see me sometime in December, 19.21,
about granting peimits just as others come, in to recommend some
action by the Treasury#
The regulations under the Volstead Aot
provide for the issuance of permits to wholesale drug houses and
to manufacturers using alcohol*
.Senator Bursum presented to me
a list of applicants for such permits,
I turned this list over
to Mr* Blair, the Commissioner of Internal Revenue, for investiga
tion to determine the responsibility and character of the appli
cants, as is the usual course.
In three of the cases this
investigation was satisfactory and the permits issued«
In the
remaining cases, where applications were made,, the permits were
refused.
There has heen no intimation to me., directly or in
directly, that any campaign fund would he or has heen benefited
in any way hy the issuance of the permits.
The applications were
handled on their merits and strictly in accordance with law*
(4)
Mr. Means gives a circumstantial account of an
alleged interview hy him with former Under Secretary of the Treasury
Gilbert at 6;55 in the morning.
testimony,
This is characteristic of Means1
Mr. Gilbert has never met Mr* Means,
No interview
took place,
(5)
Mr. Means mentions the La Montagues and the Green
BiVer Distillery cases in New York,
These were violations of the
Volstead Act,, prosecuted by the Department of Justice, and resulting
in
jail sentences for the principals; a successful enforcement
of the law in spite of what Mr. Means intimates in regard to their
alleged influence.
(6)
Mr* Means again raises.the question of my connection
with the Cverholt Distillery Compary.
Mjr interest in the company
was explained in detail in the Senate on March 31st, last. Since
1916 the Cverholt Company has not manufactured any liquor.
Prior
to my becoming Secretary of the Treasury, all of the assets of the
company were transferred to a trust company as trustee with no
authority to operate but only to dispose of the assets in accordance
with law and distribute the proceeds*
Since that time the trust company
has sold or disposed, of no whiskey whatsoever excepting 52 cases to a
drug company as permitted by the Volstead Act.
misa&sm*
.■>’''
M
(?)
In addition to being a manufacturer of whiskey, the
O v e r h o U Company was a warehouse, holding whiskey belonging to other
persons.
After the passage of the National Prohibition Act, whiskey
was released from the warehouse only on the production of the permits provided for by the regulations,
Ohese permits were sent
first to the office of the company in Pittsburgh, where, in accord
ance with later regulations effective November 1, 1920, the permits
were confirmed by direct correspondence with the Prohibition Director
in Pittsburgh and then forwarded after confirmation to the warehouse
at Broad Pord, about 60 miles out of Pittsburgh, with the company*s
authority for release of the whiskey.
After release, the permits
were returned to the office of the company in Pittsburgh for filing*
In the Goodman case of January 6, 1921, referred to in Hearat»s
Magazine, the permit was not presented to the office in Pittsburgh
and accordingly was not confirmed by the Prohibition Director.
Goodman had acquired title to certain whiskey from the owners who
had bought it prior to prohibition and which was in storage in the
warehouse.
He p r e s e n t e d ^ forged permit and a forged letter of
confirmation from the Prohibition Director to the Superintendent
of the distillery at Broad Ford, who, acting on these documents
and without the required authority from the office of the company
in Pittsburgh, released the whiskey.
Because of the violation of
the instructions to him that permits must come from the Pittsburgh
office, the Superintendent was promptly discharged» On account of
this experience, the compary thereafter adopted the further pre
caution of taking the permits personally to the Prohibition Director
and verifying their regularity, as well as obtaining the required
-5-
letter of confirmation*
Necessarily these permits were a part of
the files of the company and when its assets were later transferred
to the trust company, the trust company also took over these files.
It was on the trust company, therefore, that the United States
Attorney called for the permits for the presentation of the case
of Goodman and the Superintendent to the Grand Jury,
This transac
tion took place prior to ny becoming Secretary of the Treasury,
but neither I personally nor any banks with vfoich I was then con
nected know the reason for or were interested in the subsequent
disposition of the indictments.
Proof of the facts stated in this letter can be furnished
your Committee by competent witnesses if you consider such proof
material to the matters under investigation.
Very truly yours,
(Signed)
A. W* MELLON,
Secretary of the Treasury.
Hon. S. W. Brookhart,
Chairman, Committee Investigating
the Department of Justice,
United States Senate.
. June 18, 1924,
To Treasury officials and employees:
Boland A* Croxton entered the Government as a messenger;
in 1907 he came to the Treasury; and since 1914 until his untimely
death June 12, 1924, he has been in the office of the Secretary.
A student of finance with complete grasp of his work, always reliable,
loyal to those he worked for and with, and cheerful under physical
suffering, his life is an example to us all.
The battles of this
world are not alone on the battlefields of war.
Never of robust
health, during the trying war years Croxton gave much of his strength,
He died as truly a soldier fighting for his country as any man in
Stance.
Each of us has his place in this machine of ours and in
honoring him the Treasury acknowledges its debt to those who serve
it and have maintained its* high integrity.
A. W. MELLON
Secretary of the Treasury..
communication should be circulated for the attention of each
official and em
COMPTROLLER GENERAL OF THE UNITED STATES
WASHINGTON
A-3336
June 21, 1924*
^The Honorable
THe Sebretary of the Treasury.
-Sir;
X have your letter of June 10, 1924, fea&ihg;
nThe first session of the 68th Congress adjourned «June 7, 1934,
without passing the Second Deficiency Act of 1924 (H.B, 9859), There
is included in said bill an item of $16,140,000 based upon an estimate
for appropriation approved by the Director of the Bureau of the Budget
and transmitted to Congress by the President aa- shown in the enclosed
copy of H. R, Doc. No. 352, intended to provide the necessary funds to
make bhe refunds of income taxes as required under Title 12 of the
Revenue Act of 1924, approved June 2, 1924,
‘’The Treasury Department Appropriation Act of January 2, 1923,
(43 Stat,, 1098) made an appropriation of $12,000,000 for refunding taxes
illegally collected under the provisions of sections 3220 and 3689 of the
Revised Statutes of the United States, as amended by the Acts of February
24, 1919, and November 23, 1921.
«The Deficiency Act approved April 2, 1924, (43 Stat*, 49) appropriated
$105,467,000, as follows:
*Refunding taxes illegally collected; for refunding
taxes illegally collected under the provisions of sections
3220 and 3689, Revised Statutes, as amended by the Acts of
February 24, 1919, and November 23, 1921, including the pay
ment of prior year claims, $105,467,000; Provided, That a
report shall be made to Congress of the disbursements here
under as required by the Acts of February 24, 1919, and
November 23, 1921.»
Of these combined appropriations there remain on the books of the Treasury
Department, on this date, uneagpended balances of approximately $30,000,000*
rtThe Treasury Department and Post Office Appropriation Act for the
fiscal year 1925, approved April 4, 1924, * * * (43 Stat*, 72) provides an
appropriation also of.$12,000,000 for refunding taxes illegally collected*
"I shall he glad to receive your views as to the availability of
the balances of the appropriations made by the acts of January 3* 1923,
and April 2, 1924, for the purpose of making the refunds of income taxes
which are required to be made under Title 12 of the Revenue Act of 1924,
approved June 2, 1924, and also whether thè appropriation of $12*000,000
contained in the Act of April 4* 1924, suprat for the fiscal year 1925
f J?r^ r years *s a^ao available for the refunds of income taxes authorized
y
e A c t of June 2, 1924*« As to the use of these appropriations for makis
t0 your decision of April 21, 1923* (Decisions
of the Comptroller Cenerai of the United States, Voi, 2, p* 684),«
Title XII of the Revenue Act of 1924* approved June 2, 1924* sectiom
1200(a)-, Public No, 176, page 113* provides;
"Any taxpayer making return, for the calendar year 1923* of the taxes
imposed by Parts 1 and It of Title II of the Revenue Act of 1921 shall be
entitled to an allowance by credit or refund of 25 per centum of the amount
shown as the tax upon his return."
In a somewhat similar case* to wit, the one referred to in the instant
submission* 2 Comp, Gen*, 684* it was held* quoting from the syllabus,
that;
"Overpayments of estate taxes made prior to November 33, 1921*
consisting of certain deductions not authorized when the tax was paid
out allowable under the act of November 23, 1921, 42 Stat*, 279* are
refundable under section 1324 (a) of that act, with interest thereon*
from the appropriations available for the refund of internal revenue
taxes illegally collected,"
Though the taxes authorized to be refunded by the Revenue Act of
June 2, 1924, were taxes legally collected, the word "illegally" as used
in the phrase "Refunding taxes illegally collected", appearing in the
appropriation acts in question, has not been considered or construed to
have a restricted meaning so as to authorize refundment only of collections
made contrary to law, but rather to authorize refundment when it should be
definitely determined that there had been collected from a taxpayer funds
not authorized to be retained«
The appropriations cited are not limited to
payment of any particular refundments but are available for such refund
ments generally as the law authorizes.
Therefore the refundments here
under consideration, to be rra.de pursuant to the Revenue Act of June 2,1924,
would appear to be payable from such appropriations for making refunds, to
the extent that such appropriations are otherwise available.
The taxpayer1s right to a refund is an obligation upon the appropriation
for the fiscal year when the right arose and not necessarily the appropria
tion for the fiscal year when the claim is approved.
See 27 Comp, Dec. 20*
in reply to a submission by the Secretary of the Treasury, June 29, 1920,
Answering the questions submitted, you are advised that, the two
appropriations in question, act of January 2, 1923, 42 Stat., 1098, and act
of April 2, 1924, 43 Stat,, 49, which are available for authorized refunds
of other taxes illegally collected, are available also for making refunds,
as provided in the Revenue Act of June 2, 1924, of the taxes collected
during the fiscal year 1924, and the appropriation for the fiscal year 1925,
act of April 4, 1924, 43 Stat., 72, being expressly made to include nthe
payments of prior year claims,” will be likewise available on and after
July 1, 1924, for making such refunds«,
Respectfully,
J. R. MC CARL
Comptroller General,
June 30, 1924.
THE TREASURY Ü1ÏDER A REPUBLICAN ADMINISTRATION.
■
Among the outstanding achievements of the present administration
is the success 'with which it has handled the Government •s fiscal affairs.
I Important economies in expenditures have been effected, the tax burden has
I been reduced, the budget has been kept balanced, substantial progress has
^ een made in the liquidation of the debt, the first phase of the refunding
operations nas been completed, and a satisfactory settlement of the debt due
§ the United States from the British Government has been effected.
The reduction in expenditures during the fiscal year ending June 30,
P l 9 2 4 , as compared with the previous fiscal year, was approximately $190,000,000.
,1 At the close of the fiscal year 1924, it was found that ordinary receipts for
I the year amounted to about $4,012,000,000 on the basis of daily Treasury
II statements,
while the total expenditures chargeable against ordinary receipts
amounted to about $3,507,000,000, thus showing a surplus of receipts over
expenditures amounting to over $505,000,000.
The public debt was reduced
daring the year by nearly $458,000,000 on account of the sinking fund and other
debt retirements chargeable against ordinary receipts; by a reduction in the
general fund balance of nearly $136,000,000; and by use of the entire surplus
of over $505,000,000, making a total debt reduction for the year of over
$1,098,000,000.
The annual interest charges on the debt represented by this
reduction would be equivalent to over $45,000,000.
The following table shows for the fiscal years 1920-1924, on the
basis of daily Treasury statements, the ordinary receipts of the Government,
expenditures chargeable against ordinary receipts, and the surplus of receipts
over expenditures.
-2-
I
Receipts
<
1920
1921
1922
1923
1924
$6,694,565,389
5,624.932,961
4,109,104,151
4,007,135,480
4,012,044,701
Exoenditures
$6,432,090,191
5,538,209,189
3,795,302,500 ,
3,697,478,020
3,506,677,715
Surplus
$212,475,198
86,723,772
313,801,651
309,657,460
505,366,986
The determined efforts for economy made it possible nearly two years
ago to proceed with a revision of internal taxes with a view to reducing
the tax burden for all classes of the community.
The result is that the
revenue act of 1921, approved November 23, 29124. »made a substantial reduction
in the tax burden, running over $800,000,000 for the fiscal year 1923, as
compared, with what would have been collected under the old law, and at the
same time provided for the repeal or reduction of several of the most vexatious
and burdensome taxes and for the simplification of the taxes that remained
in force.
In view of the estimated surpluses during the next few years, the
Treasury in November, 1923, recommended a thorough revision of the taxes,
together with a substantial reduction in rates.
The revenue act of 1924,
while providing a certain amount of tax reduction, failed to effect the
needed reform of the tax system, thus necessitating a further revision of
the tax laws if the country is to be provided with a sound, permanent tax
policy.
One of the principal problems facing the administraion at the outset
was the handling of the public debt, which at that time amounted to about
$24,000,000,000.
Of that amount about seven and one-half billion dollars
was short-dated debt maturing within
years.
The administration's policy
with respect uO this short-dated debt was expressed by the late President
Harding in his first address to Congress as one of ’'orderly funding and
gradual liquidation1'.
Confronted by the necessity of relieving business
and industry from the staggering tax burden imposed during the war, it was
evident that a large part of this short-dated debt had to be refunded.
The
Liberty Loans had been floated under the stimulus of the war enthusiasm
through great popular drives and with the help of a country-wide Liberty
Loan organisation that comprised 2 million persons.
To conduct refunding
operations on a similar scale in time of peace, to the amount of over 7
billions of dollars, was a task of unparalleled magnitude, and yet the
Republican Administration has not only effected the gradual refunding of
practically all of this short-dated debt without disturbance to business or
interference with the normal activities of the people, but by June 30, 1924,
had also effected a reduction in the gross public debt of about $2ip800,000,000.
Shortly after the administration came into power steps were taken
toward the refunding of a large part of the early maturing debt by successive
issues of Treasury notes in moderate amounts with maturities of from three
to five years, in order to distribute the short-dated debt through the years
between the maturity of the Victory Liberty Loan in 1923 and the maturity
of the Third Liberty Loan in 1928.
Beginning in June, 1921, the Treasury
has floated nine issues of Treasury notes, maturing at various dates in
1924, 1925, 1926, and 1927,- to an aggregate amount of about $4,250,000,000.
The Treasury also offered on October 16, 1922, as part of its re
funding program, an issue of
percent Treasury bonds of 1947-52.
The
offering was $500,000,000, or thereabouts, with the right reserved to allot
additional bonds against exchanges of 4 "/4 per cent Victory notes and other
maturing obligations.
This refunding issue of bonds met with an immediate
response from investors a n over the country, and was promptly over
subscribed.
Total allotments on the offering aggregated slightly over
$763,000,000.
Th u s all the old seven and one-half billion dollars of short-dated
debt has been retired or refunded, and in its place there is a new class of
short-dated debt, aggregating on June 30, 1924, about $4,942,000*000, con
sisting of (1) 3807,000,000, or thereabouts, of Treasury certificates of
indebtedness, maturing on various quarterly tax-payment dates within the
year; v.2 ) about $3,735,000,000 in the aggregate of Treasury notes, maturing
on various quarterly tax-payment dates in the years 1924, 1925, 1926, and
1927; and (3) about $400,000,000 of War Savings Certificates and Treasury
Savings Certificates, maturing in moderate amounts each year.
These matur
ities are arranged so as to permit their refinancing with the minimum of
disturbance to business and industry, and, with the Government balancing its
oudget each year and showing a reasonable surplus, it should be possible to
retire a suostantial amount of them gradually out of surplus revenues, and
tnus relieve the heavy refinancing that will be necessary in connection wifil-t
the maturity of the Third Liberty Loan, on September 15, 1928.
In addition to the refunding operations the Administration has
effected substantial reductions in the debt.
In fact the Government has
now firmly estaolished the principle of including in its ordinary budget
certain fixed debt charges, including the sinking fund, and these fixed
debt charges must be met before the budget will be balanced*
The expenditures
of /the Government as given on page 2 of this statement, for example, include
debt retirements as follows;
-5-
Debt retirements
chargeable against
ordinary receipts.
Fiscal year
3-920
1921
1922
1923
1924
$ 78,746,000
422,282,000
422,695,000
402,850,000
458,000,000
In addition to these retirements included in the ordinary budget,
the surplus receipts, except for temporary fluctuations in the net balance
in the general fund, are applied directly to debt reduction.
Total debt
reductions since the present administration came into office are as follows:
Fiscal year
'
Debt Reduction.
1921 (Feb. 28 to
* June 30)... $
74,234,000
1922 .. . •.....
1,014,069,000
1923............
613,674,000
1924............
1,098.894.000
Total from Feb.
28, 1921, to June
30 * 1924........ $ 2,800,871,000
Thus the Republican Administration has not only effected a material
reduction in the gross public debt but by sound financing it has already
completed the refunding of the old seven and one-half billions of short-dated
debt, without either disturbance to business or strain on the financial
market. On the contrary, what has been done has tended to relieve the
markets of the fear of spectacular Government operations and has been helpful
to the recovery of business.
Moreover, the Government's financing has been
conducted on a strict investment basis and at the lowest possible rates con,,
sistent With the proper/listribution among the investing public of the secur
ities offered.
All new offerings of bonds, notes and certificates have been
-6-
met with a ready response from investors and all issues are selling •
today m
the open market at or about par.
Liberty bonds have risen fourteen
points since March, 1921, and every issue is now selling substantially above
par, reflecting the improvement which has taken place in the Government's
credit and in the general investment market*
Passing from the field of domestic finance, the most striking accom
plishment has been the settlement of the indebtedness of the British Govern
ment to the United States.
This settlement was approved by an act of Congres
February 28, 1923, and the formal proposal by the Bfftish Government, em
bodying in detail the terms of the agreement, was received by the Treasury
on June IS, 1983, and was signed by the Secretary of the Treasury as Chair
man of the World War Foreign Debt Commission.
Bonds of the United Kingdom,
m the aggregate principal amount of $4,600,000,000 issued pursuant to the
terms of the proposal and acceptance, were received by the Treasury on
July 5, 1923.
The Treasury thereupon canceled and surrendered to the
British Government, through the British Embassy at Washington, demand obliga
tions of Great Britain in the principal amount of $4,074,818,358.44, in
accordance with the provisions of the proposal and acceptance.
The settle
ment provides for the repayment in full of the British debt to the United
States over a period of 62 years, with interest for the first ten years at
three per cent and for the remainder of the period at three and one-half per
cent.
The World War Foreign Debt Commission in its report to the President
has well expressed the significance of the settlement in the following terms:
r 7 •*
"The Commission believes that a settlement of
the British debt to the United States on this basis
is fair and just to both Governments and that its
prompt adoption will make a most important contribution
to international stability. The extension of payment
both of the principal and interest over a long period
will make^for stability in exchange and promotion of
commerce between the two countries, ^he payment of
principal has been established on a basis of positive
instalments of increasing volume, firmly establishing the
principle of repayment of the entire capital sum. The
payment of interest has been established at the approx
imately normal rates payable by strong governments over
long terms of years. It has not been the thought of the
Commission that it would be just to demand over a long
period tne high rate of interest naturally maintained
during the war and reconstruction , and that such an
attempt would defeat our efforts at settlement. Beyond
tiiis, the Commission has felt that the present difficulties
of unemployment and high taxation in the United Kingdom
should be met with suitable consideration during the early
years, and, therefore, the Commission considers it equitable
and desirable that payments during the next few years should
be made on such basis and with such flexibility as will en
courage economic recuperation not only in the countries
immediately concerned but throughout the world.
•'This settlement between the British Government and
the United States has the utmost significance. It is a
business settlement, fully preserving the integrity of the
obligations, and it represents the first great step in the
readjustment of the intergovernmental obligations growing
out of the war."
A settlement of the indebtedness of Finland to the United States,
amounting to about $9,000,000» has been effected on terms similar to those
of the British settlement.
The obligations of various foreign governments held by the Treasury
on June 30, 1924, aggregated $10,546,086,131.22 principal amount.
Total cash
receipts by fiscal years from 1920 to date on account of principal and
interest on foreign obligations are as follows:
h*
i§fe
-8Fiscal Year
1920
1921
1923
1923
1924
Principal
Payments
$71,045,188.47
84,128,723.38
49 ,070,107.46
31,616,907.64
60,723,367.14
Total
$296,584,294.09
Interest
Payment s
Total
$
4,487,821.11
31,826,863.30
27,758,162.42
201,311,960.77
160,601,419.84
$ 75,533,009.58
115,955,586.68
76 ,828,269.88
232,928,868.41
221,224,786.98
$425,886,237.44
$722,470,521.53
During 1923 an -agreement was signed "by representatives of the Allies
.and the United States for the payment of the cost of the American army of
occupation.
The settlement, which has not yet been signed by all the
signatories, provides that the amount due the United States shall be naid in
twelve annual instalments out of future cash payments credited to Germany, and
it may be estimated roughly that the annuities when paid will amount to
approximately $20 ,000,000 yearly.
Treasury Department
July 5, 1924.
ESTIMATED AMOUNT 0? WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
May 3 1, 1924.
Issued by
Gross Amount
Amount held in
Treasury or in
sinking funds
Amount held outside
of Treasury and sink
ing funds
(X)
jtates, counties,
Icities, etc.
$ 11,658,000,000
territories, insular
l possessions, and
\ District of Columbia
$ 9,909,000,000
$ 1,749,000,000
(2 )
108,000,000
128,000,000
20 ,000,000
fnited States Govern1 ment
2,294,000,000
757,000,000
federal land
termediate
j banks, and
stock land
1,236,000,000
105,000,000
1>231,000,000
Potai May 31, 1924
$ 15,416,000,000
$ 2,631,000,000
$ 12,785,000,000
Domparative totals:
1 April 30, 1924
$ 15,309,000,000
$ 2,616,000,000
$ 12,693,000,000
I December 31,1923
14,885,000,000
2,564,000,000
12,321,000,000
I December 31,1922
13,652,000,000
2,331,000,000
11,321,000,000
December 31,1918
9,506,000,000
1,799,000,000
7,707,000,000
i December 31,1912
5,554,000,000
1,468,000,000
4,086,000,000
(3)
banks in
credit
joint
banks
1,537,000,000
(4)
(l) Total amount of state and local sinking funds.
(2) Total amount of. sinking funds and amount held in trust by the Treasurer of
the United States.
♦
(3) Amount held in trust by the Treasurer of'the United States.
(4)
See Note (3), also partly owned by the United States Government.
Treasury Department,
August 1, 1924.
gSTIMAPED J^MQUHF pi1 WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
June 30, 1924,
Gross Amount
Amount held in
Treasury or in
sinking funds
$ 11,918,000,000
$ 1,788,000,000(1)
$ 10,130,000,000
129,000,000
18,000,000(2)
111,000,000
United States Government 2,294,000,000
757,000,000(3)
1,537,000,000
105,000,000(4)
1,238,000,000
Issued by
States, counties,
cities, etc.
Territories, insular
possessions, and
District of Columbia
s
Federal land
termediate
banks, and
stock land
banks in
credit
joint
banks
Total June 30, 1924
1,343,000,000
Amount held out
side of Treasury
and sinking funds
$ 15,684,000,000
$ 2,668,000,000
$ 13,016,000,000
$ 15,416,000,000
$ 2,631,000,000
$ 12,785,000,000
14,885,000,000
2,564,000,000
12,321,000,000
13,652,000,000
2,331,000,000
11,321,000,000
9,506,000,000
1,799,000,000
7,707,000,000
5,554,000,000
1,468,000,000
4,086,000,000
Comparative totals;
| May 31, 1924
December 31,1923
1 ¿December 31,1922
t December 31,1918
! December 31,1912
fo\
§
it
f?\
f '
m :
01
State and local sinking funds.
° ^ 1+ r QOn n^ ° i
funds and amount held in trust by the Treasurer
oi the United States.
£ " ? * } * * ■ ,t r u s t by bhe Treasurer of the United States,
S
Note <3 } * also Partly owned ty the United States Government.
Treasury Department
September 4, 1924
ESTIMATED AMOUNT OF WHOLLY TAX EXEMPT SECURITIES OUTSTAEDIMS-
July 31, 1924.
Gross Amount
Issued by
States, counties,
cities, etc.
Amount held in
Treasury or in
sinking funds
Amount held c-i.
side of Treasu
and sinking
funds.
$ 11,988,000,000
$ 1,798,000,000 (1)
$10,190,000,000
128,000,000
17,000,000 (2 )
111,000,000
United States Government
2,294,000,000
753,000,000 (3)
1,541,000,00u
Federal land banks^in
termediate credit
banks, and joint
stock land banks
1,395,000,000
104,000,000 (4)
1,291,000,000
Territories, insular
possessions, and
District of Columbia
Total July 31, 1924
$15,805,000,000
$ 2,672,000,000
$13,133,000,000
$15,684,000,000
$ 2 ,668,000,000
$13,016,000,000
December 31, 1923
14,885,000,000
2,564,000,000
12,321,000,000
December 31, 1922
13,652,000,000
2,331,000,000
11,321,000,000
December 31, 1918
9,506,000,000
1,799,000,000
7,707,000,000
December 31, 1912
5,554,000,000
1,468,000,000
4,086,000,000
Comparative totals:
June 30, 1924
/1 \
____ _______ i
a.
(1) Total amount of state and local sinking funds.
(2) Total amount of sinking funds and amount held in trust by the Treasurer
of the Dilited States.
(3) Amount held in trust by the Treasurer of the United States,
(4) See bote (3), also partly o^ned by the United States Government.
CHANGES MADE BY THE FEDERAL REVENUE
AGT OF 1924
G A R R A R D B . W IN S T O N
Under Secretary of the United States Treasury
ADDRESS AT THE SEVENTEENTH NATIONAL TAX CONFERENCE
HELD AT ST. LOUIS, M O ., SEPTEMBER 1 5 - 1 9 , 1 9 2 4
N A T IO N A L T A X A SSO C IA T IO N
OFFICE OF SECRETARY
195 B r o a d w a y , N e w Y o r k C ity
C H A N G E S M A D E B Y T H E R E V E N U E A C T O F 1924
GARRARD B. W INSTON
Under Secretary of the Treasury o f the United States
M r. Chairman, Ladies and Gentlem en: I w as asked to com e
lie r e and describe th e ch an ges in the R evenu e A ct o f 1924, from a
non-tech nical standpoint. I really know far less o f th is R evenu e
A ct than the gentlem an w h o introduced me. I do have the advan
tage o f k n ow in g som ething o f w hat w as in the m ind o f th e treasury
w hen th ey d rafted the act and w hat th ey w ere tryin g to accom
plish, w hat th ey did accom plish and w hat they did not.
W e started d raftin g th is reven ue bill early in the summ er o f last
year. W e finally decided that w e had to take th e entire R evenue
A ct and rew rite it. W e com pleted th e bill in tim e to present it to
C ongress in D ecem ber. It w as an enorm ous effort. P ersonally, I
d id not do th e d raftin g, but I w as consulted on points o f policy,
w hich I took up w ith Mr. M ellon, and they w ere decided by him.
Y ou can d ivid e th e changes, roughly, into three general b ra n ch es:
th e political changes, th e structural changes, and the adm inistra
tiv e changes.
B y political changes, I m ean those particular th in gs w ith w hich
C ongress has prim arily to do, and over w hich they take com plete
control. I refer, o f course, to the rates, to th e im position o f the
g i f t tax, to in creasin g th e inheritance tax, and to th e publicity
provisions.
So far as th e rates th em selves are concerned, that subject I am
sure is fam iliar to you. W ith the increase in the inheritance ta x
th e re w as g iv e n a credit o f up to tw en ty-five per cent for any
state in heritan ce ta x w h ich w as paid to th e state. That, I think,
is the on ly n ew feature b esides th e rates.
T h e g if t ta x is an en tirely n ew proposition. It w as d esigned
on the theory that it w ould block up present h oles in the act and
bring m ore property subject to the estate taxes. W e h a v e an
actuary dow n there in W ash ington by the nam e o f M cCoy, w ho is
about th e best estim ator I have ever run into, and I think he has
persuaded C ongress that h e is the best estim ator. I can g iv e him
no greater praise. H e says that the g ift ta x w ill not m ean m ore
than about tw o m illion dollars a year additional revenue to us. It
is a n ew idea, and it m ay w ork and m ay not. It m ay be constitu
tional and m ay not.
T h e p ublicity p rop osition ; under the old act, returns w ere secret.
T h e treasury had an opportunity to see them ; th ey could be
brought in to court in proper litigated cases and could be exam in ed
4
by th e officials o f states w hich them selves im posed an incom e tax,
but th ey w ere not open to the gen eral inspection o f the public.
C ongress has introduced into the law a m odification. Form erly
w e w ere required to post in som e public place the nam es o f all ta x
payers, upon th e theory that by so posting, their neighbors w ould
find som eone w ho w as not p aying the ta x and let us know . Y ou
perhaps do not k n ow that w e have a la w w hich perm its us to
reward inform ers. T h is change, how ever, requires not on ly the
posting o f th e nam e o f th e taxpayer, but the amount o f the ta x
w hich he has paid.
W e in th e treasury see n othing to be gained. It is difficult
enough n o w to g e t people to put in their true taxes. T o put a
further penalty on them o f publicity, in addition to the paym ent o f
the tax, has been felt in the treasury, w ill encourage ta x evasion.
In addition to publishing the amount, it is provided that any
com m ittee o f C ongress can have access to any returns, and w e are
required to produce them in the com m ittee room. T h ere is no
prohibition against u sin g those returns in the com m ittee room, and
on the floors o f Congress, and o f course if so used, th ey w ould
undoubtedly be p riv ileg ed ; so there m ay be occasions in w hich in
dividual incom e ta x returns are made public.
S o m uch for w hat I m ay call the political side o f th e changes.
T h e structural chan ges may, in general, be divided in to arrange
m ents p erm itting a freer flow o f business, and ch an ges in the act
to reach w hat the suprem e court calls ta x avoid an ce; to p lug up,
so far as w e could, the holes, through w hich large am ounts o f g o v
ernm ent revenue escape. I think w e can discuss those particular
changes in a fe w sections. I do not k now w hether it is fam iliar to
you gen tlem en that in th is federal law w e h ave som ething w hich
is not in incom e ta x law s, in other countries. W e h ave considered
that w hat is know n as a capital gain, is in com e; that is, the in cre
m ent in th e valu e o f property, w hen realized, constitutes incom e.
T hat is not the la w in Canada or in E ngland. W h en you consider
that capital gain, increm ent value o f property, is incom e, you im
m ediately introduce into the act the n ecessity for excep tions to that
rule, because i f w e w ere required to en fo rce the rule absolutely,
w e should stop all flow o f business. B y business I m ean business,
such as sales o f real estate, ex ch a n g es o f real estate, reorganization
o f corporations, and m atters o f that kind. S o th e m ost com pli
cated and m ost difficult section w e had to draw w as the reorganiza
tion section o f th e act. W e have draw n it upon this th eory; that
you can go through any kind o f a reorganization w hich the n eces
sities o f the particular business require, provided th e stockholders
g e t no m oney out o f the transaction or no d ifferent property than
they had b efore. T h at is, you can take tw o corporations and m erge
them into one, and g iv e th e stockholders o f th e tw o the stock in
5
the sin g le corporation. Y ou can take a sin g le corporation — and
th is is a m ost important change in the n ew law — and split it into
tw o corporations and g iv e the stock o f each corporation to the
original stockholders. If, h ow ever, in d oing this, the stockholders
realize additional cash, such cash is taxed to the proper parties in
th e proper w ay. T h at is, if it is in effect a dividend, it is taxed
as a d ivid en d; if it is in effect a capital gain, it is taxed as a
capital gain. I f you ju st g et other p ieces o f paper, and no m ore
than you had b efore, then the original valu e attaches to those
p ieces o f paper, and w hen you dispose o f those and realize your
gain, you are taxed, as if the reorganization had not taken effect.
Perhaps I can illustrate the situation to you by w hat w en t on in
the past tw o or three years. U nder the old reorganization section,
stockholders o f a corporation w hich had, say, a valu e o f a m illion
dollars in 1913, and a m illion surplus, earned sin ce that date, could
reorganize, by sim ply con v ey in g its assets to a n ew corporation,
for stock in the n ew corporation, and $999,000 in cash, and there
w as no tax, because th e am ount o f cash th ey received did not
ex ceed the original valu e o f their stock. T h at w as closed in 1923,
w hen it w as provided that y o u had to take this cash as profit, but
even then you took it as a capital g a in ; w hereas it w as in reality
a dividend.
T ake another illustration o f th e m ethods o f avoidance. I f a
corporation had assets w hich cost a m illion dollars, it could take
depreciation on the basis o f on e m illion d o lla rs; if it con veyed the
assets to a n ew corporation, through a consolidation, and they
w ere then w orth tw o m illion dollars, th e n ew corporation could
take its depreciation o f th e sam e assets on a basis o f tw o m illion
dollars.
It is to correct those h oles in the act, and also to perm it a freer
play o f business, that th is particular section w as rew ritten.
It is the b elief in the treasury that w e shall make m ore in taxes,
i f w e keep business running than w e shall if w e are a drag on its
w heels. (A p p lau se)
T h e n ex t section is w hat is know n as S ection 220. T h is pro
vided that if you organized a corporation, for th e purpose o f evad
in g the su rtax o f the individual stockholders, w e m ight penalize
the corporation, by assessin g a ta x against it o f tw enty-five per
ce n t o f its incom e. T h ere w ere tw o fundam ental difficulties w ith
the section as it then existed. T h e section provided that if the
am ount o f surplus w as beyond the ordinary needs o f the business,
you could le v y this penalty. I f you organ ize a corporation solely
to in vest and re-invest, nobody can tell w hen th e earnings are
beyond the ordinary n eeds o f th e business, because its sole purpose
is to in vest and re-invest. U nd er th e section as it n ow is, if the
corporation d oes n oth ing but in vest and re-invest, that is prima
6
fa c ie evidence that it is used to evade th e im position o f th e su rtax
on the stockholders.
A n other fundam ental objection to th e old section w as th is; the
penalty w as tw en ty-five per cent o f the incom e o f th e corporation,
such incom e to be ascertained as th e incom e o f other corporations
w ere ascertained, w hich w ere subject to the incom e ta x law . In
ascertain in g th e incom e o f a corporation, you do not take into
account th e dividends it receives from other dom estic corporations.
A s a result, if your h olding com pany w as organized and its assets
consisted so lely in the stock o f other dom estic corporations, you
could admit that you w ere organ ized for the purpose o f savin g the
surtax to your stockholders, and the governm ent w as perm itted to
le v y a tw en ty-five per cent fine on nothing, because, calcu lating its
incom e as th e incom es o f other corporations w ere calculated, th e
h olding com pany had no incom e. W e have changed th e la w by
sayin g that th e incom e o f th e corporation w hich is subject to th is
penalty is its incom e from all sources, w hich inclu d es its incom e
from dom estic corporations and its incom e on governm ent secu ri
ties, w h ich are exem pt as to norm al tax.
T h e capital g a in section w as an innovation in 1921. It is an
other excep tion to the rule that an increm ent value is regular in
com e. W e found that i f w e le ft th e la w as it w as— that is, w hen
you sold a p iece o f property, and m ade a profit, you paid su rtaxes
on the profit, at the top rate o f your incom e — business did not
m ove. T h e la w w as th erefore amended, so that these profits can
be taxed, at th e option o f th e taxpayer, at tw elv e and o n e-h a lf per
cent. T h e im m ediate result o f th e change is interesting. A s I
happened to remark today, 165 o f the people w ho w ere in the
$300,000 class in 1922, but w h o w ere not in it in 1921, w ere brought
in solely by tak in g capital gains, and, as a m atter o f fact, th e g o v
ernm ent realized som e th irty-fou r m illions o f dollars o f ta x es at
tw e lv e and on e-h a lf per cent. It w ould probably have received
only a sm all portion o f that reven u e i f the law had n ot been
am ended and the ta x on these gain s reduced.
T h ere w as one slig h t difficulty, or rather hardship, about th e tax.
A s it w as originally drafted, you could take advantage o f the
tw elv e and o n e-h a lf per cen t capital gain provision, if th e ta x on
all your incom e w as tw e lv e and o n e-h a lf per cent. Cases occurred,
w here th e ta x on a m an’s incom e, outside o f h is capital gain, w ould
be o n ly ten per cent, and h e could not take advantage o f this
tw elv e and o n e-h a lf per cent capital gain, until he had raised the
average rate o f ta x on h is incom e to tw elv e and o n e-h a lf per cent.
So, if a man had a v ery large incom e, the capital gain had clear
value to him, but if h e had an interm ediate incom e, he m igh t have
to pay m ore than tw e lv e and on e-h a lf per cent ta x on h is capital
gam . T h is has been corrected, by provid in g that a m an m ay take
7
th e option absolutely, no m atter w hat h is incom e is, o f tw elv e and
o n e-h a lf per cent on any capital gain.
T h ere has been in th e law no provision fo r capital losses, and
w e had the situation o f a taxpayer sellin g a p iece o f property, in
w h ich he had a profit, and takin g a capital gain and paying tw elv e
and o n e-h a lf per cent on it. On the other hand, if he sold an
other p iece o f property on w hich he had a loss, he w as allow ed to
deduct h is loss in full, thereby o ften savin g m ore than 1 2 ^ % sur
ta x es. T h at did not seem equitable to th e governm ent, so it is n ow
provided that a capital loss is deductible from th e incom e tax, to
the ex ten t o f tw e lv e and on e-h a lf per cent o f the loss.
W e found another m ethod o f evasion in th e creation o f trusts;
a m an w ould create a trust in favor o f, say, h is children, w ith the
right on h is part to revoke th e trust in favor o f h im self. In other
words, it w as a g if t w ith a v ery substantial strin g tied to it, and it
sim ply m eant that the man w ould support h is w ife or h is children,
as lon g as h e w anted to, by creating these trusts, and still keep
absolute control. It w as fe lt that that w as n ot a real parting w ith
the in com e; that th e man, h avin g th e pow er to b ring the incom e
back to h im self, should be taxed as if he had brought it b a ck ; and
that is n ow provided in the law .
It w as also found that there w ere a large number o f trusts
created fo r th e purpose o f p aying insurance prem ium s; th e ta x
payer put a certain am ount in trust, paid h is insurance prem ium s
w ith it, and did not h ave the incom e. I f h e had not created the
trust, he could not have deducted h is in surance prem iums from the
incom e, and he w ould h ave to pay m ore tax. T h at particular hole
has been blocked up.
T h ere are o n e or tw o m eans o f avoidance that the treasury de
sired to fill up, or to correct, but w hich got into the political field.
O ne o f these w as on com m unity property. M ost o f you, I think,
are fam iliar w ith the fact that in certain states— I think there are
six or seven o f them — the w ife has a h alf-in terest in everyth in g
that th e husband ow ns, and vice versa; th erefore, in those states
the w ife can file a return for on e-h a lf th e husband’s incom e, and
he files a return for the other h a lf. W ith a p rogressive tax, th is
brings down the total incom e out o f th e h igh brackets and it m eans
a very substantial savin g. It did not seem equitable to us that a
resident o f som e particular state should h ave that privilege, w hen
it w as not g e n e r a l; but C ongress declined to fo llo w our recom m en
dations in that regard.
T h ere w as one other feature w hich w as a m eans o f abuse. W e
had a provision in th e old law , and it is in th e present law , that i f
a man borrowed to purchase or carry tax-exem pt securities, the
interest paid w as not deductible as an exp en se. B u t nobody bor
row ed m oney to purchase tax-exem p t securities or to carry them .
8
T h ey bought th e ta x-exem p t securities, and then borrow ed th e
m oney for som ething else, and, as a m atter o f fact, w e could n ev er
reach them.
I think in on e o f th e R ock efeller estates there w ere about forty
or forty-five m illions o f tax-exem p t securities, th e incom e on
w hich w as en tirely exem pt, and about thirty or forty m illion s o f
debts, the interest on w hich w as deducted from th e incom e. T h e
provision to correct th is w as a v ery close question in C ongress.
I think it w as in and out in the S en ate tw o or three tim es, and
finally by one vote or m ore— not m uch m ore— it w as finally stricken
out. T h at w as part o f th e old fight on w hether or not ta x-exem p t
securities should be m ade taxable.
E xcep t fo r those features in the structural parts o f the act, Con
gress follow ed alm ost w ord for w ord the treasury recom m enda
tions. W e had a v ery free hand in the draw ing o f th e lan guage
and in the m ethods o f approach to th ese various m eans o f avoid
ance. O f course w e h ave not closed them all. T h ere are tw o or
three law yers w ho w ere w ork in g on th is bill, and thirty or forty
thousand law yers shooting at it, and as lon g as that condition
exists, w e shall not be able to clo se all the holes in the act. ^ W e
m ight do it as a m atter o f statute, but if w e did, no busin ess
w ould g o on in this country and w e should g et fe w taxes.
N o w , com in g to the adm inistrative features o f the act, the e n
tire act has been rew ritten. T h e statutes o f lim itations are put in
som e sort o f order. T h ere w ere h a lf a dozen o f them. W e h ave
restored th e requirem ent that there shall be a report o f the ta x exem pt incom e. T h at is sim ply for statistical inform ation and for
the use o f C ongress in future legislation . In the adm inistrative
features, lots o f d ifferent questions that have disturbed th e adm in
istration o f the act w ere cleared. Just to m ention on e o f these.
T h e question o f w hether you could file a consolidated return, and
w hether corporations w ere affiliated or not, depended, under th e
old act, on control. T h ere w as a dispute in th e departm ent as to
w hether control m eant legal control or actual control. I think that
has been ended by the statute provid in g that it m eans legal control
o f n inety-five per cent o f th e stock.
T h e on ly other im portant adm inistrative feature is th e board o f
ta x appeals, about w hich you are g o in g to hear later. I sim ply
w ant to tell you w hat w as in th e m ind o f th e treasury w h en w e
m ade that suggestion.
U nd er th e law as it ex isted prior to this act, th e procedure
through th e department w as th is: A m an filed h is return; it w as
exam in ed and audited, gen erally in the field ; then it cam e in to th e
departm ent. T h e department, for exam ple, w ould say that h e
ow ed ten thousand dollars additional tax, and w rote th e taxpayer a
letter. H e w ould ob ject and appear b efo re th e unit, and m ost
9
questions o f fact w ere determ ined there. T h ey gen erally reached
w hat w as th e truth o f th e situation, although not w hat w as the law
o f the situation ; and then th e case w en t to the com m ittee o f ap
peals and review , o f w hich Mr. B rew ster w as the head. T h e com
m ittee review ed w hat the u nit had done, and then the com m is
sioner assessed the tax.
N ow , both th e u n it and the com m ittee o f appeals and review
w ere sim ply m achinery to enable th e com m issioner o f internal
revenue to determ ine w hat the ta x should be. T h ey acted for him.
I f the com m issioner decided that the ta x w as not due, he w ould
le v y no assessm ent, and the case w ould n ever g et into court for a
determ ination. T h ese tw o p ieces o f m achinery o f th e com m is
sioner’s naturally, therefore, had to decide every doubtful question
in favor o f the treasury. N o w , th e difficulty w as th is; that h aving
decided th e question in favor o f th e treasury, ju st as all ta x asses
sors w ould decide a doubtful question in their ow n favor, the ta x
payer, under our fed eral law , had to pay the tax, and sue to g et
it back. It is not possible, under th e fed eral statutes, to en join the
collection o f a tax, as you can do in m any states. T h at m eant that
the taxpayer had to find th e cash and pay the tax, and then sue to
recover. It is som etim es a difficult m atter to find cash. S o w e
recom m ended this board as an independent adm inistrative tribunal,
w h ich could find either fo r th e taxpayer or for the governm ent.
I f th ey found fo r th e governm ent, th e taxpayer had to pay h is
ta x — he had had h is h earing b efore an independent board— and
then h e could g o into court and sue to recover. I f the board found
for the taxpayer, then the governm ent w as to be perm itted to go
into court and sue for th e tax, but the ta x could not be arbitrarily
assessed. W e b elieved that th is plan w ould protect both the g o v
ernm ent and th e taxpayer, and furnish a tribunal that w ould have
no interest in any decision, excep t to decide it correctly.
T h e original board w as fixed at tw en ty-eigh t. T h at figure w as
set so as to p rovide for m inor boards, o f three m en each, to ride
circuit in each o f the n in e fed eral jud icial circuits in the country,
and for one C hief Ju stice or Chairman. W h en it g ot in to Con
gress the character o f th e board w as changed com pletely. T h e
board w as m ade a court. It w as a board to sit and hear e v id e n c e ;
it w as not a board to sit around a table and d ecide a question in
an inform al con feren ce. It has been th e opinion o f the treasury,
that is, sin ce I have been fam iliar w ith it, that it is a better th in g
to g et your ta x es settled and g et them over and behind you than it
is to g et the last nick el out o f th e taxpayer or for the taxpayer to
save the last nick el from th e governm ent. W e thought that if a
board could be created and could sit inform ally— a board o f suffi
cien tly h ig h character, so that th e taxpayer w ould be satisfied and
th e governm ent satisfied— the board w ould expedite the settlem ent
10
o f taxes, and w e should have th ese ta x es through and not be, a s
w e are now , still w orried w ith 1917, 1918, and 1919 taxes. B u t
C ongress decided otherw ise, and th e board is n o w functioning,
and fun ction ing, so far as it has had the opportunity, v ery w ell.
I do not k now o f any other particular ch an ges. T h ere are, o f
course, a great m any detail chan ges throughout the en tire bill, but
not such as w ill affect the principles o f taxation . A s I said b efore,
this bill, in its structural and adm inistrative features, is as good a
bill as w e could draw. W e h ave as again st that, th e great com pli
cation brought into our incom e ta x law by th e fact that w e con
sider capital gain as incom e. I f w e had that feature out, w e could
w rite a bill o f on e-tenth the length. W e could take out all about
reorgan ization ; w e could take out am ortization, capital gain and
depreciation; you can ju st see w hat it m eans w hen you b egin to
treat capital increm ent as incom e.
I have been speaking to you inform ally, and m ostly from m y
recollection. I f there is an yth ing that I can answ er in regard to
the act, I shall be v ery glad to do so.
TREASURY
department
i?nÛfî RELEASE ,FOR PUBLICATION;
Tuesday afternoon,Sept.23,* 24
SPEECH OP
HONORABLE CHARLES S DEWEY
Assistant Secretary of the Treasury,
"before
Th©
Annual Convention of the Investment Bankers» Association
of America
at
Cleveland»Ohio
September 23,1924.
There is possibly no group of men in the country more familiar
than yourselves with the Government«s war financing, its refunding
operations and the various reductions which have been effected in
the public debt,
For this reason, I shall not touch on these ques-
tions, but will confine myself to saying a few words regarding a
matter which is of constant interest to us in the Treasury Depart
ment and must also, I feel sure, be of considerable interest to the
investment banking business, namely, the Government's program for a
steady and orderly reduction of the public debt,
It has been i/he traditional policy of this Government to apply
surplus revenues to the reduction of the debt?
and since the close
of the last war this policy has been closely adheroddto.
Certain
sources of revenue, however, which have been used by the Government
tp purchase its own securities and retire them, are no longer avail
able*
I refer particularly to the sale of excess war supplies*
For this reason our future reductions must depend upon the annual
sinking fund with the operations of which you are well versed, and
upon the surplus of Governmental receipts over expenditures at the
end of each fiscal year*
These surpluses have, in the past five years
amounted to very substantial figures, which are in round numbers as
follows:
-2-
In the year 1920 - ---"
n
" 1921 - -------“
"
n 1922 - - - ,f
»
» 1923 - ----"
"
» 1924 - - - -
$2 1 2 ,000,000
86 , 000,000
313,000,000
309,000,000
505,000,000
These amounts, which were used to reduce the public debt,
reflect the economies of this administration in the face of a gradual
decline in revenue.
With the adoption of the Budget System, which has been most
faithfully and efficiently administered by General Lord, Director
of the Bureau of the Budget, economy has been the watch-word of
the Governments operations;
and it is due entirely to such econ
omy that the surpluses just mentioned have been achieved.
It
will become more and more difficult, however, in the fiscal years
to come to show a surplus of receipts above expenditures, due to
the fact that taxes are gradually being reduced*
It must be re
membered that a reduction in taxes is dependent upon a reduction
in expenditures, and a reduction in expenditures is dependent, to a
large extent, upon the continued, steady retirement of the public
debt.
budget,
Interest on the debt is the largest single item in our
It amounted in 1924 to nearly one billion dollars or
more than one-fourth of all expenditures«
fore, that, if
It is obvious, there
expenditures are to be reduced and likewise taxes,
the public debt must be gradually paid off, so that these great
-3-
carrying charges may eventually be eliminated.
It is with a view to this situation that the Treasury has
mapped out a program looking to the ultimate retirement of the public
debt in about twenty-five years.
Through the use of the Sinking Fund
and other known revenues, this can be accomplished, provided we main
tain the popularity of the Government securities.
But it is absolutely
necessary, if this program is to be successfully carried out, that the
Government should be able to sell its securities bearing a low rate of
interest and conduct its vast refunding operations under favorable cir
cumstances without undue disturbance of market conditions.
It will
seriously interfere with this program if a successful effort is made to
dislodge government securities from the hands of their present holders.
One of the unforeseen results of the war was the creation, by
means of the Liberty Loan drives, of a large body of investors in
Government securities.
In building up this great body of investors,
as in all its work of war-time financing, the Treasury received invaluable
assistance from the investment bankers of the country, who now are
benefitting from the patriotic and unselfish service which they rendered
during and after the war.
The Liberty Loans were well and widely dis
tributed; and the notes issued in the refunding of these loans have, in
a large majority of cases, gone back into the same hands.
-4People have become accustomed to including among their investments
a very substantial proportion of Government obligations,
T^iey appreciate
the security of these obligations and for such security are willing to
take a lower interest yield*
This lower yield and the gradual retirement of the public debt
have made it possible for the Government to reduce taxes and thereby to
leave with the public more money to find its way into the usual channels
of investment.
Furthermore, the money collected in taxes for the re
payment of the war loans is available now for the investment market*
Since its highest point in August, 1919, the public debt has been reduced
five billion dollars, and during the last fiscal year the debt reduction
has amounted to over one billion dollars,
A very great proportion of
this money is flowing into the investment market and thus adding to the
capital wealth of the country.
The question has arisen whether the time has not come when invest
ment bankers can properly suggest to holders of Liberty Bonds that they
exchange such investments for other securities,
The Treasury is will
ing to vievi this question entirely apart from the patriotic angle*
although there is no question of the fact that we are still - and for
some time will be*~involved in the later phases of wartime financing*
It is necessary only to point out that during the next four years more
than eight billion dollars in Government obligations will mature and
practically three—fourths of this amount will have to be refunded*
5What would, be the effect on the Government *s refunding program
if holders of Liberty Bonds were induced to trade them for other
investments? If such bonds in an appreciable amount are dislodged
and come upon the market, they would undoubtedly have a tendency to
decrease the price of Government bonds and consequently to increase
the interest rate which the Treasury must offer in floating new issues
would be unable to
exchange their maturing obligations for new issues offered by the
Government; and the Treasury would have to look elsewhere for customers
for its bonds.
It is easy to see that such a course would result eventually in
breaking up the great body of investors in Government securities so
painstakingly built up during the war,
Would not such a result be more
serious in its consequences than any possible temporary advantage which
might accrue to investment bankers from an invasion of this field?
For one thing, confidence, which is so necessary on the part of
the small investor, would ultimately be impaired.
While the members
of the Investment Bankers1 Association would offer sound securities
in exchange for Liberty Bonds, this would not be true of many un
scrupulous dealers not members of the Association, who would take ad
vantage of the situation to trade the small investor out of his Govern
ment securities in exchange for highly speculative stocks and bonds,
In the end, we would have stricter and more complicated Governmental
regulation o± the sale of all stocks, bonds and securities, perhaps along
the lines already proposed in Congress,
Legitimate business might find
itself unreasonably hampered as the result of efforts to protect un
thinking investors from the activities of unscrupulous promoters.
While
the Treasury is heartily in favor, as I am sure you are, of any legisla
tion which would protect the investing public against fraudulent salesmen,
we must at the same time make sure that such legislation does not unduly
burden and restrict legitimate business transactions.
All these factors should be given careful consideration before enter
ing upon a policy which has for its object the dislodging of Government
bonds from the small investor.
If the public should be won away from
holding and investing in these securities or be traded out of them for
industrial or railroad obligations, it might become necessary for the
Treasury Department, in order to repopularize Government bonds and notes,
to increase the rate of interest thereon,
;This would necessitate the
levying of taxes to meet the interest charges and would have the effect
of taking money out of the investment market.
The Treasury Department appreciates the support and cooperation
which it has received in its financing from your organization, particularly
during the war perio4,
Time passes, however, and I believe we are all
apt to forget that, although the war is over, the public debt remains
with us and must be constantly considered.
For this reason, we still ask
for your support in fostering the popularity of our offerings and in
creating a belief among yourselves that it is bad form to trade an investor
out of his Government securities*
I feel that we can ask this not so much
from the viewpoint of patriotism but because our interests are identical
and* in the end, it will be to your own benefit no less than to the
Governments.
The logic of the situation is inescapable*
The more popular
Government bonds and notes become, the lower will be the interest rate;
the lower the interest rate, the lower will be the taxes; and the lower
the taxes, the more money will he available for business and investment,
a m i ! ! ! 'of
' »th.©
»“ !
Bdit0r °f th® Chioae° Daily New® from the Under
Secretary
Treasury.
September 24, 1924.
Dear Sir:
In accordance with your request, I am sending you a short statement
showing what the Republican Administration has done to save money for the
taxpayers.
The present Administration has practically cut Government expenditures
in half since it came into power,
In 1920, the last full fiscal year of
Democratic rule, the cost of running the Government amounted to $6,482,000,000.
In 1924, under President Goolidge, Government expenditures had been reduced
to $3,506,000,000.
In other words the Harding and Ooolidge Administration,
backed by an efficient Budget Bureau, organized by General Dawes, has
succeeded within a four-year period in reducing the annual budget over
$3,000,000,000.
Such a record is one of which any government can be proud.
How has this been accomplished?
ting efforts at economy.
Mainly by conscientious and unremit
This Administration was elected to get the country -
and particularly the finances - back to a peace-time basis, and it has made
good its promises.
Let us see how this economy in government has helped the citizen.
When
the Administration came into office on March 4, 1921, the country was staggering under the high tax rates of the 1918 Revenue Act.
President Harding
immediately called upon Congress to reduce taxes, which was first done in
the Revenue Act of 1921.
This was followed three years later under President
Coolidge hy the 1934 Act granting still further tax reductions.
These two
tax relief measures have effected tremendous savings to the taxpayers.
Under
the 1934 Act, more than $400,000,000 will he saved to the taxpayers annually
over the amount which would have been collected if the 1931 rates had remained
in force; and it is estimated that during the fiscal year 1936, (the first full
fiscal year in which the entire effect of the reductions will he felt), total
Federal tax collections will aggregate a billion and a half dollars less than
would have been collected from the taxpayers if the 1918 rates had been in
effect.
That gives some idea of what tax reduction has actually saved to the
people of the country*
Another way of showing this is to list the total internal revenue receipts,
collected in taxes, during the last three fiscal years under the 1918 Act and
compare them with the three fiscal years following under the 1931 Act.
These
amounts of taxes were as follows;
Under 1918 Act
Fiscal Receipts
year
(1919
$3,850,000,000
(1920
5,407,000,000
(1921
4,595*000.000
Under 1921 Act
(except part of
(1922
(1923
$3,197,000,000
2,-621,000,000
1918 Act),'*n4er
<1924
3,615,000.000
Saving to Taxpayers ........ $ 5,419,000,000
° t M s muat be added the estimated saving for the
ag Ior
fiscal year 1925 under
the 1934 Act, and also refunds to taxpayers under
Section 1200 of th® Revenue Act
* 3 -
of
/ 1924 authorizing the credit of 25$ of taxes payable in 1924, making a total
saving of nearly $6,000,000,000 in the four years of the present Administration.
In what did these tax reductions consist!
Most important of all, normal
taxes and surtaxes were reduced, as may be seen from the following table show
ing a steady lowering of rates;
Comparison of tax rates under 1918, 1921 and 1924 Acts.
Net income
$ 1,000
2,000
3.000
4.000
5.000
10,000
20,000
100,000
Total of normal
and surtaxes of
man and wife under
Revenue Act of
1918 •
Total of normal
and surtaxes of
man and wife under
Revenue Act of
1921.
—
$
40
80
120
590
1,990
31,190
Total of normal
and surtaxes of
man and wife with
$5,000 earned in
come under RMvenue
Act of 1924
—
$
20
60
100
520
1,720
30,140
$
7.50
22.50
37.50
207.50
1,017.50
22,617,50
Tables like these make dull reading for anyone except the harassed tax
payer, but to him they read like the scoreboard when the home team has a
chance for the pennant and is ahead.
They show that each year an increasingly
large amount of money was left in the taxpayers- pockets, instead of being taken
for the support of the Government.
In addition to reduciig the smaller income taxes and the surtaxes and
repealing the excess profits tax imposed by the Act of 1918, the 1921 Act
repealed most of the transportation tax and some of the nuisance taxes.
the item of transportation alone, the public saved $273,000,000,
On
Over
$48,000,000 was saved by the repeal of the tax on soft drinks and ice cream;
nearly $19,000,000 on life, fire, marine and casualty insurance; $1,332,000
on chewing-gum; over $4,000*000.on sporting goods and $11,000*000 on pianos
and phonographs*
In addition; the taxpayers saved nearly $19,000,000 by a
reduction of the tdk 6n wearing apparel, carpets, trunks and umbrellas;
$7,543,000 on candy, p d
very considerable amounts on other articles such
as electric fans, thermos bottles, toilet soap, perfumes, etc*
The total
of these reductions amounted to $408,^32,000.
Statistics like these explain to the taxpayer Why, about January, 1922,
it possible to buy things he needed without having a tax added to
tha price.
For instance, if he bought a piano about that time, he saved the
tax which otherwise he would have paid to the Government.
All this makes
an appreciable saving in the family budget.
The Bevenue Act of 1934 effected even more sweepiig reductions in taxes.
greatest savings, of course, were made in the direct taxes levied on
email incomes.
On incomes of $8,000 or less, taxes were reduced 63.52 and ;
incomes from $8,000 to $13,000 the reductions ranged from 612 to 50,92«
. e surtaxes were also revised, so that the rates ranged from 12 on $10,000
to a maximum of 402 on incomes in excess of $500,000.
the amount of personal
exemption in the case sf heads of families was increased to $3500 in all oases
and a reduction of 352 was allowed in the tax on earned income not exceeding .
$ 10 , 000.
Many taxes, such as those on telegfaph and telephone messages, were fepealed.
It is estimated that the repeal of this tax alone will save to the
taxpayer $34,000,000.
Another $10,000,000 will be saved by the repeal Of
the tax on beverages; $13,000,000 by the repeal of the candy tax; $33,000,000
"by taxing ®nly admissions i
n excess of fifty cents*
This last item means
I
~ O -
that practically all taxes on moving pictures are eliminated.
If, for in
stance, a taxpayer takes his wife and two children to a 50-ceht movie, he
pays not $3.20 a s formerly, hut $2*00 for the four tickets.
Certain exemptions
weie allowed in the tax oil automobile trucks and bodies, effecting an estimated
saviig to the taxpayer of $5,000,000, and a saviig of $20,000,000 will result
from cutting in half the tax on tires, inner tubes, parts and accessories.
Many other taxes, such as those on knives, huntirg garments, carpets, trunks,
valises, purses, lighting fixtures and fans and the stamp tax on checks, drafts
and promissory notes were repealed*
The broker*s occupational tax is no longer
imposed on those engaged in sellii^ produce and merchandise and the tax on
jewelry has been greatly reduced.
Thfcs.-emiscellaneous taxes, which have been
repealed or reduced, aggregate about $118,620,000, and represent a direct saving
to the taxpayer in so far as such reductions are reflected in prices.
Bie theory on which the Hepublican Administration has based its tax policy
is that high taxes increase the cost of living; and that, so far as the condition
of the Treasury permits, taxes should be reduced and the cost of livii« lowered.
It must be remembered, however, that reductions in taxes are dependent on reduc
tions in expenditures; and, with the utmost possible economy in Government, it
possible to reduce taxes below the amounts required to meet the fixed
obligations of the Government.
One of these is the payment of interest on the public debt.
That item
alone in the fiscal year 1924 amounted to nearly one billion dollars, or over
one-fourth *
- u ,
all Government expenditures.
..». ™
debt as rapidly as possible.
It is obvious that, in order even.
M
o(i ti>
-
6
-
ihe I'reas1ir y . under the brilliant administration of Secretary Mellon,
has arranged to do this.
Since tie Republican Administration assumed
office in March, 1921, about $2,800,000,000 of the debt has been paid off
without the public even being aware of the tremendous financial feat which
the Treasury has so quietly accomplished.
As the debt is reduced
interest
expense becomes less and with this savirg in Governmental expenditures another
billion dollars a year can be taken'off the taxpayers' shoulders.
In 1920 the average tax burden paid the Federal Government was $53.71
for each person in the country; in 1924 it was $29.83, and by 1926 it should
be $26.96, a reduction of 50f„ in per capita tax.
T h i * * at it means to cut
taxes squarely in half*
Tte Republican Administration has gone far toward putting the country
back on a peace-time basis.
In getting down to brass tacks and effecting
real economy in Government, it has given a notable instance of platform pledges
which have been carried out and promises which have been made good by performance.
It has proved itself a party of constructive ability and shown that it deserves
the continued confidence and export of the American taxpayer whose interests
it has so well served*
Very truly yours,
(Signed)
GARRARD B. WIBSTOU
Under Secretary of the Treasury
The Editor,
Chicago Daily Hews,
Chicago, Illinois.
October 1 , 1924,
My dear Mr, Head:
The Treasury has been concerned recently with the need for improving
the currency*
In solving this problem, I feel sure that we can count on
the cooperation of the members of the American Bankers* Association, for
the quest ions involved are of interest to bankers no less than to the Gov
ernment and to the public.
During the last three years an unprecedented demand has developed for
paper currency of the smaller denominations.
This is particularly true of
$1 notes, which are being used in increasingly large numbers.
In order to
supply the demand and to meet redemptions of unfit and mutilated dollar
bills, it is necessary to print and put into circulation 48,000,000 of
these bills each month,
A note which is thus rushed through the process of
manufacture becomes unfit for circulation within seven or eight months of
issue, whereas notes which have been given a reasonable period of seasoning,
will continue in circulation from ten to eleven months.
Bankers throughout
the country are constantly complaining of the poor quality of the .paper
money; and, while the Treasury is aware of the situation and.is doing all
la its power to rectify it, we must ask your cooperation if the desired
results are to be obtained.
Obviously we must build up a reserve supply of currency sufficiently
large in amount to keep a portion of it in process of seasoning.
the Treasury intends to do«
This is
It will be necessary to obtain from
Congress an additional appropriation with which to build up an adequate
Congress an additional appropriation with which to build up an
adequate reserve stock, but in the end such a program will result in
increased saving to the taxpayers.
A dollar note costs today 1 7/l0^
to manufacture and keep in circulation.
If its life can be prolonged
by two months, so that it remains in circulation ten months instead of
eight, a yearly saving of $1 ,666,000 will be effected in this denomin
ation alone.
The building up of an adequate currency reserve will take time* One
way of facilitating the operation is to increase the number of standard
silver dollars in circulation, and this also the Treasury hopes to do*
In this way we shall be able immediately to pile up a reserve of paper
dollars in the amount of the standard si3.ver dollars which are put into
circulation.
The number of silver dollars in use today is far below normal*
During the war, as you know, Congress passed the Pittman Act, authorize
ing the Treasury to melt standard silver dollars and sell them as
bullion for use of the British Government in India.
The greater portion
of the silver ’thus sold was represented in currency circulation by
silver certificates which were withdrawn from circulation.
In addition
to this decrease in the circulating medium, the number of silver dollars
in current use has dropped from 84,000,000 in 1919 to 54,000,000 on
July 1, 1924.
When silver again became available for purchase, the Treasury was ■
required by law to buy silver and coin new standard silver dollars, which
would replace those sold during the war.
These repurchases are now completed
bjit the Treasury has not succeeded in restoring, by at least 30,000,000, the
number of silver dollars in circulation in 1919,
There are many reasons why the silver dollar should be restored to its
m
■■aporhan<.e ..n .he currency structure.
In the first place, the life of
a standard Silver deliar has no reasonable limit, whereas that of a paper
dollar does not at most exceed ten months.
A paper dollar, as was pointed
out above, costs 1 7/l0# to manufacture and keep in circulation.
If the
Treasury, therefore can restore to circulation 30,000,000 dollars in contin
ental United States and 10,000,000 in our insular possessions, we can displace
equal amounts of paper currency and effect an annual saving on this item alone
of $828,000, which is equivalent to the interest at 4% on $21 ,000,000 of the
public debt.
* .
The use of the silver dollar is not an innovation. It has merely lost
its place temporarily in the circulation in certain localities; and all that
is proposed is to restore a very limited amount of these coins as auxiliary
to the paper currency.
cooperation.
If we are to succeed in this plan, we must have your
It is necessary for the banks, through their cashiers and pay
ing tellers, to explain to their customers the Government's reasons for want
ing everyone to take at least one or two silver dollars with their paper cur
rency.
I am fully convinced that the public will cooperate if they know
-4~
that such action oil their part w ill result -Pi-n 4p
Wlil resu;it> f i r s t , in a direct saving to the
Government through a reduction of expenditures for currency, and, second, in
an improvement in the quality of paper currency hy making possible the accumulation of a currency reserve in process of seasoning.
be forced upon an unwilling public.
Silver dollars can not
If a proper appeal is made, however, and
^the appeal is backed by icgic and reason, the .American public can be counted
.upon CO cooperate with the Government in its effort to supply the currency
requirements cf .the country.
Sincerely yours,
A. W, ivlELLON,
Secretary of the Treasury.
W. W. Head, Esq.,
President, Merican Bankers’ Association,
Chicago, Illinois.
Treasury Department
October 13, 1924,
ESTIMATED AMOUNT_0F./WHOLLY, TAX EXEMPT SECURITIES OUTSTANDING
w
Angus t 31, 1924,
Issued by
Gross Amount
States, counties,
cities, etc.
$ 12,077,000,000
Territories, insular
possessions, and
District of Columbia
125,000,000
Amount held in
Treasury or in
sinking funds
.Amount held outside of Treasury *
and sinking funds
(l)A
$1,812,000,000' $10,265*000,006
(2)
15,000,000 .
110,000,000
United States Govern
ment
2,294,000*000
748,000,000
Federal land
termediate
banks, and
stock land
1,399.000,000
104,000,000
$15,895,000,000
$2,679,000,000
$13,216,000,000
$15,805,000,000
$2,672,000,'000
$13,133,000,000
December 31, 1923
14,885,000,000
2,564,000,000
12,321,000,000
December 31, 1922
13,652,000,000
2,331,000,000
11,321,000,000
December 31, 1918
9,506,000,000
1,799,000,000
7,707,000,000
December 31, 1912
5,554,000,000
1,468,000,000
4,086,000,000
banks, in
credit
joint
banks
Total August 31, 1924
(s|
(4)
1,546,000,000
1,295,000,000
Comparative totals:
July 31, 1924
(1) Total amount of state and local .sinking funds*
(2) Total amount of sinking funds and amount held in trust by the Treasurer
of the United States,
(3) Amount held in trust by the Treasurer of the United States,
(4) See Note (3), also partly owned by the United States Government,
®|ÍI|pÍ :
1
-lii'
^
CJotete» 31, 1334.
I t afet* t« sala te s t tea i m n l pella» e o te n llla g ti» fisa a e ia l
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« » tet af « » SOUntry.
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1 to ta l «9 « M e f tte Ooremaaat t*m appaortaatalp $J M i l i « i»t3*n la
P
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M illo » d a lla n l a 1984.
la lta « p m n U a g «afeada,fe* n d a m l Soaaawaat baa tefe
tfaa
«nata»« pollahi** aai apaodtog tp ot lt» « t l n lila, Pnaldoat tedia«
ate inald*« o«lidn ten i«««. *«,*4 ta f e ^ d o « M fe» pn*na» la tola
|
dltartloa. fe* S w w a al « J Bafea«, «ha «Mate m & «ha M a
ef «te ia-
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dapaadaat B anana aad oaltellatenet. M a n safen la m a r «a? «a adajrt ^-«odata t e s i n a s juroaadan.
** f o» entila« dora tte la n a b a# tte O m a t apea tita m e*? « M t,
í
I .«fe ana praatleal woy waa «railaMa, asaafe, «a fgf off pan of «te tote.
a » «fe W
to «¡Mala «afe fe* « * » p««pa.a «*,
|
u¡|| 1*** lis»
; tete» la * & appfe «he »«pina te pagrla« UaMlltlM. «Mt m »
tea
; fltlla**A «d®t a H*a tead lo» «tejas« loar jrmn, «tfe «te nanlt ttet m
j 8 M U I « dallan fel.it tea M a n terrona fin» Males, lanraaw oaamoti«®,
t m r n m m aad todlridnals, tea te«a «id tete: «ad aat terrena ag«la, «f «*««■»
®r#r
Millón m m paid |m «la» p«*t ^
Wfe®% %MINI llOOü
‘
XHH&XÚL%$ Of !ÉÉlJl$$
M o k of o w tKII'TOWOd tíÉÉIí^|ff
í l n t , « te aaaa» te te h te a t e m p a ld t e t e te s a a f e * te r e » « * » « la
otea» H alda, tterfegr M M ante la r a r t a todw try.
purchase in the maxket of Liberty Bond© for cancellation by
H
has eeatributed to the continual a&raiwse in their market
Talno from about 86 in 1921 to well oror 100 of the present time.
2hir&t the reduced volume of borrowing ha» made it possible to steadily
reduce the Interest rate on nor offerings of treasury notes«
In May of 1921, it was necessary to pay S| per cent to borrow the money
with -which to meet this liability.
In those days, there waa a clamor for
more credit for the home builder, the farmer, the exporter, low could such
credit be found at any reasonable rate when the strongest borrower in the
world was forced to pay nearly # per centf
®od«r, when
Treasury certificates can 1» placed on a 3 per cent basis and
Utarty Bond. aresslling on a 4 per cant basis, «ha Federal SoTemsent
praetically has ceased to interfere with farmers, tallness and industry in the
mousy market. In the broadest sense, this is the outstanding benefit to the
people of the country resulting from a conservative financial policy;
A negative, tat none the less important elomant, has beta the determina
tion of the Administration to steer clear of economic and financial exuorimaats which could only prove disastrous in the long run.
The country was not
lacking in those who would have liked to prospect in the wild places and seek
“cure-alls“ for our financial troubles, some would have used the seme surplus
twies, ones to reduce tames and again to buy end hold the surplus products
of one or another broup of citlsens. Some would have had the Govenmant
guarantee prices on certain commodities, at the risk of the tsaqmyer.
Sane
would have used the Federal Treasury to finance exports on long-time credit*
to buyers of doubtful financial responsibility.
That the Administration has
constantly sst its face against any quack remedy, however attractive it
spp*ar ®* * ®lT*® ® a® s t »
* « T
5a«i® eontributia« factor
to
■ M M A l j r i s s w w i eoadiUans »hite tfea oouatry mm w j e y a .
” i*ht h w * “# K ® á ** W a « ** t e f W M w a t V
ti» p«p-
«« m .
«orrla« as a « « f e ® » »t lamíate,
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%$$%&&$ b e a e fit wonüUI honre resulte«! *
t
n » IÍMrdine-Cooltd«o adalniotretlon adoptad the ooaaoa-stmee poltoy th&t
«ajr
»heñid folio* tees i ® fiado hiaoolf spoBdiag j
g
mmm
h a os»
affort end larolvod ia dote «ore haarily thaa ShanId be Jnetifiod. S% is oaa
thlag to ®d®pt a polioy of rotranahm&t bnt «alto ssnother to oarry it out. s »
faot that thsro lo , « a p i o , of i » «
i, a » t e d i a « t o ^ t a t i o n to «aocoooaiy
®W 8 W t e r ®* * “ *dMial*típaUon * * «wiotod « a » taaptation
has continuad
te »are aad te apply th» sariztgs to a rodaotian of th» debt.
n» w
th» w
U f » aaar prohlOM, aot the losat of
i» the paylag off of
debt «toadla« «6 ti» «momeas fígaro of 22-M.lHaa dolía«»,
rnt u *
im off,
mm,
m
«««ais*
it « t u *
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« a *«**«»». J
th» eapltal »hite It no» took» ap »111 he rolawad for othor fioM*
of lareotaaot aad tho dorolnpamt of © » nataml
w » l d ho w l n
mmmm
of th* «orla. It
to atta*t to p»y off the deht too fa»t but untll It 1» pal*
i» U U , »o «boald naror «lio» * yaar to paa» »hite dea» aot sao a »testatelal
raáaetl«» m d e .
Mmm
and « m o i o n e y ia the
mxsa^msat aithe Oerarnaete,
* wflwtaBti»1 P O S « « » eaah yaar te »oemite of the aatioaal daht tffl lay a
fenadation apon »hite »a nay «onfidantly hulld for « graat ftttwa.
th&t
ADDRESS OF HON. CHARLES S. DEWEY,
Assistant Secretary of the Treasury
Delivered in Boston, Mass.
Nov. 19, 1924.
Mr. Chairman and representatives of the stockholders of member hanks
of the New England Federal Reserve districts, officers and directors of
the Federal Reserve Bank of Boston:
I have been instructed by my chief, Mr. Andrew W. Mellon, Secretary
of the Treasury, to convey to you his respects and good wishes to this
meeting and for the business of this district during the ensuing year.
• (Applause)
It is only an egression of human nature that one»s personal problems
always seem greatest.
To the banker money represents credit and the
conservative maintenance thereof.
To us in the Treasury Department, outside
of our large physical operations, money represents currency and its supply.
I am going to endeavor to say a few words in regard to our problems in
supplying the banks throughout the United States and the general public
with currency.
The currency system in the United States consists of eight types.
We
have silver certificates, gold certificates, United States legal tender or
greenbacks, Federal Reserve notes, gold coin, silver coin, and subsidiary
coinv and National Bank notes.
It may interest you if I read from the
circulation statement of the United States money of the first of November
1924, the amount of these various,kinds that are outstanding at the present
time.
Gold coin and bullion $436,000,000; gold certificates $904,000,000.
j I am giving them in round numbers, gentlemen.
Standard silver dollars
| $55,000,000; silver certificates $389,000,000; treasury notes of 1890, $1,000,000.
jt These are being retired and there are just a small number outstanding.
Subsid-
1 iary silver $2o9,000,000; United States notes or legal tender $305,000,000; Fedi eral Reserve notes $1,784,000,000; Federal Reserve banknotes, $8,000,000.
I are also being retired and called in as fast as is possible.
I $734,000,000.
These
Rational bank notes
For all these types of currency the United States Government
B bears the printing expenses except those in connection with the Federal Reserve
notes which are reimbursed to us.
In regard to the Rational bank notes, while
I we hear the cost of printing, the cost of the plates afcs paid by the Rational
banks themselves.
The multiplicity of these types of currency, their manufacture and cost of
redemption and reissue adds greatly to the expenses of the Government.
f
Under the
law we are reqaired to keep out in constant circulation $345,000,000 in round
I numbers, of the legal tenders or greenbacks.
In other words, as fast as they
Bare sent in to the Federal Reserve Banks and from them to the Treasury of the
F United States for redemption they must be reissued either in the same denomina
tion or in an aggregate denomination which will keep $346,000,000 in circulation.
A further complication is that there are at present outstanding $842,900,000,
| of bonds available to secure Rational Bank notes circulation.
The Rational banks
have at present outstanding about $734,000,000 Rational Bank notes.
These notes
I as they come in must be reissued in the same form and denomination as required
, by the Rational Banks issuing them.
There are about 7500 national banks at the
present time that have such circulation, so you can readily imagine how difficult
ry
~ o
-
I it
U to keep constantly printing and keeping sufficient stocks of the various
I notes of the various national banks of the required denominations on hand.
The present policy of the Treasury, - and of course its maintenance depends
I upon the policy of future administrations-- but the present policy of this
I administration and the Treasury is the gradual retirement of National Bank
■ notes and the United States Notes which will simplify the currency system of
I the United States.
This has been advocated by practically all economists
B and the simplification will cause a great saving to the Government.
K
The first move in the retirement of National Bank notes was the calling
\ of $118,000,000, in round numbers, of the four per cent bonds of 1925, which
i" haVe been called f°r retirement as of February 1 , 1925.
Against these bonds
l there are about $75,000,000 National Bank notes in circulation.
first step towards the retirement of the circulation.
This is thé
Any further step I think
I will depend a great deal upon the possible passage of the McFadden bill or some
j other remedial legislation which will be beneficial to the National Banks.
With the gradual retirement of the National Bank notes, and possibly the
J United States legals, we will be left with only silver certificates, gold
certificates and Federal Reserve notes, and of course including metal coin, gold,
silver and subsidiary coin.
This will make a much more simple structure for our
currency, and will cause a great saving to the Government in printing, redeeming,
and reissuing, and we believe will make the currency much more elastic.
All the paper currency of the United States as well as all of our securities,
notes, stamps, State Department passports, everything that is of the distinctive
paper type, are printed in the Bureau of Engraving and Printing in Washington.
The Bureau of Engraving and Printing is the largest establishment,—
consider it the most up-to-date one of its type, in the world.
and we
It employs about
- 4 r
five thousand men and women.
Unfortunately, it is not a distinctly elastic
type of manufacturing establishment.
It is not easily expanded and contracted,
ut is built to take care of the normal demand of paper currency and securities.
: Therefore, you can imagine the sudden difficulties that arose during the war,
; when we were called on to print and manufacture the enormous issues of Liberty
Bonds, Treasury Certificates, War Savings.Certificates, War Savings Stamps, and
various other types of issue of this kind.
our requirements for national currency,
This in addition to the printing of
As a result the Bureau of Engraving
and Printing was run day and night.
During the war period over two hundred million pieces of bonds and
securities of that type were turned out, this not taking into account the War
Savings Certificates and the Thrift Stamps.
The natural result of the emergency
caused us to first take care of those securities which were most needed.
We
gave most of our time to the turning out of the bonds and securities and some
what neglected the printing of currency.
As a result our currency reserve stocks
gradually fell off.
It has always been customary to keep on hand at least a month's supply of
distinctive paper, a month's supply of currency in the process of manufacture,
and a month's supply of completed currency in the vaults of the Treasurer of the
United States, but with the great demand for currency and the great demand on
the part of the Government for the turning out of its securities our reserve
stock.was very speedily eaten up.
Immediately following the war came the expansion of 1919 and 1920.
outstanding currency rose to the large figure of $5,628,000,000.
Our
To supply
5 r
|this, exceptional demand we had to cut down the period of manufacture'of the
;currency from three months to three weeks.
In other words, prior to the war
|period it took about three months time for a piece of United States money, from
;the tlme
entered the Bureau of Engraving and Printing in the form of
distinctive paper, to emerge at the other end into the Treasurers vault.
The demand was so great that the process of manufacture was speeded up more
and more until we got down to printing our paper currency in from three to four
weeks.
Now this resulted in a number of things,
‘in the first place we were
unable to season our distinctive paper or completed currency.
In the second
place, a number of processes had to be cut out which took a little too much time
and as a result the life of our currency was very materially shortened.
The problem of the currency structure is the one dollar bill, and in any
other reference I make to the paper currency I refer to the dollar bill as a
standard.
The life of a one dollar paper bill prior to the war was between
I eleven and twelvé months.
This was when we were capable of having an orderly
■process of manufacturé, seasoning the distinctive paper and the bills themselves.
»During this great demand for currency the life of the dollar bill gradually was
I reduced until it got down to as low as four months in some districts.
I of manufacture
of a dollar bill is 1.7 cents.
■it in circulation during its life.
The cost
That manufactures it and keeps
Now you can readily figure with between
I $375,000,000 and $380,000,000 of one dollar bills in circulation what every
■month*s additional life of a dollar bill means to the United States at a cost
■ of 1.7 cents.
I six months,
The averago life of the dollar bill several months ago was only
so that really means that a dollar bill costs the Government three
■per cent to keep out a year, which is savings bank interest.
-
I
6
-
We are doing everything in our power now to rebuild the stocks of all
{classes of currency.
We feel by July 1, 1925, we will have again built up
I ur reserve stock and brought back our process of manufacture to the orderly
nethod which maintained prior to the war, so that if for a short time to come
the money that is received by you from the Federal Reserve Bank is not as clean
Is you would like to have it you will have to bear with us a little longer,
le are doing the best we can, and we hope in due course we will bring the money
back to the condition it used to be in, the condition that you may expect and
| we to be proud of.
The Treasury Department, and Mr. Mellon himself, is vitally interested in
I doing anything that will create a saving,, as you know.
|cost of a dollar bill is 1.7 cents.
As I have said,, the
The life of the dollar bill at the most
we can possibly expect would be eleven to twelve months.. The cost of a standard
■silver dollar to Mint is one cent and its life is almost indefinite.
You find
|the standard silver dollkr in perfectly good condition after it is in circulation
[twenty or thirty years.
It is Mr. Mellon's desire to put some more standard
■silver dollars back into circulation.
Jn 1919 there were about $85,000,000 of
standard silver dollars in actual circulation throughout the United States.
For
various causes, which I will not go into, the standard silver dollars were
gradually reduced in circulation until now there are only $54,000*000 of them
m actual hand to hand use, about $30,.000,000 less than in 1919.
It is the desire of the Treasury Department to put back these standard
silver dollars to the extent of $30,000,000 into their old place in the currency
structure.
On top of that we are going to try and put out $10,000,000 into our
7
■insular possessions.
If we can do this it may surprise you to learn of the
■ «saving that will accrue to the Government based on a cost of 1.7 cents for a
«Jolla* M U
f°r lf We Can put ***■ «»se $40,000,000 into circulation in the
'
„.Itoited States;'there will he an annual saving of $1,000,000 to the Government,
;; I and we think; that is well worth while saving.
The ?lsn does not mean that any one man is obliged to have a large pocketful
,«of silver dollars to carry around.
I insular possessions
That $40,000,000 is to be spread to the
and throughout the United States, and would not mean more
■than an occasional dollar or two in ones pocket.
I am going to ask you
I gentlemen to co-operate with us in putting these dollars out.
I: done through your co-operation and your help.
The greatest co-operation would
■ be given by the tellers in the individual banks.
| a ten dollar check.
| silver.
He grumbles.
It can. only be
A customer comes in and cashes
He is handed back nine dollars in paper and one dollar in
How, if your, teller will only tell him,—
and we con-
Itemplate providing you with the information so that he will have the story well
J i n hand,—
just what saving will accrue to the Government, I think the customer
Jjwill be willing to help us.
It is not asking a great deal.
We would like to try this plan out.
Id due course we contemplate sending
jjto the various member banks through the medium of the Federal Reserve bank
¡monthly bulletin information on this subject and we ask for your co-operation,
Ilf the standard silver dollar will not go out and will not stay in circulation.
then we will have to give up the plan.
If they will stay out their increased
icirculation will provide a saving well worth while making.
I wish to thank you gentlemen for the co-operation that I know you will
■give and for listening to what I.have had to say.
(Applause)
.Brief outline of the activities of the
Federal Farm Loan System, the k?.r Finance
Corporation, the Agricultural Credit
Corporati o.n, and the Federal Reserve
System, in so far as it relates to Agri
culture, prepared for the Fres.ident^s
Agricultural Conference,
Treasury Department
December 5., 1924,
EDEPAL FARM LOAK SYSTEM
Federal land banks, joint-stock land banks, and Bederal
intermediate credit banks operate under the supervision of the federal
Earm Loan Board according to the provisions of the Federal Farm Loan
Act as amended; (Copy of Act and amendments attached;)
The Federal
land banks and, joint-stock land banks extend. Iona-term credits ranging
from five to forty years on farm mortgage security, vhile Federal
intermediate credit banks make loans, discounts and advances on agricul
tural and live-stock paper having a maturity of not less than six months
n. three y
years,
<
and not more ther>
.erel
Fed.
ersi land banks and joint-stock land banks are authorized
;t exceeding
exceedii certain specified amounts, up to 50 per cent
to make loans not
J-fo
C-' rm land and 20 pep cent of the value of permanent
of the value of ■farm
farm
pledged as mortgage security.
.m. property
prop1
improvemeats of far
The proceeds
it
be used for certain agricultural purposes.
t be
of the loans muei
Repayment
of interest and principal is made on an amortization plan.
The rate of
interest ray not exceed 6 per cent nor exceed by more than one per cent
the rate on the last series of farm, loan bonds issued by the land bank
making the loan,
.
kteral Land
Federal lend banks receive applications for loans only
irnnkh ’M otional
4*4r\Y\C: &‘ a
o mnnt.C ATVr.TftVeA
til©
ïatm Loan ~-oard (Paragraph 2, section 14, farm Loan Act) and make loans
only to persons ’’actually engaged or about to become engaged in the culti
vation of the land mortgaged”. (Sixth restriction, Section 12, Farm Loan
Act),
Loans may range in amount from $100 to $25,000.
Ten or more borrowers
wanting loans amounting to at least $20,000 are required to organize a farm
loan association,
irexe are now in operation 46F5 National farm loan
associations through which applications for loans may be made to the Federal
land banks.
Funds for making loans are provided through the issue of farm
loan bonds against hypotheticale& farm mortgages.
For the past three years
the Federal land banks have been at ell times in ample funds to make all
loans offered to them by eligible borrowers whose security was approved
upon appraisal and consideration by the banks% - and there seems every
prospect that this supply of funds will continue.
The Federal land banks
had outstanding as of October ?1# 1224, $912,558,471,25 loans.
further information as to the organization, operations* and
%
nature of loans made by these institutions wi.H be found in the Act as
amended and in the rulings and regulations of the Federal Farm Loan Board,
copies of which are attached.
There are also attached copies of the
annual reports of the Federal Farm Loan Board for 1S21, 1922 and 1923,
wnich give a detailed account of the operations of both Federal land banks
and joint-stock land barks during those years.
Joint-Stock Land Banks:
_______________
Joint-stock land "banks are organized by private capital wonder
Federal charter.
Loans are made to borrowers directly on farm mortgage
security without regard to the vocation of the borrower, (Section 16
Farm Loan Act;,
Acting in its supervisory po’~er, the Farm Loan Board has
made other refutations regarding loans similar to those for loans through
Federal lane, tanks except that tne maximum limit is $50,000,
These banks
secure their loanable funds - otner than the paid—in capital — from the*
sale of joint-stock land bank bonds.
There are now sixty-five joint-stock land banks in operation
ana their total outstanding loans aggregated $435,328,681 on October
31, 1924,
Intermediate Credit Banks:
The agricultural credits act of 1923 amended the Federal farm
loan act end the Federal reserve act, for the purpose of increasing the
facilities for extending credit to the farming: and live stock industries.
It provided for 12 Federal intermediate credit banks to be established in
the same cities as the 12 Federal land banks.
The officers and. directors
oi the several Federal land banks are ex officio officers and directors of
the intermediate credit banks, which are placed under the supervision and
control of the Federal Farm Loan Board,
As the name suggests, the purpose of these banks is to furnish
-4credits of intermediate maturities, not covered either “by the short-time
credits of the federal reserve banks or the long-time loans of the federal
land banks.
They may make direct loans only to cooperative marketing
organisations, and such loans have constituted their major operations*
(Paragraph “,. sub-section a, Section BOB Agricultural Credits Act. of
192?).
Agricultural paper maybe rediscounted by the intermediate credit
banks for State and Actional banks and trust companies, live stock loan
companies, agricultural credit corporations, organized under the laws of
the several states, (Paragraph 1, Section BOB (a) Agricultural Credits
Act of 182c), and other intermediate credit banks,
A limitation is placed
upon the paper that may be,rediscounted by banks, and also by agricultural
credit corporations, (sub-section t, section 202 Agricultural Credits
Act of 192?)*
The; major portion of the rediscounts have been made for
agricultural credit corporations and live stock loan companies#
Inter
mediate credit banks may also purchase agricultural and live stock paper
from the above named institutions.
The loans, advances, and discounts made by the intermediate
credit banks must have a maturity at the- time they are made of not less
than six months and not more than three years.
Tc provide necessary funds
for making discounts, loans, or advances, intermediate credit banks are
authorized to issue and sell collateral trust notes, or debentures, with
a maturity of not more then five years,
The rate of interest on such notes
or debentures may not exceed six. per cent and the amount outstanding at
any time must not exceed ten times the paid-in capital and surplus of the
bank,
These notes have found a ready and #satisfactory market to commercial
banks when issued for a term of six months or less,, and a market is
-5gra,dually being developed for longer 16rm debentures as an accumulation
of business justifies their issuance,
Lsch intermediate credit bank has a subscribed capital’stock
of $5,000,000, all subscribed by the Secretary of the Treasury,
These
subscriptions are subject to call in whole or in part by the directors
of the canks upon ?v days*'notice to the Secretary of the Treasury and
with, the approval of the .Federal Farm Loan hoard.
Calls to the extent of
$2,000,000 for each bank have been made by the banks and paid in by the
Secretary of the Treasury ©a behalf of the Government,
The additional
$56,000,000 - $0,000,000 to each bank - remains subject to call.
As of October 01, 1924, the Federal intermediate credit banks
had outstanding $62,797,p94,67 loans of which. $45,567,018.68 represented
direct loans to cooperative marketing organizations, - $13,800,075.99 repres
ented rediscounts', divided between the agencies offering them as follows:
Agricultural credit corporations
.I0etiona.l banks
State banks
Savings banks and trust companies
Live stock loan companies
$11,158,038,96
39,211.07
831,957.63
210,499.25
6.540.679,02
$19,200,075,93
The money market has so far readily supplied the funds needed
for the operation of tiiesd institutions, and there seems every reason to
anticipate a continuing supply.
These banks have met every call upon
them which came through qualified agencies, supported by securities which
stood the test of proper investigation.
Considerable assistance was given
.in the South Atlantic and Gulf states during the past season in providing
funds for crop- production, and this service seems capable of substantial
development along perfectly sound and practical business lines.
-O —
Substantial service lias been rendered tne live stock interests
altnougr. in this direction sene difficulty has teen experienced "because
or the leek or proper local rediscounting agencies.
It is felt that some
system of ners direct contact ’n.th the her rarer in loans of this type
could De vcried cut to the great improvement of the service, without im
pairing the fundamenta1 soundness of the paper, which must always ce the
first consideration *'ith institutions which depend upon the public for
‘h
e
their loa.ualie funds.
A more comprehensive report on the intermediate credit hanks is
being prepared 'by the federal farm Loan Board and will he submitted
directly to the conference.
121
tka bi :;a ::cb cobi oration .
The Act of 'starch 2, 1319, authorised the liar Finance Corporation
to make advances tc American, exporters and American hanking institutions
for the purpose of financing the exportation of domestic products; and
the Act of August £4, 13*1, gave the Corporation authority to make loans
for agricultural purposes to hanking and financing institutions, including
live stock loan companies, and to cooperative marketing associations.
Originally, the period during which the Corporation could make loans,
both for export and for agricultural purposes, was limited to June CO,
1902,
This period, however, va,f extended to June -TO, 1920, by the Act
approved June 10, 1322; to ¿larch Cl, 1324, by the Agricultural Credits Act
of 192"; and to December !?1, 1324, hy the Act approved February 20, 1924,
-7
upOer tne tei.cs of the Act of February 30, 1334, the tine for re—
ceivi hg applications expired on November CO, 1934, and no new loans can
D0 33©oe after December cl, 1934.
The Corporation, however, will still
authority to renew or extend outstanding loans, in proper cases,
v'ztnin the limits prescribed in the Act; that is to say, it may renew for
8. period n ot extendiihg beyond Jaxuary l, 1936, any loan made on or before
k
If ¿2
or it .ray renew1 any loan, made after Js.:;many 1, 13 26, for
a period not extending beyond tbeee years from, the date upon which the
loan was originally made.
It ^ill also have authority to incur necessary
expenditures incident to the orderly liquidation of its assets.
Copies of the last three annual reports of the Car Finance Corpora
tion, together with a copy of the Car Finance Corporation Act with all ••
amendments thereto, are attached.
Copies of Circulars To. 1 and Fo, 2
wrdcn were issued in 1321 containing information for prospective appli
cants for advances under sections 31 and 24, respectively, of the Far
Finance Corporation Act are also attached..
The seventh annual report,,
covering the operations cx the Corporation during the year ended November
30, 1324, will be submitted to the Congress in the near future,
'I'he >ar Finance Corporation is not a-part of the permanent machinery
of the Government.
It is a temporary organization and will cease active
operations on December 21, 1S24,
In creating the Federal intermediate
credit banks it was the intention of the Congress to provide fear a
permanent svstem of agricultural financing to take the nlace of the 'Far
-
8«
THE AGEICULTURAL CREDIT CORPORATION
In a s p e c ia l message to the Congress on January 3 3 , 1924, the
P resid en t d iscussed the economic s it u a t io n in c e r ta in wheat-grow ing
se ctio n s of the Northwest — a s it u a t io n rendered the more acu te by a
co n sid erab le number of bank f a i lu r e s in those s e c tio n s .
He recommended
the enactment of the s o -c a lle d N’orbeck-Burtness b i l l , then pending in
Congress, to a s s i s t wheat farm ers in d iv e r s ify in g th e ir o p e ra tio n s, and
a ls o an ex te n sio n of tnè time during which the «Tar fin a n ce Corporation
could make advances fo r the b e n e fit o f a g r ic u ltu r e and the liv e s t o c k
in d u stry.
He pointed o u t, however, th a t there was a d is t in c t lim it to
the scope of the a s s is ta n c e which the fe d e r a l Government could render
and suggested th at i t might be n ecessary to provide s y s te m a tic a lly ,
on a w e ll-o rg a n ize d and e x te n siv e s c a le , fo r the r e s to r a tio n or stre n g th
ening of the c a p ita l resou rces of the country banks and fin a n cin g i n s t i t u
tio n s n ecessary to th e proper s e r v ic e o f the farm er.
He said ;
The Government can not supply banking c a p i t a l , nor can i t
organize loan companies, but i t can p r o p e r ly r c a ll upon those
la r g e business con cern s, the r a ilr o a d s , the m ercantile estab
lish m en ts, the a g r ic u lt u r a l supply houses, and a l l those
la r g e business establish m en ts whose w elfa re i s im m ediately
cwnnected w ith the w e lfa re o f the farm er. I t can ask them,
in t h e ir own in te r e s t as w e ll as in the in t e r e s t s o f the
co u n try, to cooperate w ith fe d e r a l agen cies in a tta c k in g the
problem in a la r g e way.
In l i n e w ith t h is thought, the P resid en t c a lle d a conference in
Washington on February 4 , 1924, nto co n sid er the p re ss in g a g r ic u lt u r a l
needs o f th e N orth w est,1’
The meeting was attended by a r e p r e s e n ta tiv e
éroup o f b u sin ess men, b an kers, and farm le a d e r s , as w e ll as by o f f i c i a l s
o f in te r e s te d branches o f th e Government s e r v ic e , in clu d in g th e S e c re ta ry
o f th e T rea su ry , the S e c re ta ry o f Commerce, the S e c re ta ry o f A g r ic u ltu r e ,
the Managing D ire c to r o f the War Finance C o rp o ra tio n , th e C om ptroller o f
-9tb.e Currency, ana. members of the Federal Reserve Board a.nd the Federal
Farm Loan Board,
The President in addressing the conference indicated the
steps which, in his opinion,, the Federal. Government Properly could take as
its share of the work to be done, and emphasized the necessity of full and
complete cooperation on the part of the interests represented at the con
ference,
Ee said:
Agriculture and banking, like all other interests, are not the
business of the Government but the business of the people,
Primarily they must assume responsibility for them. The Govern
ment can help, should help, and will help; but it will be entirely
ineffective unless the main impulse comes from the people.
T.ie principal purpose of this conference is to secure cooperation*
Agriculture can not stand alone. The banks can not stand alone,
A great amount of money has been spent to establish the population
in the area affected. It represents some of the best elements of
our citizenship, In this day of distress and adversity it ought
to be saved because it is worth saving. It can be saved if all of
you who are interested are willing to do what you can do, Without
you. the Government can do practically nothing, flth you the Govern
ment can save the situation.
In response to the President’s appeal for their cooperation, the
banking and business interests represented, at the conference agreed to organize
a corporation, with a capital of $10 ,000,000 privately subscribed, to aid in
meeting the emergency financial needs of the Northwest which could not be
met by existing agencies.
A committee consisting of’G. T. Jaffray, pres
ident O/f the Soo Line, Minneapolis; John McHugh, president Mechanics
Metals National Bank, New York City; Ralph Van Vechten, vice president
Continental & Commercial National Bank, Chicago; Clarence M. loolley,
chairman of the board, American Radiator Co., New York City;
«7. Becker,
president Northwestern National Bank, Minneapolis; Alexander Legge, pres
ident International Harvester Co*, Chicago; and R, P. Lamont, president
-
10 -
American Steel Foundries, Chicago, was designated, to proceed with the
work of organization and of obtaining the necessary subscriptions.
Follow
ing a meeting of the organization committee in Chicago 10 days later, or
on February 14, 19¿4, it was announced that the entire $10,000,000 had been
subscribed.
Approximately $5,000,000 was provided by the business and
financial interests centering in and around New York, Philadelphia, Hart
ford and Boston, while the remainder was subscribed by similar interests
in end around Minneapolis, St, Paul, Duluth, Milwaukee, Chicago, Detroit,
Cleveland and Pittsburgh,
It was decided to organize an operating company
.under the name of the Agricultural Credit Corporation, with a holding
company known as the Agricultural Securities Co., both companies being
formed under the laws of the State of Delaware, with headquarters in
Minneapolis,
It was understood that, in case of necessity, the
Agricultural Credit Corporation would be able to rediscount some of its
agricultural paper, within certain limits, with the Bar Finance Corporation.
The officers and directors were promptly selected, temporary offices
were opened in Minneapolis on February 26, and the first loan was completed
and made on March SO,
Two million dollars of the capital was called in the
begitij^gijf;?and subsequently, as the corporation’s operations progressed,
two additional calls of $2 ,000,000 each were made,
The corporation devoted its initial efforts to the checking of
bank suspensions and to the reopening of some of the closed banks in key
communities* for it was felt that in this way it would be able to render
the most effective assistance to a larger number of people within a short
time.
To September ¿5, 1924, the latest date for which figures are
available, the corporation had assisted 2*30 banks, having deposits totaling
$c4,000,000, by making loans aggregating $5,142,000 either directly to them
or through
-
11-
their directors or stockholders,' These loans not only kept in operation
a number of hanks which otherwise would have suspended, and enabledl6 to
resume business, but were a material factor in stabilizing the banking sit
uation in the Northwest,
It has been estimated, for example, that, in
addition to safeguarding the deposits of the banks in question, the loans
have helped to safeguard at least $25,000,000 of deposits in banks which re
ceived no direct aid from the corporation.
The activities of the Agricultural Credit Corporation, however, were
_
*
noi* confined to the making of advances to banks in the agricultural dis-*tricts.
It also purchased the tax certificates of a considerable number of
farmer taxpayers, thus relieving them of excessive charges on their past due
taxes, and made advances, through a seed wheat distributing association, to
assist farmers in obtaining seed.
Shen the Norbeck-Burtness bill, already
referred to, failed to pass the Senate, the president suggested that the
Agricultural Credit Corporation undertake'!; along sound and effective lines,
some of the work which he had hoped the Department of Agriculture would be
permitted to undertake under the terms of that measure, and he expressed the
opinion that no more effective service could be rendered to the agricultural
interests of the central Northwest.
The corporation promptly formulated
plans for making loans to fa.rmers for the purchase of livestock, with the
view of encouraging and facilitating the program of diversification.
On
September 26, 1924, the corporation had financed the purchase of 2,509 dairy
cows for distribution
104 localities and was arranging to place from
30,000 to 40,000 sheep in Minnesota, and North and South Dakota.
By the early part of September the agricultural and banking conditions
in the Northwest had improved to such an extent that the Agricultural Credit
corporation wa.s receiving only scattering applications from banks,
i/
and
T, Oaffray, chairman of the board, stated
faut the emergency functions of the corporation were no longer required.
Since then the corporation has been devoting its efforts largely to those
activities which seek to make farming more profitable through diversifica
tion, and it is understood that these activities will be continued.
The results of the operations of the .Agricultural Credit Corporation
can not be measured by the amount of its loans, for its mere creation and
existence helped to restore confidence and exerted a stabilizing influènce
on the general situation, .Without question, the corporation has rendered
an- important service to the agricultural interests of the Northwest during
a critical period.
RELATION Ok THE FEDERAL RESERVE SYSTEM TO AGRICULTURE,
Purpose and Structure of the Federal Reserve System;
The Federal reserve system is a banking system organized for the
purpose of uniting the reserves of many banks for the protection of all,
of furnishing an elastic currency, and of accommodating agriculture,
industry, and commerce.
It consists of twelve regional banks serving
twelve Federal reserve districts into which the country is divided.
These
banks are owned by the member banks in each district and managed by boards
of directors consisting of- three members appointed by the Federal Reserve
Board, three representing the banks, and three selected by the member
banks to represent the industrial, commercial, and agricultural interests.
General supervision ever the Federal reserve backs is vested in the Federal
Reserve Board in fashingten, appointed by the President :f the United States.,
Tne Secretary of the Treasury and the Comptroller of the Currency are exoff icic members of the Board, which hat six other members, in the selection
13-
os woorn »a* 1 resident is required by law to consider the financial, agricultural,
industrial , ahd fcorfimerc ial interests and geographical divisions of the country»
There is thus prevision for representatives of agriculture both on the direct
orates of the Federal reserve banks and on the Federal Reserve Beard, as a matter
of fact, thebe are farmers among the members of the boards of directors and since
the June 3, 1922, amendment of the Federal Reserve Act, agriculture is represented
by a membership on the Federal Reserve Board.
How Credits arej?xtended.
The operations of Federal reserve banks in extendiig credit to agricultural
interests are regulated by the Federal reserve act with its various amendments.
Neither farmers nor other individuals can obtain credit directly from the Federal
reserve banks, but must apply for loans to their own local banks, which, if they
are members of the Federal reserve system may in turn rediscount with the Federal
reserve bank the notes, drafts, or bills of exchange acquired from customers.
The
Federal reserve act places certain limitations on the character of paper that the
reserve banks may discount and places upon the Federal Reserve Board the duty of
issuing regulations putting into effect the provisions of the law.
Followirg
is a brief sunmary of the provisions of the act and of the board’s regulations
with special reference to the credit facilities offered to agricultural interests.
General Character of Eligible Paper.
The character of the paper which Federal reserve banks may discount is
generally defined in section 13 of the Federal reserve act/
This provision of
law authorizes Federal reserve banks to discount notes, drafts, and bills of
exchange issued or drawn for agricultural, industrial, or commercial purposes,
or the proceeds cf which have been used or are to be used for such purposes.
The law does not permit the reserve banks to discount paper the¿proceeds of
I
j
which are (l) to be loaned to some other borrower, or (2) td be* used for
g£ . .
Bk
ffrli
• •
permanent investment, cr (3) for speculation, Exceptions to
J/
in
favor of certain kinds of agricultural loans are discussed later,
-14-
Agricultural Paper in General,
Agricultural paper is given toy the act an important advantage over
commercial paper* since the letter Can toe discounted only for a period
not .exceeding SO days* while paper which is -issued or drawn for an
agricultural purpose, or is based on live stock, may now toe discounted toy
Federal reserve banks even though it has nine months to run from the date •
of discount,
ill© Federal Reserve Board has made appropriate provision for
this in its new regulations in which the definition of agricultural paper
has been clarified and broadened so as to incorporate the latest and'most
liberal principles adopted toy the board in determining what constitutes '
agricultural paper.
Nine months* paper will thus toe eligible for discount
if the proceeds have been or are to toe used toy a farmer in any one or more
of the steps of planting, cultiviating, harvesting, or marketing a crop,
or
of breeding, fattening, or marketing live stock* and the Federal Reserve
Board has 'held that the marketing of crops or live stock includes carrying
them for a reasonable time in order to market them in an orderly manner*
instead of dumping large quantities #n the market st one time in order to
get money with which to meet currant expenses*
Under this provision of
the law, member banks which have loaned money for nine months to wheat
growers ana other farmers for the purpose of raising, carrying, and marketiig
v r.
their crops, will be able to rediscount the farmers notes*with the Federal
reserve banks.
Paper of Gpooeratlve Marketing Associations,
In recent years cooperative marketing associations have been coming
more and more into prominence as agencies that enable the farmer to market
-15-
his crops to better advantage.
The service which such associations
can render to agriculture is clearly recognized and the Federal reserve
act makes special provisions for the extension of credit to such associations.
Under the act, as amended by the agricultural credits act of March 4, 1923,
cooperative marketing ‘associations can issue paper which is eligible for
discount with maturities up to 9 months, if the proceeds of the paper are
advanced to members of the association for an agricultural purpose, or are
used to pay members for agricultural products delivered to the association,
or finance the'association in packing, preparing for market, or marketing
products grown by its members.
Paper Of cooperative marketing associations
by which money is borrowed to be in turn loaned to individual members of the
association would ordinarily be ineligible for discount, but it,was felt that
the ability to issue such paper, and have it available for discount would be. of
t
such assistance in the cooperative marketing movement that a special excep
tion to the general rule is made in the law*
'The law also specifically
defines as agricultural certain classes of paper of cooperative marketing
Associations which otherwise would be construed as commercial paper.
This
provision makes the paper in question eligible for discount with Federal
reserve banks for a maximum period of 3 months, instead of 90 d^ys.
Sight and Demand Drafts.
¿aether feature*of the law which should prove of great assistance to
the agricultural interests is the new provision making sight and demand
draft a eligible for discount under certain aircumstances.
Under the original,
act such paper would be. ineligible for discount because it has no definite
maturity.
It appears, however» that it is the custom of many member banks
during crap-moving periods to discount large volumes of sight drafts secured
by bills of lading covering the shipment of wheat,
16 ! tural products.
These drafts, although having no definite maturity, are
usually paid with great promptness, and actually constitute a liquid and
»desirable form of paper.
At 'ohe suggestion of the Federal Reserve-Board an
I amendment was made to the Federal reserve act by tiae agricultural credits
r 0'c^
4, 192ot permitting Federal reserve banks to discount sight or
I demand drafts drawn to finance the domestic shipment of nonperishable,
I readily marketable staples and, secured by bills of lading or similar shipping
documents conveying or securing title to such staples*
in order to assure
Rthe liquidity of the federal reserve banks1 assets it is provided that such
B paper must be presented for payment with reasonable promptness and that in no
event may a Federal reserve bank hold such paper longer than 90 days,
''I Factors1 Paper.
The law as recently amended also provides that notes, drafts, and bills
I of exchange of factors issued for the purpose of making advances to producers
i of staPle agricultural products in their raw state shall be eligible for dis
count,
Under normal circumstances, paper the proceeds of which are loaned to
f some other borrower would be ineligible for discount, but this kind of factors*
I paper may now be discounted with maturities up to 90 days.
This facility shouE
I prove of much assistance in financing agricultural production, because in
j
jaddition to borrowing from their banks, farmers can also borrow from their
I factors who will be the more ready to lend on account of the privilege givent;
.th3m of makih£ notes and drafts which may be discounted by Federal reserve bank.
1 jankers*
Acceptances„
In addition to the ordinary classes of credit instruments —
drafts, and bills of exchange —
that is, not®,
a type of paper known as bankers’ acceptances'
has recently been coming into more common use as a means of financing agricul
tural operations, both by individual farmers and more particularly by cooperative
marketing associations.
Bankers* acceptances are drafts or bills of exchange
drawn on and accepted by a bank or trust company dr other banking in
stitution, and the law authorizes federal reserve banks to discount bankers
acceptances under certain conditions.
For this-, purpose such acceptances
must be indorsed by a member bank and mast be drawn to finance the im
portation or expo rtat ion of goods, the domestic shipment of goods, or the
storage of readily marketable staples.
Acceptances which are drawn to
finance the domestic shipment of goods or the storage of readily marketable
staples must also be secured by shipping documents or warehouse receipts
conveying or securing title to the goods or staples in question.
'*7ith re
gard to hankers* acceptances, the law also discriminates in favor of those
drawn to finance agricultural operations by making them eligible for dis
count with maturities up to six months, provided they are secured by ware
house receipts conveying title to readily marketable staples, while bankers
acceptances drawn for other purposes may be discounted by Federal reserve
banks with maturities up tc 90 days only,
Thus individual farmers and
cooperative marketing associations can obtain funds to finance their opera
tions by drawing on their banks and discounting the accepted drafts with
other banks,
This additional means of getting credit is a very valuable*
one, because bankers* acceptances are normally the best type of credit in
strument and carry the lowest rate of interest,
Admission of Small Banks to Membership,
With a view to increasing the availability of creditt&iôugh the
Federal reserve banks, the agricultural credits act of March i, 1923, con\ \
icined & provision designed to enable maky ’
»smaller banks, which formerly
Tf
, 1
.
had insufficient capital to become memberV banks, to join the Federal
Reserve system.
Under this provision banks having 60 per cent of the
■18
capital normally required as a qualification for membership may join
the system under certain conditions relating to the increase of their
capital within a reasonable time, and it is hoped that many of the small
country banks will take advantage of this provision and thereby put them
selves in a position to offer their customers the benefits of membership and
the increased credit facilities afforded by the rediscount privilege.
Open Market Purchases of Paper.
In addition to the discount of agricultural paper for member banks,
Federal reserve banks are also enabled to extend credit facilities to the
agricultural interests by means of purchasing such paper in the open market.
Under section 14 of the Federal reserve act the power is given to Federal rel
serve banks to purchase in the open market bankers* acceptances and bills
of exchange of the kinds and maturities made eligible for discount.
By
virtue of this provision Federal reserve banks may purchase, as well as dis
count, bills of exchange drawn for agricultural purposes and having maturities
up to nine months, and secured bankers* acceptances drawn to finance agricul
tural operations with maturities up to six months.
Five-Year »Loans on Farm Land.
The Federal reserve act also makes provision for long-time borrowing on
real-estate security,
Section 24 of the act authorizes national banks to make
loans for periods up to five years when secured by improved and unencumbered
farm land, and for periods up to one year when secured by improved and unencumbered real estate.
-19-
tfatufally, land thus used .as security ior loans must be located within
rea.sor.able proximity to tne lending bank---the exact limits are prescribed
in the lav— shu it is Further provided, as a matter of sound banking, that
these loans may not exceed 50 .per cent of tne actual value of the property
Oiiered as security,
The law also places a reasonable limitation on the
aggregate amount of farm land and real estate loans which'national banks may
have outstanding:, for otherwise they might tie up too much of their funds‘in
long-time nonliquid loans and not be able to meet the current recuiraments of
other
tasi*/borrowers* ¡Thus, larmers who need long-time loans, can borrow for five
years from national banks in their locality on the security of their farm
lands, and the Federal Reserve Board has provided in its regulations that at
maturity such loans may be renewed for other five-year periods, although a
national bank must not obligate itself in advance to make a renewal.
Other Credit gaeiUtifis,
Tne aoove gives a brief description of the more important provisions of
the Federal reserve act which provide for the extension of credit facilities
to tue agricultural interests,
There are also certain other provisions dealing
with tne relations between tne Federal reserve banks and the new intermediate
credit institutions which were get up by the agricultural credits act of 1923,
•6 ^ ^
sif
3ea.ej.al reserve banks, through discounting and open-
.marLet purchases, are enabled to extend certain additional credits to agri
culture,
agricultural Loans b.v national r^ V q ,
~
Attention Should also be called to the provisions of section 5200 of the
Revised Statutes.
This is not part of the Federal reserve act and applies only
to nation«-! banks, out it nas an important bearing on the amount of credit which
farmers and cooperative marketing associations may obtain from national banks.
-
20-
Sect ion 5200 oi the He vised Statutes contains the limitation on the
amount of money which a national bank may lend to any one person.
This
is, in general, 10 per cent of the lendirg bank’s capital and surplus,
with certain classes of paper excluded as not beirg considered loans of
money,
in exception is made, however, with respect to loans on readily
marketable nonperishable staples, including live stock.
Such loans may
be made to any one person up to 25 per cent cf the lending bank’s capital
and surplus, provided the loans over and above 10 per cent are represented
by notes, secured by shipping; documents or warehouse receipts covering staples
or live stock,
National banks may also discount in unlimited amounts certain
kinds of paper classified broadly as “bills cf exchange drawn in good faith
against actually existing values.fT
Section 5200 oi the .Revised Statures in
cludes in this broad classification drafts secured by shipping documents con-,
yeying or securing title to goods shipped, demand obligations when secured by
documents covering commodities in process of shipment, and bankers1 acceptance
of the kinds described in section IS of the Federal reserve act, so that
national banks may extend credit on these classes of paper without limitation.
These provisions, which were inserted on the recommendation of the federal
Reserve hoard, give broad powers to national barks to extend accommodation
on the security of farm products and live stock and have proven of great value
to farmers and cattleman in tneir financing problems.
The Federal Reserve1
a
Board’s Part.
discussion of the provisions of the law in this connection would
not be complete without reference to the functions of the Federal Reserve
Board, in construing and administering the law.
There is not space here for
a critical study of the board’s rulings and regulations with, respect to
agricultural credits, but it can be seated with emphasis that tne board has
-al
so construed and administered the law as to improve in the highest
possible degree the credit standing and economic pos it ion of the
agricultural interests, placing at their disposal, thrcugh its discounts
for member banks and its: open-market operations, the ^ast resources of
the Federal Beserve System to the fullest extent per mitted by the law.and
by the principles of sound
TREASùR I CERTIFICATES OF Tî^ASTEDNESS M T )
OUTSTANDING D E C E D E R 16, 1934/ *
SERIj
INTEREST
RATE
"3EASÜRY HOTES
bated and bearing
INTEREST PROM
DUE
(Tax C e r t if ic a t e s )
] TM-1935
TS-1925
4%
23$
March 15, 1934
Sept, 15, 1924
[>
March 15, 1925
Sept, 15, 1925
(Treasury Notes)
1A-J925
C-1925
JB-1925
A-1926
£-1926
B-1927
4ÿ
4j$
4-3/
Feb.
1, 1923
Dec,
15, 1922
June
15, 1922
June 15, 1925
Dec, 15, 1925
aM
March 15, 1922
March 15, 1926
Ahg,
Sept. 15, 1926
4_l#
4|^
May
1 , 1922
15, 1923
A-1927
Jan, 15, 1923
1
March 15, 1925
March 15, 1927
Dec.
15, 1927
Office of
Director of t’
ho Mint
Treasury Department
Washingt on, D* C »
December 31, 1924«
Production of Gold and Silver in the United States in 1924.
(Arrivals at United States Mints and Assay Offices and at private refineries)
The Bureau of the Mint* with the cooperation of the Geological Survey, has
»sued the following statement of the preliminary estimate of the refinery pro
jection of gold and silver in the United States during the calendar year 1924i
States
Gold
Ounces
t----------------- —
r
1 Alaska
I Arizona
1 California
1 Colorado
1 Georgia
I Idaho
i Illinois
i Michigan
1 Missouri
1 Montana
1 Nevada
1 Hew Mexico
■North Carolina
1 Oregon
1 Pennsylvania
k South Dakota
* Tennessee
1 Texas
I Utah
1Washington
Wyomi rg
Porto Rico
Philippine Islands
Totals
—/ ^
300,907
232,113
630,882
408,667
20
26,809
— —
-
-
- —
93,088
223,159
24,207
14
27,511
218
296,781
324
- —
152,376
13,187
5
Silver
Value
$ 6,220,300
4,798,200
13,041,500
8,447,900
400
554,200
— —
» —
—
1,924,300
4,613,100
500,400
300
568,700
4,500
6,135,000
6,700
_ —
3,149,900
272,600
Ounces
Value
666,165
6,349,265
3,366,959
3,286,996
$ 447,663
T 4,266,706
2,262,596
2,208,861
8,035,193
9,500
153,201
97,379
13,154,937
9,523,846
783,338
A *.
47 ,475
1,932
90,809
93,049
719,500
18,178,768
194,317
5,399,650
6,384
102,951
65,439
8,840,118
6,400,025
526,403
v —
31,903
1,298
61,024
62,529
483,504
12,216,132
130,581
— ^
7
26,595
10
100
200
11
80,965
1,673,700
39,576
2,511,243
$51,912,000
64,792,216
$43,540,369
average New York price, $0*672 per ounce*
The 1924 gold production exceeded that of 1923 by $178,000 and is the
largest since 1919. The silver output was 8,542,954 ounces less than 1923,
but materially greater than during the years 1919 to 1922 inclusive* The
aign record product of 1915 was; Gold $101*035,700; Silver 74,961,075 ounces.
TAXATION
The President on signing the revenue act of 1924 issued a sta te
m ent (Exhibit 56, page 13) in which he pointed out its defects and
indicated th a t he viewed the bill as a measure of tem porary relief
b u t not a genuine tax reform. I am in h earty accord w ith those
views. This act, while granting m any desirable reductions in taxes,
failed to provide changes in the tax system for which there is a press
ing need. The problem, therefore, before us now is not so much one of
tax reduction as of tax reform. The attention of the Congress should
be directed principally to the excessive surtax rates and the con
fiscatory estate tax rates. The gift tax as unworkable and unduly
hampers legitim ate business. The publicity provision in the revenue
law, in m y opinion, is a m istake of policy and will be detrim ental to
the revenue.
Taxation should not be used as a field for socialistic experiment, or
as a club to punish success, b u t as a means of raising revenue to sup
port the Government. The controlling elements are not political.
The last two preceding Secretaries of the Treasury, both under
another political adm inistration, presented to the Congress the same
economic viewpoint w ith respect to high surtaxes as th a t which was
advanced by the Treasury and raised the greatest controversy dur
ing the recent tax legislation. I t is a fair supposition that, except
for the exigencies of partisan advantage in a session of the Congress
before a presidential election, there would not have been a very great
difference of opinion as to the evil of these excessive taxes. The
solution of the problem, and it is one which m ust ultim ately be
solved, lies not in partisanship b u t in an im partial consideration of
a subject economic in its essence, no m atter how much it m ay be
political in its appeal.
The purpose of taxation is to raise money, not only in the par
ticular year in which the tax is assessed, b u t to leave the source from
which the revenue is to be derived perm anently unharm ed, so th a t
in the next year and in the years following similar taxes will produce
adequate revenue from this source. The power to tax has been well
called the power to destroy. B ut the continued existence, not the
destruction, of its source of revenue is the object of the Treasury.
If experience shows th a t a policy of taxation has harm ful conse22022—24t :
1
2
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
quences, and if we wish to m aintain the particular source as a means of
revenue, we m ust adjust our policy to m eet the facts, regardless of
how pleasant a different policy m ay have seemed. If land is con
tinually over-cropped, less and less will the harvest be in the suc
ceeding years until the land is valueless and its owner m ust abandon
it and move to other fields if he would live. So in taxation there
are lim its to taxable capacity. The enemies of the income tax are
not those seeking to reduce its excessive rates b u t those who insist
th a t the high rates, which have proved economically incorrect, shall
remain.
The argum ent is m ade th a t the w ealthy should bear substantially
the whole burden. I t is quite obvious th a t we could not collect
solely from those having incomes in excess of $300,000 a year the
$861,000,000 of personal income tax which we received from all
classes in 1922, because the total income of the $300,000 class,
reported, for taxation, was b u t $365,000,000, and even a 100 per
cent tax would be ineffective to produce the revenue required.
The income is not there. We m ust also ta x smaller incomes if
the Governm ent’s requirem ents are to be m et. W hile the example
given above m ay seem extreme, it illustrates the fact th a t it is
impossible for the Government to live by taxing the w ealthy
alone. A broader base of taxation m ust be found. Again, if we
attem pt to levy taxes inherently too high, those whom we seek to
ta x will find some of the m any ways of avoiding the realization of
an income which can be reached by taxation, and the source of the
revenue will decline. Those having incomes in excess of $300,000
had in 1916 aggregate incomes of nearly $1,000,000,000 under a 15
per cent mfnnmnm tax. This would have been more than sufficient
to provide for the total income tax collected in 1922 from all classes,
b u t by 1922 the aggregate income of this w ealthy class, w ith the
m axim um rate of tax a t 58 per cent, had dropped to $365,000,000.
There was less income upon which taxes could be levied. As a
m atte r of fact, about as m uch tax was collected from this class in
1916 w ith the 15 per cent m axim um tax as in 1921 w ith the m aximum
rate of 73 per cent.
T axation in America is not the simple question of garnering a
tith e of the product of a purely agricultural people. We are a nation
of 48 States, each w ith its own laws of property and corporate organi
zation, none of which is subject to the Federal Government. We
are notably ingenious in finding ways and means to accomplish our
purposes. We are becoming experienced in investm ents outside the
country, where the Federal tax collector’s hand does not reach. We
have the anom aly of a Governm ent seeking to collect income taxes
and a t the same tim e providing legally authorized means of avoiding
paym ent of the tax by the issuance of fully tax-exem pt securities
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
3
through its own agencies and a refusal to tax the income from the
enormous mass of securities being issued by State and municipal
governments. I t is an interesting com m entary on the m ethod of
approach by some to an economic question th a t the means of tax
avoidance by the w ealthy are prom oted by the very persons
who m ost vehem ently demand th a t the w ealthy shall pay. Differing
from the ideas of other countries, we have a theory of income
tax which treats realized increm ent in capital values as income.
The theory m ay be correct, b u t when we come to practice we find
th a t, in order not to p u t all business and dealing in property in a
strait-jacket, page after page of exceptions m ust be w ritten into the
law. W ith so m any doors to the house, the effort to close them all
has given us the m ost intricate tax law in history. A t the apex of
this structure, we have m aximum rates of tax and a publicity provi
sion which not only encourage tax avoidance b u t m ake its avoid
ance, unless hum an nature be changed, inevitable.
W ays will always be found to avoid a tax so inherently excessive.
America presents no exception in the history of taxation. The
solution of the problem lies not in passing more laws b u t in adopting
laws with more reason. A reasonable rate of tax will make elaborate,
expensive m ethods of avoidance unprofitable. A reasonable rate of
tax will make the adm inistration of the tax laws more simple of
accomplishment.
There is, in addition to the intricacies of our income tax and the
impossibility of a strict enforcement, a much more serious effect
of excessive taxation, both income and estate; on our industry and
initiative. To m ake a new venture, to s ta rt a new business, to build
a new building, to construct and not just sit passive, means risk.
W here th a t risk involves capital, the probable rate of return m ust
compensate for the risk taken. Y et the law now says to the m an of
large income: “ If you lose on your venture, you will pay 100 per
cent of the loss; if you win, the law will take 50 per cent of your profit.”
These are not the odds which encourage adventure or the production
of income which will yield its revenue to the Government. No m an
will continue to sow where he can not reap. We have, then, the
blighting effect of excessive rates, which compel avoidance and
destroy initiative, and by both means diminish the returns from the
upper brackets, from which the Government has been taking a large
p a rt of its revenue. If these brackets become unproductive, the
revenue can be m ade up only by higher taxes in the lower brackets
and by decreasing the present exemptions so th a t the tax will apply
upon smaller incomes. This is a condition which can not be escaped—
more scientific taxes on the larger incomes or more taxes on the
lower incomes.
4
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
While it is true th a t income and estate taxes will always yield
revenue, it is not true th a t they will yield sufficient revenue to con
tribute their share to the support of the Government, unless adjusted
economically. In the seven-year period from 1916 to 1922, as to
which we now have income-tax statistics, the reported income of those
having incomes in excess of $300,000 dropped from $992,000,000 to
$365,000,000, and the percentage of income of this class to all income
reported dropped from 15.77 to 1.71 per cent. During the four
years in which the 25 per cent m axim um tax on estates has been felt
in revenue, receipts from this source have dropped from $154,000,000
in 1921 to $102,000,000 in 1924. Should this tendency continue, and
the evidence is th a t it will and be accelerated in the estate tax
where the m axim um has been raised from 25 to 40 per cent, then
both taxes will be indeed unproductive.
I t m ay be truly said, therefore, th a t the m an w ith small income is
more interested than are the w ealthy themselves in seeing th a t the
tax upon high incomes and large estates is economically sound.
W ith all the world opening to investm ent, w ith new tax-exem pt
securities being issued a t the rate of more than $1,000,000,000 a
year, and w ith other means of escaping, the w ealthy need no guar
dian. B ut to the extent th a t they are encouraged and do avoid
taxation, the burden will inevitably be shifted to those w ith small
or m oderate incomes. The Governm ent m ust live. The inevitable
result of uneconomic taxation is to raise the price level, so th a t 97
per cent of the people in the country, who pay no income tax
directly, m ust m ake their paym ents indirectly in w hat they buy.
They, too, are vitally interested.
The im portance of getting our taxing system on a sound basis
is not a subject which w ith safety to our future can be long postponed.
During th,e w ar and in the period of readjustm ent im m ediately
succeeding, large investm ents were m ade by the Governm ent in w hat
m ight be term ed capital assets, and we have been living p artly upon
these assets in; the past few years. W ar supplies became surplus and
were available for sale; large loans were m ade to: the railroads,
which are being repaid; the W ar Finance Corporation is collecting
its loans and returning them to the Treasury. The earlier income
and excess profits taxes were exceedingly complicated, new in theory,
and extrem ely difficult;to administer. The Treasury is still collect
ing for the earlier years, which have yielded m uch in additional
taxes. In the past fiscal year, for example, $44,000,000. was received
from the sale of w ar supplies, th§. R ailroad A dm inistration showed a
n e t excess of $58,000,000 of receipts over expenditures, and the W ar
Finance Corporation an excess of $52,000,000. I t is estim ated th a t
the back taxes collected in the year were between $350,000,000 and
$400,000,000, from which should be deducted $127,000,000 of tax re-
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
5
funds. This means th a t last y ear’s receipts reflected about $400,000,000 of such realization, against which can be offset $12,000,000 of new
investm ent in stock of the Interm ediate Credit Banks. The sale of
surplus w ar properties has been substantially completed. M ost of
the railroads able to do so have repaid their loans, and the great bulk
of securities still held will be slow in realization. The W ar Finance
Corporation has returned to the Government almost all of the Gov
ernm ent’s investm ent in th a t corporation. Back taxes have not yet
been exhausted, b u t w ithin the next year the Bureau of Internal
Revenue should become substantially current. In the m eantim e
there are several tax questions pending in court, decision of which
against the Governm ent would involve very large tax refunds. I t
is clear th a t we m ust look carefully to the productivity of our
existing taxes and to their economic stability if we are to have further
tax reduction and if we are not to be forced in less prosperous times
to actual tax increases. We can not afford to lose revenue.
The adoption of the Dawes plan presages industrial activity to
those European countries who are our greatest competitors in foreign
trade. All of these countries have a lower standard of wage and of
living than this country. Their production costs generally will be
less than ours. If we are to continue to compete successfully abroad,
we m ust be sure th a t our taxation system does not p u t too heavy a
a handicap upon our industry and our trade.
In approaching the subject of rates the Treasury has been con
cerned solely w ith recommending those rates which will produce, and
continue to produce, the m ost revenue with the least disturbance.
The problem in its essential features does not differ from the problem
of any sales m anager attem pting to price the article he has to sell. If
the price is too high, his customers are few or none and he makes
nothing; if the price is too low, he has m any customers b u t small or
no profit. Somewhere between the two extremes lies the belt within
the bounds of which is the m aximum profit. W hat the exact rate of
maximum profit m ay be is a m atter of judgm ent. In all probability
the recom mendation of the Treasury of 25 per cent maximum
surtax plus a 6 per cent norm al tax, a total of 31 per cent, is
above this belt of profit. A total maximum tax of 15 per cent
m ight be on the lower .side of this belt of profit. B ut a t least the
maximum rate should be brought within the limits of the belt. I t
would be more profitable to collect 30 per cent of the $1,856,000,000
of aggregate net income of those having incomes above $100,000 in
1916 (a year of 15 per cent maximum tax) than to collect 50 per cent
from similar incomes aggregating $892,000,000 in 1922 (a year of 58
per cent m aximum tax).
I t has been the belief of the Treasury, and it is borne out by
experience, th at, if taxes are too high, the source of revenue diminishes
and the tax becomes less and less productive. If taxes are reduced,
6
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
the source of taxation expands and the lower rate m ay be even more
productive th a n the higher ra te and the source of revenue assured
for the future. The table 1 appearing as a footnote gives a com
parison of incomes in th e $100,000 and the $300,000 classes which
is extremely interesting. During the period covered by avail
able statistics, the percentage of aggregate income reported by those
with incomes of $100,000 or more to the to tal income of all classes
reporting dropped from 29.47 to 4.18 per cent, and in the $300,000
or more class from 15.77 to 1.71 per cent. In 1922, however, the
maximum rate was reduced from 73 to 58 per cent, and the
higher brackets recovered somewhat, the $100,000 class increasing
its percentage from 2.37 to 4.18 per cent, and the $300,000 class
from .78 to 1.71 per cent. This illustrates clearly the advisability
of reducing the rates on the higher incomes so th a t more income
proportionately m ay be available for taxation and the burden not
have to be borne by the smaller incomes.
An even more striking example is the case of capital gains. Prior
to 1922 these were taxed a t the regular surtax rates. In 1922 for the
first tim e a flat rate of 123^ per cent was levied. Between these
two years the num ber of taxpayers w ith incomes in excess of $300,000
increased from 246 to 537, and of this num ber 165 would not have been
in th a t class except for the realization of capital gains. Prior to the
insertion of the capital gains section in the law, investm ents did no t
change hands, property was tied up, and the Governm ent collected
little revenue from this source. W hen the rate of tax was reduced
to 12^2 per cent, however, the Governm ent opened up a vein of
revenue which in th a t one year yielded over $31,000,000 in taxes.
I t is quite obviously of as m uch advantage to the Governm ent th a t
the tax on capital gains be reduced as to the taxpayer and to busi
ness. M ost of all is the m oderate taxpayer benefited by rem oving
some of the load from him. The rate was such as perm itted the
traffic to move, and it did move, to everybody’s advantage.
1Tax returns of those with net income in excess of $100,000 and, $300,000, as com
pared with total of all net incomes returned, for the calendar years in which the
tax accrues; latest available figures
Year
(1)
1916.................
1917.................
1918.................
1919.................
1920________
1921.................
1922.............. .
Num
ber of
Net income
Income
Per
returns returned by
Total amount of net
tax,
cent (5)
maxi of net income income those returning is of
in excess of
returned
mum
in ex
(3)
$100,000
rate
cess of
$100,000
(6)
§§
(4)
(3)'
(2)
Per ct.
15
67
77
73
73
73
58
$6,298, 577,620
13,652,383,207
15,924,639,355
19,859,491,448
23,735,629,183
19,577,212, 528
21,336,212, 530
6,633
6,664
4,499
5,526
3,649
2,352
4,031
$1,856,187.710
1,606,516,153
990,239,425
1,169,553,048
727,004,763
463,003,351
892,747,680
29.47
11.77
6.22
5.89
3.06
2.37
4.18
Num
ber of
returns
in ex
cess of
$300,000
(7)
1,296
1,015
627
679
395
246
537
Net income
Per
returned by
those return cent (8)
is
of
ing in excess
(3)
of $300,000
(8)
$992,972,986
731,372,153
401,107,868
440,011,589
246,354, 585
153,534,305
365,729,746
(9)
15.77
5.36
2.52
2.22
1.04
.78
1.71
EXTRACT FROM REPORT OP THE SECRETARY OP THE TREASURY
“7
One of the m ost difficult problems the income tax presents is the
tax-exem pt security question. There are two solutions: First, elimi
nate the tax-exem ption privilege; second, adjust the income-tax
rates, so th a t the value of ta x exem ption as a means of tax avoid
ance shall be lessened. The first solution requires a constitutional
am endm ent, and its adoption has m et w ith serious political opposi
tion. ' Also, in the last session of the Congress there was defeated
a recom m endation of the Secretary of the Treasury th a t a taxpayer
should not be perm itted to take as a deduction, in figuring his net
income, interest paid by him except to the extent it exceeded the
tax-exem pt interest received by him and which he did not include
in his gross income. W hile the Treasury renews the recommenda
tion m ade heretofore th a t a constitutional am endm ent to reach
tax exemption be proposed by the Congress, it feels th a t the recog
nition of the necessity for this action by Congress m ay be delayed
and th a t an im m ediate rem edy should be adopted.
Fully tax-exem pt securities outstanding in the hands of the public
now am ount to $13,284,000,000, and are increasing at the rate ©f
about $1,000,000,000 a year. The value of a tax-exem pt security
to a m an of large income lies wholly in the fact th a t the tax-exemption
feature gives him more free income than another equally safe invest
m ent, p a rt of the return from which the Government takes. U nder
the present law, if a m an has an income of $100,000 and is asked to
invest money in some constructive project, the new project m ust
return to him $1.75 for every $1 he would receive from investing the
same money in tax-exem pt securities. To express this another way,
it takes about an 8 per cent return on a taxable investm ent to be
equivalent to a 43^ per cent return on one th a t is tax-exem pt. W ith
higher incomes, the disparity is even greater. If the Treasury’s
recommendation for a m aximum aggregate tax of 31 per cent should
be adopted, the relative values would be $1.44 to $1, or 63^ per cent
taxable as compared w ith 43^ per cent exempt. The difference be
tween an investm ent in ordinary productive business returning 8
per cent, the requirem ent under the present law, and 6 ^ Per cent, the
requirem ent under the Treasury rates, to equal a 43^ per cent tax
exempt, is the difference between a sound investm ent and a specula
tive investm ent. One will be accepted, the other not. If the in
come-tax rates are reduced to a reasonable figure, the lure of taxexempt securities to the w ealthy becomes less appealing and m any
will pu t their money into business or new projects and be content
w ith less return because it will give them as much free income as
would a tax-exem pt security. From such investm ents the Govern
m ent gets revenue; from tax-exem pt securities it gets none. By
such investm ents capital is provided for industry at lower rates and
the appalling increase of State and municipal indebtedness, w ith its
22622—24f------2
8
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
inevitable taxation of the people to pay this indebtedness, is no t
encouraged.
The adoption of the solution of the tax-exem pt evil by taking from
it the wholly artificial attractio n of high income taxés on other invest
m ents is within the im m ediate power of the Congress. This would
prove advantageous to constructive business and to all who use
capital, would remove the incentive for the m ost notorious avoidance
by the w ealthy of income taxes, and would assist in accomplishing the
purpose of taxation—th a t is, to raise revenue. A continuation of the
high artificial value to this legal m eans of escape m ust end, or the
graduated income tax will cease to be productive.
Estate taxes
This is a field of taxation which has been occupied by the Federal
Governm ent four times in its history, and each tim e until the present
was prom ptly relinquished to the S tates when the particular emer
gency for which additional taxation was then required had passed.
The first time was im m ediately after the R evolution; the second,
during the Civil W ar; the third, during the Spanish W ar; and the
present tax was inaugurated during the W orld W ar. The present
tax is duplicated by similar taxes of every S tate in the Union except
one or two. There arises, then, on this feature of our taxing law
the question w hether or not this particular field is one for Federal
or S tate taxation, or w hether the field is open to both. This is a
political phase of the subject. Discussing the economic feature, it
is necessary to consider the effect of both Federal and S tate taxes.
The greater burden is, of course, the Federal tax.
I t is true th a t the present law gives a credit of any tax paid to the
States up to 25 per cent of the Federal tax, b u t the effect of this
will only be for all States to raise their taxes to a point which will
equal this 25 per cent. If a S tate imposes no inheritance tax, then
the Federal Government takes its full Federal tax. If a S tate imposes
a small tax, then the S tate tax plus the Federal tax is equivalent to
the full Federal tax. I t is not until the S tate tax exceeds 25 per cent
of the Federal tax th a t additional burdens are laid upon the estates
of decedents domiciled in the particular S tate imposing such a tax.
The incentive is for each S tate to adopt rates which will be equiva
lent to 25 per cent of the Federal tax. The credit, therefore, is not
necessarily a m aterial decrease in the to ta l ta x of bo th jurisdictions.
There is conflict between the States themselves. I t is quite pos
sible under our complex system of property ownership in America
for the various States and th e Federal Government to tak e b y death
taxes more th an 100 per cent of a particular estate. The elimination
of this m anifest injustice will require the working out of some recip
rocal exercise of the taxing power by the S tates and th e Federal
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
9
G overnm ent in the interest of the good of the whole. A considera
tio n of this feature m ight well have the attention of the Congress.
I n addition, there seems to be a well-defined view on the p art of
S ta te authorities th a t the occupation of the field of death taxes by
th e Federal Government when the w ar emergency has ceased is
unfair to the States, since the Federal ta x cuts very m aterially into
th e revenue which the S tate can obtain through this type of taxation.
In m any S tates Federal taxes are a deduction from the gross estate
before the S tate’s death d uty is levied. The direct effect of the Fed
eral tax, therefore, is to decrease the am ount of the estate subject to
th e S tate tax. A $10,000,000 estate is reduced to less th an $7,500,000
if th e Federal tax is first, deducted. Indirectly the Federal tax is so
high th a t it has a strong tendency to decrease both the size of the
estate, which is the usual result of avoidance of excessive taxes, and
the value of the property in the estate, which is the economic effect
of a capital tax, so th a t graduated death duties of the States are much
less productive. The im portance of this m atter to the States is so
great th a t they will undoubtedly present their own views to the
Congress. If, however, we are to retain the estate tax as a source
of Federal revenue, there m ust in any event be a change in policy
and the rates m ade more reasonable.
In 1921 the 25 per cent m aximum estate tax was first fully reflected
in revenue. The return from Federal estate taxes for th a t and subse
quent years has been as follows:
1921 ____ _______ _________ . . . ____ $154,000,000
1922 .........
139,000,000
1923 .... .......... ..........................................
126,000,000
1924.....................................
102,000,000
For the first three m onths of the current fiscal year estate taxes
have aggregated $19,703,126, as against $23,357,400 for the first
three m onths of the previous fiscal year. This is a clear showing of the
progressive failure of a tax inherently excessive, W ith a 40 per cent
m axim um rate in the revenue act of 1924 we m ay expect an acceler
ation of this tendency. Again, it m ust be remembered th a t not only
is the effect of the loss of productivity of this character of taxation felt
by the Federal Government, b u t it is even more serious to m any
S tate governments, where inheritance taxes are a more im portant
p a rt of the S tate revenue, than such taxes are to the Federal
Government.
This excessively high taxation should be considered from two stand
points: First, its effect upon existing capital, or its static effect; and
second, its effect on the production of future capital, or its dynamic
effect. D eath taxes are taxes upon capital. I t is obvious th at, if the
Government, to m aintain itself, were to take 50 per cent of every
10
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
estate, small or large, and if on the average in the course of a gener*ation a m an could not double his inheritance, there would be an actual
depletion of capital w ithin the country and ultim ately nothing would
be left to tax. This is clear enough, b u t there is another less readily
visible b u t more im m ediate result.
Inheritance taxes are based upon capital values. E ven though the
rate of tax rem ains the same, it makes an im portant difference in
Government revenue w hether a w ealthy m an dies when the m ark et
for the assets left by him is up or when it is down. The Federal tax
on an estate consisting net of 100,000 shares of U nited S tates Steel
would be $2,961,000 if Steel were $110 and $1,861,000 if Steel were
$80 when the death of the decedent occurred, m aking a difference of
$1,100,000 in revenue derived by the Government. This result
m ight be brought about by m arket conditions alone and, if so, in the
long run the disparity would be equalized, since sometimes the m arket
value of the stock is up and sometimes down and on the average
Government revenue would not suffer. If, however, there is a com
tinuing pressure on all values, not on steel stock alone, or on stocks
alone, b u t on every kind of property within the country, the result
is a bringing down of values and necessarily a lessening of the revenue,
because the tax depends upon values and upon nothing else.
Since an executor m ust obtain cash to pay his tax, he usually m ust
dispose of the assets of the estate a t w hat is essentially a forced sale.
If an estate m ust realize upon some stock not generally dealt in, or
a piece of real estate, for example, it can do so only by reducing the price
until a bargain figure is reached which will a ttra c t purchasers. W hen
the next estate comes along for taxation with sim ilar stock or a like
kind of property, its tax will be based upon the lower price fixed by
the sale of the assets of the first estate. Thus we have a perm anent
lessening of values and a continuous exhaustion of the source for death
taxes. Any tax which thus m aterially lowers values destroys itself.
The dynamic or moving effect of high taxes is n o t so im m ediate
as the actual depletion of capital and lessening of capital values.
I t is nevertheless of great im portance in the establishm ent of a per
m anent policy. A fter m an has become sufficiently civilized to
provide for the reasonable requirem ents of living, the im petus to
further effort a t production is found largely in the desire to leave one’s
fam ily well provided for. So long as the individual feels th a t he can
pay the tax and still leave an estate to his family, he will increase his
efforts; b ut, if he finds th a t by reason of excessive taxation the results
are n o t comm ensurate w ith the effort, he will probably cut down his
production and the general w ealth of the country will be diminished
accordingly. A m an will no t seek to build up a large fortune ju st to
have it taken away from his fam ily a t his death.
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
H
Gift tax
The gift-tax provision was adopted upon the floor of Congress
w ithout reference to committee. In consequence it was never thor
oughly studied and not tied up w ith the other provisions of the law.
As an example, if a donor should give away a piece of property
which cost him $50,000 and which a t the tim e of the gift was w orth
$100,000, he is taxed on the basis of $100,000. If the donee should
then sell this property for $100,000, he would be taxed on the basis
of w hat the property cost the donor and be obliged to report $50,000
profit for income tax purposes, although the property was sold a t
the same price which fixed its value for taxation as a gift.
Aside from the grave constitutional question of the right of Con
gress to tax gifts at all, the gift tax is an excellent illustration of the
fu tility of trying to prevent avoidance of excessive taxes and still
not penalize legitim ate transactions. U nder the statu te, if property
is sold or exchanged, the difference between the value of the property
and w hat is received is considered a gift. So, if a seller makes a bad
bargain, he suffers not only his loss on the bargain b u t he m ust pay
a gift taxon this loss. The more he has lost the more tax he has to pay.
The d u ty devolves upon the taxpayer to report every transaction
where he received less in value than he gave, and upon the Bureau
of In tern al Revenue, therefore, to pass upon innumerable straight
business transactions.
The tax applies to corporations, and m ust necessarily do so or its
avoidance would be too simple. A corporation would be reluctant
to give pensions to its injured or superannuated employees, or to pay
bonuses, if its gifts to these employees are taxed; and, of course, the
larger the num ber of employees it wishes to benefit the more the cor
poration would be taxed for each employee. Although the tax is a
tax on capital, it is on an annual basis. If a m an should give $50,000
a year for 10 years there would be no tax, b u t if he gave $500,000 in
one year the tax would be $19,000. A m an m ight receive a gift of
$50,000 from each of 10 corporations w ithout tax; b u t if one corpo
ration gave him $500,000, again the tax would be $19,000. U nder
the law, after the aggregate of such gifts is in excess of $50,000,
every gift of over $500 to any one person even to members of one’s
im m ediate fam ily m ust be reported and is taxable. Exam ples of the
unsound nature of this attem p t to close loopholes for the avoidance of
excessive taxes could well be m ultiplied. I t is b etter to adopt reason
able rates of taxation which do not compel avoidance, and to avoid
indirect and artificial restraints upon usual and proper transactions
Som ething is wrong w ith our tax policy if legislation such as this is
necessary to m ake the collection of revenue effective.
12
EXTRACT1FROM REPORT OF THE SECRETARY OF THE TREASURY
Publicity
The revenue act of 1924 added to the requirem ent th a t the nam es
and addresses of all taxpayers be open to public inspection the
additional requirem ent th a t the am ount of tax paid by each be also
open to inspection. A t the same time Congress specifically reenacted
section 3167, which penalizes the printing or publication of any
p a rt of a return. No attem p t was made to reconcile these two
sections. W hatever the law m ay be, the printing has been done,
and we can now view, in the light of actual experience, the
undesirability of the publicity provision.
Aside from the question of the unnecessary violation of the right
of privacy which should be insured to all citizens in the spirit of the
fifth am endm ent to the Constitution, it would be interesting to
know w hat good will be accomplished by the provision. The Treas
ury has every means of access to the complete returns and all books
and papers of each of these taxpayers. Publicity is wholly unneces
sary from an adm inistrative standpoint. Publicity serves one pur
pose, however. I t gives to business rivals and to those having some
ulterior) m otive information which is of value to them solely to the
extent it is detrim ental to the taxpayer. They gain by the taxpayer
being hurt. I t is difficult to imagine any one thing which would be
a greater spur to the efforts of all taxpayers to avoid a taxable
income than the threat th a t the am ount they pay will be pilloried.
To the direct m onetary value of saving paym ent of an inherently
high tax is added the incentive, in m any cases m uch stronger, of
preserving business privacy. Im m ediately upon the recent publica
tion of this information opened to the public, the newspapers reported
a stim ulation in the m arket for tax-exem pt securities. We m ay
prom ptly expect renewed use of the m any means of tax avoidance,
w ith the consequent decrease in the productivity of the income tax.
The provision should be repealed.
Board o f Tax Appeals
In June, 1924, the President appointed 12 mem bers of the Board of
T ax Appeals, and the nucleus of the board thus appointed prom ptly
undertook the preparation of rules of practice and m ethods of pro
cedure. The new law gave taxpayers an additional 60 days w ithin
which to determ ine w hether they desired to go to the Board of Tax
Appeals, and thereafter an additional 30 days was given by the
board’s rules for getting the case a t issue. As thp result of the
necessary delay in getting cases a t issue and the unfam iliarity of all,
both w ithin the B ureau of Internal Revenue and among taxpayers
generally w ith the new law, the num ber of cases on the board’s
dockets have not yet necessitated the appointm ent of additional
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
13
members w ithin the m aximum of 28 authorized under the law. The
board is functioning satisfactorily, and at present is keeping up to
date w ith its calendar. The experiment is one which is yet too new
to provide a basis for comment, and the board should be perm itted
to continue along the lines indicated by the Congress w ithout further
am endm ent to the law until it has an opportunity to dem onstrate
its value to the taxpayer and to the Government.
E x h ib it 56
STATEM ENT B Y PRESIDENT COOLIDGE CONCERNING THE REVE
NUE BILL OF 1 9 2 4
The passage of a new Revenue Bill was required for two reasons,
the reduction of taxation and the reform of taxation. The bill as
passed provides a certain am ount of tax reduction. I t improves
some of the features of administration. B ut it is not only lacking in
tax reform, it actually adds some undesirable features to the present
law. As a perm anent expression of Government fiscal policy this
bill contains provisions which, in m y opinion, are not only unsatis
factory b u t are harm ful to the future of this country.
The reduction of high surtaxes from 50 to 40 per cent is quite im
m aterial to accomplish a real im provem ent in the law. The resolu
tion for a constitutional amendm ent giving to the States and the
Federal Government reciprocal rights of taxation on securities issued
by the other, which was urged in m y Annual Message to the Congress,
failed of passage. The suggestion of reaching in p art the abuse qt
tax-exem ption by limiting the deduction for interest of a non-busi
ness character to the am ount th a t such interest exceeds the taxexempt revenue of the taxpayer, has not been adopted. W ith some
$12,000,000,000 of tax-exem pt securities now outstanding, and
$1,000,000,000 of new issues each year, it is idle to propose high sur
taxes. A m an w ith large inherited or accumulated capital is told he
m ust pay one-half of his income to the Government if he invests it
in productive business, b u t he is invited to be relieved of all tax by
the simple expedient of withdrawing from business and investing in
tax-exem pt securities. This does not mean th a t wealth in existence
is taxed; it is not. I t escapes. I t does mean, however, th a t initiative
and new enterprises are throttled.
.,
While the inconsistency of high surtaxes existing side by side w itn
a lawfully authorized means of avoidance is obvious, it is not simply
through tax exemption th a t high surtaxes are uneconomical. I he
experience for the lew years under high surtaxes shows the increasing
failure of these taxes as a source of revenue. There are m any means
of escaping the tax, and w ith the settlem ent of conditions abroad
we m ay anticipate the movem ent of capital from this country to
other parts of the world where income is not so penalized. VVays
will always be found to avoid taxation inherently excessive. We are
presented, then, w ith a plan of taxation which punishes energy and
initiative and m ust decrease revenue. Such a plan will ultim ately
work harm to the country and should not be perm itted to continue
much longer. The cure does not lie in attacking the symptoms by
other unsound penalties worse th an the disease itself, such as an un
distributed surplus tax, b u t in correcting the cause. The remedy is
14
EXTRACT FBOM REPORT OF THE SECRETARY OF THE TREASURY
such a reduction in the peak of the surtaxes as will a ttra c t capital
to new enterprises and prevent the continual dim inution of taxable
income in the higher brackets. In this way alone can high living costs,
the indirect tax paid by all of the people, be reduced and the pro
ductivity of a graduated income tax m aintained.
The principles applicable to high surtaxes apply similarly to high
estate taxes. The bill raises the estate tax to 40 per cent. As a
concom itant is added a gift tax which is a further invasion of the
rights of the citizen, both unusual in nature and of doubtful legality.
When there is added to this the inheritance taxes levied by the
States, there am ounts to a practical confiscation of capital. To
meet these taxes executors m ust realize cash on forced sales of prop
erty, w ith a general lowering of all values upon which the credit
structure of our country is based, and diminishing the very source
from which this revenue comes. I t is proposed to take capital and
to use it in the ordinary operating expenses of Government. We are
thus to live, not on income, b u t on principal, and to th a t extent we
exhaust our resources and prevent the industrial expansion essential
to our increasing population and our high standard of living. Here
tofore estate taxes in the Federal Government have been war meas
ures. I t is now proposed to use these reserves in times of peace.
They should be kept for emergencies.
The States have a very real interest in this tax. Inheritance taxes
constitute a m aterial p a rt of S tate revenue. They are a com para
tively small factor in Federal revenue. As the Federal Government
invades this sphere, belonging prim arily to the States, it will cut down
the flow of income to the States from this tax, and thus force the States
to higher taxes from other sources, which will m ean increased land
taxes. For the sake of $12,000,000 of additional revenue the Federal
Governm ent in its strength should not further handicap the States,
already heavily burdened with expenditures which can be m et only
b y taxation. I believe also it would be advisable to call a conference
of the taxing authorities of the States and the Treasury, before the
next session of the Congress, to give consideration to some comprehen
sive plan of division of this field of taxation between the various
States and the Federal Government and the elimination of overlapping
and unfair taxes.
Our institutions guarantee to our citizens sanctity in their private
affairs, a right giving way only to the needs of Government.
U nder the law as it now exists, the Treasury has access to all infor
m ation useful in determ ining the liability of the taxpayer. For the
needs of revenue, publicity is unnecessary. While the bill purports
not to give full publicity this is scarcely true, and it still sacrifices
w ithout reason the rights of the taxpayer. In each post office the
am ount which the citizen contributes to the Treasury m ust be exhib
ited to the curious and to the taxpayer’s business rivals. Committees
in Congress have access to returns and other private papers, w ithout
any restriction as to their publication in open comm ittee or on the
floor of Congress, the m ost certain means of publicity. If a taxpayer
desires a hearing before the Board of Tax Appeals he m ust expose
to the public the complete details of his income. To p u t this price
upon the fair determ ination of tax liability in its regular adm inistra
tive course, is entirely unjustifiable. Yet, such is done in the pub
licity provisions of the Board of Tax Appeals.
EXTRACT PROM REPORT OP THE SECRETARY OP THE TREASURY
15
I t is not alone in the unw arranted interference w ith the right of
the citizen to privacy th a t these provisions are hurtful. I t is be
lieved th a t far from increasing revenue, the desire to avoid the grati
fication of the idle curiosity of others or the exposure of one’s per
sonal affairs to one’s com petitor will result in the concealment of
millions of dollars of income which would otherwise be reported.
This means a change in the fundam ental policy of our laws, viola
tive of private rights, and harm ful to Government revenues.
Criticism of the income tax and a large p a rt of the dissatisfaction
w ith it are the result of delay and uncertainty in the final determ ina
tion of a taxpayer’s liability. Taxes can usually be paid within a
short tim e after the receipt of the income on which the tax is based
w ithout serious em barrassm ent. The paym ent, however, of a large
additional tax on income received several years previous and which
m ay have since its receipt either been wiped out by subsequent
losses or invested in nom iquid assets m ay force a taxpayer into
bankruptcy and often causes financial sacrifice and hardship. Pro
vision should be m ade for the prom pt and final determ ination of a
taxpayer’s liability and such was the purpose in the suggestion for a
Board of Tax Appeals.
The provisions of thè bill, however, w ith reference to the Board,
m ake it in all its essentials practically a court of record. The Board
is to be bound by form al rules of evidence and procedure. In each
case a formal record m ust be prepared and all oral testim ony in cases
involving more than $10,000 m ust be reduced to writing and an
opinion m addition to the findings of fact and a decision m ust be
w ritten. A taxpayer is entitled to appeal to the Board before any
assessment can be made. The reduction in the salary of the mem
bers of the Board from $10,000 as recommended by the Treasury to
$7,500, and the reduction of the term of office of the original ap
pointees from the 10 years recommended to 2 years, m ake it difficult
to secure for membership on the Board men w ith training, experi
ence and ability. This Board of Tax Appeals, unable to secure the
proper type of m en for membership, hampered and burdened with
rules of procedure and evidence and forced to prepare a record, a
finding of fact, and a decision in practically every case, will be un
able to handle the business which will come to it. The result will
be greater delay in the final settlem ent of tax cases, and m ay ulti
m ately result in the complete breakdown of the adm inistrative m a
chinery for the collection of taxes.
.
The purpose of a tax bill is to provide the Government with reve
nue, and the prim ary consideration on tax reduction is the probable
receipts and expenditures of the Government after the bill becomes
a law. We shall close the fiscal year ending June 30th, next w ith a
surplus, b u t it is the next fiscal year th a t m ust have consideration.
By tar the greater p a rt of the loss of revenue which will be brought
about by the bill is in income taxes. Aside from the 25 per cent
credit in 1924 taxes the bill applies to incomes received m 1924, the
tax on which is payable in the calendar year 1925. So this income
tax reduction will not be felt until the last half of the fiscal year 1925.
Under these circumstances, after giving effect to the bonus law and the
reductions contem plated by the bill, and provided no further com
m itm ents in large amounts are m ade by the Congress, the treasury
m ay reasonably expect to conclude the fiscal year 1925 w ithout a
deficit.
16
EXTRACT PROM REPORT OF THE SECRETARY OF THE TREASURY
Looking beyond 1925 to later years, there are certain factors
which deserve consideration. The excess profits and income tax
laws of the war period, were new in principle and exceedingly com
plicated in practice. The Treasury has not yet become current in
the ascertainm ent of tax liability and collection of taxes for this
period. We m ust, therefore, consider the establishm ent for the
future of such a policy of taxation as will insure the m aintenance of
the sources of taxation w ithout the aid of these reservoirs which will
soon be em pty. This m eans th a t the policy m ust be so fram ed th a t
it will encourage the creation of income subject to tax, will close the
m ost obvious m ethods of avoidance, will not diminish by excessive
estate taxes the very values upon which the Federal and the S tate
Governments m ust rely for revenue, and will bring about a reduction
in the high cost of living as a means of m eeting world competition.
Of the 110,000,000 people in this country, less than 4,000,000 pay
income taxes directly. The rem aining 106,000,000 who pay no such
direct taxes are given no relief from w hat they pay indirectly in
everything they buy. They too m ust have tax reduction. These
conditions the present bill does not meet.
H igh taxes were adopted as a w ar m easure in 1918. We have had
b u t six years experience under them and their detrim ental effect
upon our fiscal structure is not yet fully appreciated. To the intel
ligent observer tendencies are already apparent which indicate the
stress to which this structure is being put. I m ention as an instance
the increased cost of capital for new industrial enterprises. These
influences are being felt even in our present prosperity. During
the after-the-w ar period of adjustm ent, the other great nations of
the world have been disturbed more th an this country. They are
not yet restored. As a consequence, we have been relieved of m uch
of the world competition. W nen other countries return to produc
tiv ity and become again the serious commercial rivals of our people,
and when we experience those periods of depression, which norm ally
follow periods of prosperity, we should have our house in order by
so establishing our tax system th a t its economic effects will be bene
ficial and not harmful. The bill represents tax reduction, not tax
reform. If we are to m aintain the American standard of living and
hold our place in the world, we m ust adjust our taxes upon an eco
nomic and not a political basis.
The bill comes to me for consideration less than two weeks before
the contem plated adjournm ent of Congress, and it provides for a
credit on 1924 taxes which should become effective before June 15th
next. No different bill can be passed before adjournm ent. The
question before me is the present law or the bill in the shape it has
passed the Congress. As it stands, in its adm inistrative features
generally it is an im provem ent on the existing law. I t will m eet
the needs of'revenue through the fiscal year 1925, and probably
be sufficient for some tim e if no unforeseen expenses arise. The
im m ediate relief by credit on 1924 taxes of 25 per cent is due, is
expected by the people, and should be prom ptly given, and the
determ ination of the taxes to which 1924 incomes will be subject
should be m ade certain while the income is still being received.
These opinions are supported by the Treasury D epartm ent.
As I have said, the bill does not represent a sound perm anent tax
policy and in its passage has been subject to unfortunate influence
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
17
which ought not to control fiscal questions. Still, in spite of its
obvious defects, its advantages as a tem porary relief and a tem porary
adjustm ent of business conditions, in view of the uncertainty of a
b etter law w ithin a reasonable time, lead me to believe th a t the
best interests of the country would be subserved if this bill became
a law. A correction of its defects m ay be left to the next session
of the Congress. I tru st a bill less political and more truly economic
m ay be passed a t th a t time. To th a t end I shall bend all m y energies.
The W
hite
H
ouse,
June 2, 1924-
RECEIPTS AND EXPENDITURES
AND
THE PUBLIC DEBT
V
EXTRACT FROM
THE REPORT OF THE SECRETARY OF THE TREASURY
ON THE STATE OF THE FINANCES FOR
THE FISCAL YEAR 1924
WASHINGTON
GOVERNMENT PRINTING OFFICE
RECEIPTS A N D EXPENDITURES
The Treasury closed the fiscal year 1924 with the largest surplus in
the history of the Government. Total ordinary receipts during the
year aggregated $4,012,044,701 and total expenditures chargeable
against such receipts were $3,506,677,715, showing a surplus of
$505,366,986. This compares w ith an estim ated surplus of
$329,639,624 in m y previous annual report, the actual surplus being
about $175,000,000 in excess of the estimate. The two accounts
which varied the greatest from estimates and which were largely
responsible for the additional surplus were “ R ailroads” and “ Re
ceipts from foreign governm ents.” Both of these accounts were
affected by changes in the money and investm ent m arkets. While
total receipts from foreign governments corresponded closely w ith
estimates, the m ethod of paym ent changed. After Liberty bonds
went above par they were no longer used in paym ent of foreign
obligations. In June $50,000,000 in paym ent of interest was re
ceived in cash instead of in our own securities as expected. This
amount, therefore, did not appear as a corresponding expenditure
on account of the cancellation of securities. W ith the decline in
interest rates, moreover, the railroad securities heretofore acquired
by the Government could be refunded a t lower interest rates by
the railroads, and were, therefore, paid off or purchased; and instead
of a net cash outgo in the railroad account there was a net cash
income, m aking a difference of some $120,000,000 over the earlier
estimate. These two factors, therefore, are responsible for about
$170,000,000 of the increase in the actual surplus over the estimate.
On the other hand, income taxes, which aggregated $1,842,000,000,
were only $8,000,000 less than the estim ate although a 25 per cent
reduction had been made on six m onths of the 1924 paym ents of
personal income taxes. This reduction am ounted to something
over $100,000,000, it is estim ated. In spite of the reduction, income
taxes were approxim ately $163,000,000 larger than in 1923, due
m ainly to the increase in business activity over the previous year
and the consequent growth of profits. Customs receipts were
$545,637,504, or about $24,000,000 less than estim ated, and mis
cellaneous internal revenue was $953,012,617, or about $20,000,000
in excess of the estimate.
2
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
3
In view of the discussion during the past year regarding the degree
of accuracy of the T reasury’s estim ates, attention m ay be further
directed to the closeness w ith which estim ates correspond with actual
tax receipts and general expenditures. W ithout the 25 per cent
reduction in personal income taxes paid during 1924, total receipts
from customs and internal revenue would have been about
$100,000,000 in excess of estimates, a difference of only 3 per cent.
The am ount appears large only when viewed alone and disassociated
from the trem endous totals of Government receipts. Ninety-seven
per cent accuracy in pre-war estim ates would have been considered
exceptional and the total discrepancy would have been less than
$24,000,000. The showing has been especially creditable in view of
the rapid changes in business activity during recent years and the
consequent wide fluctuations in incomes. In order to m aintain
the same degree of accuracy of estimates of receipts, or to attain
greater accuracy if possible, the Treasury has recently undertaken a
detailed statistical analysis of the various taxes as related to the busi
ness cycle. The purpose is to determ ine as nearly as possible the
relative degree to which a change in business activity affects tax
receipts and to work out a statistical basis for estim ating which will
give due weight to such changes. A change of 10 per cent in business
activity, for example, means a m uch greater ¡change relatively in
profits and income taxes. Estim ating income taxes, therefore,
requires the m easurem ent not only of the change in business activity
bu t also of the effects of these changes on corporate and personal
profits, including the shifting of personal incomes from one bracket
to another.
If the special accounts, such as “ R ailroads” and “ Receipts from
foreign governm ents,” changes in which are not foreseeable by the
Treasury, are om itted, estim ates of expenditures correspond much
more closely with actual figures than receipts. In the case of general
governm ental expenditures, for example, which include all adminis
trative expenditures of the various departm ents, the Arm y and Navy,
and the various special bureaus and offices, the actual figures were
$1,833,000,000, as compared with estimates of $1,828,000,000.
A detailed statem ent of receipts and expenditures during the fiscal^
year 1924, as compared w ith 1923, appears on pages 131 to 143 of this'
report. Of the total expenditures, $457,999,750 were on account of
the sinking fund and other debt retirem ents chargeable against ordi
nary receipts. Total ordinary expenditures other th an public debt
retirem ents were $3,048,677,965, compared with $3,294,627,529 dur
ing the previous fiscal year, a reduction of about $246,000,000. The
decrease in interest paym ents accounts for $115,000,000 of this,
while general expenditures showed a reduction from the previous
year of $117,000,000, due m ainly to further Government economies.
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
D
ORDINARY
ia g r a m
1
RECEIPTS OF T H E G OV ERN ME NT
F IS C A L Y E A R E N D E D JU N E 3 0 ,1924TOTAL
I ft 4 ,0 1 2 ,0 4 -4 ,7 0 1
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
D
ia g r a m
2
GOVER NM ENT EXPENDITURES CHARGEABLE AGAINST
ORDINARY RECEIPTS
F IS C A L Y E A R E N D E D J U N E 3 0 ,1924T O T A L = % 3 , 5 0 6 , 6 7 7 ,7 1 5
6
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
Reductions are shown in nearly all departm ents and independent
bureaus. Expenditures for the Treasury D epartm ent, for example,
were reduced from $145,016,859 in 1923 to $137,411,205 in 1924,
and for the W ar D epartm ent from $392,733,634 to $348,629,778.
In fact, the only m ajor departm ent which did not show a decrease
was Agriculture, whose expenditures increased from $128,745,677 in
1923 to $141,116,440 in 1924, due to additional expenditures for good
roads. There were slight increases in the expenditures of the legis
lative establishment, the executive proper, the D istrict of Columbia,
and some of the independent offices and commissions. Diagrams 1
and 2, pages 4 and 5, show the percentage distribution of receipts
and expenditures for the fiscal year under review.
Four years o f economy
The extent of the reduction in Government expenditures during
the past four years is shown in the following ta b le :
T o ta l ordi
n ary receipts
E xpenditures
chargeable
against o rd i
nary receipts
1920 .....................................................- ................- ......... ............. ....... $6,694,665,388
5,624,932,960
1921_____________ ____________ _________________ ____ ___
4,109,104,150
1922:. ........................................................................................... .......
1923 ...................................... ............................................ ................... 4,007,135,480
4.012.044,701
1924 .
. ___ ____ ____________________ __________
$6,482,090,191
5,538,209,189
3,795,302,499
3,697,478,020
3,506,677,715
Fiscal year
Surplus
$212,475,197
86,723,771
313,801,651
309,657,460
505,366,986
Total expenditures have been reduced from $6,482,000,000 in 1920
to $3,506,000,000 in 1924, or nearly $3,000,000,000, although in 1920
there were no sinking fund charges. While a large proportion of
this reduction is accounted for in the special accounts such as “ Rail-*
ro ad s,” “ W ar Finance Corporation,” “ Shipping B oard,” and
“ Grain Corporation,” there have been notew orthy and consistent
reductions in the regular adm inistrative expenditures of the Govern
m ent each year. The general expenditures (which include all regular
departm ental expenditures b u t exclude interest on the public debt,
public debt retirem ents, operations in special accounts, tru st fund
investments, etc.), were $1,833,000,000 in 1924, compared with
$3,232,000,000 in 1920, a reduction of about $1,400,000,000, or 43
per cent. This reduction was accomplished in spite of the heavy
expenditures for veterans’ relief, am ounting to over $400,000,000 in
1924. Moreover, the outlays for good roads have practically doubled
the disbursements of the D epartm ent of Agriculture, and the am ount
paid out in pensions increased about $15,000,000 between the two
dates, thereby increasing total disbursements of the Interior D epart
m ent. Expenditures of the W ar D epartm ent alone were reduced
about $1,260,000,000 from 1920 to 1924, and for the N avy D epart-
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
7
m ent the reduction was about $400,000,000. The table on page 17,
shows the expenditures of the various departm ents each year from
1917 to 1924. Diagram 3, below, gives a comparison of cash
receipts and expenditures each year from 1914 to 1924, and diagram
4, page 8, shows receipts from customs, income and profits taxes,
and miscellaneous internal revenue from 1914 to 1924.
I t was the annual surplus of receipts over and above the regular
budget expenditures which formed the basis of the Treasury’s recom
m endations last Novem ber for further tax revision and tax reduction.
The revenue act of 1921 had already given substantial relief from the
D iagram 3
GOVERNMENT RECEIPTS AND EXPENDITURES
• iL L ie u s
FISCAL Y E A R S
1914-t o 1924-
• r D O LLA R S
______________
O RO lN ARY RECEIPTS*
\y /A
E XP E N D IT U R E S CHARGEABLE
A G A IN ST ORDINARY R E CEIPT S
■
|
H
1914-
BP
1915
K
1916
K
1917
1
1918
1
n
Jj j j l §
1919
1920
1921
1922
1923
1924-
war taxes, b u t by rigid adherence to principles of economy further
relief was m ade possible; and while the new revenue act did not ac
complish all th a t was desired in the way of tax reform, it did further
substantially reduce the total tax burden. Receipts during the fiscal
year 1926, the first fiscal year in which the full effect of the reduc
tions will be felt, will aggregate from $1,200,000,000 to $1,500,000,000
less than they would have been under the rates in effect a t the begin
ning of this adm inistration.
The annual surplus m ight well have been allowed to continue to
accum ulate for the purpose of additional debt retirem ents if the neces
sity for tax revision had not been so urgent and if extraneous influences
for additional expenditures could have been avoided. Tax collec-
8
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
tions foi* the purpose of debt retirem ents do not lessen the country’s
capital supply. The funds are p u t back into productive channels,
and, moreover, the annual interest charge is lessened by the additional
retirements. There are limits, however, to taxation even for debt
paying purposes. The disturbing influence of an excessive rate of re
distribution through debt liquidation m ight more than offset the ad
vantages of debt reduction. This is especially true under present
conditions of unusually heavy ordinary expenditures incident to the
war, such as interest on the public debt, care of disabled veterans, and
other enlarged governm ental outlays from which there is no relief.
D iagram 4
R E C E IP T S
FRO M CU STO M S, IN CO M E
AND P R O F IT S T A X E S ,
AND M IS C E L L A N E O U S IN T E R N A L
F ISCA L YEARS
8 IU .1 0 N S
OF
REVENUE
1914 t o 1924
POLL A RS
4
— — -------------------------------------------------------- '------------------ ---------------------------- '-------
3
Q
CUSTOM S
H
INCO M E AND PROFITS T A X E S
0
M ISCELLANEOUS I N T E R N A L R E V E N U E
1914
1915
i9lfo
1917
1918
1919
1920
1921
1922
1923
192+
In view of these heavy outlays and the fact th a t provisions have been
made in the ordinary budget for liberal debt retirem ents, am ounting
to nearly $500,000,000 per year a t present, it was the T reasury’s view
th a t a reduction in the country’s burdensome taxes to the extent of
the annual surplus would prove more advantageous to business than
the additional debt retirem ents, and would facilitate the m uch-needed
program of tax reform.
The accomplishments of the Treasury during the past three years
have been m ade possible only through determined and persistent
adherence to the policy of economy laid down at the beginning of the
adm inistration. I t has not always been easy, however, to follow the
charted course and to resist the num erous demands m ade on the
Public Treasury for private aid. I t has been necessary to oppose
EXTRACT PROM REPORT OF THE SECRETARY OF THE TREASURY
9
vigorously num erous proposals for additional outlays, proposals
which undoubtedly seem w orthy to those sponsoring them. These
proposals are frequently for small amounts and the argum ent is
advanced in each case th a t the small additional expense could be
easily provided w ithout deleterious consequences. B ut they are
sufficient in the aggregate to upset completely ¿the whole fiscal
program of the adm inistration and to produce an annual deficit,
or additional taxation, instead of a surplus or tax reduction.
Organized and influential groups of interests are sometimes able to
advance their selfish aims w ith dangerous effectiveness to the detri
m ent of the unorganized masses. N othing is more certain than th at
when special advantages of this kind are secured somebody pays the
bill. I t is in effect an arbitrary redistribution of private income by
taking from one class and giving to another w ithout any justification
on the basis of public welfare. This Government has always opposed
class legislation of this nature, and to pursue a different course now
would be suicidal in m y opinion. W hen one group of the community
gains a t the expense of others, the efficiency and productivity of the
com m unity as a whole m ust inevitably suffer. The Treasury has
sincerely attem pted to represent the interests of the whole public
in these m atters, realizing th at, w hatever the undertaking m ay be, the
taxpayers and consumers pay the price. The importance of Govern
m ent economy m ay be seen from the fact th a t out of every $100 of
the national income about $12 is paid to Federal, State, and local
governments in taxes. Approximately $5 of the $12 goes to the
Federal Government and the rem ainder to the State and local
Governments. W ith this already serious encroachment upon private
income the Government hesitates to undertake further activities
even for w orthy and commendable purposes. Therefore it m ust
conscientiously oppose the m any unsocial measures for expenditures
which have beer# proposed and pressed upon Congress and the
adm inistration.
THE PUBLIC DEBT
The gross public debt was reduced $1,098,894,375 during the fiscal
year ended June 30, 1924, and stood a t $21,250,812,989 on the latter
date. This reduction was accomplished through (1) the application
of the sinking fund and other public debt charges against ordinary
receipts, aggregating $457,999,750; (2) a reduction in the general
fund balance of $135,527,639.56; and (3) the use of the entire surplus
of $505,366,986.31. The annual interest charges on the debt repre
sented by this reduction are equivalent to over $45,000,000.
The total reduction in the debt since the high point of $26,594,000,000 on August 31, 1919, am ounted to $5,343,000,000 a t the close of
the last fiscal year. A t the peak of the debt, however, there was an
22621—241----- 2
10
EXTRACT FBOM KEPOBT OF THE SECRETARY OF THE TREASURY
unusually large am ount of tem porary borrowing in anticipation of
the next tax paym ent date and the debt figures on th a t date give a
somewhat exaggerated impression of the true situation. The debt
on Ju n e 30, 1919, a more representative date, was $25,484,000,000,
and the reductions by fiscal years since th a t tim e are shown in the
following table: t
Fiscal year
1920
................... ............. .......
1921
........... ... ................... .
........... -___ __ ____ ____
1922
1923
........ -.........- ................... 192»___ ____ ___ _____________
Retirements
chargeable
against ordi
nary receipts
Retirements
through sur
plus
Retirements
through reduc
tions in the
net balance in
general fund
Total debt
reductions
$79,000,000
422,000,000
423,000,000
403,000,000
458,000,000
$212,000,000
87,000,000
314,000,000
310,000, 000
505,000,000
$894,000,000
1 187,000,000
277,000,000
>99,000,000
136,000,000
$1,185,000,000
2322,000,000
1,014,000,000
614,000,000
1,099,000,000
1,785,000,000
1,428,000,000
1,021,000,000
4, 234,000,0Q0
1 Debt issues resulting in increase in net balance in general fund.
.
2 Includes a reduction of $4,842,000 on account of a revised estimate of the amount of fractional currency
outstanding.
D iagram 5
THE
P U B L IC
DEBT.
Details as to debt retirem ents will be found in Exhibits 12 to
17, pages 179 to 189 and in Tables D and F, pages 369 and 375.
Diagram 5 above shows the course of the gross public debt and the
short-dated debt from 1917 to the present time.
I t will be noted th a t about three-fourths of the debt reduction
during the fiscal year 1920 was due to the decrease in the net balance
in the general fund of the Treasury. During the war, financial
operations were on such a large scale th a t it was necessary for the
Treasury to have always available a working cash balance of a
billion dollars or more. This balance was obviously m uch too large
for peace-time operations, and consequently it was reduced $894,000,000 during the fiscal year 1920, effecting a corresponding reduc-
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
11
tion in the debt. During the years 1921-1924, however, the reduc
tions have been effected almost entirely, taking the four-year period
as a whole, through fixed-debt retirem ents chargeable against ordi
nary receipts and through the use of the surplus.
The fixed-debt charges are included in the regular budget of the
Government under a definite plan worked out soon after the close of
the war for the gradual retirem ent of the public debt, and m ust be
m et before the budget can balance. The m ost im portant of these
fixed-debt charges is the cumulative sinking fund provided in the
Victory L iberty loan act. Retirem ents through this fund during
the past fiscal year were about $296,000,000. The next items in
size among the fixed charges are the retirem ents of securities received
from foreign Governments under debt settlem ents and the purchases
from foreign repaym ents. These two accounts amounted to about
$150,000,000 during the fiscal year 1924. The following table shows
for each fiscal year from 1920 to 1924 the debt retirem ents chargeable
against ordinary receipts classified according to the source of the
funds:
Debt retirements chargeable against ordinary receipts
[In thousands of dollars]
Fiscal year
1920
19211922
1923
1924_____ ______ ___ __
Total......................... -
Sinking
fund
Pur
chases
from
foreign
repay
ments
$261,100
276,046
284,019
295,987
$72,670
73,939
64,838
32,140
38,509
1,117,152
282,096
Received
Purfrom for
eign gov Received chases
from
for
ernments
franchise
estate
under
tax
taxes
debt
receipts
settle
ments
Forfei
tures,
gifts,
etc.
Total
$68, 753
110,879
$3,141
26,349
21,085
6,568
8,897
$2,922
60,725
60,333
10,815
3,635
$13
169
393
555
93
$78,746
422,282
422,695
402,850
458,000
179,632
66,040
138,430
1,223
1,784,573
See E xhibit 24, page 200, for the specific issues of securities retired
under each of the above accounts.
Retirem ents through the sinking fund increase each year, bu t
this means no increase in the total am ount devoted to the debt
service, because th e increase in the sinking fund each year represents
interest saved on previous retirem ents from the fund. There can be
little or no further reduction in the general-fund balance for some
years to come, because it is as low now as the Treasury s activities
will safely perm it. The total balance, moreover, fluctuates around
$200,000,000, a small figure when compared w ith the public debt.
I t is not contem plated, furtherm ore, th a t there will be further sur
pluses of any significance. The revenue act of 1924 will reduce
tax receipts over $450,000,000 annually, it is estim ated, and in
addition some of the sources of revenue during the past few years,
such as realizations on w ar assets and back taxes, are rapidly be
coming exhausted.
12
EXTRACT FBOM REPORT OF THE SECBETABY OF THE TBEASUBY
The total debt retirem ents from the peak have effected a saving
in interest am ounting to approxim ately $225,000,000 annually, a
saving which equals nearly one-third of the to tal annual pre-war
expenditures of the Government. This strict adherence to a rigorous
debt-paying program has no t only strengthened the public credit and
p u t the G overnm ent’s finances in .a more m anageable shape, b u t has
greatly added to the strength of the general investm ent and money
m arkets. R etrenchm ent in current Governm ent expenditures which
does not im pair governm ental efficiency and the application of the
surplus thus created to debt retirem ents increase the country s
capital supply by th a t am ount, the funds being released for private
enterprise. Sound Governm ent finance, including a rigid debtpaying policy, is absolutely indispensable to the best interests of
business and private finance. P rivate credit can n o t c o n tin u e ^ )
flourish if the public credit is in a state of chaos. Therefore, a debtpayin<* program has been the only consistent policy to follow.
The necessity for such a policy is obvious when it is realized th a t
this country came out of the w ar w ith a debt a t its peak m
1919 equal approxim ately to .the total expenditures of the Govern
m ent during its entire existence prior to 1917. The debt per capita
had risen from $12 a t the beginning of the w ar to about $250 a t the
middle of 1919. In terest alone on this debt has been about a quarter
of a billion dollars moré each year since 1920 than the total Govern
m ent expenditures during the fiscal year 1916, the last pre-war year.
The nation which does not follow a policy of paying its debts, but
allows them to, accum ulate, m ay be compared to an individual w o
follows a sim ilar course. I t is a sign of debility and denotes the
absence of essential vigor and foresight. The public debt is a m ort
gage or lien upon national wealth, and unless the country pursues a
policy of paying off this m ortgage it is bound to become more and
more burdensom e as tim e goes on. D ebt reduction, in fact, is the
best m ethod of bringing about tax reduction. Aside from gradual
refunding a t lower rates of interest, it is the only m ethod of reducing
the heavy annual interest charges.
g
The question of how rapidly the public debt shall be liquidated is
not a question of w hat proportion of the cost of the war shall be paid
by the present generation and w hat proportion shall be shifted to
future generations. The view sometimes advanced th a t the present
generation can avoid in p a rt the burden of the cost of the war by
passing the war debt on to future generations is fallacious when the
debt is entirely domestic, as in the case of the present debt of the
United States. A domestic debt is simply a liability of the people
to pay themselves, or rather to pay tfie group holding Government
securities; and while this liability m ay be handed down to the next
generation, equivalent assets in the form of Government securities
EXTEACT FROM REPORT OF THE SECRETARY OF THE TREASURY
13
would also be handed down, and th a t generation, viewed as a whole,
would be neither richer nor poorer. From the viewpoint of the
country as a whole, the war was paid for when it was fought. The
equipment, munitions, ships, food, clothing, and all other m aterials
and supplies necessary for carrying on the war had to be produced
before they could be utilized. If the war had been financed entirely
through taxation, as some suggested at the time, or if the supplies
needed by the Government had simply been commandeered and not
paid for, it can readily be seen th a t the whole burden of the war
would have been borne a t th a t time. The financing of the conflict
in p a rt by loans was simply an arrangem ent under Government
supervision whereby those who were in position could pay more than
their proper proportion of the cost and be reimbursed later with
interest by those who were not in position a t the time to m eet their
proper proportion under the ta x system w ithout too great sacrifices
and hardships.
If every citizen had subscribed to the Government war securities
in the proportion of his tax paym ents to total tax collections, the
process of financing the war in p art by loans would have been a
useless expense because in th a t event the Government would return
to each individual in debt paym ents just the am ount it collects
from him in taxes. There are doubtless some who are in approxi
m ately this position and are unaffected by debt paym ents. On the
other hand, there is one group who hold Government war obliga
tions in excess of the am ount which they will ultim ately pay in taxes
for debt redemptions, as contrasted with another group who will
pay in taxes for debt redemptions an am ount greater than their
holdings of Government obligations. W hat constitutes an asset
to the one group in the form of Government obligations is in effect
an equal liability on the other group in the form of a tax lien on their
future earnings. The Government is simply an intermediary or
agent who collects from the debtor and pays the creditor. This
situation is analagous to the supposititious case where A, not being
able to m eet his tax paym ents, borrows from B, giving his note with
interest. A has not evaded the burden b u t has simply increased
his liabilities instead of reducing his cash assets. He m ust m eet the
new obligation, principal and interest.
The problem of the public debt, then, is largely a question as to
how rapidly the redistribution m ay be effected w ithout undue dis
turbance to business and general economic conditions. The obliga
tions m ust be m et, b u t the rate of paym ent m ust be adjusted to
produce the greatest good and the least disturbance. To the extent
th a t tax collections for debt-paying purposes promote saving and
14
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
reduce unnecessary expenditures, and to the extent th a t a debt
paying program promotes Government economy, the net result is
an actual net increase in the country’s capital supply and general
welfare. On the other hand, if a business or an individual is forced
to liquidate its or his obligations too rapidly, the result is needless
sacrifice and loss. The present program calls for fixed-debt retirem ents
chargeable against ordinary receipts aggregating about $500,000,000
annually. This constitutes at present about 14 ‘per cent of the
Governm ent’s expenditures, but the am ount will increase pro
gressively each year by the am ount of the reduction in interest
charges due to debt retirem ents through the sinking fund. The
Treasury believes th a t this program, while providing for substantial
retirem ents, is not unduly burdensome and should not be interfered
with by additional or extraordinary governm ental expenditures.
Changes in the composition o f the debt
In m y previous annual report I reviewed the refunding operations
and pointed out th a t the entire short-dated debt of seven and onehalf billion dollars outstanding at the beginning of this adminis
tration had either been retired or refunded into more m anageable
m aturities. The effectiveness of th a t refunding program is illus
tra ted in the operations of the past year. M aturities have fallen
only on quarterly tax paym ent dates and, due to the heavy retire
m ents from ordinary receipts, only com paratively small new issues
have been necessary. All new issues since the previous annual
report have been certificates of indebtedness. The following table
gives the principal facts regarding these issues:
Series
TJ-1924................... ..........................
TD-1924
TM-1925............................ ................
TD2-1924............................................
TS-1925 .
_________ ________
Interest
rate
4
4'A
4
2%
2M
Term
Date of issue
6 months.. Dec. 15,1923
1 year....... ___ do...........
- . .d o .- .- — Mar. 15,1924
6 months.. June 16,1924
1 year....... Sept. 15,1924
Due
June
Dec.
Mar.
Dec.
Sept.
16,1924
15,1924
15,1925
15,1924
15,1925
Amount
allotted
$135,128,500
214,149,000
400, 299,000
193,065,500
391,369, 500
The article on pages 81 to 83 of this report, entitled u Certi
ficates of indebtedness,” gives the details regarding these various
issues. Circulars announcing the issues are included as E xhibits 26
to 29, pages 208 to 213. The table following shows in sum m ary
form the changes in the various items of the short-dated debt (m atur
ing within five years) since August 31, 1919.
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
15
Short-dated debt, August 31, 1919, to October 31, 19341
[Millions of dollars]
Date
Aug. 31, 1919.............
Apr. 30, 1921______
June 30, 1921.............
June 30, 1922.............
June 30,1923______
June 30, 1924.............
Oct. 31,1924 »...........
Total
Pittman
Loan and
shortThird
Act and Treasury 4 per
dated debt Liberty Victory Treasury tax certifi special cer
(war)
cent
cates oi
(maturing
loan
notes
notes
indebted tificates of savings loan of
within
bonds
indebted securities
1925
ness
five years)
ness
9,246
7,602
7,618
6, 746
6,473
8,072
8,068
4,113
4,069
3,914
1,991
2,997
2,979
311
2,247
4,104
3,736
3,368
3,938
2,548
2,451
1,755
1,031
808
1,196
263
272
249
74
931
713
694
679
337
413
417
118
118
1 Exclusive of debt on which interest has ceased and interest-bearing obligations redeemable at the
pleasure of the Government but not maturing within the period covered.
* From Preliminary Statement of the Public Debt, Oct. 31,1924.
On November 1 of this year the Secretary of the Treasury announced
th a t he had called for redem ption and paym ent on February 2, 1925,
the 4 per cent loan of 1925, and th a t such bonds will cease to bear
interest on th a t date. This issue has therefore been included in the
short-dated debt. The te x t of the official circular calling those bonds
for redem ption is incorporated in this report as E xhibit 33, page 218.
The details of the various issues of the debt outstanding on June 30,
1924, are shown in E xhibit 1, page 150, and in Table A, pages 356
to 363. Operations during the year and other inform ation regarding
the debt will be found in Tables B to, E , pages 364 to 374, and in
Exhibits 2 to 25, pages 155 to 207.
Treasury saving certificates were w ithdraw n from sale7a t the close
of business July 15, 1924, and until further notice will not be issued
except for exchange of denominations or for reissue in case of the
death of the registered owner prior to the m atu rity of the securities.
A statem ent regarding the w ithdraw al and the details of the sales and
exchanges of the series of 1924 up to the date of the w ithdraw al is
given on pages 83 and 84 of this report in the article entitled
“ Government savings securities.”
The table following shows the distribution of the interest-bearing
debt by m aturities a t various dates since August 31, 1919, when the
gross debt reached the peak.
16
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
Interest-bearing debt, distributed by maturities, and total gross debt August 81, 1919,
to October 81, 192 4 X
[Millions of dollars]
Maturing within five years
Date
Within
one year
Aug. 31,1919 ..........................
Apr. 30,' 1921................, ............
June 30,1921................. . ..........
June 30,1922_____ _______,
June 30,1923.................. ..........
June 30, 1924.................. ..........
Oct. 31,1924 3............................
One
year to
two
years
4,201
2,820
2,699
4,336
1,393
2,328
2,338
572
4,494
366
1,432
927
1,342
Two
years to
five
years
5,045
4,209
425
2,044
2,647
4,817
4,388
Total
within
five
years
Maturing Total
interestafter five bearing
years
debt
9,246
7,602
7,618
6,746
5,473
8,072
8,068
17,103
16,158
16,119
15,965
16,535
12,910
12,910
26,349
23,760
23,737
22,711
22,008
20,982
20,978
Total
gross
debt
26, 594
23,994
23,976
22,964
22,350
21,251
21,242
1 Exclusive of interest-bearing obligations redeemable at the pleasure of the Government, but not matur
ing within the period covered.
* From Preliminary Statement of the Public Debt, Oct. 31,1924.
The increase between Ju n e 30, 1923, and June 30, 1924, in the debt
m aturing within five years and the like decline in the longer-term
obligations are due to the fact th a t on Septem ber 15, 1923, the m atu r
ity of the th ird L iberty bonds m oved into the five-year period. The
following table shows in more detail the distribution of debt m aturities
from October 31, 1924, to November 1, 1929:
Public debt maturities to November 1, 1929 1
[Amounts as of October 31, 1924]
•-r ., gi •: - ..
a
¿Jj
Date of maturity
.-
(
Certificates
of indebted
ness 3
Notes and
bonds 3
Treasury
(war) savings
certificates
(including
interest)
Total
Dec ifi, 1924 _
$407,197,500
3 $25,144,494
Jan. 1,1925 .
4$118,489,900
Feb. i, 1925
597,325,900
Mar. 15,1925........................... 400,299,000
406,031,000
June 15, 1925 .
388, 869; 500
Sept. 15,1925
299,659,900
Dec. 15,1925 ..
3 13,715,592
Jan. 1,1926...
615,707,900
Mar. i 5 ,1926
414,922,300
Sept. 15,1926...........................
3 1,805,047
Dec. 15-31, 1926........ ..............
398,740,349
January-September, 1927____
668,201,400
Mar. 15, 1927... ....................
315,548,160
355,779,900
Dec. 15,1927........
Jan. 1, 1928, to Nov. 1,1929__ : : : : : : : : : : : : : : «2,978,776,300 3265,179,538
$407,197,500
25,144,494
118.489.900
997.624.900
406,031,000
. 388,869,500
299.659.900
13,715,592
615.707.900
414,922,300
1,805,047
98,740,349
668,201,400
15,548,160
355.779.900
3,243,955,838
6,454,894,500 «420,133,180
«8,071,393,680
T ota l....................... .
1,196,366,000
Cumulative
total
$407,197,500
432,341,994
550,831,894
1.548.456.794
1.954.487.794
2,343,357,294
2,643,017,194
2,656,732,786
3,272,440,686
3,687,362,986
3,689,168,033
3,787,908,382
4,456,109,782
4,471,657,942
4,827,437,842
8,071,393,680
1 Exclusive of debt on which interest has ceased amounting to $19,703,420.26; second Liberty loan bonds
amounting to $3,104,574,800, which are redeemable, but do not mature, within the period; other interestbearing obligations redeemable at the pleasure of the Government but not maturing within the period
covered and not called for redemption, amounting to $86,804,660; and thrift and Treasury savings stamps,
unclassified sales, etc., amounting to $4,040,947.69.
3 From Preliminary Statement of the Public Debt, Oct. 31, 1924.
3 From Preliminary Statement of the Public Debt, Oct. 31, 1924, plus accrued interest as shown on the
Statement of the Public Debt, Aug. 31, 1924.
44 per cent loan of 1925, called for redemption Feb. 2, 1925.
3 Third Liberty loan, maturing Sept. 15, 1928.
* These totals differ somewhat from the corresponding figures in the table above and also in the table
on page 29 because they include the accrued interest on Treasury (war) savings certificates.
<
Receipts and expenditures for the fiscal years 1928 and 1924, and estimated receipts and expenditures for the fiscal years 1925 and 1926 (on the
basis of daily Treasury statements, unrevised)
Fiscal year 1924
Fiscal year 1925
Fiscal year 1926
RECEIPTS
Ordinary
Customs...............................
Internal revenue:
Income ta x .................... ....
Miscellaneous internal reve
nue....... ..........................
Miscellaneous receipts:
Proceeds of Governmentowned securities—
Foreign obligations—
Principal..................
Interest___ _____
Railroad securities........ .
All other securities........ .
Trust fund receipts (reap
propriated for investment).
Proceeds sale of surplus prop
erty........ ..........................
Panama Canal tolls, etc......
Receipts from miscellaneous
sources credited direct to
appropriations........... ......
Other miscellaneous............ .
$561,928,866.66
$1,678,607,428.22
945,865,332. 61
2,624,472, 760.83
$550,000,000
, 660,000,000
953,012,617. 62
2,795,157,036.08
$535,000,000
,710,000,000
826,325,000
2,486,325,000
890,875,000
2,600,875, 000
31,656,907.64
201,332, 247.86
99, 297, 348.01
46,361,371.60
61,089,867.14
160,684,807.75
94,373,535. 52
9,602,404. 53
23,088,687
159,215,670
26,862,679. 69
30,643,799.16
46,492,841
59,636,792
91,706,388.29
17,271,855.23
46,774,600.22
27,063,204.24
26,850,159
21,009,000
20,102,059
65,911,405.93
240,333,648.82
820,733,853.07
Total ordinary receipts__
$545,637, 503.
$1,842,144,418.46
4,007,135,480.56
24,086,800
158,508,099
26,000,000
30,621,160
,
110 000,000
17,253,825
29,609,735.46
211,408, 207. 56
671,250,161. 58
4,012,044,701. 65
21,000,000
18,180,154
143,552,961
565,643,297
3,601,968,297
18,492,126
146,973,056
505,420,092
3,641,295,092
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY"
Fiscal year 1923
Fiscal year 1924
Fiscal year 1925
Fiscal year 1926
EXPENDITURES
Ordinary (checks and warrants
paid, etc.)
General expenditures:
Legislative establishment__
Executive proper..................
State Department.................
Treasury Department-.........
War Department.................
Department of Justice..........
Post Office Department...... .
Navy Department................
Interior Department.............
Department of Agriculture—.
Department of Commerce__
Department of Labor...........
U. S. Veterans’ Bureau........
Other independent offices
and commissions...... ........
District of Columbia.............
$14,165,243.89
349,380.15
15,463,276.30
i 145,016,859.60
392, 733,634.86
23,521,485.79
146,942.46
333,201,362. 31
354,623,058.88
128,745,677.33
21, 783,508. 71
7, 241,466. 73
461,719,433.83
$14,315,684. 73
450,952.65
14,669,456.89
i 137,411,205.17
348,629,778.55
21,134,228.10
186,789.29
332,249,136.67
328,227,697.11
141,116,440.69
21,429,678.93
6,620,052.55
409,120,863.66
$13,784,866
431,474
16,077,257
145,303,399
344,431,634
22,690,160
$14,783,065
436,567
16,033,783
131,241,338
322,891,798
25,047,660
330,150,000
300,516,363
154,859,950
25,529,300
7,843,410
411,979,821
292,000,000
279,924,857
145,370,450
22,729,000
8,152,998
387,490,261
28, 712,285. 42
24,053, 705.47
32,846,244.39
25,873,115.19
26,680,423
30,559,284
27,452,889
32,055,927
1,951,477,321.73
1,436,386.81
1,834,281,324. 57
1,234,150.47
1,830,837,341
1,705,610,593
T o ta l...............................
1,950,040,934.92
Interest on public debt............... 2 1,055,923,689. 61
Refunds of receipts:
Customs..............................
28,736,711. 58
Internal revenue...................
125,279,043.35
32,526,914.89
Postal deficiency........................
Panama Canal...........................
4,316,961.30
Operations in special accounts:
Railroads.............................
100,618,067.12
2 109,436,238. 13
War Finance Corporation__
Shipping Board....................
57,023,838.18
Alien property funds...... ......
2 1,365,554. 16
Sugar Equalization Board__
2,482,476.33
Loans to railroads........... ...........
13,526, 587.00
Investment of trust and special
funds:
Government life insurance
fund....... ...........................
26,672,161.78
Civil-service retirement fund.
8,091,417.48
1, 833,047,174.10
2940,602,912.92
1,830,837,341
865,000,000
1,705,610,593
830,000,000
20, 566,638.33
127,220,151.47
12,638,849. 75
8,387,099.90
20,012,500
127,310,000
10,130,931
9,799,805
19,622,500
91,905,000
» 10,033,995
8,560,659
22, 771,167. 74
‘ -52,539,947. 20
85,491,358. 71
2 1,150,576. 16
15,733,489
! 30,000,000
54,500,000
3,317,699
»20,000,000
39,000,000
12,971,000.00
6,000,000
30,410,378.80
8,028,336. 62
39,659,841
8,000,000
Total................................
Deduct unclassified items__
£
52,497,792
7,000,000
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
Fiscal year 1923
18
Receipts and expenditures for the fiscal years 1928 and 1924, and estimated receipts and expentdiures for the fisccd years 1925 and 1926 (on the
basis of daily Treasury statements, unrevised)— C on tin u ed
Public debt retirements charge
able against ordinary receipts:
Sinking fund................. .......
Purchases from foreign repay
ments...__ I.'.............. .
Received from foreign govern-1
ments under debt settle- j
ments............................
Received for estate taxes. . . . _|
Purchases from franchise tax
receipts (Federal reserve
banks and Federal inter
mediate credit banks).......
Forfeitures, gifts, etc........ .. .
...j
190,517.91
230,000
233,420.36
(4)
3.048.677.965.34
------------------- 3,294,627,529.16
70,000
5,000,000
5,000,000
100, 000,000
284,018,800.00
295.987.350.00
310,000,000
32,140,000.00
38,509,150.00
208,600
68,752,950.00
6,568, 550.00
110.878.450.00
8.897.050.00
160,345,601
10,815,300.00
554,891.10
-----------------
402,850,491.10
3.634.550.00
93,200.00
235,000
63,500
3,062,277,407
50,000,000
---------------
2,782,785,248
323,175,000
160,641,130
100,000
950,000
1,152,200
457,999,750.00
471,806,401
484,766,130
Total expenditures charge
able against ordinary re
ceipts..........................
3,697,478,020.26
3.506.677.715.34
3,534,083,808
3,267,551,378
Excess of ordinary receipts over
total expenditures chargeable
against ordinary receipts____
309,657,460.30
505,366,986.31
67,884,489
373,743,714
1 Includes $12,000,000 subscriptions to capital stock of Federal intermediate credit banks for each of the fiscal years 1923 and 1924.
2Includes $97,078,362 for 1923, and $25,020,344.59 for 1924, accrued discount on war savings certificates of the series of 1918 and 1919.
3 Excess of credits, deduct.
,
4$4,584,262.92 for this purpose included under “ Other independent offices and commissions” above.
EXTRACT PROM REPORT OP THE SECRETARY OP THE TREASURY
District of Columbia teachers’
retirement fund..... ............
Foreign Service retirement
fund........ ^........................
General Railroad contingent
fund........... .....................
Adjusted Service certificate
fund............................... .
19
20
Public debt expenditures and receipts for fiscal year 1924 and estimates for fiscal years 1925 and 1926
[On basis of daily Treasury statements, unrevised]
Fiscal year 1925
Fiscal year 1926
EXPENDITURES
Certificates of indebtedness....................................| ..........- ................... _............
Victory notes______ ___ _____ ___ . ___ ____ __________________ |*
Treasury notes and Liberty bonds.......... - .................. .......................... ........ .
Treasury bonds................................ ....... ........... ............. .............. .................
Treasury (war) savings securities............... ....................................... ................
Loan of 1925.......................... .............. ..............................1
.
.
__
Retirements of Federal reserve bank notes and national-bank notes_________ _
Old debt items......................... ........... ................................ .............................
Total public debt expenditures................ ................................................_.
Deduct debt expenditures chargeable against ordinary receipts:
Sinking fund_____ _______ ____ ____________________________
Purchase of Liberty bonds from foreign repayments__________________
Received from foreign governments under debt settlements___ ___ _____
Redemption of bonds and notes from estate taxes____________________
Retirements from Federal reserve bank franchise tax receipts................ ....... .
Obligations retired from net earnings of Federal intermediate credit banks..
Retirements from gifts, forfeitures, etc..... ......................................................
$807,513,500
10,000,000
1,391,500,000
i $1,032,270,000
80, 751,050
866,428,500
6,000
87,457,799
2,004,499,900
2,424,028, 500
12,100,043, 063
$323,175,000
$310,000,000
208,600
160,345,601
100,000
'
1,000,000
152,200
93,200
12,000,000
3,489,900
60,000,000
10,000
15.000. 000
115,000,000
85.000.
000
15,000
33,084,377
45,337
$295,987,350
38,509,150
110,878,450
8,897,050
3,634,550
$1,000,000,000
2,000,000
9*7,000,000
""’ i60’ 64Ll30
500,000.
450,000
457,999,750
471,806,401
484,766,130
1,642,043,313
1,952,222,099
1,519,733,770
RECEIPTS
Deposits to retire Federal reserve bank notes and national-bank notes___ ____
Treasury savings securities___ ______ _____ ___________ ____________
Other new issues of securities, including Treasury notes and certificates___ ___
28,453,557
163,866,320
808,828,810
Total public debt receipts___________ _____ :_________________ !
1 1,001,148,687
Excess of public debt retirements over the retirements chargeable against ordinary
receipts due to indicated surplus and decrease in general fund balance______
110, 000,000
20,000,000
1,774,337,610"
.......1,125,990,066
•1,884,337,610
1,145,990,056
640,894,626
67,884,489
373,743,714
1,642,043,313
1,952,222,099
1,519,733,770
1 Public debt expenditures and public debt receipts, as shown in this statement, are exclusive of $1,206,307,000 Treasury certificates issued and retired within the same fiscal year.
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
Fiscal year 1924
Cash expenditures of the Government for the fiscal years 1917 to 1924, inclusive, as published in daily Treasury statements, classified according to depart
ments and establishments
1923»
1924»
1917 (revised)
1918
1919
1920
1921
1922»
$15,092,373. 97
1,280,484.85
6,169,316. 41
84, 294,313.65
358,158,361.12
10,566,401. 25
1,895,578. 21
239,632,756.63
216,415,516. 48
29,547,234.01
11,689,792.94
3,852, 111. 34
$15, 825,506 72
9,662,847. 53
9,892,898. 09
152,500,426.53
4,850,687,186.88
12,964,628.18
4,173,103. 28
1,278,840,486.80
244,556,893. 96
42,870,188.28
12,833,808.82
5,469,268.09
$17,090,106. 24
17,467,352.03
20, 766,400.14
227,277,657.81
8,995,880,266.18
15, 717,022. 36
2,412,250. 05
2,002,310, 785. 02
288,285,627.61
39,246,454.41
15,589,514.30
12,942,558.75
$19,327,708.72
6,675,517. 58
13, 586,024. 42
322,315,627.43
1,610,587,380.86
17,814,398.18
50,049,295. 07
736,021,456. 43
279,244,660. 87
65,546,293.14
30,010,737.75
5,415,358.40
$18,982, 565.17
210,056. 79
8,780,796.84
488,636,833.10
1,101,615,013.32
17, 206,418. 03
2 135,359,108.17
650,373,835. 58
357,814,893. 01
119,837,759.41
30,828,761.55
8,502,509. 55
$17,088,112. 87
218,690.36
9,666,571. 70
209,104,990.87
454, 730, 717.67
17,888,828. 58
3,384,127.31
476, 775,193.84
331,814,027. 57
142,695,844.10
21,688,014.86
6,227,471.57
4 376,749,664.29
Other independent offices and
commissions2..... ..............
District of Columbia............ .
7,558,829.88
13,681,595.39
12,714,740.06
14,446,832.46
75,375,809.41
16,014,105.80
59,469,305.17
19,987,898.41
119,942,516.73
22,715,158.60
43,871,656.40
23,731,562.56
‘ Total...................................
Deduct unclassified items..............
999,834,666.13
* 150,275.43
6,667,438,815.68 11,746,375,910.11
»895,060.84
626,469,620.31
3,236,051,662.43
4,399,847.00
3,080,806,225.85
922,593.14
2,135,635,474.55
«232,088.59
1,951,477,321.73 1,834,281,324.57
1,234,150.47
1,436,386.81
Total............. .............. ....... 999,984,941.56
6,693,908,435.99 11,747,270,970.95
3,231,651,815.43
3,079,883,632.71
2,135,867,563.14
1,950,040,934.92 1,833,047,174.10
ORDINARY
General expenditures:
Legislative establishment2-----Executive proper 2. ........ .........
State Department...... .......... .
Treasury Department..............
War Department . ..................
Department of Justice............ Post Office Department...... .
Navy Department..... .......... .
Interior Department_______
Department of Agriculture-----Department of Commerce...... J
Department of Labor.......... .
$14,315,684. 73
$14,165,243.89
450,952.65
349,380.15
14,669,456.89
15,463,276.30
137,411,205.17
145,016,859. 60
348,629,778. 55
392,733,634. 86
21,134,228.10
23,521,485. 79
186,789. 29
146,942. 46
332,249,136.67
333,201,362. 31
328,227,697.11
354,623,058. 88
141,116,440.69
128,745,677.33
21,429 678.93
21,783,508.71
6,620,052.55
7,241,466.73
« 461,719,433.83 »409,120,863.66
28,712,285.42
24,053,705.47
32,846,244.39
25,873,115.19
“
21
i The figures given for operations in special accounts are net figures and make allowance for receipts and deposits credited to the account concerned.
. . .
, ,
1 In the fiscal years 1921,1922, and 1923, changes were made in classification of expenditures between legislative establishment, executive proper, and other independent offices
and commissions, which account for most of the differences as compared with expenditures for other fiscal years.
.
. _
„_ _
,
,
a Owing to settlement between the Post Office Department and the Railroad Administration on account of transportation during Federal control, Post Office Department
expenditures for June, 1921, include $65,575,832.03 paid to the Railroad Administration. Deposit of this^payment by Railroad Administration resulted in decrease in expenditures
on account of Federal control of transportation systems and transportation act, 1920,” by a corresponding amount.
. . .
,
.
.
...
. ..
. _ .
» Payments on account of veterans’ relief made prior to Aug. 11, 1921, by the War Risk Insurance Bureau are included under Treasury Department, while similar payments
made nnor to that date by the Federal Board for Vocational Education are mcluded under other independent offices and commissions. During the fiscal year 1922 allotments for
veterans’ relief have been made to the Treasury Department in the amount of $26,350,668.66, to the War Department in the amount of $4,866,383.40, and to the Navy Department
in the amount of $529,237.84, but expenditures under these allotments appear as expenditures of the respective departments and not of the Veterans Bureau.
‘ During the fiscal year 1923 allotments for veterans’ relief have been made to the Treasury Department in the amount of $3,164,425.11, to the War Department in the amount
of $4,889,241.91, and to the Navy Department in the amount of $2,652,303. During the fiscal year 1924, allotments for veterans’ relief have been made to the Treasury Department
in the amount of $457,150, to the War Department in the amount of $4,434,713.92, to the Navy Department in the amount of $1,474,600, and to the Interior Department in the amount
of $44,791.
i Add.
'
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
(Because of legislation establishing revolving funds and providing for the reimbursement of appropriations, commented upon in the Annual Report of the Secretary of the
Treasury for the fiscal year 1919, p. 126 ff., the gross expenditures in the case of some departments and agencies, notably the War Department, the Railroad Administration, and
the Shipping Board, have been considerably larger than here stated. This statement does not include expenditures on account of the Postal Service other than salaries and expenses
of the Post Office Department in Washington, postal deficiencies, and items appropriated by Congress payable from the general fund of the Treasury.)
1918
$24, 742, 701. 68
$189,743, 277,14
Ï9,7§2»509.32
19,268,099.30
14,291, 282.96
120, 263, 996.17
44,929,168. 38
770,681, 550. 83
Operations in special accounts:
1919
1920
$619,215, 569.17 $1,020,251,622.28
13,195, 522. 37
11,365,714.01
358, 795, 274. 60 « 1,036, 672,157. 53
302,621,846.92 12 228,472,186. 61
1,820,606,870. 90
530, 565,649. 61
« 350,328,494. 70
$999,144, 731. 35
885,000,000. 00
4,738,029, 750. 00
65,018,296. 93
3,479,255,265.56
86,580,427. 48
$991,000,759. 24 $1,055,923,689.61
1924
$940,602,912.92
20,566,638.33
127,220,151.47
12,638,849. 75
8,387,099. 90
100,618,067.12
20730,711,669.98 io» 139,469,450.82
94,428,001.01 m109,436,238.13
w 22,028,452.12
87,205,732.12
57,023,838.18
130,723,268. 26
1,825,643. 99
1« 1,365, 554.16
1«
32,000,000.
0
0
i* 90,353,411.42
io 15,279,636. 52
2,482,476. 33
22,771,167. 74
io 52,539,947.20
85,491,358. 71
io 1,150, 576. 16
16,461,409. 47
37,124,086. 84
45, 702,272.89
64,346,234. 52
3,025,421.32
421,337,028. 09
29,643,546.17
73,896,697. 44
16,781,320. 79
717,834. 36
24,599,340. 52
9, 283,138. 54
230,958.69
Total ordinary___ ____ 1,977,681,750.52 12,696,702,471.14 18,514,879,955.03
6,403,343,841.21
Public debt retirements chargeable
against ordinary receipts:
Purchases from foreign repay-
7,921,700.00
Received from foreign govern
ments under debt settlements
93,050.00
1,134,234.48
Forfeitures, gifts, etc_______
Total.............................
1923
28,736, 711, 58
125,279,043.35
32,526,914.89
4,316,961.30
Investment of trust funds:
Government life insurance fund7
Civil service retirement fund 17.
District of Columbia teachers’
retirement fund 18_............ .. .
Purchases from franchise tax
receipts (Federal reserve
1922
87 338 907 08
Food and Fuel Administrations
Purchase of obligations of foreign
Purchase of Federal farm loan bonds
Subscription to stock, Federal land
1921
1,134,234.48
8,014,750.00
72,669,900. 00
13,526, 587.00
12,971,000.00
26,672,161. 78
8,091, 417. 48
30,410,378.80
8,028,336.62
190,517.91
233,420.36
3,294,627,529.16 3,048,677,965.34
5,115,927,689. 30
3,372,607,899.84
261,100,250. 00
276,046,000.00
284,018,800.00
73,939,300.00
64,837,900.00
32,140,000.00
38,509,150.00
110,878,450.00
8,897,050.00
295,987,850.00
3,141,050.00
26, 348,950.00
21,084,850.00
68,752,950.00
6, 568,550.00
2,922,450. 00
12,950.00
60,724, 500. 00
168,500. 00
60,333,000.00
392,850.00
10,815,300.00
554,891.10
3,634, 550.00
93,200.00
78,746,350.00
422,281,500.00
422,694,600.00
402,850,491.10
457,999,750.00
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
ordinary—continued
Interest on public debt________
Refunds of receipts:
1917 (revised)
22
Cash expenditures of the Government fpr the fiscal years 1917 to 1924, inclusive, as published in daily Treasury statements, classified according to depart
ments and establishments— C ontinued
»
6,482,090,191.21
5, 538,209,189. 30
3, 795,302,499.84
3,697,478,020.26 3,506,677,715.34
677,544,782.25
8,014,750. 00
1,134,234.48
78, 746,350.00
, 213,555,218.81 16,318,491,810.41 16,959, 293,373. 62
422, 281,500.00
8, 759, 745,670. 69
422,694,600. 00
6,608,531,896.93
402,850,491.10
457,999,750. 00
, 560,947, 689.07 2,848,350,313.17
Total public debt.. . . . . . —I— 677,544, 782. 25
7,214,689,453.29 16,326, 506,560.41 17,038, 039, 723. 62
9,182,027,170.69
7,031,226,496.93
7,963,798,180.17 3,306,350,063.17
7,086,312,732.00 15,538,078, 900.00 15, 589,117,458.53
I®19,150, 000.00
1» 27, 362,000.00
8,552, 225,500. 00
4, 775,864,950.00
5,095,993,000. 00 2, 238, 577,000. 00
143, 339, 500. 00 356,981,600. 00
84,663, 504. 53
1,457,200. 00
413, 600. 00
6,015,150.00
137, 788,400. 00
9,574,450. 00
1,908,139, 250. 00
58,122. 40
528,157, 586. 60
15,996, 572. 75
78,550.00
111,539,900.00
65, 987,100.00
16, 751.650.00
1,911, 285,650.00
246,106.82
54,051,976.93
33,405,822.10
240,450.00
94,469, 500.00
410, 600,450.00
4,136, 500. 00
80, 751,050. 00
45,336. 64
74,414,564. 00
33, 084,377. 50
PUBLIC DEBT
Public debt retirements chargeable
against ordinary receipts (see
above)....... ...............................,
Other public debt expenditures__
Recapitulation:
Certificates of indebtedness__
Treasury notes__________
Treasury bonds................ .....
War savings securities_____
Treasury savings securities__
First Liberty bo n ds.-..--.__
Second Liberty bonds______
Third Liberty bonds..............
Fourth Liberty bonds............
Victory n otes................... . .
Other debt items........... .......
National-bank notes and Fed
eral reserve bank notes___
Total public debt...........
632,572, 268.00
1» 4,390,000. 00
2,727,345.96
131,519,529. 91
200,982,934.62
160,256, 308.19
656,000. 00
61,050,000. 00
14,935,500. 00
4,003, 050.00
180,351, 000.00
201,655, 700.00
165,000, 000.00
202,650.00
8, 703,400. 00
51.172.350.00
39,414,450. 00
332, 439,450.00
152,361. 50
18, 398. 75
20, 650.33
63,029, 583.00
32,336, 700.00
241,144,200. 00
296,300,800.00
405, 222,800. 00
249,001, 500. 00
509,165. 97
40,564,115. 50
21,625, 225. 00
23, 718, 797.50
23,424,164. 50
37.460.701.00
107,251,870.00
7,214,689,453. 29 16,326,506,560.41 17,038, 039,723. 62
,182,027,170.69
7,031,226,496.93
677,544,782.25
11ncluded under Treasury Department prior to fiscal year 1922.
8,000.00
■6,000.00
7,963,798,180.17 3, 306,350,063.17
8Included under Post Office Department prior to fiscal year 1922.
8Includes #288,399,222.46 payments on certificates of indebtedness of Director General of Railroads, due July 15,1919.
10 Deduct, excess of credits.
11 The railroad expenditures during the fiscal year 1922 were reduced by $266,636,606.26, on account of deposits by the Railroad Administration, representing proceeds of sale of
equipment trust notes acquired under the Federal control act approved Mar. 21,1918, as amended, and the act approved Nov. 19,1919, and were further reduced by $123,783,487.75,
on account of deposits of the proceeds of sale or collection of other securities acquired under the Federal control act or transportation act. 1920. In 1923 and 1924 receipts on these
accounts were included in the daily Treasury statement under miscellaneous receipts, proceeds of Government-owned securities, railroad securities.
18 Deduct excess'of credits resulting from*deposits of War Finance Corporation representing proceeds of redemptions of its holdings of United States securities. (See note 2, p. 2,
daily Treasury statement for June 30,1920.)
« Included under Executive proper prior to fiscal year 1922.
14 Includes $350,000,000 applied by United States Grain Corporation to reduction of capital stock and reflected in “ Miscellaneous receipts for fiscal year 1920.” (See note 1, p. 2,
daily Treasury statement for June 30,1920.)
w Net expenditures after taking into account credits and $100,000,000 applied to reduction in capital stock of United States Grain Corporation.
18$25,000,000 of this amount represents reduction in capital stock of United States Grain Corporation effected Oct. 17,1921, and is reflected in an increase of receipts in an equal
amount. (See note p. 2, daily Treasury statement for Oct. 18,1921.)
17 Established by act of May 22,1920, and included under Interior Department prior to fiscal year 1922.
18Included under District of Columbia prior to fiscal year 1922.
i» One-year Treasury notes issued under section 18, Federal reserve act.
58 Owing to settlement between the Post Office Department and the Railroad Administration on account of transportation during Federal control, Post Office Department
expenditures for June, 1921, include $65,575,832.03 paid to the Railroad Administration. Deposit of this payment by Railroad Administration resulted in decrease in expendi
tures on account of “ Federal control of transportation systems and transportation act, 1920,” by a corresponding amount.
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
Total e x p e n d i t u r e s I
chargeable
against
ordinary receipts... , . . . |l,977,681,750.52 12,697,836,705.62 18,522,894,705.03
to
05
24
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
Principal of the public debt at the end of each fiscal year, from 1853 to 1924,1 exclusive of
gold certificates, silver certificates, currency certificates, and Treasury notes of 1890
June 30—
Interest
bearing *
Matured
Non-interest
bearing8
Total gross
debt
Gross debt
per capita
859,804,661
42,243,765
35,588,499
31,974,081
28,701,375
44,913,424
58,498,381
64,843,831
82.36
1.62
1.32
1.15
1.01
1.53
1.93
2.06
8158,591,390
411,767,456
455,437,271
458,090,180
429,211,734
409,474,321
390,873,992
388,503,491
397,002,510
90,582,417
524,177,955
1,119,773,681
1,815,830,814
2,677,929,012
2,755,763,929
2,650,168,223
2,583,446,456
2,545,110,590
2,436,453,269
2.83
16.03
33.56
53.33
77.07
77.69
73.19
69.87
67.41
63.19
1,948,902
7.926,547
51,929,460
3,216,340
11,425,570
3,902,170
16,648,610
5,594,070
37,015,380
7,621,205
399,406,489
401,270,191
402,796,935
431,785,640
436,174,779
430,258,158
393,222,793
373,088,595
374,181,153
373,294,567
2,322,052,141
2,209,990,838
2,151,210,345
2,159,932,730
2,156,276,649
2,130,845,778
2,107,759,903
2,159,418,315
2,298,912,643
2,090,908,872
' 58.70
54.44
51.62
50.47
49.06
47.21
45.47
45.37
47.05
41.69
1,625,567,750
1,449,810,400
1,324,229,150
1,212,563,850
1,182,150,950
1,132,014,100
1,007,692,350
936,522,500
815,853,990
711,313,110
6,723,615
16,260,555
7,831,165
19,655,955
4,100,745
9,704,195
6,114,915
2,495,845
1,911,235
1,815,555
386,994,363
390,844,689
389,898,603
393,087,639
392,299,474
413,941,255
451,678,029
445,613,311
431,705,286
409,267,919
2,019,285,728
1,856,915,644
1,721,958,918
1,625,307,444
1,578,551,169
1,555,659,550
1,465,485,294
1,384,631,656
1,249,470,511
1,122,396,584
39.35
35-37
32.07
29,60
28.11
27.10
24.97
23.09
20.39
17.92
1891.................................
1892.................................
1893.................................
1894.................................
1895.................................
1896.................................
1897.................................
1898................... .............
1899.................................
1900.................................
610,529,120
585,029,330
585,037,100
635,041,890
716,202,060
847,363,890
847,365,130
847,367,470
1,046,048,750
1,023,478,860
1,614,705
2,785,875
2,094,060
1,851,240
1,721,590
1,636,890
1,346,880
1,262,680
1,218,300
1,176,320
393,662,736
380,403,636
374,300,606
380,004,687
378,989,470
373,728,570
378,081,703
384,112,913
389,433,654
238,761,733
1,005,806,561
968,218,841
961,431,766
1,016,897,817
1,096,913,120
1,222,729,350
1,226,793,713
1,232,743,063
1,436,700,704
1,263,416,913
15.75
14.88
14.49
15.04
15.91
17.40
17.14
16.90
19.33
16.56
1901.................................
1902.................................
1903.................................
1904.................................
1905.................................
1906.................................
1907.................................
1908.................................
1909.................................
1910.................................
987,141,040
931,070,340
914,541,410
895,157,440
895,158,340
895,159,140
894,834,280
897,503,990
913,317,490
913,317,490
1,415,620
1,280,860
1,205,090
1,970,920
1,370,245
1,128,135
1,086,815
4,130,015
2,883,855
2,124,895
233,015,585
245,680,157
243,659,413
239,130,656
235,828,510
246,235,695
251,257,098
276,056,398
232,114,027
231,497,584
1,221,572,245
1,178,031,357
1,159,405,913
1,136,259,016
1,132,357,095
1,142,522,970
1,147,178,193
1,177,690,403
1,148,315,372
1,146,939,969
15.71
14.89
14.40
13.88
13.60
13.50
Ì3.33
13.46
12.91
12.69
1853..........
1854.................................
1855..........
1856.................................
1857.................................
1858.........
1859.................................
1860.................................
*59,842,412
42! 044'517
35,418,001
31,805,180
28' 503) 377
44) 743', 256
58) 333) 156
64,683,256
8162,249
199,248
170,498
168,901
197,998
170,168
165,225
160,575
1861.........
1862............. .................
1863................. .............
1864................................
1865.................................
1866.................................
1867.................................
1868.................................
1869.................................
1870................................
90,423,292
365,356,045
707,834,255
1,360,026,914
2,217,709,407
2,322,116,330
2,238,954,794
2,191,326,130
2,151,495,065
2,035,881,095
159,125
230,520
171,970
366,629
2,129,425
4,435,865
1,739,108
1,246,334
5,112,034
3,569,664
1871................................
1872.................................
1873.................................
1874................................
1875.................................
1876................ ................
1877.................................
1878.................................
1879.................................
1880.................................
1,920,696,750
1,800,794,100
1,696,483,950
1,724,930,750
1,708,676,300
1,696,685,450
1,697,888,500
1,780,735,650
1,887,716,110
1,709,993,100
1881...............................
1882................................
1883.................................
1884...............................
1885.................................
1886.................................
1887.......... ......................
1888................... .............
1889.................................
1890.................................
1 Figures for 1853 to 1885, inclusive, are taken from “ Statement of Receipts and Expenditures of the
Government from 1855 to 1885 and Principal of Public Debt from 1791 to 1885,” compiled from the
official records of the Register’s office. Later figures are taken from the monthly debt statements and
revised figures published in the annual reports of the Secretary of the Treasury.
Exclusive of bonds issued to the Pacific railways (provision having been made by law to secure the
Treasury against both principal and interest) and the Navy pension fund (which was in no sense a
debt, the principal being the property of the United States).
8Includes old demand notes; United States notes, less the amount of the gold reserve since 1900; postal
currency and fractional currency less the amounts officially estimated to have been destroyed; ana also
the redemption fund held by the Treasury to retire national-bank notes of national banks failed, in
liquidation, and reducing circulation, which prior to 1890 was not included in the published debt state
ments. Does not include gold, silver, or currency certificates or Treasury notes of 1890 for redemption
of which an exact equivalent of the respective kinds of money or bullion was held in the Treasury
i
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
25
Principal of the public debt at the end of each fiscal year, from 185S to 1924,1 exclusive of
gold certificates, silver certificates, currency certificates, and Treasury notes of 1890—
Continued
June 30—
»
Interest
bearing s
Matured
Non-interest
bearing8
Total gross
debt
Gross debt
per capita
1911.................................
$915,353,190
1912.................................
903,776,770
1913.................................
965,706,610
1914.................................
967,953,310
1915.................................
969,759,090
1916.................................
971,562,590
1917................................. 2,712,549,477
1918................................. 11,985,882,436
1919................................. 25,234,496,274
1920................................. 24,061,095,362
$1,879,830
1,760,450
1,659,550
1,552,560
1,507,260
1,473,100
14,232,230
20,242,550
11,109,370
6,747,700
$236,751,917
228,301,285
225,681,585
218,729,530
219,997,718
252,109,878
248,836,878
237,503,733
236,428,775
230,075,350
$1,153,984,937
1,193,838,505
1,193,047,745
1,188,235,400
1,191,264,068
1,225,145,568
2,975,618,585
12,243,628,719
25,482,034,419
24,297,918,412
$12.28
12.48
12.26
12.00
11.83
11.96
28.57
115.65
240.09
228.33
1921.................................
1922.................................
1923.................................
1924................................
10,939,620
25,250,880
98,172,160
30,241,250
227,958,908
227,792,723
243,924,844
239,292,747
23,976,250,608
22,964,079,190
22,349,687,758
21,251,120,427
221.82
209.25
200.86
188.59
23,737,352,080
22,711,035,587
22,007,590,754
20,981,586,430
“
1 Figures for 1853 to 1885, inclusive, are taken from Statement of Receipts and Expenditures of the
Government from 1855 to 1885 and Principal of Public Debt from 1791 to 1885,” compiled from the official
records of the Register’s office. Later figures are taken from the monthly debt statements and revised
figures published in the annual reports of the Secretary of the Treasury.
2 Exclusive of bonds issued to the Pacific railways (provision having been made by law to secure the
Treasury against both principal and interest) and the Navy pension fund (which was in no sense a debt,
the principal being the property of the United States).
8Includes old demand notes; United States notes, less the amount of the gold reserve since 1900; postal
currency and fractional currency less the amounts officially estimated to have been destroyed; and also
the redemption fund held by the Treasury to retire national-bank notes of national banks failed, in liquida
tion, and reducing circulation, which prior to 1890 was not included in the published debt statements.
Does not include gold, silver, or currency certificates or Treasury notes of 1890 for redemption of which
an exact eqmvalent of the respective kinds of money or bullion was held in the Treasury.
a
PAPER CURRENCY
AND
STANDARD SILVER DOLLARS
V
EXTRACT FROM
THE REPORT OF THE SECRETARY OF*THE TREASURY
ON THE STATE OF THE FINANCES FOR
THE FISCAL YEAR 1924
WASHINGTON
GOVERNMENT PRINTING OFFICE
1924
P A P E R CURRENC Y
The m atte r of paper currency supply has been one of the m ajor
problems within the departm ent since the beginning of the W orld
W ar. Im portant changes in kinds, amounts, and denominations of
paper currency issues have occurred, and m any difficulties have been
encountered in the production. Increasing demands, particularly
for $1 notes, have taxed the departm ent’s resources. The condition
of the notes outstanding generally is very much below the desirable
standard, and has caused no end of com plaint from all p arts of the
country. I t has been increasingly difficult to m eet all demands
for notes.
From time to time the departm ent has considered the m atte r of
paper currency supply and has adopted measures which, in p art,
have given tem porary relief, b u t no definite program was developed
for a perm anent solution of the difficulties. Before the war, gen
erally speaking, the supply of currency notes was ample, and the
condition of those in circulation was satisfactory; the average life
of the $1 denomination was about 11 m onths, and of the higher
denominations somewhat longer. During the w ar period the life
of the notes was m aterially shortened. This is attributed to changes
in the stock composition of the distinctive paper and to changes in
printing procedure made necessary to supply the currency needs.
As soon as possible the departm ent undertook corrective measures.
The situation did not improve, b u t as a m atte r of fact grew worse.
E arly in this fiscal year an intensive study of the situation was
undertaken to determine definitely w hat should be done. A com
plete survey of conditions, requirem ents, and m anufacturing pro
cedure was made. As a result certain very definite conclusions
were reached and a currency printing program for the balance of
the present fiscal year and extending through the next fiscal year
was proposed and adopted.
I t was shown th a t conditions imposed during the w ar had largely
persisted because of continuing and even increasing demands for
currency. Such demands have continued in excess of the depart
m ent’s facilities under available appropriations, and it has been neces
sary to depart from the approved standard of fitness, and pay back
into circulation large quantities of notes th a t should have been retired
as unfit. The result is a lower standard generally throughout the
22620—24t
1
2
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
country. And it has been shown th a t the m ost im portant adverse
factor in the situation is the depletion of reserve stocks. Form erly
there were m aintained reserve stocks of blank paper, reserve stocks
of incomplete currency in the Bureau of Engraving and Printing,
reserve stocks of completed notes in the Treasurer s office, and con
siderable amounts of new and fit notes in the cash balance of Federal
reserve banks. During the period 1917 to 1920 the production of
Liberty bonds, w ar savings stam ps, and other securities required a
large share of the facilities of the Bureau of Engraving and Printing.
In the face of increased demands for currency it was necessary to
deplete the reserve stocks, and ultim ately to deliver the notes direct
from the presses. This m eant th a t a note was completed and
issued in three weeks, whereas under normal conditions the processes
of seasoning and m anufacture covered a period of three m onths. Cur
rency th a t is rushed into circulation w ithout prelim inary seasoning
lacks the wearing quality attained only through such seasoning, and
as a consequence of this depletion of reserves the life of the notes has
been reduced by three or four m onths. There is no possibility of
correcting this defect except through restoration of the reserve stocks.
The approved program for currency supply, in short, includes pro
vision for printing additional notes to improve the general standard
of those in circulation; for providing a m oderate increase in the
am ount of $1 notes outstanding; for providing the certificates re
quired to restore gold to circulation; for establishing a reserve of
blank paper approxim ating one m onth’s requirem ents; for providing
a reserve of incomplete currency in the Bureau of Engraving and
Printing the equivalent of one m onth’s product; and for providing
a reserve of completed notes in the Treasurer’s office equal to one
m onth’s requirements.
To make this program effective will require supplem ental appro
priations for the fiscal year 1925 in aggregate am ount $2,879,750.19.
To request an appropriation of this am ount, when it is the policy of
the departm ent to curtail expenditures, m ight, a t first glance, seem
ill-advised, and would be so were there not a real emergency present.
Moreover, the program presented is to a certain extent self-support
ing. The building up of reserve stocks will increase the life of the
currency to such an extent th a t after the fiscal year 1926 the savings
derived by this added life of the currency will am ount to a t least
$1,500,000 each year, which in two years would equal the am ount of
the supplem ental appropriation requested, and thereafter will con
tinue as an annual saving.
S T A N D A R D S IL V E R D O L L A R S
On August 16, 1924, the Treasury announced its program for
increasing the circulation of silver dollars. Following the violent
EXTRACT FROM REPORT OF THE SECRETARY OF THE TREASURY
3
fluctuations in the price of silver during 1920, there was a substantial
decline in the num ber of silver dollars in the hands of the public, and
since th a t tim e the circulation of these coins has been considerably
below the level m aintained during and prior to the war, as shown in
th e following table:
Standard silver dollars in circulation
[In millions of dollars]
June 30
1910.
1911.
1912.
1913.
1914.
1915.
1916.
1917.
72
72
70
72
70
64
66
June 30
1918.
1919.
1920
1921.
1922.
1923.
1924.
78
79
77
56
58
57
54
72
Efforts have been m ade from time to tim e to restore this coin to
its form er place in the currency structure. Federal reserve banks
have sought the assistance of their m em ber banks in an effort to
keep the silver dollars in active circulation. Owing to the fact,
however, th a t the cost of shipping silver dollars falls on the m em ber
banks while the cost of shipping paper currency is absorbed by the
F ederal reserve banks, this effort has proved unsuccessful. F u rth er
m ore, there was no real dem and for silver dollars, since the public
h a d become accustomed to using paper dollars and gave no con
sideration to the fact th a t the excessive use of paper m oney of this
denomination was adding an appreciable sum to the expenses of the
Government.
The Treasury is now endeavoring to acquaint the public with the
desirability of accepting silver dollars as an auxiliary to paper m oney.
Plans have been form ulated to increase their circulation to the extent
of $40,000,000, and the various departm ents of the Government have
been requested to cooperate in this m ovem ent by using silver in
m aking salary paym ents to Government employees throughout the
U nited States. Field officers of the various departm ents have agreed
in m aking salary paym ents to use silver dollars for all odd am ounts in
sum s under $5. The Federal reserve banks have been requested to
circularize their m em ber banks, urging th a t they cooperate in ex
plaining to the public the savings th a t will accrue to the Government
an d the assistance th a t will be given the Treasury in its currency
program of building up reserve stocks of dollar bills.
During the last three years an unprecedented demand has devel
oped for paper currency of the smaller denominations. This is
particularly true of $1 notes, which are being used in increasingly
large numbers. In order to supply the demand and to m eet redem p
tions of unfit and m utilated dollar bills, it is necessary to p rin t and
4
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
p u t into circulation 48,000,000 of these bills each m onth. A note
which is rushed through the process of m anufacture becomes unfit
for circulation within 7 or 8 m onths of issue, whereas notes which
have been given a reasonable period of seasoning, will continue in
circulation from 10 to 11 months. Elsewhere in this report the
Treasury’s plans for increasing the quantity and improving the
quality of paper currency are set forth in full. One of the m ost
im portant phases of the Treasury’s program is the setting up of a
reserve supply of currency sufficiently large in am ount to keep a
portion of it in process of seasoning. The building up of an adequate
currency reserve will take time. One way of facilitating the operation
is to increase the num ber of standard silver dollars in circulation, thus
enabling the Treasury to build up a reserve of paper dollars to the
extent of the increased circulation of silver.
There are m any reasons why the silver dollar should be restored to
its former im portance in the currency structure. In the first place,
the life of a silver dollar is indefinite, whereas th a t of a paper dollar
does not at m ost exceed 11 m onths. A paper dollar costs l-f^ cents
to m anufacture and keep in circulation. If the Treasury, therefore,
can restore to circulation 30,000,000 silver dollars in continental
U nited States and 10,000,000 in our insular possessions, it can dis
place equal amounts of paper currency and effect an annual saving
of $828,000 on this item alone. The use of the silver dollar is not
an innovation. I t has merely lost its place tem porarily in the circu
lation in certain localities, and all th a t is proposed is to restore a very
lim ited am ount of these coins as an auxiliary to the paper currency.
Suggestions have been received from various sources as to the ad
vantages of issuing a metallic “ to k en ” coin in place of the silver
certificate or the standard silver dollar itself, the token to be sm aller
in size and so different in design th a t it could not be m istaken for any
of the subsidiary coins. Proper reserves could be set up against this
circulation and we would in effect have a m etallic dollar certificate
instead of a paper dollar certificate. The thought behind this idea
is perfectly sound and if economy of m anufacture were the only con*
sideration the project m ight be p u t into effect. The ease of m anu
facture, however, raises an obstacle, for unless the alloy should
contain an am ount of precious m etal approaching the face value of
the coin, counterfeiting would be extremely easy.
o
PROGRAM FOR
RETIRING
NATIONAL BANK CIRCULATION
EXTRACT FROM
THE REPORT OF THE SECRETARY OF THE TREASURY
ON THE STATE OF THE FINANCES FOR
THE FISCAL YEAR 1924
WASHINGTON
GOVERNMENT PRINTING OFFICE
1924
PR O G R A M FO R R E T IR IN G N A T IO N A L -B A N K CIRCULATIO N
On November 1 of this year the Secretary of the Treasury
announced th a t he had called for redem ption and paym ent on
February 2, 1925, the 4 per cent loan of 1925 amounting to $118,489,900, and th a t such bonds will cease to bear interest on th a t
date. By the acts of July 14, 1870, and January 14, 1875, under
which these bonds were issued, they are redeemable a t the pleasure
of the U nited States after F ebruary 1, 1925, upon three m onths’
notice. The public was advised of the T reasury’s intention over
seven m onths in advance of the date on which the bonds were to
be called, thus discouraging speculation in the bonds and indicating
the course which the Treasury proposed to follow.
For m any years prior to the enactm ent of the Federal reserve act
m uch thought had been devoted to the study of our currency system
with a view to providing some form of currency more responsive to
the needs of commerce and business than the rigid, inelastic, bondsecured circulation which has little or no relation to the legitim ate
demands for currency. Periodic money panics due to the inflexible
lim itations placed upon our circulating medium by the requirem ents
of law resulted in country-wide distress and failure of banks and
business concerns. For years we labored under the handicaps of an
unscientific and wholly inadequate currency system.
I t was only after the b itter experiences of 1893 and 1907 and as
a result of the study of expert commissions, th a t Congress finally
passed the Federal reserve act. This act, according to its title, was
“ To provide for the establishm ent of Federal reserve banks, to
fu rn ish an elastic currency , to afford means of rediscounting com
mercial paper, to establish a more effective supervision of banking in
the U nited States, and for other purposes.”
The chief purpose of this law, so far as it relates directly to the
currency, was to provide a modern, elastic form of currency which
would expand and contract in accordance w ith varying trade needs.
The creation of such a currency involves the retirem ent of our
inelastic national-bank circulation.
To visualize clearly ju st how rigid our currency system was prior
to the enactm ent of the Federal reserve act, there are listed below the
classes and am ounts of outstanding paper currency on July 1, 1914,
a date ju st prior to the W orld W ar, and four and one-half m onths
prior to' the opening of the Federal reserve banks. The amounts
given represent the total stock of paper money in the country:
(a) Gold certificates----------------- ---------------------------------------------$ b 0^0, 974, 869
(£>)
(c)
(d)
(e)
Silver certificates------------------------------------------------------------Treasury notes of 1890------- --------------------------------------------U nited States notes------- ------------------------------- -----------------National-bank n o tes---------------- ---------------------------------------22619—24f
4 9 0 ,8 5 0 ,0 0 0
2, 439, 000
346, 681, 016
750, 671, 899
2, 671, 616, 784
1
2
EXTRACT F R O M REPORT' OF T H E SECRETARY OF T H E TREASURY
I t will be noted th a t there is no great degree of elasticity in any
one of these five forms of paper currency. I t m ay be well to con
sider each in turn :
C ertificates, gold a n d silv e r .—B oth gold and silver certificates are
in the nature of warehouse receipts issued by the Government, certi
fying th a t there has been deposited in the T reasury of the U nited
S tates an equivalent am ount of gold or silver dollars, as the case
m ay be, payable to the bearer on demand. They are a convenient
paper substitute for the m etal itself and are lim ited dollar for dollar
to the am ount of coin (or coin and bullion in the case of gold certifi
cates) deposited in the Treasury.
Treasury notes of 1890.—-Approxim ately $156,000,000 of these
notes were originally issued to pay for the purchase of silver by the
Secretary of the Treasury, b u t under the act authorizing the issue
and the act of M arch 14, 1900, all b u t approxim ately $1,400,000
have been retired, and these now compose an insignificant p a rt of
our circulating medium.
U n ited S ta te s notes. The to tal am ount of United States notes
(more commonly known as “ greenbacks” or “ legal tenders”) au
thorized by law was $450,000,000, and the highest am ount outstand
ing a t any one tim e was $449,338,902 (January 30, 1864). Through
authorized retirem ents the am ount was reduced to $346,681,016 on
M ay 31, 1878, when Congress passed an act requiring all such notes
to be reissued when redeemed. While, therefore, these notes can not
be further reduced under the present provisions of the law, neither can
they be increased. They constitute a fixed and inflexible elem ent in
our currency situation.
N a tio n a l-b a n k n otes .— The only other form of circulating paper
currency authorized by law at the time the Federal reserve law was
passed was the national-bank note. On July 1, 1914, there was
outstanding $750,671,899 of this kind of currency, more than onefourth of the total stock of paper currency in the country.
These notes were first authorized by the act of February 25, 1863, an
act which was superseded by the act of June 3, 1864, entitled “ An act
to provide a national currency, secured by the pledge of U nited S tates
bonds, and to provide for the circulation and redem ption thereof.”
This is the basic act for the national banking system, and it is gener
ally recognized th a t the power given to banks chartered thereunder to
issue circulating notes against the pledge of United States bonds was
largely to accomplish two purposes—-to provide an easy m arket for
Government bonds and to provide a uniform circulation which m ight
take the place of the bank notes issued by m any different institutions
chartered under the laws of the different States. These S tate-bank
notes were taxed out of existence under the term s of the act of
M arch 3, 1865, as amended.
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
3
While there is no doubt th a t the national-bank notes helped to
accomplish each of these two purposes and were a vast im provem ent
over m ost of the State-bank note issues previously circulating, never
theless it has long been recognized by economists, bankers, and others
interested in the establishment of a more perfect currency system ,
th a t even this form of bank-note currency—the only supplem ent to
the certificates and notes issued by the Government—failed to serve
the growing needs of the country, and th a t the lack of elasticity of the
whole currency system had become a source of real danger. The
reason for this is obvious. There are outstanding the following Gov
ernm ent bonds which bear the circulation privilege:
Amount
pledged with
Amount
outstanding Treasurer to
secure circu
Oct. 31,
lation, Nov.
1924
1, 1924
$599,724,050
118,489,900
48,954,180
25,947,400
$589,086,200
76,687,050
48,484,720
25,584,920
793,115, 530
739,842,890
I t will be seen from the above table th a t there are in existence
only $53,272,640 of bonds bearing the circulation privilege which
are not pledged w ith the Treasurer to secure circulation. This
am ount represents the m aximum potential increase over the present
figures of national-bank circulation. Consequently, it is easy to see
how inelastic our currency system would be a t the present tim e were
it not for the fact th a t the Federal reserve banks have authority to
issue Federal reserve notes as provided in the Federal reserve act.
Even if there were an indefinite supply of eligible bonds against
which bank notes could be issued, the element of elasticity, which
signifies the power to contract as well as to expand, would still be
lacking. In practice there would be expansion, b u t no autom atic
inducem ent on the p a rt of the issuing banks to contract when the
need no longer existed. We would still suffer from all the conse
quent ills of a rigid bond-secured circulation. Diagram No. 6, page
4, shows how inelastic the national-bank bond-secured circulation
was from 1900 to 1914 as compared w ith Federal reserve notes, which
were first issued in 1914.
While, therefore, the Federal reserve act has overcome one of the
shortcomings of our earlier system in th a t it has now provided the
means of issuing an elastic currency against commercial paper,
nevertheless, it has failed to accomplish the gradual retirem ent of
the national-bank circulation, as was contem plated by its authors.
•Section 18 of th a t act provided for the purchase of circulating bonds
by Federal reserve banks in am ounts not to exceed $25,000,000 a
4
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
year for a period of 20 years, w ith a view to retiring gradually all of
the national-bank circulation through this and other provisions of
law. This provision of the Federal reserve act was entirely con
sistent w ith the plan of legislation suggested by the N ational
M onetary Commission as a result of its m any years of investigation
of banking throughout the world. In th a t proposed plan, the pro
vision relating to the purchase of circulating bonds (somewhat
sim ilar to th a t contained in section 18 of the Federal reserve act)
was supported by the statem ent th a t it was—•
th e p o licy of th e U n ited S ta te s to retire as rap id ly as possible, co n sisten t
w ith th e p ublic in terests, b on d-secured circulation and to su b stitu te th ere
for n o tes of th e N a tio n a l R eserve A ssociation of a character and secured
and redeem ed in th e m anner p rovid ed for in th is act.
DIAGRAM 6
Seasonal variation of Federal reserve notes (1915-1922) compared with the seasonal variation of nationalbank notes (1900-1914).
In other words, it was recognized by students of economics and
banking th a t as soon as Congress should provide the means of issuing
an elastic currency, such as th a t provided by the Federal reserve
act, a way should also be provided for the gradual elimination of
the bond-secured currency issued by the several thousand different
national banks. The provision for the retirem ent of national-bank
notes, moreover, is in keeping with world-established and universally
EXTRACT P R O M REPORT OF T H E SECRETARY OF T H E TREASURY
5
approved banking practices. W ith certain exceptions, the central
banks of issue in the other nations of the world, whether owned by
the Government or by private interests, are the sole media for pro
viding paper currency.
As already stated, it was expected th a t under the terms of section
18 of the Federal reserve act the Federal reserve banks would pur
chase $25,000,000 of circulation bonds every year, beginning two
years after the date of the act. If they had adhered to this program ,
they would have purchased a total of $225,000,000 by this time.
As a m atte r of fact, owing to the interruption of the war, they have
actually presented only $64,000,000 of these bonds for conversion
and redemption, and have on hand about $1,000,000. This is about
$160,000,000 less than expected under the general plan of the Federal
reserve act. I t is impossible now, owing to the high m arket price of
all these bonds bearing the circulation privilege, for Federal reserve
banks to continue purchases under the provisions of section 18, since
th a t section places a price lim it of p ar and accrued interest. If there
s some other way in which the retirem ent of national-bank notes
m ay be brought about, it is believed th a t it should be adopted as
speedily as m ay be consistent with the Treasury’s other fiscal policies
and with due regard to the best interests of the national banks.
I t has been suggested th a t this m ay not be the proper tim e to take
such action because of the fact th a t there is already a widespread
feeling among national bankers th a t they are considerably handi
capped in their competition w ith S tate institutions by the fact th a t
their banking powers generally are more restricted than those of the
S tate institutions. B ut the proper answer to this suggestion would
seem to be not to continue a bank-note currency which is generally
agreed to be unscientific and of a more sentim ental than m aterial
value to the issuing banks, b u t rather to amend the national-bank
act so as to give to those national banks w hatever additional bank
ing powers m ay be necessary in order to enable them effectively and
properly to compete with S tate institutions.
In this connection there are now pending before Congress two bills,
known as the M cFadden bill and the Pepper bill, both designed to
grant those very privileges to national banks. Under the proposed
bills some of the present powers will be liberalized and other new
powers granted. The Treasury approves the general features of these
bills and believes th a t some such legislation is necessary, not only as
a m atter of justice to national banks, b u t also in order to preserve
the essential strength and effectiveness of our central banking sys
tem. This is obvious when it is considered th a t approxim ately twothirds of the total resources of the member banks of the Federal
reserve system are represented by national banks. In view of the
likelihood of an early passage of such legislation conferring substan-
6
EXTRACT' F R O M REPORT OF T H E SECRETARY OP T H E TREASURY
tial additional banking powers upon national banks, it is believed
th a t now is the appropriate tim e to form ulate a perm anent program
for the ultim ate retirem ent of the national-bank circulation.
The 4 per cent loan of 1925, of which $118,489,900 is outstanding,
has been called for redem ption and paym ent as of February 2, 1925.
The calling of these bonds m ay be regarded as the initial step in a
program which, if not interrupted or curtailed by reason of circum
stances or conditions not now discernible, will result ultim ately in
the retirem ent of all bonds bearing the circulation privilege.
This program will provide for the retirem ent of the 2 per cent
Panam a Canal loan of 1916-1936 (in principal am ount of $48,954,180), and the 2 per cent P anam a Canal loan of 1918-1938 (in
principal am ount of $25,947,400), a t some date after the passage
of the contem plated legislation for the relief of national banks, b u t
before the callable date of the 2 per cent consols of 1930.
The 2 per cent consols of 1930 are not redeemable until after
April I, 1930. By th a t time the national banks will have had
ample opportunity to adjust themselves to the Treasury’s plan to
retire national-bank circulation. Furtherm ore, they will then
have fully availed themselves of the additional benefits afforded
by changes in the national-bank act, if amended. The 2 per cent
consols of 1930 should therefore be retired as speedily after April
1, 1930, as m ay be consistent w ith other fiscal operations of the
Treasury.
I t m ay be suggested th at, if the condition of the T reasury pre
cludes the paym ent in cash of any bonds th a t are called in accord
ance w ith this program and necessitates their refunding into other
securities, it would result in increasing the interest obligations of
the Treasury. B ut notw ithstanding the possibility of having to
refund these bonds a t an increased rate, the im portance of sim
plifying our currency system by the elimination of the nationalbank note is param ount, and the increased interest rate in such
event m ight properly be considered an investm ent in behalf of a
sound and much-needed m onetary reform.
Moreover, an increase in the interest rates on a relatively small
proportion of our national debt would not be a net loss to the Gov
ernm ent, because, to the extent th a t the national-bank notes w ith
drawn from circulation ¿re replaced by Federal reserve notes, the
circulation of the la tte r would be increased and this would tend
to increase the profits of the Federal reserve banks—profits in
which the Governm ent has very liberal rights of participation.
To the extent, moreover, th a t national-bank notes are replaced by
Federal reserve notes, the more efficiently can the Federal reserve
banks function as a stabilizing influence on our credit and currency.
EXTRACT F R O M REPORT OP T H E SECRETARY OP T H E TREASURY
7
I t has also been suggested th a t the retirem ent of the nationalbank note circulation would result in currency shortage. I t is
believed, however, th a t there is no sound basis for the fear th a t any
undue or harm ful contraction of the currency would result. Even
if the Panam a Canal loans callable in 1916 and 1918, respectively,
and the 4’s of 1925 should all be called a t the same time, the result
ing contraction in national-bank circulation would not exceed approx
im ately $151,000,000, or less th an 4 per cent of our total paper currency
outstanding. I t would be superseded, if needed, by thè issue of
Federal reserve notes or gold certificates. A t the present time the
Federal reserve banks, which are now the chief distributers of
currency in the U nited States, arbitrarily m ake paym ents of nationalbank notes on hand before any other forms of currency. If, how
ever, they should accum ulate national-bank notes and pay out other
forms of currency first, it would take b u t a few weeks to substitute
$151,000,000 of Federal reserve notes for $151,000,000 of nationalbank currency, and the country would never realize th a t the sub
stitution had been made.
As to the suggestion th a t national-bank notes are a necessary
p a rt of our currency in times of emergency or unusual credit expan
sion, it m ay be pointed out th a t on December 23, 1920, when Federal
reserve note circulation was a t its maximum ($3,405,000,000), the
available reserve against such notes was 49.8 per cent after setting
aside 35 per cent against deposit liabilities. I t would have been
possible a t the peak of expansion, therefore, for the Federal reserve
banks to have issued $831,000,000 additional Federal reserve notes—
over $100,000,000 more than the entire amount of national-bank
notes then in circulation—w ithout lowering the reserve against
Federal reserve notes below 40 per cent. Even if this $831,000,000
additional currency, which m ight have been issued under a 40 per
cent reserve requirem ent, had not been sufficient, section 11 of the
Federal reserve act specifically authorizes and empowers the Federal
Reserve Board to reduce this reserve requirem ent when necessary.
B y reducing the reserve requirem ent only 2 per cent on the above
date, therefore, it would have been possible for the reserve banks to
have issued $1,054,000,000 of additional currency, and proportion
ately more with further reductions of the reserve requirem ent.
B u t conditions prevailing in 1920 and 1921 were unusual and it is
not likely th a t we shall have a repetition of them . I t is hard to con
tem plate a condition of the Federal reserve banks, moreover, in
which it would not be possible to provide sufficient currency for any
emergency th a t m ight arise. I t could have been done in 1920, if it
had been necessary, even w ithout the national-bank note circulation.
All the more could it be done now when the to tal reserve of the
Federal reserve system is $895,000,000 more than it was at th a t tim e—
8
EXTRACT F R O M REPORT OF T H E SECRETARY OF T H E TREASURY
an increase of about 40 per cent. I t is difficult to believe, moreover,
th a t our gold reserve for years to come, even contem plating possible
heavy exports to Europe, will not be sufficient to m eet every possible
emergency.
In conclusion, it seems th a t it is wise and proper to retire nationalbank circulation by calling the bonds against which such circulation
is issued, for the following reasons:
(1) A bond-secured bank note is inelastic and unresponsive to the
needs of business and commerce.
(2) N ational-bank circulation is no longer necessary in view of the
ability of the Federal reserve banks to issue Federal reserve notes as
and when needed.
(3) I t was contem plated by the fram ers of the Federal reserve act,
and by the comm ittees of Congress which subm itted reports prior
thereto, th a t national-bank circulation should ultim ately be retired.
The provisions of section 18 looking forward to th a t end became
ineffective only because of the w ar and w ar financing.
(4) I t is the general policy of other nations to have all currency
issued either by the Governm ent itself or by central banks of issue.
(5) The retirem ent of national-bank circulation would do much
to simplify our currency system and to m ake more effective those
provisions of th e Federal reserve act relating to an elastic currency.
(6) W hile it has been argued th a t national banks m ay object to
abandoning the circulation privilege, nevertheless the value of th a t
privilege is, generally speaking, more sentim ental th an m aterial.
Moreover, the enactm ent of the so-called M cFadden-Pepper bills Will
confer upon national banks those’ powers so vitally necessary to
enable them successfully to compete w ith S tate institutions.
While unforeseen conditions and circumstances affecting the fiscal
policies of the Governm ent m ay arise to in terru p t or curtail a general
program of retirem ent, it appears desirable to adopt a ten tativ e pro
gram which will include the retirem ent of the 2 per cent Panam a
Canal loans, callable in 1916 and 1918. These bonds should not be
called until after the passage of the national-bank legislation referred
to, b u t they should be called well in advance of April 1, 1930, the
callable date of the 2 per cent consols. Subject to the same condi
tions and circum stances, the ten tativ e program should further include
the retirem ent of the 2 per cent consols of 1930 as soon as practicable
after April 1, 1930.
o
Treasury Department
January 3 , 1925.
• .ESTIMATED AMOUNT OP ÏÏEOLLLY TAX EXEMPT SECURITIES OTTTSTAU-nTUO "
November 30, 1924.
■1
1
■-----
1 Issued by
Gross Amount
Amount held in
Treasury or in
sinking funds
Amount held out
side of Treasury
and sinking fund
I
;sies, counties*
1 Lties, etc*
#12,305,000,000
Ihitories, in
sular possessions,
sad Distriot of
■Dlumbia
# 1,846,000,000
120,000,000
14,000,000
2,294,000,000
743,000,000
l&ral land banks »
Jit©mediate credit
tanks, and ¿ointJtock land banks
r 1,441,000,000
105,000,000
lied States
■Dvernment
'
(2 )
$ 10,459,000,000
106,000,000
(3)
1,551,000,000
(4)
1,336,000,000
/
alal November 30 ,
1924.
| 16,160,000,000^
#2,708,000,000
$ 13,452,000,000
$ 16,05^,000,000
# 2,696,000,000
$ 13,360,00(5,000
odbmber 31, 1923
14,885,000,000
2,564,000,000
12,321,000,000
ecamber 31, 1922
13,652,000,000
'£,331,000,000
11,321,000,000
eoember 31, 1918
9,506,000,000
1,799,000,000
7,707,000,000
©camber 31, 1912
7
5,554,000,000
1,468,000,000
4,086,000,000
arbarative totals i
./
Bober 31, 1924
Tptal amount of state and local sinking funds*
T,otal aneunt of sinking funds and amount hold in trust by tho Treasurer of
'
the United States*
Amount held in trust by tho Treasurer of the United States.
Note (3), also partly owned by tho United- States Government.« —
2B.JlA.StIE3f l)EBiJEtlMBNT*
FOR IMMEDIATE RELELi.SE,
Tuesday, January 27, 1925.
The Secretary of the Treasury today made the following announcement
m connection with Community Property in California;
There is attached hereto copy of the opinion of Attorney General
Stone, dated October 9, 1924, to the effect that under the law of
California the intorest acquired in Community Property by the husband
or wife upon the death of tho other spouse was not subject to the
|Federal E state Tax.
Attorney General Stone expressly limits his
opinion to tho estate tax and expresses no'opinion with respect to the
principles which govern taxation o‘f income derived from Community
Property.
After conference with Attorney General Stone, he wrote tho
Treasury a letter,.copy of which letter is attached, in which he stated
that tho Treasury should bo loft free to lit igate tho question of income
tax if in its judgment tho public interest would bo served by a judi
cial determination of it.
It is the judgment of tho Treasury that public interest requires «
a final determination of tho right of the husband and wife each to
return-'caparately one-half of the community income.
In coming to this
decision, the Treasury is not unmindful of the fact that in States
other
than California having Community Property laws, tho practice of permitting,
f.Or example, the wife to file a return for one-half of her husband» s earn
ings and the husband to file a return for tho other one-half of his earn
ings has boon authorizod by Treasury regulations.«
It is felt, however,
that there is grave doubt of the legality of these regulations since tho
husband has complete control of the Community Income and may dispose of
2 -
it as nc o Oj, lit auring his lifetime without the consent of his wife.
It is obviously
somewhat strained constriction to consider that tho
husband has roccivod only one-half of his earnings for income tax
purposes although ho controls for practical purposes the whole.
Since the surtax is graduated, the right to split the income
between* two people is a great advantage to the taxpayer.
For example,
ancler the present law tho surtax on a not income of $1C0,000 is $17,020,
whereas tlio surtax on two incomes of $50,000 each is but $7,080, a sav
ing of-nearly $10,000 of tax.
It is estimated that the probable amount
of taxes, with interest, which the Treasury may have to refund to Cali
fornia taxpayers in the event it should be finally held that the husband
and wife can each separately return one-half of the Community Income,
will be over $77,000,000,' While it is thoroughly appreciated that the
mere size of the refund should not control if thorc is no doubt it is
legally due, nevertheless the amount involved shows the importance to the
country of having a decision by the court of last- resort on this ques
tion of law, about which there is still great uncertainty.
If the
court should rule in favor of the California, taxpayer, he would receive
back any overpayment, with interest, and would, therefore, suffer no
irreparable damage.
On the other hand, refund can only bo made to the
California taxpayer out of tho taxes collected from citizens of other
states, who under tho laws of their particular states do not possess
tnc valuable privilege claimed by tho California taxpayer.
In fairness
to tho country as a whole, it is tho Judgment of the Treasury that tho
3
taxpayers of other states should have their day in court.
Only in
this manner can the scales he held true between all taxpayers whatever the state of their residence*
In cooperation with the Attorn^^noT-al^-the Treasury will endoavor to obtain a decision from tho Supreme Court of the Unitod States
decisive of tho question involved, and every effort will be made to
expedite the case selected for the test.
m
In the meantime, no change
tho regulat ions with respect to the filing of incomo tax returns by
California taxpayers is contemplated, but returns should bo filed and
taxes will bo collected upon tho basis now existing.
In compliance with the opinien of tho Attorney General, that tho
interest acquired in Community Property by tho husband or wife upon
the death, of tho other spouse in California was not subject to Federal
Estate Tc*x, all ponding estate taxes will be determined and refunds
for such taxes Illegally collectod will bo made.
Tho estimated amount
of. refunds-required'onrtho- astsatcr tax^-is- approximately $ 3,000,000.
OFFICE OF THE ATTORNEY GSHEHAL
Washington, B. C.
January 27, 1925,
Honorable Andrew Mellon,
The Secretary of the Treasury*
My dear Mr, Secretary:
In reply to your inquiry
I have to say that
my opinion of October 9th relating to Communit
Property in California treats only of the incidence of estate tax \
k
upon the wife's share of such community property of which she assumes
possession at her husband's death.
In no way does it touch upon
the question as to whether the husband and wife may make separate
returns of the income from their commmity estate.
That phase of
the matter is therefore as open as it ever was in California and
you are free to litigate it by appropriate legal proceedings.
,
view of the large amount i:
volved and the uncertainty in which this phase of the matter now stands
you should, in my cpinion, be left free to litigate the question if.
j
ln y°ur judgment, the public interest wm.i^ v
c interest would be served by a judicial
determination of it
t„
,
any ouch litigation, argument that the
Same rule mist apply to California because it has been appiled in
^
Stat6S W l U ' °f C°UrSe t0 adVanced
, . . * .
■ «... “
in California
..4.
1
„ „
*
„
r K w t „
■ - “ »* « *
fMc* rs~
of the several years
l.
m
^
.0 ¡ 4 »
^
" u
* lon as ycu may ieslre from ^
«—
« * • « . . « .
^
i. ...
or ^
b^ i c h o f the Department o f r t •
Partment of Justice, and it will do everything
possible to bring such lit-i sr>f ♦
i t i ^ a t io n to a speedy co n clu sion .
Sincerely yours,
Signed) HAEL1H STOKE
Attorney General,
|
DEPART!®NT OP JUSTICE
WASHINGTON
OPINION OF ATTORNEY GENERAL*
October 9, 1924.
My dear Mr. Secretary:
On March 8 , 1924, the Attorney General rendered an
opinion to the Socretary of the Treasuiy with respect to the
application of the Federal Estate Tax Law to Community Property
under the laws of California upon the death of either spouse.
In that opinion the history of the law of Community Property,
as disclosed by the Statute Law and judicial decisions, in the
State of California was reviewed at length and the conclusion
was reached that the interest acquired in the Community Property
by the husband or wife upon the death of the other spouse was
not subject to Federal Estate Tax in accordance with the de
cision of the Circuit Court of Appeals for the 9th Circuit in
M u m v. Wardenr 276 Fed. 226.
On the 27th day of May, 1924, the Attorney General,
in response to a request of the Secretary of the Treasury, re
called this opinion for further consideration and review*
The
precise question under consideration was decided in the case of
Blum v. Wardell, supra.
This case arose under the Revenue Act
of September 8 , 1916 (39 Stat. 756) as amended in 1917 imposing
a tax on the transfer of the net estate of a decedent.
amendment of 1917 affected only the rate of tax.
The
Section 202
•* 2 «•
of the Act of 1916 providod that the value of the gross estate
of the decedent should be determined by including the value, at
the time of his death, of all property, real or personal, tangible
or intangible, wherever situated«
arthatH ™ eJ ^ ® nV fi.th0 interest therein of tho docodont
t J ?n ii! °
<•»»*. whiah, after hie death, is subL°
th paf :1fnt of tha charges against his estate and
* - ? r 3S °f ltS administra«on, and is subject to distribution as part of his estate. * * **»
Section 203 provided that, for the purpose of tho tax,
the value o# the not estate should be determined by making cer
tain deductions, including such other oharges against the Estate
as are allowed by the laws of tho jurisdiction, whether within
or without the United States.
In this case Moses Blum had died leaving a widow who,
under the Community Property Law of California, was entitled to
one-half of tho community property.
She portion to which the
widow was entitled had been taxed under tho provisions of the
f
SF tate Tax
«“ a tbs »it was brought to recover from tho
Collector of Internal Bovonue tho amount of that tax.
The Dis
tinct Court sustained the contention of the plaintiff that her
interest in the Community Property was not subject to tax (270
Fed. 309) and the Circuit Court of Appeals affirmed the District
Court. (276 Fed. 226); the decision of the Circuit Court of Appeals being rendered on October 24, 1921,
On January 20, 1922 the Solicitor General filed in tho
Supreme Gourt a petition for Certiorari which that court denied
on March 26, 1922.
Under the provisions of the Judicial Code,
a decision by the Circuit Court of Appeals is final in cases of
this class unless the Supreme Court grants Certiorari.
*• o —
On April 7, 1532, the Solicitor General made a
motion in the Supremo Court to revoke the order denying the
petition for .Cgjtiqyapi and to allow the petition to remain
unacted upon until the Supreme Court of California tad decided
tue case of Botarts v. Weraeym-, 218 Pac. 22, then pending
before it.
The theory of that motion was that tho Supreme
Court of California, in deciding Roberts v. fmrmmf.r, had
boforo it a question involving tho nature of tho intorost of
tho wife in Community Property and that in tho ovont of a
decision by that Court upon this point of California law,
favorable to tho contentions of tho Government in Blirn v.
Wa-doll, grounds would ©mist for a roconsidcration of the
petition in that ease for a grit of C e i - t W a i ^ -
That motion
remained ponding in the Supreme Court until after the decision
of tho Supremo Court of California in Roberts v.
in October, 1923, it was withdrawn by tho Solicitor General.
Ir
his motion for leave to withdraw tho notion, tho Solicitor
General distinctly intinatod that in another caso and in a aero
usual method of proooduro, tho United States might raise tho
questioh at i3suo if so advised.
We thus have a situation wherein the precise question
passed upon by tho Attorney General in his opinion of March 8,
1924 has boon litigated in tho Podoral Courts to final Judgpont.
Tho Government has ediaustod its resources in that litigation
to socurc a judicial review of tho question and that question
has boon finally judicially determined, so far as that litigation
is concerned, adversely to tho contentions of tho Government.
In naming tnls st&tencnt, I do not
p c c opt
as valid the
J ^ ^ t i o n frequently made in connection with this case, that
4 *■*
the Supreme Court of the United States, by denying the petition
for
^ Qf — rtiorari > affirmed the decision of the Court below
or passed upon the merits of the question,
It is well settled
that a denial of a petition for a ffrit of Certiorari does not
involve any judicial review of the merits of the case in which
the petition for a Writ is denied, and is not an affinnance of
the determination of the Court below; H a m i l t o n - B r ^ shn« n«.„.
Wolf Brog,v & Co,,, 240 U, S, 251.
The decision in Blum v.. Wardoll
by the Circuit Court of Appeals, however, now represents the law
on this subject, and it is the duty of the Government, as well
as a private individual, to bow to the decision of the court in
that case, unless it appears that reasonable grounds exist fair
ly justifying rolitigation of this question do novo.
This
question, as now presented, must be considered and decided dis
passionately, to quote the language of Attorney General Cushing,
(6 op, A.G., 334):
"from the standpoint of a public officer, acting judicially, under all the solemn responsibilities of conscience and
ox legal obligation,”
Tho question having boon thoroughly litigated, tho Government
having had tho fullest opportunity to present its view of tho
law and tho facts, having carried tho oaso to tho Court of Last
Eosort and the ralo uphold by the final judgment in tho case
having remained undisturbed for noarly three years, the Govern-'
ment would, in my opinion, bo justified in reopening this litiga
tion in a now caso with its consequent burden to citizens and tax
payers, only upon tho basis of now facts or a new interpretation
of tho rulos of Community Property law in California unknown or
not available to tho Court at tho time of tho original litigation,
on which roasonablo hope for a successful issuo could bo predicated.
R
-
It may be conceded that questions of title to property ahd the
incidents thereof, questions of devise, inheritance and succession
are questions primarily of State law, and that when those ques
tions arise in a Federal Court, the law of the State should be
followed.
It must also bo conceded, however, that when those
questions arise in a Federal Court, that Court has the same
right and duty to decide them as it has to docide any other
questions which arise in a case,
This would include the right
and duty to docide m at the State la* is* how it relates to the
issues under consideration and whether it is in conflict with
any law of the Jnited States,
In passing upon questions of
State law of this type, it is the duty of the Federal Court to
refer to the Statutes and decisions of the State for the purpose
of ascertaining what the law of the State is, and ordinarily
Federal courts follow and apply the State law as defined by the
judicial decisions of the State courts.
Whore, however, those
decisions are in conflict or do not clearly define and state
the rulo of State law involved, it is still the duty of the
Federal Court to make its own determination as to what the State
law is.
In determining the incidence of a Federal tax., it is
entitled to form its own judgment of the logal nature and charac
ter of the subject of the tax, although this subject matter is
the creation of State law,
Neither State courts nor legislatures
by giving that subject matter a particular name or by the use of
■P /
? woyds paa,taFn away from the Federal Court tho duty
to consider its real nature,
(See Iowa Loan & Trust Co, ya Fair-
Mother, 252 Fed, 605; 0.0,«- & ft, Co, v, Harrison. 235 11,3, 2-92,)
- 6 -
»hen, therefore, the case of Blum v. W a r d e n 0ame
ofore tho Federal Court, that Court had power to determine what
the law of California was with respect to tho interest of a
widow in the Community Property upon the dissolution of the
community by death and having ascertained the nature and
character of that interest, it was its duty to determine
whether that interest was to be Included in the value of the
husband’s gross estate for purposes of taxation; whether it
was subject to payment of charges against his estate and the
expenses of administration; whether it was subject to distribu
tion as a part of his estate; whether it could be deducted from
the value of the gross estate as a charge against the estate
allowed by the laws of the jurisdiction and all other questions
ry to a determination of the ultimate question whether
the taxes which had been paid to the Collector should be re
paid to the executors of the decedent.
She decision in that case was a decision squarely
upon the merits after full argument and after mature and care
ful deliberation and as shown by the opinion of the District
Oourt and the opinion of the Court of Appeals, including the
dissenting opinion.
She sole basis for the controversy between the Government and the taxpayer in Blum v. Warden was the confusion exist
ing in the judicial decisions of tho courts of California as to
the nature of community property and particularly the interest of
r^
aui-yiwxxig *vi.u.OW.
jlb
was indicated in the opinion of
March 8 , 1924, one line of judicial opinions of the courts of
California has asserted that the property and ownership in com
munity property was in the husband and that the wife took only
by inheritance, and that her interest therein was a mere expectancy
- 7 -
llko that of the hoir at common law.
In tho other lino of ju
dicial opinions it has assorted, with equal vigor, that tho
interest of the wife in community property was a vosted interest
that as survivor of the husband sho takes by right of her owner
ship in the community proporty and not by inheritance, and that
the legal relationship of the husband to the wife*s interest was
merely that of one vested with a power of disposition of that
interest»
It is quite clear that if either of those two diverse
lines of definition of this legal relationship be literally ac
cepted, such acceptances would be a sufficient basis for the de
termination of the question here under consideration»
widow takes by virtue
If the
of her ownership in community property
which is held by the community subject only to the power of
disposition of the husband, obviously the estate tax has no
application»
If, on tho other hand, sho takes only as heir
of her husband, than equally obviously the interest passing
to tho widow by inheritance, is subject to estate taxes*
In view of tho extensive review of tho California
Statutes and decisions in tho opinion of March 8th, it will
not be necessary to refor to this aspect of the matter further»
It suffices to say that the Court in Blum v. Wardell accepted
the view that the intcrost of the wife in community property
is a vested property interest for which there i 3 ample support
in one group of decisions of tho California courts, and which
view is fortified by the series of Statutes in that state limit
ing fhc husband*s power of disposition of thQ1 community property»
Tho Court in Blum v» Wardcll also regarded the California Statute
- 8 -
of 1917 (Statutes 1917, pago 880) as manifestly a clear legis
lative recognition that the wife did not take as an heir but
had an interest in the nature of a vested property interest,
passing over, however, the difficulty of interpreting tho Calif
ornia Statute (whose application was limited by its terms to the
purpose of the Act in levying a tax upon inheritances under the
State law) so as to give it efficacy in the application of the
Federal Estate Tax, and ignoring a possible constitutional ob
stacle to doclaring that the vosted interest of the husband had
become, by statutory fiat a vested interest of the wife.
But
the court further supported its decision by the view of the
United States Supreme Court as to the nature of the wife*s in
terest in community property in Arnett v. Reads r 220 U.S. 311.
Wo therefore have a case where the Federal Court made
its determination of the question of State law despite a recog
nized conflict of authority in tho State Courts, supporting its
determination by an interpretation of the State Statute and by
reference to the general principles of jurisprudence applied
to the doctrine of community property as declared by the, Supreme
Court of the United States,
I know of no basis for asking th©
courts now to review this determination except on the ground
that there is some rule or principle of law which the courts,
in docididing that, case, have overlooked or possibly upon the
ground that the California courts have settled their own law
by new judicial decisions contrary to the view of the California
law expressed by the court in Bium v, Wardel.1.
There have been two decisions of the California courts
dealing with this subject since the decision in Blum v. Wardoll*
In E b e r t s Vo Wo^ o y e r , 218 Pac. 22, decided by the Supreme
Court of California, after the decision of the Circuit Court of
Appeals in Blun v. Wardell« that Court held that real estate
acquired by tho husband out of community funds accumulated before
the adoption of Section 172 (a) of the Civil Code of California
(requiring the wife's Joinder in a deed to community property)
became effective, the'requirement, of Soction 172 (&) did not
aP?~y to the husband's conveyance*
The court rested its con
clusion upon the ground that before tho adoption of Section
17*i (a), the wife had no vested interest in the community property
before dissolution of the community? that the husband was the
owner of community property and that the interest of the wife
therein wa3 a mere expectancy like that of an heir;- that Section
172 (a) could have no application to community property acquired
before its enactment, since such application of the Statute
would amount to a deprivation of the husband of his property
i
interest in the community, without due process of law*
In j£aylc-r_._v* TayIc^, 218 Pac* 756, tho court held,, as
tho California courts had hold before, that upon dissolution ©f
tho community by divorce, without disposition of the community :
property in the decree of divorce, the wife is ©wnor of one-half
of tho community property as tonant in common with the husband*
I loave it to others to reconcile the decisions in
those cases*
It is sufficient for tho purpose of this dis
cussion, to cay that neither ©f them raised, stated or decided
any question with respect to the wife's interest i n ‘the community
property which was not fairly before and fairly presented to the
-
court in J& g B v,
10
Nor do they suggest any aspect of the
law of California or any principle of jurisprudence applicable to
the law of community property which was not fairly bofore the
court in g lpm v. Warflo’n , both when that case was bofore the
Circuit Court of Appeals, and when petition for a Writ, of Cortior.-vH
was submitted to the United States Supromo Court.
No one therefore
can fairly say that those cases add anything, by way of finality,
to the discussion which has heretofore boon had.
IK’.,confusion
existed before so far as the California decisions m
it is now the more confounded.
concerned,
Ehis fact, however, does not limit
in any respect tho power and duty of the Federal Court to determine
the question of the State law involved.
less finality to its decision.
Nor does it give any tho
Where the state decisions are
in conflict or not clear as to «hat the local state lav/ is, the
Federal Court may render its own decision and thereafter hold
itself bound by its own decision, disregarding later decisions '
of the State Courts.
(See Pease v. Peck, 18 Eow. 598; Burgos« v .
Ssllman, 107 U.S. 20; Kuhn v. Falrm.-mt. Coal Co.. 315 U. S. 349;
Snare & Trlost Co. y, Friodman. 169 Fed. 1.)
Iho confusion in tho decisions of tho California courts
has undoubtedly arisen from tho fact that the courts have been
attempting, in their opinions, to apply tho terminology of tho •
common law to community property, which embodies a legal concept
wholly foreign to the common law, and to which tho terminology
of the common law cannot ba applied with accuracy and precision.
In most of the California decisions in which it was assertod that
tho right of the wife is a mere expectancy or right of inheritance,'
the same result could have been reached, if the ceurt had rested
n
-
its dooision upon the view that the wife had a vested intorost
in the community property subject to a power of disposition vested
in the husband,
(Soe Spreckols v. Sorockels. 116 Cal. 339;
i state of Wickershari, 138 Cal. 355; Dargie v, Patterson. 176 Cal. 714.)
Whereas in other cases holding that the wife* s interest in the
community is a vested interest, it seoms to bo necessary to describe
the legal relationship of the husband to the wifo*s interest as a
pov/or of disposition in order to justify the decisions -actually rendered.
(See Estate of Brix, 181 Cal. 667; Ta.vlor v. Tavlorf 218 Pac. 757.) •
This, however, only suggests that a common law term may be resorted
to, to describe the incidents of community property in some aspects,
but bo wholly inappropriate to describe them, for other purposes.
This was recognized by the United States Supreme Court in
Arnet v. Reade, 220 U.S. 311, at 320.
The court, after
reviewing the discussion of this subject which "has fed tho
flame of juridical controversy for many years’* said:
The notion that the husband is the true owner is said to
represent tho tendency of the French customs, 2 Brissaud,
Hist, du Droit, Franc. 1699, n. 1.
The notion may have been
helped by tho subjection of the woman to marital power; 6
Laferriere, Hist, du Droit Franc, 365; Schmidt, Civil Law
of Spain and Mexico, Arts. 40, 51; and in this country by
c P - ^ L s j ^ A e ^ w oen the practical effect of the h u s b a n d ^
M M £ . . and it s_ legal ground, if not by mistranslation of
a ^ i TOtts_words. like dominio. Soe United States v.
Casuillero, 2 Black 1, 227. However this may be, it is
very plain that the wife has a greater interest than the
mere possibility of an expectant heir.
For it is conced
ed by the court bolow and everywhere, we believe, that in
one way or another she has a remedy for an alienation made
m fraud of her by her husband.*»
(Italics supplied)
It is, I think, apparent that a study of the battle over the
use of the descriptive terminology applicable to community
-
12
-
property -which ¿las been waged in the California courts for the
past fifty years or more, throws only a faint and flickering
light on tho applicability of the Federal Estate Tax Law to the
wife»s interest in community property, and that a study of the
true character of that interest as it existed in the Spanish
Law and as it has been developed in tho jurisprudence of the
community property states, including California, affords no
substantial basis for the hope that a renewal of the litigation
on this subject in the Federal Courts would change the result*
Whatever view may bo held of the propriety and justice of the
Government* s beginning anew the course of litigation already
run in iO-urn v, Wardell, it must be admitted that reasonable
hope of a successful issue is an important consideration in
determining whether the Government should bow to the judicial
decision which it has invoked.
While not in any sense decisive of the question I havo
before me, the application of the Federal Estate Tax Law in other
community states and the legislative history of the matter are
not without weight in determining whether the question should
now be reopened.
It is conceded that the interest of the sur
viving wife in community property in some seven other community
.property states is exempt from the estate tax under laws described
by the District Court as »identical»» with the Statute Law of
California.
(See Blum v. Wardell, 270 Fed. 309, 314).
Nothing
short of some controlling necessity would, I think, justify the
/'
cour^ in upholding the tax in a single state and refusing to
it to an interest substantially the same in the other com
munity property states, and as we have already seen, the only
. ±o
rz —
•**
justification which. could bo rosortod to for the support of such
a result is tho confusion arising from the use by the California
courts themselves of a terminology not altogether applicable to
the interests of husband and wife in community property.
Sinco tho Act of 1916 there have been two goneral re
visions of the Revenue Law; the Revenue Act of November 23, 1921,
(ch. 163, 42 Stat. 227) and tho rocent Act of June 21f 1924.
While tho Aot of 1921 was under consideration I am informed that
officials of the Treasury attempted to have a provision inserted
making. Community Property a part of the gross estate.
(Che Ways
and Means Committee refused to accept this proposed amendment.
In tho Bill which was prepared in the Troasuiy Department and
which cas amended bocamg. the Act of 1924, thoro was a provision
requiring so-called Joint Income of husband and wife under the
Community Property law of California to be returned, for puiposes
of taxation, as a single income of the husband.
After hearings before the Ways and Means Committoe .nnfl
tho submission of extensive briefs in opposition t© the proposal,,
the Committee struck from the Bill the provision for taxing com
munity income as single income and the bill, as enacted, did
not set aside or modify tho application of tho legal rule laid
down in Blum v. V/ardell.
Notwithstanding tho fact that there
have been two general revisions of the Revenue Act and tho
question involved in. tho decision of Blum v. W a r d e n
ha.s been
distinctly presented to the legislative branch of the G-overnment, the principle of that decision has been left undisturbed
by Congress.
After a full review of the opinion of March 3, 1923,
therefore, and a study of the situation presented by the Qaliforn^a
14 -
decisions including those handed down by the Supremo Court of
California sinco the decision of Blum v. Ward ell, end consider
ing those principles which mast govorn the incidonco of a Federal
tai-ang otatuto upon a subject matter which is tho creation of
state law, I am unable to find thoso considerations which would,
in my opinion, justify tho Government in beginning anew in somo
other case, a juridical controversy which was litigated to a
final conclusion in Blum v«. W a r d e n and in which the Government1s
position was fully presented*
Since tho opinion of tho Attorney
General aoovo roforred to was an affirmanco of tho rule laid down
in that ease, I am constrained to reestablish and reaffirm that
opinion.
My action
so doing mast be construed as limited to
the precise question presented in that opinion as to tho incidence
of the Federal Estate tax upon the interest of the wife in com
munity property on the death of the husband.
I express no
opinion with rcspoct to tho principles which govern the taxation
of incemo dorivod from community property«»
tespectfully yours,
(Signed)
HARLAtT F. STOKE.
Attorney General«
Tho Honorable,
Tho Secretary of the Treasury«
Treasury Department,
January 31, 1925»
ESTIMATED AMOUNT OP WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
December 31, 1924.
_
ssue
y
IStates, counties,
I cities, etc.
erritories, insular
possessions, and
i District of Columbia
t
Amount held, in
Treasury or in
sinking funds
Gross Amount
$ 12,403,000,000
123,000,000
t Amount held, outside of Treasury
and sinking funds
$ 1,860,000,000 (1 ) $ 10,543,000,000
15,000,000 (2)
108,000,000
fUnited States Govern1 ment
2.293.000. 000
737.000.
000 (3) 1,556,000,000
(Federal land banks,
[ intermediate credit
I banks and joint-stock
I land banks
1.449.000.
104.000.
000 (4) 1,345,000,000
Total December 31,1924
$16,268,000,000
# 2,716,000,000
$ 13,552,000,000
$16,160,000,000
$ .2,708,000,000
December 31, 1923 (5)
14,936,000,000
2,571,000,000
$ 13,452,000,000
%
12,365,000,000
December 31, 1922
13,652,000,000
2,331,000,000
11,321,000,000
December 31., 1918
9,506,000,000
1,799,000,000
7,707,000,000
December 31, 1912
5,554,000,000
1,468,000,000
4,086,000,000
Comparative totals*
fefovember 30, 1924
B)
'
■
I
f:
1)
000
Total amount of state and local sinking funds,.
Total 3211011111 o f sinking funds and amount held in trust by the Treasurer
of the United States,
^eld in trust by the Treasurer of the United States,
; ote w * also partly owned by the United States Governments
Revised as to estimate of issues by states, counties, cities, etc.
Q/
The prime purpose of the Act of April 23, 1918, known as the
Pittman Aot, was to aid in conducting the World War by releasing
silver dollars for use in relieving the currency crisis in British
India.
The situation in India was very acute.
The natives of
India would not accept paper roupees, demanded silver, and through
enemy propaganda a situation was Brought about whereby if Great
Britain could not furnish silver money the Indian situation would
have reached a stage which would have imperiled the Allied cause.
Silver was not available in the world market.
The only
could bo used was dollar silver of the United States.
meet this crisis that the Act was passed.
that
It was to
The Aot was not intended
as a bonus to silver producers, or to increase the number of silver
dollars in the Treasury.
Since 1904 the Treasury had ceased to coin silver dollars.
There
were at the. time the Pittman Act was passed two silver accounts in the
Treasuiy! one, the silver dollars, and two, silver bullion in the subsidiaxy silver account for coining halves, quarters and dimes.
Hew
subsidiary coinage was made every year to moot the demands, and to sup
ply the subsidiary coin account silver bullion was purchased after the
solicitation of bids or at the nartot price where it was received by
the Assay Offices mixed with any gold bullion, which under the law the
Treasuiy was compallod to purchase.
The melting down of silver dollars,
therefore, and sale of the bullion to England for India would presumably,
depriv. the silver producers of this oountiy of themselves selling silvejy
-
2
-
and likewise the melting down of silver dollars and use of the silver
llion for silver coinage would mean that the Treasury was not in the
market to buy the silver bullion for subsidiary coinage.
The Act accord- .
m g l y provided that the Treasury should repurchase at fl an ounce the
amount of silver necessary to recoin the silver dollars melted down and
also to the extent that silver dollars were melted down and used for
subsidiary coinage.
The pending bill is now legislation.
It proposes to compel the
Treasury to purchase 14,589,730.13 ounces of silver at $1 an ounce when
the present price of silver is about 68^ an ounce.
This means the
p a r e n t to the silver producers of a bonus of about $5,000,000.
The-
excuse for the bill is that it construes the legal effect of the
Pittman Act.
If the proponents of the legislation have technical rights
under the Pittman Act, they can secure them in the usual way, through the
courts.
When it comes to new legislation, howevor, tho substance, and
not the technical position, should bo considered.
Has tho real purpose
of the Act been accomplished?
Under the Pittman Act 270,232,722 silver dollars, amounting to
209,008,120 ounces of silver, were molted down, 200,418,390 ounces were
sold to the British, and 8,589,730,13 ounces turned into the subsidiary
silver account, as hereafter explained, and used for subsidiary silver,
making a total of 209,008,120 ounces of silver.
The Treasuiy has sub
sequently purchased from American silver producers at $1 an ounce
20^,586,035 ounces, and there has boon returned in kind from the sub
sidiary silver account 8,589,730.13 ounces, making a total of 209,175,765
ounces.
Whon the reminting of silver dollars is completed there will
~ 3 -
be the same number of silver dollars in existence as prior to the
enactment of the Pittman Act#
The silver dollar situation is, there
fore, restored, as was contemplated by the Act#
On a purely technical
argumont the pending bill proposes to require the purchase of 4,589,730.13
ounces of silver at $>1 an ounce on account of a certain book transaction
within the Treasury#
Of the number of ounces required to be repurchased
under the bill, 1,600,000 ounces were transferred from the Pittman
silver account to the subsidiary silver account, with the intention
later of using this silver to make subsidiary coinage#
Before it was
used, however, the transfer on the books was reversed and the silver
was used, as originally intended, for coining silver dollars*
2,541,753.61 ounces,
As to
the intention was expressed to make the alloca
tion for subsidiary silver, but before it was even transferred on the
books the intention was reversed and this silver v/as used to make silver
dollars#
As to 4-,341,753*61 ounces of silver, therefore, there is no
claim that it was ever finally diverted from recoining silver dollars,
but the proponents of the bill rely solely on a mere intention to use for
a particular purpose which was recalled before the use was made#
With respect to the remaining 10,247,976*52 ounces of the amount
referred to in the bill, the facts are these:
The Treasury has several
Mints and Assay Officos, all of which, of course, aro a part of the
Treasury and under the Director of tho Mint#
Silver bullion is received
at the Assay Officos or Mints, but the coinage is done o n ly at the Mints.
At the time of tho uso ef tho 10,000,000 odd.ouncos of Pittman silver
for subsidiary coinage, there was at all timo-s on hand in tho subsidiary
account, exclusive of tho Pittman silver allocated, over 12,000,000 ounces.
- 4 -
This silver bullion in the subsidiary silver account was, however, not
conveniently located to the Mint where it was desired to mnjra the sub
sidiary coinage, or the subsidiary silver bullion was not in refined
form and there would be delay in obtaining refined bullion for sub
sidiary coinage.
The Treasury, therefore, in effect borrowed about
10.000. 000 ounces from the Pittman silver account, used this for subsidiary
coinage and repaid it by returning
10.000.
to the Pittman silver account
000 ounces of silver bullion which wore in the subsidiary silver
account at the time the Pittman silver was borrowed.
So far as the
Treasury was concerned, this borrowing saved the-Treasury the expense
of transporting the subsidiary silver from the Assay Offices and
Mints where it was then located to the Mint where the subsidiary
coinage was being done and the delay of refining the subsidiary coin
age bullion.
If the Treasury had been willing to incur this expense
and stand this delay, not a single additional ounce of silver, under
any construction, would have been purchased from the silver producers.
The action of the Treasury in this regard, therefore, could in no way
affect the substance of the silver producers* rights under the Pittman
Act»
The bill in Committee did not specify what use diould be made of
the 14,589,730.13 ounces to be repurchased at $1 an ounce, and the
Treasury is uncertain to what purpose it should be devoted in the event
the bill boccrass law.
If it is to be made into silver dollars, then
we will have the peculiar situation that instead of the silver dollar
situation as it existed at the time of the Pittman Act being restored,
we will find ourselves with something like 19,000,000 more silver dollars
than we started with.
If the silver purchased at $1 an ounce is to
go into the subsidiary silver account, then we will carry silver which
cost us #15,000,000 in a doad account until tho requirements for coin
age exhaust the subsidiary silver now in the Treasury and use up tho
silver bullion to be purchased at #1 an ounce.
As to tho technical features of the Pittman A c t , which it is,
stated justify the passage of tho ponding bill, it is sufficient to
state that, in the opinion of tho Treasury, and'if the Comptroller
General of tho United States, with full knowledge of the facts, the
action of the Treasury was justified under the law.
If these legal
opinions are wrong, then the proponents of the bill should go to
court.
A bonus of #5,000,000 to tho silver producers for the
acquisition by the Treasury of wholly unnecessary silver should not
be compelled by Congress.
As a natter of fact, if the Pittman Act
had not provided for tho repurchase of silver, no harm would have been
done to tho American silver producer.
The emergency in India was
puroly a war emergency and had to bo settled at once, if at all.
Un
less the American silver dollars had been available, no'sliver could
have been found in tho world to accomplish the purpose desired by
Groat Britain, because tho producers in this country, did r.ot have the
silver and it was not available anywhere el--e in the world.
Melting
down the silver dollars, therefore, did not hurt the American silver
producer.
The requirement, however, that we repurchase silver at #1
-an ounce has hoen of immense benefit to tho American silver producer.
Of course, the Treasuiy was able to purchase no silver at #1 an cunco when
the market price was rver that figure, but the silver producer took the
- 6 -
world» s market.
It was only whon tho price of silver dropped bo low
#1 an ounce that the American silver-producer tendered silver to tho
Treasury.
Pittman Act*
This „was in May, 1920, two years after the passage of the
In acquiring the silver which tho Treasury has purchased
in compliance with the Pittman Act, the Treasury has paid a total bonus
to tho American silver producers of approximately $58,169,950, represent
ing the difference between tho world market price of silver at the time
of the purchases and $1 an ounce.
& (r - U.
¡H'tÌT
INFORMATION POE BANKS RELATIVE TO A3)JTJSTEL
SERVICE CERTICIATES ISSUED PURSUANT TO THE
WORLD WAR ADJUSTED COMPENSATION ACT.
\%
Vli/fc/ki«
(Federal Bonus Law)
A ct
f ° r, ^ B e n e f i t s of ths World War V-ajuBtea Compensation
“ 1® *h? l r applications with the Wap Department if the veteran
\t
°d ¿n ! h® /rmy> or with the Uavy Department if he served in
t]lt A I L n r .MarineiCorpS' 151080 ^o^trafhts, from official records of
1,®
s Eervi°e * compute the amount of adjusted service credit
United
0f tlfy their ^ “ dings to the Director of the
v e i e v o J v
V e te ra n s ’Bureau. The Director then extends to the
„ 2 ? p ts toj M ° h Be ®ay Bo entitled, based upon the amount
of adjusted service credit certified by the War or Navy Department.
•
The adjusted service credit is computed at the rate of fl.00
.,!*
^
0010 service and $1.25 per day fpr oversea service, for
all active service of the veteran exceeding a sixty day period and
se r ^ L
^ P i , ’ ,1 9 1 7 * ® d J U l y 4 * 1 9 1 9 *
» • »
™
o S tS S to U T S f
or l a r r L
0redlt “ n0t allowod’ S“°B as that of a commissioned
r .P°r 0 m i n s home servioe not with troops, a soldier
S t a . ? « * “«1* ? °r lndustrlad fcrlou^i, etc. The law fixes the maximum
se™-n!
T 1G0 Cf°dit atA 500 for a veteran who performed no oversea
service, and a maximum of #625 for a veteran who performed any oversea
service*
..."
then isrTno ^
” S adjustod service credit does not amount to more
toon
f 14.111 cash ln on® payment. If his credit exceeds
150.00 an Adjusted Service Certificate is issued to him. The face
value of this Certificate is equal to the amount, in dollars, which
™ A ^ JUS49dJ!erVi0e oredit* increased by twenty-five per cent, would
purchase in 20 year endowment insurance, if such amount were applied
as a single net premium.
*
«
c
minimum amount of a Certificate will be approximately #86*00*
|
Xi
;Q .wi13-■eyceod fc590» This is an important figure for banks
to bear in mind, as there will be no recourse to the Government for
do fault m loans in excess of the legal loan value of any Certificate.
Certjficates Cannot Be Negotiated. Assigned, or Sold.
The Adjusted Compensation Act
Service Certificates cannot in any
^either can they serve as security
expressly provided for in the law,
specifically provides that Adjusted
way be negotiated or assigned,
for a loan except from banks, as
and hereafter explained*
-
2-
Certificates Boar Name of Voteran and Date
Each Certificate bears on its face the name of the veteran to
whom it is issued and his address at the time he made application* Every
Certificate is dated, in compliance with the law, as of the first day of
the month in which the application was filed, but in no case does any
Ce£ilfiQg>iLe_.,boar a date prior to January 1. 1925. the first day on which
Certificates lawfully could be issued* Under the law the veteran must apply
on or before January 1, 1928, therefore no Certificate will be dated sub
sequent to that date.
Mannar of Payment of Certificates
The face value of an Adjusted Service Certificate is payable to
the veteran to whom it is issued twenty years subsequent to the date of
the Certificate* In the event of the death of the veteran prior to the
expiration of the twenty year period, the amount will be paid to the
beneficiary named by the veteran. If the veteran has not named a
beneficiary, or if the beneficiary he did name dies before the veteran,
and the veteran dies before the twenty year period without naming another
beneficiary, then in such case, the face value of the Certificate will
be paid to the estate of the veteran*
Beneficiaries of Adjusted Service Certificates
Under the law the veteran has the right to name the beneficiary
of his Certificate* Such beneficiary is not restricted to any class
such as one of the veteran’s relatives, but he may name any person,
corporation, or legal entity as beneficiary* The veteran may change
such beneficiary from time to time, subject to the approval of the
Director of the Veteranè* Bureau.
Loans Authorised on Adjusted Service Certificates
Only the veteran himself can lawfully obtain a loan on his
Adjusted Service Certificate. Neither the designated beneficiary nor
any other -person other than the veteran has anv rights in this respect•
An Adjusted Service Certificate cannot serve as security for
a loan until ~che expiration of two years from the date of issuance
appearing on its face« As January 1* 1925 was the first date on which
Certificates were issued, under no circumstances will any Certificate
have any loan value until January 1, 19271-.
Ks
-3-
Tho Certi ficate it self* has no loan value«
security for a veteran’s note*
It may serve only as
*.ny national hank, or any hank Or trust company incorporated under
the laws of any State, Territory, possession or the District of Columbia,
is authorized aftor the expiration of two years from the date of the
^ertiticate, to loan to any veteran upon his promissory note secured
ino 18 i US*e^ Se*7icf Certificate, any amount not in excess of the
loan value of the Certificate. The consent of the beneficiary is not
nocesoary.
table of loan values, together with instructions for comVni U L ° f m y ZQrticalar Certificate at any time, appears
on the face of each Adjusted Service Certificate»
Authorized Rate of Interest to be
Charged by Banks
The rate of interest charged on the loan by the bank shall not
exceed, by more than 2 per centum per annum, the rate charged at the
date of the loan for the discount of 90-day commercial paper under
13 °f th0 Federal Reserve Act by the Federal reserve bank for
the Federal reserve district in vhich the bank is located«
Banks May Sell^Discount, or Rediscount N otes
^ecured.byi_ndju5ted Service Certi fi nates,
Any bank holding a note for a loan secured by a Certificate may
sell the note to, or discount or rediscount it with, any bank authorized
to make a loan to a veteran and transfer the Certificate to such bank,
his is true with respect to a bank to which the note and Certificate
have been transferred, as well as it is with respect to the bank
originally making the loan. Upon the indorsement of any bank, which
shall be deemed a waiver of demand, notice and protest by such bank as to
its own indorsement exclusively, and subject to regulations to be
prescribed by the Federal Reserve Board, any such note secured by a
Certificate and held by a bank shall be eligible for discount or redis
count whether or not the bank offering the note for discount or rediccount is a member of the Federal Reserve System and vhether or not it
acquired the note in the first instance from the veteran or acquired
it by transfer upon the indorsement of any other bank* Such note shall
no . e eligible for discount unless it has at the time of discount or
rediscount a maturity not in excess of nine months exclusive of days of
grace. The rate of interest charged by the Federal Reserve Bank shall
e the same as that charged by it for the discount or rediscount of 90-day
notes drawn for commercial purposes. The Federal Reserve Board is
authorized to permit, or on the affirmative vote of at least five members
of the Federal Reserve Board to require a Federal reserve bank to re
discount, for any other Federal reserve bank, notes secured by a
m
A*
-4 -
Certificate# The rate of interest for such rediscounts shall be
fixed by the Federal Reserve Board* In case the note is sold,
discounted, or rediscounted the bank making the transfer shall
promptly notify the veteran by mail at his last known post-office
address*
Provisions for Reimbursement to Banks for Unpaid Loans
Upon maturity if the veteran does not pay the principal and
interest of the loan, the bank holding the note and Certificate
may, at any time alter maturity of the loan but not before the ex
piration of six months after the loan was made, present than to the
Director of the VeteransT Bureau. The Director may, in his discre
tion, accept the Certificate and note, cancel the note, and pay the
bank in full satisfaction of its claim, the amount of the unpaid
principal due it, and the unpaid interest accrued, at the rate
fixed in the note, up to the date of the check issued to the bank*
Provision is made in the law for the return of the Certificate
from the Director to the veteran when the veteran makes good to the
Director the amount which the Director forwarded to any bank on account
of the veteranb unpaid loan, or if the Director is not reimbursed
by the veteran, the amount advanced to the bank will be deducted at the
time payment of the Certificate is made*
Provisions for Reimbursement to Banks if the Veteran
Dies Prior to Maturity of Loan
If the veteran dies before the maturity of a loan he has ob
tained from a bank the amount of the unpaid principal and unpaid
interest accrued up to the date of his death shall immediately be
due and payable* In such case, or if the veteran dies on the day
the loan matures, or within six months thereafter, the bank holding
the note and Certificate shall, upon notice of the death, present
them to the Director* Thereupon he will cancel the note and pay to
the bank, in full satisfaction of its claim, the amount of unpaid
principal and unpaid interest, at the rate fixed in the note, accrued
up to the date of the check issued to the bank; except that if, prior
to the payment, the bank is notified of the death by the Director
and fails to present the Certificate and note to the Director within
fifteen days after the notice, such interest shall be, only up to the
fifteenth day after such notice*
Banks Cannot Charge anv Fee
Other than interest, banks cannot charge any fee in respect to
loans* The law specifically provides that the Director shall not
make any payment to any bank, unless the unpaid note when presented
to him is accofnparied by an affidavit made by an officer of the bank
which made the loan before a notary ¿public, or other officer designated
bank ha-^ot ohirf ^°eulatl°ns °f the Director, and stating that such
or indfrertL r e r
00llected, or attested to collect directly
author
w
°t °r Oth0r oonPsnsation (except interest as
la^ also
^
l0En maiG 1,7 th® tarili: t0 a ™ teran. The
I t ? also provides that any bank which, or director, officer or
o r ^ n l T *h0re0f *J° doos so charge, collect, or attempt to’charge
for a p
o n a l S ^of
f Ufaooeetorb005,POnSati0n’
b° liable
t0 thebv
™ the
teran
Penalty
#100, to be recovered in Sha11
a civil
suit brought
veteran. Foras for the affidavit above referred to will be sent to
any bank upon request made to the Director.
^atker of Secretary Mellon to the President in connection with the Agricalt ural_ 0onforence Ropor t,
TREASURY DEPAROMENT
WASHINGTON
February 5, 1925«
Dear Mr. President:
The Agricaltaral Conference report, a copy of which I received
this week, suggests for immediate consideration two matters in which the
Treasury has an interest:
First, that the Intermediate Credit Banks give
more active aid in livestock and cooperative marketing association loans,
and, second, that the Bureau of Internal Revenue should make a new regu
lation defining tax-^exemption of cooperative associations.
At the suggestion of the Agricultural Conference, Governor
Cooper, Chairman of the Federal Farm Loan Board, is going West next
week to consult with the livestock interests and see what further the
Intermediate Credit Banks can do for the livestock producers.
The sug
gestion of having the Board take some aggressive steps which would open
to cooperative marketirg associations proper lines of credit, is not
clear to me.
The Intermediate Credit Banks have loaned over $44,000,000
to the cooperative marketing associations, as against $18,000,000
rediscounts, and have at all times been realty to meet any legitimate
demand of the cooperative marketing associations.
Pairing the past
year the War Finance Corporation was availablo for this same purpose, but
was not called upon to any extent.
It seems to me thore must be'some
misunderstanding in this particular of the Agricultural Conference’s
complaint.
Z
W^oh reference to tiio proposed Internal Bcvenue regulation
affecting tax-exemption of cooperative marketing associations, I have
asked the Solicitor of Internal Sevenue to advise me whether a regula
tion in the form proposed by the Conference would be consistent with
the Bevenue Act,
It has been the policy of this Department to extend
to all associations which are truly cooperative the benefit of the taxexemption provided in the Revenue Act.
In the report of the Agricultural Conference there are
suggestions of inter-department or inter-bureau jealousies which handicap
the effective operation of the departments.
criticism applies to the ‘
Treasury.
I am not aware that this'
If;, however, tho Conference had
any matters in mind which are within my power to correct, you may rest
assured that immediate attontion will be given to them whenever I am
advised as to their nature.
Faithfully yours,
(Signed)
A. W. MELLON
Secretary of the Treasury.
The President,
The White House
(T. D. 3670)
COMMilXn a S gEHTY - CALiFSOTx^-. gPifrI0K q f ATTORMEY « » m ..
1* Estate Tax - Gross Estate*
of the^ederal Estate tf*8«,6****! °f a deceased spouse for the purposes
of communi tv prooertv
should te included hut one-half of the value
community property acquired under the laws of thè State of California.
2. Income Tax - Former Opinion limited.
(i n
of the Attorney General under date of March 8, 1924
taxes
and
w
f
°?lni0n
°fto
°°tober
1924 are
liralted »<> Federal estate
taxes and have no application
Federal9-income
taxes.
TREASURY DEPARTMENT,
Office of Commissioner of Internal Revenue
Washington, D, C*
TO COLLECTORS OF INTERNAL REVENUE AND OTHERS CONCERNED,'
.
following opinion of the Attorney General under date of October 9» 1924
'IS ®
or
information of internal revenue officers and others conn a#
xs opinion holds in effect that in computing the gross estate of
f ?Cjafe, SP°US® for the purposes of the Federal estate tax there should he
»C,, e ^ut one-half of the value of community property acquired under the laws
o
e State of California*
Attorney General Stone expressly limits his opinon to the estate tax and expresses no opinion with respect to the principles
w ic govern taxation of income derived from Community Property*
After conerence with Attorney General Stone, he wrote the Treasury a letter, copy of
w xch letter is attached, in which he stated that the Treasury should he left
ree to litigate the question of income tax if in its judgment the public
interest would he served by a judicial determination of it.
•
'
It is the judgment qf the Treasury that public interest requires 'a final
etermination of the right of the husband and wife each to return separately
one-half of the community income* In coming to this decision, the Treasury is
not unmindful of the fact that in States other than California having Community
Property laws, the practice of permitting, for example, the wife to file a
return for one-half of her husband's earnings and the husband to file a return
for the other cne-half of his earnings has been authorized by Treasury regula
tions*
It is felt., however, that there is grave doubt of the legality of
these regulations since the husband has complete control of the Community Income
and may dispose of it as he sees fit during his lifetime without the consent of
liis wife* It is obviously a somewhat strained construction to consider that
the husband has received only one-half of his earnings for income tax purposes
although he controls for practical purposes the whole,
Since the surtax is graduated, the right to split the income between tx^o
people is a great advantage to the taxpayer* For example, under the present law
the surtax on a net income of $100,000 is $17,020, whereas the surtax on two
incomes of $50,000 each is but.$7,080, a saving of nearly $10,000 of tax* It is
estimated that the probable amount of taxes, with interest, which the Treasury
way have to refund to California taxpayers in the event it should be finally
T,&, 3670
-e-
held that the husband and wife can each separately return one-half of the Cdmmuny ncome, will be over $77,000,000«
While it is thoroughly appreciated that
the mere size^of the refund should not control if there is no doubt it is legaly
nevertheless the amount involved shows the importance to the country
fwi
a .ec*s^on
the court of last resort on this question of law, about
10
.®re
great uncertainty. If the court should rule in favor of
e a i brnia taxpayer, he would receive back any overpayment, with interest,
an would, therefore, suffer no irreparable damage« On the other hand, refund
cem only he made to the California taxpayer out of the taxes collected from
i lzens o other states, who under the laws of their particular states do not
possess
e valuable privilege claimed by the California taxpayers* In fairness
o
e coun pr as a whole, it is the judgment of the Treasury that the taxpayers
0 ?
V , ! 8 should have their day in court* Only in this manner can the
s a es e eld true between all taxpayers whatever the state of their residence*
c°0P@ration with the Attorney General, the Treasury will endeavor to
ODtain a decision from the Supreme Court of the United States decisive of the
ques ion involved, and every effort will be made to expedite the case selected
tv|r f n * es^* .
mea^ime, no change in the regulations with respect to
e U m g of income tax returns by California taxpayers is contemplated, but
re urns should be filed and taxes will be collected upon the basis now existing,
In compliance with the opinion of the Attorney General, that the interest
acquired in Community Property by the husband or wife upon the death of the other
spouse in California was not subject to Federal Estate Tax, all pending estate
taxes will be determined and refunds for such taxes illegally collected will be
^
es^imated amount of refunds required on the estate tax is approximate
ly $3,000,000,
D:, H* BLAIR,
.r m r i / v C o m m i s s i o n e r
APPROVED February 7, 1925,
A* W* MELLON,
Secretary of the Treasury,
of Internal Revenue,
T,D> 3670
-
3-
DEPARTMSNT OF JUSTICE
WASHINGTON
OPINION OF ATTORNEY GENERAL.
■ ,
..
October 9, 1924.
My dear Mr* Secretary:
1 Marc^ 8» 1924, the Attorney General rendered an opinion to the Secretary
■
e reasury with respect to the application of the Federal Estate Tax Law to
ommuni y roperty under the laws of California upon the death of either spouse*
o? + + opinion the history of the law of Community Property, as disclosed by the
a u e aw and judicial decisions, in the State of California was reviewed at
length and the conclusion was reached that the interest acquired in the Community
^
husband or wife upon the death of the other spouse was not subject
to Federal Estate Tax in accordance with the decision of the Circuit Court of
Appeals for the 9th Circuit in Blum v, Warden. 276 Fed, 226*
; f fl/ nqti:Le
oi> May, 1924, the Attorney General, in response to a request
|oi the Secretary of the Treasury, recalled this opinion for farther consideration
an review,
The precise question- under consideration was decided in the case of
f;r r ~ ~ ~ ^ ^ eil> supra»
This case arose under the Revenue Act of September 8,
'
tat* 756) as amended in 1917 imposing a tax on the transfer of the net
estate of a decedent*
The amendment of 1917 affected only the rate of tax,
ec ion 0 of the Act of 1916 provided that the value of the gross estate of the
ece en should be determined by including the value, at the time of his death,
°
reaI or personal, tangible or intangible, wherever situated;
(a) to the extent of the interest therein of the decedent at the time
of his death, which, after his death, is subject to the payment of the
charges against his estate and the expenses of its administration, and
is subject to distribution as part of his estate, * * m »
Section 203 provided that, for the purpose of the tax, the value of the net
estate should be determined by making certain deductions, including such other
charges against the Estate as are allowed by the laws of the jurisdiction, whether
within or without the United States,
<
^ i s case Mopes Blum had d ie d le a v in g a widow who, under the Community
grope^ty Law of C a lif o r n ia , was e n t i t le d to o n e -h a lf o f the community p rop erty.
The portion to which the widow was entitled had been taxed under the provisions
of the Estate Tax Law and the suit was brought to recover from the Collector of
Internal Revenue the amount of that tax» The District Court sustained the conten?tion of the plaintiff that her interest in the Community Property was not subject
to tax (270 Fed, 309) and the Circuit Court of Appeals affirmed the District Court
(276 Fed* 226); the decision of the Circuit Court of Apneals being rendered on
October 24, 1921,
On January 20, 1922 the Solicitor General filed in the Supreme Court a peti
tion for Certiorari which that court denied on March 26, 1922* Under the provision1
of the Judicial Code^ a decision by the Circuit Court of Appeals is final in cases
of this class unless the Supreme Court grants Certiorari,
40n April 7, 1922, the Solicitor General made a motion in the^Supreme Court to
revoke the order denying the petition- for Certiorari and to allow the petition to
remain unacted upon until the Supreme Court of California had decided the case of
Roberts v» feymeyer, 218 Pac, 22, then pending before it,
The theory of that
motion was that the Supreme Court of California, in deciding Roberts v* Weymeyer,
bad before it a question involving the nature of the interest of the wife in Com
munity Property and that in the event of a decision by that Court upon this point
'of California law, favorable to the contentions of the Government in Blum v, Wardell
grounds would exist for a reconsideration of the petition in that case for a
!■>■<!■! V 'L' t f im
T.B. 2670
-
4
-
M l of ^Cqrtiorari, That motion remained pending in the Supreme Court until aftc ■
IL e ecision o the Supreme Court of California in Roberts v, Weymeyer when in
October, 1923, it was withdrawn by the Solicitor general*
In his motion for
eave o wi
raw the motion, the Solicitor General distinctly intimated that in
and in a more ust»al method of procedure, the United States might
raise the question at issue if so advised.
We thus have a situation wherein the precise question passed upon by the
n. orney eneral in his opinion c£ March 8, 1924 has been litigated in the Federal
S.
jbidgment, The Government has exhausted i t s resou rces in that
gL,
o secure a j u d i c i a l review o f the q u estio n and th at question has
een m a y j u d i c i a l l y determ ined, so f a r as t h a t l i t i g a t i o n i s concerned, ad
versely to the con ten tion s o f the Government.
In making this statement, I do not accept as valid the suggestion frequently
made in connection with this case, that the Supreme Court of the United States,
y enymg
e petition for Writ of Certiorari, affirmed the decision of the Court
telow or passed upon the merits of the question. It is well settled that a denial
■ a
lfcion for a Writ of Certiorari does not involve any judicial review of
. e me n s of the case in which the petition for a Writ is denied, and is not an
f irf nce of the determination of the Court below; Hamilton-Brown Shoe Co. v»
-fi—
rbs, & Co», 240 U.S. 251*
The decision in Blum v. Wardell by the Circuit
our o Appeals, however, now represents the law on this subject, and it is the
u y o the Government, as well as a private individual, to bow to the decision
s • e*
!
f
case» unless it appears that reasonable grounds exist fairy jus i ying relitigation of this question de novo. This question, as now pre
sen e , must be considered and decided dispassionately, to quote the language of
Attorney General Cushing, (6 op. A.G, ,334);
from the standpoint of a public officer, acting judicially, under all
jL .
s°le?^u responsibilities of conscience and of legal obligation.11
The question having been thoroughly litigated, the Government having had the full
er Opportunity to nresent its view of the law and the facts, having carried the
case to tub Court of Last Resort and the rule upheld by the final judgment in
i the case having remained undisturbed for neatly three years, the Government would,
^in my opinion, be justified in reopening tMs litigation in a new case with its
consequent burden to citizens and taxpayers, only upon the basis of new facts or
a new interpretation of the rules of Community Property Law in California unknown
op not available to the Court at the time of the original litigation, on which,
reasonable hope for a successful issue could be predicated. It may be conceded
that questions of title to property and the incidents thereof, questions of
'.
devise, inheritance and succession are questions primarily of State law, and that
when those questions arise in a Federal Court, the law of the State should be
followed» It must also be conceded, however, that when those questions arise in
a Federal Court, that Court has the same right and duty to decide them as it has
to decide any other questions which arise in a case#
This would include the right
and duty to decide what the State law is; how it relates to the issues under con
sideration and whether it is in conflict with any law of the United States. In
passing upon questions of State law of this type, it is the duty »f the Federal
Court to refer to the Statutes and decisions of the State for the purpose of as
certaining what the law of the State is, and ordinarily Federal courts follow and
fPPly the State law as defined by the judicial decisions of the State courts.
T.D« 3670
-5-
own j2 i e n t rof1 hS
°f * Federal tax* « is entitled to form its
this S e t rntier
"?!“ !.“ * C^ raot&r °f the subject of the tax, although
latures bv giving that
® creation of State law. neither State courts nor legisof worts oaf
r JeCt matter a Particular name or by the use of some form
alZT,
(SeIfwaT^ ? ! ^
Fed6ral C6urt the dut^ t0 consider its real
Harrison. a«q
?rost~S°i- ^ Fairrcather, 252 Fed. 605; C.,0,,&<G.Co. v.
that Cemrt
Case of Slum v. W arden came b efo re th e F ed eral Court,
the in te r e s t
o f ° f-.-J k
^ B t e r m i a S wh a t the law o f C a lif
community btr da ♦ Widow in the Community Property upon the d is s o lu tio n o f the
eS*t i t woe? x+,eaj an
a s c e rta in e d the nature and ch a ra c te r o f th a t in te r of
i f vUtI , t0 determine A e t h e r th a t in t e r e s t was to he included in the
iect tn 'loTT-m a**8 J 1
^ro ss e s ta te fo r purposes of ta x a tio n ; whether i t was subwhptVipr*
« ° i ,c^arges a g a in s t h is e s ta te and the expenses o f a d m in istra tio n ;
he dednrtprt ? S Suf^ e c ^
d is t r ib u t io n as a p a rt o f h is e s ta te ; whether i t could
alirtwpri vvt, ♦ .v,**0?
6 I a lu e
S^oss e s ta te as a charge a g a in st the e s ta te
determino*■? 6
°
du ri sd i c tio n and a l l oth er question s n ecessary to a
*v«e r^ n
* ° n °i_
q u estion whether the taxes which had been paid to
the C o lle c to r should be rep aid to the execu tors o f the decedent.
e?1Sr
caSe was a decision squarely upon the merits after full
fhp nio* •
n 8f ma^ure and careful deliberation and as shown by the opinion of
„
" ri?
our^ and the opinion of the Court of Appeals, including the dis
senting opinion*
'
~
The sole basis for the controversy between the Government and the taxpayer in
Wardell was the confusion existing in the judicial decisions of the courts
o oauiornia as to the nature of community property and particularly the interest
o the surviving widow.
As was indicated in the opinionof March 8, 1924, one
.me o. ju icial opinions of the courts of California hasasserted that the proper
ty ana ownership in community property was in the husband
and that
the wife
^ inheritance, and that her interest therein was a mere expectancy like that
of the heirat common law*
In the other line of judicial opinions it has
asser e , with equal vigor, that the interest of the wife in community property
Was a vested interest; that as survivor of the husband she takes by risht of her
ownership in the community property and not by inheritance, and that the legal
relationship of the husband to the wife’s interest was merely that of one vested
with a power of disposition of that interest. It is quite clear that if either of
these two diverse lines of definition of this legal relationship be literally ac
cepted, such acceptances would be a sufficient basis for the determination of the
question here under consideration« If the widow takes by vittue of her ownership
in community property w M & h is held by the community subject only to the power of
disposition of the husband^: obviously the estate tax has no application, If, on
the'other hand, she takes only as heir of her husband, then equally obviously the
interest passing to the widow by inheritance, is subject to estate taxes.
In view o f the e x te n siv e review o f the C a lifo r n ia S ta tu tes and d ecisio n s inthe opinion o f March 8th, i t w i l l not be n ecessary to r e fe r to th is asp ect of
the m atter fu rth e r. I t s u f f ic e s to say th at the Court in Blum v. W ardell accepted
the view th at the in t e r e s t o f the w ife in community p ro p erty is a vested property
in te rest fo r which th ere is ample support in one group o f d e cisio n s o f the C a lif o r
nia c o u rts , and which view i s f o r t i f i e d by the s e r ie s o f S ta tu te s in th at s ta te
lim itin g the husband’ s power o f d is p o s it io n of the community property«
The
Court in Blum v, W ardell a ls o regarded the C a lifo r n ia S ta tu te o f 1917 (S tatu tes
1917, page 880) as m a n ife s tly a c le a r l e g i s l a t i v e re c o g n itio n th a t the w ife did
not take as an h e ir but had an in t e r e s t in the nature o f a vested p ro p erty in t e r e s t ,
took
( ^ f c o E e ^ amicaUcinii®•
f°f interPreting « » California Statute
a tax upoa inheritances ¿nder the S ^ t f S ^ s *** i” 5086 °f
“ * ia l9,,ying
application of the Federal pit»*» m*!
^ •
?S
glve Xt efficaW in «*
stacle to declaring th-t +k stat? :ax’ ana ignoring a possible constitutional obry fiat a vest/Anf? f t * “ ?,
.interest of the husband had become,
estd
v
Sciston bv ?hi^
! f « 2 ,Vife^ t the court further supported its
wife's interest in^n*3
•*
States Supreme Court as to the nature of the
We therefL >,
y Pr°Perty in ¿r«ett V. Beads. 220 U.S. 311.
the question of s t a t i c Cf 6 !lere the federal Court made its determination of
Z r l T Snnnnrfi™ <1 1f tdes?ite.a recognized conflict of authority in the State
and by*reference to th determl"atlon W a° interpretation of the State Statute
of community property L ^ Z c l a r e d T 0^ 16? °f ■>urdsprQdence
to the doctrine
know of nn
. ]fred by the Supreme Court of the United States. I
the ground that thprp^ lng he <JOur^s now to revi©w this determination except on
cidiS ^at
f
BT
T Je °r PrillciPle of law which the courts, in decourts have settle iu overlooked or possibly upon the ground that the California
0f H i * 2 " ™ *
their own
TV new judicial decisions contrary to the view
m
^
law e3CPressed by the couri in Blum v, Wardell.
iect sinop
of the California courts dealing with this subdeeded ^ £ ! dfcision in
In Roberts v. W e a v e r
218 Pac.22,
Court of
i
C0Urt 0f CalifPnnia, after the decision of the Circuit
the husband n-nt
v. »ardell, that Court held that real estate acquired by
(a) of the
°n
fundf accumulated before the adoption of Section 172
communitv Tirnww^ t, ° Cal^5°rnia (re<3niring the wife*s joinder in a deed to
applv
effective, the requirement of Section 172 (a) did riot
around +w,* >, *
® c°nveyance*
^he court rested its'conclusion Upon the
in the
^
6 fd°Ption
Section 172 (a), the wife had no vested interest
was the
"before dissolution of the community; that the husband
_ met*e •- **. ° ***TT^*^ty property and that the interest of the wife therein was
tion trtfc^ eCtaniy U k e that °f an heir; that Action 172 (a) could have no applicaof thp q* * ^
y Property acquired before its enactment, since such application
oi rne bt«tute would amount to a deprivation of the husband of his property interest
m the community, without due process of law*
*
had b e T d ^ ^ 01" v*
Pac. 756, the court held, as the California courts
** «-a *-[*Qx°xQl .a ^ ^P011 dissolution of the community by divorce, without disposivii - e COinmui:iity property in the decree of divorce, the wife is owner of one_
® community property as tenant |n common with the husband*
. - eoTf
others to reconcile th^ decisions in these cases. It is suffior deridJd 6 PurP°sf
this discussion, jto say that either of them raised, stated
tv w V >»
any
wibh respect to the wife's interest in the community properNnr di°fbWaS QOt fairly before and fairly presented to the court in Blum v. Wardell.
¡Lrodenrio 6y suggest any aspect of the law of California or any principle of juriscn„r+ . aPPllcattLe to the law of community property which was not fairly before the
Anre I1
?'
^oth when th^t case was before the Circuit Court of
tbtafa Sc 511 17 6n Pe tit ion for a hrit of Certiorari was submitted to the United
thin^ ^Upreme
t* 170 one therefore can fairly say that these cases add anycnn-f^*' y ~^ay
^i^iity, to the discussion which has heretofore been had. If
rtnw f>>10n
before so far as the California decisions are concerned, it is
nrwe-r 6 ®°Je ^on^ounded*
This fact, however, does not limit in any respect the
imrro A d?ty of the Federal Court to determine the question of the State law
sti)tpV^ *•
does it give any the less f inality to its decision.
Where the
Fpdp
e®lslons are in conflict or not clear as to what the local state law is, the
ow,
• ?Urt may render its o^31 decision and thereafter hold itself bound by its
n decisions, disregarding later decisions of the State Courts,
(See Pease v«
T.D, 3670
-7-
Peok, 18 How* 598* Burgess v# Seligman, 107 U*S. 20; Kuhn v« Fairmont Goal Co»,
215 U.S* 349; Snare & Triest Co, v, Friedman. 169 Fed. 1 .)
The confusion in the decisions of the California courts has undoubtedly
arisen from the fact that the courts have been attempting, in their opinipns, to
apply the terminology of the common law to community property, which embodies a
legal concept wholly foreign to the common law, and to which the terminology of
thecommon law cannot be applied with accuracy and precision#
In most of the
Cali...ornia decisions in which it was asserted that the right of the wife is a mere
expectancy or right of inheritance, the same result could have been reached, if
the court had rested its decision upon the view that the iirrife had a vested interest
in the community property subject to a power of disposition vested in the husband#
(See Spreckels_ y. Spreckels. 116 Cal. 339; Estate of Uickersham, 138 Cal#355;
Dargie v# Patterson, 176 Cal* 714*) whereas in other cases holding that the
Iwife’s interest in the community is a vested interest, it seems to be necessary t
describe the legal relationship of the husband to the wife’s interest as a power
\D i s p o s i t i o n am order to justify the decisions actually rendered* (See Estate o f
Brix, 181 Cal# 667; Taylor v, Taylor. 218 -P a g , 757.)
This, however, only sugIgests that a common law term may be resorted to, to describe the incidents of
community property in some aspects, but be wholly inappropriate to describe them
; for other purposes*
This was recognized by the United States Shpreme Court in
■— neu Y.* ^eede, 220 TJ.S. 311, at 320* The court, after reviewing the discussion
lof this subject which "has fed the flame of juridical controversy for many years"
said:
1 The notion that the husband is the true owner is said to represent
the tendency of the French customs, 2 Brissaud, jlist* du Droit, Franc#
1699, n*l. The notion may have been helped by the subjection of the woman
to marital power; 6 Laferriere, Hist, du Droit Franc* 365; Schmidt, Civil
Law of Spain and Mexico, Arts. 40, 51; and in this country by confusion
between the practical effect of the husband’s power and its legal ground*
if not by mistranslation of ambiguous words like dominio#
See United
States v. Castillero, 2 Black 1 , 227. However this ma.y be, it is very
plain that the wife has a greater interest than the mere possibility of
an expectant heir# For it is conceded by the court below and everywhere,
we believe, that in one way or another she lias a remedy for an alienation
made in fraud of her by her husband," (Italics supplied)
It is, I think, apparent that a study of the battle over the use of the descriptive
terminology applicable to community property which has been waged in the California
courts for the past fifty years or more, throws only a faint and flickering light
on the applicability of the Federal Estate Tax Law to the wife’s interest in com
munity property, and that a study of the true character of that interest as it
existed in the Spanish Law and as it has been developed in the jurisprudence of t" e.
community property states, including California, affords no substantial basis for
the hope that a renewal of the litigation on this subject in the Federal Courts
would change the result# Whatever view may be held of the propriety and justice
of the Government’s beginning anew the course of litigation already run in Blum
v* Uardell. it must be admitted that reasonable hope of a successful issue is an
important consideration in determining whether the Government should bow to the
judicial decision which it has invoked.
While not in any sense decisive of the question I have before me, the applica
tion of the Federal Estate Tax Law in other community states arid the legislative
history of the matter are not without weight in determining whether the question
should now be reopened. It is conceded that the interest of the surviving wife
in community property in some seven other community property states is exempt
from the estate tax under laws described by the District Court as "identical" ^ith
T.D» 3670
-S-
the Statute L e w of Califorhia. (See Blum v. Wardell. 270 Fed. 309, 314). Nothin
short of some controlling necessity would, X think, justify the court in uphold
ing the tax in a single state and refusing to apply it to an interest substan-*
tially the same in the other community property states, and as we have already
seen, the only justification which could be resorted to for the support of such
a result ia the confusion arising from the use by the California courts themselves
of a terminology not altogether applicable to the interests of husband and wife
in community property*
Since the Act of 1916 there have been two general revisions of the Revenue
Law; the Revenue Act of November 23, 1921, (ch. 163, 42 Stat. 227) and the recent
Act of June 21* 1924. While the Act of 1921 was under consideration I am in
formed that afficials of the Treasury attempted to have a provision inserted
making Community Property a part of the gross estate. The Ways ant Means Commits
tee refused to accept this proposed amendment.
In the Bill which was prepared
in the Treasury Department and which as amended became the Act of 1924, there
was a provision requiring so-called Joint Income of husband and wife under the
Community Property law of California to be returned, for purposes of taxation,
as a single income of the husband*
After hearings before the Ways and Means Committee and the submission of
extensive briefs in opposition to the proposal, the Committee struck from the
Bill the provision for taxing community income as single income and the bill,
as enacted, did not set aside or modify the application of the legal rule laid
down in Blum v. Wardell. .Notwithstanding the fact that there have been two
general revisions of the Revenue Act and the question involved in the decision
of Blum v, Wardell has been distinctly presented to the legislative branch, of
the Government, the principle of that decision has been left undisturbed by
Congress*
After a.,full review of the opinion of March 8, 1923, therefore, and a study
of the situation presented by the California decisions including those handed
down by the Supreme Court of California, since the decision of Blum v« Wardell,
and considering those principles which must govern the incidence of a Federal
taxing statute upon a subject matter which is the creation of stato law, I am
unable to find those considerations which would, in my opinion, justify tie
Government in beginning^rn some other case, a juridical controversy which was
litigated to a final conclusion in Blum v, Wardell and in which the Government’s
position was fully presented.
Since the opinion of the Attorney General above
referred to was an affirmance of the rule laid down in that case, I am constrained
to reestablish and reaffirm that opinion. My action in so doing must be construed
as limited to the precise question presented in that opinion as to the incidence
of the Federal Estate tax upon the interest of the wife in community property on
the death of the husband. I express no opinion witb/respeet to the principles
which govern the taxation of income derived from community property*.
Respectfully yours,
(Signed)
HARLAN T* STONE
Attorney General*
The Honorable,
The Secretary of the Treasury#
,D, 3670
■-90FFI0B OF TK$ ATTORNEY GENERAL
Washington, D*C.
January 27, 1925»
Honorable Andrew Mellon,
The Secretary of the Treasury,
My dear Mr# Secretary;
n . ,
reFTy to your inquiry I have to say that my opinion of
f
r* •^relating to Community Property in California treats only
0
q mci ence of estate tax upon the wife’s share of such community
proper y of which ¿he assumes possession at her husband’s death* In no
w.ay oes it touch upon the question as to whether the husband and wife
may
a separate returns of the income from their community estate. That
p se o the matter is therefore as open as it ever was in California and
you are free to litigate it py appropriate legal proceedings,
...
of the large amount involved and the uncertainty in which
is p se of the matter now stands you should, in my opinion, be left
question if, in your judgment, the public interest
U
t ^ rve<^ ^ a judicial determination of it. In any such litigation,
argument that the same rule must apply to California because it has been
PP le m other States will, of course be advanced because of the several
years acquiescence to this view by your Department* If, however, you
.eC« a 0 -^tiigaie this point with respect to income from community property
n ^ .a lorn*a» this Department will render you such assistance in the
1 igation as you may desire from the United States Attorney’s Office or
any branch of the Department of Justice, and it will do everything possible
o bring such litigation to a speedy conclusion,
Sincerely yours,
(Signed) HARLAN STONE
Attorney General*
SPEECH OF HON• GARRARD B. WINSTON,
THE UNDERSECRETARY OF THE TREASURY,,
b efo re
THE BOND CLUB OF NEW YORK,
a t luncheon
FEBRUARY 16 , 1925.
I t i s tru e th at th e Treasury i s in the bond b u sin e ss, and
I am the o f f i c i a l im m ediately charged w ith the conduct o f th is b u si
n e ss, s t i l l , the problems which a re p resented to me are in some
re sp e c ts le s s d i f f i c u l t than those ifihidh come to you every day*
We
do not meet com p etition o f other u n derw riters in g e t tin g the business
and a re not embarrassed by the borrower d r iv in g so hard a bargain as
*
to re q u ire the f lo a t in g of an is s u e to the p u b lic a t a fig u r e which
e it h e r d o stro y s the u n d erw riter*s p r o f i t or i s so high as to je o p a rd ize
the su ccess o f the f l o t a t i o n .
A gain , in recent y e a rs a t any r a t e , we
have been a b le to market our s e c u r i t i e s through our arrangement o f s e l l i n g
to the banks on c r e d it , and we have not had to organ ize a gen eral s e l l
ing campaign such as u s u a lly accompanies p r iv a te o ff e r in g of s e c u r i t i e s .
We do not have to demand re p re s e n ta tio n on the Board o f D ir e c to r s .
We
■ are alread y th ere and we know that the s e c u r it ie s we s e l l w i l l bo p a id .
The problems, th en, o f g e t t in g the b u sin ess, o f s e llin g the s e c u r i t i e s ,
and of p r o te c tin g our custom ers a re not burdensome to us*
The Treasury i s a very m a te r ia l f a c t o r in the bond market*
In the fou r q u a r te r ly o ffe r in g s nndo the l a s t calen d ar y e a r the sub
s c r ip tio n s to ta le d n e a r ly fo u r b i l l i o n , and actual/ allo tm en ts o f s e c u ri
t ie s so ld n e a r ly one and th r e e -q u a r te r b i l l i o n s .
During t h is same
period the T reasu ry, f o r v a rio u s accou n ts, purchased some 542 m illx e n
of s e c u r i t i e s , a s id e from the o rd in ary redaaipti-ons-a-t m aturity*
In the
present year the Treasuryjias nearly seventeen hundred millions of its
securities to meet.
These.Jiigure.s of the volume of our transactions,
the greater part of which take place in your market, give you some
idea of the responsibility which rests with the Treasury to see to it
that its operations interfere as little as possible with the fiscal
operations you may be conducting.
In discussing the problems which do confront the Treasury
when it is required to finance, the first feature to consider is the
status of our present debt • The intorest-brearing debt as of January
1st, last, was over twenty billion dollars.
Seven billion of this
matures on or before September 15, 1928, that is, within a period of
about three and one-half years.
This includes the maturity date of
the Third Liberty Loan of ¡jj>2,885,000,000.
In 1938, six and one-third
billion of the Fourth Liberty Loan matures; in 1942, three billion
of the Second Liberty Loan; in 1947, nearly two billion of the First
Liberty Loan; in 1952, three-quarters of a billion of Treasury 4J-* s,
and in 1954, a like amount of Treasury 41s.
There are other items of
debt in between, but these are the large blocks.
To summarize, seven
billion by 1928, and the balance spaced over the next twenty-six years.
These are the maturity dates, that is, the date at which the Govern
ment must meet the debt.
Turning now to the call dates, that is, the
dates when the Government may pay the debt, if it has-the"money or if
it can refund at a lower interest rate,.over ten billion is payable or
callable within about throe and ono-half years, and over nineteen
billion within nine years.
I venture to say that with the sole ex
ception of the Third Liberty-Loan .maturity in 1928y' which,has no pricr
- 3 -
call date, Government securities-as a whole are as flexibly spaced as
one could wish, and the Treasury has the greatest possible freedom to
make use of any subsequent change in money conditions*
So much for the debt itself.
factors which work for its payment.
We come now to the principal
It is this payment which returns
te the investment market capital which was originally contributed to
the prosecution of the war.
So far as your bond market is concerned,
this may bo considered new capital far your use, since it is paid from
government receipts which come from all sources and not alone from
the investing public.
In their order of importance theso factors aro
the sinking fund, foreign repayments, the surplus, and in its effect
on the time element, the soldiers* bonus.
The sinking fund was fixed originally at 2-J- per cent of the
war debt not represented by foreign loans, about $10,000,000,000, plus
*
a secondary credit of the annual interest which would have boen paid
on bonds retired for tho sinking fund if they had boon loft outstand
ing.
The sinking fund started with $250,000^000, in the current year
it is $310,000,000, and for the next year will bo $323,000,000.
can see that it mounts rapidly.
You
The fund can be used oither for the
purchase of securitios at an average cost of not over par, or for the
retirement of securitios at maturity.
Ti>e Treasury is in the market
for its securities when they are below par.
When they exceed par,
purchases are not made in tho market, but the fund is applied to the
retirement of maturing or called securities.
Since we have maturing
or callable securitios in an amount far in excess of the sinking fund’s
4
capacity to absorb,'-4:ha__jEtmd.jiLill always bo operative no matter how
much over par Government~bo3aets"may be quoted, and there will bo no
driving up of prices by forced purchases.
In other words, we control
our market.
Foreign repayments have a double aspect.
Under the funding
agreement with Great Britain, the scheme of which has been followed
«
in the other debt-funding agreements made to date, the debtor has the
right to pay principal and interost in United States securities issued
since April 6, 1917, at par and accrued interest.
This means that
it is worthwhile for the debtor to use our securities as counters if
they can be acquired below par.
The British debt alone calls for
the expenditure of $161,000,000 a year for ton years and over
$180,000,000 yearly thereafter, and there is this buying power always
in the markst which will tend to prevent the price of our securities
going below par.
Tne debt-funding agreements are, therefore, first,
a market stabilizer, and, second, a method of reducing the national
debt.
The sinking fund and the provision of law that repayments of
principal of foreign laans shall be used to retire debt, are a part'
of the contract between the United States and the holders of its
obligations.
While it is, of course, within the power of a sovereign
to repudiate its contracts, there is no more justification for the
repudiation of this contract by subsequent legislation than there
would bo to repudiate any othor contract in the bond, such as to make
the interest i*ate 3 per cent where it was sold as a 4\ per cent, or
to pay at maturity only 50 per cent of the principal.
I anticipate
that m
spito of occasional efforts to change them, these particular
factors of debt reduction will continue to have their full effect in
the future.
This combinod buying power of 400 to 500 million a year
is pretty good assurance that Government bonds will not again seriously
depreciate.
The principal revenae producing periods of tto Treasury’s
year are the four income tax payment months of M*rch, June, September
and December,
For this reason, short-term obligations are arranged
to mature in each of these months, and the Troasuiy has adopted the
practice of financing only eveiy three months.
This practice keeps
the Treasury from frequent entry into the market and permits it to
borrow minimum amounts to run the Government for the three months’
period.
When the Troasury proposes to finance, it calculates what
it needs to meet its maturing obligations and for three months’ oper
ation, and this amount only is borrowed.
If for the particular period
there will be an excess of receipts over expenditures - called a surplus
in Government accounting - the new financing will be less than the
maturing obligations, that is, the surplus automatically works a
reduction of debt.
Y/o do not save up until the end of a fiscal year
on June 30th to use the surplus, but, as I say, it is applied auto
matically whonever a refunding operation takes place.
Surplus has
been a very material factor and for the past four years accounted for
1215 million of the total debt reduction,
In tho future, with a
lessening of revenue on account of lower taxes, the surplus will have
less weight • Since we propose to balance our budget on tho safe side,
some surplus should, however, always be available for debt reduction.
6
While the' soldiers’ bonus'does not reduce the debt, it has
the effect of postponing the date at which a portion of the Governments
obligations must be met*
The bonus, as you know, is 20-yoar endowment
insurance, and the amount paid into the bonus fund is the annual pre
mium which under actuarial tables is necessaiy to {¿provide the probable
maturity values of the certificates upon the expiration of twenty years,
or upon earlier death of the veteran.
This premium is a part of governmental expenditures in addition
to the other factors I have been discussing.
It is required that the
premium bo invested in United States securities.
Instead of taking
^cash and going into the market and buying our own securities, the Trea
sury adopted the policy of selling to the fund Government obligations
in a form to meet satisfactorily the actuarial requirements of the
fund.
Upon tho maturity of most of the certificates, say in 1944,
there will bo in the fund something like 2-|- or 3 billion dollars of
Government securities, tho sale of which to the fund gives tho Trea
sury money to retire a liko amount of securities in tho h£nds of tho
public.
*In 1944, then, it will bo necessary for the Treasury to
refund the securities in the fund by tho sale of now securities to
the public to provide the cash necessary to pay the maturity value
of the certificates.
So, the bonus will in effect postpone during
the twenty-year period the necessity for meeting 2|r or 3 billion
dollars of Government, obligations until 1944*
You have, roughly, tho various elements which control tho
Treasury’s debt structure, and from a study of which it is possible
to determine, other things being equal, the types of securities,
- 7 -.
whether long or short-term, ,which should bo issued.
I have seem
criticisms of tho Treasury’s policy because it M s not soon fit dur
ing the recent oaeo in the money market to float 2 or 3 billion dollars
of long-term bonds.
However desirable tho raarkBt^ there is no object
in floating more bonds than you need or for a term beyond the period
v/hen it is expected that the bonds will be paid.
From other sources
I h«.ve seen the criticism that our last issue of 4 per cont bonds was
a mistake because it is not callablo for 20 years and, therefore, the
Treasury deprived itself of. the opportunity to take advantage of lower
interest rates in tho future.
Since, as I have said, half of our debt
is payable or callable within 3§- years, and 95 per cent of our debt in
9 years, I 4o not conceive that we will not have at all times complete
freedom for all refunding which may be practicable.
to
We come now/the method used by the-Treasury in tho detemination of what sort of financing it will do*
Barring a new war or an
unbalanced budget, we know with substantial accuracy how much of the
debt should be retired each year and how much must be refunded, with a
varying margin of possible retirement or refunding.
W® also know how
much of the debt ultimately ^iould go into long-term bonds, and how much
should be rolled over in short-tern obligations.
The determination of
the character of the securities to be issued depends, then,on the maturities
which are desirable from the standpoint of the Treasury, and upon the
cost of the different types of financing.
This fixes the character of the
issue, whether certificates of one year or less, notes up to five years,
or bonds up to any maturity, or a combination of any of these issues.
The next question is price.
It is the policy of the Treasury to make its
8
securities fit JJiajBar]sB.tWe have opportunities of deteiminihg p£ic©
which are not given to the commercial bond house in selling private
issues.
There is a large, free market in New York of some 20 billion
dollars of Government securities, maturing in anywhere from one month
to 30 years.
You can hardly pick a maturity for a security in that
period at which its possible price on tho market is not automatically
established.
For example, if a one-year note is selling on a 3.33
per cent basis, and a two-year note on a 3.75 per cent basis, a linear
obligation will sell in between these points.
Thus, like a great many
other questions in this world, we come to a solution not by a stroke of
genius, bu,£ by a common sense balancing of the relative merits, of sev
eral possible projects.
Elimination, - not inspiration.
I can best illustrate how a problem is solved by reciting tho
controlling influences in the last financing of the Treasuiy on
December 15, 1924.
1400,000,000.
On that date we had maturing something over
With the funds on hand we would need about $200,000,000
of cash to moot our December maturities and to cariy the Government
through until the March financing.
On February 2d we had $118,000,000
of circulation 4» s called for payment, and in March our maturities were
substantially $1,000,000,000.
This latter amount was so large that
it might havo proved embarrassing.
You cannot foresee with certainty
the financial condition of the countly three months ahead.
We wanted
to cut this amount down whore we could easily handle it, even if conditions
were unsatisfactory.
Wo could have borrowed 500 million extra in
December and had it in bank to meet tho March maturities when they could
he got in.
But since they were quoted above par and we could not redeem
HX
9 them at the market, wo would have had to wait for thoir maturity on
March 15th and in the mean tine we would have had to carry the money
with loss of interest.
It was obviously desirable to obtain exchanges__
of a large block of Marche^InJle^ombpr,'' throe months before they were
duo.
The time appeared appropriate for .he sale of a long-term Govern
ment bond, and the issue of a reasonable amount of them was proper
from the general standpoint of our debt structure.
The amount of the
issue for cash was fixed at $200,000,000, or thereabouts, all we needed
until March, and tho privilege was given to all.holders of March maturities
to exchange thoir securities, thon .quoted at about 10OJ-, for tho new
bonds, par for par.
At the same time, a similar privilege was extended
to the Third Libertys, vhich mature in 1928, it being the belief of the
Treasury that to the extent this maturity could be whittled down, future1
financing would be simpler.
The price of the bond was par and the rate-
was slightly above the market, so that it was felt that the bond should
sell at about 10G|- after it was issued.
necessary in order to attract exchanges.
This concession in price was
The cash subscriptions were
large, but allotments were limited to $225,000,000, and over $500,000,000
of exchanges were received.
Through the issuance of 4 per cent for 4^
per cent there will be an actual saving in interest to the Government
of $1,375,800 during the remaining life of the securities exchanged.
March maturities have been cut to a reasonable figure.
The public,has
received a sound long-time investment at a proper price.
maturities are in better shape.
The issue was a success.
V
Our
Th©
10
-
You gentlemen viio are responsible for the American bond
market and wo in the Treasury have the same interests.
Within
the next four years we will have to refund 4 or 5 billion dollars of
maturing obligations.
and our market.
We want to do this without disturbance to you
Do it we must and will, however, for the fiscal
requirements of the Federal Government are paramount.
It is, then,
to the benefit of all that this be done at reasonable rates in a
sound market.
You have stood behind the Treasury out of patriotism
during the war and in the trying readjustment period.
interests dictato that you continue as in the past.
Your own
The Treasury
on its side has male available for investment by payment of debt over
biillqa dollars since the peak in 1919, and will add at least an
additional
billion in the next four years.
We have worked together
and I know that the Treasury when it,requires advice and aid can again
call upon you and the response will bo both generous and effective.
S05MP0 BE RELEASED UNTIL DELIVERY IS BEGUN
Before the National Tax Association Conference on
Inheritance Taxes, New Willard Hotel, Washington, D«. C.,
Thursday, February 19, 1925, at 11:00 A.M., President
Coolidge said:
^Acknowledgment is due to the National Tax Association for a real public
service in bringing this conference together. The subject of taxation is at
all times and in all its phases difficult and complex. It may be doubted if
any of its aspects present more difficulty, or more sharply challenge our
practical experience or economic judgments, than that which concerns taxation
of estates of decedents«
When on June 2nd, last, I signed the Revenue Act of 1924, I adverted
briefly to this subject of inheritance taxes. By that Act, the highest
bracket of Federal estate tax was raised from twenty-five to forty per cent.
I pointed out then that when the inheritance taxes levied by the states be
added to this, a substantial confiscation of capital may result; and I
suggested the danger of having the states and the Federal Government thus
combining to get' the utmost possible revenue from inheritance taxes. To
take an excessive proportion of estates in this way for the costs of Govern
ment can only mean that Government will be living off the capital of the
community. This^we should seek to avoid. Therefore, I suggested that it
might be better if the field of inheritance taxation could be left to the
states. Realizing, however, the great practical difficulties, I suggested
that a conference of state and Federal taxing authorities be held to consider
the whole subject.
Taxation is the means employed by a state to obtain the revenue with which
to conduct its necessary operations.
A state may be extravagant in the way
it spends its revenue. SO, too, extravagance may exist in the way it collects
its revenue. I have often urged economy in outgo of revenue; it is equally as
necessary that we establish economy in income of revenue. The burden of
taxation is not what the state takes, but what the taxpayer gives.
The first field for the practice of economy in inheritance tax collection
lies in state cooperation. There is competition between states to reach in
inheritance taxes not only the property of its own citizens, but the property
of the citizens of other states which by any construction can be brought
within the grasp of the tax gatherer. A share of stock represents a most •
conspicuous example of multiple inheritance taxation. It is possible that the
same share of stock, upon the death of its owner, may be subject to taxation,
first, by the Federal Government; then by the state where its owner was
domiciled; then by some other state which may also claim him as a citizen;
again in the state where the certificate of stock was kept; in the state where
the certificate of stock must be transferred on the corporation^ bo^l^s; in
the state or states where is organized the corporatiQn whose capital stock is
involved; and, finally, in the state or states where this corporation jgjgg owns
property. All this means not only an actual amount of tax which may under
particular circumstances exceed 100 per cent of the value of the stock, but the
expense, delay and inconvenience of getting clearances of the stasis who claim
a right to tax the property is a serious burden to the heir who is., to receive
the stock. Particularly is this expense disproportionate to a tax paid by a
small estate which has but a few shares of stock. In many cases the expense
alone must exceed the total value of the shares which it is sought to transfer*
Looking at it' from the standpoint of state revenue, I am told it is probable
that the full cost tc executors of ascertaining the tax and obtaining the
necessary transfers is in the aggregate nearly as much as the tax received by the
states upon this property of non-resident decedents. Here, indeed, is
extravagance in taxation.
I
,
A solution of this problem presents the difficulty of obtaining reciproca.1
action on the part of the states. I feel* however, that in fairness to each;
other and to their taxpayers, some way will be found of obviating this
extravagance by giving up entirely the collection of taxes upon personal property
Oj non-resident decedents, or by the imposition upon the transfer of such
property of a tax extremely simple in administration and low in amount.
J
-
2-
The second field of extravagance in the collection of taxes - a wrong system
rests, not with the states-alone, but there must be included also the Federal
Government. It matters not in this particular who levies the tax, but the sole
question is whether the total of all taxes collected is so excessively high
as to be economically unsound,. There are, as I have said, circumstances where
|tho aggregate of estate and inheritance taxes may exceed the value of the
property^left by the decedent. This is not usual, but we.have come to a point
of estate and inheritance taxation, reaching as it does 40 por cent in the
federal law and perhaps higher in some states, whore the total burden closely
approaches, if it is not actually, confiscation.
. 1
do not believ ?that the Government should seek social legislation in the
guise of tu.Xa.tion. Wo should approach the aucstions directly where the
arguments^for and against the proposed legislation may be clearly presented and
universally understo;
If we are to adopt socialism. i t should be presented
to the people of this country as socialism, and not under the guise of a law
to collect revenue. The people are quite able to determine for themselves the
desirability- of a particular public poldcy and do not ask to have such policies
forced upon them by indirection. Personally, I do not feel that large *
fortunes properly managed are necessarily a menace to our institutions and
therefore ought to be destroyed. On the contrary, they have been and can be
of great value for our development, In approaching the second field of
extravagance, I, therefore, shall not consider inheritance and estate taxes
as a social effort, but as a revenue measure.
Differing from income taxes, which are deductions from what a taxpayer
nakes each year, and payment for which presumably can bo made without hardship
inheritance and estate taxes are capital taxesj they take a part of the
accumulated capital of the nation. This capital is not usually represented by
cash or readily marketable securities, but it may be a business built up by the
decedent through his lifetime, or property long held, for which there is no
immediate market. In consequence, to pay inheritance and estate taxes in cash,
executors must sell the property which comes into their hands at udxxx&xio: what is
équivalent to a forced sale, with the usual consequences of loss in value. I
venture to say that for executors to pay a 40 per cent tax they would have to
realize in cash,, in the ordinary large estate, probably 60 per cent of the
appraised value of the estate.
The effects of these excessive taxes are twofold:. First, they tend to
lower values throughout the country by reason of forcing upon the market
securities which cannot be readily absorbed, thus lowering the very level of
values upon which inheritance and estate taxes are actually based. Secondly,
they tako away the inspiration to work in order, to build up a business or
create a property. It is difficult to overestimate the contribution to the
progress of this country made by the man of ability actuated largely by this
motive to protect the future of his family. If America had not been free to
any. man to make his fortune within the law and within his abilities, we would
not ue the great nation we are today. To destroy incentive is to lessen the
production and the prosperity of the country.
Let me summarize before passing to the second object of the present con
ference. ^The burden of taxation is one from which relief must be found. It
touches directly and indirectly all of our citizens. The most obvious field
of economy is for the government to spend less* It is, however, equally
I esir-nble that the burden put by the government on its citizens be productive
of government revenue and not destructive of the property of the taxpayer, for
igpi is what the taxpayer gives rather than what the government ultimately spends,
rw ich measures the effect of the tax upon the citizen. We should, therefore,
y a simplification of our method of taxation and the imposition of economically
sound rates of taxation make certain that the government realizes more nearly
the ■values which the citizen relinquishes.
At the last few annual meetings of the national Tax Association, and at a.
recent conference of the tax commissioners of several states, the position has
een taken that the Federal Government should withdraw from the field of estate
ta^es. This view has much to commend it. Historically, the Federal Government
entered this field only on the occasion of war emergency, and in every case,
except the present, ha,s withdrawn when the reason for exceptional taxation ceased,
■c ^ergency created by the Great War, when last the Federal Government entered
~
has ended. The right to inherit property owes its existence., not to
t Qra lav/, but to the laws of the states. Federal estate taxation,
f6’ n?S n0t the Batural excuse Which is conceded to state inheritance
taxation, xhe Federal Government being in the field, however, particularly with
a es as excessive as those recently adopted, results in a very material decrease
^ tn^ amCUni and value of the property upon which the states levy their
1 entance taxes, if the states are to suffer diminution in. revenue from this
ource, they can make up their losses only by higher taxes in other fields.
-3-
¿.lready the taxes levied bv thA ^*Tr»r-v\ i 3
prosperity of the farmer. For the sake 5 tJf^ are co
as to menace the
Government receives from this sourer - -ho• revenue- which the Federal
$ 1 0 3 ,0 0 0 ,0 0 0 out of $ 2 , 7 0 0 , 0 0 0 000 total
in P 10 laEt fiscal yoar only
the Federal government’
be oJ e J S t
o
f°r
year ~
the very persons whom it most wishes to
^ a t ind-lreatly-it is not taxing
absorb so great a loss of revenue ?n one vllr 9 * * * • We m y not be able to §
retirement from the field as our
f°r ~
al
,
lead to popuia^study^f^these^questions^^^Ve3 " i V help t0 ar°USe interest and
what government may do in handling Questions th?tdfS neG?it0 be very fearful of
stands. Therefore, conferences a h d V n s h w J h^ thf publlc thoroughly underto enlighten the public mind on Sese invol
^ w M o h 'tend> as y^rs must,
to the whole community. With all con^idr^n ?v,"?SUeS’ are of £reatest value
l ^ l ^ o e w ill p r o v / t i ^ i r ^ f ® 1 f
WOrk o f th is
the N a t i o n a l Government w i l l be g l a d " t o a v e i ? i ? nC\ 3° ycm th e a s s u r a n c e t h a t
th a t may f l o w from y o u r w o rk .
g
1 l t s e l f of a11 h e lp fu l re su lts
Kg'
Sr
TBEASIEY DEPARTMENT
POS RELEASE, MORNING PAPERS
Saturday, February 2 1 , 1925
SPEECH OF
HON, CHARLES S. DEWEY
ASSISTANT SECRETARY OF THE TREASURY
I
before
NATIONAL CONFERENCE ON INHERITANCE AND ESTATE
TAXATION
WASHINGTON, D. C.
February 20, 1925,
SoffeJj^eoM of Excessive Tax
tan
To the ordinary man on the street of moderate wealth, a tax is
a tax, whether it be Federal, State, Inheritance, or Income.
He knows
that taxes are a necessary evil, and believes that it is his duty to
support his Government according to his capacity to support himself.
But just CO soon as taxes become unduly oppressive, he will take every
legal stop possible to avoid'them; and, if he is not in active business,
such avoidance is not difficult to accomplish.
Tax avoidance is much easier for tho man of large capital than it
is for the average citizen,
Tho President, in his speech of acceptance,
stated that he had no apprehensions for persons of largo wealth, as they
were well able to take care of themselves.
He made it very clear, how-
evor, that it was the man of moderate means whom he wished to protect;
and, while this reference was particularly made to the income tax, it
can equally well be applied to the inheritance and Federal estate taxes.
In discussing inheritance taxes, I shall assume that they are levied
solely for the purpose of collecting revenue for the State and Federal
Governments.
I do not believe, nor do I think the average-man believes,
hat these taxes should he levied as a means of preventing the amassing of
largo estates or promoting tho more equal distribution bf wealth.
Personally, X think the people of the United States are definitely opposed
to socialistic experiments*
This country offers, and I hope it will always continue to offer, to
overy person of ability and industry, an opportunity to amass a fortune*
What we seek after all, and what we have to an extraordinary extent already
achieved, is equality of. opportunity.
v/e want eveiy man of energy and
-
2
-
initiative to feel that he is building for the future and that by his
own efforts he can assure to his sons and daughters more of the ad
vantages of life than he himself began with.
It is entirely right and proper that upon a man* s death his es
tate should pay to the Government a portion of the wealth which was amassed under its protection.
But this is a very different matter from
confiscating his wealth and thereby depriving him, in his lifetime, of
the incentive to wor'k and accumulate.
It is not necessary to be an
expert on taxation but merely a student of human nature to know that k\
\
man can not be expected to continue to work, day after day, increasing
through his efforts the productiveness of this country and thereby benefitting the living conditions of others, if he knows that upon his death
the major portion of his earnings will bo dissipated in Federal Estate
and State Inheritance Saxes,
And yet that is the prospect which we hold out in this country
today.
Besides the Federal Estate Tax, a man* s property may be sub
jected to the inheritance tax of the State of uhich he is a resident,
and of any or all of the thirty-three States now taxing non-resident
decedents on any portion of such decedent’s property located in the re
spective States,
To these taxes must be added numerous probate charges
and foes, which may amount to a very considerable item, depending upon
the size of the estate and the amount of woik done.
It cannot bo said, however, that this tax burden, cones in equal
measures to all in proportion to the value of their estate*
The danger
to the continued business and industrial progress of the country is that
it does not, and those who foster the idea that the inheritance tax will
- 3 -
navsptw effeot of redistributing largo estates, shoot vety wide of the
mark,
The facts are, as the probate records show each day, that when
a man reputed to be of great wealth comes to die, frequently his estate
has shrunk to quite modorate size; but it will be noted that at about
this same period his children or nest of kin seem to experience considerable pro sperity •
Of course, tho so-called "gift tax" in the Revenue Act of 1924
will catch somo of this transfer of wealth.
But who would not rather
pay one such tax, which would havo to bo paid in any event, than the
same amount of tax plus a similar one to the state of residence, and pos
sibly several other states?
ono’s estate to moot death.
Share is no magic to tho arrangement of
Many very able lawyers can instruct one
just what to do; and, if their instructions are followed, a very moder
ate tax is paid.
eral Govorment?
%
And who suffers most by this* tax avoidance?
She States?
Ml
She Fed
Productive capital.
Productive capital cannot run away and seek the protection of the
more moderate laws of somo friendly state.
It must stay whore condi
tions are most beneficial for its particular type of endeavor gnd bear
the brunt of whatever cones,
Shis typo of capital is tho foundation of all business.
Without
capital, just as without labor, no commerco, manufactures, mining, or
agriculture can even begin, much less continue.
cannot function without the existence of capital—
ent upon taxos.
Evon Governments
they being depend
It is essential therefore in levying taxes to raise
- 4 -
rovonuo, that wo do not destroy the sources from which that roveme
1» donvod.
The old fahlo of the goose that laid the golden egg was
never truer than it is to-day.
X am going to relate a fablo in terms of modern business conditions,
based on facts only in so far as the correctness of the figures
used and the taxes applied are concerned.
The story is possible, how-
* nu has no douDt occurred, as it will surely occur again in many
instances, if tax reform is not accomplished.
John Henry and Walter Brown had boon friends since boyhood and"after graduating from high school had entered the employ of a large
manufacturing plant.
Both wore aggressive, hard-working young men,
was not long before each started a little businoss for himself,
th of them, duo to thoir energy and ability, prospered and their
individual undertakings grew to substantial size.
At the time this little history opens, John Heniy had just died
leaving his entire estate to his only son, John Henry, Jr., and had
appointed his old friend, Walt or Brown, as executor.
Some time prior
to ills death John Henry had moved to California whore he had taken
up his residence, leaving his business in the hand% of his son under
Whan it had continued to make excellent headway,
The father to pass
his loisuro time had been doing a little speculating in oil.
This
nyuro had no, proved as successful as his original undertaking, and
the time of his death ho was indebted in the sum of $500,000,
Upon notification of his appointment as executor, Walter Brown,
r an examination of the estate of his old friend, found the following
situation to exist*
Capital stock of Henry & Co*. Ine.
a Michigan Corporation
Personal debts due banks.....
$5,000,000
500,000
he details of the closing of the estate are of no particular
st,
But Walter Brown soon made the unpleasant discovery that
m addition to the personal indebtedness of $500,000, and administration
expenses.of $250,000, the following death duties must be paid:
Fedeial estate t a x ........ ....... ..... 497 500
Inheritance tax, State of California ........
585^700
State of Michigan.... .
122!000
TOTAL ............. ....... $1,205,200
Tq which must bo added the personal debt and administration expenses,
making a grand total of $1,955,200.
Walter Brown and John Hemy, Jr., spent many hours in conference.
The year was 1920.
Money was tight and other manufacturing companies
m the same line of business which a few years boforo might have been
interested in a purchase or consolidation, were having troubles of
their own and had no money for extensions at that time, nor were the
banks in a position to handle a loan of this type®
Here was a most successful business built up from small begin
nings by one man and carried on to further successes by his son about to
be placed under the hammer, due to no fault of'the management, and at
a time of money stringency.
There are thousands of similar successful
companies throughout the United States in similar circurxtancos, which
for years have been turning back earnings into plant and equipment,
and which are in no position to raise a forced loan without endanger
ing the stock control of the company 0
I s th ere any ju s t i c e in a t a x th a t may force a man to lo s e the
f r u i t s of h is e n tir e l i f e ’ s la b o r , and p e m it some other man, or group
of men, to b e n e fit la r g e ly due to h i s d isco m fitu re ?
Yet th is i s ju s t
what happened to the b u sin ess o f Hemy and Company.
As a la s t r e s o r t, H em y, J r . , was fo rced in to a bond is s u e .
Sev
eral investm ent ban ters were co n su lte d and a loan to s e t t l e the d eb ts,
ad m in istratio n expenses and death
d u tie s o f #2,250,000 was n e g o tia te d ,
upon the fo llo w in g b a s is :
%
.
■’.
:-431
The c a p it a l sto ck o f the company was l e f t at #5,000,000, rep resen ted
by 50,000 shares of c a p ita l s to c k .
F ir s t mortgage
8%
bonds were o ffe r e d
the p u b lic with a bonus of two (2) shares of s to c k w ith each #1,000 bond.
The ban ker, w ith the e n t i r e l y a l t r u i s t i c id ea o f p r o te c tin g the in t e r e s t s
of h is bond custom ers, te p t 30,000 shares to a ssu re co n tro l o f management,
and John H enry, J r . , r e c e iv e d the balance of 15,500 shares*
*
John now has a good job as g en era l manager of h is fa t h e r ’ s old
company.
True, they don’ t pay him v e ry much; but then why should they?
And now we must r e tu rn fo r a few minutes to W alter Brown, the executor
of John H enry, S e n io r.
W alter had always te p t c lo s e .to h is own m anufacturing b u sin ess, and
his re cen t exp erience was h is f i r s t venture w ith probate law and in
heritance and e s ta te t a x e s .
who gained by exp erien ce.
By n a tu re , ho was a th o u g h tfu l man and one
The more he co n sid ered h is own s it u a t io n , the
more c lo s e ly i t seemed to him to resem ble th a t of h is o ld fr ie n d .
H® th e re fo re one day c a l l e d upon a law yer who had been re ta in e d in
s e t tlin g the e s t a te of JohnH aniy and made a complete schedule o f h is
\
- 7 -
asso tS f re q u e stin g th at an estim ate of a d m in istra tio n expenses and
death d u tie s be made, w ith a view to d is c o v e r in g ju s t how much h is
own e s ta te would have to bear in the evont of h is death#
The schedule o f a s s e t s was a s fo llo w s ;
C a p it a l sto c k o f W alter Brom C o .,
a Michigan Corporation
#,$49000,000
C a lif o r n ia r e a l e s ta te ................. . . . . . . . . . 1 000 000
Tax-exempt bonds, M innesota •
*200*000
"
's
M
Montana ............................ .
200^000
Colorado
lOO.QQO
TOTAL ....................................... $5,500,000
W ithin a few d ays, Mr. Brown* s law yer made him the fo llo w in g
re p o rt;
Debts and a d m in istra tio n expenses c o 9 • • o Ü
O 9 O« «
Death d u t ie s , F ed era l e s t a t e t a x <>o«<*oc$ 710,625
C a lif o r n ia in h e rita n c e ta x .
443,194
M ichigan
!t
n ..
• oce * « •
260,409
M innesota
n
” «.
4,289
Montana
«
M#e
4,486
Colorado
”
»» .
2 „700
$
500,000
T o ta l death d u tie s ....................# ..$ 1,4 2 5 ,70 3
T o ta l expense 'to e s t a t e • • t o««
• « 0• • 9Û
$ 1,9 25,70 3 .
On t h i s b a s is the e s t a t e s u ffe re d a red u ctio n from $5,500,000
to approxim ately $3,574,000, thus w iping out a l l a s s e ts except the
corporate s to c k and p la c in g a heavy loan on that»
Mr* Brown had one son o f whom he was extrom oly fond, and as he
thought o f John H enry, J r * , t o i l i n g away w ith l i t t l e hope of opportunity
ahoad of him, he came to the co n clu sio n th a t he would not su b je ct h is
own son to the same t r ib u la t io n s i f , by a rran gin g h is a f f a i r s in advance,
he could escape many of the death d u tie s .
~ a ~
Boom tim es having come to the bu sin ess w o rld , th ere was no
d i f f i c u l t y in o b ta in in g a purchaser fo r the b u sin ess of W alter Brown
o, and the C a lif o r n ia r e a l e s t a t e having beon purchased w is e ly
was so ld a t a g-'od p r ic e , and the whole in v e ste d in tax-exempt bonds
which y ie ld e d a v e ry s a fe retu rn of about
W aite. Brown then moved h is le g a l r e s id e n c e to th e more fr ie n d ly
e of Florida» w nsie s t a t e in h e rita n c e and income taxes are f o r
bidden by C o n s titu tio n a l Amendment.
Ho, a t l e a s t , has learn ed to take
on die e a s .e s t terms and i t is the country c h i e f l y which s u ffe r s
y
he lo s s o f o x f o it \ h ic h .he might have expended under a more in«*
te llig e n t system of ta x a tio n *
'S h e
aoove is a f a i r l y a c c u ra te p ic tu r e of what might happen to
anyone under our p resen t d e fe c t iv e ta x in g system«
c
I t is obvious th at
a s t a ue o f S i i s i r s cannot continue i n d e f i n it e l y without jeopard
isin g the fu tu re of th e country*
"The U nited S ta te s » , as S e c r e ta r y
Mellon has w a ll s a i d , - " i s no mere happy accid ent*
has been achieved by courage and hard work*
What we have
The s p i r i t of b usin ess
adventure has b u i lt up in t h is country a c i v i l i s a t i o n which o ff e r s
flhprecodanted rewards to any man who i s w i l l i n g to work.
But where
ha Government ta k e s away an unreasonable share of h is e a rn in g s, tho
incentive to work i s no lo n ger th ere and a sla ck en in g o f e f f o r t i s the
result«"
p
1 ®le r-e
no question of tho f a c t th a t we must reform the ta x
system in such a way th a t b u sin ess and in d u stry s h a ll not be hampered
in th eir norm al, h e a lth y development»
But most important a f a l l wo
- 9 -
mast make su re th at American c i t i z e n s s h a ll not bo deprived o f the
in ce n tiv e to work and accum ulate and th a t th is country s h a ll not
cease to bo a land of o p p o rtu n ity.
A tax system which p e n a liz e s
the c ro a tiv o s p i r i t and d isco u ra g e s i n i t i a t i v e can not be the r ig h t
system fear Am erica,
& M b U a DEPARTMENT
FOR IMMEDIATE KELEASE
The S e c re ta ry o f the Treasury to-day r e le a s e d to the p ress a copy' o f
a l e t t e r addressed by him under date o f March 3 , 1925, to the P re sid e n t
of the U nited S ta te s , w ith r e fe r e n c e to a re p o rt subm itted to Congress
by the S p e c ia l Committee o f Congress appointed to in v e s t ig a te n a tte r s
r e la t in g to Government bonds.
The l e t t e r i s as fo llo w s :
TREASURY DEPARTMENT,
O f fic e o f the S e c r e ta r y ,
March 3, 1925.
My dear Mr. P re sid e n t;
. There has been subm itted to Congress
a,
m a jo rity re p o rt of the
Special Committee appointed under House R e so lu tio n 231 (68th Congress,
f i r s t s e s s io n } , to in v e s t ig a te m atter r e l a t in g to Government bonds.
One
member of the com m ittee, R e p rese n ta tiv e S tron g o f Kansas, has f i l e d a
minority re p o r t, e x p re ssin g com plete disagreem ent w ith the committee’ s
findings.
The Chairman o f the committee, R e p rese n ta tive McPadden o f
Pennsylvania, has f i l e d a sep arate r e p o r t.
The committee’ s re p o rt, fo r the most p a r t, i s h a rd ly more than
r e p e titio n of ch arges made by Mr. C h a rles B. Brew er, a s p e c ia l a s s is ta n t
to the A tto rn e y G en eral, in a re p o rt to the A tto rn e y G en eral, dated
Januaiy 15, 1924.
Mr. Brewer’ s charges w ere , in tu rn , s u b s t a n t ia lly a
re p etitio n o f charges made in 1920 by Mr. J . W. M cCarter, form er A s s is ta n t
Register o f the T reasu ry under the Democratic a d m in istra tio n .
These
charges are fa m ilia r to yo u , to members o f Congress and to the p u b lic
~2~
g e n e ra lly .
I e h a ll not rep eat them in th is communication.
B r i e f l y , th ey
a lle g e th a t fra u d has e x is te d In connection w ith Government bonds.
When the charges were made by Mr. M cCarter, in 1920, S e c re ta ry
Houston th orou ghly in v e s tig a te d them and p u b li c ly s ta te d in two l e t t e r s ,
dated September 28, 1920, th a t th ey were w ithout fou nd ation.
Hr. McCarter a g a in p resen ted h is ch a rg e s, in A p r il , 19 21, to a
Member o f Congress, by whom th ey were r e fe r r e d to the Department o f
J u s tic e .
I t was a t th is time th a t Mr. C harles B . Brewer, a s p e c ia l
a s sis ta n t to the A tto rn ey G en eral, began h is a c t i v i t i e s .
L r. Brower devoted n e a r ly th ree y e a rs to an in v e s t ig a tio n o f
the McCarter eha*g8s, end d urin g th a t p e rio d made s e v e r a l re p o rts to th e
Department o f J u s t ic e , which in d ic a te d , in su b stan ce, th a t he suspected
ir r e g u la r it ie s but could not p rove them.
In th ese In terim re p o rts he
d u a l l y in clu ded an appeal f o r more time in which to determ ine the f a c t s .
In October, 1923, a f t e r two and a h a l f y e a rs had elap sed and Mr. Brewer
s t i l l claim ed h is in q u ir y was Incom plete, you d esign ated Mr. Charles G.
Washburn, an attorney***»e~lasr o f W orcester, M assachusetts, as your p erso n al
rep resen ta tive to co n su lt w ith Mr. Brewer and to a s c e r ta in what fa c t s he
had developed. The s it u a t io n , as d is c lo s e d by Mr. Washburn’ s study o f the
B atter, was much the same as in p reced in g y e a r s . Mr* Brewer s ta te d th a t
he had not developed a l l the f a c t s , and th a t he d esire d more time to p re
sent h is «proof“ .
Mr. Washburn ad vised you o f the s it u a t io n , and Hr.
Brewer was g iv e n th ree a d d itio n a l months in which to com plete h is in v e s
tig a tio n .
Having a lre a d y spent two and a h a l f y ea rs on the m atter, c e r
ta in ly i t was reason ab le to suppose th a t th is would be s u f f i c i e n t to
enable him to f i n is h any rem aining phases o f h is work.
A cco rd in g ly, i t
-3 m a ^naoged
Mr*
B rm a r
Efe.
b e tw e e n
Mr. Brewer and Mr. Washburn th a t, on January. 15, 1924,
should submit h is f i n a l rep ort*
B re w e r
f i l a d a re p o rt w ith th e A ttorn ey General under d ate o f
January 1 5 , 1&>4* I t con tain ed no evidence which could in any w ise be con
stru ed as a j u s t i f i c a t i o n o f th e c h a r g e s . As an i n w i t i g a t c r o f the De
partment o f J u s t ic e , i t was Hr. Brewer*s duty to a s c e r ta in and determine
whether th e ch arges were tr u e or u n tru e. He did n e ith e r . His rep o rt was
merely a r e i t e r a t i o n o f th e ch a rg e s, w ith em bellishm ents, and w ith the
comment in each in sta n ce th a t fu r th e r in v e s t ig a tio n would develop the f a c t s .
Mr* B rawer* s re p o rt was r e fe r r e d to th e T reasu ry, «'»ft in my
l e t t e r to you oi A p r il 26, 1924, I answered in d e t a i l a l l h is s p e c if i c
ch arg es. I s ta te d then, and I rep ea t h e re , th a t th ere have been no
fraudulent d u p lic a tio n s or o v e rissu e s o f the p u b lic d eb t, and th a t the
charges are afcr.urd. There were some m echanical and c l e r i c a l e rro rs in
the p re p a ra tio n a id re co rd in g o f th e enormous volume o f w ar-tim e s e c u r i
t i e s , and th e re were some p e t t y th e fts o f r e t ir e d s e c u r it ie s from the
f i l e s * The m echanical and c l e r i c a l e rro rs d id not r e s u lt in any lo s s
to the Government, w h ile th e t h e f t s o f r e t i r e d s e c u r it ie s from the f i l e s
have in volved a lo s s to th e U nited S ta te s o f on ly $13,100 out o f approxi
mately $100,000,000,000, p r in c ip a l amount o f s e c u r it ie s r e t i r e d by the
R eg ister o f th e T reasu ry d urin g the p erio d 191? to 1922. Any f a i r minded person w i l l agree th a t t h is i s a rem arkable re co rd . The wonder
is th a t, co n sid e rin g th e f r a i l t y o f human nature end the w a r-tin e condi
tions under which most o f the work was perform ed, the error® were so few
and the a c tu a l lo s s e s to th e U nited S ta te s so in s ig n ific a n t *
In March, 1924, n e a r ly a y e a r ago, the Horne o f R ep resen tatives
passed a r e s o lu tio n a u th o r is in g a s p e c ia l committee o f f i v e members to
in v e stig a te th e Brewer ch a rg e s . W hile th e r e s o lu tio n d id not s p e c i f i c a l l y
re fer to th ese ch arg es, th e d is c u s s io n in Congress c l e a r l y in d ica te d th a t
those who sponsored th e r e s o lu t io n were in sp ire d by Brewer, who had g iv en
his charges wide p u b l i c i t y in a s u it brought by him in th e Supreme Court
of the D i s t r i c t o f Columbia a g a in s t h ie own Department head.
The Committee prom ptly d esig n ated Mr. Brewer t o a s s i s t i t in con
ducting th e in v e s t ig a t io n .
Thus Mr, Brewer, having made th e chargee
which r e s u lte d in th e p assage o f th e r e s o lu t io n , has occupied the t r i p l e
role o f in v e s t ig a to r o f h is own a c c u s a tio n s , p ro se c u tin g a tto r n e y , and
advisor to the ju r y .
N a tu r a lly he p resen ted o n ly such inform ation and on ly
such w itn esses as in h is opinion would tend to e s t a b lis h h is ch a rg e s. Be
ce rta in ly had no i n t e r e s t in the tr u th i f i t was in c o n s is te n t w ith the
charges upon which h is employment depended. At the begin n in g o f the Com
m ittee^ in v e s t ig a tio n , n e a r ly a y e a r ago, the T reasu ry requ ested perm ission
to review* the testim ony o f a l l the w itn e s s e s , in clu d in g Mr. Brewer, and to
cross-examine them, and th a t requ est was fr e q u e n tly re p e a te d . Notwithstand
ing t h is , n e a r ly a l l th e w itn esses were in terview ed in s e c r e t e x e c u tiv e
8ession, and alth ou gh th e re has been ample tim e, the T reasu ry was denied the
p riv ile g e o f h ea rin g or even s e e in g a tr a n s c r ip t o f t h e i r testim ony or o f
cross-exam ining them.
The T reasu ry was not g iven an o p p ortu n ity to c r o s s -
examine Mr. Brewer, which would have enabled i t to show c o n c lu s iv e ly wherein
he had evaded or d is to r te d th e f a c t s .
.Under d ate o f January 28, 1925, th e Committee subm itted to the T reasa l i s t o f f i v e s o - c a lle d “S titataad in g f a c t s ” w ith re sp e ct to which i t de
sired in form ation , This in form ation was conveyed to th e Committee in my
I*
s
-5 l e t t e r s o f February 4 and February 1 1 , 1 925, m th ese l e t t e r s th e Com
m itte e was f u l l y ad vised concerning!
( 1)
( 2)
The a u th o r ity o f th e S e c re ta ry o f the T reasury to
d e s tr o y Government s e c u r i t i e s ;
+4^ a0d, ? n5>1°3red
tîae T reasury in g iv in g te n t a v e a llo c a t io n s o f s e r i a l numbers where secur
t i e s appear to bear d u p lica te d s e r i a l numbers;
(3)
The f a c t s co n cern in g a lle g e d paper and bond sh o rta ges;
(4)
The method o f c e r t i f i c a t i o n employed w ith re sp e c t to
s e c u r i t i e s d e liv e r e d f o r d e s tru c tio n ; and
(5 )
The L ib e r ty Bond tr a n s a c tio n s conducted by the War
1 xg^Q1106 CorPora,tion during the p e rio d 1918 to
In t h is co n n ection , I may say th a t the T reasury has a t a l l tim es
h eld i t s e l f in re a d in ess to coop erate w ith the Committee in ev81y p o s s ib le
way and has re p e a te d ly a ssu red the Committee o f i t s w illin g n e s s to f u r
n ish th e f a c t s con cern in g any m atter under C o n s id e r a tio n .
At th e same
time i t has p oin ted out th e i n ju s t ic e o f a cc e p tin g the testim ony o f w it
n e sse s, many o f whom were employees w ith fa n c ie d g riev a n ces who co u ld not
in the n atu re o f th in g s have had f u l l knowledge o f the o p e ra tio n s, w ithout
p e rm ittin g the T reasury to cross-exam ine them or answer t h e ir testim on y.
Hot o n ly was th e in v e s t ig a t io n o f t h is c h a r a c te r , but the Com
m itte e , though o fte n in v it e d by th e T reasu ry to make a p erso n al in sp e c
tio n o f th e a c t i v i t i e s about which i t s in v e s t ig a tio n has cen tered and thus
gain fir s t- h a n d in form ation reg a rd in g the methods under which the p u b lic
debt has been handled and th e safegu ard s designed to p r o te c t i t s i n t e g r it y ,
has not seen f i t to do s o .
The im portance o f such an in sp e ctio n in con-
tio n w ith any e f f o r t to determ ine th e f a c t s i s r e a d ily apparent.
Repre
s e n ta tiv e S trong, who, as I have s a id , d id not sig n th e re p o rt o f th e Com-
»ittee, iS the only member who recognized the necessity of personally
viewing the Treasury.« «^rations in relation to public debt matters
and who availed himself of the Treasury's invitation.
The C on m ittee's in q u ir y has been under way f o r n e a r ly a y e a r and
i t s re p o rt has been made p u b lic . The re p o rt i s s u b s t a n t ia lly a r e i t e r a
tio n o f th e K cCarter-B row sr charges w ith th e excep tio n th a t th ere a re
added c e r t a in chargee r e l a t i n g to the tr a n s a ctio n s o f th e War fin a n ce
Corporation in L ib e r ty Bonds d uring th e p erio d 1918 to 1920, which were
com pletely and c o n c lu s iv e ly r e fu te d in a p u b lic h e a rin g on October 25, 1924,
and in my l e t t e r s to th e Committee a lr e a d y r e fe r r e d t o .
The accu sers o f the T reasu ry, th e r e fo r e , a re as f a r now from
proving t h e i r charges as th ey were in 1920.
Mr. Brewer undertook to in
v e s tig a te th e McCarter ch a rg e s , and a f t e r two and a h a l f y e a rs m erely r s peated them and adm itted th a t he could not prove thorn to be tr u e . The
S p ecial C on gression al Committee then undertook to in v e s t ig a te Kr. B rew er's
charges, and a f t e r th e la p s e o f a y e a r has m erely rep eated many o f the
same charges and h as developed no evidence t o support them.
C e r ta in ly ,
three and a h a l f y e a rs o f f r u i t l e s s in v e s t ig a tio n should be s u f f i c i e n t to
demonstrate th a t the ch arges a re b a s e le s s .
The charges s ta r ts d w ith a
great co n sp ira cy and "hundreds o f m illio n s " in ft o id u je n t s e c u r i t i e s , but
during th e in v e s t ig a tio n th e s e g e n e ra l ch arges have grown le s s and l e s s ,
til n
cm th#
o n ly s p e c i f i c evid sn ee o f frau d p resen ted is th e t h e f t o f
$13,100 o f p a id s e c u r i t i e s and t h e i r second p re se n ta tio n , th e f a c t s con
cerning which the T reasury i t s e l f made known. This i s not a d u p lic a tio n
of s e c u r it ie s but a d u p lic a te payment o f th e same s e c u r i t i e s .
-7«
The charges, for the most part, relate to transaction which
t0°k PlSC9 ï8f°re
admiDistration of the Treasury. I feel that the
handling of the tremendous volume of war n ™ *
...
uziaaie oi war-time securities was ex„ n
,k"
sidération.
« « t a t * ly
*“
““
„
1 W M . „
a „
« ” “ « 6 * » « . ™ . r th7 «
faithfully your**,
A. W. MELLOH,
Secretary of the Treasury.
The President,
The White Hernse.
^
M
, lllUi
T reasury Department,
March 5, 1925.
ESTIMATED AMOUNT OF 7H0LLY TAX EXEMPT SECURITIES OUTSTANDING
January 3 1, 1925.
Issued by
¡States, co u n ties
1 c itie s , e t c . ,
Gross Amount
Amount h eld in
Treasury7- or in
sin k in g funds
Amount h eld out
sid e o f Treasury
and sin k in g funds
| 12,502,000,000
$ 1,875,000,000 (1)
$ 10,627,000,000
te r r ito r ie s , in s u la r
[possessions, and
s District o f Columbia
126,000,000
15,000,000 (2)
1 1 1 ,000,000
1United S ta te s Govern
ment
2,293,000,000
730,000,000 (3)
1,563,000,000
Federal land banks,
intermediate c r e d it
: banks, and jo in t - s t o c k
1 land banks
1,488,000,000
104,000,000 (4)
1,384,000,000
Total January 3 1, 1925
$16,409,000,000
$ 2,724,000,000
13,685,000,000
x6, Mu , Oou, 000
14,936,000,000
x., fX6,0uu,0OQ
2,571,000,000
xo,o52,000,000
12,365,000,000
1OC.Jjphil ca-UX"V\zât COt cia %j *
1: December ¿ 1 ,
‘
December 3 1, 1923(5)
*'
(1) Total amount of s ta te and lo c a l sinki^g^-fund s p F '
... ■
(2) Total amount o f sin k in g funds and am ount-hold;in tr u s t by the T reasu rer
of the U nited S ta te s .
(3) Amount h e ld in t r u s t by the T reasu rer of "the U nited S t a t e s .
(4) Note (3 ), a ls o p a r t ly owned by the U nited StatosjS-ovenm ient.
(5) Revised as to estimate of issues o f states, counties, cities, 8tc.
»THE ATTIRE OF TBE FEDERAL RESERVE SYSTEM.11
by the Eon. A/ W. M ellon,
S e c r e ta r y o f the T reasury,
An a r t i c l e prepared fo r
p u b lic a tio n in the May issu e
o f the N a tio n s Bugim sS*
Treasury Department
March 13, 192'v
The Future o f the Federal Reserve System.
The F ed eral Reserve System has ju s t passed i t s ten th an n iversary
The l i f e o f the o r ig in a l c h a r te r s fo r the F ed era l re se rv e banks was
twenty y ea rs and consequently th ey now have le s s than ten y e a rs to
run.
A ction on the renewal must be taken w e ll in advance o f the
e x p ira tio n o f t h e ir present tenure in order to avoid any u n c e r ta in ty
as to p o lic ie s and a d m in istra tio n .
Under the circum stances the
question as to the fu tu re o f th ese in s t it u t io n s has a p p ro p ria te ly
been ra is e d .
The p assin g o f the six ty ^ e ig h th Congress w ithout the enactment
of le g is la t i o n l i b e r a l i z i n g the powers o f n a tio n a l banks and removing
the handicaps under which they op erate in com p etition w ith s ta t e in
s t it u t io n s , i s a lso re sp o n sib le f o r r a i s i i g the q u estion at t h is p a r
tic u la r tim e.
In view o f the f a i l u r e of t h is l é g i s l a t i o n some have
expressed apprehension th at a s u f f i c i e n t number o f n a tio n a l banks
would surrender th e ir c h a rte rs to weaken m a te r ia lly the Reserve System
While I do not share th ese apprehensions I r e a liz e th at th e sys
tem ig s t i l l in i t s in fa n c y , w i l l continue to fa c e many d i f f i c u l t
situ a tio n s and some o p p o s itio n , and that i t can fu n ctio n e f f e c t i v e l y
only w ith the support and co op eration o f a p u b lic fa m ilia r in some
degree w ith i t s r e l a t i o n to our economic system.
During t h e ir b r ie f
existence the F ed eral re se rv e banks have dem onstrated beyond any doubt
th e ir va lu e to the country.
P revio u s to the enactment o f the F ed eral
Reserve law t h i s country lab ored under the t e r r i f i c d isad van tages o f
an in e la S v ic currency and e n t i r e ly inadequate re se rv e arrangem ents.
- 2 -
Our banking system was so constituted that it operated to aggravate
the panic symptoms of any financial emergency rather than to relieve
them.
National banks could issue only currency secured by Government
bonds and consequently were unable to increase the currency in times
of stringency.
Interior banks could expand their credit facilities
only by borrowing from metropolitan banks —
York,
all tending toward New
New York’s resources were call loans upon the stock exchange and
the importation of gold from abroad.
Instead of a closely knit and co
ordinated system of banks there were a large number of independent
banking units which in times of stress struggled against one another,,
each seekiig solely its own protection instead of the protection of the
whole financial structure of the nation.
These conditions were fundamentally changed by the establishment
of the Federal Reserve System.
The Federal reserve banks are In a
position to furnish adequate currency and credit to meet all legitimate
demands of business;
Federal reserve notes can expand and contract
in accordance with the currency needs of trade; the reserves of every
regional bank through the rediscounting privilege are available to
every other Federal reserve bank;
the funds of the central reservoir
can be diverted to any bank in the system which has need of them;
immense transfers of funds are made by bookkeeping entries; and the
financing of an increased volume of business is accomplished with ease»
On the occasion of its recent anniversary the System received
much well deserved praise and approbation from the leading financiers
and business men of the country*.
The mature and unbiased judgment
3 ~
of every serious student of finance is that it deserves the lasting
approbation of the country for the great service it has rendered
during the first decade of its existence.
Although its initial
trial occurred in a period of unprecedented economic and financial
strain, the System has not only emerged without impairment of its
own strength and stability, but brought the country through the
emergency with the soundest financial structure in its history*
In
spite of the great upheaval in the economic relations of the entire
world, business in America has been able to readjust itself end con
tinue in the line of orderly growth.
America has escaped that chaotic
condition of her currency and credit which has characterized so many
countries of Europe in the post-war period, and now possesses a
financial structure capable of maintainirg sound business development.
That this is true may be attributed in a large degree to the operation
of the Federal Reserve System.
The Federal Reserve System is not a panacea for all economic and
financial ills and cannot entirely prevent business crises and de
pressions* but it can and has done much to modify them.
It pre
vented the financial crisis which followed the close of the war from
degenerating into n panic.
Some loss, some inconvenience, and some
mortality were experienced, it is true, but no such disastrous fatali
ties occurred in business as would surely have resulted without the
System.
This ability of the System to exercise a steadying influence
on credit conditions is its most valuable function.
The more care
fully the credit facilities are handled and the more orderly the
development of business expansion the greater will be the duration
- 4 -
of the periods of prosperity and the less severe will he subsequent
reactions.
A thorough knowledge and development of credit control
by those who direct the System and an understanding of the same by
the business public should lead to the maintenance of business on a
more even keel in the future than in the past and is the most impor
tant single factor in the future development of the federal Reserve
System,
The System has been the object of severe criticism during recent
years.
Much of this has been unfair and ill-advised, frequently
founded on a lack of understanding of our credit structure and the
functions of a reserve bank;.
furthermore, there always exists a
discontented element in the community which is opposed to existing
institutions of any kind.
The recent price decline and depression
in Agriculture, for example, have been attributed by some elements
to the federal reserve banks in spite of the fact that bank credits
continued to expand for six or eight months after the price decline
had begun and that the expansion in agricultural districts was more
rapid than in the industrial districts.
The System has doubtless
passed through its most trying period» however, and with the gradual
return to more normal and more prosperous conditions follo-wiig the
maladjustments of war, the people as a whole are beginnirg to realize
the great service which it has rendered the country by preventing a
period of depression from sinkirg into a financial panic of the. old
order.
They realize too that the country*s problems were someth!rg
more than mere credit problems and that the economic factors operat
ing were world wide.
The improvement in world markets and some ad
justments in production have accomplished more for agriculture in
this country than unlimited extensions of cfedit or artificial meas
ures of price control could ever have done.
The most serious menace
to which the system has "been subjected
in the past, and probably will be in the future, is political attack
and this undoubtedly is a question which should receive the thoughtful
attention of the public.
This influence may conceivably arise in its
most serious form when the renewal of charters comes up for considera
tion and it is only to be expected that many are askirg the question
whether the Reserve System shall go on serving the economic community
or whether it will meet with the same fate as the First and Second
Banks of the United States..
The effectiveness of such attack will
depend largely upon the particular phase of the business cycle which
happens to prevail at the time.
If the country is then in the midst
of a wave.of prosperity the opposition to renewal will be slight.
If the country is passing through the low point of the cycle, however,
the opposition will be more serious because the discontent which pre
vails at such periods is ever seeking some point of attack, and little
discrimination is exercised in the choice of the object.
While there is apparently little probability that such opposition
would be able to defeat renewal except under unusual circumstances
which cannot now be foreseen, there always exists the possibility of
the impairment of the System by changes benefiti ig- this or that
group but which might .prove to be fundamental and seriously interfere
- 6 -
with the proper functioning oi the Danks as reserve institutions.
Ihe. Systemy of course* is still in its youth and. lacks the experience
of European central hanks.
There will of necessity he changes from,
time to time and constant adjustment to the needs of the country,, hut
these changes must he made hy the friends of the System and in accord
ance with sound hanking; pri miples». not hy its enemies for partisan
purposes.
The prosperity of the country is dependent upon the im
partial and wise administration of our hanking system unhampered hy
political or partisan domination..
As to .the suggestion that a substantial number of national
hanks may withdraw from the System, I am inclined to think that this
is not a serious possibility.
The ' System has demonstrated its value
so conclusively to the hankers of the country that they would he the
first to resist any movement tending to weaken its position.
While
the American banker ha.s tended in the past to look at these questions
largely from an individual viewpoint, the events of recent years have
demonstrated to him the close relationship of his institution to the
general credit structure and he has come to realize that his own in
terests are dependent on the existence of a sound and well managed credit
system as a whole..
'This does not mean,, of course, that the national
hanks can he made to hear indefinitely needless handicaps in competition
with state institutions.
Some revision of the national hanking law. in
the way of liberalizing and expanding the powers of the national hanks is
necessary, and it is to he regretted that such legislation was not,enacted
during the session of Congress just closed..,
This, matter will doubtless
receive the early consideration of the next Congress,
~ 7 ~
The members of the Federal Reserve System at the present time
have over seventy per cent of the total resources of all commercial
banks of the country, and from the viewpoint of financial strength
the position of the System is unassailable.
While additional member
ship would add little if anything to the strength of the System
it has been frequently poiried out that the non-member state insti
tution is not in position to serve its community as effectively as
if it had direct access to the central reservoir.
This is particu
larly true of the non-member state banks in agricultural communities.
Perhaps under normal conditions they have little need for rediscount
ing facilities but it is during emergencies that they need assistance
in order to render the fullest service to the community*
Furthermore,
the requirements of membership would doubtless lead to more cautious
and farsighted administration of these smaller institutions and better
cooperation with the country1s general credit policies.
As time goes
on and the Systèmes merits become more fully appreciated by the public,
doubtless an increasing number of state institutions will apply for
membership.
The Federal reserve banks have securely established themselves in
our economic system.
Future development will in all probability be
along lines already laid down.
There will be occasional legislative
modifications and constant adaptation to expanding needs.
The chief
problem is to guard against malevolent influences and modifications
contrary to the best bankirg and credit principles*
March 13, 1925.
TREASURY GERT IEICATES OF INDEBTEDNESS AND TREASURY NOTES
OUTSTANDING MARCH 16, 1925.
SERIES
INTEREST
RATE
DATED AMD BEARING
INTEREST FROM
DTTTT
(Tax Certificates)
TS-1925
TD-1925
zio
Sept. 15, 1924
Sept. 15, 1925
March 16, 1925
Dec.
15, 1925
(Treasury Notes)
C-1925
a it
Dec.
15, 1922
June
15, 1925
B-1925
4-3/Qfi
June
15, 1922
Dec.
15, 1925
A-1926
4^jb
March 15, 1922
March 15 , 1926
B-1926
4i!>
Aug.
1, 1922
Sept. 15, 1926
B-1927
4-Jfe
May
15, 1923
March 15, 1927
A-1927
4.U
TREASURY DEPARTMENT
FOR RELEASE, MORNING PAPERS,
March 18, 1925/
Speech of the
Hon, A. W. Mellon,
oocrotary of the Treasury,
at the Dinner of the
Bankers Club of Richmond,
held March 17, 1925, at
Richmond, Virginia.
I de®ply 'appreciate the.-coxdlal welcome which you have extended
teuae here .to-night.
I feel that .I am .among friends whose views on'many
questions of national policy are in line; with those which the Treasury
bas consistently advocated,-not only during; my own term of office but •
during the administration of my distinguished predecessor, Senator
I 1“ 5*
I find myself so often in complete agreement.
Indeed,
it is a source of pride to us at the Ireasury that, in that Department
there is a continuity in policy on many questions which, after all,
ax-e fiscal and economic, rather than political, in their appeal,‘and''
.affect too deeply the life £nd development of the nation at large to
,
permit of. anything less than an honest and intelligent attempt at their
Solution,
I -. is.long ago £9 1919, Secretary Glass, and later his successor,
Secretary Houston, saw the trend of events and made the first moves
toward getting the nation's finances bach on a peacetime basis.
As the
country emerged from the war, re ran into the trying period of readjust
ment.
Our national finances were. S*ill unsettled; our expenditures were
enormous; and the time was not then ripe to attack the problem of re
forming the comparatively new and still experimental system of income
taxes instituted under the power granted by the 16th Amendment to the
Constitution*
'
m
- 2,e*
tinder the stress of war and urge-of patriotism, this newly
developed system had yielded immense revenues.
But its actual *
effect upon business under normal conditions of peacetime kfavyyQtitloft .
was yet to be fully demonstrated.
The high rates of '‘income 't»jp-and'
particularly .the surtax rates w&re becomijgg.less and lass productive,
.
of revenue.
In his Annual Report for 1919; the then Secretary ’of the
\ ’ ]
.
‘
%
4
Treasury, Mr. G l a s s c a l l e d attention to this fact in,word® which I
hafa often had occasion to. quote.
saidj
• -vfl
rfThe upmcst brackets, of the surtax have already passed
the point cf productivity and.the only bonfe8quenea bf any
further increase would, be to drivé possessors of these ¿reat .
incomes more and more to place their wealth in the Mlllinf
of dollars of wholly exempt securities heretofore issued add
still being issued by States ahd municipalities, as well as
those heretofore issued by the United States, This process
not only destroys..a source of revenue to the Jederal Govern«,
ment, but tends to withdraw the capital of very rich men
from the development of new enterprises and place it. at the
disposal of State and municipal governments upon terms So easy
to them (the Cc^t of exemptions from taxation falling more
heavily upon-the-Federal Government $ as to stimulate waste-* fiïf-,and non-productive expenditure by State and municipal
governments, i*' *J
.In the following year even more specific reccmmondationSi-for a
rdduqtion qf' the surtaxes were made by Secretary Houston*
These
principles, so clearly stated by my Democratic predecessors, have
**
been reiterated and applied in all.the recommendations regarding tax
reform which the Treasury has made while 1 have teen at .its head.
sequent events have proved the soundness of these views.
ment period receded W
Sub
4sJtl»a*%e(aAjiist.
the taxpayers began to t h i h ^ t n t e n s ^ f business
ana economics and not ofLjsr&iv
proof of the evil effect upOJX-business and government revenue in normal
times of a tax system hurriedly built.'up
great emergency.
The
^declining revenuosunder the excessively high rates of tax were sufficient
proof of their inadequacy .under peacetime conditions and made it apparent
to a n that taxation must be brought into accord with sound principles if
the country was to continue to prosper and develop as it should.
the face of such a situation' the'duty incumbent upon the Xreasury was clear*
2v p
w
„
y
statute approved September 2, 1789, the first
.Congress of the United States required that the Secretary of the Treasury
.prepare, from tin* to time, plans for the improvement and management
of the revenues and report these plans to Congress,
rbf/^cskthry an*
a quarter this duty hae been discharged by the men who have occupied the'
office which I now hold*
~
now hold, and now, in my turn, I too have followed the
requirements of the statute.Wxth Government expenditures reduced, the budget balanced, and the '
revenue ample* it bec^ma
tax reform.
In ;th
slble
a cospretso.iva progra of
the wa
^
" 6 SaBBer °f 1923 ’ 31 th9 r6qUeSt 0f the Chairman of
and Means Committee of the House of Eepresentatives
b
f“
- * o r i g i n , tie rreasury
a balanced plan f o r reducing
a
*
'
" 811
u n d e rto o k th e p r e p a r a t io n
-aucing and at the sarra f«m*
*
the light of statist• *.
reforming the taxes
*ury had conducted.
-
—
,
,
The "re
D
inyestiSations which the TreS
-
—
-
—
■ *. -
■ to the chairman of the W
SyS aEd
Jv -
Means
Coamittee.
-
These reommenilations, as a matter of convenience,
were referred to in the newspapers as "The Mellon Plan", "but they might
"better and more accurately have been denominated "The Treasury Plan",
since they but reflected the same sound principles urged upon Congress
by every Secretary of the Treasury since
1919.
There had-been, as you will remember, a surplus of receipts over
expenditures for a period of two years, and the estimates for the'current
year showed a surplus' of aboiit $300,000,000.
While it has been .our
experience that a reduction"in taxation does not mean
an
equivalent
loss in revenue, because lower rates s t imulat e .the creation of addi
tional taxable income, still it was felt that Congress might hesitate
,to cut revenue in the first year of reduction below the probable surplus
and the Treasury’s recommendations were accordingly restricted’substan
tially to the amount of revenue in sight.
The plan contemplated not-only
a reduction in the income taxes, but other changes involving loss to the
Government and the abolition*of certain miscellaneous taxes.
Each part
of the plan had to be considered in its relation to the whole; and I did
not then feel at. liberty-to suggest mope than the first step in the proper
reduction of-/the surtax, leaving, the remainder of the reform to a later
year when the reduced rates had brought back under taxation increased
amOpnts
of taxable income.
•
•
Prom the 68th Congress there emerged the Revenue Act of I92U.'
This
Act abolished some taxes, reduced some rates, and followed in the main
the. recommendations of the Treasury as to administrative changes.
In its
failure to reduce the .maximum surtax below Uo$ and in its increase of
estate taxes to a maximum of ^-0$,' the Revenue Act violated certain prin
ciples of taxation.which I fa&l to be fundamental to any sound reform
— 5 —
of the tax system«
This may be tax reduction.
If is not tax reform.
This may impose high rates on large incones and estates.
sure continuation of large revenue to the Government.
make wealth pay.
It does not in
This may seem to
It only overburdens industry and initiative.
We are still faced then with the necessity of establish!.economically sound rates of tax.
But we are in a better position to-day to make the
reform comprehensive than we were in 1923.
At that time there were a
number of different taxes to reduce or abolish, each contributing its
share in the loss of revenue.
Now
we approach a fiscal year with an
’estimated surplus of $374,000,000.
This, mind you, is after we have
absorbed the losses of revenue brought about by the 1924 Act.
Furthermore,
we are in a better position to approach tax reform, because the country
at large better understands the questions involved and is able to assess
more nearly at their true value the'various proposals for dealing with these
questions.
In other words, tax reform is now an issue which holds the
public interest and demands an early and honest attempt at settlement.
As the cost of Government, particularly that of the States
and municipalities, has mounted in the pe,st few years, there has
arisen the necessity for an apportionment of the fields of taxation
between State and Federal Governments.
At a meeting attended by State
taxing authorities in Washington last month, at which the President
spoke, the desirability of having the Federal Government leave to
the States the particular field of inheritance raxes was strongly
urged, and a nation-wide committee will consider this subject during the
coming months.
This return to the doctrine of the sovereignty of th©
States can be well appreciated here in Virginia.
The efforts of two
Governments to tap the same source of revenue in inheritance taxes
.has resulted in overlapping^ systems which'impose undue "burdens
'upon
the taxpayer and a consequent destruction of the very sources of
revenue v.hich mean comparatfiv.ely little to the Federal Treasury,
but much to the State.
I know of no better justification for ©ur democratic form of
government, in which I and all of us-here so firmly believe, than the
way in which the people of. this ,u'©untry have come to an appreciation
of wnnt taxation is, of they principles underlying & sound tax system,
ánu. ox ui..e harmful effects- which 'the wrong system can have u p o n ‘.the
daily life of every citizen.
Here is a subject highly technical, .
.presumably theoretical, and one which, under ordinary circumstances,
would seem to have no p'opular appeal to the crowd.
*
i
Yet il has assumed,
pyfw*
importance and. now holds the interest of the'public mind.
. An unintelligent use of the taxing power may have disastrous
consequences.
It is fpr this reason that we must come to some under
standing, particularly as regards high surtaxes and in the field of
inheritance taxes, by which overlapping and unfair taxes shall be
eliminated and the future welfare and prosperity of the country
shall be assured.
This, I am confident, can be done; and in helping
to do it and to bring about.a.better understanding of the fundamental
principles involved in taxation, you are rendering the country a great.
f
and lasting service.
We must not let partisan, or sectional, or class
prejudices blind our vision or halt our determination to achieve what
will be forythe welfare of the’Country as a whole.
Treasury Department,
April 1, 1925.
ESTIMATED AMOUNT OF WHOLLY TAX-EXEMPT SECURITIES OUTSTANDING
February 28, 1925*
Issued by
Statesr counties,
cities, etc.
Gross Amount
Amount held in
Treasury or in
sinking funds
Amount held outside
of Treasury and
sinking funds
$ 12,558,000,000
$ 1,884,000,000(1)
$ 10,674,000,000
135,000,000
16,000,000(2)
119,000,000
jUnited States Govern —
ment
2,175,000,000
671,000,000(3)
1,504,000,000
11Federal land banks,
3 intermediate credit
tanks and jointj stock land banks
1,502,000,000
104,000,000(4)
1,398,000,000
jiTerritories, insular possessions,
and District of
Columbia
1F
; Total February 28,
1925
16,370,000,000
2,675,000,000
13,695,000 ,000
Comparative totals;
|f January 31, 1925 $16,409,000,000
$2,724,000,000
$13,685,000,000
16,268,000,000
2,716,000,000
13,552,000,000
December 31,1923(5) 14,936,000,000
2,571,000,000
12,365,000 ,.00Q
December 31,1922
13,652,000,000
2,331,000,000
11,321,000.000
December 31,1918
9,506,000,000
1,799,000,000
7,707,000,000
December 31,1912
5,554,000,000
1,468,000,000
4*086,000 ,000
December 31,1924
[ PJ Total amount of state and local sinking funds,
(2) Total amount of sinking funds and amount held in trust by the Treasurer
of the United States.
| (3) Amount held in trust by the Treasurer of the United States.
1 (4) Note (3) , also partly owned by the United States Government.
(5) Revised as to estimate of issues by states, counties, cities, etc.
Estimated Expenditures of the People of the United States
for Certain Articles, 1920-1924.
In the accompanying table are estimates of the expenditures of
the people of the United States for certain articles during the fiscal
years 1920 to 1924.
While the majority of the articles included are ordinarily considered
luxuries, the total of these expenditures cannot be classed as luxurious
or wasteful.
It is practically impossible to determine either what
articles are luxuries or what are luxurious expenditures.
A large number
of automobiles, for example, are used by physicians, farmers, traveling
men, and others for business purposes.
In fact, the majority of automo
biles are used for both pleasure and business.
Toilet soaps and possi
bly some other toilet articles cannot properly be classed as luxuries, and
certainly all furs cannot be put in that category.
A certain amount of
jewelery, watches, etc., as well as pianos and organs, might easily fall
without the classification, dependiig upon the use made of them*
The same
is true of other articles in the list.
The basis of the majority of the estimates is the tax collections
under the internal revenue laws.
Information from the census of manu
factures for 1919, 1921., and 1923 has been used to secure as reliable
a check as possible, and also as a basis for some of the estimates when
articles were not taxed in all of the five years.
The amounts of expenditures here presented are estimates, and.there
fore subject to the possible wide range of error i n such estimates.
No
attempt has been made to determine the range of error, but certain limi
tations of the particular methods should be noted.
- 2 -
Practically all the estimates are based on taxes collected from
manufacturers; in other words, on the volume of their sales.
Over a
long period of time, of course, the volume of such sales is the same
as the volume of goods retailed.
During a particular year, however,
the volume of sales by the manufacturer may differ widely from the
volume retailed and therefore from the expenditures of the people dur
ing that time.
A cursory examination of the indicies of wholesale and
retail trade bears out this statement.
There is the same type of error
JL
in the estimates derived from census data because the basis is the volume
of goods produced during the particular year.
Another source of error arises from the conversion of estimated
wholesale values of goods sold into retail values in order to determine
the expenditures by the people.
Only rough approximations were possible
I
in estimating conversion rates because of the small amount of data available
on wholesale and retail prices of these particular classes of articles,
the wide variety of articles in any one of the classes, and the different
grades of individual articles.
Yet the fact remains that a slight change
in the conversion rate, up or down, would make a significant difference in
the smallest estimate and a very great difference in the estimate for
automobiles.
^ 3 -
Estimated Expenditures of the People of the United.
States for Certain Articles. 1920-1924 •
(millions of dollars)
1920
1921
1922
1923
1924
Automobiles and accessories
(exclusive of trucks)......
$3,655
$2,924
$2,711
$ 3 ,73(J
$4,057
Cigars, cigarettes, tobacco,
snuff, cigar and cigarette
holders ...................
1,865
1,742
1,647
1,815
1,847
Beverages (non-alcoholic),
ice cream, sodas, etc. (l)
>'•
821
847
758
780(2)
820(2)
4, Theaters, movies, other
amusements, dues, etc. (l)
894
1,047
872
842
934
Candy ......................
810
715
603
660
689
6. Jewelry, watches, etc..... .
517
486
390
406
453
7, Firearms and s h e l l s ...... *
93
74
67
87
67
8. Pianos, organs, phonographs,
etc.................... .
545
463
340
—
440(3)
366(3)
»— .
335(3)
—
431(3)
10. Fur articles ...............
306
182
224
—
333(3)
n.
Perfumes and cosmetics
160(3)
—
214(3)
—
261(3)
12.
Toilet soaps ...............
128
144
151
—*«i'■
153(3)
13.
Chewing gum ................
75
89
85
h
2.
5.
9.
Sporting goods, games and
tpys, cameras, etc, ......
1
TOTAL *.................
$10,235
$8,397
87(3)
$10,572
(1) Estimated expenditures for ice-cream, sodas, etc., theaters, movies, and other
amusements include the amount of tax paid. The tax is added to the regular
price and paid by the consumer as an extra charge.
12) Estimate based on trend in estimated expenditures for amusements, dues, and
candy, since ice cream; sodas, etc., were no longer taxed.
(3) Estimate based on census of manufactures.
PREPARED BY THE SECTION OF STATISTICS,
OFFICE OF THE SECRETARY, TREASURY DEPARTMENT
April 23, 1925.
Treasury Department,
May 4, 1925.
ESTIMATED AMOUNT OF WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
March 31, 1925.
Issued by
[States, counties,
^ citiös, etc.
GrtÒBè Amount
Amount held in
Treasury or in
sinkirg funds
Amount held outside
of Treasury and».,,
sinking funds
$ 12,646,000,000
$1,897,000,000(1)
$10,749,000,000
135,000,000
16,000,000(2)
119,000,000
United States Government
2,175,000,000
670,000,000(3)
1,505,000,000
federal land banks,
intermediate credit
tanks and jointstock land banks
1,514,000,000
104,000,000(4)
1,410,000,000
¡Territories, insular possessions,
and District of
Columbia
iTotal March 31,1925.
<
9fe 16,470,000,000
$2,687,000,000
$13,783,000,000
Comparative totals:
February 28, 1925
December 31, 1924
December 31, 1923(5)
December 31, 1922
December 31, 1918
December 31, 1912
$ 16,370,000,000
16,268,000,000
14,936;000,000
13,652,000,000
9,506,000,000
5,554,000,000
$2,675,000,000
2,715 ,000,000
2,571,000,000
2,331,000,000
1,799,000,000
1,468,000,000
$13 ,695,000,000
13,552,000,000
12,365,000,000
11,321,000,000
7,707,000,000
4,086,000,000
(1) Total amount of state and local sinking funds.
(2) Total amount of sinkirg funds and amount held in trust by the Treasurer
of the United States«
(3) Amount held in trust by the Treasuer of the United States.
(4) Note (3) i also partly owned by the United States Government.
(5) Revised as to estimate of issues by states, counties, cities, etc.
(T.D. 3714)
Admissions Tax - Revenue Act of 1918 - Decision of the Supreme Court.
1. EMBEDMENT,
A person required "by law to pay over to the Government taxes
collected on admissions is a debtor and not a bailee. Conversion
oi such taxes to his own use does not constitute embezzlement,
2,
WILLFUL FAILURE TRULY TO ACCOUNT FOR AND PAY OVER TAXES ON ADMISSIONS,
A person required truly to account for and pay over to the United
States taxes collected on admissions may not, through technicality* es
cape his liability for willful failure so to do.
Treasury Department,
Office of Commissioner of Internal Revenue
Washington, D1 0.
To Collectors of Internal.Revenue and Others Concerned?
(The decision of the Supreme Court of the United States, rendered
May 11, 1925, in the case of the United States of America, petitioner,
vs. James J, Johnston, the syllabus of which appears above, is published
not as a ruling of the Treasury Department, but for the infDuration of
internal revenue officers and crthers concerned. Therefore, the text
pf the decision is not printed here but will be issued in the regular ,
edition of the W-eekly Treasury Decisions and the Internal Revenue Bul
letin.)
C, R, NASH,
Acting Commissioner of Internal Revenue,
Approved*
May 25, 1925.
A, W. MELLON,
Secretary of the Treasury.
Treasury Department
June 5, 1925.
ISTIMATED AMQUKT OF WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
April 30, 1925.
Issued by
Gross Amount
Amount held in
Treasury or in
sinking fund.
Amount held outside of Treasury
and sinking funds
States, counties,
cities, etc.
$
12,719,000,000
$1,908,000,000(1)
Territories,
insular possessions,
and District of
Columbia
136,000,000
16,000,000(2)
United States Government
2,175,000,000
670.000.
1,521,000,000
101.000.
j Federal land banks,
intermediate credit
banks and joint|| Btock land banks
llotal April 30,1925 $
$10,811,000,000
120,000,000
000(3) 1,505,000,000
000(4)
1*420,000,000
16,551,000,000
$2,695,000,000
$13,856,000,000
1925
$ 16,470,000 f000
1924
16 ,268.000,000
1923(5)
14f936,000,000
1922
13,053-000,000
1918
9,506,000,000
1912
5-554,000,000
$2,687,000,000
2*716.000,000
2,571,000,000
2 ,5 0 1 ;0 0 0 f000
1*799,000,000
1-468.000,000
$13,783,000,000
13.552.000. 000
12.365.000. 000
11.321.000. 000
7.707.000. 000
4.086.000. 000
*
Comparative totals?
March 31,
Dec. 31,
Dec, 31,
Dec, 31,
Dec. 31,
Dec. 31,
(1)
Total amount of state and local sinkiig funds,
(«
o a
(3)
(4)
(5)
l
funds 821(1 amount held in trust by the Treasurer
oi the United States.
Amount h e U , in trust by the Treasurer of the United States.
^ote (3), also partly owned by the United States Government,
vised as to estimate of issues by states, counties, cities, etc.
treasu ry c e r t if ic a t e s
OF I
n o t e s o u t s t a n d in g
SERIES
indebtedness
j j j m
INTEREST
RATE
and treasury
lé
DATED AND BEARING
. INTEREST FROM
DUE
(Tax Certificates)
TS-1925
TD-1925
2*6
3$
Sept. 15, 1924
Sept* 15, 1925
March 16, 1925
Dec,
June 15, 1925
June 15, 1926
TJ- 1926
15, 1925,
(Treasury Notes)
B-1925
A*1926
B-1926
B-1927
A-1927
4-3/8%
4*6
4*#
4*6
4«
June:15, 1922
Dec,
March 15, 1922
March 15, 1926
Aug.
15, 1925
1, 1922
Sept. 15f 1926
May
15, 1923
March 15, 1927
Jan,
15, 1923
Dec,
15, 1927
TREASURY DEPARTMENT.
FOE RELEASE. AFTERNOON PAPERS,
Thursday, June 25, 1925.
Speech
by
David' E. Finley
of the
War Loan Staff, Treasury Department,
at
The 25th Annual Convention
of the
South Carolina Rankers Association
at
Greenville, South Carolina,
June 25, 1925.
Taxation as a Business Problemi
The Treasury, li>e the business world, views taxation largely as a business
problem*
It is interested primarily in the extent to which rates actually produc
revenue, just as the average business man is concerned with the extent to which
taxes actually reduce his income.
Cwl and economic, not political.
In each case the controlling elements are fisFor this reason we can afford to approach the
^ibjoct only from an economic or business viewpoint;
and, so far as the Treasury
is concerned, wc have viewed it only from this angle.
In urging tax reform
Secretary Mellon is actuated solely by the conviction that our present system has
tone unnecessarily complicated, is inefficient as a revenue producer, and
tercetens to constitute a drag on business progress and development.
I
Wo are still operating under an obsolete system of taxation, evolved during
|thc war to moot conditions which no longer atost. The excessive rates of taxes,
Aich obtain at tho present time and to which wo have gradually become accustomed,
[tore precipitated on tho country by tho war.
They arc war taxes and nothing else.
h tho last yoar beforo Aacrica ontorod tho vtar tho normal income tax was 2 per
[cont and tho naxinrn normal and surtax on tho largest incomes was only 15 por cent,
Uion it bocano necessary to raise rovonuos with which to carry on tho greatest
j»w in history.
With startling rapidity taxes mounted until in 1919 tho tax on
tto groatost incomes reached a total of 77 por cent.
In this way, wo tried to tax
|tto nar profits and to make wealth carry its share of tho war burden.
While wartime conditions prevailed, those rates were fairly effective in
Adducing revenue.
But as wo gradually emerged from tho war into tho period of
rCaiJUStCCnt
as business tried to carry on under conditions of
to-tino competition, tho average nan began to look around for ways to avoid
r e
paying what he considered to be excessive taxes.
was not long in finding ways of escape.
Needless to say, he
Revenues began to fall off; and
Senator Glass, who was then Secretary of the Treasury, diagnosed the
situation as in part due to the surtaxes.
He was the first to call
attention to the necessity for reducing the rates, if the surtaxes were
to continue effective as revenue producers.
In his Annual Report to
Congress for 1919, he pointed out that the upper brackets of the surtax
had already passed the poirt of greatest productivity and that the only
feonsequence of any further increase would be to drive possessors of great
incomes more and more to place their wealth in tax-exempt securities.
In the same year, President Wilson reported to Congress as follows;
wThe Congress might well consider whether the higher
rates of income and profits taxes can in peace times be
effectively productive of revenue, and whether they may
not, on the contrary, be destructive of business activity
and productive of waste end inefficiency.
There is a
point at which in peace times high rates of income and
profits taxes discourage energy, remove the incentive to
new enterprise, encourage extravagant expenditures and
produce industrial stagnation with consequent unemployment
and other attendant evils.»
In the following year the then Secretary of the Treasury, Mr. Houston,
again warned Congress of the harmful effects resulting from a continuance of
wartime rates, and recommended that the excessive surtaxes be reduced.
So much for the views of the Wilson Administration.
of leading‘Democrats to-day?
What -re the views
In speaking from the same platform with
Secretary Mellon in Richmond last March, Senator Glass showed that his con
victions regarding the surtaxes have not changed.
To me» he said, »it is not exactly a new doctrine
that excessive surtaxes are a distinct disadvantage
to any government.»
~ 3 ~
Unjust taxation, he characterized as legalized larceny, and added that he
would vote for a maximum surtax of 20 per cent and would appreciably relieve,
the burden of the moderate taxpayers whose incomes range from $8,000 to
$50,000,
Senator Underwood, in an address on taxation at Montgomery a few
days ago, said:
11
We have levied our taxes so high that we have chased much of
the capital of the country into hiding and have reduced our revenue
thereby . . .
, If I had the power to write the tax law, I would
go back to the tax of 1916, or something very like it, where the nor
mal tax was 2 per cent and the highest bracket of the surtax was 13
per cent, and the highest tax on estates was 10 per cent•w
In what way do these views which I have just quoted differ from those
of the present Administration?
In an
address at New York last year, President
Coolidge said:
11The first object of taxation is to secure revenue. When the
taxation of large incomes is approached with that in view, the
problem is to find a rate which will produce the largest returns.
Experience does not show that the higher- rate produces the larger*
revenues. Experience is all the other way,
...
.
There is
no escaping the fact that when the taxation of large incomes is ex
cessive, they tend to disappear . . .
. Taken altogether, I think
it is easy to see that I wish to include in the program a reduction
in the high surtax rates, not that small incomes may be required to
pay more and large incomes be required to pay less, but that more
revenue may be secured from large incomes and taxes on small incomes
may be reduced; not because I wish to relieve the wealthy, but because
I wish to relieve the country,H
Secretary Mellon has frequently pointed out that, in urging a reduction
of the surtaxes, he has continued the policy which the Treasury has consist
ently advocated under a Democratic as well as a Republican Administration.
And in speaking at Chicago a year ago, the Undersecretary of the Treasury,
Mr. Winston, said:
4:
•'There is no reason why the subject of taxation cannot he
approached from a purely non-partisan viewpoint . . .
/ There
is nothing political in recommending a sound basis of taxation,
J-t is simply common sense,"
I have quoted the views of men in both parties at some length in order
to show that a political case can hardly be made out as regards the reduction
I of the surtaxes.
Certainly as between the two major parties, there is no
cleavage in the philosophy of taxation in so far as the income or surtaxes
| are concerned.
A small minority in both parties may subscribe to the theory
l| "soak the rich" or «each for himself and the tax gatherer take the hindmost.»
IBut such, I take it, are hardly the sentiments of those who have the country«s
I and ultimately their own - best interests at heart, and who realize that none
I of us, whether we pay taxes directly or merely contribute indirectly in the
L increased cost of what we buy, can escape altogether^evil effects of an
| unsound system of taxation.
If we are willing to look facts in the face,
j we know that a sound, workable system of taxation is preferable to one which
IIlevies excessive rates but is increasingly ineffective in collecting revenue,
■ particularly from the higher brackets.
What is the situation which the country faces to-day as regards taxation?
j
are sti11 livin§ under a tax system which is fundamentally the same as it
was during the war..
It is true that the rates have been reduced and the
burden of taxation has been greatly lightened.
The Revenue Act of 1924
Iincorporated in the tax system many desirable administrative and structural
Jchanges,.such as the establishment of a Board of T*x Appeals.
ment may be expected from these changes.
Some improve
It will be possible to expedite the
settlement of contested cases and thereby to relieve the taxpayer of the fear
~
of unkhown future assessments.
~
But these changes, while excellent in them
selves, do not go to the heart of tax reform.
They fail entirely to take into
account the defects of a system which seeks to build a fence around wealth in
the form of high surtaxes and at the same time provides an easy means of escape
through investment in tax-exempt securities.
Such a system has two thoroughly
| ^desirable results: it both encourages tax avoidance ani discourages business
enterprise.
||
I
Tax reform does not mean merely a reduction in rates.
It means revising
wkole tax system in such a way that it will produce the revenue required
| for the Government’s needs over a long period of years, without having a detriraental effect
tke normal, healthy development of the country.
j tax reductio n gives the opportunity for tax reform.
Of course,
It is only by reducing
j rates scientifically and perhaps omitting altogether the imposition of some
taxes, such as the Federal estate tax, that we can achieve the end desired.
In tax reform, there are two main objectives!
I|tax
first, to make the income
effective end thereby to insure its preservation as a permanent source of
j revenue for the Government; and second, to work out a basis of cooperation
between the Federal Government and the various States, by which over-lapping
[taxes, such as the Federal estate tax, shall be eliminated.
There is only one way to make the income tax effective.
an end to tax avoidance.
That is, by putting
«e have a blind faith in this country in the miraculous
power of legislative action.
We pass an act in order to achieve certain desired
ends and then Bhut our eyes to the fact that the law is being evaded on every side.
Too nuch evasion will, of course, destroy respect for the law and in the end will
bring it into contempt.
That is the situation which confronts us to-day with regard to the graduated
- 6 -
income tax. TFe .have a Jm-irhloh, levies rates so.high as to make tax avoidance
worth while*
At the same time, we provide legal means of escape by which the
largest taxpayers can avoid all payment of taxes.
.Ehere are in this country today over $13,000,000,000 of tax-exempt securities;
issued by States, counties and municipal!.ties; and this amount is increasing at
tho rite of about $1,000,000,000 a year*
All that is nocossary is for the rich
man to invest in thoso socuritios and he need pay no income tax at all.
(»is more and more
Wealth
tending to do this, and to leave the tax burden to be borne by
the smaller taxpayer and by the man engaged in activo business, whose capital
cannot be transferred to this form of investment.
The strange anomaly is that the very persons who champion high surtaxes as
ameans of taxing the rich are most insistent upon holding open the door of es
cape provided by tax-exempt securities.
right — or advantage —
It is all dono in the belief that, some
of the States is involved.
sent largely public improvements;
Tax-exempt securities repre
and public improvements, of course, are vitally
leecssary, particularly in the South, where incroaso in land values follows in the
wake of .better roads and schoolhouses.
depend upon tho tax-exsnpt feature.
But public hnprovements do not necessarily
Before the imposition of high surtaxes, soûnd
State and municipal bonds wore readily absorbed in the immediate locality and by
insurance companies, trust funds and other conservâtivo investors, who no longer
cared to take the risk involved in business enterprise.
Those bonds would con
tinue to find a wido market among such investors, regardless of the tax-exempt
feature.
Mon in active business, however, boforo tho days ef high surtaxes, did not
ceev this form of investment;
and it is their prosent tendency to do so which is
7
giving causo for concern.
In the South, as elsewhero, it is far moro necossary
that capital should seek business investments and build vp cotton mills, rail
roads and other productive enterprises, rather than lie inactive in municipal
and county bonds*
At the prosent time, however, on account of the combination
of high surtaxes and tax-exempt securities, capital is more and moro tending to
leave business and go into less productive forms of investment*
There are only two remedies for this situation*
The first is to pass a
Constitutional -Amendment prohibiting future issues of tax-exempt securities*
Secrotary Mellon and the Treasury have frequently recommended the passage of
such an amendment;
and, as Mr# Mellon remarked last month in Mississippi, ttthis
is tho strongest possible tost of whothor it is really desired to make wealth
b a r iwS share of tho tax bus*don*
All that is necessary is to close tho door
and thereby cut off this inviting avenue of escape from taxes*tf
I have never felt that tho States would givo up any mat erial
right in supporting a Constitutional Jmeñdment such as was passed by the House
6f Representativos a yoar ago, giving'reciprocal authority to bath State and
I Federal
Governments to tax future issuos of securities by either Government.
It is in the power of the Federal Government now to issue its own bonds freo
of Federal taxation and thus largely destroy the artificial value attaching to
State and municipal securities on account of their oxemiption from Federal taxes*
But there is no immediate prospect of a Constitutional -Amendment •being passed
and even if such an amendment wore passed it could not affect the billions of dol
lars of securities already issued#
only one course to pursue —
Under those circumstances there is obviously
that is to reduce surtaxes to a point whore capital
will find it worth while to'remain in activo business and pay the tax rathor ¿han
go into tax exempt bonds.
-
8
-
ThiSj as Socrctary Mol Ion 1ms froquontly pointed out» i3 the -only reason
for advocating a reduction of tho surtaxes*
In the words of Professor Thorns S,
Actes, of Yale, who is one of the foremost authorities on taxation in the country
"The reason or'Justification for cutting the upper surtaxes is not
to reduce tne taxes of the few rich non who happen to he caught*. The
.justification is to get a tax that can he enforced; to reduce the dis
crepancy between the taxation of corporations and tho taxation of in
dividuals; to give hack-to certain linos of business whoso normal, sup
ply of credit cones from wealthy individuals, their normal and natural
investment market; and most of all, to give to the income tax at this
critical period a task which it caih creditably perform * « • • We
debate and dispute about the minutiae of rates, when the question is
the honesty or integrity - and hence the real life — of tho progressive
income tax*"
•
Taking up the question of ratesi.
It may sound paradoxical, but it can be
mathematica Uy demonstrated, as tho Government has found to its sorrow,' that
excessively high rates produce less revenue than lower ones*
as in selling, there is a point of maximum return*
too high, fewer articles are sold;,
diminish*
In taxes, Just
If £he soiling price is
if it is too low, sales increase but profits
Tho Ford car offers a striking oxamplo of this*
As wo all know,
tho number of sales increases every time tho price of tho cars is reduced,
which is, of course, oasy enough to understand*.
But thorc is a point on the
low§r side of the profit belt, beyond which prices cannot be reduced without
too great a loss of revenue;
and so it is with taxes*
Wo cannot levy rates
telow tho ¿oint which will produce revenue sufficient to run the Government*
What has been the Government *s oxporionce in fixing rates?
In 1916,
under a maximum surtax of 13 per cent the total amount of incomes of $300,000
or over reported for taxation was $992,000,000 and the Government collected
$81,000,000 in surtaxes*
In 1921, under a maximum surtax of 65 por cent, tho
total amount of incomes of this class fell to $153,000,000 and tho Government
collected $84,000,000 in surtaxes*
In 1922, the surtax was reduced from 65
9
per cent to 50 per cent, and what happened?
The amount of income reported
for taxation by the largest taxpayers rose to $365,000,000 as compared with
K n53,000,00° the previous year. snd the Government collected in surtaxes
$111,000,000 under the lower rates as compared with $84,000,000 under the
higher rates.
In 1933, the amount of income reported for taxation by the
highest brackets increased to $371,000,000 and the amount of tax collected
was $93,000,000.
This tax ras realized after allowing the retroactive
reduction of 25 per cent authorized in the Eevenue Act of 1924.
• Without
such reduction there would have been collected taxes amounting to $134,000,000.
Under the 1924 Act the maximum surtax has been reduced to 4 a per cent
and, while the reductions granted are not enough to bring wealth as a whole
| back under taxation, it may be e j e c t e d that there will be a still further
increase in revenue from the higher brackets.
Figures such as the above
are convincing evidence that in taxation it is not always the highest rates
which bring in the greatest revenue*
Shat is the situation as regards the rates now in effect?
Under the
present law, some of our most prosperous citizens are taxed as much as 46 per
the higher brackets of their income
are actually paying that much.
tax of 46 per cent.
I do not say that many of them
But: at least the law imposes a total maximum
*o the average mon that seems fair enough!.
He reasons
that a man with an income of $ 200,000 or $300,000 a year can afford to pay near
ly half of it as taxes and still eke out not too miserable an existence.
But
regardless of whether the theory is right or wrong, it works out in practice
so that the Government failbto get its share of the income.
In order to avoid
taxes which he considers excessive, the man of large wealth is investing more
‘Jid more in tax-exempt securities and taking advantage of the other means of
'
-
10
avoidance made possible under the law#
-
It is Just as well to realize that
capital, no less than labor, can not be forced to work unless it is profitable
to do so;
and under the present high surtaxes, capital does not find it worth
while to take a chance*
A man of large income has the choice of investing in a taxable or a taxexempt bond#
Ho weighs the relative attractiveness of a safe tax-exempt secur
ity paying a lower rate of interest against that of a taxable security paying
a higher return but invo lving the usual element of risk attendant upon business
enterprise.
If ho is subject to the highest surtax,. #o finds that ho must re
ceive at least
8
per cont from the taxablo investment to equal the net return
of ,■% per cent from a tax-exempt bond.
paying
8 per
Thoro are no bonds of sound security
cent and very few safe business investments which insure such a
return on the capital invested*
Tho consequence is that capital is attracted
to the tax-exempt investment and the men of largo income pays no taxes*
If,
however, the maximum normal and surtax wore reduced to a total of 20 per cent,
a taxable business security need yiold only about
5|
per cent to equal tho not
return of a 4|- per cent municipal bond*
It is easy to see what would happen under such circumstances.
Capital would
find it more profitable to invest In business and pay a moderate tax, rather than
go to tho trouble, as at present, of avoiding taxes.
vocating a reduction of the surtaxes;
This is tho reason for ad
and there can be no sound and permanent re
form of tho tax system which ignores the necessity for such reduction.
The second objective in tax reform invo lves a revision of tho death taxes.
Both the Federal and the State Governments are attempting to exploit this field
of taxation.
The result is that estates, with widely scattered assets, are fre
quently subjected to overlapping and confiscatory taxes, resulting in a depletion
of capital, which must ultimately, have a serious effect on the country's
developmenti
It is possible for estates having widely scattered assets
to be taxed more than
100
per cent of the value of the estate.
This, of
Course, does not often happen; but, under our present laws, it is entirely
possible and when it does happen, we have not taxation; but confiscation.
There is no getting around the fact that death taxes are merely a form of
capital levy; and the Treasury has taken the position that, regardless of
the soundness of such taxes as levied in moderation by the -States or by the
federal Government when necessity may r e t i r e , it is unwise to defray the cur
rent expenses of the National Government out of excessive levies on capital
when there is no pressing need for the revenue derived from such sources.
The inheritance tax is essentially one which should be levied by the
States.
The property taxed is located in the States, and its transfer to
heirs at death is governed by State, not Federal, laws,
The right of the
Federal Government to impose estate taxes is based upon the theory of an
excise tax; that is, a tax upon the passing or transfer of property.
Con
gress has levied such taxes only four times in the country's history and
always for the purpose of providing revenue in periods of great emergency.
Such taxes were levied immediately after the Revolutionary far and during
the Civil and Spanish wars, and they were always repealed when the particu
lar emergency had passed.
The present estate tax was first levied in 1916, when a maximum rate of
10 per cent was imposed.
Instead of later repealing the law,
the tax
was subsequently increased to 25 per cent, and in the 1924 Revenue Act the
maximum rate was raised from 25 per cent to 40 per cent.
These rates, after
allowing certain credits for State taxes, are imposed in addition to the in
heritance taxes levied by nearly all the State Governments.
-
12
-
Bio result Is to suttfoet ostatos to a double burden of taxation.
In
the end this tends to destroy capital values and also to dry up a source of
revenue of great importance to the State
Governments.
It is for this reason
the President and Secretary Mellon havo advocated that the Federal Gov
ernment retire from the field of death taxes and leave these taxes to the
States, t6 whom they properly belong.
As a source of revenue, death taxes are not of very great i^ortance to
the Federal Treasury} and, under the high rates now imposed, they are becom
ing less and less productive of revenue.
Under the 35 per cent m a x i m w rate,
the revenue dorivod by the Fodorol Government has steadily droppod from
$154,000,000 in 1931, to $103,000,000 in 1934.
m
the latter year the amount
raised by death taxes was only 3 § por cent of the total receipts of
$4,000,000,000 which tho Fodoral Government rocoivod from all sources,
The States, on tho other hand, when deprived of revenue which they might
havo obtainod from this source, are forced to mako up tho loss- by other taxes,
particularly on farm lands.
In many States, taxes are already so high as
seriously to menace the prosperity of the farmer.
W
M
5fco farmer nearly always
a disproportionately large share of his earnings in taxes.
He does not,
U rule, pay income taxes, so that this large part of his income which is
- 13 -
absorbed by taxation represents almost wholly direct taxes on his property.
If there is to be any decrease in the amount of revenue available to the
State Governments from inheritance taxes, as a result of the Federal law, it
is obvious that the States must make up this loss by heavier taxes on tangible
property.
As a result, the taxes on farm lands will increase rather than dim
inish; and an increasingly heavy burden will be placed on the shoulders of
those least able to bear it.
The Treasury is constantly hearing of cases in
different parts of the country where local taxes are so high as to make farming
unprofitable with the result th^t the farm is subsequently abandoned in favor
of some form of livelihood on which the burden of taxation does not fall so
heavily.
State and local taxes are increasing at an alarming rate.
They consti
tute by far the heaviest part of the tax burden which the American people are
called upon to carry.
In the decade from 1913 to 1932, the cost of state and
municipal governments increased from about half a billion to over four billion
dollars a year.
The expenditures of the national government increased in
like proportion, but these included the cost of financing'our allies and
carrying on the war; and since the war the national government has made heroic
and successful efforts at retrenchment.
In 1920 the per capita
Federal tax was $54; in 1923 this tax'had been
cut to $29; and in the current year to about $27.
The per capita
state and
municipal tax, on the other hand, increased from $31 in 1920 to $41 in 1923,
and the tendency is towards a further increase each year.
It is only fair, in any survey of our present burden of taxation, to
apportion the responsibility where it properly belongs.
It is state and local
taxation which weighs-; most heavily on the average taxpayer, for out of a total
| population of
110,000,000
people only about 3,600,000 or slightly over
cent , pay a n income tax direct to the federal Government.
3
per
A much larger
| proportion of the population, however, pays state and local taxes; and prac
tically every one is taxed in the increased cost of what he buys.
The income tax or the surtax is frequently shifted from the manufacturer
to the middleman and finally to the ultimate consumer, who pays the entire
tax in the increased cost of the suit of clothes or the automobile or what
ever the article may be.
This is what is known as the incidence of taxation -
||that is, the shifting of the tax to the one on whom it finally rests.
It is
this incidence which is of interest to the average citizens.
Is this burden increased by reason of excessive surtaxes?
believes that it is,
The Treasury
This is one of the reasons for advocating a reduction
of the present rates; and the other, as I have said above, is because
excessive taxes are nearly always avoided and do not have even the merit of pro*
ducing revenue for the Government.
taxpayers will always find ways to avoid ex
cessive taxes by investing in tax-exempt securities or by taking advantage of the
^other available means- of tax avoidance.
It may be a troublesome procedure to
F change the form of one’s investments; but, if the rates are high enough,
the
taxpayer will find it worth while to go to that trouble and eventually he will
iput himself in a position where he can laugh at the tax gatherer.
There is an old story of one of the tyrant kings of ancient Greece, who
Iimposed a tax so heavy that his people groaned but paid the tax.
Finally he
!increased the tax to such unheard-of limits that a change came over his people’s
behavior.
Instead of groans and curses, they went about the streets laughing
at his tax - and, of course, not paying it.
Were doin&' ke ordered the tax reduced at
When the tyrant heard what they
for, he said, when they laugh
-
15 -
at your tax it means that they have no intention of paying it.
He found,
just as we are finding to-day in the case of excessive surtaxes, that there
is such a thing as encroaching too far on the limits of taxable capacity.
We have found thrt we can collect a moderate tax.
But when we try to
impose too high a rate — and esp-cially when at the same time we offer
legal means of avoidance - wealth escapes and eventually the Government will
have to fall hack on levying higher taxes on the skmaller incomes and on
the man in active business in order to raise the required revenue.
From
the standpoint of Government income, better results can be obtained from
moderate rates than from excessive ones.
Certainly, as regards the interests
of the taxpayers themselves, it is important to have a taxing system which .
produces revenue without affecting adversely the growth and development
of the country on whose prosperity we must all, as individuals, depend.
Taxation, as I said at the beginning, is neither a partisan nor a
sectional question.
It is, on the other hand, a matter which vitally
affects the welfare of every one in every part of the country; and, if the
nation as a whole will get behind the movement for tax reform, it will
prove, as we proved during the war, that America can always think and act
as a unit when once she is convinced that the national interest is involved.
treasury department
.
FOR RELEASE, MORNING PA?*R$,
Sunday, June 28, 1925.
Address
of
Hon. Garrard B. Winston
The Undersecretary of the Treasury
before
Bankers Association of Maine
at
Bar Harbor, Maine,
June
27, 1925.
I think it was Thomas Jefferson who said "That Government
governs best which governs least".
We often hear the statement today,
overwhelmed as we are by a multiplicity of laws, the grist of the
legislative mills of forty-eight States and the National Government,
We feel that we should return to the simpler forms of our forefathers,
and that we
should have less laws regulating, as they do, almost every
detail of society and business.
The early days when each family was almost a self-sustaining
group by itself and touched its neighbors only incidentally, have gone.
The interrelationship between people within the country and with the
peoples of other nations is now so constant that a return to such
earlier forms is impossible.
Civilisation is complex, and necessarily
this complexity produces in the minds of the legislators the desirability
of more intimate regulation by Government.
I do not believe that we
can expect less government in the sense of less laws by the sovereign.
It lies, however, within your power by your influence upon public sentime,
nd within our power as servants of the Government to see to it that we
approach the same end by less friction between the nation and its citisen£
This we can do by the- adoption and maintenance of sound policies and
methods*
Government must, and always will, exercise a profound influence
upon the happiness of its people and their prosperity.
this influence.
We cannot e.Soape
«. probably cannot prevent new influences, —
equally
- 2 ~
as capable of good, or ill*
New conditions will arise, or seem
passed
to arise, and new laws will be/:
by reason of these conditions.
There is nothing to be feared in this, provided the theories upon
which the laws are passed are proven by experience.
Soundness
cannot be a question of new conditions or of somplexity of civili
zation.
Principles do not change with the times.
A people with
laws based on sound principles and with sound methods of admin
istration presents the characteristic of being the best governed
because the normal conduct of its life is least disturbed.
It is
on this subject I wish to speak*
There is no closer contact with the people of this
country, and certainly with you and your business, than the fiscal
operations of the United States.
I can speak of the Treasury because
hère is a field with which I have become familiar, and I can show you
what I mean by beipg governed less upon three different points where
the Treasury meets the public:
first, one of existing policy;
second, one of method; and, third, one of future policy.
taken these three examples because they are varied.
I have
The existing
policy referred to is that of public debt retirement; the method is
that of handling Government securities; and the future policy is re
form in our taxation.
Alexander Hamilton said "Piblic and private credit are
closely allied if not inseparable.
There is perhaps no example of
the one being in a flourishing where the other was in a bad state«».
Tiiis principle applicable to our finances as a young nation at the
close of tho Revolutionary War was equally true of our situation at
the close of tho World War period sfoen we owed at the peak over
$26,000,000*000*
We set out then upon tho policy of orderly refunding
and liberal retirement of our public debt«
Our situation today shows how far wo have advanced in
our refunding program along tho lino dictated by good finance.
owe now all told $20,550,000*000.
debt maturities of $2,500,000,000;
We
In tho next three pears wo have
on September 15, 1928, $2,900,000,000
of the Third Liberty Loan conos due, and tho remainder of tho debt
natures over a further period of 23 years.
While some of the short-term
debt m y not be retired as it conos duo, what is left should be quite
simple to handle, and the only major operation in sight is the Third
Liberty Loan of 1928«
h>1,290,000,000,
This loan has already been reduced over
and with open years into which to refund what cannot
he paid, tnc problem presented does not appear serious.
Looking at tho other side .of the xoicturc, that is, not when
wo must pay but when at our option wo can elect to pay if wc have
extra cash with which to rot ire tho debt or if wc can refund on bettor
terms, 50 per cent of qur total debt matures or is callable within
throo and ono-ljalf years and 95 per cont within nine years.
have flexibility.
'
We
Ourpiblic debt structure is then substantially
in shape, the Treasury cannot bo hurt in a crisis, and we have a control
to bo exercised as advantages tho United States.
Our program of
~ 4 -
refunding has been orderly.
We have governed well because we have
eliminated disturbance in the past and menace in the future.
ComiiTg to debt retirement, some say that our policy in this
respect is too drastic.
We are charged with being too anxious
to see the debt reduced and therefore its payment is made burdensome
to the country.
It is argued that the present generation should
not pay but should pass the debt on to a later generation.
the people as a whole* there is nothing in this argument*
represented by the debt was spent for the war.
Taking
The money
The evidence of the
debt, the bonds, are all held in this country.
If the first genera«
tion passed on to the second generation the burden of paying the debt
at the same time the second generation must inherit the bonds
representing the debt, so the second generation would receive both a
liability and its equivalent^ asset.
J»0 net burden would pass.
'While
taking the people as a whole it is immaterial when the debt is paid,
still, as between different classes of people, the investing class
holding the bonds and the producing class from whom a larger part of
our taxes are collected, inequality may exist.
We should not tax too
heavily the producers to pay the security holders.
It is for this
reason that we have sought a balance between debt reduction and tax
reduction.
The surplus of receipts over expenditures in the past five
years has accounted for over a third of the total reduction duringthese years of 3f billion dollars.
Annual surplus is the margin avail
able and which should be devoted to tax reduction#
~ 6 There arc, however , certain factors which oust continue the
or&orly retirement of the dohfe.
Roughly, $20,000,000,000 of war
debt is represented one—half by money spent by America in the war
and ono-half by money loaned to the Allies«
on
A sinking fund based
PGi“ cent of the $10,000,000,000 used domestically was established
in 1919 and it was intended that the $10,000,000,000 loaned abroad
should be taken care of by repayment of the loans by the foreign
borrowers«
war debt*
Here we have a two-fold arrangement for retirement of the
In tho public debt structure one obligation has no dis
tinction over another*
Each is based solely on the credit of
the United States irrespective of rate of interest, date, or maturity*
It is one debt*
Wo may look at tho situation, therefore, as if a
company had mortgaged several pieces of property and in the mortgage
aad convenanted for a sinking fond each year and for the use of tho
proceeds of any property sold from under the mortgage toward retirement
of tho debt#
Tho mortgage bondholder has a contract, legally binding
on the mortgagor, that these covenants bo performed*
In like manner
the Government bondholder has a contract, morally binding on tho
Unitod States, since to violate it would be partial repudiation, that
the sinking fund will bo continued in accordance with its terms and
that repayments of foreign loans will go to decrease the debt which
was incurred for their creation*
Within the limits thus placed sound
policy now requires that any surplus in Government receipts over
expenditures should bo distributed, ¿ust as tho profits of any other
mutual organization are distributed, among its members, -tho taxpayers through a reduction in their forced contributions to the State*
I wish to emphasize that tho retirement of tho public
debt lias actually aided futuro rolief-lbon taxation*
This is an
- 6 -
accumulative aid, growing more important with time*
Interest is
roughly a third of Government expenditures outside of debt retirement*
In 1921 this interest was a "billion dollars;
in the year just closing
it will "be about $870,000,000, a saving of $130,000,000 a year.
-All
of this saving has not tahen place; because there aro loss bonds outstand
ing upon which interest must be paid, but a vory substantial part is a c
countable because, through improved credit, wo have had to pay loss for
money borrowed*
Of the $130,000,000 saved, over $30,000,000 represents
the decroasc in the average rate of interest in 1925 under that paid in
1921*
It is true this reduction in average intorost rate does not seem
largo in itself, but spread over such an enormous total of debt it gives,
as you can s o o , substantial results*
The reduction in average rate is brought
about by refunding only a part of the total debt on a lower intorost basis,
and the full effect of this improvement in credit is not now felt*
If wo
had been able to rofund tho entire debt on tho basis of vtfhat our refunding
during tho past two yoars actually cost u s , wo would havo savedan additional
$85,000,000,
This bonofit will como in tho futuro as further refunding
is practicable.
You need not go far to find cacamples of what a fiscal policy,
simply because of its soundness,
and to tho freodom of its people*
may aid to a country's resources
England, with perhaps greater
financial understanding than that possessed by any other nation, has
but recently tdeen the fourth step in its plan of fiscal reform*
It balanced its budget, settled tho .American debt, provided for the
gradual retirement of tho internal debt, and brought its currency
- 7 system back to the gold standard#
These wore all ossential parts of
its program and the courageous last stop ivould have been impossible
without tho earlier stages#
in France#
Take, just for a minuto, the situation
It was devastated by tho war, and physical restoration had
to precede financial restoration#
It takes time to put a house in order
after a cyclone, and .America admires tho courage with which France has
gone about its difficult task*
The Fronch aro an industrious, saving,
logical people, and understand the advantagos of a sound fiscal policy#
Towards this end their government is now moving#
however#
It has not yet arrived,
France has an internal debt of 280 billion francs, say,
$14,000,000,000, England one of over twice that#
Interest on this debt
represents more than half of the French expenditures, and something over a
third of England! s#
While the French short-term debt lias been forced out
at a comparatively low rate of interest, the effect of which is probably
inflationary and# therefore, in the end expensive, tho true test of credit
i& tho longer term security Which is taken by the investing public#
Since
1920 in France the rate of interest on this type of security lias gone
steadily up from 5-f$ in 1920 to 8#62$ in 1924, whereas in England the reverse
has taken place and during tho samo period the basis of England1s re
funding has decreased from 5-$> to about 4 ^ #
A
like situation is re
flected by the dollar loans of tho two countries *quoted on tho Hew York
market*
If the average rate of interest which Franco now has to pay could
ho roducod by ovon ono per cent, it would moan a saving of nearly a tontli
of tho governmental expenditures#
We must look forward to France
- 8 ~
stabili^ing
balancing it s budget, refunding its foreign debts and.
it s currency, and so reestablishing it s credit as actually to save money
in the transaction.
Through a sound policy, and only through such a
policy, England has been able to command the unexcelled credit necessary
to protect it on the restoration of the gold standard.
Such a policy pays.
I think i t is clear that the adoption and maintenance of sound
ideas increase the freedom of the people, and, therefore, furnish the
characteristic of better government through less government.
I come to another point of contact with Government which can be
illustrated by the handling of securities,
If the Treasury were to
s e ll, say, $500,000,000 of Government bonds for cash and have payment
made into the Federal ibsserve Banks, the $500,000,000 would be taken
out of the usual commercial channels, since i t would be taken from the
commercial banks and off the market, and money would abruptly tighten
by reason of the decreased supply.
The only way the Treasury could
restore the equilibrium would be by redepositirg the proceeds of the
security sale with commercial banks until the Government was ready to
spend the money.
The redeposit would mean the selection of the
depositaries in some arbitrary manner, with the certainty of undue
pressure beirg put upon the Treasury to' favor one bank as against
another.
Such a procedure is unscientific and dangerous.
When it was
in effect upon even os small a flotation as the Spanish War $200,000,000
issue, great anxiety was f e lt of disturbance to the money market, and
elaborate provisions had to be made for anticipation of interest
payments and redemption of other maturing securities to keep the market
1,1 °rier U n U 1 th9
« « * * *• - t - n e d to ebmaiercial channels by
_ redeposit l l U h e ttational Banks.
Elis is a difficulty in the usual
method, of selling securities
*
a
t
Ihefe is also ari ¿dvahtage in managing
security issues in ariother particular*
Speakiig quite boughly, if we elimimte the income tax from the
receipts side of the Sovernment account and interest from the exnenditures side, other receipts shout balance other expenditures.
Our
receipts from income tax payments pile up in the four Installment
months of torch, June, September and December..
interest payments are spread throughout the yes*.
Our expenditures for
,Jf we permitted
se tsx payments to lie in the Federal Heserve Banks, outside of the
ordinary channels of trade until we needed them for interest, we would
have a. stringency in the money market every quarter until the money
was redistributed to the commercial banks.
We had, then these two points to meet - the usual method of
sale of securities meant taking their purchase price temporarily
out of the money market, and, second, the peaks in income tax payments
made it desirable to adopt some way of keepirg the market level.
The solution
is
quite simple and entirely effective.
We arrange
our schedule of security maturities so that we have a maturity at each
quarterly tax payment date of three to five hundred million dollars.
TO the extent of our excess cash we retire the maturing securities and
refund the balance by the sale of new securities on credit.
We conduct
-
10
~
t h i s credit sale by authorizing a bank to be designated a special
Government depositary and within the limits of its designation to
purchase on credit Government securities.
When a bank is allotted
securities on the subsqription for itself or its customers, it simply
gives the Treasury a deposit credit on its books for the price.
On
the date of issue, the banks receive the securities, which they can
dispose of as they think fit, and the Treasury has a deposit credit
with the banks.
disturbance.
No cash has gone out of the market.
There is no
The amount of the credit is fixed by the bank's own
subscription and is not the result of discretion on the part of the
Treasury,
We do not have to distribute favors.
From time to time
thereafter, as the Treasury needs money for its checking account with
the Federal Reserve Banks to meet its immediate payment, it draws from
these deposit credits to its checking account.
In general the excess
tax payments in the quarter are used to pay off the maturing obligations,
and the proceeds of the new obligations go to carry the Treasury over the
next three months.
Suppose on September 15 we had $300,000,000 of notes maturing and
expected a like amount of excess income taxss, and needed 250 million
to run the Government for the next three months.
We would pay off
our notes out of the excess income tax collections, and we would sell
a new issue of 250 million of securities on credit.
plain.
The result is
There would come out of the commercial banks in payment of
taxes 300 million dollars; there would go back into the commercial
11
-
banks in payment of securities matured 300 million dollars,
£wo
hundred and f i f t y million of new securities4would be sold on credit
and no cash, would come out of the commercial banks on account of this
sale until the Treasury required the money, to pay interest for example,
and then it would promptly be returned to the commercial banks through
cashing of the interest coupons?
When operations are as large as those in which the Government is
frequently involved, it is essential that we do not unnecessarily dis~
turb other businesses.
By lack of intelligence in method or by the
failure to take into account all of the elements which are affected by
a Governmental action, we may bring withoour transactions confusion and
loss.
This we seek to avoid.
The future policy by the adoption of which we can obtain less
friction in Government*s relation to it s people, an.d, therefore, bet
ter government, is that of reform in taxation.
Taxation is the power
of the State to raise money that the State may live to-day and every
day.
The purpose of taxation is j not only to acquire a revenue this
year, but to keep the fields of revenue fe rtilize d and plowed so that
we may have assurance of crops of revenue in years to come*
The most
important principle of taxation is , then, a taxing system which will
preserve and not destroy the sources upon which i t must feed.
With
estate taxes which confiscate up to 40 per cent of capital, we are
overcropping our land; with income taxes reaching 46 per cent, we are
not letting our crops come to maturity.
In both lines we destroy the
12
~
- s of revenue "by killing the incentive to the production of more
wealth or more income to replace that taken by taxation.
The
syatem
seeks its justification not as a b o m fide effort to raise revenue, but
as some sort of social reform; it is politics, not economics.
So long
as we have economically unsound rates of tax which yield in revenue to
the Government, an amount entirely incommensurate with the harm they do
the taxpayer, we will have undue interference of Government in the affairs
of the people.
,policy.
Tax reform is not a question of tax reduction but of tax
The policy which the Treasury believes the country should adopt
consists not in any particular schedule of rates but in such scientific,
economic rates as will produce revenue sufficient for the country's needs
over a long period and with the least possible interference in the life of
the people.
In other words, we want a taxing system which operates with a minimum
of friction and still meets the money requirements of the Government.
As
we approach the realization of such an ideal, capital will get out of unpro
ductive investments; industry will return from abnormal channels; and taxa
tion, unburdened by waste in collection, will produce for the Government a
net income more nearly corresponding with what the taxpayers give up.
When
such a reform is accomplished - and I have confidence that the American
people understand its importance and demand its adoption - then we will
indeed be in a position to give you better government by less government.
These three cont-satai of yours with Government are, as I said at the
beginning, various.
rock of sound policy.
But they are alike in that each is builded upon the
It is to bring all Government activities to this
solid foundation that our efforts must be directed.
Treasury Dopartuoni,
July 1| 1925*
S S m flM ) «
t
OF MOLLY TAX EXEMPT. SECURITIES
c m m im ry i
May 31, 1935*
Issued by
---------- —
M o u n t hold in
M o u n t held outGross Amount
Treasury or in
side of Treasury
-------- ------ ----------- -sinkinc: funds_______ and sinkire funds
States, counties,
cities, etc*
if
$12,890,000,000
$1,934,000,000(1)
$10,956,000,000
136,000,000
18,000,000(2)
118,000,000
Territories, in
sular possessions,
and District of
Columbia
United States Government
2,175,000,000
670,000,000(3)
1,505,000,000
1,537,000,000
101,000,000(4)
1,436,000,000
Federal land banks,
intermediate credit
banks and joint-stock
laid bants
if
Total May 31, 1935
$ 16,728,000,000
$2,723,000,000
$ 14,005,000,000
Comparative totals
April 30, 1925
Dec. 31, 1924
Dec. 31, 1923
Dec. 31, 1922
Dec. 31, 1918
Dec, 31, 1912
$ 16,551,000,000
16,268,000,000
14 ,936,000,000
13 ,652,000,000
9,506,000,000
5,554,000 ,000
$2 ,695,000,000
2.716.000. 000
2.571.000. 000
2.331.000. 000
1.799.000. 000
1 ,468 ,000,000
$ 13,856,000,000
13,552,000,000
12,365 ,000,000
11 ,321,000,000
7.707.000. 000
4.086.000. 000
W
12J
.
Total amount of state and local sinking funis,
'
*
Total amount of sinking funds and amount held in trust by the Treasurer
of the United States*.
S
W
^ QOun/ £ eld in tru-st by the Treasurer of the United States*
Note (3), also partly owned by the United States Government*
*
PRELIMINARY TABLE OF INHERITANCE TAX RECEIPTS BY THE VARIOUS STATES FOR THE YEARS 1916 TO 1924 INCLUSIVE
1916
Alabama
A rizona
A rkansas
C a lifo rn ia
Colorado
C onnecticut
Delaware
F lo r id a
G eorgia
Idaho
Illin o is
In d ian a
Iowa
Kansas
Kentucky
L o u isian a
Maine
M aryland
M assachusetts
M ichigan
M innesota
M is s is s ip p i
M issouri
Montana
N ebraska
Nevada
New Hampshire
New J e r s e y
New Mexico
New York
N orth C a ro lin a
N orth Dakota
Ohio
Oklahoma
Oregon
P en n sy lv an ia
Rhode Is la n d
South C a ro lin a
South D akota
Tennessee
Texas
U tah
Vermont
$7,978
84,865
3,145,211
295,480
1,3 1 0 ,7 6 3
11,093
$7,233
76,042
3,$ 3 0 ,9 5 2
773,983
1,05 0 ,9 8 8
8,876
81,745
5 ,6 0 3
2 ,1 2 0 ,8 9 5
323,139
361,792
64,118
136,513
56,267
223,876
293,484
4 ,2 2 3 ,8 4 3
478,146
2 ,5 9 4 ,4 8 8
245,105
4 ,050
1 ,9 5 9 ,6 3 5
589,706
398,704
372,567
145,398
56,268
215,824
547,926
3,900,247
775,368
873,123
1918
1919
$7,477
125,541
2 ,7 2 5 ,4 0 7
538,330
1 ,527,165
15,575
191,336
27,285
1,9 5 9 ,6 3 6
452,481
471,009
150,345
988,296
45,086
273,643
343,092
5,8 4 1 ,2 0 5
597,621
683,608
1 ,754
.392,413
445,877
361,595
55,568
44,046
46,546
A d m in istered by county ju d g e s . No f ig u r e s
3,887
953
5,351
174,583
101,499
193,802
3 ,3 3 1 ,9 0 9
3*626,386
2 ,9 3 0 ,3 6 3
5 ,9 8 4 ,0 1 8
30,919
2 6 ,6 7 3
186,445
13,863
87,969
2 ,5 9 8 ,0 9 4
224,183
13,791,970
162,183
41,993
331,698
43,435
75,645
2*391,215
224,184
11,433,400
316,520
71,640
287,549
97,173
195,643
5 ,6 4 6 ,6 0 4
277,085
1920
1921
Virginia
T o ta l o f above
$30,251,499
$39,230,608
1923
1924
$31,690
215,633
2 ,6 7 8 ,1 5 9
991,361
1 ,9 8 7 ,7 7 7
37,249
$17,198
91,484
6,804,732
500,485
1,855,856
240,387
$65,104
362,895
6 ,3 44,644
512,695
2 ,3 2 7 ,8 0 9
153,137
$61,820
270,644
4 ,7 77,950
911,212
2 ,5 7 3 ,7 0 4
127,913
n o t re c e iv e d
$356,824
6,463,326
239,415
1,960,628
86,155
168,053
21,834
2 ,9 6 5 ,3 9 7
430,211
575,205
248,531
235,059
45,086
411,665
347,588
5 ,0 0 2 ,6 9 7
512,594
1 ,0 5 6 ,6 8 7
24,402
1 ,4 0 8 ,1 7 4
74,089
re c e iv e d y e t
3,285
199,745
3 ,9 9 1 ,5 2 4
210,482
33,022
2 ,9 6 5 ,3 9 8
660,111
649,007
426,118
435,562
144,736
594,020
656,028
4,6 0 7 ,6 6 3
780,183
1 ,074,039
65,638
1 ,472,223
73,749
327,265
27,955
3 ,373,610
669,362
626,632
556,118
250,627
144,736
213,526
562,131
7,3 2 2 ,947
1 ,3 9 1 ,678
966,539
106,675
1,229,001
73,718
282,813
15,081
3,373,611
978,198
764,076
333,398
2,573,826
142,080
564,247
541,331
6 ,805,977
1,250,660
1,502,185
98,095
1 ,374,883
61,374
291,599
93,170
7,640,438
885,673
1,073,815
346,015
360,498
142,080
1,116,023
445,770
6,158,925
1,075,981
1 ,237,670
91,763
1 ,0 5 5 ,0 7 4
71,690
336,259
15,037
7,640,439
892,803
1,006,510
380,569
n o t re c e iv e d
835,300
552,105
564,339
6 ,4 8 9 ,1 7 4
3 ,4 9 2 ,6 1 4
902,854
235,787
1,193,721
165,845
14,863
204,389
5 ,192,498
1,181
21,259,641
603,230
64,089
456,368
100,554
214,215
10,198,718
1 ,4 4 7 ,7 6 9
57,594
251,313
4 ,7 0 9 ,4 3 4
998
18,135,507
328,740
99,341
1 ,184,806
155,068
209,937
7 ,722,946
519,489
1,962
504,742
4,4 2 5 ,5 0 4
6,063
15,385,042
955,009
63,442
1,510,973
75,372
464,810
11,669,077
1,3 3 3 ,4 8 4
177,654
309,246
95,417
245,726
118,982
409,513
460,166
755,887
1 ,2 6 5 ,4 5 7
1,185
147,824
309,247
162,227
245,726
117,574
331,043
327,956
636,118
1 ,1 86,485
18,183
1,714
462,422
4 ,8 6 7 ,0 6 4
5,337
17,786,389
335,799
48,858
1,357,236
90,188
331,282
12,991,818
336,753
252,070
258,281
377,643
114,064
339,157
156,385
429,206
476,039
778,000
1 ,946,379
22,981
$64,567,068
$70,305,982
$74,574,392
13,339,583
595,682
75,430
367,222
23,532
346,277
7,161 ,1 9 8
396,301
$40,642,681
1922
$20,722
177,685
3,409,911
302,944
850,873
56,505
43,400
94,628
214,480
110,988
224,338
140,979
238,522
238,523
187,939
187,939
30,006
46,431
32,805
254,995
547,227
138,788
87,000
87,001
207,007
207,007
101,593
133,272
88,221
89,369
117,759
70,991
144,791
118,936
100,513
199,538
136,549
197,246
225,179
257,068
277,795
156,442
265,914
339,929
288,840
321,131
502,938
860,779
517,390
778,022
1 ,1 1 5 ,6 4 4
P re v io u s to 1921 ta x c o lle c te d by c o u n tie s ; f i g u r e s n o t y e t re c e iv e d
W ashington
West V irg in ia
W isconsin
Wyoming
NOTE;
1917
$47,120,452
63,745,941
5,308
354,726
7,010,026
14,383
19,369,394
511,125
43,554
1,348,611
161,517
414,618
11,482,039
467,664
230,094
198,975
377,644
145,215
339,167
145,824
628,538
664,383
765,144
2, 902,203
61,881
$81,451,927
Some of these figures are for calendar years while others are for fiscal years. In a few cases when there was a change from one fiscal year to
another the figure is for the six months period.
Most of the figures appear to be of collections, while some are of assessments. Apparently
iqost Vat not all of the figures are net after deduction of refunds.
Also it is not d e a r which figures are reduced b y the cost of collection.
V
kxexre
'
iigurea
were rox* &
i©nr»ia.1 period
th.ey wer
M
d u a lly
divided
----
fo r
the
two ye&rs .
— to
---------- WSSr. -------------------------------_ ------------------------
Treasury Department,
August 4, 1925.
ESTIMATED AMOUNT OF WHOLLY TAX EXEMPT SECURITIES OUTSTANDING
JUNE
|IIssued by
][$tates, counties,
I cities, etc.
|Territories, in
sular possessions,
and District of
j Columbia
United States Govern—
“©nt
SO, 1925.
Amount held
in Treasury
or in sinking funds
Gross Amount
$ 13,010,000,000
$ 1,952,000,000
136,000,000
3,175,000,000
118,000,000
669,000,0001,506,000,000
98,000,000
1,456,000,000
$ 2,737,000,000
$ 14,138,000,000
potai June 30, 1925
$16,875,000,000
@FedFRASER