|December 12, 1941
MEMORANDUM FOR THE SECRETARY
The following persons met at my house last evening from 8 to about 8:30 p.m.:
Chairman Eccles of the Federal Reserve Board; Mr. Leon Henderson of SPAB; Mr. Harold Smith, director of the Budget; Mr. Lauchlin Currie, Administrative Assistant to the President; and the following persons form the Treasury Department: Messrs. Daniel Bell, Blough, Buffington, Gaston, Graves, Groves, Kades, Kuhn, Morris, Odegarde, Randolph Paul, Tarleau, Viner and Harry White.
I presented the general problem of the timing of the tax program and particularly the question of stressing the savings bond campaign, while postponing the introduction of taxes to be collected at source.
Mr. Paul said it was felt that some additional withdrawal of purchasing power through taxes would be necessary in dealing with the inflation problem. He said that in his opinion it was not desirable to pass a supplementary collection-at-source tax except as part of a comprehensive tax program, since the lower income groups should not be burdened unless the taxes are increased on the higher brackets also. He said that a comprehensive tax program could not be ready before January 15. In his opinion the only method of withdrawal through taxation of additional purchasing power prior to the passage of a comprehensive tax program would be through collecting at source in 1942 part of the income taxes which would be collected regularly in 1943. He suggested that in view of the uncertainty when such additional tax collections would be necessary as an anti-inflationary device and due to the desire not to impede the bond program unnecessarily, it would be desirable to have immediate legislation passed empowering the Secretary of the Treasury, with the approval of the President, to put in force the advance payment procedure, official rates ranging up to 10 percent.
Other members of the group were then asked for their points of view. Mr. Henderson said that due to the dislocations of industry, the pressure of incomes on prices would not be resumed until March and that increased prices between now and then would be due to events which have already taken place and could not be stopped by taxation. He felt, that beginning in March, the pressure of incomes would increase and that larger withdrawals of purchasing power would be necessary. He thought that the plan for speeding up collections might be put in the regular tax bill and then passed separately in case the bill were delayed.
Mr. Currie appeared to be in harmony with this position. He thought that the case for a strong tax bill might be weakened if there was a prior request for discretion to advance the date of collection.
Mr. Harold Smith Agreed. He felt that to ask for the authority to collect at source might have the result of dissipating the strength of the movement for a strong tax program and that if delay were feasible, it would be better to include the request for discretionary authority as part of the regular tax bill.
Mr. Eccles discussed the general situation at length, especially the necessity for restrictions on wages and prices to prevent taxes from increasing prices and thus failing to accomplish the desired purposes. However, he appeared to be in general harmony with Mr. Henderson's view. Mr. Eccles expressed the view that the people would not be willing to take a strong tax program until there had been some further inflation.
On questioning, Mr. Harold Graves said that he thought the savings bond program could increase the sales of E bonds from $115 million to $40 million a month. Everyone seemed surprised and gratified at this figure, although some pointed out that much of the increase might come from sources other than current incomes of the lower income groups where the effect would be most anti-inflationary. Mr. Graves said that he thought that the presence on the statute books of the discretionary power to introduce collection at source would not materially affect the savings bond program, but that as soon as the collection at source was put into operation, the savings bond purchases through payroll deductions would slump.
There were other elements to the discussion, of course, some of which were rather far afield. The unanimous sentiment appeared to be, however, that it would not be necessary to ask immediately for the authority to collect at source, but that it would be desirable to ask for such authority as part of the regular tax bill.