Strangled Rabbit

At least one white rabbit a year out of his fine high hat was produced by Franklin Roosevelt in the first five years of his Administration, to solve and save the U. S. economy. For his sixth year, with some 11,000,000 workers still jobless, the Budget still reeling, the President appeared to have lost his urge for new projects. Nonetheless, his advisers persuaded him to try at least a grey rabbit: revision of corporate taxes deterrent to Business. Secretary of Commerce Harry Hopkins heralded it, Secretary of Treasury Henry Morgenthau nursed it after Undersecretary John Hanes bred and produced the rabbit in the Treasury's warrens.

Early one morning last week Franklin Roosevelt called to him Secretary Morgenthau, as well as Chairman Doughton and Representative Jere Cooper of the House Ways & Means committee, and in their presence he strangled his only 1939 rabbit. He told them that the Hanes plan must not be given to Congress as an Administration plan--he wanted Congress merely to extend present corporate taxes which expire December 31, and excise taxes which expire June 30.

He strangled the rabbit because Undersecretary Hanes bred it without even a stump of the undistributed profits tax tail which Franklin Roosevelt so much admired in the 1936 tax rabbit bred by the late Herman Oliphant.* In simple terms, the Hanes formula was:

> Abolish the undistributed profits tax. substituting a flat 18% corporation income tax with special exemptions for small business.

> Alter the capital stock and excess profits taxes so as to allow annual declaration of stock values, and three-year carry-overs of losses against profits.

It mattered not to the President that his Commerce Department's own Business Advisory Council had promulgated a tax revision program just like John Hanes's. What the President stuck for was the undistributed profits tax, a symbol to him of taxation-for-social control. Its aim is to force rich corporations to distribute earnings instead of keeping them in surplus. It also forces not-so-rich corporations to pay out, in dividends, earnings which they may need for capital expansion, or to pay debts, or as insurance against lean years. When Chairman Pat Harrison of the Senate Finance Committee managed to carve this tax down to a vestigial nubbin of 2 1/2^% last year, Franklin Roosevelt was so angry he would not sign the bill.

The sudden obsequies of John Hanes's rabbit were a shock to the Treasury Department and to Congress. Pat Harrison promptly declared he would try to revive it, would call up the Hanes plan for consideration by his committee. Secretary Morgenthau, asked whether the President had forbidden his Treasury men to submit their studies to Congress, tactfully replied:

"That's ridiculous! We're living under a democracy, thank God!"

But he did not deny that he and John Hanes and Herbert Gaston and anyone else from the Treasury who might be invited to the Capitol, were forbidden to recommend any tax revision.

At his next press conference the President modified his resistance. He called one more tax revision conference, including Pat Harrison and John Hanes, but emphasized that any course they took must: 1) produce no less revenue than the present laws, 2) provide some way of preventing corporate profit hoarding.

Conferee Harrison informed Franklin Roosevelt that: 1) he was going to get a tax bill whether he liked it or no, and 2) it would enact most of John Hanes's plan. Messrs. Hanes and Morgenthau were discreetly reticent. Loyal Representative Bob Doughton squirmed so much that Pat Harrison told him not to worry, the Senate would write the bill. Franklin Roosevelt reddened, let Pat Harrison leave unrebuked, uncontradicted.

> When soft coal labor negotiations reached a crucial deadlock the President called operators and miners to the White House. As a prelude to ordering them to reach agreement (see p. 20), he reminded them that a lot of his family's money came from coal. His rich Grandfather Warren Delano had anthracite holdings in eastern Pennsylvania, where there is still a ghost town named Delano. As a young husband in 1908 he rode horseback with his uncle, another Warren Delano, over the Cumberland ridges of Virginia to inspect bituminous properties in Kentucky's Harlan County, later to be called "bloody" for its bitter strikes and brutal strikebreaking. His point: Franklin Roosevelt knows about coal mine management from personal experience.

> To Congress the President sent his second installment of Reorganization, which was speedily approved (see p. 19).

> Cutting out Adolf Hitler for the affections of Argentina is a project high on Franklin Roosevelt's "must" list. Last week he discussed at press conference a letter which he wrote to Secretary of State Hull last month. The subject: Argentine canned corned beef. To Mr. Hull the President said that the Buy American Act* would not be violated if the Navy Department were to accept the bid of Argentine Meat Producers Cooperative (a Government subsidy) to supply 48,000 Ibs. of corned beef at less than 16-c- per lb., nearly 8-c- under the nearest U. S. bidder, 14-c- under after deduction of 6-c- duty. To correspondents Mr. Roosevelt declared that he did not know why South American corned beef was "infinitely better" than that from the U. S. prairies, unless foreign cows are just naturally better tasting than U. S. cows./- If correspondents did not believe him, he said, let them try a can of Argentine beef on their next camping trip.

U. S. cattlemen and their spokesmen in Congress exploded with indignation at this Presidential statement. In Argentina whose frozen (but not corned) beef has been kept out of the U. S. on the grounds that the country harbors hoof & mouth disease, his words were acclaimed. Said Argentine Foreign Minister Jose Cantilo in Buenos Aires: "A fine gesture! ... An important precedent in friendly relations!"

> The President offhandedly announced that the Navy's highest officer, Chief of Operations William Daniel Leahy, who is to retire soon, will replace Governor Blanton Winship of Puerto Rico. "Winship's dismissal," Utah's Senator King called it. "Winship kicked out!" yelled newsboys in San Juan. Sixty-nine-year-old Governor Winship for a year has talked of quitting to live on his Major General's pension. Recently he has tiffed with his superior, Secretary Harold Ickes. Said Blanton Winship last week to the 1,700,000 Puerto Ricans whom he has ruled for five years: "You are all damned lucky to get Admiral Leahy."

A booming new aspect of national defense prompted Franklin Roosevelt in this appointment. Puerto Rico is to become to the Caribbean defense area what the Navy's strongly fortified Pearl Harbor in Hawaii is to the Pacific: the Navy is installing a $9,300,000 submarine and air base there; the Army planning to spend some $20,000,000 on air bases, antiaircraft, garrisons.

* President Roosevelt last week appointed, to succeed Oliphant as general counsel of the Treasury, his friend Tommy Corcoran's friend Edward H. Foley Jr., 34, acting counsel since December.

* Passed in 1933, requiring the Government to use only U. S.-made supplies and equipment.

/- Reason: South Americans corn choice cuts.

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