r. S. Congress. Senate. HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON MILITARY AFFAIRS. UNITED STATES SENATE SEVENTY-FOURTH CONGRESS FIRST SESSION ON H. R. 5529 AN ACT TO PREVENT PROFITEERING IN TIME OF WAR PEACE 139712 MAY 25 AND 31, 1935 Printed for the use of the Committee on Military Affairs UNITED STATES WASHINGTON: 1935 Cout. Supt. Ore. 6-18-35 TO PREVENT PROFITEERING IN WAR THURSDAY, MAY 23, 1935 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON MILITARY AFFAIRS, Washington, D. C. The subcommittee met, pursuant to call, at 10:30 a. m., in the committee room of the Senate Committee on Military Affairs, Capitol Building, Senator M. M. Logan presiding. Present: Senators Logan (chairman), Thomas of Utah, and Carey. Also present: Senator Nye; John T. Flynn, chairman of the advisory committee to the Special Committee Investigating the Munitions Industry of the United States; Paul J. Kern, counsel to the advisory committee; Capt. W. S. Farber, United States Navy; Lt. Col. C. T. Harris, Jr., United States Army; and First Lt. E. M. Brannon, United States Army. The subcommittee hereupon proceeded to the consideration of the bill (H. R. 5529) to prevent profiteering in time of war and to equalize the burdens of war and thus provide for the national defense and promote peace. The CHAIRMAN. The hearing will please come to order, gentlemen. Senator NYE. I will let you produce the evidence on your side of it first. I will leave it to you to present it as you think proper. Mr. NYE. Well, Mr. Chairman, as you have been so nice to say, the report which the Munitions Committee has made, and which accompanies the bill, is very complete, I think, and covers quite in entirety the purposes the committee has tried to serve in its legislation. You understand, of course, that our bill is an amendment to or a substitution of the so-called " McSwain bill ", which the House has passed. The House was sufficiently considerate to write into its bill on the floor of the House, a provision, which was done solely for the purpose of giving the Senate a chance to write in its war profits bill. Without that action being taken, our hands would have been tied over here, and we couldn't have proceeded with any revenue legislation. The bill in its present form serves, I think, in a very large way, that purpose which has awakened so large an interest, namely, in taking the profit out of war. It must be apparent to anyone who gives even only casual consideration to the bill that the bill does not undertake to limit the profits of corporations or individuals in time of war. It says in effect, "Go and make all you can and all you will." But after the corporations and individuals have made it, they at once are subjected to such drastic rates of income taxation that you have at once taken the profits out of war. The bill calls for this new wartime tax rate to be effective upon the declaration of war, and it would do that job that so many people are talking about as being an important job, namely, taking the profit out of war. A purpose that is overlooked, though, by many, in connection with this legislation, is that of paying for the war as we fight it. How near this bill would come to accomplishing that is perhaps best indicated by the study that was made as to what the result would have been had this bill been in effect during the 2 years we were participating in the World War. That study has indicated that these tax rates provided in this bill would have brought to the Government revenue greater than was the outgo of the Government during those 2 years, which gives, it seems to me, sound ground upon which to say that we can pay for war as we fight it, if we are inclined to do it. Now, the contention is made that this is far too drastic, that when you come down to a point where you permit men to have incomes of not more than $10,000 a year, you are stepping upon the toes of thousands of people who are accustomed to more than that to maintain their estates and themselves and their families. That is, of course, in some degree, a valid objection. But at moments like that, it seems to me that we who are having to deal with it should remember, first, last, and always, that this is war we are into, and it is beyond my comprehension to understand why any American, man or woman, should be left anticipating that in the event of war they are going to have to do other than sacrifice and do with less. It is doubtless true that there are thousands of people accustomed to more than $10,000 a year to maintain themselves. But I think no injustice is worked upon man or woman by such limitation of income as would be occasioned by this sort of taxation. After all, it would be through a limited period; and, after all, those who are accustomed to the higher standards of living that couldn't be met by an income of $10,000 a year, in the main they have access to surpluses that are stored away, and that they can draw upon through times like that. Objections have been made involving points of insurance-what of the man who has insurance policies calling for premiums of more than $10,000 a year? That has been constituting a headache for our committee all the way through. But I think Mr. Flynn and Mr. Kern this morning are prepared to offer the amendments to the pending bill, which would accomplish a satisfactory solution of that question. Now, then, there are six titles in the bill. Title 1 is exclusively a tax title. Title 2 contains the plan which would enable the War Department, or the Government, during the war, to draft industrial management, if it saw fit to do it, if it had occasion to do it. I think you were on the floor yesterday, Mr. Chairman, when I was telling of the experience the War Department had with the du Ponts, the Old Hickory case, the experience of the Navy Department with the New York Shipbuilding Co., and the request for additional shipbuilding capacity. There are cases like that in mind, as affording reason for need, or rather, affording need, for such provision of law as would enable the Government to draft men who were at strategical points and to force them, as a man in the service would be forced to do, what the Government considered essential to be done during the war. Title 3 is the Commodity Control title, which gives the Government access to machinery to control prices in time of war. Personally, I think, with this drastic income provision, there is going to be little need for resorting to any of those features, because there isn't the incentive to men to get around doing that which is of the utmost need to the Government in time of war. The fourth title is the Security Exchange title, which gives to the President the right to close security exchanges in time of war and to stop all gambling of that sort. Title 5 is the War Finance Control title, which has the Government organized to do the thing that it had to do in the last war; that is, finance essential industry. The point has been made that with a strict limitation of profits in time of war, it would be difficult to secure the credit that industry would need to afford that expansion that war was calling for. If that is true, then we need to but remember that during the World War the Government had to finance, and did finance in the largest way, the increase that industry was called upon to afford in the way of capacity. The sixth title, and the final title, is that affording war-resources control, and there again the price-fixing, price-blanketing provisions are contained. Now, I think I have stated as briefly as I know how, the general provisions and purposes of this bill. Mr. Flynn and Mr. Kern, who have headed the staff of our Munitions Committee in drafting and in the research work that was necessary in so large a way, are here this morning, and they are prepared with amendments which our committee is asking be made in its own bill at this time; and Mr. Flynn stands ready to respond I know, most intelligently, to any inquiry that might arise in the minds of any member of the committee. The CHAIRMAN. Let me ask you, Senator, if you have seen the report from the War Department; or rather, its protest against parts of the bill? Mr. NYE. I have not. The CHAIRMAN. I should have furnished you with a copy of that but I only received it yesterday from Senator Sheppard. Mr. NYE. I suppose it is in keeping with the discussion we have had. Lieutenant Colonel HARRIS. We agree with some things and don't agree with others. The CHAIRMAN. I suggest that if you care to make any suggestions with regard to the report, now that it has been received, you can do it either now or you can later make any suggestions or response after Colonel Harris has testified. Mr. NYE. It seems to me that this is so extended that it ought to be laid before our entire committee. The CHAIRMAN. I suggest that you take it along; and then, after you have examined it, if you desire to make further statements, we will have that done before we have the hearing printed. Mr. NYE. I would just suggest to Mr. Flynn that since it is so extended, the entire Munitions Committee might want to have ac |