the beneficial owners of both distributed and undistributed corporate income, the aim, as a matter of fundamental equity, should be to seek equality of tax burden on all corporate income whether distributed or withheld from the beneficial owners. As the law now stands our corporate taxes dip too deeply into the shares of corporate earnings going to stockholders who need the disbursement of dividends, while the shares of stockholders who can afford to leave earnings undistributed escape current surtaxes altogether.

This method of evading existing surtaxes constitutes a problem as old as the income tax law itself. Repeated attempts by the Congress to prevent this form of evasion has not been successful. The evil has been a growing one. It has now reached disturbing proportions from the standpoint of the inequality it represents and of its serious effect on the Federal revenue. Thus the Treasury estimates that, during the calendar year 1936, over 41⁄2 billion dollars of corporate income will be withheld from stockholders. If this undistributed income were distributed, it would be added to the income of stockholders and there taxed as is other personal income. But, as matters now stand, it will be withheld from stockholders by those in control of these corporations. In one year alone, the Government will be deprived of revenues amounting to over $1,300,000,000.

A proper tax on corporate income (including dividends from other corporations), which is not distributed as earned, would correct the serious twofold inequality in our taxes on business profits if accompanied by a repeal of the present corporate income tax, the capitalstock tax, the related excess-profits tax, and the present exemption of dividends from the normal tax on individual incomes. The rate on undistributed corporate income should be graduated and so fixed as to yield approximately the same revenue as would be yielded if corporate profits were distributed and taxed in the hands of stockholders.

Such a revision of our corporate taxes would effect great simplification in tax procedure, in corporate accounting, and in the understanding of the whole subject by the citizens of the Nation. It would constitute distinct progress in tax reform.

The Treasury Department will be glad to submit its estimates to the Congress showing that this simplification and removal of inequalities can, without unfairness, be put into practice so as to yield the full amount of $620,000,000-the amount I have indicated above as being necessary.

Turning to the temporary revenue needs of the Government, there is the item of $517,000,000, which affects principally the current fiscal year. This amount must in some way be restored to the Treasury, even though the process of restoration might be spread over 2 years or 3 years.

In this case also the formulation of taxes lies wholly in the discretion of the Congress. I venture, however, to call your attention to two suggestions.

The first relates to the taxation of what may well be termed a windfall received by certain taxpayers who shifted to others the burden of processing taxes which were impounded and returned to them or which otherwise have remained unpaid. In unequal position

is that vast number of other taxpayers who did not resort to such court action and have paid their taxes to the Government. By far the greater part of the processing taxes was in the main either passed on to consumers or taken out of the price paid producers. The Congress recognized this fact last August and provided in section 21 (d) of the Agricultural Adjustment Act that, in the event of the invalidation of the processing taxes, only those processors who had borne the burden of these taxes should be permitted to receive refunds. The return of the impounded funds and failure to pay taxes that were passed on result in unjust enrichment, contrary to the spirit of that enactment. A tax on the beneficiaries unfairly enriched by the return or nonpayment of this Federal excise would take a major part of this windfall income for the benefit of the public. Much of this revenue would accrue to the Treasury during the fiscal years 1936 and 1937.

The other suggestion relates to a temporary tax to yield the portion of $517,000,000 not covered by the windfall tax. Such a tax could be spread over 2 years or 3 years. An excise on the processing of certain agricultural products is worth considering. By increasing the number of commodities so taxed, by greatly lowering the rates of the old processing tax, and by spreading the tax over 2 or 3 years, only a relatively light burden would be imposed on the producers,

2d Session

No. 419

VETO MESSAGE ON H. R. 4777, A BILL TO PROVIDE FOR THE ADVANCEMENT ON THE RETIRED LIST OF THE ARMY OF VINCENT P. ROUSSEAU

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

RETURNING

WITHOUT HIS APPROVAL, H. R. 4777, A BILL PROVIDING THAT FIRST LIEUTENANT VINCENT P. ROUSSEAU, UNITED STATES ARMY, RETIRED, SHALL HAVE THE RANK AND RECEIVE THE PAY AND ALLOWANCES OF A CAPTAIN ON THE RETIRED LIST OF THE UNITED STATES ARMY

MARCH 3, 1936.-Referred to the Committee on Military Affairs and ordered to be printed

To the House of Representatives:

I return herewith, without approval, H. R. 4777, a bill providing that First Lt. Vincent P. Rousseau, United States Army, retired, shall have the rank and receive the pay and allowances of a captain on the retired list of the United States Army.

From the facts in this case of record in the War Department it appears that Vincent P. Rousseau entered the Regular Army as a provisional second lieutenant of Infantry, June 18, 1917, with rank from June 5, 1917; promoted first lieutenant with rank same date; and held a temporary commission as captain from August 5, 1917, to November 9, 1919. He was placed on the retired list as a first lieutenant, November 13, 1919, because of disability resulting from wounds received in action overseas, August 2, 1918. Under the general legislation enacted June 21, 1930, he was advanced on the retired list to his highest wartime rank of captain. That legislation authorizes the advancement of retired officers, who served with credit during the World War, to the highest rank held by them during such service, and also provides that such advancement shall be without any increase in pay or allowances.

H. Docs., 74-2, vol. 12- 47

Briefly stated, the ultimate purpose of this measure is to increase the annual compensation of this retired officer from $1,950 to $2,340. In this connection, it appears that Captain Rousseau's compensation is being increased regularly under existing law by virtue of the fact that having been retired for disability resulting from wounds received in action, he is credited with inactive service on the retired list for longevity pay purposes.

I have been advised by the War Department that Captain Rousseau would not have been eligible for promotion to the permanent grade of captain, had he remained on the active list, until July 1, 1920, and his retirement November 13, 1919, was approved and effected only after a retiring board had determined that he was incapacitated for active service, and that the action in his case was strictly in conformity with the governing laws. Therefore, I can see no reason for singling him out for preferential treatment at this time for the purpose of conferring upon him the pay of a captain, which grade he did not hold on the date of his retirement.

THE WHITE HOUSE,

March 3, 1936.

FRANKLIN D. ROOSEVELT.

[H. Rept. No. 1128, 74th Cong., 1st sess.

The Committee on Military Affairs, to whom was referred the bill (H. R. 4777) to provide for the advancement on the retired list of the Army of Vincent P. Rousseau, having considered the same, submit the following report thereon with the recommendation that it do pass:

It is the intention of this bill to correct what is believed to be an administrative error on the part of the retiring board who on November 13, 1919, ordered the beneficiary under this act to be retired as a first lieutenant.

Mr. Rousseau prepared himself at the time of the Mexican border trouble, studying all the while in preparation for an examination for a commission; stood 10 mental examinations in December 1916, and in addition to successfully passing these, also passed a test in horsemanship at Fort Ethan Allen, Vt., and June 5, 1917, was commissioned second lieutenant, provisional. He was then sent to Fort Leavenworth, Kans., for training and was commissioned first lieutenant and assigned duty with the Thirty-ninth Infantry at Syracuse, N. Y. This commission was dated June 5, 1917, and under date of August 5, 1917, was commissioned captain, temporary. His regiment was then at Camp Greene, Charlotte, N. C., where it was recruited to full strength and made a part of the Fourth Division. He served with that regiment throughout the war.

On the night of August 2, 1918, he was seriously wounded. A fragment of an aviation bomb from a German airplane which attacked his regiment as it was preparing to cross the Vesle River near the town of Fismes, pierced Captain Rousseau's helmet and lodged in the left motor area of his brain, paralyzing the right side of his body. Dr. Harvey Cushing, of Boston, operated on him in a field hospital but it was not until 2 months elapsed that he had gained partial use of his side and medical authorities tell him that no further improvement is possible because the cells of the motor area of the brain are not replaceable. He was returned to the United States, where he underwent a second operation, where part of his skull was replaced, it having been necessary in the former operation to permit this hole in his head to remain open. This last operation was performed at Cape May, N. J. At that time Captain Rousseau was suffering from a cold and the ether caused him to develop double ether pneumonia which resulted in empyema and necessitated the removal of two sections of ribs in order that the chest cavity might be drained. This last operation has resulted in leaving him about thirty pounds under his normal weight which he has never been able or expects to be able to regain.

In November 1919 he was ordered before a retiring board at Charleston, S. C. Upon arrival there he was told by the colonel in charge that he was to be retired

on permanent rank as first lieutenant. He had been told by several of the members of his class at Leavenworth that they were due for examination for their permanent commissions in about 3 months. He asked for extension of leave of absence to enable him to come up for that examination. The colonel informed him that this was not within his province and that he would have to see The Adjutant General. He immediately boarded the train for Washington, only to be told by The Adjutant General that the law did not provide for the extension of time, and directed him back before the retiring board, where he was retired as a first lieutenant.

It seems to your committee that the War Department deliberately rushed this severely wounded officer before the retiring board to deprive him of being retired as a captain of Infantry, in which capacity he had served throughout his service in France. The War Department records show that other of his classmates were retired with the rank of captain in the month of January 1920, while Mr. Rousseau was retired with the rank of first lieutenant in November 1919. We do not believe that the War Department should, for technical reasons, take advantage of the fact that an officer was wounded in action to deprive him of one grade in rank. Therefore, your committee urges that this bill do pass.

We wish to call to the attention of the House the fact that this bill only increases the annual retirement pay of Mr. Rousseau by $390 per year. And again we call your attention to the fact that the War Department deliberately rushed this wounded officer through for retirement 2 months ahead of his classmates to prevent him from receiving the small sum of $390 per year. In other words, a severely wounded officer was discriminated against in favor of other officers who came out of the Army in good physical condition.

By reason of his forced retirement Mr. Rousseau, up to the present time, has been deprived of $6,240 in retirement pay and we believe this wrong should now be corrected.

There is attached hereto and made part thereof the report of the Secretary of War dated February 26, 1935:

Hon. JOHN J. MCSWAIN,

WASHINGTON, D. C., February 26, 1935.

Chairman, Committee on Military Affairs,

House of Representatives.

DEAR MR. MCSWAIN: Careful consideration has been given to the bill H. R. 4777, Seventy-fourth Congress, first session, providing for the advancement on the retired list of the Army of Vincent P. Rousseau, which you transmitted to the War Department under date of February 2, 1935, with a request for information and the views of the Department relative thereto.

There is no applicable provision of existing law on the subject.

The records show that Vincent Paul Rousseau was born in Vermont, May 5, 1893; accepted appointment as provisional second lieutenant of Infantry, Regular Army, June 18, 1917, with rank from June 5, 1917; was promoted to provisional first lieutenant with rank also from the latter date; and was a temporary captain from August 5, 1917, to November 9, 1919. Under provisions of Section 1251, Revised Statutes, and the act of July 9, 1918 (40 Stat. 852), he was retired from active service as a first lieutenant, November 13, 1919, due to disability resulting from wounds received in action.

In accordance with the act of Congress approved June 21, 1930 (46 Stat. 793), the beneficiary was advanced on the retired list to his highest wartime rank of captain. That act, under the provisions of which many other retired officers, who served creditably in the World War, have likewise been advanced to the highest rank held by them during such service, specifically prescribes that such advancement shall be without increase in pay or allowances. The War Department strongly favored and urged the passage of that form of general legislation, but has consistently opposed any increased pay or allowances as a result of promotion of officers on the retired list to the highest rank held by them in the World War.

At the present time Captain Rousseau receives the retired pay of a first lieutenant, the grade he held as a provisional officer at the time of his retirement, amounting to $1,950 per annum, whereas if granted the retired pay of a captain, as contemplated in the proposed legislation, he would receive $2,340 per annum. As Captain Rousseau was retired for disability resulting from wounds received in action, he is allowed increase in longevity pay in accordance with the act of March 2, 1903 (32 Stat. 932).

H. R. 4777 is one of the many bills that have been introduced in Congress which would extend preferential treatment to an individual of a class not accorded