November 12, 1941
To: The Secretary
From: Mr. Blough
Yesterday, November 11, 1941, while discussing with Secretary Morgenthau a speech which he proposed to give before the National Grange on Saturday, Mr. Harry White said that he understood Mr. Henderson was disturbed because he had not been consulted about the proposed tax legislation. The Secretary said that he had talked with Vice President Wallace who had told him that twice within the last two weeks Mr. Henderson had presented a tax plan to the SPAB. The Secretary then called Mr. Henderson and the conversation was heard over the loud speaker by the group present in the room. The Secretary mentioned the matter about which Vice President Wallace had spoken. Mr. Henderson said that he had not submitted any tax plan, that he had presented a memorandum indicating the factors affecting the inflation situation, including taxation. The Secretary said that that wad not what Mr. Wallace had said and that he was embarrassed about it. Mr. Henderson said that he had been very much embarrassed by not knowing about the plans of the Treasury Department. The Secretary then invited him to come to the Treasury on November 12 at 3:15 p.m., and said he would try to get Chairman Eccles also.
The meeting was held in Mr. Sullivan's office. Present were the Secretary, Chairman Eccles, Mr. Henderson, Assistant Secretary Sullivan, Mr. Barnard, Mr. Tarleau, and Mr. Blough. The Secretary explained briefly what the situation was and Mr. Sullivan outlined the matter at somewhat greater length. He pointed out that the Treasury's plan involved a number of things in addition to a withholding tax but that it was decided to break the plan into the part which would be asked for immediately and the part which would be asked for later. Chairman Eccles said that he thought it would be impossible to get the withholding tax without getting the other part at the same time or previously. He said he thought it would be necessary to close the loophole, strengthen the excess profits tax, and do other matters which Labor insisted on having done, such as increasing surtaxes, before it would be possible to get the withholding tax.
Mr. Henderson and Mr. Blough then engaged in some discussion of the work done by Mr. Shoup and his group; Mr. Blough indicated that the Shoup report had been discussed exhaustively with members of other governmental staffs, including those of Mr. Eccles and Mr. Henderson. Mr. Henderson indicated that it would be quite impossible to make any estimate of the inflationary gap without information which his office had concerning the plans for civilian production and for the "victory program." He said it was possible that ordinary production would be so diminished that there would be less purchasing power rather than more until the adjustment had been made and that this adjustment might be a slow process.
Mr. Henderson continued, saying that he had had some people working on the subject and had had Professor John Maurice Clark and Professor Calvin B. Hoover checking on the assumptions. Mr. Blough pointed out that Mr. Shoup had been in contact with members of Mrs. Henderson's staff in the process of preparing the study and also through the review previously mentioned.
The Secretary pointed out that matters were still in a preliminary stage and that no program had as yet "jelled." He asked whether if, through joint discussion, agreement could be reached on 80 percent (for example) of the program. Mr. Henderson and Mr. Eccles would refrain from attacking it when presented by the Treasury. They both said there should be a united front and no differences before the Committees, but indicated that they would like to testify.