A. The Late Thirties

In the first year or two of its existence, the Division of Tax Research had only 15 to 20 staff members. With this small personnel, and with a research responsibility ranging over the whole field of taxation, it was found impracticable to organize the Division along rigid lines or to develop extensive specialization. Rather, the Division maintained a fluid organization which adapted itself to the various research projects as they developed. Certain projects called for the time of only one person, other projects for the time of several. Diversity in assignments and frequent regroupings of personnel from project to project were the rule.

Although it was felt that the setting up of a formal subdivided structure would interfere with the free flow of research effort, the following staff categories were recognized for working purposes: (1) the Director; (2) the Assistant Director; (3) the senior staff members, who were to "carry on independent projects under the direction of the Director and who supervise the work of junior staff members;" /4/ (4) the junior staff members, "who ordinarily do not carry on independent projects under the immediate direction of the Director, but who usually work under the direction of the Assistant Director or a senior staff member" and who "shall be allocated as seems desirable in connection with specific projects;" /4/ and (5) the stenographic, clerical, and administrative employees. It was found that those rather loose lines of division gave the necessary flexibility for the Division's work without sacrificing responsibility or imposing unduly on the Director's time.

In facing the question of how to organize the Division most efficiently, the Director wrote an informal memorandum in 1938 describing the basic functions of the Division and some alternative ways of carrying them out. He listed the functions as those of (1) reference work, (2) compiling statistical information about taxes, and (3) analysis and interpretation. He examined the possibility of subdividing the Division along the lines of these basic functions. He raised the following questions: Would it be advisable to split off the reference work and specialize it in the hands of certain persons whose duty it would be to answer requests on the basis of the materials already in the files? Likewise, should the statistical compilation and research be separated from the tax analysis? Or would it be necessary in the first case to have the compiler and analyst also do the reference work, and in the second case, to have the analyst combine the collection of statistics with the analyses of those statistics? On the grounds that able thinkers are frequently poor administrators and that reference work would be excellent training for younger staff members who had not yet developed advanced analytical capacity, the Director reached the following conclusion: /4/

For the purpose of discussion and not to prejudge the question, it is suggested that while the Division is too small and the demands on its time are too varied to permit a complete specialization, further steps might be taken in the future than in the past to bring about this variety of specialization.

The Director also discussed the suggestion "that individuals be specialized along the lines of individual taxes." The suggestion envisaged one individual becoming a specialist in individual income taxation, another in estate and gift taxation, etc. Another possibility considered was to have some people specialize on Federal taxes and others on State taxes. But the time was not yet ripe for more than a limited degree of specialization of any sort. The project was the thing.

B. The Defense Period

Under the pressure of defense finance research, the Division gradually expanded during the fiscal years 1940 and 1941, reaching a total personnel of 31 by July 1, 1941, consisting of 17 professionals and 14 non-professionals. Throughout this period, the Division continued to operate very largely as a single unit without any rigid lines dividing one group of staff members from another on the basis of functions or research specialty. Adaptation to the research job at hand was still the guiding rule of organization. In fact, absence of fixed and formal structural lines led the Treasury to exempt the Division, until 1942, from the general requirement that an organizational chart be submitted each year.

Naturally, however, as the professional staff was expanded and as the demands of defense and war finance concentrated attention on certain areas of the tax field, particular individuals began to specialize on particular taxes. The excess-profits tax research began to gravitate to certain staff members; individual income tax research, to certain others; work on excises and sales taxes, to still others. That is, the lines of specialization were beginning to form as a matter of convenience and efficiency, but they had not yet become formal or rigid. Special competence and experience in one type of tax did not exempt the researcher from assignments in other phases of taxation.

At the same time that some of the major Federal taxes began to act as organizational magnets, the component parts of the work of directing the Division became increasingly well defined. The following managerial and directing tasks became clearly identifiable: (1) the basic planning of the general research program of the Division, with special emphasis on the drawing up of research programs designed to meet the needs of the Administration and to meet the schedules of Congressional action; (2) the scheduling and management of specific research projects; (3) the technical review of research products; (4) the policy supervision and responsibility for the administrative and staff services of the Division; and (5) the handling of the "information services" of the Division, including the answering of requests and the composition of Treasury statements on tax matters. As the Division expanded, the proper discharge of these functions became too big a burden for the Director and a single assistant, and the work of aiding the Director in managerial tasks eventually had to be divided between two assistants.

C. The Early War Period

The greatest expansion of the Division's staff and responsibilities occurred in the fiscal year 1942 just before and just after Pearl Harbor. Late in 1942, in connection with a request for a deficiency appropriation under the heading, "Collecting the Internal Revenue," from which the Division derived the majority of its funds, it was stated that a sharp increase in the number of employees was "necessitated by the new tasks and additional responsibilities with respect to the preparation and drafting of tax legislation, the great increase in the scope of Federal taxes and the amounts of revenue which must be raised, and the increase in the number of revenue bills before the Congress for consideration." /5/

At the same time, additional employees were requested for the special research project on Federal-State-local fiscal relations which was being conducted by the special Committee on Intergovernmental Fiscal Relations appointed by the Secretary of the Treasury in 1941. In terms of organization, this special study was carried on by a separate unit which was in, but not of, the Treasury. Nonetheless, since it was to work closely with the Division and since it derived part of its funds from the same appropriation, "Collecting the Internal Revenue," which provided most of the Division's funds, some interchange of staff occurred. In fact, had not the defense and war emergency intervened, the allocation of staff to the special study would have been larger and that to the Division smaller than the allocations actually made.

During the fiscal year 1942, the staff of the Division grew from 31 to 50, an increase of two-thirds. Operating under enormous pressure and divided between two buildings, the organization began to develop certain stresses and strains. The system whereby the Director and Assistant Director made assignments directly to a large number of senior staff members began to become cumbersome and unwieldy. True, the maintenance of direct lines from the Director and Assistant Director to the senior staff members contributed substantially to the morale of the latter in that they were able to operate rather freely and "close to the throne." But it became apparent that this arrangement imposed too great a drain on the Director's and Assistant Director's time and that inefficiencies in the use of research resources were developing.

As a consequence, two important steps were taken to set up a formal organization to facilitate the handling of the enormous research task at hand. The first step was taken in January 1942, when the function of assisting the Director in supervising the Division's work was divided into two parts and assigned to two coordinate Assistant Directors, one responsible primarily for the technical aspects and the other for the operational aspects of the Division's work. The first was charged with the following responsibilities: (1) to take charge of divisional work directed toward the formulation of Treasury tax policy and the presentation of documentary support in connection with revenue programs; (2) to take charge of the technical side of the Division's research program, including technical review of research products; and (3) to serve as a member of the Division's research committee. The second was assigned the following responsibilities: (1) to take charge of research and administrative operations, including the planning and scheduling of research projects and the direction of the administrative and staff services of the Division; (2) to take charge of the information services of the Division; and (3) to serve as a member of the research committee. The research committee was to consist of the Director and the two Assistant Directors, and was to meet semi-monthly to discuss and approve major research tasks of the Division.

Having worked out this functional division at the top, the Division next found it necessary to group the professional staff members along tax-by-tax lines for purposes of developing specialization and facilitating the performance of research tasks. This work of sub-dividing the Division was undertaken in the late winter and spring of 1942 and was put into effect in late spring. As may be seen from the attached organization chart (Exhibit 1a), separate sections were set up to handle research on business taxes, on individual income and estate taxes, and on sales and excise taxes. In addition, a special studies section consisting of several consultants and junior staff members was set up to serve as a "shock troop" group whose efforts could be directed toward whatever phase of the Division's work was under greatest pressure at any given time in connection with the wartime finance program and particularly with Congressional action. The stenographic and administrative services were put in charge of a secretarial assistant operating under the supervision of an Assistant Director. The stenographic services were largely handled on a pool basis for the whole Division. The three tax-by-tax research sections were put in charge of principal economic analysts (P-6) operating directly under the Assistant Director (P-7) in charge of operations.

Although this change involved problems of internal adjustments at a time when the Division was under extreme pressure in connection with wartime revenue legislation, the arrangement proved itself under fire during the war years. Owing to specialization in particular areas, most of the work that had to be done flowed almost automatically in certain directions without major problems of allocation. The generally satisfactory nature of the structure thus developed was underscored by its continuation in basic outline throughout the war and early postwar periods (though an important modification later replaced the two Assistant Directors and three section heads with one Associate Director and first three, then four, new Assistant Directors in charge of the major research sections).

This is not to say that all of the structural problems of the Division were solved by the new lines of organization which were set up. In fact, enough problems remained to load the Division to call upon one of its consultants to survey the organization and management of the Division in the summer of 1942. While the resulting analysis did not go into the over-all organization plan of the Division, it searchingly inquired into the procedures and research arrangements within the Division. Many, if not most, of its suggestions were adopted in the later operations of the Division and it may be of interest to point up one or two improvements in the working structure of the Division that were made in part as an outgrowth of the organizational survey. /6/

First, the survey referred to the unsatisfactory housing arrangements which put part of the Division in one building and part in another, and which resulted in considerable lost motion. This situation was remedied in the latter half of 1942 when the entire Division was brought together on one floor of the main Treasury Building. The flow of work as well as the lines of control were considerably improved by this purely physical move. The move also, for the first time, permitted the physical groupings of personnel in accordance with the organization plan and chart worked out in the spring of 1942. Thus, there was an automatic clarification to both old and new employees of the structure of the Division and of the tax-by-tax specialization of the professional personnel.

Another change that went into full effect at the time of the physical consolidation of the staff was the modified pool system of organizing the stenographic services. Instead of having one pool for the entire Division, the stenographic staff (other than the secretaries assigned to the directing personnel) was broken into three pools, each consisting of three or four stenographers, to correspond with the three major operating sections of the Division, namely, the business tax, individual tax, and sales and excise tax sections. Under this arrangement, the head of each stenographic pool served both as secretary to the head of the section and as supervisor of the pool. In the latter capacity, she was charged with directing the flow of stenographic work for the section and with the day-to-day assignment of typists and stenographers to the staff members in the section.

Once the new plan of organization was put into full effect as a result of the relocation of the entire Division in one place, the problems of organization receded into the background. The period of rapid expansion of personnel and of basic adaptation of the Division's structure to its enlarged problems and personnel was over. From that point on (in late 1942), it was largely a question of perfecting the organization, and of gradually adapting it to changes in personnel and shifts in the emphasis of the Division's research program.

It should be underscored that in a research division of limited size (the Division's professional staff numbered between 20 and 25 during the war), the repercussions of personnel turn-over on the organizational set-up can be very significant. Although certain underlying principles of organization were, of course, followed in setting up the Division's formal organization in 1942, some features of the plan were bound to represent an adaptation to the talents and temperament of the Division's top personnel. For example, the specific allocation of functions to the two Assistant Directors was in part dictated by their respective qualifications. The grouping of particular taxes in particular sections was again affected in part by the training, competence, and personality of the persons serving as section heads (though, of course, the affinities which exist among certain groups of taxes could not be ignored).

Two examples of personnel separations from the Division which raised distinct problems of organization may be cited. One was the departure for military service of the Assistant Director in charge of operations. The other was a similar departure of the man in charge of the individual income and estate tax section. With reference to the first case, the Division employed one of its consultants on a full-time basis for six months as acting Assistant Director, meanwhile conducting a search for a longer-run replacement. Failing in this search and at the same time finding that the section heads were growing steadily in terms of experience and capacity for decision, the Division decided to operate with only one Assistant Director working closely with the Director and to allocate greater responsibility to the three section heads. This change, which took place early in 1944, will be discussed more fully below.

When the head of the individual income and estate tax section left for military service, that section was temporarily merged with the business tax section under the supervision of the head of the business tax section. This arrangement lasted about six months (in the latter half of 1943), but was dissolved at the time of the early 1944 modification of the Division's set-up. It is to be noted that in the modification, the estate tax work was shifted to another section. The previous head of the individual income tax section had also been an estate tax expert, thus accounting in part for the fact that these two taxes were grouped together.

Another phase of the Division's organization which was affected materially by the availability of personnel was the handling of the economic background and fiscal policy work incident to research on specific phases of taxation. The general question of whether this work should be handled within the sections, by a separate section, or by a separate section, or by a separate division, is discussed in Part IV below. Suffice it to say here that the decision to set up a separate economic background section in the Division operative during late 1943 and most of 1944 hinged in good part on the fact that personnel ideally suited to make a contribution in this area was available for that period.

An organization chart showing the structure of the Division as of November 25, 1943, is appended. (See Exhibit 1b). Several points of interest may be noted. The economic background section appears on this chart for the first time. The business tax and individual income and estate tax sections are shown separately on the chart, but were operating jointly under the supervision of the head of the business tax section. The consultants, listed in a separate box, served the Division in various capacities, some on general economic matters and others on specific taxes; their role in the Division is discussed below in Part IV.

D. The Later War And Early Postwar Periods

As mentioned above, the Division reorganized itself early in 1944 to take account of changes in personnel and in the distribution of its workload. The new set-up recognized the absence of one Assistant Director by increasing the functions of the remaining Assistant Director, by assigning greater responsibility to the section chiefs, and by setting up an Assistant to the Director with responsibility for general supervision of the administrative and staff services of the Division, for the correspondence and other "informational" work, and for special research assignments. At the same time, the sectional structure was somewhat modified, the new sections being: (1) the business tax section; (2) the individual income tax section; and (3) the miscellaneous and special project section (covering sales and excise taxes, estate and gift taxes, social security taxes, and liaison work with the Bureau of Internal Revenue). In addition, special work on economic and statistical matters affecting fiscal policy was put in charge of a full-time consultant who was assigned a staff of two professionals. While not a radical departure from the 1942-1943 set-up, the new arrangement modified it substantially to provide a better "fit" of personnel to workload. /7/

This basic pattern prevailed throughout 1944, although the group handling the economic and statistical background work faded out of existence as a separate entity later in the year. Again, this was in large part the result of a personnel change. The consultant in charge of the work became unavailable for full-time employment after mid-1944. Therefore, the work was apportioned among the three tax-by-tax sections and handled on a decentralized rather than a centralized basis.

In December 1944, the Director of Tax Research was named Assistant to the Secretary in charge of tax matters. Even prior to this time, his responsibility with respect to advising the Secretary and working with the Congress on tax matters had been growing steadily. Less and loss of his time remained for the direct supervision of the Division's research work. This trend continued throughout 1945, with the result that increasing responsibility was assigned to the Assistant Director, the three section heads, and the Assistant to the Director. It was therefore decided to request the Personnel Division of the Treasury and the Civil Service Commission to reclassify the Assistant Director to Associate Director, in which capacity he was increasingly acting, and the three section heads to Assistant Directors. At the same time, the two previous positions of Assistant Director would be cancelled, since they were no longer operative. Details of, and reasons for, this reclassification, which was approved by the Civil Service Commission in the summer of 1946, can be found in the attached copy of the letter from the Treasury Director of Personnel to the Executive Director and Chief Examiner, U. S. Civil Service Commission (Exhibit 2).

A phase of the Division's work which became more prominent with the close of hostilities and which accordingly was reflected in the organization of the Division was the work in Federal-State-local and international tax relations. Except for occasional questions that came up in these fields, this work had largely lain dormant during the war. However, with the new emphasis on international economic cooperation and with the problems of Federal-State coordination once more coming back into focus, the Division found it desirable to devote more of its attention to this work. Consequently, the Assistant to the Director was charged with the responsibility for research in this area and was assigned some part-time and some full-time staff assistants. It was found advisable to handle this work separately from the tax-by-tax sections since (1) it cut across tax lines into all fields of taxation and (2) it involved questions of intergovernmental relations requiring a rather distinct method of handling. As will be seen in the organization chart of July 1, 1946 (Exhibit 1d), this work was set up in a small separate section in charge of the Assistant to the Director. Early in 1947, a fourth Assistant Directorship was approved by the Civil Service Commission for the handling of this work.

In retrospect, it will be seen that the structure of the Division continually adapted itself to the changing size of the staff, to the relative emphasis on various phases of the Division's work, and to personnel changes in the higher professional grades. However, it should be also noted that the changes from 1942 on were generally within a tax-by-tax framework. The exceptions were, spasmodically, the economic background work and, increasingly, the work in intergovernmental tax relations. This clearly implies the judgment that specialization along tax lines was found to be the most efficient method of operation. It added the advantage of ease of management, clear-cut lines of responsibility, and the development of a high degree of skills through specialization.

It had the potential disadvantage of overspecialization and the accompanying danger of loss of intellectual stimulus to the professional staff members and of overemphasis on the particular rather than the general aspects of taxation. This disadvantage is not inherent in the tax-by-tax type of structure, given movement of personnel from one tax to another over a period of years. However, the danger must be recognized. Underemphasis of the general economic background and significance of specific tax problems is another danger of this type of specialized set-up. Against this, the Division's main defense was the employment of persons with a broad economic background and its emphasis on putting specific tax subjects in a general economic setting and bringing out the impact of specific tax change on the economy as a whole. If this emphasis were to be lost, however, the basic tax-by-tax organization might lead to submerging the general considerations in favor of the specific.

IV. Special Problems Of Organization And Procedure

Several problems of organization and procedure which confronted the Division during the war are of sufficient interest to warrant examination in greater detail. These problems were: (1) the coordination of the Division's work with that of other agencies; (2) the handling of general fiscal policy and economic background work relating to taxation; (3) the place of field work in the Division's research program; and (4) the policy with respect to publication and distribution of materials prepared by the Division.

A. Interagency Coordination Of Tax Research Activities

In developing the organizational structure for the handling of a function like that of tax research, one faces the problem of the proper allocation of functions among government agencies. When a particular subject becomes sufficiently important to call for a separate organization (as the tax research function did in 1938), a basic decision must be made as to what responsibilities and functions shall be withdrawn from existing agencies for regrouping in the new agency. In addition, there are the continuing problems of allocating new functions as they develop in a particular field and of avoiding duplication which might arise in the absence of coordination. In the case of the tax research function, the record shows that the participating agencies were clearly aware of the problem and attempted to achieve coordination by careful definition of the assignments of the different units participating in the functions and by positive cooperation to mesh the activities of each agency into those of the others.

The problem of coordinating Federal research in taxation arose at three levels: (1) among the bureaus and divisions of the Treasury Department itself; (2) between the tax staffs of the Treasury and the Congressional Joint Committee on Internal Revenue Taxation; (3) among the executive departments and agencies, several of whose responsibilities involved inquiries into special phases of taxation.

1. Coordination Among Treasury Units

In addition to the general responsibility for economic research in taxation which was assigned to the Division of Tax Research, three other units of the Treasury Department were assigned responsibility for special phases of the tax research function: (a) the Division of Research and Statistics, for revenue estimating; (b) the Office of the Tax Legislative Counsel, for the legal aspects of tax research; and (c) the Bureau of Internal Revenue, for research directly incident to the administration of the tax laws. A recurring question during the war period was whether this allocation of functions represented the most effective division of labor that could be achieved.

At the time that the tax research function was split off from the Division of Research and Statistics in 1938, the function of revenue estimating was retained by the latter. It was felt that the Division of Research and Statistics was best geared to handle the revenue estimating function, both in terms of its statistical responsibility and in terms of its continuing work on background data for the economy as a whole, upon which work revenue estimates are largely based. It was provided that revenue estimates under existing tax laws and under proposals for new tax legislation would be prepared by the Division of Research and Statistics at the request of the higher Treasury officials concerned with taxation. In practice, requests generally originated with, or were funneled through, the Director of Tax Research. In general, this arrangement worked satisfactorily, especially as aided by close contacts between the personnel making the estimates and the personnel drawing up the plans and conducting the research which gave rise to most of the requests for estimates.

It was also felt desirable to handle the Treasury's responsibilities for legal research in taxation, legislative drafting, and the review of internal revenue regulations separately from those of an economic, statistical, and administrative nature. To handle these regular research functions, the Office of the Tax Legislative Counsel was set up in the Office of the Secretary as of October 1, 1938.

The Bureau of Internal Revenue is the fourth Treasury unit responsible for certain phases of tax research. Its research responsibility during the war pertained wholly to the administration of the tax laws. It conducted statistical and other studies necessary to the administration of the internal revenue statutes (as, for example, the studies conducted by the Business and Industrial Research Division of the Income Tax Unit with a view to providing the economic background and setting up the standards for excess-profits tax relief cases). In addition, of course, the Bureau was responsible for providing statistical information derived from its various returns as requested for use in the research studies of the Division of Tax Research.

Coordination among the four Treasury units during the war was achieved both by the establishment and maintenance of clear-cut lines of jurisdiction and by developing close and harmonious working relations. Where necessary, conferences and working committees cutting across the lines dividing the four units were set up to achieve a coordinated attack on particular problems. Moreover, the offices requiring the most frequent contact with each other in their daily work -- Tax Research and Tax Legislative Counsel -- were physically located across the hall from each other, thus facilitating day-to-day coordination. Although merger of these two offices was suggested in some quarters, it was felt that their respective functions were so distinct; their respective staff requirements, subject matter, and research procedure so different and the benefits of specialization so marked, as to make it inadvisable to join the two divisions into one. Every effort was made, however, effectively to gear the work of each office into that of the other.

A concrete illustration of how the work of the Treasury units was tied together on a particular problem coordinated was presented by the Director of Tax Research before the House Appropriations Subcommittee in 1943. /8/

The division of functions can be readily illustrated. If, for example, Congress were to consider a general sales tax, the Division of Tax Research would analyze alternative methods of sales taxation from the point of view of their effect on revenue yields, price ceilings, cost of production, cost of living, the war effort, the distribution of the burden, and problems of administration. It would develop a set of specifications for the structure of such a tax, including the definition of the tax base, the nature of exemptions, deductions, and exclusions, the identity of taxpayers, and the over-all characteristics of the administrative procedure. In this connection, sales-tax experience and experience with related taxes by the Federal and State Governments and by foreign governments would be utilized. Legal problems such as questions of constitutionality, legal definitions, application of exemptions and rules of classification, problems of draftsmanship and like technical matters, would be handled by the Office of the Tax Legislative Counsel; administrative questions would be referred to the Bureau of Internal Revenue. If the sales tax reached the legislative stage, the Tax Legislative Counsel would cooperate with the congressional experts in the drafting of legislation for the committees of Congress and in the preparation of the committee reports. Should the sales tax be enacted, the Tax Legislative Counsel would review for the Secretary the regulations prepared by the Bureau of Internal Revenue relating to the interpretation and application of the tax. The Division of Tax Research and the Tax Legislative Counsel would cooperate in the preparation of tax forms and the necessary instructions.

2. Coordination Between Treasury And Congressional Tax Staffs

Just as the executive branch of Government developed research facilities in the field of taxation, so the Congress equipped itself with a research and investigative staff in this field. In 1926, Congress established the Joint Committee on Internal Revenue Taxation and instructed it to investigate the operation, effects, administration, and possible simplification of the Federal tax system and to report from time to time to the Senate Finance Committee and House Ways and Means Committee on its findings. A permanent staff was established to assist the Committee in carrying out these instructions. By development and direction of the Congressional tax committees, the staff acted as a fact-finding and advisory agency for them as well as for the Joint Committee itself. The staff gathered information on, and prepared analyses of the questions and proposals which the members of the tax committees submitted for examination. In addition, it conducted some longer-range studies paralleling to some extent these conducted by the Treasury staff.

As has already been indicated in sections D and E of Part II, above, conscious efforts to synchronize the research work of the Treasury and Congressional tax staffs resulted in the establishment of formal and informal working relationships, especially in the later war and early postwar periods. Through these efforts, duplication and conflict were minimized. This is not to say, of course, that all duplication of Congressional and Executive efforts is undesirable. In fact, it may be argued that some duplication is desirable and inevitable since the Joint Committee staff is directly attached to those who are formulating Congressional tax policy, while the Treasury staff is attached to those who are formulating Administration tax policy. Some duplication of this type would seem to be an appropriate part of the American system of checks and balances.

To coordinate the work of the two staffs and to make the most efficient and effective use of the combined tax research resources of the two branches of Government, much of the basic research looking toward war and postwar revenue legislation was carried out jointly. For example, the Individual Income Tax Act of 1944 designed to simplify tax compliance, and the Tax Adjustment Act of 1945, designed to speed corporate wartime tax refunds, were both developed through the cooperative efforts of the Treasury and Joint Committee tax staffs. In a speech prepared for delivery to the 1944 Conference of the National Tax Association, Chairman Doughton of the Ways and Means Committee stated: /9/

At this point, I emphasize the real advantages resulting from the cooperation and coordination of the staffs of Congress and the Treasury working as a unit. By such joint efforts, the committees and the Congress were able to evolve a sound system for the simplification of the individual income tax. The results of this joint cooperation were so successful that I feel that much can be accomplished through further joint cooperation on the subject of the postwar tax problem.

The two staffs continued their cooperative efforts in laying the research groundwork for postwar tax revision. The work proceeded at two levels during most of 1944, 1945, and 1946. A general committee with staff representation from the Joint Committee on one hand and the four units of the Treasury on the other met periodically (under the co-chairmanship of the Director of Tax Research and the Chief of the Joint Committee staff) to select various subjects for joint research attention, to discuss the results of subcommittee work, and to prepare joint conclusions and recommendations for submission to the Congressional tax committees. The second level of activity was a series of subcommittees with representatives from the various offices, which were organized to study particular subjects and to prepare reports on them as the basis for action by the general committee. One subcommittee was set up to consider postwar excise tax revision, another to study the tax treatment of cooperatives and other tax-exempt organizations, and so on. This joint activity did not, of course, eliminate separate work of the two staffs on various subjects of special interest to them. However, it provided a channel for cooperative action on the major tax policy problems which Congress was expected to face in the early postwar period.

3. Coordination Among The Executive Agencies

During the war, the problem of coordination of Government research activities in taxation was found to extend beyond the Treasury Department and the Congressional tax staff. Particularly as taxation came to be depended upon as one of the major instruments in wartime stabilization policy, other agencies responsible for stabilization found it necessary and desirable to undertake some research in certain phases of taxation. The Office of Price Administration, the Office for Economic Stabilization, and the Federal Reserve Board of Governors were among the agencies concerned with an integrated attack upon inflation, drawing heavily upon fiscal measures for support. In addition some tax and fiscal studies were carried on by the Budget Bureau, especially its Fiscal Division, which examined tax and fiscal questions as an incident to its over-all administrative control responsibilities and as part of the Federal budgetary procedure; by the Social Security Board, which examined questions of social security financing; by the Commerce Department, whose Census Bureau, the Office of Small Business, and Office of Business Economics were confronted with tax problems mainly in the business field; and by other agencies such as the Department of Agriculture, whose responsibilities involved studies of certain specialized aspects of taxation. Substantial coordination of the activities of these agencies in the tax field was achieved through continuous contacts and frequent conferences throughout the war. In addition, an interdepartmental tax committee was set up by the Secretary of the Treasury in 1944 to promote coordination and avoid duplication throughout the administration, especially on problems of postwar tax revision.

The Director of Tax Research in 1946 described the purpose of the interdepartmental tax committee in the following words: /10/

In addition to coordination within the Treasury and close working relations with the staff of the Congressional joint committee, there has been set up an interdepartmental committee of certain departments of the Government interested in fiscal affairs. This facilitates exchange of tax information and points of view with such agencies as the Budget Bureau, the Federal Reserve Board, and the Department of Commerce, among others, thus promoting coordination and the avoidance of duplication throughout the Administration.

H. The Handling Of Economic Background And Fiscal Policy Work

How to handle the work on the economic background and "fiscal policy" aspects of taxation was a recurring and troublesome question during the war. The general demands of the economic stabilization program on the tax system and the analysis of the broad economic implications of alternative tax measures and programs loomed large as part of the wartime research problem in taxation. This meant that tax research and tax programs had to be based in large part on an appraisal of the current and prospective economic situation. In practical terms, the Division could not develop realistic alternative tax programs without estimates of the size of the inflationary gap, data on the position of the fixed income groups, information on the efficacy of direct controls, etc. To obtain the needed data and convert it into useful form for purposes of tax analysis was clearly an essential step in war tax research. Whether this economic background would be filled in by other agencies of Government, by other divisions of the Treasury, possibly by a new division set up for this special purpose by a separate section with the Division of Tax Research, or by parceling it out among the existing tax-by-tax sections was a subject of lively debate several times during the war.

The demands of a total war effort on the tax structure had to be examined on a plane quite different from that of detailed studies into the operation, levels, and structure of particular taxes. For example, the ominous shadow of inflation was already crossing the economy in 1941, and tax policy had to be framed in terms of aiding in the battle against it. In November of that year, the Treasury gave serious consideration to setting up a separate fiscal policy section in the Division of Tax Research for the primary purpose of assessing the demands of anti-inflationary policy on taxation.

As visualized at that time, the section would have prepared estimates and appraisals each month of (1) the excess purchasing power likely to be in the hands of the public during the succeeding years, (2) the direct-control offsets to this excess, and (3) the amount and types of taxes or other fiscal measures needed to withdraw or sterilize remainder of the excess. In short, the section would have provided up-to-date estimates of the "inflationary gap" and the fiscal methods of closing it. It was estimated that a budget of not over $20,000 annually would be sufficient.

Late in 1941, it was decided not to establish the proposed section. Instead, the Division of Research and Statistics was instructed to extend its studies to provide specific estimates of the inflationary gap as part of its general studies of the operations of the economy as a whole. It was provided that the required work on income, expenditures, and prices as related to tax policy would be carried on by Research and Statistics with the close cooperation of Tax Research. To bring the work of other agencies to bear on the problem and to coordinate the technical efforts of the various departments implementing the Government's stabilization policy, both formal and informal interdepartmental committees were set up. Thus, through the Division of Research and Statistics and interdepartmental cooperation, the Division was able to tap the major resources in the field of general economic background.

Although outside sources thus furnished most of the information required for the formulation of alternative anti-inflationary tax programs, the Division still found it necessary to devote substantial staff time to reworking and interpreting the data and applying them directly to the tax problem. Therefore, the question still had to be faced whether to weave this work in with the rest of the Division's activities or to make special provision in its organization for the handling of this work. At times, it was handled one way, at times, another, depending on two principal factors: (1) the intensity of the demands for this type of work, and (2) the availability of specialized personnel to handle it.

During 1942, the year when the basic outlines of the Division's wartime organization were taking definite form, the handling of economic background work was diffused among several of the senior staff members of the Division. No special section was set up to handle the work, but a principal economist working closely with the Assistant Director in charge of program was assigned very largely to this work, and was permitted to use the staff of the tax-by-tax sections of the Division. During this period, the economist in informal charge of this work cooperated closely with the Division of Research and Statistics, and also kept in close touch with the work of other agencies on the stabilization program.