Henny-Penny's Inning

Having strangled the plans of John Hanes and Henry Morgenthau to revise corporation taxes this year (TIME, May 22), Franklin Roosevelt last week executed a fast fadeaway which saved the faces (and possibly the resignations) of Messrs. Hanes and Morgenthau. The face-saving compromise (influenced in part by press and Congressional pressure) was effected at a White House luncheon topped off by peach shortcake. The President and Tax Revisionist Pat Harrison (who had huffily told Mr. Roosevelt he was going to get a new tax bill whether he liked it or not) were brought together by Jimmy Byrnes, the slickest compromiser in the Senate. Giving in to an extent almost unknown during the New Deal, Mr. Roosevelt finally told Henry ("Henny-Penny"), Morgenthau it was all right if he wanted to tell the Congressmen to remove certain tax-irritants.

Henry Morgenthau Jr. was happy but hard-put. He knew he was in for some ribbing. Republicans had wanted to abort some of the very Treasury kittens which the Secretary now proposed to drown.

As he took his familiar witness' seat in the air-cooled Ways & Means Committee room, Henry Morgenthau had a nine-page statement all ready. In his resonant baritone voice the Gentleman Farmer who is Franklin Roosevelt's chief fiscal agent read off, without specifically recommending anything, the list of questions which Congress might "wish to re-examine":

1) The stump of the undistributed profits tax (most publicized of all the irritating kittens it was cut last year from 7%-27,% to 0%-21/2%. That action angered Franklin Roosevelt so that he refused to sign the bill, let it become a law without his signature).

2) A provision to carry over net business losses and deduct them from business profits of future years. "A business with alternating profit and loss now pays higher taxes over a period of years than does a business with stable profits although the average income of the two firms may be equal."

3) The present high surtax (up to 75% on $5,000,000) on upper-bracket personal incomes. Coupled with this was a plea to stop issuing tax-exempt securities.* Thus very rich citizens might be influenced to take normal business risks instead of buying Government bonds.

4) Capital stock and excess profits taxes. (Under existing law a corporation declares, i.e., guesses at, the value of its capital stock every three years. If its profits amount to more than 10% of the declared value, which may be anything, taxes may be "inordinately high.")

5) A study of the whole tax problem by a joint committee of the House Ways & Means and Appropriations and the Senate Finance and Appropriations Committee members, with special attention to the present law which provides that corporation excess of capital losses can be deducted only to the extent of $2,000 plus capital gains.

The ribbing was not long in coming. Massachusetts' sour-faced Treadway, ranking Republican on the committee, recalled that Mr. Morgenthau's counsel, the late Herman Oliphant, had argued "at very great length and very emphatically" for the Undistributed Profits Tax only two years ago. He welcomed Mr. Morgenthau "into our line of thought." Why the change of heart, asked Mr. Treadway.

Mr. Morgenthau: "I feel the question is very difficult. The tax structure cannot remain static. ... In this statement I brought it to your attention. Whatever action Congress wishes to take will be acceptable."

Ohio's Republican Jenkins: "Has the President approved this statement?"

Mr. Morgenthau: "Yes, entirely."

Rep. Treadway: "It looks as though we agree perfectly, doesn't it?"

Mr. Morgenthau, grinning grimly: "It looks like you and I and Mr. Jenkins and the President are all in hearty accord."

* Committee members thought such legislation would have to go into a separate bill.

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