What have you to say as to that idea, that there are probably or approximately three classes in this respect?

Mr. HALE. I agree with you fully. There is absolutely no question about it; there are three classes; there is no question about thatthose who would probably squander what they have got; those who would save what they have; and those who would make intelligent use of what they have. But we should not penalize those who would make intelligent use of what they have, or those who would save what they have, because of those who would squander what they have.

Mr. HULL. I agree with you as to that. I am just trying to develop a few facts here for the sake of the record. At this time, I believe the level of prices in this country is about 116 per cent above the normal; is that your understanding?

Mr. HALE. I believe, from the effects on my own pocketbook, that that is a conservative statement.

Mr. HULL. Then a bond of $300, or that amount of money, would only be worth in services or commodities, if expended now by the soldiers, $150. In other words, they would only get $150 of real value from that money as compared to the prewar prices of commodities?

Mr. HALE. That would also apply to a Government gold certificate that was issued from the Treasury.

Mr. HULL. Absolutely; I am not questioning that. I am just developing the facts.

On this point, Mr. Chairman, if I will not be misunderstood, I would like to read into the record two or three paragraphs from a report by the chief tax commissioner of the Treasury Department, which seemed to represent their views on the economic situation following the Civil War.

The CHAIRMAN. Very well, Mr. Hull.

Mr. HULL. The economic phases have not been discussed very much; and i think in justice to our colleagues in the House we ought to have this discussion put in the record.

Mr. GREEN. Do you prefer to put that in now, or may I ask a few questions with reference to this tax matter first, and let that complete this part of the subject?

Mr. HULL. Well, I am coming to the tax matter now, if it will not burden the committee.

Mr. GREEN. Very well.

Mr. HULL. This report was written by David A. Wells, who was chief tax commissioner following the Civil War, and who made annual reports on the system of war taxes and the economic conditions. In that connection, as one of the chief Treasury officials, he makes this statement, which in justice to everybody I think should go into the record in connection with this discussion:

The commissioner feels that he needs no apology for the protest made at the last session of Congress, and which he again renews, against the entertainment of propositions to pay at the present time, from the Treasury of the Nation, sums for bounties varying from seventy-five to three hundred millions of dollars; especially in view of the fact that over five hundred and eighty-six millions of dollars have already been appropriated and expended by national, State, and local authorities for this purpose. The shoulders that bear the burden of national debt and taxation are indeed broad, but the burden is heavy even for a giant, and is most weighty upon the system when, as now, it is striving under the burden to assume an erect and normal position. The

men that have fought the battles of the country have a right to claim from that country a reward that can not be measured by money; but they have no right to ask it in a form and at a time when its payment would tend to check the development and prosperity of the State. What, moreover, is an individual bounty of one or two hundred dollars compared with a speedy conferring upon Congress the ability to remove such an amount of taxation as will increase the wages as well as the pensions of the soldier by increasing the purchasing power of money, and in addition to that the insurance to each soldier of the certainty of permanent and remunerative employment by insuring the prosperity and rapid development of the country?

In considering this question, moreover, it is important that a great and acknowledged principle should not be lost sight of, which is that in every heavily taxed country and under any revenue system it is the working classes on whom the burden of taxation invariably presses the most severely, inasmuch as the rich pay out of their abundance, but the workingmen out of their living. The truth of this principle once recognized, the commissioner finds it difficult to believe that the soldiers themselves will be willing to impose this additional burden upon all their own friends and associates.

Neither must these men in whose name the claim for additional bounty is made delude themselves with the belief that if granted it will be all gain and no loss. They themselves now form a large portion of the most intelligent and energetic mechanics and workingmen in the community, and as such they are among the largest producers, and consequently the largest consumers, of taxed commodities. Uron them must, therefore, fall a large proportion of the permanent taxation which will be rendered necessary to meet the interest upon the debt incurred in order to defray the proposed appropriations for bounties.

I am not asking you to comment upon that unless you want to, and I do not mean by reading it into the record to approve or disapprove of it; but I think that it is a material chapter to insert as a part of the record here in connection with all the phases of this matter. Our colleagues expect us to develop all the facts and viewpoints, pro and con, so they may have the benefit of them.

As I said in the beginning, we want to view this, primarily and essentially, from the standpoint of the welfare of the soldiers and the general public and the Government which the general public supports.

Now, what proportion, considering the fact that a $2,000,000,000 bond issue would only buy $1,000,000,000 worth of commodities for the soldiers, and that for 25 years from now the public, including the 4,000,000 soldiers and their families, will pay the taxes to meet the annual interest, which would amount to the principal in that length of time, and then, in addition, to meet the principal of $2,000,000,000, what proportion of the present benefits that the soldiers would get from these $2,000,000,000 of bonds would they and their families be taxed to pay back during the next 20 or 25 years in the way of interest and the principal?

Mr. HALE. The question that you ask me seems to be that the burden would fall upon the men solely who are to receive the benefit of these bonds. It would be distributed throughout the entire population. We are only 4,000,000 out of 100,000,000 people in the United States, and we do not assume that if this bond issue is made the burden of the repayment of it, both principal and interest, is going to be confined to the men who are the recipients of the benefits. You do not intend to convey that impression, do you?

Mr. DICKINSON. No; he asked you what proportion of it they

would bear.

Mr. HULL. Yes; I asked you what proportion you thought they would bear.

Mr. HALE. In whatever ratio the survivors of the beneficiaries stand to the entire population of the country, I should say.

Mr. HULL. Individually, I would prefer that they be not incumbered with the burden of what might be offered to them now; but it would be impossible to have it that way, of course, in view of the practical

Mr. HALE (interposing). Well, in terms of percentage, I could not tell you; but naturally, I should say that their proportion would be in the same ratio as their number to the entire population of the country, if the burden is equitably distributed.

Mr. HULL. Of course, it would depend also upon whether the tax was equitably distributed.

Mr. HALE. And also upon whether they had any property that was taxable, which would be another element.

Mr. HULL. Yes; whether they could be reached, either directly or indirectly and ultimately, for the tax.

Mr. HALE. Exactly.

Mr. HULL. Well, in view of the fact that the Federal Government has now a long-term indebtedness of about $22,000,000,000, and a floating indebtedness, including the war savings certificates, of about $4,000,000,000, do you or not think it would be wise for us to undertake to make a special tax levy for the purpose, running, if necessary, over a couple of years or so, rather than to undertake to expand our credit situation in this country, which at present is one of the material factors in keeping up artificial prices?

Mr. HALE. Do you mean for the issuance of these bonds, or for the entire indebtedness of the Government now? Are Are you addressing yourself to this bond issue that we have under discussion, or are you addressing yourself to the entire indebtedness of the country?

Mr. HULL. Not at all. I did not make myself understood, I am afraid. I am referring to the amount of long-term and floating indebtedness which the Government now has on its hands; and then asking you whether, in view of that situation and its effect on the present inflation of prices, and the still worse effects that a substantial addition to this long-term debt would have in the aggregate, in your judgment it would not be wise to undertake to deal with this entire allotment that Congress may make to the service men by a special tax which would wipe it out within a couple of years, or three years?

Mr. HALE. We at first intended to suggest a special tax, but then we were estopped from doing that by the thought that it might probably be the means of defeating the bond issue, on the theory that it would be class legislation; and we thought, therefore, that it was better to ask and advocate the raising of the revenue by an increase in the income tax, which is covered by a constitutional amendment at the present time, and could not be defeated on the ground of unconstitutionality; whereas if we attempt to levy a specific tax for the purpose of issuing these bonds, the element of unconstitutionality might enter into it and defeat the very thing we are trying to accomplish.

Mr. HULL. That is all I have to ask now.

Mr. HAWLEY. Mr. Hale, the Johnson bill to which you refer provides that anyone who served two months or less shall not receive any of the benefits of the act?

Mr. HALE. Yes, sir.

Mr. HAWLEY. And that was explained to be due to the fact that $60 had already been paid the soldiers, and that would be equal to two months at $30 a month?

Mr. HALE. Yes, sir. Some of those men only went in a few days before the armistice was signed.

Mr. HAWLEY. That bill provides that the least payment to anyone who served more than 60 days shall be $240, and that makes the minimum pay on the basis of eight months' service at $30 a month? Mr. HALE. Yes, sir.

Mr. HAWLEY. I would like to hear what you have to say as to that, in justification?

Mr. HALE. The theory is that the majority of the men who are prevented from enjoying the contemplated benefits of the act by being eliminated under that provision as to 60-day service, or, rather, the majority of the men who would then come in under the act have served sufficiently long to entitle them to the $240.

Mr. HAWLEY. So that you are incorporating that provision in the bill?

Mr. HALE. We are.

Mr. HAWLEY. That the minimum of pay shall be based on eight months of service?

Mr. HALE. Yes, sir; as to those who would be entitled after eliminating those who had served less than 60 days and who had already received the $60 bonus.

Mr. HAWLEY. The bill also provides that those who received $60 a month after induction into the service shall not receive the benefits of the act. Are you in accord with that provision?

Mr. HALE. I am.

Mr. HAWLEY. Men were inducted into the service and assigned to work of a civilian character, and received $7 or $8 a day. Your understanding of the bill is that those men would not participate in the benefits of the bill?

Mr. HALE. That is my construction of the bill.

Mr. GREEN. As I understand, you propose to raise the funds to carry the interest on these bonds by an additional tax on the higher incomes?

Mr. HALE. The interest and the sinking fund.

Mr. GREEN. Well, I agree with you in wanting to get more money out of the large incomes, if that can be done, whether we use it for general purposes, or for paying the bonuses.

But when you were making your calculations, did you take this into consideration, that if these income taxes on the high incomes are raised, the owners of those large estates will put more and more money into nontaxable securities, of which we have about $8,000,000,000 in circulation at the present time, and the result might be that we would get no more revenue.

Mr. HALE. I did not take into consideration that they would be so unpatriotic.

Mr. GREEN. Well, I am afraid you have not property considered that question, then, because they are doing that right along now, without waiting for this legislation. [Laughter.] I have already presented bills which would to some extent stop this practice, but they have not received much consideration.

Mr. HALE. Well, the gentleman possesses inside information that we did not have.

Mr. GREEN. You see we have been right up against that difficulty, in trying to figure out what we can raise by taxation. We need three or four billions more to make up this year's deficiencies.

Mr. LONGWORTH. What do you think of an issue of $2,000,000,000 worth of 4 per cent bonds would bring in the market?

Mr. HALE. Well, I do not know that I could answer that questionMr. LONGWORTH. Can you guess at it?

Mr. HALE. No; I would not even attempt to guess at it. I would hope that our plan for a sinking fund providing for the retirement of the bonds in 20 years would have a stabilizing effect.

Mr. HAWLEY. Your proposal is to pay those men in bonds, is it? Mr. HALE. Either in money or in bonds; whatever Congress should decide: preferably in bonds.

Mr. HAWLEY. Preferably in bonds?

Mr. HAWLEY. And issue them to the men at their face value?
Mr. HALE. Yes, sir.

Mr. TILSON. In connection with Mr. Hawley's question about the justification for paying nothing to the 60-day men, and $240 to the 65-day man, I wish you would try to justify that.

Mr. HALE. I have tried to. Those men who would be estopped from enjoying the benefits of this bill, are the men who served 60 days or less; and you will find that the majortiy of the other men have been in the service practically the eight months which would entitle them to the amount named, $240; and furthermore, that the men who have been in the service more than 60 days have had their affairs so disrupted that it would take at least the minimum amount named to repay them until such time as they got back to their normal station in life.

Mr. TILSON. The man who has been out of civil life only 65 days, do you think his affairs have been so much disrupted that he should get eight months' pay, while the man who has been in the service eight months gets just the same amount, eight months' pay? The man who has been in the service eight months would get just the same amount as the man who had been in the service 65 days.

Mr. HALE. Yes, sir; and if the great majority of those men had been in 65 days, I would say no, that would not be justified; but you will find that the majority of the men who have been in more than 60 days have been in a good deal more than 65 days.

Mr. TILSON. Well, why do you make that distinction? Why not make the $30 per month apply absolutely all the way through?

Mr. HALE. Well, we have made our recommendations; and it would be for this committee to eliminate any objections to those recommendations that they see fit.

Mr. TILSON. What do you understand by the words "clerical capacity"? Does that mean a field clerk?

Mr. HALE. A field clerk, yeomanette, marinette, probably some of these adjutants in the Services of Supply, etc.; I think all those would be included in that term.

Mr. TILSON. How about a company clerk? He does clerical work. Would he be eliminated by this term?