Press Conference with Editors and Publishers of Trade Papers in Washington, D.C.

MR. RAY BILLS: The first thing that we would like to ask you is, while it has been deemed necessary to do a lot of direct pump priming, we would like to know, nevertheless, what other methods there are and in what ways we can help that would tend to increase private employment and make more prosperous times.

THE PRESIDENT: That is a pretty large order.

Q. If you have any specific suggestions on that phase, we would like to know them.

THE PRESIDENT: Well, let us take up one thing you mentioned: priming the pump. I think that is a pretty narrow view to take because, after all, your industries, and trades will be going after we are all dead. We hope they will be going in a private capitalistic system. That is what we are working for, to avoid having happen in this country what has happened in so many other countries. That is the long range. Therefore, I do not look at this just from the point of view of priming the 1938 pump. I am thinking about it in the terms of 1948, 1958 and 1968.

Money spent by the Government during the past few years and money that will be spent in the next few years is not merely money to put people to work at that particular moment with merely the result of adding to the national debt. It is also, in large part, money spent to do things that ought to have been done in the past and never were done.

Take our natural resources: We spent a lot of money there. Why? Of course it has put people to work, but, at the same time, it has greatly benefited this country from the standpoint of the year of 1968. It had to be done. The soil was running away.

On flood control, I will give you a very simple example from the point of view of dollars and cents. Take the old Tennessee River: The Tennessee River was destroying actual physical property—not counting only the soil but bridges, buildings, factories, homes, roads and highways, things of that kind—at an average rate prior to 1933 of between twenty-five and thirty million dollars a year. That was capital being destroyed, just absolutely removed. Of course that was insured against flood, and the insurance companies paid up, but that is destruction of capital just the same. It does not make much difference whether the owner pays or the insurance companies pay. We figured at that time that at a total ultimate cost of between three and four hundred million dollars we would eliminate, in toto, that annual cost of twenty-five or thirty million dollars. Well, that of course created a debt. Those particular public works have been paid for out of current appropriations, current taxes. It was not bonded.

Flood control on the Mississippi, on the Ohio, on the Connecticut, on the Susquehanna and Delaware—they all fall under the same category. In other words, by spending money for five or six or seven years, you get rid of a loss, an annual loss, running between 20 per cent—15 per cent to 20 per cent of the total expenditure. From the business point of view, that is pretty good financing.

Soil erosion comes under the same classification. We have soil erosion in the Northeast; we have it all over the country. If you can stop soil erosion, you are preventing the loss of capital. We are doing it on two bases.

As I said, this is for background. What I miss in the trade papers, as I do in 85 per cent of the daily press, is any positive approval of any of these things that are intended to save the Nation's capital.

I find in what might be called "the opposition press" of all kinds, the "Yes, but—" attitude. They will say, ,'Oh, yes, we are in favor of flood control, but we do not like this way of doing it." Or, "We do not like this party doing it, or this President doing it. We would rather have someone else doing it." "Soil erosion? Oh, yes, it is a fine thing to have in this country, but we object to the use of money for it."

With soil erosion goes the whole agricultural business, in which thirty or forty million people are engaged. One of the things that we have all felt—I think everybody believes in the principle—we want to cure is the wide cycle of swings that we have had in the past—two-dollar wheat up, and thirty-cent wheat down. In the farming business you cannot have any permanent purchasing power for the things that your industries produce, if the farmers have two-dollar wheat one time and thirty-cent wheat another time. You cannot have real purchasing power in the South if they have thirty-cent cotton one year, and four or five years after that they have four- or five-cent cotton. It just does not make any sense.

It throws people out of work in the industries of the nation if the farming population cannot buy their goods. It means unemployment, and that the Government has to spend a lot of money for relief. If that sort of thing continues in this country, it is going to make for radicalism. The people affected by those swings, going out of work or going broke on the farm, will stand it just so far. Education is spreading all through the country; and the farmers of the country who have been rather inarticulate on the whole in the past will not continue to be. The cotton farmer in the South, for example, is beginning to understand more about it, and if he is faced with the prospect of four or five-cent cotton he is not going to lie down and calmly take it, as he has in the past. It makes for radicalism. We know some of our radical people out in the Northwest. It will encourage a recurrence of that radical movement in the Northwest, and it will spread through the corn belt.

That is why we have tried to get some kind of control over the big swings of crop prices. They are caused by the same sort of thing that happens in automobiles—excess production. There is too much wheat in storage and too much cotton carry-over. It is a business just like any other business, and when you get a carry-over that is very, very large, what do you do? You close the factory, you cut prices, you have to get rid of the unwieldy surplus. It is the same old story.

But what happens when you do propose a crop bill to meet that dangerous condition? Oh, I am not saying it is the ideal crop bill. No. But at least it is an effort. I don't begin to get from industry any kind of active, two-fisted support for such legislation. That is my complaint: I do not get two-fisted support. If they had a better idea as to what should be done, it would be fine; but the people who oppose a crop control bill do not propose any alternative. It is like a typical editorial in The New York Times: "Oh, yes, we are in favor of maintaining good prices for crops but this bill is terrible. It is regimentation on the farmer." Period, end of the paragraph, end of the story! (Laughter)

Come to some of the other things—wages and hours legislation, for example. Take any one of four or five dozen big papers. "Oh, yes, we are in favor of good wages, but the Wages and Hours Bill, that is unthinkable."

All right, I had one in the other day and I said, "I just read your editorial and that is just what you said. Now, I will give you three examples, one a little factory in New England, paying girls four and a half or five dollars a week." He said, "Well, conditions compel it."

I said, "When we had NRA, those girls were getting eleven dollars a week and the industry seemed to survive and the girls had purchasing power."

"Yes," he said, "that is right."

Well, was it bad when everybody was paying eleven dollars a week to those girls? No, it worked pretty well.

Number two: Down in the South there is a little old cotton factory that has spindles that date back to 1880, something like that. A little group of people in the South found a mill in New England which had been closed for a couple of years during the period when most of the cotton mills in New England closed—it was in the 1929 panic. This little group bought all of these New England spindles that were already fifty years old and they moved them down to Georgia. They got an old factory and started up. Well, of course it is highly, completely inefficient. That type of factory ought not to be in existence.

Well, they have managed to hang on by their eyelids since then, by paying four and five dollars a week to the operators in the mill. That is not their average, taking in consideration those who are paid at a higher rate; but a great many, I think the majority of their operators, are getting less than seven dollars a week. They are going on, competing with properly equipped, modern mills that pay good wages.

Now, out West, in one or two factories that we know of, they are working people sixty hours a week since the NRA went out. I call that unfair competition. Whenever you start to get a wages and hours bill, the Congressman for that particular district gets a piteous plea, "For God's sake don't do anything or you won't go back to Congress." So, he tries to get an amendment to take care of his district. That is pure selfishness.

Now, on the wages and hours bill, we have two simple objectives and both will put more people back to work. One is a floor under wages—I don't care what it is, so long as it is a reasonable floor; and the other is a ceiling for hours, so as to put industry on a fair basis.

But, do I get support from industry for a wages and hours bill along that line? No, I don't want a drastic thing at once that says it cannot be over forty hours a week, under any circumstances even with overtime. That is a thing we have to work up toward gradually over a period of years. I would just as soon start with the present average scale. In the South the average wage of people working in lumber mills is 22 1/2 cents an hour and out on the Coast the same type of work in lumber mills calls for 79 cents an hour. "And," says one editorial, "wouldn't it be certainly crazy suddenly to jump these people in the South from 22 1/2 cents to 79 cents an hour?" Well, of course nobody ever suggested it.

The bulk of industry, I honestly believe, wants a floor and a ceiling; and it does not want anything drastic done that will throw everything out.

Let us take your lumber people in the South: Here is the lumber trade. They spend, the Southern Pine Association, thousands of dollars advertising all through the South, and what does the advertisement say? It says, "Farmers to arms!" Now, that is a nice thing for industry to advertise in the paper, "Farmers to arms!" They then say, "If this terrible Wages and Hours Bill goes through, you farmers will have to pay for your field labor a minimum of three dollars a day." Of course, the fact is that there has never been any thought of including field labor in the Wages and Hours Bill.

And then, in the women's magazines and papers, they have full-page ads, "Housewives beware! If the Wages and Hours Bill goes through, you will have to pay your Negro girl eleven dollars a week." Of course, you know if you come from the South, you can employ lots of excellent domestic help in the South for board and lodging and three or four dollars a week.

No law ever suggested intended a minimum wages and hours bill to apply to domestic help.

Now, why can't industry come out as a whole and furnish positive help in getting a reasonable floor and a reasonable roof. I don't get any positive help. I can go on with a dozen different subjects-desirable objectives on which I am not getting positive help. It is always holding back. They say, "Yes, I am in favor of the principle but—" How many people really mean that, that they are in favor of the principle?

Take the question of taxes, for example. I will give you a couple of very simple propositions to think over: Today it is the national policy, whether we like it or not—it is generally accepted by the people and you will never be able to change it—to maintain a graduated tax upon personal incomes.

Now, that being so, have I had any help from industry when I have sought to eliminate abuses of that principle? How many of your papers supported me last year when I tried to eliminate the Bahamas corporations, the incorporation of yachts, the incorporation of farms, et cetera and so on? Did any of you people come out and say, "By gosh, the President is dead right on that." These fellows who are using that kind of expedients to avoid taxation are evading the law, perhaps not the letter of the law because it is awfully hard to draw a law without any legal loopholes. But did you give me any support in regard to evasion of the spirit of the law? I ask you that question very seriously.

A great lawyer in New York—I don't give a rap about names, names have nothing to do with it—a big lawyer in New York discovered what looked like a legal way, and probably was, strictly speaking. He goes down to the Bahamas and for two hundred and fifty dollars incorporates a life insurance company in the Bahamas. He is in the upper brackets. He and four or five other people in the upper brackets go to the president of the new company, who is a law clerk in this man's office, and say, "I want to insure myself for a million dollars." The president says, "Fine, here is your policy. Please pay us a premium." Of course the amount of the premium was high—$100,000. "Here is my check. Now, Mr. President, my managing clerk, I want to borrow a million dollars on that policy." So he is given another check, and borrows a million dollars, and he pays interest on that at a high rate, and deducts that from his personal income tax.

Another big man has a wife who happens to be extremely wealthy. This is legal, mind you, perfectly legal, and they have a lot of children, seven or eight children. His wife makes him trustee for, I don't know what, five or six million dollars for the children, but it is a revocable trust. She can end it tomorrow and get all the securities back. She turns these securities over to her husband, and then proceeds to borrow the whole amount back on the securities and deducts the interest on that loan from her net income, which means that instead of paying, roughly, on four or five hundred thousand dollars a year net, her net is only eighty or a hundred thousand dollars.

Now, there is no moral indignation among you business men, among you people who represent them, when you hear about these things.

There are not only those evasions. You have today the capital gains tax. I take it that most of us in this room are fixed about the same way, financially. Occasionally we can make a capital gain, through an investment or the purchase and later sale of a piece of property, we can make a capital gain of five or ten thousand dollars. A good many of you have done it; I have done it. The rate under this proposed Senate bill is 15 per cent. I have a very good friend of mine that has a profit on 10,000 shares of a certain stock, which he has held more than a year, of $500,000. He is pretty good; we are none of us in that class, I take it. Now, under the theory of taxation, he ought to pay more than 15 per cent, under the Senate bill, he does not.

On undistributed profits, I know two brothers who inherited a business and ran it together, jointly, for quite a while. It is a good business and its actual value is about $10,000,000.

One of these brothers got to be fifty years old and, with a good deal of common sense, he said, "I am getting $250,000 a year out of this business. I am not a high liver. I only spend about $50,000. I guess I will get out. I want to retire, see the world and have a quiet time." So his brother, in a perfectly friendly way, buys him out and now owns the business. Of course he still owes the $5,000,000 he borrowed to pay to the brother who got out.

The brother who got out went to Scudder, Stevens and Clark and said, "I have got $5,000,000 in cash. Give me a recommended list of investments." They did, a good sound list, which contained some Governments, and municipals, and first mortgage real estate, and first mortgage railroads, and some preferred and common stock. It was a perfectly sound distribution of a five million dollar investment.

He, of course, had no way of escaping any of his personal income tax. They were all corporations, a hundred different corporations. His net was $200,000 a year from these investments. On that he had to pay about—what is it on $200,000. It is up to about 50 per cent—he had to pay $100,000 in income taxes.

His brother is still engaged in the business. His business made $200,000 over and above the proper amount that should be applied to depreciation and put into surplus. He had $200,000 as his profit. But he did not declare it. He only wanted to use $50,000, so he left $150,000 in the treasury of his company, and declared a dividend of $50,000 to himself. The net result that his tax was only $10,000.

Now, is that equitable? The money of both those fellows was working, there is no question about that. In one case it was working in one mill, and in the other case it was working through one hundred different corporations.

Now, do I find, among business men, any effort to help me to equalize that sort of thing?

Taking the case of a very rich man whom you all know-we won't mention any names- he had a corporation that was worth about $15,000,000. He knew he was going to die. He got to be—oh, I don't know—sixty-five years old and he knew that his expectancy of life was another five or ten years. His corporation had an absolutely adequate surplus to carry on the business. Everybody knew that, and he admitted it.

He said to himself, "By gosh, I might die and then my estate will have to pay a pretty heavy inheritance tax." So he started in, and out of the earnings of his corporation, he accumulated for the next eight or nine years $3,000,000 of additional surplus, unnecessary surplus. He died and his heirs have, let us say, ten certificates of stock representing the entire ownership of this corporation, a fifteen million dollar corporation. They have to find $3,000,000 in cash; so they take two of these certificates and sell them to the corporation for $3,000,000, taking the $3,000,000 to pay the inheritance tax. Now, the surplus is decreased by that amount, but they still own eight certificates which represent 100 per cent of the ownership of the corporation.

In other words, that accumulation for the purpose of paying an inheritance tax was accumulated not on the personal income tax rate but on the 12 1/2 per cent corporation tax which was the rate at that time. Is that fair?

Now, that is the kind of thing that we are trying to eliminate, and that is all. It is merely equalization. It is fair trade practice in taxation. But do I get any help on it?

Well, I have said a lot of things and have covered a lot of ground. But I want to emphasize that from industry itself, this Government is getting lip service and that is about all, in trying to correct unfair trade practices. That is where you people, if you leave out politics entirely- for it is not a question of politics, but a question of Government— if you get in behind us and help up and down the line, would be rendering a fine public service.

Have you got any more thoughts?

Q. You have supplied the text for a number of editorials, Mr. President.

THE PRESIDENT: You can be of perfectly tremendous help. Of course you people have not taken any part in this question of reorganization. The Reorganization Bill is absolutely nothing new in my young life. We have had the problem for forty or more years. You could not run your business the way the United States Government is set up, largely because of politics. Let us call it that, because it is perfectly true.

I have been getting along with a perfectly inefficient machine for five years, and I can do it for the next three and one-quarter years. But people have been talking about the grant of powers involved.

I don't care- let Congress reorganize. But when Congress starts to reorganize what happens?

We have, for example, in this Government today six or seven different agencies that are engaged in making maps. I don't mean field work, I mean printing maps. We have six or seven map-printing establishments right here in Washington, and some through the country. Do you think that Congress can ever be induced to consolidate them? Oh, no, the pressure from those six or seven bureaus would be too strong. They would say, "Leave us alone, we want these six or seven map-making plants in the District of Columbia." Congress won't do it.

Yet they have all agreed that somebody ought to do it. Well, there isn't anybody to do it, unfortunately, except the President. A year ago they thought that the idea was perfectly grand, but today they find that it is giving him certain powers. I don't want the powers, God knows. If the thing does not go through, I will rock along all right.

As far as powers go, I figured out the other day that there is not a single power I have that Hoover and Coolidge did not have. Can anyone name any power I have today that Hoover and Coolidge did not have? . . .

You spoke this morning about priming the pump again. We are going to spend more money if we can get it out quickly. It is going to help this immediate situation; but it is not that alone, it is the long range end of it that is important. In using that money along that line, somebody has to spend it. If Congress wants to earmark every dollar of it, that is all right. But again, you cannot get Congress to earmark every project. It is impossible. You cannot turn it over to the courts, it would be unconstitutional.

You have to turn it over to the Executive Department under the Constitution. Earmark all you want, as far as you can, but somebody has to spend the money. It is not a power which I desire. It means setting up machinery overnight. I would much rather Congress earmark it, but you know what you would get if they did. You would get a "You scratch my back, I will scratch yours." You would get a pork barrel bill.

I am glad you do not have to talk in your trade papers on the immediate political things of the moment. You are free agents. You are working for business, and so am I. I think you are in a very, very fortunate position. I have absolutely no sympathy for you, as I have for the daily newspaper people. (Laughter)

You are going strong, keep it up.