Evening Star Newspaper, June 1, 1937, Page 2

A2 #x% 1.5 SEES TENSION IN EURCPE EASED Situation, However, No Longer Considered Mere Academic Question. BY CONSTANTINE BROWN. The United States Government takes an active interest in the present diffi- cult international sitvation. The Eu- ropean situation can no longer be con- sidered as a question of *an academic interest” it was stated today in offi- cial quarters, since the preservation of peace in the world is one of the cardinal policies of this administra- tion For the time being the tension aris- ing from the bombing of the German battleship Deutschland by Spanish afrplanes and from the bombarding of the Port of Almeria by the German Medite) an squadron is considerad by the State Department lessened. There was a hurried four-corner con- sultation yesterday by President Roose- velt, Secretary Cordell Hull, Undersec- retary Sumner Welles and Ambassador Bullitt, who was keeping the adminis- tration informed as to the latest de- velopments by telephone from Paris. Ambassador Bullitt, who enjoys the full confidence and' friendship of Premier Leon Blum and Foreign Sec- retary Yvon Delbos, informed the Government yesterday morning that the dangers of an immediate con- flagration were temporarily removed by the fact that the German fleet was ordered to Melilla, instead of going north. Feared More Reprisals. Tt was feared in Paris that the Ger- man government might continue its reprisals against Valencia and Barce- lona. This would have caused. so our diplomats believe, an extremely dan- is situation. e the tension is somewhai easier, it is unlikely that the President or the State Department will make any formal declaration of policy re- garding the tension in the Mediter= mnean in the near future. What 1l happen later, in the event of an- incident. depends a good deal trend of public opinion in this y and on any arbitrary act on the part of the Germans or Lialians. While diplomats are satisfied that the Sunday incident has been closed bv the bombardment of the Port of Al- meria, and look for some kind of diplomatic negotiations for the final settlement of this question. in mili- tary and non-diplomatic quarters fears are expressed that this incident may be only the beginning of a series of | similar troubles which will inevitably end in disaster. The nucleus for such further inci- dents exists in the order given by Hitler to his ships in the Mediter- ranean to shoot at sight at any Span- the . Washington . Wayside Random Observations of Interesting Events and Things. SKITTLES. EE TYLER, who occasionally finds something incredible in this column, added another daisy to his chain the other day. It was a reference to the char- acters of one of our anecdotes “lapping up their beer and skittles.” How, Mr. Tyler wants to know, does one lap up skittles? A perfectly valid question, we thought, so it was taken up with the operative who submitted the item. “He'd have me there, normally,” the operative agreed, “but not with the heroes of that item. They simply are the kind of people who lap up skittles.” * ok ok % FULL MEASURE. Stage professionals might learn Something from the technique of Jane Lois Morean. At the age of 7, she was making her debut as a pianist in one of those mass recitals which child performers make so much fun. Each of the children had been in- structed to pause between pieces for the applause. The first few Jorgot. But not Jane. She paused and went on pausing when no ap- plause greeted her maiden effort. It seemed like an impasse be- tween solist and audience until Jane turned and eyed the audience quizzically. The listeners caught on instantly, applauded, and Jane swung blithely into her second number. ¥ ok ok X PAY-OFF. ID this story come from a less reli- able source than the chap who drew the illustration for it, we would not believe it. At any rate, it concerns a young man who has developed check fum- bling to a high art. The young man was one of four who sat down the other cocktail hour for a sprinkle of stimulant. When it came time to pay the bill, the other three tossed their silver into the middle of the table with enough over their shares to give the waitress a sizable tip. LV The fourth man waited, still fum- ish man of war or airplane which might have hostile intentions. This| is & very complicated order. It is| practically impossible for the mpmin; of a warship to say whether an air- ! plane fiying at & height of. say, 3,000 | Ieet has hostile intentions or not.| After the bombing of the Deutsch-| land it is very likely that the anti- aircraft guns will be put into action as soon as a Spenish airplane coming from the Loyalist territory is sighted. The same thing may be said about any Loyalist man of war. Besides this, the situation might becom= diffi- cult by the fact that the commander of every German unit in the Medi~ terranean is anzered by the unpro- voked—that is the German version of Sunday's incident—attack on their flagship and will in all probability take advantage by the elastic orders of the Fuehrer to shoot any air or &ea vessel belonging to the Loyalists. In these non-diplomatic quarters the present situation is compared to the one which existed late in July, 1914, when, although the war ap- peared inevitable to military men, dip- lomats continued to believe in the| “‘common sense of the governments | snd people who do not want to fight,” REV. W. E. HOPPER DIES IN NEW YORK Oldest Paulist Father in TU. §. Was Once at Catholic TUniversity. Rev. Walter E. Hopper, €. S. P, oldest Paulist Father in the United States, who formerly was procurator of the House of Studies, Catholic Uni- versity, died yesterday at his residence in the rectory of the Paulist Fathers’ Church, New York City. He was 78 years old. Born in Holy Cross parish, New ‘York, Father Hopper fulfilled his no- vitiate for the order and was ordained to the priesthood in New York. From 1898 to 1900, Father Hopper taught moraletheoloey at old St. Thompson College, Catholic Univer- sity. Subsequently he served in many American cities, including Chicago, where he became superior of the order’s house there. He returned to Washington in 1916, serving as procurator at the House of Studies until 1920. In 1934, he celebrated his golden jubilee as a priest and retired. Funeral services and burial will be held in New York Thursday. HACKERS DISCUSS BETTER CONDITIONS Reorganize Brotherhood and Will Make Request for More Cab Stands. ‘Anxious to improve hacking con- ditions in the District, the Industrial Brotherhood of Taxi Drivers reorgan- ized last night at a mass meeting in Mechanics’ Hall. Electing officers, the group moved to mobilize the approximately 5,000 hack- ers in the city to alleviate the “grow=- ing plight” of overcrowding. Erwin Dollar, who was active in the old brotherhood, was elected presi- dent. Charles Leonard was made vice president; John Wiles, secretary, and Herman Longhorn, treasurer. The drivers indicated they would appeal to the Public Utilities Com- mission for more hack stands, it bes ing emphasized that there are only accommodations for about 700 cabs. The drivers will meet again next Monday night to discuss working conditions and competition problems. Serm TSR Rebels Seize Foreign Ship. OSLO, June 1 () —A Norwegian ship, loaded at Segovia with oranges for Norway, was seized by Spanish insurgents and convoyed to Ceuta, it was reported here today. bling for the money in his pocket after the other three had left the table. By chance, however, one of them turned in time to see him pick up the tip, count it, add what was needed to pay his share and start to walk out. They made him go back, apologize to the waitress and pay a full share, plus tip. * ok ok UTILITY. Joe Amoroso, portly Italian, is @ vendor of flowers. He carries them in a basket on his arm and may be seen in the neighborhood of Tenth and Massachusetts avenue. When he is tired, he chooses not to sit on a nearby bench, but on the cast-iron horse watering trough. The trough is supplied by the Humane Society and watered by the District. But Joe uses it to freshen his peonies while he rests. * ook % BARTER. EORGE W. FURLOW, whom you may know as “Bill.” has a pretty interesting answer to those who ask him about his brother Allen. Allen Furlow used to be in Congress. “What's your brother doing now?” | an acquaintance asked Bill the other da; “Well” said Bill, “he had to go to the Mayo clinic recently for an | overhauling, and before he left the place they signed him up to overhaul their legal work.” ‘The acquaintance went away visual- izing Allen Furlow and the surgeon coming to terms in one of the most interesting professional parleys ever held in an operating room, * * % % ROSES. A BOWER of roses by Bendemeer's stream could never have been as extravagantly beautiful as the rose garden in Potomac Park this week. There you'll find an arbor where Mary Wallace and Dr. Van Fleet are en- twined and you'll see a neat of robins not planted by the National Park Service, If you have ever tended a rose bush, you will thrill at the squads of plots filled with thriving red radiants. The rich green carpet of grass, right now at least, is literally perfect. And if you wander to one side, you may see the fragment of the monu- ment to the victims of the U. §. 8. Maine, erected in the city of Havana and destroyed by tornado in Decem- ber, 1926. This is our own free trans- lation of the plaque written in Spanish. Better times is the sorriest-looking rose bush in the garden. Better times have, and/or has, not bloomed yet. The sun dial in the garden, which promises “Light follows darkness,” is unusual in that it tells no time even when the sun is in the sky. From all this you may gather that one of our Wayside operatives visited the rose garden in Potomac Park, or did you? NING STAR, WASHINGTON, W.C.T.U. OFFICERS IN SESSION TODAY T Meeting Is Held Preliminary to Sixteenth Triennial Convention. An all-day executive session of the general officers of the Woman's Chris- tian Temperance Union was held to- day, preliminary to the sixteenth tri- ennial convention, which will be held at the Washington Hotel, starting Thursday. The officers are headed by Dr. Ella A. Boole, world president of the organization. Dr. Boole arrived in Washington yesterday. Before her election four years ago as world president, she served eight years as national vice president of the Iowa W. C. T. U. 2,000 Delegates Expected. Other arrivals yesterday came from Japan, Siam, New Zealand, Canada and all parts of the United States. Over 2,000 delegates were expected to arrive today and tomorrow to register for the convention. ‘The preliminary conference was de- voted to completing arrangements for the convention and mapping the pro- gram. Today's meeting was broken at noon by an informal luncheon for officers at which Mrs. Ida B. Wise of Chicago, national president, was hostess. Conference on alcohol education were held at the Washington Hotel yesterday and today by Miss Bertha R. Palmer, national director of alco- hol education. She found the audi- ence 50 interested in her subject that yesterday’'s session extended over the expected two-hour period. Much of the time was devoted to impromptu questions from the audience. Pre-Convention Features. ‘Two special pre-convention features are scheduled for tomorrow. The in- ternational worship service, to be held at Calvary Baptist Church, Eighth and H streets, will be led by Mrs. Anna Brattstrom of Gefle, Swe- den, world union superintendent of evangelism, and Mrs. Josephine M. Buhl of Tulsa, Okla., national direc- tor of evangelistic wor kin the United Gtates. Musical features of the service will be singing by the White Ribbon Quar- tet of the District Chapter :nd music by the String Trio of Washington. Following the service, tea will be served in the church parlors. The second feature tomorrow will be & young people’s rally at First Congre- gational Church, Tenth and G streets, beginning at 7:30 pm. This will be under the direction of Miss Rosamund Duff of Toronto and Miss Helen L. Byrnes, Evanston, Ill, national secre- tary Youth's Temperance Council. Nearly every denominational youth group in the city will be represented. THIEVES GET LOOT WORTH $650 HERE Window Is Jimmied in Home of P. M. Greenlaw, District Boiler Inspector. Price M. Greenlaw, District boiler inspector, reported to police yesterday that his home at 3114 Pennsylvania avenue southeast had been entered by thieves, who jimmied a rear window while he was absent from the city during the latter part of last month and stole clothing and fewelry valued at $500 and $150 in cash. Police are seeking a man who was seen loitering in the lobby of an apartment house at 1314 Massachu- setts avenue prior to the theft from C. Bockstahler's apartment of a watch valued at $100 and a leather billfold containing personal effects. Paul S. Desmond, 207 C street re- ported he was attacked by several white men while sitting on a bench on Constitution avenue, between Ninth and Tenth streets, and robbed of $5.60. Desmond was treated at Emergency Hospital for slight cuts to his face and released. TOLSON DEATH INQUIRY IS BEGUN BY BOARD Navy Lieutenant, District Native, Reported as Suicide on Oil Tender in China: A board of inquest has been con- vened to investigate the dath of Lieut. (J. G.) David Watkins Tolson, & na- tive Washingtonian, who reportedly committed suicide Sunday night aboard the oil tender Pecos at Chefoo, China, according to word received today at the Navy Department. Tolson, who was 32, had been se- lected for promotion to lieutenant and was one of the few officers of the Navy to hold a master’s license under the mercantile marine. He had nine years’ service and formerly was on duty aboard the U. 8. S. Herbert, sta- tioned in the Orient. Tolson was born in the District July 9, 1904, and graduated from the Naval Academy in 1927. He received his ap- pointment from Minnesota. He is sur- vived by his mother, Mrs. John Tol- son, 3646 Park place, and his widow, Mrs. Helen Lee Turner Tolson, offi- cials said. Comdr. Ferrell Dies. CHARLESTON, 8, C., June 1 (#)— Comdr. Robert W. Ferrell, 43, con- struction officer of the Charleston Navy Yard, died at the Naval Hospital last night after a heart attack while swimming. Ethel du Pont as Bride to Wear ‘Something Old,Something New’ By the Assoclated Press. ‘WILMINGTON, Del., June 1.—Ethel du Pont, just like any other young bride, will observe the old tradition of wearing at her wedding “something old and something new, something borrowed and something blue.” She’s the kind of young woman who has a sentimental love of old things. Because marrying young Franklin Delano Roosevelt, jr., and being her- self a du Pont, she will be surrounded by tradition on her wedding day, June 30. Two traditions in her bridegroom’s immediate family should make her happy. Given a Chest of Silver. Mrs. Sara Roosevelt, the President's mother, always has bought a complete chest of silver for the young Roose- velts as a wedding present. The chest for Franklin and Ethel already has been purchased. The President’s wife has made s custom of giving a string of pearis % Al her sons® brides, They come from & necklace which her mother-in-law gave her on her wedding day 32 years ago. She already has given Franklin, jr., a strand, which he has snapped into place around his flancee's neck. Tea, Dancing Later. ‘The wedding itself will observe a du Pont tradition. It will be held in a little stone church where all the du Pont christenings, weddings and burials have taken place for 81 years. Even those members of the family who wander to other cities to live come back for christening ceremonies after their babies are born. ‘There will be six to eight brides- maids at the wedding and Miss Aimee du Pont, the bride's young sister, will be maid of honor. Among the ushers will be John Roosevelt, the bride- groom's brother. After the ceremony the couple will receive guests at the bride's home. High tes will be served and & New York orchestrs will play for dancing. 'msy have been » D. C, TUESDAY JUNE 1, 1937 Text of President’'s Message on Tax Evasion O THE States: A condition has been devel- oping during the past few months so serious to the Nation that the Congress and the people are en- titled to information about it. The Secretary of the Treasury has given me a report of a preliminary study of income tex returns for the calendar year 1936. This report re- veals efforts at avoidance and eva- sion of tax liability so widespread and 50 amazing in their boldness and their ingenuity that further action without delay seems imperative. ‘We face a challenge to the power of the Government to collect, uni- formly, fairly and without discrimina- tion, taxes based on statutes adopted by the Congress. Mr. Justice Holmes said, “Taxes are what we pay for civilized society.” Too many individuals, however, want the civilization at a discount. Methods of escape or intended es- cape from tax liability are many. Some are instances of avoidance which appear to have the color of legality; others are on the border line of legality; others are plainly contrary even to the letter of the law. All are alike in that they are defl~ nitely contrary to the spirit of the law. All are alike in that they rep- resent a determined effort on the part of those who use them to dodge the payment of taxes which Congress based on ability to pay. All are alike in that failure to pay results in shifting the tax load to the shoul- ders of others less able to pay and in muleting the Treasury of the Gov- ernment’s just due. I commend to your attention the following letter from the Secretary of the Treasury: “The Secregary of the Treasury, “Washington. Congress of the United “May 29, 1937, “My dear Mr. President: “As you know, the Treasury was surprised and disturbed by the fail- ure of receipts from the income tax on March 15th to measure up to the budget estimates. Therefore, we under- took an immediate investigation. Only a preliminary report can be made at this time because the complete in- vestigation covering all the income tax returns filed will require the bal- ance of this year. Purthermore, since many of the returns of large manu- facturing corporations have not yet been filed, the present report is con- fined almost wholly to data disclosed by the individual tax returns. “But even this preliminary report discloses conditions so serious that immediate action is called for. More than the usual examination and audit by the Treasury is needed. It seems clear that if tax evasion and tax avoidance can be promptly stopped through legislation and regulations resulting from a special investigation a very large portion of the deficiency in revenues will be restored to the Treasury. Foreign Holding Firms Set Up to Evade Levies. “I herewith enumerate some of the principal devices now being employed by taxpayers with large incomes for the purpose of defeating the income taxes which would normally be pay- able by them. As we continue our preliminary examination, other devices are being disclosed. “1. The device of evading taxes by asetting up foreign personal holding corporations in the Ba- hamas, Panama, Newfoundland and other places where taxes are low and corporation laws lax. “Americans have formed 64 such companies in the Bahamas alone in 1935 and 1936 and 22 more were or- ganized by Americans in the Bahamas during the past two months. Panama and Newfoundland seem to be even more fertile territory since their cor- Poration laws make it more dificult to ascertain who the actual stock- holders are. Moreover, the stock- | holders have resorted to all manmer of devices to prevent the acquisition of information regarding their com- panies. The companies are frequently organized through foreign lawyers, with dummy incorporators and dummy directors, 80 that the names of the real parties in interest do not appear. “One American citizen with a $3,000,000 Bahamas corporation has apparently attempted to prevent the Bureau of Internal Revenue from catching up with him by filing his individual tax returns in successive years from towns in New Brunswick, British Columbia, and Jamaica. “Another individual believes that he has been 50 successful in removing his assets from the United States to the Bahamas that he is defying the Treasury to collect a tax upon a $250,000 fee he has received; and, by way of insult, he has effered to com- promise his admitted tax liability of $33,000 for past years by a payment of $1,700. “Still another individual showed a large net loss on his personal return for 1936. In considerable part, the loss was due to the large deduction he claims for interest on a loan made to him by his personal holding com- pany. But the man in question is no object of charity, for his personal holding company, organized in Canada, had an income of over $1,500,000 from American dividends in 1936, though it has not yet filed a return. “Perhaps the most flagrant case of this character is that of a retired American Army officer with a large income from valuable American se- ourities which he desires to sell at a very large profit. To escape our in- come and inheritance tax laws, he used the device of becoming a natu- ralized Canadian citizen, and six days later organized four Bahamas cor- porations to hold his securities. He and his lawyers apparently think that he can now sell his securities free from any taxes on his profits, since there are no income taxes in the Bahamas, and that he has adroitly escaped American taxes. Foreign Insurance Is Another Device. “2. The device of foreign insurance companies. “Two New York insurance agents have caused the organization of in- surance compenies in the Bahamas with a view to enabling taxpayers to secure spurious deductions for in- terest through an ingenious scheme for the issuance of life insurance policies. Americans who went into the scheme purported to pay a large single premium for their policies, but immediately borrowed back practically the entire sum. Under the plan the so-called policyholders sought to ob- tain a large deduction for interest on this loan, although the fact was that no interest was really paid. By this means five prominent Americans sought to evade nearly $550,000 in income taxes in the years 1932 to 1936. This fraud was discovered by the Treasury's investigators and all of the taxpayers have now submitted offers to pay the full amount of taxes evaded, plus interest. Until our in- vestigation is completed we do not know how many similar compenies organised im other ’ countries, and utilized by our citizens; nor do we yet know whether this newly invented type of fraud has other ramifications. “3. The device of domestic personal holding companies: “The rates of tax applicable to per- sonal holding companies were re- duced in 1936 at the time of the en- actment of the undistributed profits tax. It was believed at that time that the combined rates of the two taxes would be sufficient to insure the dis- tribution of the entire incomes of these companies and the consequent imposition of surtaxes upon their own- ers. This expectation has not been realized. “Thus, the single stockholder of one large personal holding company saved himself $322,000 by causing the com- pany to distribute none of its income to him. “In another case, a man and his wife saved $791,000 through the use of per- sonal holding companies in 1936. “In a third case, the personal hold- ing company reported over $500,000 of net income, but the total taxes paid by the two stockholders, husband and wife, were less than $60,000, due prin- cipally to credits for payments on in- debtedness the holding company pru- dently incurred in accumulating prop- erties for its owners. If the personal holding company had not been in ex- istence the stockholders would have paid over $200,000 additional income taxes. “Another favorite device is to organ- ize a considerable number of personal holding companies, not only for the sake of reducing the tax, but of in- creasing the Treasury's difficulties in auditing transactions between com- panies. At last accounts one man had caused to be set up some 96 com- panies, scattered all over the country, Two other individuals were utilizing 23 personal holding companies. Yachts, Estates Incorporated; Artificial Interest Claimed. “4. The device of incorporating yachts and country estates: “Many wealthy taxpayers today are dodging the express provisions of the law denying deductions for personal expenses by incorporating their yachts or their country estates, turning over to the yacht or to the estate securities yielding an income just sufficient to pay the entire expenses of operation Hundreds of thousands of dollars in income taxes are annually avolded in | this way. | “Thus, one man's yacht is owned by his personal holding company, along with $3,000,000 in securities. He rents the yacht from his company for a sum far less than the cost of upkeep and the company uses its in- come from the securities to pay the | wages of the captain and crew, the ex- penses of operating the yacht and an annual depreciation allowance. None of these ftems would be deductible if this individual owned the yacht per- sonally, “A great many wealthy taxpayers are utilizing a similar arrangement for the operation of their country Pplaces and town houses. “One man has placed his $5,000,000 city residence in such a corporation; another his racing stable, whose losses last year were nearly $200,000. The tax savings he thus sought to obtain through the use of the holding company were $140.000. “One wealthy woman has improved on the general plan of evasion by causing her personal holding com- pany, which owns her country place, to employ her husband at a salary to manage it. She can thereby sup- Ply him with pocket money, and in effect claims a tax deduction for the expense of maintaining him. “5. The device of artificial deduc- tions for interest, losses, etc.: “Taxpayers are seeking greatly to reduce their personal income taxes by claiming deductions for interest on loans to them by their personal hold- ing companies, or on loans to them | by their family trusts. These transac- | tions normally have no business pur- | pose, but are merely an artificial means of shifting income from one | member of the family subject to high surtax rates to another member of the family subject to lower rates. Splitting Up Trusts Reduces Tax Income. “Thus, one woman claims & large annual deduction for interest on a loan made to her by her husband as trustee of a trust which she created for their children. The mother there- by seeks to secure & deduction for her contribution to the children’s support, and since the trust is revocable by her husband, the parents still have the desired control over the property and its income, “In the same category are losses deducted by taxpayers who claim that their racing stables or hobby farms were operated for profit, even though 8 profit is never realized. Thus, a prominent manufacturer seeks a de- duction of over $125000 against his income from his business on account of his losses in operating a chicken farm. “6. The device of the creation of multiple trusts for relatives and de- pendents: “Splitting income two ways, between husband and wife, reduces income taxes and leaves the family income intact. Splitting the family income many ways by means of many trusts, all for the same beneficiaries, may effect & much greater saving, while leaving the money actually in the same hands. For the creator of the trust often constitutes himself or his wife as trustee, and thus retains full control over the investment and dis- position of the fund itself and of its income. “One thrifty taxpayer has formed 64 trusts for the benefit of four mem- bers of his immediate family and thereby claims to have saved them over $485,000 in one year in taxes. “Another thrifty pair has con- stituted 40 trusts for their relatives, and a prominent lawyer and his wife utilize 16 trusts for the same pur- pose. The first pair maintains num- bered brokerage accounts and only at the end of the year are beneficial owners identified. In this way innu- merable transactions are carried on, often between accounts, which do not actually affect the beneficial in- terests of their owners but which are designed solely to reduce tax liabil- ity. Family Partnerships, Pension Trusts Others. “7. The device of husband and wife or father and children partnerships. “The purpose of these partnerships, like the muitiple trusts, is to split the family income artificially into two parts or, if the children are taken in, into still smaller fractions. “There are many instances of this kind, but to illustrate the point it is sufficient to cite the case of a New York brokerage firm which late in 1935 admitted into partnership the four minor children, two boys and two girls, of one of the partners. The tax saving he sought thereby in 1936 amounted to over $50,000. “8. The device of pension trusts, have sought to encourage pension trusts for aged employes by provid- ing corporations with a special de- duction on account of contributions thereto and exempting the trust it- self from tax. Recently this exemp- tion has beer twisted into a means of tax avoidance by the creation of pension trusts which include as ben- eficiaries only small groups of offi- cers and directors who are in the high- income brackets. In this fashion high- salaried officers seek to provide them- selves with generous retiring allow- ances, while at the same time the corporation claims a deduction there- for, in the hope that the fund may accumulate income free from tax. “Thus in one case $43,000 is an- nually appropriated by the corpora- tion to a pension trust for the benefit of its two chief owners. One of the co-owners will retire at the age of 65 | with a monthly pension of $1,725, and | the other will retire at 60 with a monthly pension of $1,425. Many Are Legal But Highly Immeoral. “These eight types of tax avoidance are sufficient to show that there is a well-defined purpose and practice on the part of some taxpayers to defeat the intent of Congress to tax incomes in accordance with ability to pay. In some cases, the Bureau of Internal Revenue under existing law can estab- lish & liability or indeed proceed on the ground of fraud; but many of these cases fall in the category of a legal though highly immoral avoid- ance of the intent of the law. It seems, therefore, that legislation should be passed at this session of Congress in order to eliminate these loopholes which our preliminary investigation has proved; and that as a result of the further investigation this Summer and Autumn the next session of the Congress should finally close any fur- ther loopholes which may be dis- covered. “In addition to these cases of moral fraud, there are three other major instances in which the law itself per- mits individuals and corporations to avoid their equitable share of the tax burden. “1. Percentage depletion. “This 1s perhaps the most glaring loophole in our present revenue law. Since 1928 large oil and mining cor- porations have been entitled to deduct from 5 to 27'; per cent of their gross income as an allowance for the de- pletion of their mines or wells, and the deduction may be taken even though the cost of the property has been completely recovered. Thus, in | 1936, one mining company deducted | nearly $3,000,000 under this provision, although it had already completely re- covered the cost of its property. The amount of the deduction was a sheer gift from the United States to this taxpayer and its stockholders, and the Tevenue that we lost thereby was $818,- 000. Similar annual losses of revenue in the cases of a few other typical companies are $584.000: $557,000; $512,000; $272,000; $267,000; $202,000, and $152,000. The estimated annual loss of revenue due to this source is a .000.000. I recommended in 1933 that this provision be elimi- nated, but nothing was done at that | time; and it has since remained un- changed. Division of Income Causes a Loss. “2. The division of income between husband and wife in the eght com- munity property states. “This is another major cause of | revenue loss, which is unjustifiable because obtained at the expense of taxpayers in the 40 States which do not have community property laws. A New Vork resident with a salary of $100,000 pays about $32,525 Federal income tax; a Californian with the same salary may cause one-half to | be reported by his wife and the Fed- eral income taxes payable by the two will be only $18626. The total loss of revenue due to this unjusti- | flable discrimination against the resi- derf of the 40 States runs into the | miliions, 3. Taxation of non-resident aliens | “The 1936 act eliminated the re- | quirement that a non-resident alien, | (without United States office or busi- | ness) should flle a return: fixed the | withholding rate for individuals at 10 per cent: and freed the non-resi- dent alien from taxation on American capital gains. Since the total Federal tax upon a citizen or resident amounts to 10 per cent of his total net income at about $25,000 (in the case of a mar- ried individual with no dependents), the withholding rate has proved in practice to be too low as applied to wealthy non-resident aliens with large incomes from American trusts or with large American investments whose taxes have been cut to one-third or one-fifth of what they paid under the prior act. “Thus, one American woman who married an Englishman had an income from this country in 1935 of nearly £300,000. Her tax for 1936 will, there- fore, be approximately $30,000, as against over $160,000 under the prior law. “Another American woman who married & Frenchman has an income of over $150,000 from American trusts, on which she paid a tax of about $55,000 in 1935. Her tax is reduced to about $15,000 by the 1936 law. Al- though the tightening of the with- holding provisions in 1936 will tend to insure more revenue from non- resident aliens in the lower income brackets, the present taxing provisions are not satisfactory as applied to non- resident aliens with incomes in the higher brackets. Small-salaried Men Don’t Use the Tactics. “The problem of tax avoidance is not new. The Congress devoted par- ticular attention to it in 1933 and 1934, and by legislation effectively put a stop to many evasive devices discovered then as having been in use. The practices outlined above can and should be stopped in the same way. “In conclusion, I have two obser- vations to make from the evidence before me. In the first place, the instances I have given above are dis- closed by a quick check of compara- tively few individual returns. As I have said before, most of the large corporation returns have not yet been filed. The general audit of 1936 re- turns is just beginning. Nevertheless, it is likely that the cases I have digested above are symptomatic of a large number of others, which will be disclosed by the usual careful audit. “In the second place, the ordinary salaried man and the small merchant does not resort to these or similar devices. The great bulk of our 5,500,- 000 returns are honestly made. Legal- ized avoidance or evasion by the so- called leaders of the business com- munity is not »nly demoralizing to the revenues; it is demoralizing to those Who practice it as well. It throws an additional burden of taxation upon the other members of the community Who are less able to bear it, and who are already cheerfully bearing their fair share. The success of our reve- administration by the Treasury and upor completely honest returns by the taxpayer, “The disclosures are so serious that I recommend that authority be given to the Treasury Department with sn adequate appropriation in order that a complete and immediate investi- gation may be conducted. The cost of such an investigation will be re- turned many times over to the Treas- ury of the United States. “Faithfully, “HENRY MORGENTHAU, JR." “The President, ““The White House." Schemes Undermine Foundations of Society. A feeling of indignation on reading this letter will, I am confident, be yours, as it was mine. What the facts set forth mean to me is that we have reached another major difficulty in the maintenance of the normal processes of our Gov- ernment. We are trying harder than €ever before to relleve suffering and want, to protect the weak, to curb avarice, to prevent booms and depres- sions—and to balance the budget. Taxation necessary to these ends is the foundation of sound governmental finance. When our legitithate rev- enues are attacked the whole struc- ture of our Government is attacked. “Clever little schemes” are not ad- mirable when they undermine the foundations of society. The three great branches of the Government have a joint concern in | this situation. First, it is the duty of the Congress to remove new loop- holes devised by attorneys for clients willing ta take an unethical advan- tage of society and their own Gov- ernment. Second, it is the duty of the executive branch of the ernment to collect taxes, to investi- gate fully all questionable cases, to prosecute where wrong has been dcne and to make recommendations for closing loopholes. Third, it is the duty of the courts to give full con- sideration to the intent of the Con- gress in passing tax laws and to give full consideration to all evidence which points to an objective of eva- sion on the part of the taxpayer. Very definitely, the issue immed- iately before us is the single one relating to the evasion or unethical avoidance of existing laws. That should be kept clearly in mind by the Congress and the public. Already efforts to befog this issue appear. Already certain newspaper publishers | are seeking to make it appear—first, that if an individual can devise un- anticipated methods to avoid taxes which the Congress intended him to pay, he is doing nothing unpatriotic or unethical: and second, that because certain individuals do not approve of high income tax brackets, or the undistributed earnings tax, or the capital gains tax, the first duty of the Congress should be the repeal or re- duction of those taxes. In other words, not one but many red herrings are in preparation. Congress’ Duty To Stop the Practices. But it seems to me that the first duty of the Congress is to empower the Government to stop these evil practices, and that legislation to this end should not be confused with legislation to revise tax schedules. That is a wholly different subject. In regard to that subject, I have already suggested to the Congress that at this session there should be no new taxes and no changes of rates. And I have indicated to the Congress that the Treasury will be prepared by next November to present to the appropriate committees information on the basis of which the Congress may, if it chooses, undertake revisions | of the tax structure. The long-term problem of tax policy is wholly separate from the immediate problem of glaring evasion and avoidance of existing law. In this immediate problem the de- cency of American morals is involved The example of successful tax dodg- ing by a minority of very rich indi- | viduals breeds efforts by other peo- ple to dodge other laws as well as tax laws. It is also a matter of deep regret to know that lawyers of high stand- ing at the bar not only have advised and are advising their clients to uti- lize tax avoidance devices, but are ac- tively using these devises in their own personal affairs. We hear too often from lawyers, as well as from their clients, the sentiment “It is all right to do it if you can get away with it.” I am confident that the Congress will wish to enact legislation at this session specifically and exclusively aimed at making the present tax structure evasion-proof. I am confident also that the Con- gress will give to the Treasury all au- thority necessary to expand and com- plete the present preliminary inves- tigation, including, of course, full authority to summon witnesses and compel their testimony. The ramifi- cations and the geographical scope of a complete investigation make it nec- essary to utilize every power of Gov- ernment wheih can contribute to the end desired. Franklin D. Roosevelt The White House, June 1, 1937, OIL FIRM IS ORDERED TO DEAL WITH UNIONS Labor Board Bans Shell Delegate Plan as Being “Influenced” by Company. B the Associated Press. ‘The National Labor Relations Board has ordered the Shell Oil Co. of Cali- fornia to bargain collectively with five unions. The board declared these unions to be legal representatives of the company’s workers. The order called on the company to withdraw all recognition from the so-called Shell Conference delegate plan, which was declared to be “under company influence and not a valid agency for the purposes of collective bargaining.” The recognized unions, which filed charges that Shell violated the Wag- ner labor act, are International As- sociation of Oil Field, Gas Well and Refinery Workers of America; Inter- national Association of Machinists; International Brotherhood of Boiler- makers, Iron Shipbuilders and Help- ers; International Brotherhood of Blacksmiths, Drop Forgers and Help- ers and the International Brother- hood of Electrical Workers. Shell, the board said, had contended that electoral units within the Shell Conference delegate plan should be recognized as bargaining agent, while the unions argued that a Statewide unit was appropriate, French Living Costs More. ‘The cost-of-living index for & work- ingman's family of four in France has “Por 10 years the revenus acts nue system depends equally upon fair ' risen 31 per cent in the last 12 months. -3 3] ¢ Gov- | ‘STRIKE' DECLARED AGAINST RENTS U. A. W. Committee Orders | Payment Withheld Until Cuts Are Made. By the Associated Press. PONTIAC, Mich., June 1.—Charles Barker, chairman of a United Automo= bile Workers' committee appointed to bring about s reduction in Pontias rentals, announced today that “the strike is on.” “It is up to the property owners " he sald. “We have instructed tenants to withhold rent payments. “We are ready to go before the Circuit Court commissioners in cases of eviction, and into Municipal Court in garnishment actions. We intend to stall and delay and make it as ‘dlmrull as possible for landlords to | do anything until rents are reduced.” Rent Day for 15,000 Tenants. Although this is rent day for many of the 15,000 tenants in the Pontias area whom the committee expects tn Join in the action, Barker said that “we expect no action for a week or! two.” “We believe landlords will wait a week or 10 days before going to court,” | he explained. “Then we will fight for | every member who is taken to court.” Barker said the “strike” affects not jonly Pontiac but practically all of Oakland County and surrounding counties in which workers employed in Pontiac live, He said approximately 200 land lords have reduced rents. | The committee’s plan is for all | tenants to withhold payment, whether they consider their rents fair or un- fair. The “fair” landlords, Barker explained, will be notified that their rentals will be paid when a general readjustment is obtained. “We are sorry it has to affect thosa landlords who are fair in rentals” he said, “but that will help whip others into line.” TIssue to Be Put to Juries. Odin Johnson, union attorney, said the commitiee’s plan would leave it to juries to decide proper rentals. A Union Commiteee report has said the average rental increase the past year was 62'; per cent, or 50 per cent more than wage increases, Mayor Samuel Backus, a property owner, rental agent and past president of the Real Estate Board d present rents appeared high because of their contrast with “distress” rents during the depression, Complaints, Johnson said, have been received neither from Mayor Backus’ tenants nor from those of the General Motors Corp. Both, he said, are on the “fair” list. General Mo= tors built 700 houses during Pontiac’s expansion. —_— FINAL RITES HELD FOR LIEUT. PRINCE Flyer's Body, Brought From France, Given Entombment at Cathedral . Two services, brief but impressive, | were held at Washington Cathedral this morning for Lieut Norman Prince, American fiyer killed fighting for France in 1916 Escorted by 26 members of the Norman Prince Post of the Veterans of Foreign Wars, the body of the aviator was brought from New York yesterday and lay in the Union Sta- tion Chapel over night. This morning it was carried by motor hearse to the Massachusetts avenue entrance of the Cathedral close, where it was transe ferred to a military caisson While the | Army Band played “Nearer, My God, |to Thee.” The procession marched through | the Cathedral grounds to the Bethle- hem Chapel door, troops from Fort | Myer under command of Capt. David Barr leading the way. Lines of pil- |gnms, workmen on the Cathedral | fabric and members of the Cathedral office staff stood at attention as the cortege passed, and four planes cir- | cled over the church. Chaplain Wallace E. Hayes was in charges of the rites at the Cathedral entrance. Following the Veterans of Foreign Wars' liturgy, he was assisted by Past Comdr. Anthony J. Rock and Post Comdr. Joseph Cryan. The mili- tary service ended with the firing of a volley by a detail of troops. Inside the Cathedral Right Rev, James E. Freeman. Bishop of Wash« ington, read the Episcopal ritual of committal. The casket was borne to the Chapel of St. Joseph of Arimathea. Covered with the flag, it was lowered to the chapel floor while the bishop pronounced the sentences of inter- ment. Very Rev. Noble C. Powell, Rev. Dr. | Anson Phelps Stokes and Rev. Dr. Raymond L. Wolven assisted in the final service. In the congregation were the fiyer's father and mother, Mr. and Mrs. Fred- erick H. Prince of Boston; his brother and sister-in-law, Mr. and Mrs, Fred- | erick Prince, jr., and personal friends, | Maj. Ralph Robart represented Gov. Hurley of Massachusetts and Richard F. Cunningham was the deputy of Mayor Mansfield of Boston. Others present included Mrs. Edith Nourse Rogers, William P. Connery, Jr.; John W, McCormack, Robert Luce and George Joseph Bates, members of the Massachusetts delegation in Con- gress. Banana Disease Fought. Honduras believes that it has con- quered the disease that has been de- stroying its millions of banana plants, Congress in Brief ‘TODAY. Receives President’s message on tax evasion. Senate considers routine business. House debates relief appropriation, TOMORROW. Senate: Program uncertain; may not meet. Joint House and Senate committes hearing on the Black-Connally wage and hour bill, 10 am. Finance Committee meets in execue tive session on war profits bill, 10:30 a.m. Interstate Commerce meets on railroad 10:30 am. Appropriations Subcommittee cone tinues hearing on District bill, 10 a.m. House: Considers miscellaneous bills on calendar. Immigration 10:30 a.m. Indian Affairs Committee meets, 10:30 a.m. District Committee meets, 10:30 a.m. Committes investigation, Committee meets,