FOURTH LIBERTY BOND BILL.

COMMITTEE ON WAYS AND MEANS,
HOUSE OF REPRESENTATIVES,
Thursday, June 27, 1918.

The committee met at 10 o'clock a. m., Hon. Claude Kitchin (chairman) presiding.

There were present also Representatives Rainey, Dixon, Hull, Garner, Collier, Dickinson, Oldfield, Crisp, Carew, Fordney, Moore, Green, Sloan, Longworth, Fairchild, Sterling, Hawley, and Treadway. The committee had under consideration the bill providing for the fourth liberty bond authorization, which is as follows:

A BILL To authorize an additional issue of bonds to meet expenditures for the national security and defense, and, for the purpose of assisting in the prosecution of the war, to extend additional credit to foreign Governments, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section one of the second liberty bond act, as amended by the third liberty bond act, is hereby further amended by striking out the figures $12,000,000,000" and inserting in lieu thereof the figures $20,000,000,000.”

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SEC. 2. That section two of the second liberty bond act, as amended by the third liberty bond act, is hereby further amended by striking out the figures $5,500,000,000 and inserting in lieu thereof the figures $7,000,000,000.

SEC. 3. That notwithstanding the provisions of the second liberty bond act, as amended by the third liberty bond act or of the War Finance Corporation act, bonds and certificates of indebtedness of the United States payable in any foreign money or foreign moneys, and bonds of the War Finance Corporation payable in any foreign money or foreign moneys exclusively or in the alternative, shall, if and to the extent expressed in such bonds at the time of their issue, with the approval of the Secretary of the Treasury, while beneficially owned by a nonresident alien individual or by a foreign corporation, partnership, or association, not engaged in business in the United States, be exempt both as to principal and interest from any and all taxation now or hereafter imposed by the United States or any of the possessions of the United States, any State, or by any local taxing authority.

SEC. 4. That any incorporated bank or trust company designated as a depositary by the Secretary of the Treasury under the authority conferred by section eight of the second liberty bond act, as amended by the third liberty bond act, which gives security for such deposits as, and to amounts, by him prescribed, may, upon and subject to such terms and conditions as the Secretary of the Treasury may prescribe, act as a fiscal agent of the United States in connection with the operations of selling and delivering any bonds, certificates of indebtedness, or war savings certificates of the United States.

SEC. 5. That the short title of this act shall be “Fourth liberty bond act.”

STATEMENT OF HON. R. C. LEFFINGWELL, ASSISTANT SECRETARY OF THE TREASURY, ACCOMPANIED BY HON. GEORGE R. COOKSEY, ASSISTANT TO THE SECRETARY OF THE TREASURY.

The CHAIRMAN. The committee will come to order. We have Mr. Leffingwell, Assistant Secretary of the Treasury, here this morning, to discuss the new bond authorization. Mr. Leffingwell, please just explain to the committee the necessity of it.. We all recognize it.

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Mr. LEFFINGWELL. May I, Mr. Chairman, read the Secretary's letter to you of June 12, 1918, in which he transmitted the draft of this bill?

The CHAIRMAN. Yes, sir.

(Mr. Leffingwell here read the letter referred to, which is as follows:) TREASURY DEPARTMENT, Washington, June 12, 1918.

DEAR MR. KITCHIN: I venture to submit to you herewith a draft of a fourth liberty bond bill. I should be very glad if you would give this bill your consideration as its early enactment would put the Treasury in a position to make plans well beforehand for the fourth liberty loan in the fall. The bill is very brief and involves a few simple propositions.

Section 1 provides for increasing the amount of bonds authorized from $12,000,000,000 to $20,000,000,000. This amount is greater than would be issued in the fourth liberty loan but, if the practice which was adopted successfully in the third loan of making allotment in full upon all subscriptions is followed, it will be necessary to have a substantial margin to cover any possible oversubscription.

Section 2 would increase the amount of the appropriation for loans to foreign governments from $5,500,000,000 to $7,000,000,000. You will recall that in asking for the appropriation of $1,500,000,000 in connection with the third bond bill the requirements were figured at $500,000,000 a month for July, August, and September. Loans to the allies have fallen considerably below that figure and the additional appropriation would, I hope, carry us through the early winter.

Under the provisions of the third liberty bond hill and the War Finance Corporation act bonds payable in foreign moneys would be subject to surtaxes and excess profits taxes in the hands of foreigners. It would not be possible, I fear, to sell bonds at the interest rates stipulated without removing this taxation and the provision of section 3 of this bill is intended to do this.

A good deal of hardship in individual cases has arisen because of the fact that subscribers for liberty bonds have paid their money to banks and trust companies throughout the country which were willing to aid in connection with the liberty loans, but which were not sound and subscribers have lost sums of money which were small in themselves but big to them. This has an unhappy effect and section 4 would authorize the Secretary of the Treasury to use the qualified depositary banks throughout the United States as fiscal agents in connection with these loan operations.

Under doctor's orders I must be away for a month to come, and whenever you should be ready to consider these matters, I should be glad if you would give Mr. Leffingwell an opportunity to appear before you and explain them in greater detail.

Cordially, yours,

Hon. CLAUDE KITCHIN,

House of Representatives, Washington.

W. G. MCADOO, Secretary.

Mr. LEFFINGWELL. The bill increases the amount of bonds authorized to $20,000,000,000. This figure is an arbitrary amount fixed for convenience. We have issued about $8,000,000,000 of bonds against an authorization of twelve. That leaves four. We should be free to make practically an open issue again, as we did in connection with the last loan and be in a position to look the future in the face for a few months. In any case, the authorization suggested does not cover the estimates for the fiscal year 1919, even assuming a greatly increased revenue from taxation."

The CHAIRMAN. Mr. Leffiingwell, why would it not be wise to increase the authorization up to the amount that you feel like you have got to have. The estimate is made of $24,000,000,000 for the expenditures of next year, and we are trying to raise $8,000,000,000 through taxes.

Mr. LEFFINGWELL. Yes.

The CHAIRMAN. Making $12,000,000,000 in bonds, in addition to the four billions already authorized but not yet issued. Is it wiser that we should wait and have another bond act or authorize it at once, so that you can sell whatever conditions require?