John W. Snyder Oral History Interview, August 25, 1969

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

RESTRICTIONS
This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened September, 1970
Harry S. Truman Library
Independence, Missouri

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SNYDER: Today, Mr. Hess, I would like to drop back and discuss the tax policies and the tax legislation to finance the Government for the period beginning June 1946 and continuing through my term of office.

The tax policies advocated by the Treasury from the time I became Secretary of the Treasury in June 1946, were directed towards meeting the changing needs of the Nation. This momentous period of history presented distinct economic problems to which the tax policy had to be adapted. During this period, the Treasury consistently advocated fiscal policies designed to safeguard the credit of the Government. It actively sought structural improvements to enhance the equity of tax laws.

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The outbreak of hostilities in Korea in mid-1950 imposed severe strains on the economy and sharply increased revenue requirements. Beginning at that time, the tax policy of the Treasury bore the responsibility of financing defense as nearly as possible on a pay as you go basis while retaining the incentives to work and invest which are basic to our free enterprise system. During the six fiscal years that ended with the fiscal year 1952, the Treasury operated with a net budget surplus of approximately three and a half billion dollars. Tax increases passed by the Congress were less than those recommended; therefore, the fiscal year 1952 ended with a four billion dollar deficit and another deficit was anticipated for the fiscal year 1953. The policy of covering governmental expenditures out of current tax

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revenues during those years, served to reduce the strain and dislocations due to inflation. During most of this period, the economy was enjoying an unprecedented prosperity, and strong inflationary pressures were ever present. This situation called for a tax policy aimed at both balancing the budget and reducing the public debt. Such a policy was put into effect and contributed in a positive way to the maintenance of the credit of the Government and the soundness of the country's currency. In the fiscal year which saw the transition from war to peace, the fiscal year that ended June 30, 1946, Federal Government expenditures fell off by about forty billion dollars from the wartime peak of just under one hundred billion dollars reached in the fiscal year 1945. In the fiscal year 1947, the first fiscal year under review, expenditures

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were again reduced by more than one-third and the Federal Government operated at a surplus of about seven hundred fifty millions of dollars.

This desirable transition from a period of war deficits to peacetime surpluses was accomplished without serious unemployment or economic dislocation. In view of our large wartime debt, maintenance o£ the Nation's finances, in a sound condition, required keeping our tax revenues at a high level during the prosperous postwar period in order, not only to meet expenditures, but also to provide for the orderly retirement of the debt, It required also the utilization of tax reduction opportunities for the improvement of the structure of the revenue system, rather than for indiscriminate across-the-board reductions.

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For these reasons, the Treasury was opposed to premature tax reduction legislation proposed in 1947 and 1948.

The Treasury opposed tax cutting legislation in 1947, believing that under the prosperous conditions then prevailing, taxes could be paid with less hardship and adverse economic effect than would be possible under less favorable circumstances. I outlined the desirable features of a sound tax system and urged the need for advance planning to lay the foundation for future legislation. The untimely tax reduction legislation passed by the Congress on June 3rd, 1947, was postponed by the President's veto; and similar legislation, passed July 13th, 1947, was also vetoed. Similar tax reduction proposals were renewed in 1948. The Treasury reiterated the view that

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there was need for restraint; that sound fiscal policies were required to cope with inflationary pressures and to reduce the public debt. The Revenue Act of 1948 passed over the administration opposition, reduced revenues by approximately five billion dollars annually.

In 1949 the president recommended a tax increase to recoup some of the revenue lost in 1948. This program recognized that a Government surplus under the then existing conditions was essential to provide a margin for contingencies, to permit reduction of the public debt, to provide an adequate basis for future financing of existing commitments, and to restrain inflationary trends. Throughout these developments, it was the Treasury's position that tax reduction, when feasible, should be utilized for the improvement of the fairness of the tax

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structure and for the elimination of inequities and loopholes. Intensive study was given to methods of ridding the revenue structure of accumulated inequities and technical defects. In 1948 the Treasury advanced specific proposals for improving the tax system and its administration without substantial revenue costs. The number of these suggestions were incorporated in a 1948 bill adopted by the House but was not considered by the Senate.

In 1949, a further attempt was made to achieve greater equity and revenue strength by closing loopholes. Opposition to premature tax cuts was based on the view that they were inappropriate under the prevailing economic conditions of the time, and would hinder desirable structural revisions at a later date. In 1950, the President recommended in a

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special tax message, a program to eliminate loopholes in the tax laws; remove onerous excise taxes, and at the same time restore the revenue strength of the tax system through additional taxes on corporate profits and revised estate and gift taxes. The Congress was engaged in consideration of this program in June 1950 when hostilities broke out in Korea. This development swept aside immediate prospect of excise tax reduction and confronted the United States with a problem of financing a defense program of major magnitude. The Treasury sought to obtain added revenue to meet this emergency, and at the same time, to promote long-run objectives. Its policies were directed towards financing the defense effort on a sound and equitable basis with minimum additions to the public debt. Adequacy of revenue was given primary emphasis in order to preserve

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confidence in the integrity of the Government's finances and to distribute. the heavy defense costs fairly and to restrain inflationary pressures.

Within sixteen months after the outbreak of hostilities in Korea, three major revenue acts were enacted. These measures increased the annual revenue producing strength of the tax system by approximately fifteen billion dollars at the 1951 income level. Of this total, the Revenue Act of 1950 accounted for nearly six billion dollars, the Excess Profits Tax Act of 1950, for about four billion dollars, and the Revenue Act of 1951 for over five billion dollars. Over 90 percent of the increased revenues under these three measures was obtained from increased taxes on individual and corporate incomes and profits. Minimum

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reliance was placed on consumption taxes.

Three major tax measures enacted during that period were of sufficient importance to merit separate discussion. You will recall that at the time hostilities suddenly broke out in Korea in mid-1950, Congress was considering tax revision legislation. The bill under consideration was directed, primarily, towards excise tax reduction. It provided reduction in war excise taxes, aggregating approximately one billion dollars. Most of the revenue loss was to have been recouped by closing tax loops and from an increase in the corporations income tax. Although it followed the general pattern of President Truman's recommendations, the House bill fell short of his revenue objectives. The President had proposed first that excise taxes be reduced to the extent, and only to the extent, that

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the resulting loss in revenue could be replaced by closing loopholes in the present law. And second, that one billion dollars of additional revenue be provided by revising and improving the corporation, income, estate, and gift taxes. When the Korean crisis occurred, the fiscal year 1950 was drawing to a close with a deficit of more than three billion dollars. The Korean situation evolved rapidly and the Treasury advised the congressional tax committees that it would not be prudent to proceed with further consideration of the tax bills then under consideration.

The public was warned to prepare for higher taxes. President Truman announced that at an appropriate time he would propose tax legislation to the Congress and suggested that such legislation be guided by two fundamental

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principles. First, he said, we must make every effort to finance the greatest possible amount of needed expenditures by taxation. The increase of taxes is our basic weapon in off-setting the inflationary pressures exerted by enlarged Government expenditures. Heavier taxes will make general controls less necessary. And second, we must provide for a balanced system of taxation which makes a fair distribution of the tax burden among the different groups of individuals and business concerns of the Nation. A balanced tax program should also have as its major aim the elimination of profiteering.

The situation called for speedy enactment of tax increases. Even before Korea most economic indicators were pushing towards, or exceeding, record peacetime levels. Gross

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national products, personal incomes and the corporate profits, were very close to the peak levels reached late in 1948. Economic projections indicated the beginning of substantial inflationary pressures. The whole economy appeared to be surging forward at an accelerated pace. To meet the emergency expeditiously, President Truman proposed that the pending tax reduction bill be converted into an interim tax increasing measure to provide more time for the consideration of a revenue program for defense. Speed was of the essence, because if taxes were not increased promptly, inflation would become an accomplished fact. Accordingly, the Treasury recommended that the House bill be revised, one: To eliminate excise tax reductions and other revenue-lowering provisions; two: To

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retain the loophole closing, dividends withholding, and the life insurance company taxation provision; and three: To embody increases in the corporation and individual income taxes. To avoid serious delays it was advocated deferring excess profits tax legislation, pending the completing of the interim revenue measure.

Revenue legislation received expeditious congressional handling. It was enacted on September 22^nd and signed by the President on September the 23^rd, 1950. The Revenue Act of 1950 increased individual and corporate income tax rates along the lines recommended by the Treasury. However, the corporation income tax increases were made applicable to only about half the calendar year 1950 income, instead of the full year as had been recommended. That

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provided for gradual acceleration of corporation tax payments over a transition period of five years. The Revenue Act of 1950 was the first general stabilization measure to be adopted and put into effect after the beginning of the Korean war. It carried forward the policy of the administration to pay for the defense program out of the current taxes and thus to offset the inflationary pressure resulting from increased government expenditures.

In 1950 revenue legislation was facilitated by the fact that the tax structure, which had been developed during the preceding years, permitted the increased rates to become effective almost immediately by virtue of the current payment system and the system of withholding income taxes as salary and wage income is received. The tax structure permitted tax

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raises to be increased, expanded, and made promptly effective without major structural revision. This made it possible for the Government to rely upon the individual income tax for a large part of the additional revenue required for the defense effort.

In his message to the Congress on July 19, 1950, the President urged that a balanced tax program should also have as a major aim, the elimination of profiteering. The Revenue Act of 1950 did not include an excess profits tax because of the time required to draft such complex legislation, It did, however, contain a directive to the Joint Committee on Internal Revenue Taxation to make a complete study of the problem of excess profits taxation and instructed congressional tax committees to report out an excess profits tax bill retroactive

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either to July 1 or October 1, 1950, as soon as practicable after November 15, 1950.

In November 1950 the President urged immediate adoption of an excess profits tax effective as of July 1^st, 1950 to raise four billion dollars additional revenue. He pointed out that business profits had increased since that date and that such profits should obviously be taxed as part of a sound program of defense taxation. The Treasury suggestions on the principal provisions of the profits tax to raise approximately four billion dollars in revenue, were presented to the Committee on Ways and Means on November 15th, 1950. These suggestions took full account of the fact that Congress had given extensive support to the principle of excess profits taxation during its consideration of the interim tax bill. As enacted, the Excess Profits Tax Act

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of 1950 proposed a tax of 30 percent on corporation profits in excess of 85 percent of the average three highest base period years 1946 to 1949 to be effective for a period of three years, July 1950 to June 30, 1953. Provisions were made also for alternate credit based on invested capital and growth. So-called automatic relief provisions based on industry rate of return were provided.

The President approved the Excess Profits Tax Bill Act on January 3rd, 1951. He commended the Congress for its speed in completing this complex legislation. Although the Revenue Act of 1950 and the excess profits tax had increased revenues substantially, the Government required more and heavier taxes to finance additional expenditures for national defense. In his tax message to the Congress

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February 2^nd, 1951, President Truman pointed out that inflationary pressures will be strong even after taxes are increased enough to balance the budget. We will still need direct controls over prices and wages but it may not be possible to make these controls effective unless we tax ourselves enough. Certainly these controls will be far more effective if we pay for expenditures through taxes as we go along. To meet the problem, the President recommended that the tax program be enacted in two parts. This two-phase program was suggested because of the difficulty of estimating the speed with which military production and expenditure would get under way. He suggested that the first part provide additional revenue of at least ten billion dollars and that such remaining amounts as would be needed to help

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the Government on a pay-as-you-go basis, be provided at a later date.

On February 5th, 1951, the Treasury outlined to the Committee on Ways and Means of the House of Representatives a tax program to yield approximately ten billion dollars that the President had requested. The largest portion was to be provided by raising all income tax brackets by four percentage points and by increasing the capital gains tax rate from 25 to 37 ½ percent. Increases were also proposed in the corporate income tax and in a number of excise taxes.

Improvements also were urged in the tax structure and enforcement provisions as higher rates accentuated existing inequities. Previous legislation had been successful in closing several important loopholes, but further

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action was needed along these lines. Improvements in the tax structure in those areas which enabled favored taxpayers to escape their fair share of the burden were also recommended. Revenue increases adopted under the Revenue Act of 1951 were only about half the amount recommended. The bulk of the increase came from taxes on individual and corporate incomes. The force of this legislation was particularly dissipated by the fact that it contained a number of provisions which acted as tax havens. These included excessively liberal capital gains and family partnership provisions and additional depletion and related allowances for certain mineral property. Because of these features, President Truman approved the bill only with reluctance indicating that he would have disapproved the legislation if the need for revenue had not been so pressing.

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At this point, Mr. Hess, I want to touch on the developments in Social Security taxes. During the period since June 6 1946, the Treasury gave continuing attention to the development of effective methods for extending and expanding the coverage of the Old Age and Survivors Insurance program drawing upon its experience with wartime and postwar taxation of lower income groups, the efforts to extend coverage culminated in the enactment of the Social Security Act Amendments of 1950, which brought within the framework of the retirement program millions of self-employed persons, agriculture and domestic workers, and employees of state and local governments and non-profit institutions. At the same time, the general level of Social Security benefits and taxes were increased. In 1950 legislation also reversed the action

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of the preceding Congress which had excluded some workers from coverage. During the full six fiscal years that we have been reviewing, I as managing trustee of the Old Age and Survivors Insurance Trust Fund, was responsible for the management of an ever increasing reserve fund. At the end of the fiscal year 1952 the assets of the fund stood at 16.6 billion dollars compared with 7.6 billion dollars six years earlier. Throughout the postwar period, the Treasury sought to advance Federal-state-local tax coordination. State and local governments emerged from World War II with substantial surpluses. Tax revenues expanded during the war while the limited availability of materials and manpower held down expenditures. The postwar years were characterized by rapidly increasing need

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for state and local services, which exhausted wartime reserves of state and local governments and pressed heavily against the expanding revenues. This coincided with the continuing need for high level Federal revenues. In the process, the problems of inter-governmental tax coordination was intensified.

In recognition of this situation, I invited state and local representatives to meet with Federal officials in Washington in April of 1949 to explore inter-governmental fiscal problems including methods of reducing over-lapping taxes and administrative duplication. Among other proposals, the conference considered the suggestion that the Federal Government relinquish certain excise revenues to state and local governments, either through rate reduction or tax repeal. It agreed that

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Federal budgetary conditions at the time precluded abandonment of excise revenues and recommended that the interest of the state and municipalities be kept in view when circumstances permitted a general Federal excise tax revision.

Administrative cooperation between Federal and state fiscal authorities developed extensively following the war years. Federal income tax returns were open to inspection by state tax officials, and in more recent years before I left the office, thousands of transcripts of individual and corporation income tax returns were supplied to the states. Beginning in 1950, Federal-state cooperation entered a new phase, with the exchange between Federal authorities and a number of states of information uncovered during the tax audits. This program proved successful and since those days several

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states have expressed desire to participate in it. Until today I think most of the states of the Union are reciprocating with the Federal Government in the examination of returns.

Extensive administrative cooperation developed in the enforcement of alcohol and other excise taxes. Federal, state and local enforcement officers worked closely together in the detection of elicit alcohol production. Treasury records on alcohol shipments and on alcohol beverage distributions were made available to the states as an enforcement measure.

The states had a special problem of enforcement of tobacco taxes because interstate parcel post shipments provide a means of tax avoidance. The Federal legislation in 1949 relieved this situation by requiring that monthly reports be made to state administrators

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by persons who sell cigarettes in interstate commerce and ship them to other than licensed distributors in a state which taxes cigarettes.

The problems associated with payments to state and local governments on Federally owned real property, had long been a troublesome factor in inter-governmental relations. In 1949, under my direction, the Treasury Conference on Inter-governmental Fiscal Relations revealed more interest in this problem than in any of the others discussed. As a result, plans were formulated, with the Treasury endorsement, for a uniform system of payments to state and local governments on account of Federally owned real estate.

Along with our state and municipal problems with the Federal Government, we also were

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experiencing some difficulties in our international tax relations. In the immediate postwar period, private investment abroad could play only a minor role in the restoration of war torn economies. In subsequent years, the United States policy turned increasingly to providing capital to promote the economic growth of the free world through Point 4 and other programs. The Treasury developed a number of tax proposals to further foreign economic policy. Recommendations were made to the Congress. One: To liberalize the tax treatment accorded income from personal services rendered abroad. Two: To liberalize the credit allowed to foreign income taxes. Three: To permit postponement of taxes on income earned abroad through branches of domestic corporations until such time as income is remitted to the United States.

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And four: To grant credit under the Federal Estate Tax Act for death duties imposed abroad. Except for the postponement of tax on branch income, the Congress adopted the legislation along these lines. Under my direction the Treasury conducted an active tax treaty program to eliminate international double taxation, thus furthering the promotion of the Nation's economic interests and its foreign policy.

The Treasury actively participated in a number of international meetings dealing with tax policy and encouraging negotiations for agreements between countries. In 1948 it helped to launch the United Nations Fiscal Commission. The Fiscal Assistant Secretary of the Treasury, who represents the United States on the commission, played a leading role in its deliberations.

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Viewing the events of the period between June 1946 and January 1953 in retrospect, there are certainly grounds for genuine satisfaction that on the whole, and in spite of imperfections, the tax structure served the purposes of the American people very well. Despite the additional burdens which they were called upon to bear, the people of this nation have enjoyed a higher standard of living than ever before in the history of the Nation. Production has gone forward and future productive capacity is still expanding. This experience demonstrates in a gratifying manner the capacity of a democratic nation to use the self-discipline of taxation wisely. It affords confidence that a courageous and constructive approach to the tax policy can help build a sound and nduring prosperity.

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Mr. Hess, in this interview I would like to review with you the many reorganizations and management improvement programs which were instituted in the Treasury Department under my recommendations and leadership. [Noted on Page 1819] When I first came into the Treasury, one of the earliest impressions that I recall was the fact that a tremendous job lay ahead in modernizing, reorganizing, and in improving the operations of the various agencies of the Treasury. Many of the agencies had gone through a hundred and fifty, a hundred and fifty-five years with very little, very few, basic changes in their operation and policy, particularly the Bureau of the Customs, and certainly the Bureau of Internal Revenue to its greatly expanded responsibilities. Between 1940 and 1946, the Bureau had grown from a five billion dollar to more than a forty billion dollar business. Its collection job had

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multiplied eight times in dollar volume during those six years. Its customers had quadrupled from nearly twenty million to more than eighty million in tax returns filed during the same period. In addition to increases in the sheer volume of the workload, the nature of the tax collecting job had undergone major changes during the war years. Before the war, tax collection was considered largely with taxpayers having very substantial incomes. These taxpayers generally kept accurate records, utilized the services of accountants or lawyers, maintained bank accounts and possessed a general knowledge of tax requirements. Practically overnight the income tax was extended to cover millions of modest income people whose records were scanty, who were untrained in tax requirements, who often had no bank accounts, and who changed jobs

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frequently. The Bureau was thus called upon to administer and collect a very broadly based mass tax with all the problems of education, administration, supervision and enforcement which this created. At the same time, major changes in the methods of tax collection, notably the withholding tax, had occurred. The withholding tax represented an important step forward in convenience and effectiveness of tax paying and tax collection. Nevertheless, the new current tax payment system called for basic changes in tax collection practices. In addition, many new and complex taxes were imposed and superimposed during the war, including a large number of excise taxes, each one with separate problems of administration, collection, and enforcement. Finally the severe shortage of manpower and mechanical equipment during the

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war increased all of these difficulties making it necessary for the Bureau to meet its magnified task with prewar machinery, which was neither designed nor equipped to handle them. While the war was going on, the Bureau solved these problems as best it could, using its limited facilities where they were most needed. But by June 1946, the investigation of individual income tax returns had fallen about one year behind schedule and the investigation of corporate income and profits taxes nearly two years behind. Furthermore, only limited manpower could be spared from the Bureau's most essential functions to obtain better enforcement and collection. During my six and a half years in the Treasury with the approval and complete support of President Truman, a thorough, drastic, and far-reaching revision

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of the tax collecting mechanism and of the entire operation of the Bureau took place. These developments grew out of the management improvement programs which were started in October 1946. At that time I called to Washington all the key Revenue officials. The goal which I placed before these officials was the transformation of the Bureau as it existed on that date, with a basic structure dating back to the 1860s, into a modern streamlined organization carrying on its operations according to the latest practices of modern business.

The October meeting was the first of a continuing series of actions through the ensuing months and years. The program, as it progressed, resulted in a large number of major changes, and in innumerable lesser

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improvements in the Bureau's methods and administration. One of the important changes was the President's Reorganization Plan No. 1 for 1952 in which President Truman sent to the Congress, in January 1952, and which became effective two months later with congressional assent.

The essential features embodied in this plan were first: The elimination of political appointments of all Bureau personnel except the Commissioner, and the placing of such personnel under Civil Service and the merit system. Two: Abolition of the collectors' offices and the establishment, in their stead, of not more than seven local area offices under the direction and supervision of not more than twenty-five district offices, which were to have full administrative responsibility for all

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internal Revenue Bureau activities within a designated area, regardless of function or kind of task. And three: Provisions in the District Offices of a one-stop service to the taxpayer with respect to revenue problems of any kind. Four: The achievement as the result of these and other changes of an efficient streamlined organization having the advantage of A: The consolidation of mass operations in the district offices. B: The greater use of modern mechanized processes of operation. C: The delegation of more operating functions to the taxpayer level. And D: Greatly broadened auditing and enforcement activities through the use of personnel and funds released by improvements elsewhere.

On December 1^st, 1952, the major features of the reorganization of the Bureau of Internal

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Revenue were completed. All of the collectors offices had been abolished and replaced by sixty-four offices under the direction of seventeen district offices providing every section of the country with greatly improved facilities for conducting business relating to tax obligations and tax payments.

The Reorganization Plan No. 1 of 1952 developed from the management studies and surveys which were put into operation in the early months of my tenure of office. In the periods since then the management improvement program for the Bureau of Internal Revenue has brought experience and management skill from every source inside and outside the Government to bear on the Bureau's organization and operations. An audit control program was formulated for the purpose of achieving maximum effectiveness in audit and in investigative

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techniques and maximum enforcement coverage with the available personnel. A work simplification program was initiated at the grass roots level and some twenty-two hundred improvements and operations and procedures have resulted. Employee incentive awards were established and were immensely productive of new ideas and suggestions which paid off handsomely. A management staff was set up as part of the Commissioner's office and a special committee to direct the management studies of the Bureau of Internal Revenue was created. This committee was composed of qualified people from inside and outside the Government and headed by an experienced businessman. One of the outstanding management firms in the country was engaged to make a comprehensive analysis of procedures in the collectors offices and

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of the Bureau's operation in general. Improvements of far-reaching consequence resulted.

One of the most tangible evidences of change which developed was the extensive conversion of manual operations to labor saving and mechanical devices. The Bureau tried out, and installed, as rapidly as possible, electronic computers, punch card recording machines, high speed posting machines, mechanical validators for tax stamps and many similar devices for speeding up operations.

The most striking transformations, however, were not those which could be seen by a visit to the Bureau's offices. They were found in the much greater efficiency of service rendered to the taxpayer and to the public in general. The Bureau substantially reduced its backlog and absorbed a 13 percent increase in income

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tax returns filed. The cost of collecting the taxpayers' dollars fell to forty-two hundredths of a cent, one of the lowest on record in modern times and services of all kinds were greatly Improved. For example, refunds on overpayment to some thirty million taxpayers, as a result of the withholding tax, running annually close to two billion dollars, were speeded up through modern methods to the point where most of them were mailed out in approximately two months after the March 15th tax payment date. Such refunds formerly required as long as twelve months.

This single improvement resulted in a saving in interest payments on tax refunds amounting to as much as three million dollars in a single year. The saving in time to both the taxpayer and the Bureau, represented by the great

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simplification of income tax forms which were put into effect, is another example of a great achievement of efficiency.

The more intensive enforcement program made possible by the streamlining of other Bureau operations was yet another result and a most important one of the improvement programs. Additional tax assessments and collections on unpaid taxes, many of which the Government would not have otherwise collected, amounted to approximately eight hundred million dollars, or 55 percent greater in 1952 than in 1946. It was possible also to step up investigations and prosecutions of tax frauds. In the fiscal year 1952 alone additional taxes and penalties recommended in the cases investigated by the Bureau's special agents, having to do with tax frauds, totaled more than two hundred fifty million dollars, approximately the amount required

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to run the entire Bureau for a whole year. The record of improvements since 1946 in the Nation's largest business, the Bureau of Internal Revenue, gives a most interesting study in what can be done to improve an operation of Government through careful analysis of its policies. The record confirms definitely my belief that the program, which we were able to put into effect in the Bureau of Internal Revenue, represents an achievement of outstanding importance in the history of Government operations. Great credit for those accomplishments must appropriately be given to the able and loyal members of the Bureau staff and personnel.

The next item in this category which I am going to discuss with you, Mr. Hess, refers to the improvement in services and operating

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procedures of the United States Coast Guard. One of the very difficult and pressing administrative problems which the Treasury Department faced when I took office, was the readjustment of the Coast Guard and its successful adaptation to the many new responsibilities which had developed during the war years. On January 1^st, 1946, the United States Coast Guard had been returned to the jurisdiction of the Treasury Department after having operated as part of the Navy during World War II. The peacetime duties for which this branch of the service was responsible had undergone a radical change during the war years. The extensive developments during World War II of such navigational aids as loran (that is long range aids to navigation), and weather recording devices, made necessary extensive changes in the facilities

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relating to weather reporting and to air and sea safety, which were made the responsibility of the Coast Guard. At the same time the tremendous increase in transoceanic air travel placed serious new burdens on the personnel and equipment of the service. For example, in August of 1946 on the basis of an act approved by the Congress and signed by President Truman, the United States became an official member of the International Civil Aviation organization. This is an authoritative international group for the promotion of air safety and other aviation matters. The United States Coast Guard has the primary responsibility for carrying out the recommendations of that organization. The rescue at sea had been meeting its obligation with respect to these matters as rapidly as funds and personnel would permit. With. respect to all of this navigational and sea rescue

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activities it had been necessary for the Coast Guard to modernize operations in order to bring them in line with the requirements of present day air and marine transportation. After these various adjustments were made, for example, the Coast Guard at the time I left the Treasury, maintained thirty-seven thousand eight hundred and thirty-eight aids to navigation in the navigable waters of the United States, its territories, and possessions, and at overseas military bases. These aids consisted of many different devices ranging from simple unlighted wooden spar buoys to light stations, light houses, and complex loran networks. The loran stations located both in the United States and in widely separated and isolated localities such as Greenland, Labrador and Newfoundland, Alaska, the Philippines, and the islands in the

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Pacific, provided navigators traversing the military and civil air and sea routes of the North Atlantic and the Pacific Oceans with means for accurate and quick determination of their position at all times, regardless of weather conditions.

In addition to these duties, the Coast Guard was called on to participate in the International Ice Patrol to maintain the Bering Straits patrol and to maintain ocean weather stations in the North Atlantic and the North Pacific in fulfillment of international agreements, and to perform a large number of duties with respect to maritime law enforcement inspection and safety.

I'll remind you that when I took office, the future peacetime mission of the Coast Guard, with respect to all these needs and

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functions, was uncertain and obscure. Shortly after V-J Day, the Coast Guard demobilized personnel from one hundred seventy-two thousand to twenty-two thousand officers and men. This had caused a disruption in the orderly procedure of its operation, yet the host of new duties which had evolved upon the service during the war years remained as a continuing responsibility of grave proportions. Recognizing the critical nature of the problems in the summer of 1947, upon the recommendation of President Truman and the Treasury revision was made through the cooperation of Congress for a major business study of the service to be conducted by a private firm of consultants. The firm submitted its report in January 1948 and advanced a large number of recommendations aimed at furthering improvements in Coast Guard operation. These

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proposals became an integral part of the broad improvement program. After that time other outside surveys were made on specific aspects of Coast Guard operations.

I will not attempt to. go through a year by year detail of the changes that were necessary to be made but I should like to note at this point the following major accomplishments. First: Further work had been done in integrating the duties of the former Bureau of Lighthouses and the former Bureau of Marine Inspection and Navigation into Coast Guard operations. These two services were transferred from the Department of Commerce. The first was on July 1^st, 1939; the second, by the Executive order of February 28th, 1942, which became permanent with the Reorganization Plan No. 3 of 1946. Increased economy and efficiency had been

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attained through consolidation of facilities, reduction of operating expenses, the better use of personnel assigned to marine inspection and aids to navigational functions. Second: Important savings on expenditure and more efficient use of personnel were affected by consolidating districts and facilities whenever careful study indicated that this action was practical. Three: Extensive improvements in accounting organization and procedures were carried out. Four: The study of existing supply procedures initiated in 1949 resulted in more efficient methods of procurement, better inventory control with reduced costs, and improved distribution of stocks. Five: Installation and more effective use of new devices, particularly in the field of electronics, enabled the Coast Guard to meet its increased obligations and to carry out

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its traditional duties more efficiently than ever before even with a minimum of personnel. Six: A central management group was established to review regularly methods and procedures to assure constant improvements in management practices. And in addition to all of these improvements, a strong organization for the Coast Guard, facilitated by an act of Congress which became law in August of 1949, assisted greatly in this changeover. In this law the Coast Guard received from Congress, for the very first time, a concise mandate as to its peacetime functions and responsibilities. The Treasury took a very active part in the preparation of this legislation for the consideration of the Congress.

Other developments which strongly affected the Coast Guard operations during my tenure were

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the responsibilities for port security and the revitalization of the Coast Guard reserves, both of which resulted from congressional action following the outbreak of hostilities in Korea. When I left the Treasury, the Coast Guard was a compact, highly efficient organization which was enabled by the improvements made during the six and a half years I was in office, to carry out its far flung responsibilities by means of a relatively small increase in personnel and funds allotted to the service since the middle of 1946. Again, I want to give full credit for these accomplishments to the able and loyal members of the Bureau staff and personnel.

The next item for discussion is the improvement of Federal accounting and financial procedures of the Federal Government. I'm going

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into this in some detail, Mr. Hess, because I have always considered it one of the vitally important things that took place in the reorganization of the Government accounting system since our nation began. I considered it to be desirable to include in this report, a review of the system since its inception in 1789, particularly as it concerned the responsibility of the Treasury Department to maintain the central revenue and appropriation account of the Government. The keystone of the system is the provisions in Article I Section IX of the Constitution which provides:

No money shall be drawn from the Treasury but in consequence of appropriations made by law and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time.

In the act creating the Treasury Department it was unquestionably the intention of the Congress

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to center in the Treasury the accounting control over the public money. In addition to the positions of the Secretary of the Treasury and the Treasurer of the United States, the act of September 2^nd, 1789 created in the Treasury Department the position of Controller, Auditor, and Register. No acknowledgment of the receipt of money into the public treasury was valid unless endorsed on a warrant of the Secretary of the Treasury. Likewise, the Treasurer was authorized to make disbursements only upon warrants of the Secretary, countersigned by the Controller and recorded by the Register. The basic principles established in 1789, are part of the law today, although the passage of time has brought about changes in organization as well as procedure. Between 1789 and 1894 certain accounting functions had been imposed upon other agencies, but in the

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Dockery Act of July 31, 1894, the Congress reorganized the system by restoring it more completely to the original Treasury system. This law established in the Treasury Department, the Office of Controller of the Treasury, who was the principal accounting officer of the Government, six auditing officers, and a division of bookkeeping and warrants which became the central bookkeeping and reporting organization of the Government. For many years, beginning in 1908 and 1909, the Treasury Department had recommended the adoption of a budget system for the means of providing better control over the receipts and expenditures of the Government. In the Budget and Accounting Act of 1921, the Congress created a budget system and at the same time made important changes in the Government accounting and auditing structure. The 1921

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law created the General Accounting Office as an independent agency of the Government under the control and jurisdiction of the Controller General of the United States. The Office of the Controller of the Treasury and the six auditing offices of the Treasury were consolidated in the newly created General Accounting Office. Authority to issue warrants on the Treasury, however, was retained by the Secretary of the Treasury subject to counter-signature of the Controller General of the United States. Also the functions of maintaining the central accounts of the Government and of preparing an annual report relating to receipts, appropriations, and expenditures were left to the Division of Bookkeeping and Warrants of the Treasury Department.

Section 255 of Title 5 of the United States Code provides:

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There shall be in the Bureau of Accounts of the fiscal service, Treasury Department, a division of bookkeeping and warrants. Upon the books of this division, shall be kept all accounts of receipts and expenditures of public money, except those relating to the postal revenues and expenditures therefrom.

And Section 264 of the same Title provides:

It shall be the duty of the Secretary of the Treasury annually, to lay before Congress, on the first day of the regular session thereof, an accurate combined statement of the receipts and expenditures during the last preceding fiscal year of all public monies, including those of the Post Office Department, designating the amount of the receipts whenever practicable by ports, districts and states and the expenditures by each separate head of appropriation.

Until recent years the accounting procedures of the Government were designated largely for the purpose of controlling appropriations, allotments, and enforcing accountability of public officers with respect to the receipt and disbursement of public funds. On December 23, 1947, the

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Secretary of the Treasury, the Controller General of the United States [Lindsay Warren], and the Director of the Bureau of the Budget [James E. Webb], met for the purpose of considering the feasibility of improving the system by making it more responsive to the needs of management. The result of this meeting was the adoption of a joint accounting improvement program in which the General Accounting Office, Treasury Department, and the Bureau of the Budget, took the leading roles assisted by the various administrative agencies of the Government. An important outgrowth of this program was the enactment of the Budget and Accounting Procedures Act of 1950. In approving this act, President Truman said, "This is the most important legislation enacted by the Congress in the budget and accounting field since the Budget and Accounting Act of 1921 was passed

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almost thirty years ago." Personally I think it was the most important budget and accounting account since our Government began operation. A uniform system of accounting has been adopted for the entire Government whereas before each different agency could proceed with an accounting system of its own if it was approved by the Controller General. This procedure has greatly increased the efficiency, the time required to complete consolidations, and the general composite availability of Government accounting for the purposes of the President and for Congress and for the budget operation.

Before leaving the subject of accounting improvement I feel like I should say a word about the need always for competent accounting personnel. Proper performance of accounting duties requires a high degree of professional

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skill and that is particularly true in Government accounting. It was my recommendation on leaving office, that a comprehensive program of job evaluation should be undertaken regularly in order to provide adequate incentives for young men and women to enter this field and to follow it as a career in the Federal Government.

And in closing my remarks, Mr. Hess, on the Treasury's reorganization programs while I was Secretary, I want to once more speak of the increased efficiency of the working operations of the Treasury Department and the improved service to the public which was brought about through the management improvement programs which were based on, first: A management efficiency study within the Department. Two: Management surveys of private

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management engineering firms. And three: Participation of all employees through a system of cash awards or efficiency, superior accomplishments, and management improvement suggestions.

As I have already noted in our earlier discussions, the problems of management improvement were particularly pressing when I came into office in June 1946. From the very beginning the Treasury began to introduce important and far-reaching changes both in organization and in the volume and direction of operating activities. These changes were the result, in large part, of the Treasury's new management improvement programs. The Treasury Department was particularly active and aggressive in establishing these new improvements and in putting their provisions into effect in the period following

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the close of World War II. Management studies were made both within the department and by contract with private management engineering firms.

During our various discussions I touched on a number of details of these programs as we were talking about the various operations of the Treasury but I will add that throughout the Treasury the goal of the management improvement programs to cut costs, to improve efficiency, and to render better service to the public, was constantly kept in mind. The record will show that the Treasury made most satisfactory progress towards this goal during the six and a half years that I was in the Treasury. As a direct result of these programs, there has been great monetary savings of many millions of dollars. Other savings, the value of which cannot readily be measured in terms of dollars, were also

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affected. These savings were employed in meeting increased workloads, reducing appropriation requests, strengthening the enforcement work of some of the Bureaus, and covering the cost of installing mechanized and other improved procedures. One illustration of the improvement made might be mentioned at this point. It relates to the coordination of the inspection activities of Customs and Immigration. The principal objective of this improvement was to have one officer of either service perform the duties for both services in preliminary screening of passengers and vehicles at border ports and stations. After a series of a successful pilot test studies of procedures to carry out this objective, the Secretary of the Treasury and the Attorney General jointly ordered that these

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procedures commonly referred to as "dual screening" should be permanently installed wherever feasible at border ports. These installations were accomplished between May and October of 1949. The recurring annual savings to the Bureau of Customs alone from this change in procedure amounted to approximately three hundred thousand dollars. Improvements in procedure of this type, of course, were repeated in many thousands of changes in procedures which were examined, tried out on a pilot basis, and then installed in the operating offices and bureaus of the Department as rapidly as possible.

In addition to the examples already discussed under this and previous headings, programs and management improvements were carried out in the fiscal service, the Bureau

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of Engraving and Printing, the Bureau of the Mint, the Secret Service, the Bureau of Narcotics and in the Office of Administrative Services. You can see how rapidly, in various departments, the efficiency and the savings that were generated by these careful studies of management procedures. The progress realized under the Treasury's management improvement programs would not have been possible without the continued and enthusiastic cooperation of the employees of the Department. Just to mention one activity: The incentive and efficiency awards programs put into effect in the Treasury Department, it was estimated that dollar savings of over two million dollars resulted from employee suggestions and efficiency awards programs. The most important result of these programs, however, can't be measured in dollars. They

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result from the improved morale and greater efficiency of day-to-day operations which come from enlisting every employee in the Department in the program for better Government service at lower cost.

I might mention one other important feature of the Treasury's broad programs for improving operating activities, was the institution of management studies with respect to all major phases of the Department's operation. National surveys, together with our own studies, were eventually fruitful of ideas for operating improvements which were put into practice throughout the Department. Congress was most prompt in passing necessary legislation to aid in many of our required activities. Taking it, by and large, these improvements in service and savings in operating costs eventually repaid us in the

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Treasury, for all of the painstaking study, review, consultation, and work that went into the program.