Franklin D. Roosevelt

Excerpts from the Press Conference

July 31, 1935

Q. Mr. President, is there anything you can tell us about the tax situation, generally? You had a conference last night with Secretary Morgenthau and a few more of them.

THE PRESIDENT: I have been talking with the Treasury in regard to the data that relate in general terms to the tax measure before the Congress and of course relate also in general terms to the tax message that I sent up. I got a good deal of information yesterday and I still have more coming.

There are a few things yesterday that came out clearly that I think are of some interest. They seem to be taken from the records of the Treasury. I am not ready to say anything yet about the policy or the theory of the graduated corporation tax any more than I have already said in my message, or about the intercorporate dividend tax, at this particular moment, but there are one or two things that came out yesterday that are of interest.

For instance, it appears that the 58 thriftiest people in the United States (laughter)— the 58 thriftiest people in the United States— and of course we are all in favor of thrift, the thriftier you are the nearer you will come to being included among the 58— in 1932 they were all so thrifty that although they had a million dollars income a year or more, they paid no tax whatever to the Federal Government on 37 percent of their net incomes.

Q. Is that individually or as an average?

THE PRESIDENT: The aggregate of the 58. On 37 percent of their net incomes they escaped taxation altogether, largely because the investments were in municipal or State or Government tax-exempt bonds. Thirty-seven percent escaped taxation altogether.

Furthermore, it turned up in the figures that one family in this country had 197 family trusts. They are a very thrifty family. Of course it is very easy to demonstrate that one of the primary purposes of these 197 family trusts in this one family was to reduce their taxes through the reduction and splitting up of income into a great many parts, thereby avoiding or greatly reducing the surtaxes. That family trust method, in the case of that one family, cost the Government of the United States a very large sum of money. I just jotted these things down because they seemed rather interesting.

Q. Will this bill get at the family trust point?

THE PRESIDENT: No, not at the family trust business. It does not touch that except that it does increase the surtaxes.

Q. Won't that tend to increase the number of such trusts?


Q. Won't that tend to increase the number of such trusts in the future if there is no provision against it in the bill?

THE PRESIDENT: It could. It is a form of tax avoidance. There is a very great distinction between tax evasion and tax avoidance. Tax avoidance means that you hire a $250,000-fee lawyer, and he changes the word "evasion" into the word "avoidance." . . .

Let me see, there were some other things in here. Another rather interesting thing came out. While the gift tax legislation was in the process of going through the Congress in 1932, in other words during the two months before it was actually signed, one taxpayer transferred approximately one hundred million dollars in tax-free gifts, and another taxpayer transferred approximately fifty million dollars in tax-free gifts. That is what they call beating the gun.

Q. Can you tell us the name of that family? (Laughter)

THE PRESIDENT: Do you want me to violate the law?

Then there was another example of the use of gifts. A $100,000,000 estate was reduced within two years of death by gifts to approximately $8,000,000. There is a very interesting decision which you might look at, if you are very curious and want some very interesting information. It is the famous gift tax decision of the Supreme Court in 1931, and I call your attention especially to the dissenting opinion of Mr. Justice Stone. (Heiner v. Donnan 285 U.S. 312, 332) It was a divided Court, if you will remember, in that case; and a majority of the Court held that the law that said that gifts made within two years of death should be presumed to have been given in anticipation of death was unconstitutional. Mr. Justice Stone wrote the dissenting opinion, and there are some very extraordinary citations in that opinion of actual evasions. There were two men who gave away a large proportion of their property when they were over ninety years old. The Supreme Court held that that could not be held by Congress to be in anticipation of death. There was another man eighty-five years old and there were several others between eighty and eighty-five and of course a large number in the seventies.

Well, of course it seems to me that is a question of common sense. Anybody can make his own deductions as to whether people in their eighties and nineties who give away their property by gift do so in anticipation of death or not. It is a plain rule of common sense; but they are very interesting opinions, both the majority opinion and the dissenting opinion-they are worth reading. . . .

Q. Let us use quotation marks on the "58 thriftiest people in the United States."

THE PRESIDENT: Oh, I think so. I think it is all right.

Franklin D. Roosevelt, Excerpts from the Press Conference Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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