Letter to the Senate Majority Leader Stating Objections to Pending Veterans Legislation.

Note: The White House also released the texts of letters, dated June 21, 1930, from the Secretary of the Treasury and the Director of the United States Veterans' Bureau, as follows:

SECRETARY OF THE TREASURY

My dear Mr. President:

I have your memorandum stating that the Director of the Veterans Bureau estimates the cost in the fiscal year 1931 of H.R. 10381, as amended and reported by the Senate Finance Committee, to be $102,000,000 and the ultimate cost to be $225,000,000 annually. You ask me to give you my best judgment as to whether receipts for the fiscal year 1931 will be adequate to support this additional burden. I regret to say that they will not.

You appreciate, of course, the very great difficulty of estimating revenue twelve months in advance, particularly when as under our system the Government depends so largely on one form of tax, the income tax, which is directly susceptible to fluctuations in business conditions. An absolutely accurate estimate would presuppose our ability to forecast general business conditions over the period of the next twelve months, and this is obviously impossible.

Based on estimates of expenditures furnished by the Director of the Budget and on this Department's estimates of receipts, which, I may add, are predicated on a not unhopeful attitude in respect of future business developments, the present indications are that the Government will close the fiscal year 1931 with a deficit of over $100,000,000. If the reduced income tax rate is to be retained and made applicable to 1930 incomes, present estimates forecast a deficit of approximately $180,000,000. These figures are, of course, exclusive of any additional burdens to be imposed by new legislation.

I think I should call your attention to the fact that these figures are based on the assumption that interest payments to be made by foreign governments in accordance with existing debt settlement agreements will be paid in United States Government securities, as they have almost universally been paid in the past, rather than in cash, thus constituting an automatic reduction of our national debt, but not making these payments available for current expenditures. Even when foreign interest payments have been made in cash, the Treasury up to the present time has been in a position to apply them to the reduction of our national debt. This policy has been so well established over the course of years, and is manifestly so sound, that foreign repayments, both principal and interest, have come to be looked upon as definitely earmarked for the reduction of our war debt. Moreover, whether these interest payments are to be made in securities or cash is dependent on conditions wholly without our control. We are not justified, therefore, in budgeting upon the assumption that they will be made in cash. But assuming that they are, and assuming that our Government is willing to set aside its well-considered and established program of debt reduction, even then I cannot give you any assurance at the present time, and without taking into consideration new burdens, that we can retain the one per cent reduction and not incur the danger of a deficit.

But if $100,000,000 or more is to be added to the expenditures already in sight, it is perfectly apparent that the 1928 income tax rates must be restored, and I should not be quite fair to the members of both Houses and to the taxpayers of the United States if I did not point out at this time that this increased burden may necessitate even higher rates than provided for in the 1928 Revenue Act.

In the present state of business, accompanied as it must be by an inevitable reduction in the national income, the Treasury Department is vitally interested in not definitely closing the door to the possibility of retaining the reduced tax rates now in existence. In spite of the figures above quoted, I am still hopeful that conditions may have shown such improvement by December as to justify my recommending to you and to the Congress a renewal of the action taken last December. The present estimates do not indicate that this is possible, but this does not mean that we should put ourselves in such a position as to preclude the possibility should events take a favorable course.

In this connection, I think it is appropriate to remind you of what this one per cent reduction means to the income taxpayer, and particularly to the income taxpayer with a moderate income.

If the one 'per cent reduction is not retained, approximately 2,095,000 taxpayers with net income of $10,000 or less will pay during the calender year 1931 approximately $28,000,000 more than they would otherwise pay, thus losing the benefit of a 56% reduction. If we take taxpayers with net incomes of $7,000 or less they will lose the benefit of a 66% reduction in taxes. It will be remembered that about two-thirds of the tax reduction benefit to individuals was accorded to taxpayers with net incomes of $25,000 or less.

In so far as corporations are concerned, if the rate is restored to 12% they will lose the benefit of approximately a $90,000,000 reduction in their income taxes-at a time when the Government should endeavor to relieve rather than to increase the burdens on industry.

In conclusion, I can answer your question by stating that legislation increasing the expenditures for 1931 by $100,000,000 and more over and above expenditures as now estimated by the Budget Director, will necessitate the restoration of rates applicable to 1931 income to the rates provided for in the Revenue Act of 1928, and it is probable that such increased expenditures may call for even higher taxes in order to maintain a balanced budget.

In fairness to the country I feel that the Congress should be informed that if expenditures are further increased now, taxes must be in December.
Faithfully yours,
A. W. MELLON

[The President, The White House]

DIRECTOR OF THE VETERANS' BUREAU

My dear Mr. President:

I wish to call your attention to the very grave situation that has arisen in the matter of veterans' legislation, both as to the proposed principles being considered and their ultimate effect, if adopted, upon the veterans and upon the policy and expenditures of the Government and the very large immediate burden which this legislation calls for.

I recently advised the Senate Committee on Finance that the Bill passed by the House of Representatives and then being considered by them, would cost approximately $181,040,650 per annum and a possible final annual expenditure of over $400,000,000.

The Senate Finance Committee made various amendments to this Bill, and I have now made a re-examination of the cost implied under the Bill as reported to the Senate. This Bill requires an estimated immediate annual expenditure of $102,553,250, with a growing maximum cost reaching a potential amount in five years of approximately $225,000,000 per annum.

Of the deepest concern to the nation should be the principles being incorporated into these forms of legislation. The principles in both of these Bills depart absolutely from the original conception of assistance to World War veterans based upon disability to earn their living because of injury or disease arising out of the World War. No one questions the obligation of the nation to its disabled veterans, and under the present law some 374,500 veterans or their dependents, out of the total of 4,500,000, are now being compensated at an annual expense approximating $206,000,000. These veterans also participate with all other veterans in the benefits of the War Risk Insurance legislation and the so-called bonus legislation, which bring up the total annual sum of expenditures of this Bureau at the present time to approximately $511,000,000.

One of the results of this legislation would be that men suffering with those diseases now presumed to have been acquired in the service if developed prior to January 1, 1925, would have such diseases presumed to have been acquired in the service if they developed prior to January 1, 1930, and other men suffering with diseases which have not heretofore been afforded the benefit of any presumption by law would be presumed to have acquired their diseases in the service if the same arose prior to January 1, 1930. It is estimated that this provision alone would probably affect approximately 100,000 veterans not now in receipt of compensation benefits for those disabilities.

I have no doubt that the Congress has in mind by suggesting the further broadening of the presumptive clause of the present World War Veterans' Act, taking care of a number of cases which they feel are meritorious and which at this time the law does not cover. If it was only the intention of the Congress to take in borderline cases, it might well be accomplished by so amending the present Act to permit the Bureau to give due regard to lay and other evidence not of a medical nature in connection with the adjudication of claims. Such a provision would be interpreted by the Veterans' Bureau as sufficiently broad to 'permit liberal adjudication of border-line cases.

Another radical departure in the proposed legislation from the existing law is the provision to give a cash allowance to men in hospitals not suffering from a service-connected disability and while in hospital to also pay an allowance for their families and dependents. Under the present law, where there are vacant beds available opportunity is afforded to a veteran for medical care in hospitals when he is in need of treatment without regard to the character or origin of his disability. The hospital facilities of the Government are at this time inadequate to provide care for all veterans of non-compensable disability who need medical attention, and consequently there is before the Bureau at all times a waiting list of men seeking treatment. We are faced with the proposed policy of paying the veteran fortunate enough to secure a hospital bed an allowance for himself and his dependents. For the veteran who is equally in need of treatment but for whom a hospital bed is not available, it is not proposed that any payment be made either to himself or to his dependents. Inequity immediately arises, and to the extent the Government is not able to furnish hospital beds does this inequity increase. The Congress has not signified definitely its purpose to construct permanent hospital beds for all veterans who need hospital treatment. Certainly with the passage of this proposed provision there would result a definite and increasing demand for additional hospital beds and in all equity such a demand cannot but be recognized. It is conservatively estimated the total number of veterans who will need hospitalization is 69,000. If the Government is to provide sufficient hospital facilities so that all men suffering with disabilities, irrespective of service origin, can be hospitalized, it would necessitate providing within the next three years 13,000 new beds in addition to those existing or authorized. The cost of construction of such facilities would approximate $45,500,000, and the annual maintenance cost, after completion, would approximate $19,500,000. Further, if the Government is to eliminate all question of inequality, even to the point where the Bureau's peak of hospital load is expected, current estimates indicate an ultimate need of 39,400 additional beds, the cost of construction of which would approximate $137,900,000, with an annual maintenance cost of $59,100,000.

The Medical Council of the Veterans' Bureau, comprising some of the ablest physicians and surgeons of our country, has reported to me that the inclusion of the diseases contemplated by this provision is unsound medically and it cannot be presumed that the diseases involved are the result of service during the World War. Therefore the theory upon which these benefits are extended is false.

If we are to depart from the sound principles of the payment of compensation for injury and disease resulting from war service, then it would appear to me that the real problem before us is whether the nation is going to assume responsibility for disabilities among the four-and-a-half million veterans which originate as ordinary incidents of life. The policy of our Government, almost from its inception, has been to take care of our veterans when they have reached that period in life when they are overcome by permanent disabilities or age, so that they are unable to earn a support. At this date, thirteen years after the World War, the veterans of that war average about thirty-eight years of age. If it is claimed that the time has been reached when it is necessary to give consideration to the matter of a pension for this group of veterans, along the same lines that we have cared for veterans of other wars, then the policy should be based upon the fundamental principles of pension legislation adapted to what the nation can afford to do for the entire group of veterans who will eventually have to be cared for. Most certainly we should distinguish clearly between those veterans whose injuries and disabilities were incurred in service and those whose disabilities have been brought about by other causes after service. To approve a measure which will simply take care of 100,000 of these men under a presumption which we know is unsound, where their disabilities are not due to service, without extending to their comrades in the larger group the same measure of relief, is manifestly inequitable. In other words, we are opening the door to a general pension system at the same rates of compensation given to men who actually suffered in the war. Its potential cost to the Government may quite well run into hundreds of millions of dollars.

Even with all these provisions we would not have taken care of old age and many other fatalities that may happen to our World War Veterans.

My plea at the moment is that we are proceeding on wrong principles, that we are driving towards such a stupendous expenditure by the Government, the extent of which cannot be estimated, as will eventually react against the interest of the disabled veterans themselves. We are creating a prospective burden for the taxpayer, before we have adopted any sound national policy of dealing with the whole problem, which will have committed ourselves directly and inferentially to a total annual expenditure on account of World War veterans of upwards of a billion dollars per annum even before we have given consideration to the granting of pensions. My plea is directed to the fact that this legislation should not be passed, and that there should be substituted an entire consideration of the principles upon which the nation will discharge its obligations, not by creating injustices and inequalities, but by some method of general application to the entire group.

Pending such study, I earnestly urge that the Bill which I submitted for the consideration of Congress, which will be beneficial to many veterans, be adopted.
Very Sincerely yours,
FRANK T. HINES,
Director

[Honorable Herbert Hoover, The President of the United States, The White House ]