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No. 15 "The Bonus: An Endorsement of the Position Taken by President Roosevelt in His Letter of December 27, 1934, and an Analysis of Proposals for Pre-payment of the World War Adjusted Compensation Certificates" February 11, 1935.
No. 15 "The Bonus: An Endorsement of the Position Taken by President Roosevelt in His Letter of December 27, 1934, and an Analysis of Proposals for Pre-payment of the World War Adjusted Compensation Certificates" February 11, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_15 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 15 "The Bonus: An Endorsement of the Position Taken by President Roosevelt in His Letter of December 27, 1934, and an Analysis of Proposals for Pre-payment of the World War Adjusted Compensation Certificates" February 11, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. assurance that an increase in currency would advance prices, so also can there be no certainty that a contraction would affect the situation if an inflationary movement got under way. The Vinson Bill would menace the government's credit while the Patman Bill would undermine the soundness of the monetary system. The Congress should reject both. The President's opposition to immediate payment of the entire face value of the bonus certificates is based on sound principles and deserves to be upheld. His firm position on this issue as shown in his letter of December 27, 1934, and as previously made evident in an address at Roanoke, Virginia, on October 19, 1934, merits the approval of all citizens. Immediate payment of adjusted service compensation certificates would not be to the best interests of the veterans or of the nation. It would be certain to encourage a drive for pensions involving huge additional costs for an indefinite period of years. â˜… â˜… THE BONUS â˜… â˜… â˜… An Endorsement of the Position Taken by President Roosevelt in His Letter of December 27, 1934, and an Analysis of Proposals for Pre-payment of the World War Adjusted Compensation Certificates * AMERICAN LIBERTY LEAGUE T^ational Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… Document No. 15 February, 1935 The Soldiers' Bonus â˜… The American Liberty League supports the position of President Roosevelt in his letter of December 27, 1934, to Garland R. Farmer, Commander of the Henderson, Texas, American Legion Post. The League is opposed to the immediate payment of the full face value of adjusted service compensation certificates. Reasons underlying the League's stand are the following: 1. Bonus certificates are not due until 1945. 2. Loans already made have exceeded original basic cash values. 3. Families of veterans now are protected to the full face amount of certificates in the event of death; otherwise provision is made toward the needs of their later years. 4. The United States has been more liberal to its veterans than any other nation involved in the World War. 5. Immediate payment would mean an outright gift of $1,620,000,000, including remittance of interest on loans, in excess of the present value on an actuarial basis. 6. Actual cost of the pending proposal would be more than $2,000,000,000. 7. If borrowed, the $2,000,000,000 adds to Treasury deficits with consequent inflationary dangers; printing press currency would undermine the soundness of the monetary system. 8. Recent experience indicates that no lasting stimulus to business can be assured by this outlay of government money. 9. Wise policy calls for avoidance by the Congress either of additional burdens upon the Treasury or experimentation with fanciful monetary theories. History of Bonus Act With the passing of the years the circumstances surrounding the enactment of the bonus legislation have become beclouded in the minds of many people. A concise statement of what took place is contained in a memorandum prepared by the Administrator of Veterans' Affairs for President Roosevelt at the time of his letter of December 27, 1934. The text follows in part: "The Congress, by the passage of the act of May 19, 1924, provided for the granting of additional compensation to each veteran, with certain specified exceptions, of $1 per day for services in the United 2 States and $125 per day for services overseas in excess of the first sixty days of service. The amount thus determined was increased by 25 per cent because of deferment of payment. "Using the aggregate as a net single premium, according to the American experience table of mortality with interest at four per cent per annum, entitlement was granted to the veterans to payment, twenty years after 1925 or date of application, of a sum approximately two and one-half times that of the basic adjustment. The 150 per cent increase represents the additional amount granted because of deferment of payment and the compounded interest. Thus an original grant of $400 in 1925 would enlarge itself to $1,000 in 1945. "If in 1925 the $1 and $1.25 per day adjustment had been put in cash, the veterans would have received a total of $1,400,000,000, but by deferring the payment twenty years the sum became $3,500,000,000. "Under the original law veterans were permitted to borrow on their certificates according to the reserve value thereof, but in February, 1931, an amendment increased, without regard to actuarial value, the amount which could be borrowed to 50 per cent of the maturity value. This amendment also fixed the maximum interest which could be charged on loans at 4^ per cent which rate was subsequently reduced to 3H per cent by the act of July 21, 1932." Amount of Loans The liens against certificates by reason of loans and interest charges totaled about $1,690,-000,000 at the end of 1934. The pending legislation proposes the remittance of more than $220,000,000 in interest accrued on loans. If this amount is subtracted from the $1,690,000,000, it reduces the liens against certificates to $1,470,000,000. The difference between $1,470,000,000 and $3,500,000,000, the aggregate maturity value of the certificates, is $2,030,000,000. This represents the actual cost to the Treasury if the Congress approves immediate payment of the full face value. As stated in the memorandum above quoted, the original basic adjustment amounted to $1,-400,000,000. Adding the 25 per cent for deferment of payment together with interest to the end of 1934 the present value of the certificates is $2,100,000,000, ignoring loans made against them. If the Congress were to approve merely the payment of the present value, it would mean an outlay of only $410,000,000. This is obtained by deducting the $1,690,000,000 of liens from $2,100,000,000, the present value. Of the $410,-000,000 only $130,000,000 would be payable to veterans who already have borrowed on their certificates. Under the pending proposal for the payment of $2,030,000,000 it means a new bonus to the 3 amount of $1,620,000,000, which represents the difference between $410,000,000 and the sum involved. The maturity value of the certificates, $3,500,-000,000, plus the $220,000,000 for remittance of interest, is $2,320,000,000 greater than the original adjustment total of $1,400,000,000. The plan for the amortization of the cost of the adjusted service compensation certificates contemplated annual appropriations of more than $100,000,000. The money was invested in special government securities bearing interest. This sinking fund was intended to be sufficiently large at all times to care for loans and eventually to retire the certificates at maturity. The costs are reflected in the public debt to the amount of the sinking fund and loans made therefrom. It has been suggested in some quarters that a considerable part of the amount needed for immediate payment is available in the sinking fund. The fact is that the loans which were made under the act of February, 1931, more than exhausted the then existing fund invested in government securities. It was necessary to increase the annual appropriations. On January 31, 1935, there was in the sinking fund only $163,000,000. To convert this into cash it is necessary to sell the securities in which the money is invested. The process is the same as borrowing, the only difference being that a conversion of this fund does not increase the interest-bearing debt. Immediate payment of the entire maturity value would mean the appropriation of funds not only in advance of the sums which were to be set aside annually for the sinking fund but also for interest which would be accumulated on investments not yet made. Obligation to Veterans It is perfectly true that the Adjusted Service Compensation Act represents an obligation to the World War veterans. That obligation has been fulfilled to date and should be carried out to the letter. The subsequent enactments with reference to the conditions of loans to veterans have represented a greater liberality than was contemplated in the original law. The American Legion, through its national commander, John R. Quinn, and its legislative representative, John Thomas Taylor, in statements issued on April 19, 1924, a month before the passage of the bonus bill over the veto of President Coolidge, approved the measure in its final form. It was then asserted by Mr. Taylor, in a communication to Senator Joseph T. Robinson of Arkansas, that "our membership overwhelmingly favors insurance features, with loan privileges, as shown in all national conventions, and more recently through a national poll covering every state in the Union." In framing the Act the Congress properly decided that an insurance certificate possessed advantages over immediate payment of a smaller amount which might be quickly dissipated. Two humanitarian considerations were involved. The families of veterans were given protection for a 20-year period. If a veteran should die, his beneficiary would receive the entire face value of his certificate. If he lived to the maturity date, a sum of money considerably larger than the original cash value would be provided for his later years when his needs and those of his family conceivably might be greater than at the beginning of the 20-year period. Both of these advantages of endowment insurance would be given up if the Congress approves immediate payment. The present ability of veterans to borrow greater amounts on their certificates than they would have received in cash ten years ago if the insurance plan had not been adopted is evidence of the wisdom of the choice then made. Generosity of the United States There can be no question as to the generosity of the United States toward World War veterans. By the end of the current fiscal year the government will have expended for them more than seven and one-half billion dollars. This includes all payments for disabilities, hospital care and for the adjusted service compensation fund. The budget submitted by the President to the Congress in January for the fiscal year 1936 provided a total of $704,885,500 for medical, hospital and domiciliary services, pensions, insurance and the adjusted service certificate fund. This amount, which covers costs of veterans of all wars, represents 16 per cent of all appropriations requested for general purposes. Except for interest on the public debt it is the largest single item among general expenditures. Some idea of the liberality of the United States Government toward World War veterans may be gained from a compilation by Brigadier-General Frank T. Hines, Administrator of Veterans' Affairs. According to his figures, which were presented to congressional committees two years ago, the annual expenditures per capita for World War veterans and their dependents at 4 5 that time based on the number of dead and wounded were as follows: United States ....................... $2,668.66 Great Britain ....................... 58.27 France ............................. 50.99 Germany ........................... 48.87 Italy ............................... 43.74 Canada ............................. 263.41 The expenditures per capita based on the number of men mobilized were as follows: United States ......................... $180.91 France ............................... 34.09 Great Britain ........................ 26.49 Germany ............................. 22.98 Italy ................................. 12.44 Canada .............................. 98.64 Thus there can be no ground for an accusation that the United States has been remiss in fulfilling its responsibility to War veterans. The plea for immediate payment of the bonus can rest only on the need of the veterans due to existing economic conditions. This class of citizens has been hit no harder than any other class and is receiving an amount of relief proportionate to that of other citizens. The increase in the loan value of certificates in 1931 was intended to act as a stimulus to industry. About a billion dollars was distributed in loans at that time. As stated by the President in his recent letter "this large payment resulted in little stimulation of business, and in many of the larger cities no material change was indicated at all." The President in his letter pointed out that veterans as well as non-veterans have shared in all expenditures for relief and recovery purposes, that the veterans are receiving "a very definite and distinct preference" in many ways, that the adjusted service compensation is not due at the present time, that the cost of immediate payment would represent a gratuity above the government's contract and that the insurance plan has proved to be beneficial, as indicated by the fact that of deceased veterans 85 per cent have left no asset to their families except the adjusted service certificates. Two Plans The advocates of immediate payment of the bonus are divided between two plans. One group favors the Vinson Bill appropriating from the Treasury such amounts as may be necessary. The other group favors the Patman Bill which provides for payment in printing press money. Of the two measures the Vinson Bill repre-6 sents the lesser evil. It has the merit of remaining aloof from dangerous monetary experimentation. The effect of this bill would be to force the Treasury to borrow the money in its regular financing operations. The Treasury has been borrowing huge sums so easily that there is an inclination to think nothing of two billions more or less. In the last fiscal year the deficit was four billions. In the current year it will be close to five billions and in the next fiscal year almost as much. To add more than two billions to the deficit of this year or next increases the danger that the Treasury finally will be compelled to turn to inflationary financing methods. No nation can continue to roll up large deficits year after year without encountering trouble. History offers many instances in which the printing press has been used deliberately to finance governments. In every instance disaster ultimately ensued. Germany's post-war inflation offers the most outstanding example. France, Russia and other nations have experimented with printing press money. Agam and again has the specious argument been advanced that a circulating non-interest-bearing government obligation has exactly the same security as a non-circulating interest-bearing security. Those who would issue paper money to pay the bonus, in preference to borrowing, delude themselves into thinking that what is proposed is only a shifting from one type of obligation to another with the very obvious advantage of a saving of interest. There could be no graver mistake. Currency Inflation Futile Underlying the movement for payment of the bonus in greenbacks is a belief that an increase in currency would tend to raise commodity prices. There is now a greater volume of currency in circulation than at the peak of business activity prior to the depression. Present currency is ample for all business needs. More than 90 per cent of all business is transacted by check. A large increase in currency would represent but a small percentage of the total currency and credit. Such an increase would have little effect upon prices unless fully reflected in a pyramiding in the form of credit. Efforts to stimulate the use of credit already available have been futile. Excess reserves of the member banks of the Federal Reserve system have continued to accumulate. The Patman Bill contains provision for a contraction of currency in the event of an undue increase in commodity prices. Just as there is no 7