The New York herald., 1922-03-18
He Also Declares Sales Tax
Had Not Been Advocated
by Treasury.
MEASUREMENTS SHOWN
Wisconsin Representatives.
Error on War Contract
Waste Is Exposed.

New York Herald Bureau.
Washington, ID. c., March IL.
Secretary Mellon to-day replied to
the letter addressed to him by Repre-
sentative Frear (Rep., Wis.,. criticiz-
ing the attitude Of the Treasury on
the bonus.
The Secretary's letter was as follows:
March II. 1922.
MY DEAR CONGRESSMAN
Il received your letter of March 13.
1922, with respect to the soldiers bonus.
At the request of the Committee on
Ways and Means ! have addressed two
letters to the chairman of the committee
under date OF January "a and March IL.
1922. in order to show the state of the
Treasury, With particular reference to
the receipts and expenditures of the
Government for this and the next fiscal
year, and the refunding operations that
will have to be carried on within the
same period. and in that connection
have indicated the Treasurys views as
to the cost Of soldiers bonus and its
financial consequences.
NV position In the matter is fully
stated in those letters, and as you will
have noticed. / have not attempted In
them to argue the merits of the soldiers
bonus Whether or not there Is to be
soldiers bonus is question for whicn.
as you say, Congress will assume re-
sponsibility.
For the Treaury I have attempted to
point out the necessity of meeting by
taxation the cost of whatever bonus may
be adopted and the dangers OF attempt
ing to provide for bonus by borrowing
or by makeshift measures.
.'As | think was made clear 10 tne
committee and the country, l have not
recommended any particular taxes.
though / have at the request of the
committee suggested several possible
sources of additional revenue that VIII
be available IL Congress should decide
to grant a soldiers bonus, and In that
connection have given the Treasurys
estimates as to the yield of such addi-
tional taxes.
His Position Further Explained.
II gather from your letter that you
are under some misapprehension also
spect to a sales tax. The Treasury has
not recommended any general sales tax.
As matter of fact, i am not in favor
of a general sales tax IL 1t Is to be i'm
posed in addition to all existing taxes,
unless made necessary by an emer-
gency in the revenues, such as would
arise through adoption of the bonus
measure.
Neither the payments which the Gov
ernment has made In order to settle the
Cancelled war contra cts nor the so-called
railroad funding bill to which you refer
present situations in any way analogous
to the soldiers bonus. In the first
place, the Government did not pay, as
you suggest, three billion dollars Of
Cancelled war contracts but, on the con-
trary, settled war contracts amounting
to over SO. 900 at a total cost Of
about s500 700. In this connection l
invite your attention to the following
extract from a letter recently received
from the Acting Secretary of War:
The total obligations OF the War
Department on .uncompleted contracts
which were suspended shortly after the
armistice which have been settled
amounted to S3.70i. .643. .S0035. The total
number OF claims filed with the War
Department was 32.9S6. The total num-
ber of claims settled as of January 1,
1922. was B.216. Relief was denied in
1903 cases and $3.50 claims were with
drawn. The total amount paid out by
the War Department In settlement of
the uncompleted portion OF all war con-
tracts to January /. 1922, was s5O3 546.-
1912. which represents a settlement for
thirteen cents on the dollar
The act OF March 2, 1919. ex-
pressly provided that In the settlement
OF Informal contracts the award BIZ the
Secretary OF War should not include
prospective or possible profits on any
part Of the contract beyond the goods
and supplies delivered to and accented
by the United States. and a reasonable
remuneration for expenditures made. or
obligations and liabilities necessarily in
Cured In performing. or preparing TO
perform such contract In the adjust
ment OF informal contracts prospective
or possible profits were, therefore neces-
sarily disallowed.
Termination Clauses.
Many OF the contracts executed In
the manner required by law, particu-
larry those entered into during the last
half OF 1918. contained termination
clauses which provided that in the event
of termination before completion, the
United States would reimburse the con-
tractor for the delivered portion OF the
contract at the price stipulated In the
contract. and would make reimburse.
ment for the suspended portion OF the
contract on the basis OF actual cost Of
direct and indirect material. work in
process, labor and pro rata overhead
plus ] 0 per cent. thereon. the 10 per cent.
being a remuneration for expenses and
services Of the contractor in connec-
tion with the uncompleted portion OF
the contract.
" The formal contracts which did not
contain the termination clause and
which we're suspended after the armis-
tice were settled on the same basis a.
II they had contained the termination
clause referred to above
From this II appears that the paw
ments which were actually made on ac-
count OF cancelled war contracts repre-
sented. for the most part. reimburse
ment to contractors for actual expend-
lures incurred in reliance upon war con-
tracts. The so-called railroad funding
bill has never become a law, and in any