Evening star., 1922-03-13
s:ABUSE or IT, S. CREDI7,''
SAYS MELLON OF BONUS
Of Treasury Declares New Soldier
Bill Dangerous-Urges Direct and Definite
BasisandP Paid for Outof Current Revenues.

Dangerous abuse OF government
credit" is found by Secretary Mellon
to be a basic objection to the new
soldier bonus bill as drafted by the
House republicans. and he emphati-
caliy registered his opposition in a
letter to Chairman Fordney' OF the
ways and means committee In reply
to a request for the Treasury's COM
ment upon the proposed bill, which 10
scheduled to como up for considera-
ton in the House q week from to-
day.
This letter Of Secretary Mellon.
made public by the Treasury Depart
ment last night, sharply criticizes the
features Of the proposed measure pro
viding for loans ~ banks upon ad.
justed service certificates. as indirect
and "foroed" borrowing by the gov
ernment. He suSEested that the "di-
rect and regular way" to provide Tor
q paid up endowment insurance fea-
ture would be to aIthori1s Insurance
poIicy loans to be nnanoad by the
government Mr.. Mellon contended
that "it Is both dangerous and un-
wise" to attampt to Evoid the cost o1
tho bonus for time being.
Urxes Direct Basis.
There 10 no way he said, by
which the American taxpayer can
avoid tho burden, and Il 2 bonus 10
to be imposed II 10 tar better ,,na, I0r a., u
s9sst .na sas % s:. :ssSs snS psS sHSn for
each year out Of the current reve,
nues. To do this at this time Will
necessarily mean the imposition or
additional ta1 % for the purpose. The
Secretary estimated the cost OF the
bonus under the bill, considering eacn
veterans, at more than $1.zoo.o0o. 1000
by January !. 1885. Whatever form
the bonus measure might take. he as
serted, would mean q cost 10 the
government OF from S0O.00o.ooo TO
100000. 900 for !he next three or tour roy;
ties thereafter Of more tnan $<oo'-
900, 900 a year uatil 1a43.
Accompanying bis letter Mr.. Mellon
transmitted statistical tables pre-
pared by Treasury experts. showing
the varying cost OF q bonue. accoralnk
to what percentage Of veterans u, masn. nsn.
choose the dinerent p!ans " pa'
ment offered.
No Additional Revenue.
MIR. Mellon called attention to the
fact that tho bill makes no provision n
to meet the cost of the bonus. and
recalled to Mr.. Fordney President
Hnrding's letter Of February To- III
| which 1t was suggested that gen
eral sales tax be enacted to provide
the necessary funds. or the oonus us
| legislation be postponed. secretary
Melons letter, in part. follows:
"The bill makes no provision what
ever for sinking fund. amortization
or other reserves against either the
liability that would be thrown upon
the government in 1925 Or against
the liability on the certificates at
the end of twenty years. nor does 1t
make any provision for the payments
which would accrue In ordinary
course from year to year on account
of the death Of veterans.
Estimated Cost Compiled.
.The direct cost to the government
of a bill carrying these provisions
for about 4,500.000 ex-service men Is
almost impossible to estimate. be.
cause Of the uncertainty as to when
Of the plans viii be chosen and in
what proportions. But the
government actuary has prepared Ia
bles of estimated cost on the as
sumption that 70 per cent will cnoose
the certificate plan, % per cent tne
farm and home aid plan. per cent
the vocational training plan and 2
per cent the land settlement plan.
TN the calculations as to the cost OF
the certificate plan, it is assumed that
half of the veterans will borrow on
their certificates from the banks and
default on their loans. in view OF the
demption in case of default
It appears from these tables that on
the basis assumed by the actuary the
total direct cost to the government
in the fiscal year 1923 would be $2ss'-
s54 900: in the fiscal year 1924. sag
ol3 900, and in the fiscal year 1875,
for the most part by October -. 1928.
when the adjusted service certificates
used as security for bank loans
would have to be redeemed, $o1o,-
$4,000. This would mean total pay
half years OF over $1.20o,0o0. 900:
These estimates take no account OF
amortization or other reserves against
certificates to remain OUTSTANDING
after the fiscal year 1925, which would
add at least $40.000.000 a year to the
tional costs under the land settle
ment plan If the reclamation projects
therein authorized should be carried
through. It Is estimated that about
81 90 100000 per annum would be re-
quired after 1928 If these reclamation
pEOJeClS SuOO40 10 ~ SoSSN'
Cost Would BE Billions.
"If all the veterans should choose
the certificate plan the total face
value of the certificates would amount
to over s4s500.000,000. distributed
over twenty years. and that II all the
veterans should choose the farm and
home aid plan the total cost would
amount to $2,093.000.o0o. within the
next two or three years.
apart from the direct cost of the
bill, a most serious feature is. the
provision for bank loans upon ad-
justed service certificates during the
tember 80, 1925. The effect of this
provision is to transfer the cost OF
policy loans from the government to
the banks. and to place in the banks,
to the extent that the ex-service men
are able to obtain loans from them,
paper upon which the banks will be
unable to realize until 1925. The re-
suit would be frozen bank loans and
imitation of currency and credit. To
the extent that the banks are obliged
to make loans on adjusted service
certificates, their ability to take care
Of the demands Of business and in
dustryy will be corresponddnglyy re-
duced, and even though the paper
accrued by the certificates may not
be eligible Tor redfScount at the fed-
eral reserve banks, the indirect re-
suit Is certain to be increased bor-
rowings by members from the federal
reserve banks
Abuse Of Credit.
"From the point Of view of the
Treasury, the most serious aspect of
these loans on adjusted service GER
tifcates Is the fact. that the loans
would be foated at the banks on the
credit Of the United States. The plan
in substance, therefore, involves q