John W. Snyder Oral History Interview, October 24, 1968

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

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This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened September, 1970
Harry S. Truman Library
Independence, Missouri

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Twenty-second Oral History Interview with John W. Snyder, Washington, D.C., October 24, 1968. By Jerry N. Hess, Harry S. Truman Library.

HESS: Mr. Secretary, to begin, suppose you give me your views of the background of the Bureau of Internal Revenue and how it came to be a part of the Treasury Department.

SNYDER: I'd be very happy to do that, Mr. Hess, but in the beginning, let me philosophize a little. The basic functions of all governments are the raising and the spending of money. Every other activity or service: national defense, diplomacy, the administration of justice, public welfare, even the maintenance of law and order hangs on the power of the government to tax and borrow, and on the capacity of people to pay and lend. Governments have no more onerous and necessary duty than the imposition and collection of taxes. Bad taxes, badly collected, can fell

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the strongest dictator. Fair taxes, fairly collected, would still be an outrage to some, and an irritant to many. Historically, tax laws have furnished the greatest point of contact, and the major source of friction between the governed and the governor. The administration of tax laws, at best, is fraught with peril, and in the United States, there is no exception.

Its first internal tax imposed on alcoholic spirits back in 1791 incited a rebellion among the free-brewing settlers of western Pennsylvania, particularly. It was put down only after Federal troops were sent into that area. Even earlier, the War Of Independence, the cry of unfair taxation by Great Britain was one of the most effective rallying cries of the colonies. The recent history of the United States shows that the dislike and distrust of the tax collector is evident in the beginnings of the Nation and has not died out. The one Government official, who,

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from the beginning of the United States, that has had the heavy duty of administering the tax laws of the country, that has been assigned to him by the Congress which has written the tax laws that he is charged to carry out, is the Secretary of the Treasury. In turn, the Secretary has delegated the collection of domestic taxes to the Internal Revenue Service, or the Bureau of Internal Revenue, as it was called until 1953, has staggering tasks. In the fiscal year of 1955, it processed nearly eighty-nine million tax returns, and handled two hundred and twenty-four million related documents. The same year it collected more than sixty-three billion dollars. Today, these figures are really, I suppose, more than 40 percent higher than they were thirteen years ago.

Since an understanding of the development of an internal revenue system in the United States is

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important to the understanding of my accomplishments and problems in this field, a brief look at the history, I believe, would be worthwhile. The United States' experience with internal taxation falls into three broad chronological divisions: First there was a period of primary reliance on customs duties for the support of the Government, and a consequent neglect of internal taxes; second, there was a period beginning with the Civil War when internal taxes became a permanent source of revenue; and third, beginning about the time of the Second World War, and based on the fact that Constitutional barriers to an income tax were removed by the adoption of the 16^th amendment to the Constitution in 1913, we have had a period when the bases of internal taxes have been expanded tremendously so that they affect nearly all Americans. For nearly

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three quarters of a century, the United States depended for most of its revenues, as I said, upon customs duties, except in times of emergency. The decade, 1790-1800, saw the passage of several internal taxes, including the whisky tax mentioned above, but they were all repealed in 1802, and the Nation was without any such revenue until it became necessary to pay for the War of 1812. Internal Revenue laws were again repealed in 1817, and it was not until the heavy burden of the Civil War fell upon the Federal Government that they were reimposed. The permanent Bureau of Internal Revenue dates from 1862 when Congress provided for the appointment of the Commissioner of Internal Revenue, the division of the country into fourteen revenue districts, and the appointment of assessors and collectors of internal revenue in each. The organization established in 1862

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existed with no major administrative innovations as late as the post World War II period, although by then the Bureau compared with its ancestor only in principle. The Bureau had a steady growth from the Civil War to 1940, but it continued to have little effect upon the majority of the citizens, most of whom were not required to pay an income tax up until that time. It remained for the Second World War to make internal revenue laws a fixture in the lives of nearly all of us. The huge financial expenditures necessitated by the war of 1941 were reflected clearly in the Bureau. In the six-year period from 1940 to 1946, it multiplied its dollar volume of taxes handled by nearly eight times, from five billion to forty billion dollars. Its customers were multiplied largely through the broadening of the income tax, four times, from twenty million to eighty million taxpayers. But in

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those same years, the Bureau was able to increase its working force only two and a half times, from twenty-two thousand to about fifty-seven thousand. The war brought new revenue laws, excise taxes, victory taxes, excess property taxes, that had to be administered by Internal Revenue, and a major change in tax collection, such as income tax withholding. These additional processes were instituted as the necessity arose.

The magnified tasks were being performed by an organization that was, by business standards, almost primitive. There were several reasons why the Bureau could not have been modernized overnight at the beginning of the war, these same reasons largely obtained in the earlier period when I was Secretary of the Treasury, and they will be discussed later as we get into further discussion of this matter.

It's sufficient to say that the Internal

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Revenue system was established by Congress, and its major features could only be changed by Congress. Add to this, that the Congress had a vested interest in maintaining the old system of having collectors appointed by the President and confirmed by the Senate, which had developed into a political patronage plum system. It is no exaggeration to say that the present day Internal Revenue Service is the heart of the United States Government, and interruption in the flow of revenues would be as fatal to the Government as a heart attack to a citizen. What is remarkable is that this heart functioned as well as it did under the strains of the Second World War. The Bureau that performed its job so well in 1939 found itself completely unequipped to cope with the greatly expanded job a few years later. Wartime manpower shortages made the situation more acute. They

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found it necessary during the war to use its limited manpower and resources in a manner that would insure the uninterrupted flow of revenue. This was its major responsibility, and all other duties had to give way to it. This necessity meant a curtailment of other Bureau functions. One of the functions restricted significantly in the war was the enforcement of revenue laws. Volunteer payment of taxes was relied upon to an unprecedented extent. This same situation carried over into the postwar years when there was virtually no diminution of the Bureau's burden. In 1940, the Bureau was able to audit income tax returns representing less than 50 percent of the total tax liability, but think back in 1939, returns representing less than 10 percent of the total tax liability were closed without investigation. The postwar period found the Bureau with a huge backlog of

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back-tax cases. Individual tax returns were being received twice as fast as they could be processed, and the backlog was increasing steadily. Investigation of corporate and profits taxes had fallen nearly two years behind. Twelve months or more were needed to make refunds to taxpayers who had overpaid their taxes. Such conditions offered plentiful opportunity to unscrupulous taxpayers for tax evasion. Even worse, from the Bureau's point of view, the inability of the Internal Revenue Service to efficiently cope with this task, as we know now, gave rise to instances of irregularities and opportunities for individual cases of misconduct within the Bureau. One major contributing cause of all of the IRS problems was the deterioration of fitness of personnel during World War II. Competition of the draft demands, the constant demands by expanding war plants for accounting and legal talent at higher

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salaries, and living conditions growing steadily higher, made recruitment most difficult. Such was the situation in Internal Revenue when I took office as Secretary of the Treasury, a year after the war ended. The Bureau of Internal Revenue was only one of my many responsibilities, but it demanded, and received from me, immediate attention. Obviously, if the Bureau was to meet its added responsibilities, and at the same time dispose of its war-accumulated backlog of tax cases, I would have to undertake a broad scale and thorough administrative reorganization. But there were two important restrictions on any reorganization or improvement in the program of the Treasury. First, until I was ready to go to Congress and ask for sweeping legislative changes in the Bureau, the problem would have to be carried out within the existing, congressionally-imposed, and congressionally-protected

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system of political appointment to most of the top Bureau jobs.

Second, no organization or improvement program could be allowed to interfere with the flow of revenue into the Government.

I made two quick moves to get Internal Revenue started back up the hill. Joseph N. Nunan, Jr., who was Commissioner of Internal Revenue when I moved into the Treasury, resigned a few months later. Realizing the tremendous job ahead for the Bureau, I sought as a replacement for Nunan an exceptionally well-qualified man. In George J. Schoeneman, I thought that I had found him, and there was exuberant approval of the choice in Congress and among the Government officials in general, as well as wide-spread editorial approval. Schoeneman, who was confirmed by the Senate in the fall of 1946, was a career Treasury employee. He had spent many

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years in a diligent climb up the career ladder in the Bureau of Internal Revenue. He knew its personnel and problems, and was widely respected in and out of the Department. The choice of Schoeneman to be Commissioner of Internal Revenue was a natural one for a Secretary of the Treasury who sincerely was interested in the welfare of the Bureau. In October of 1946, some four months after taking office, I made my second move to bolster the badly-worn Bureau. The top Internal Revenue officer from field offices over the entire Nation, were called to Washington for a meeting, at which was initiated the Bureau's Management Improvement Program. That was the first definite step that we took to try to get at the root of the problems in the Bureau.

The Revenue officials were asked for their ideas and suggestions, and were told to seek

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ideas and suggestions from their subordinates on ways the Bureau might become more efficient. The latent vitality of the Bureau is shown by the fact that more than one hundred suggestions from its own employees and executives were put into effect before 1947 ended. At the October meeting, the number of ideas and reports offered were so great that a special committee on administration was appointed to consider and recommend action on them. The committee submitted its report in August of 1947, and the Management Improvement Program got underway in earnest. This program continued to develop throughout my tenure in the Treasury. It laid the groundwork for the Bureau's reorganization plan in 1952.

In addition, two other important programs were put into operation in 1947: One was a work simplification program designed to take advantage

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of the operational know-how of the lower level Bureau employees. The other was a cash awards program in which we rewarded employees who made time and effort-saving suggestions. By the end of 1951, five years after the programs were initiated, more than two thousand cash awards had been made, and about twenty-two hundred work simplification program suggestions had been put into effect. I had reason to be pleased with these efforts towards modernizing the Bureau. Following the October,1946 meeting, I addressed a letter to all the division chiefs in the Bureau, urging that they streamline their operations and initiate what administrative improvements they could without disturbing the flow of revenue. The effect of the program could be immediately felt in the form of work speed-up and economy. One of the changes effected in 1947 was the microfilming of records,

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which saved an estimate of over $100,000 in expenditures a year. Another was a rescheduling of payments of refunds, which hastened the operation sufficiently to save the Government $3,000,000 in interest charges in just one year. The work simplification program in its first year resulted in estimated savings of nearly $640,000. The Bureau's Self Improvement Campaign moved ahead at a good clip in 1948, but there was some aid from the outside. In February the House Committee on Appropriations, having noted the work that we were doing in the Internal Revenue and in the Treasury itself, issued a report containing a number of recommendations concerning matters that might help the Bureau of Internal Revenue. These were studied carefully, and a number of them were put into immediate effect. In April, Commissioner Schoeneman established a management staff of the

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Bureau, and in the same month, the advisory group to the joint committee on Internal Revenue Taxation also made a series of recommendations, all of which were put into effect as soon as possible. You can see that there was continual cooperation between the committees in Congress, and with the Treasury and with the Bureau of Internal Revenue personnel in getting at this problem which was so evident, and was so much in need. These suggestions included decentralization of routine work from Washington to the field offices, improvements in tax forms, the use of sampling techniques to measure the effectiveness of enforcement methods, and employment of outside management specialists to study the Bureau. In July of 1948, I ordered the creation of a committee to direct the management studies of the Bureau and brought in A.L.M. Wiggins, a prominent businessman who had been a former Under Secretary of mine, to head this committee. Wiggins brought

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together men from the Government, and specialists from private business to aid in the campaign. In September Congress authorized retention of a private management consultant firm to survey the organization and procedures of the field offices of the Bureau. This report was submitted in January, 1949, and the same management firm, Cresap, McCormick and Paget, was then engaged to study reorganization suggestions for the entire Bureau. Also in 1949, the Bureau, due to manpower shortages, and the growing need for increased work efficiency, turned more and more to the use of machines for the performance of tasks that had once taken the time of so many employees. In November of that year an administrative change was affected when Commissioner Schoeneman divided Bureau responsibility between its two assistant commissioners, .giving one supervision of technical matters, and the other, the matter of operating activities. In December, further

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decentralization of Bureau functions was carried out when collectors were delegated authority to make refunds up to $10,000, thus sparing the Washington office the job of processing about 100,000 over-assessments annually. In the same year the Bureau also instituted an audit control program, involving selection of a broad and scientifically chosen sample of individual tax returns for field investigation. On the first day of 1950, the Bureau combined into one form the returns of the Federal Insurance Contributions Act, and Income Tax Withholding statements. This change alone resulted in savings of approximately $250,000 a year for the Government, and countless expense and time to the taxpayer. In the spring, the Bureau reached agreements with five states for cooperation in the investigation of income tax returns of residents of those states. In addition, new

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methods of calculating and collecting Federal liquor taxes were devised which resulted in additional savings of manpower.

The year 1951 saw the installation of an operational cost system in the collectors' offices, and the creation of a new office of budget and finance, as well as the first three of the Bureau's Regional Finance Offices, which furnished better fiscal service in the management of the Bureau's operation. In October, one of the most important parts of the improvement program was accomplished with the creation of the Internal Revenue Inspection Service. This new branch furnished the Commissioner and the Secretary for the first time with an independent inspection agency to report on both efficiency and integrity in the field offices of the Bureau. In March of 1952, the Bureau set up standardized mail room procedures in all collectors' offices, saving, we estimated,

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about $500,000 the first year. Mechanization, job simplification, administrative improvements, all of these were put into effect by the Bureau in the last half of the decade of the forties.

What were the results of the Management Improvement Program and others initiated by me, or under my supervision? Well, by 1950, the Bureau was collecting annually more than sixty billion dollars a year. It had caught up with its war-accumulated backlog, and at the same time, had taken on new duties assigned to it by Congress in tax legislation. Its enforcement functions were carried out more thoroughly and with greater success than before, resulting in great additions to the national revenue from undeclared taxes. It set in motion an all-out drive on racketeer tax evaders in this period. In summary, the Bureau, with my

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encouragement and help, had done an outstanding job of self-improvement. It was a drastic change from the war-weary, over-worked Bureau that had existed when I came in in 1946. By 1950, the Bureau was collecting it rapidly with little or no increase in operating cost. The self-improvement program stands as a remarkable testament to the Bureau's desire to do the best job possible. And it certainly was a great satisfaction to me and to my associates to have this organization developing into an efficient, well-run Bureau. None of the reforms so instituted were designed as cure-alls. None tried to create a tax man's utopia. They were day-to-day, realistic improvements that could be carried out within the Bureau without congressional approval, and without upsetting revenue collections, and they were carried out within budgets approved by the Congress.

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As these improvement programs progressed, however, it became more and more evident that ultimately the Bureau would need a thorough reorganization to bring it up to its current responsibilities. I, for several reasons, looked upon a reorganization as a long-range plan. Such a reorganization, if not well planned, might disrupt the flow of the revenue system. Such a reorganization had to be carefully thought through. In addition, the reorganization I had in mind, and which I knew was necessary, involved the most revolutionary change of the Bureau from a semi-political institution to a Civil Service function. From my own experience in dealing with political appointees in the Bureau, I had a clear idea of what this would involve. I knew that under normal conditions the accustomed senatorial prerogative of clearance and confirmation of appointees and political

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identity between appointee and sponsor, inherent in the systems since the establishment of the Bureau in 1862, would not be easily relinquished. And it would be Congress which would be perhaps the greatest opponent to such a change initially. It would also have the power to prevent reorganization if they persisted in their reluctance to make a change. In my first years as Secretary of the Treasury, I had exercised my executive ability to effect many changes in the existing machinery of the Bureau of Internal Revenue. Those changes I could and did carry out with my existing authority, but they took place within the walls of a political appointee structure. When it came to personnel matters, my authority for the most part was effectively hobbled by the political appointment and political protection of nearly all of the top officials of the Bureau. The Bureau of Internal Revenue before its

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reorganization, was so set up that there was an inevitable dilution of the authority of the Secretary of the Treasury, and an inevitable political tinge to its personnel. The Congress that created the post of commissioner, assistant commissioners, and collectors of internal revenue in 1862 made the job "presidential appointments, subject to confirmation by the Senate." The appointments came in time to the point of patronage jobs for members of the Congress. As a matter of practice, appointments of collectors were cleared with the Congressmen concerned. Appointees who received their jobs under these conditions generally felt that their first loyalty to be toward their political sponsor. The history of the Bureau contains instances of such men whose acts showed a greater consciousness of their responsibility to the member of Congress than to their boss, the Secretary of the Treasury.

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I was able, successfully, to insist that the headquarters staff of Internal Revenue function as a part of the Treasury Department. But the collectors, who numbered sixty-four before the reorganization, and who were located in offices over the entire Nation, posed a more difficult problem, and they constituted the basic network of tax administration. Until the time I took office in 1946, the Bureau had somewhat alienated itself from jurisdiction by the Treasury, and was somewhat autonomous in its operation. Congress, setting up the Revenue Service in 1862 had intended that the collectors should be men of wide, local reputation, who would be able to command the confidence of the taxpayer in their own districts. However, it was only a matter of time before they were regarded as patronage employees. Quite naturally, the Congress which had a stake in the maintenance of this system,

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offered no objection to its continuance. The system was workable, so long as Internal Revenue remained a relatively minor and simple operation, and so long as the Bureau remained small enough to give the Secretary some semblance of personnel control. The advent of modern taxation touching nearly all citizens made the political collectors archaic. The Internal Revenue system, directly affecting nearly all wage earners and collecting more than sixty billion dollars a year, could not be operated in the same manner as one which handled less than five million dollars annually, collected from only a small group of the citizens of the United States.

Earlier in my career as Secretary I grasped this fact with its full, logical conclusion, but understanding the jeopardy to basic initial structural improvements that might

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result from premature attempts and a radical reorganization, I undertook first to reorient the Bureau after its sprawling expansion during the war, and then to approach the innovating of the system with due respect. However, a series of events, unfortunate in themselves, began occurring in 1950, that before they were over accelerated the basic reorganization.

Mr. Hess, as I'm unfolding this story, if you have any questions, I'd be happy to have you inject them at any time. I'm just trying to tell you the story as I have reconstructed it from my experience in the Treasury.

The disclosures of some glaring instances of misconduct and irregularities in the Bureau of Internal Revenue in the years 1950, 1951, and 1952 had a profound effect on the Bureau itself, upon me individually, actually, upon the Nation, and not least, upon the Congress. The congressional

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investigations that followed had a paradoxical effect. They were to prove in the long run a political liability to the Truman administration, but they were also to make more readily acceptable the wholesale reorganization of the Internal Revenue Service which I so greatly desired. I was convinced that without the investigation, there would have been violent opposition and small chance of approval in Congress of any plans to abolish political appointments in the Bureau. The investigations, undoubtedly made many Congressmen reluctant to oppose the reorganization. Any fair and unbiased account of the Bureau of Internal Revenue in these troubled years from 1950 to 1952, must if it aims at realistic accuracy, take into account a number of somewhat cross purpose elements. First of all, such an account should show that although the newspapers of the Nation virtually exploded into headlines

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about corruption in the Internal Revenue Bureau, what corruption there was was not of a cyclonic nature, but had developed over many years, particularly during the war years, and that the Bureau was attempting to deal with it itself, and was doing so successfully. This does not, however, minimize the contributions of the investigations, for in a number of ways they were most helpful.

Secondly, the account would have to credit the investigations with arousing public opinion. Third, it should be stated that the public investigations not only hastened the formulation of the Bureau's reorganization plan, but helped put the plan through Congress. Fourth, it should be admitted that the investigations however commendable they were, had a deleterious effect upon the morale and efficiency of the Bureau as a whole. In connection with this, it would be

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necessary to point out that the scandal, so called, touched only a very tiny percentage of the Bureau personnel, and that the preponderance of the Bureau employees were not in any way implicated, although they had to suffer from the blanket attack. Finally, the account would have to consider the political bias behind much of the investigations, a bias which, on the whole, detracted greatly from their value and their pertinency. The number of Internal Revenue employees in the years of my tenure as Secretary of the Treasury fluctuated between 55,000 and 60,000. Among such a large number of public and private areas some persons of a corruptible nature are bound to be found, and unfortunately, they always will be found. With the Bureau's semi-political setup, it is understandable, on reflection, that a few of those corruptible employees should come to be located in key positions of great

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temptation. With the additional workload that came with the Second World War, it was almost certain that at least some corruptible men would yield to temptation in the hope that it would not be discovered. The Bureau never denied the existence of misconduct from time to time within the division. The Commissioner's annual report made a yearly report of the number of cases investigated against Bureau employees, and the disposition of these cases. A report published by the Bureau showed that in the period between January 1, 1946, and November 5, 1951, a period covering my term in the Treasury, with the exception of the final year, a total of 1,052 disciplinary cases against Bureau employees were initiated. Of these investigated, 133 were removed promptly; 185 resigned or retired rather than face disciplinary action; 9 were demoted; 13 were transferred or reassigned;

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93 were suspended during the investigation; 8 were discharged while under investigation; and 104 received reprimands. Of the approximately 250 more, they were still under investigation after I left office. And we found in the investigations approximately 182 cases in which the charges were not substantiated. You see, this percentage of all the cases that were turned up and developed, that the percentage was extremely small and that the so-called scandals were not rampant throughout the Bureau.

In late 1950 the storm had broken over the Internal Revenue Service. Newspapers were increasingly filled with stories of misconduct and corruption in Bureau offices. In July, the House of Representatives established a subcommittee on the administration of Internal Revenue laws to investigate the reports. I took a common sense approach to these proceedings. I did not

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flinch from assuming executive responsibility for the operations of the Bureau, or seek in any way to shift the blame to deputies in an aura of disdainful Cabinet aloofness. On the contrary, I personally directed all forces of the Bureau to make the maximum effort in assisting in the investigations, and the attempt to correct any faults found. However, understanding the effect of any such charges on the morale of the Bureau, I often and publicly stated my confidence in the great majority of the Internal Revenue personnel, and I feel properly said that the guilty few would be punished. We must remember that all of these attempts that were made to improve efficiency and to make better contact with the personnel and so forth, were bringing out many of these problems. As I pointed out before, throughout the history of any institution dealing in finances, you're going to have defects. Banks

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find them, businesses find them, there are defalcations in any organization handling finance. The Internal Revenue Bureau was no exception. Handling the tremendous sums that they did, dealing with the tremendous number of individual taxpayers, you're going to find that some irregularities will develop. But when you stop to think about it, for that period, the ones that we did discover, it amounted to less than one tenth of 1 percent of the employees. In order to push this forward, I urged Commissioner Schoeneman to use all Bureau resources to intensify efforts to weed out corruption at its roots. In addition I went before the House subcommittee which had opened hearings in December, 1950, and offered the services of myself and the Department in cooperation, and sought the cooperation of the committee with the Internal Revenue Bureau officials who were

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trying to accomplish the same goals. Justin Winkle, an assistant commissioner of Internal Revenue, was detailed to spend his entire time aiding and cooperating with the committee. With my department I gave the subcommittee, headed by Representative Cecil King of California, a Democrat, full cooperation. It made its case and personnel files available to the subcommittee. The Bureau investigative and staff facilities were placed at the disposal of the subcommittee members. Even so, there were instances of disagreement between the subcommittee and the Treasury Department. One of those involved the renowned "Oliphant log," a record of telephone calls to and from the office of Charles Oliphant, then chief counsel of the Bureau, which had been compiled by an office secretary who monitored telephone calls. This, of course, was an unchecked listing, and was subject to many obvious

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errors. I took the position that the log was Oliphant's private property and not a Bureau document. I felt that the subcommittee wanted to treat it as an official Bureau record. If the log was to be used, I thought it should be used with the opportunity of Oliphant being present to interpret the sometimes cryptic references to persons and events, in order to avoid public embarrassment to blameless third parties. In fact the subcommittee for a period had access to the log under that arrangement, but the subcommittee staff, with its eager beavers at work, did not concur in process. They wanted to take it and go through it under their aegis, and therefore began to press more for an unrestricted use of the log. They became so impatient that the matter became quite an item in the papers. The log was given finally to the subcommittee on November 18, 1952,

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because it had become then a political issue, and it wasn't worth the withholding of it any further, even though it was unfortunate, as it did cause many unfortunate situations that were unjustified. I had stated my position earlier in the year, but two years before the presidential election in 1952, in an obvious attempt to embarrass the Democratic Party, two or three Republican members of the subcommittee issued glaring statements to the effect that I was withholding the log, and insinuating that I was doing it because it revealed improper interests by me in certain tax cases. The particular one that they were discussing was the Universal Pictures case. This case was discussed at length later, and it is sufficient here to say that when control of Congress passed to the Republicans in 1953, the Republican-controlled subcommittee devoted much of its efforts in

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trying to substantiate the insinuations, and finally failed completely in exposing any culpability upon my part in connection with any tax case.

Another important instance of disagreement between me and the King committee involved net worth questionnaires for almost half the Bureau personnel. John Dunlap, commissioner at that time, who had been Commissioner of Internal Revenue in 1951 upon Schoeneman's resignation, and I were at first reluctant to order such questionnaires. We had two grounds for our opposition. The first was the effect that they would have on the already sagging morale of the Bureau of personnel, since questionnaires requiring them to list all their financial resources seemed to question the honesty of all the employees. Second, the questionnaires would be worthless unless all 25,000 of them were

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checked carefully, and the Bureau had neither the time nor the personnel for this kind of a job. Nevertheless, in October, 1951, I ordered the circulation of the questionnaires. The result was as I had feared. The Bureau personnel regarded the action as a slap in the face, and the questionnaires proved completely ineffective insofar as turning up any additional cases of corruption. In addition, the Bureau instituted a program calling for a special annual audit of tax returns of all employees, something that had been done only sporadically heretofore. In spite of such differences, an unusual degree of cooperation was maintained throughout the King committee's nearly two years of work, evidencing the Bureau's and my desire that any irregularities existing be discovered and corrected. The subcommittee paid tribute to this spirit in its report issued in 1952.

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It said:

The success of the subcommittee's activity is due in great measure to the assistance given by the principal subject of its investigation, the Bureau of Internal Revenue itself. Most Bureau officials have cooperated closely with the subcommittee in an effort to expose misconduct and to achieve positive reforms. True, there have been some occasions when it seemed that the Treasury Department was attempting to impede the subcommittee's work. Despite these occasional lapses, there has been a determination by the Internal Revenue and by the Treasury Department, to put matters to right, particularly when pointed up by the subcommittee. Such a joint investigation is probably without precedent in our history. It should prove a useful pattern in the future.

What the subcommittee discovered, or claimed to have discovered, in its two years of work may be summarized quickly. There were instances of failure to prosecute tax evasion cases for monetary or political reasons, both in Washington, where much of the blame was put on the tax division of the Justice Department, then under the direction

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of Lamar Caudle, and in the field, where there were instances in which field employees, particularly collectors, had been accused of fixing tax cases; that is, they made it possible for some persons to pay less than the amount of taxes legally due, for one reason or another. The report of the King committee said:

Disclosure of subcommittee hearings of shocking misconduct by high officials charged with the enforcement of the Internal Revenue laws led to the resignation or dismissal of many, many of whom were political rather than civil service appointees.

The use of the adjective "many" somewhat overstates the case; however, in my opinion, even a few were too many. The fact that the subcommittee found that all of the Internal Revenue officials who were dismissed or resigned as the result of its own investigation were political appointees, led the subcommittee to the logical recommendation that something should be done about such a

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system. However, generally overlooked was the fact that whatever corruption then existed in the Bureau was a result of the dual control of the system, which divided the responsibility of supervision, and that this was as much the responsibility of the Congress, which cleared and confirmed the appointees, as it was of those who were responsible for the administration.

The report of the subcommittee also claimed credit for substantial reforms initiated by the Bureau in 1951 and '52. Among them were the Bureau's revisions of its handling of cases of suspected tax fraud, cutting down the number of successive reviews of cases prior to prosecution, abandonment of the policies of not prosecuting tax evaders in poor health, or who made voluntary disclosures of their guilt, and revision of Treasury policy governing the qualifications and surveillance of accountants and lawyers who represented taxpayers

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before the Department. Whoever should be given credit for these reforms the question must be considered secondary to the acknowledgement that they were by and large beneficial to the enforcement of Internal Revenue laws and they were put into operation and effectively enforced by my organization. The King committee finished its investigation in December. Incidentally, you will note, Mr. Hess, that I have given you a chronological list of the steps that the Treasury had taken already prior to the investigation, some of which the committee later took credit for. I think this list will be appropriate in this interview.

The King committee finished its investigations in December, 1952, shortly before the Truman administration was superseded by a Republican regime. By that time, I had put into effect the basic reforms of the reorganization of Internal Revenue, and had seen this

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reorganization give the Bureau new life after the morale-shattering days of investigations. Throughout the investigations, I repeatedly proclaimed my belief in the fundamental integrity of the Bureau. Results of the investigations proved me to be correct, even though the handful of men who were tainted were often spectacularly exposed in the papers, and their taint was displayed in dramatic congressional proceedings. Nevertheless, as in the nature of such things, charges brought and proved against a few Internal Revenue employees were extended, sometimes with the help of politically inspired statements in the public mind to blacken the reputation of the entire Bureau. It was to ward off this damaging misrepresentation that I insisted time and again that my confidence in the Bureau as a whole had not been shaken at any time.

I must point out, Mr. Hess, though, that my

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relations with the Bureau of Internal Revenue from the beginning demonstrated the attempt to work with this political appointee system. It showed that I had the necessity of imposing my responsibility upon the personnel of the Bureau at times, without the authority to impress my executive will on many of the employees. Such a situation originated long before I went to the Treasury, of course, and could not help but hamstring any Secretary who sought to change conditions or procedures in the Bureau. I put much effort into revitalizing the Bureau within its existing framework from the first day that I took control of the Treasury. Working within these limits I believe that I succeeded very well. Nevertheless, further changes more far-reaching and fundamental were necessary to bring the Bureau into line with its responsibilities. This was evident before the congressional investigation

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of Internal Revenue ever began. Studies of reorganizations had been taking place ever since 1947. The Internal Revenue investigation, with their resulting public outcry, brought the reorganization into focus much faster than would otherwise have been the case. By late 1951, my aides and I knew what was necessary in the way of reorganization of the Bureau. The plan would require congressional approval, but the Internal Revenue investigations had made it unlikely that Congress could possibly turn it down. The time was propitious for the presentation of the reorganization plan for another reason. George Schoeneman had resigned as Commissioner of Internal Revenue in the fall of 1951, and had been replaced by John B. Dunlap, a man admirably suited to carry out such a reorganization program. Schoeneman, who had been under heavy criticism during his last year in office, had been accused of failure

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to use stern discipline against those Bureau employees guilty of misconduct. This pressure had been to affect his health. Dunlap, a career Bureau official from Texas, had served in the Second World War as a Brigadier General in the Army, and had returned to duty with the Bureau as collector at Dallas, Texas, was soon to be moved to Washington and made head of the racket squad, the unit designed to crack down on racketeer tax evaders. He made a fine record in that job, and his reputation later as Commissioner was equally outstanding. In January of 1952, President Truman sent to Congress the plan worked out in the Treasury as his Reorganization Plan Number One of 1952, calling for reorganization of the Bureau of Internal Revenue. The President's action had the effect of submitting the plan to Congress for its confirmation or disapproval. However, if Congress failed

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to disapprove of the plan by March 14, it would automatically go into effect. No single individual can take credit for the Internal Revenue Reorganization Plan. Certainly it evolved under and from my policies and direction, but every Treasury employee who sat in on Bureau Management Improvement Conferences, or who contributed work improvement suggestions had a part in its development from the beginning. The plan was the work of men inside the Bureau who knew its needs and its capabilities, and of many outside the Bureau who contributed suggestions and recommendations in one form or another. This, of course, included congressional suggestions. The most discussed feature of the plan was the abolition of political patronage within the Bureau. Abolished were the more than sixty politically-appointed collectors. Also abolished were the deputy collectors, the assistant

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commissioner, the special deputy commissioner, the deputy commissioner, the assistant general counsel of the Bureau; all of these patronage offices were to be abolished. Their places were to be taken by three new assistant commissioners, a maximum of 25 district commissioners, a maximum of 70 other offices to be filled at the discretion of the Secretary of the Treasury, and an assistant general counsel of the Bureau. All of these new offices were to be civil service positions. Political patronage, which had been a part of this Nation's Internal Revenue system from its beginning, was to be wiped out. The only politically official left in the Bureau would be the commissioner himself. To fill the other posts, competitive examinations were to be held. Organizationally, the more than two hundred field offices of the Bureau were to be replaced by a maximum of twenty-five district offices and a

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maximum of seventy state or division offices. Beyond removing the Bureau political appointees, the reorganization plan was designed to streamline the Bureau's operations, saving money, and at the same time, giving the Commissioner and the Secretary more direct lines of control over the field personnel. In this respect the plan fits the recommendation of the Hoover Commission. The plan, although revolutionary for the Bureau, was simple and direct. It recognized the fact that Internal Revenue had become too big and too complicated to be handled by unskilled men, and recognized the need of having the lines of control within the Bureau, firmly in the hands of top officials. The action of the Congress in the reorganization plan, forms an interesting chapter in the history of the Bureau of Internal Revenue: The plan readily passed the House, but in the Senate it was disapproved by the Government

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Operations Committee of the Senate. That committee, with a minority dissenting, reported that the plan, first, was not necessary to eliminate corruption in the Bureau; second, it would give the Secretary of the Treasury too much power, and third, would jeopardize the rights of taxpayers, even though the Justice Department had said that it would not. The chairman of the committee sponsored a substitute bill. Rather than abolish political patronage in the Bureau, the substitute bill would have extended it by making additional officials presidential appointees subject to Senate confirmation. However, the full Senate overruled the committee's negative report and the plan went into effect in March. In an interesting sidelight to the congressional fight over the reorganization plan, the highly respected Senator Walter George of Georgia, took the floor

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of the Senate one day and publicly apologized to me for some previous remarks he had made concerning the plan. Senator George, who opposed the reorganization plan, had apparently been misinformed about certain features of it, and when this was called to his attention he promptly issued his apology, although he did not lessen his opposition to the reorganization plan. With the reorganization plan accepted, Commissioner Dunlap and I spent a great deal of time in the succeeding ten months putting these reforms into effect. This was during my last ten months as Secretary of the Treasury. I had fought a long and hard battle for reorganization of the Internal Revenue system, and I wanted to see it well underway before I left office. There was much to be done and it was a busy ten months. New district offices had to be selected, and new men had to be picked to fill them, and to fill the state

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and division offices. On both counts, it must be acknowledged that I encountered heavy political pressure in spite of the reorganization plan. First, most Congressmen felt that their states should be selected as sites for the district offices, and they worked towards that end. Second, one of the shortcomings of the civil service, which attempts to pick and to promote men on the basis of competence, is that nearly all top civil service employees or applicants have friends in Congress who try to help them. But on the whole the work went well, and before the end of 1952 the last of the seventeen district offices, which Dunlap and I had ordered, were put into operation. Upon the opening of each district office Dunlap or I traveled to the scene to appear personally with the new officials and to make talks to the constituents. I carried with me a deep feeling that the reorganization

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was a great opportunity for me to restore Bureau morale which had been badly shattered as a result of the congressional investigation. At every opportunity I reiterated my confidence in the old employees who were remaining in the Bureau, and of my hopes for the new men who were being brought in.

On December 1, 1952, I attended the ceremony inaugurating the new district Internal Revenue office in Detroit, Michigan, the last of the seventeen district offices to be activated. And in a talk to the employees at that ceremony I outlined the history of Internal Revenue reorganization plans, and expressed great hopes for the benefits that would ensure from it. I said:

The reorganization plan is the product of earnest study and diligent effort, not only by administrative experts of the Treasury Department and the Revenue Service itself, but also by individuals and groups representing the Congress, other Government agencies, business management firms and taxpayer organizations. In short, a

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composite of the most capable consultants available. The goals of this action are a maximum of operating efficiency and economy, fast, convenient and accurate service to all persons transacting business with the Bureau, scrupulous protection of the Government's revenues, and the maintenance of unquestioned integrity among the employees of the Revenue Service. I have every confidence that these goals will be realized. It is my firm belief that the result of today's reorganization proceedings here, and those previously held through the nation, will give the American people a revenue service of maximum efficiency and operating economy, manned by employees of unquestioned integrity.