On the matter Senator Green inquired about, which I think is a matter of great interest and importance, about the way this spreads out-Mr. Katz is not here?

Ambassador SPOFFORD. He is to return.

WHAT CONSTITUTES ECONOMIC AND MILITARY AID

Senator BREWSTER. I will defer that question until he returns, because he is the one who will deal with that.

On the other aspect, about the economic aid, how is a machine tool figured, is it economic aid or military aid?

Mr. BATT. It is so-called economic aid, Senator.

Senator BREWSTER. In other words you said Britain had to have these machine tools to carry out the program you wanted?

Mr. BATT. Yes, sir.

Senator BREWSTER. That would be what you term economic aid? Mr. BATT. Yes, sir.

Those machine tools which were furnished in the last fiscal year did come under an old commitment which we had made to the British as to so called MAP aid, but we are proposing no such aid for Great Britain in fiscal year 1952. We propose only end item aid for Britain in 1952. No economic aid is proposed.

Senator BREWSTER. When you say "end items," does that mean machine tools?

Mr. BATT. No, sir, finished weapons.

Senator BREWSTER. How will they get those machine tools? Will they have to pay for them?

Mr. BATT. Yes, sir.

Senator BREWSTER. That is not beyond what you consider to be their economic capacity?

Mr. BATT. As things are now, Senator, we feel that they can and should.

METHODS OF DISTRIBUTING INCREASED PROSPERITY IN EUROPE

Senator BREWSTER. Mr. Katz, in connection with what Senator Green was asking about with regard to the distribution of these benefits, is it not the fact that on the phase which he was presenting, the most practical way to reach that is through taxation?

Mr. BATT. It might.

Ambassador KATZ. It might very well be one of them; yes, sir. Senator BREWSTER. I will take the specific case which Senator Green proposed, which was the fellow who quadrupled his profits as a result of a loan.

If you start in on the wage end or start in on the price end, you immediately run into the effect on other concerns as I think our chairman pointed out.

If you approach it on the taxation angle, of taking their profits, as we do in this country with the excess profits tax, then you do reach the ones who deserve it, and you do not affect the others.

Is that not the practical answer in most cases?

Ambassador KATZ. That may very well be, sir.

As I said, it would be a question of the whole internal policy of the country, how far through price policy, how far through taxes, and how far through wages.

I think it is one of the important factors.

Senator BREWSTER. I would like for you to explain to me how you could differentiate between the fellow who got aid and got profits and the fellow who did not get aid and was up against it, except by taxation.

Ambassador KATZ. It would be extremely difficult to administer it the other way.

Senator BREWSTER. Yes, I think that is clear.

TAXATION IN GREAT BRITAIN

Now I want to come to my second point about this tax question which it seems to me has a very pertinent bearing as to whether the burden is being distributed equitably.

We were told in the United Kingdom that they have no excess profits tax, that all corporations were taxed 10 percent on their earnings. We understood that from responsible authority. If they distributed in dividends, the recipient is then subject to a very heavy tax; but if they do not distribute it, it only has the 10 percent corporate tax; there is no compulsory distribution of dividends such as we have in this country, and there is no capital gains tax.

The result is that a family corporation can multiply its capital by 100 in the course of 10 or 12 years and then through the sale of the assets realize those gains and pay no taxes.

If that is correct, would you agree that it presented quite a serious variation from what we conceive to be the equitable portion? Ambassador KATZ. Yes, sir. I do not know what the facts are, but if that is correct, we should find out the reason for it. (The following statement was supplied for the record:)

BRITISH TAXES ON CORPORATE INCOME

British taxes on corporate income involve two elements: Corporations are liable for a profits tax on earnings over £2,000 which is charged at 10 percent on undistributed profits, and under the present budget will be 50 percent on distributed profits. After the payment of the profits tax, corporations then pay income tax at the full standard rate of 471⁄2 percent on the remaining net profits.

Senator BREWSTER. It was so incredible to me that I am still reluctant to believe it. It was given to me, I believe, either by our No. 1 or No. 2 man in England, and I think in your capacity as our economic counselor it might be well to check precisely what that is.

Mr. BATT. I can answer one part of that question, Senator. The Chancellor just announced the other day that there will be no permitted increase in dividends over the next fiscal year beyond those which has been paid by a corporation in the previous fiscal year.

Senator BREWSTER. Unfortunately you evidently have not read the morning paper where the Chancellor was quoted as considering that as a ghastly joke and that he couldn't see how anybody with his right senses could believe it. He thought the members of the stock exchange ought to have had sufficient sense of humor to have known that that couldn't have been anything but a bit of British humor. Mr. BATT. However, there have never been any capital-gains or capital-loss taxes in Britain.

Senator BREWSTER. If what you say is correct that would reinforce what I am saying and would make it even more marked, you see. It

would prevent their getting any revenue, if they were not permitted to distribute any dividends.

Now I was here and heard most of the discussion on the possible organization.

ELEMENTS IN MILITARY PROCUREMENT, DOMESTIC AND FOREIGN

Mr. Katz, you spoke a little casually, I thought, of the soldiers. and sailors in procurement. They determined what instruments they wanted but when it came to procuring them there were many other factors that entered into it.

In this country, while it is true that Mr. Wilson is concerned with defense production, it is my understanding that the actual procurement is done by the military agencies; is that correct?

Ambassador KATZ. Yes, sir; and it is my belief that it should stay that way.

Senator BREWSTER. Similarly, abroad, we are going to do the procurement. Most of the factors entering into that are of the same character as here; that is whether or not they have the machine tools to do the job; whether or not they have the raw materials.

That is, you need the same answers as you do here from Mr. Wilson before it can be determined.

Now, there is one other factor which is different, and that is as to whether the economy of the country can get the funds or the materials to do it. That is, that is in the international exchange field.

Is that not the only factor which varies from the problem that we have here at home?

yes, sir.

Ambassador KATZ. I would say that is the principal difference; Senator BREWSTER. Therefore, you should have Mr. Wilson's agency with a foreign adviser such as yourself. From my visit in Paris with you, and here, I am more than ever convinced that you are very smart, as you were the first bureaucrat whom I have ever seen who has recommended your own abolition, which has impressed me very greatly.

Senator GREEN. He rather hedged on that.

Senator BREWSTER. No; he did not. His record is O. K.

Getting rid of your job ahead of time certainly entitled you to an accolade, and for less money than envisioned, so you rate very high.

POSSIBILITY OF UTILIZING THE OFFICE OF DEFENSE MOBILIZATION (ODM)

If the Defense Production Administration, under Mr. Wilson, should carry out in the foreign field, with the assistance of men like yourself and whatever staff was additionally required, would it not be the most practical way of integrating this, with whatever advice they needed from the Eisenhower organization, also on the foreign field?

Ambassador KATZ. I think that would be a possible way of doing it. I think if it were done that way, the organization which Mr. Wilson would have to build to do it would be equal in size and operating complexity to a separate organization, and I would think that you would get a better result administratively by having the separate organization, fixing responsibility squarely on it, so its discharge of its responsibility can be seen more clearly.

Senator BREWSTER. It has just been brought home to me very forcibly because we have just gotten the first substantial defense order in Maine, which was machine guns. The whole problem was whether or not they could get the machine tools to do the order. They had to have them. A thousand of them. Exactly as other concerns in this country and abroad have to have them.

That is Mr. Wilson's job, to determine where the facilities can be most equitably distributed and applied.

It seems to me that, in the matters of character of material, the quantity of material, the distribution of material, you have the two jobs, one is that of the military who determines what we need and the other is defense production who determines what can be done and how it can be most equitably allocated. It seems those two agencies could be much better integrated at home and abroad than to create a third which would necessarily cross the line.

Ambassador KATZ. As I say, it would be possible to do it that way. I repeat, if Mr. Wilson were given those responsibilities he would have to build an organization as big as this one.

Senator BREWSTER. As big as this one?

Ambassador KATZ. As big as a separate one would be. Let me put it that way.

SIZE OF ORGANIZATION NEEDED

Senator BREWSTER. You certainly would not mean as big as the Economic Cooperation Administration was during the days of its great responsibility?

Ambassador KATZ. I should not be surprised if a new organization to handle both military and economic aid if that is what you have in mind, sir, would be about that size.

Senator BREWSTER. How has the personnel varied in your organization, from start to finish?

Ambassador KATZ. Varied in numbers, do you mean?

Senator BREWSTER. Yes; what is the minimum and maximum number?

Ambassador KATZ. Well, passing the time of initial build-up, Senator, it has remained fairly uniform. That is to say, our first taking the European organization of ECA, it has been in the general neighborhood of 1,200 Americans and 2,000 locals. That is the entire personnel of all the organization in Europe, all 17 missions plus the OSR in Paris.

Now, there has been a variation but the variation has not been very far from that. The variation has not been by much more than 100 Americans either way. That is in the original bill now.

Senator BREWSTER. Is that approximately what it is now?
Ambassador KATZ. It is approximately that now.

Senator BREWSTER. Do you anticipate that same number will be required in handling this job in the next year?

Ambassador KATZ. I think so, Senator. I see some humor in that as I have made various attempts to get that number down and every time I have done so I have wound up with a series of demonstrations that has meant the development of new jobs. As soon as we severed old people from doing old jobs, new people would have to come in to do new jobs.

My thought would be that it would be an organization of that size. Senator KNOWLAND. That even happens in Washington, I might add.

Ambassador KATZ. I think so.

We should try to get it as small as possible, I think. I think an organization of 1,000 Americans for the whole of Europe is not a large one. That includes the services, the communications, the supply people, and all the rest.

Senator BREWSTER. It is a little puzzling. Ninety percent of this is going to be military procurement, or accessories to that, and that presumably will be a very different problem than that presented to you under the ECA, but you are still going to require the same number of men to handle that.

Ambassador KATZ. I was turning this calculation to an assumed new organization that would combine both functions.

That is what you had in mind, was it not?

Senator BREWSTER. I was hoping that we could allocate to the Defense Establishment, and to the Defense Production Agency, the responsibilities in Europe as here, and the result might be not only far more efficient operation, such as we hope we are going to achieve here, but also some economy through the integration.

The CHAIRMAN. Right on that point, may I ask a question, Senator? Senator BREWSTER. Yes, sir.

POSSIBILITY OF OVERSEAS ADMINISTRATIVE INTEGRATION

The CHAIRMAN. What about putting the ECA and the arms program all under the same head over there?

Ambassador KATZ. I am inclined to think that would be a sound thing, sir.

The CHAIRMAN. When you have two agencies you have to run to each one, and so forth and so on, and deal all around. It seems to me like it is all in the same basket in a way.

Ambassador KATZ. Yes, sir. I am inclined to think they should be put together. There are certain basic things which you have to watch.

As I indicated this morning, the responsibility for determining requirements for the actual procurement should rest with the military services. I think we want to watch the terminal date and you do not want to let this become a permanent thing, and I think you have to have proper procedures and arrangements to make sure that the Department of State's responsibility for basic political guidance remains unimpaired and is effectively discharged.

I think that can be done and I think on an operating basis, putting those two together, seems to me to make sense.

INTEGRATING FOREIGN AID ADMINISTRATION IN WASHINGTON

Senator BREWSTER. I would like to ask General Kibler about that now, as to the possibility of integrating the situation.

General KIBLER. The Defense Production Board is now operating under the Defense Department. However, I think the end-item business has to continue to operate as it does now.

I do not know just what you have in mind, in setting up a single head over there.