CONGRESSIONAL TESTIMONY ON THE TOWNSEND PLAN
January-February 1935
(There were, in the opinion of most mainstream economists, major conceptual problems with the Townsend Plan. There were also daunting practical problems inherent in the scheme. These selected quotations from early hearings on the Townsend Plan hit upon some of these practical and conceptual problems. These short excerpts highlight some of the more "controversial" issues in the early debate. These excerpts are very short selections from extensive hearing transcripts.)
HOUSE HEARINGS
[Source: Report: ECONOMIC SECURITY ACT -- Hearings before the Committee on Ways & Means House of Representatives. 74th Congress, First Session. On H.R. 4120. U.S. Government Printing Office, 1935.]
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 4, 1935. Report page: 754
(Ed. Note: Dr. Townsend defended the bill before the Committee, H.R. 4120, but after extended and challenging questioning, he was forced to admit that the bill needed some amendment.)
Mr. Cooper. "As the bill now stands--as it is presented to this committee for consideration--if you were sitting in the seats that we occupy, would you vote to report this bill, and then, as a Member of the House of Representatives, vote to pass it?"
Dr. Townsend. "I would, with certain amendments--certain corrections which have necessarily been left to the Secretary of the Treasury and which were expected to be left to the committee passing upon the bill."
Mr. Cooper. "You admit, then that the bill should be amended and changed?"
Dr. Townsend. "Certain elements in it, yes; certain features of it."
TESTIMONY OF GLENN J. HUDSON BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 4, 1935. Report page: 738
(Ed. Note: Mr. Hudson was a life insurance underwriter who appeared to testify in support of the Townsend Plan. During his testimony he acknowledged several shortcomings of the bill as drafted, culminating in the following exchange.)
Mr. Hudson. "Again, I state that I am not holding myself responsible for that bill. Of course, I think that you men have the power and should have, and that bill should be changed."
Mr. Cooper. "I understood you to state awhile ago very frankly--and I think you have been frank in your responses."
Mr. Hudson. "I have tried to be."
Mr. Cooper. "I understood you to state awhile ago very frankly you think this bill is very loosely drawn."
Mr. Hudson. "I restate that."
Mr. Cooper. "Would it be fair to ask you this question: Suppose you sat in the seats that we occupy at this table. As the bill now stands in its present form, do you think you would be safe in voting to report it and support it, as a representative of the people?"
Mr. Hudson. "No; I do not."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 12, 1935. Report page2: 1126-1127.
(Ed. Note: The Committee challenged Dr. Townsend relentlessly about the practicality of his Plan, resulting in this admission.)
Dr. Townsend. "It has been very obvious to all of us that it would be quite impossible to start pensioning all of the old folks who have attained the age of 60 at one particular time, but it is also very obvious that it will take several years even to register them--a good many months. Now, if we were to start at the age of 75, we will say, and register these old folks as rapidly as possible and place them upon a $200 per month basis of pensioning, by the time we got down to the 60-year-olds, all the way through, time enough would have elapsed and the new amount of money put into circulation would so stimulate the productive ability of America, that we could easily take care of these classes as they came along on a $200 a month basis. I think Dr. Doane's entire analysis of this situation goes to prove one thing. Nobody has been fool enough to expect that we could take 10 millions of old folk and put them immediately on a $200 a month basis without putting this country into debt considerably to carry it. There has never been any idea that 10 millions would be retired immediately. But we can eventually do it by starting at a certain age, and the productive increase due to this power of buying which these elderly people would have would unquestionably so stimulate the productivity of America that the taxes of 2 per cent would be ample to eventually retire them at that age."
The Chairman. "We are not going to prolong the hearing by debating the question further, but evidently you must know that the people who are writing these letters, inundating Congress with letters by the carload, must have had it sold to them on the theory that just as soon as this law is enacted they will immediately go on the pay roll. That is evidently the way they understand it, and you are bound to know they understand it that way."
Dr. Townsend. "I cannot help that. We all expect to go on that pay roll."
The Chairman. "If they understood they were not going to be registered for several years and would not get on the pay roll immediately, the propaganda would cease at once."
Mr. Vinson. "Mr. Chairman, may I ask Dr. Townsend a question?"
The Chairman. "Very well."
Mr. Vinson. "I heard your last statement, Doctor, and noted what you said about the time it would take to get all of them listed. Do I understand that you are receding from the position stated in this bill--and I am reading from it--and conceding that we could not do it at this time?"
Dr. Townsend. "I absolutely stand for that; however, as I stated, it is very obvious that we could not get to all of them immediately."
Mr. Vinson. "How long do you think it would take to register all those above 60 years of age?"
Dr. Townsend. "It would take a good many months."
Mr. Vinson. "How many months?"
Dr. Townsend. "It would be very difficult to estimate. I presume it will take 2 years before we can get to all of them."
TESTIMONY OF DR. ROBERT R. DOANE BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 12, 1935. Report pages: 1111-1112
(Ed. Note: Mr. Doane was an independent expert on economic matters, called by the Committee to testify about the economic principles of the Townsend Plan. Mr. Doane was the Director of Research of American Business Surveys.)
Dr. Doane. "Yes. In table V, I have given the maximum theoretical possibilities under a 2 per cent turn-over tax, based upon 1935 estimated collections as indicated in these previous tables, and also an estimated annual amount based upon a 1929 basis; that is, assuming that we get back to the 1929 levels again. I have taken the total expected tax collections covering the same items that I have just listed in these tables, and in column 2 I have based the expectations if all producer and consumer expenditures were taxed, in column 3 the expectations if all expenditures of producers and consumers, plus governmental and institutional expenditures were taxed; and in the last column, the total expectation if all gross transactions and property transfers were taxed."
"In column 1 it would indicate, on present levels, the maximum expected would be $4,000,000,000 if we limit it to this restricted group as shown in table 4. If we included all possible consumer and producer expenditures, we could expect there would be approximately $6,000,000,000 at these levels. And in the third column, the maximum expectation would be around 9 billion; 9.6 billion."
Mr. Hill. "That is per year?"
Dr. Doane. "Per year."
Mr. Lamneck. "Would it be well at this point to refer to the testimony that we received before, to show the gross revenue of about 8 billion; is that not right?"
The Chairman. "According to my recollection."
Mr. Lamneck. "And you say it will be about 9 billion; is that right?"
Dr. Doane. "Yes; on all transactions and transfers."
Mr. Hill. "May I ask, Doctor, are you including financial transactions such as payment of salaries?"
Dr. Doane. "Yes. That is the total gross, of everything. You understand I an not recommending that all these transactions be taxed, I am just stating here what it would be if they were all taxed."
TESTIMONY OF GLENN HUDSON BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 4, 1935. Report pages: 728-729
(Ed. Note: Glenn Hudson was a Townsend Plan official who was presented as one of the Plan's economic experts. In this exchange with the Committee, Mr. Hudson tries to justify the Plan's estimates of potential tax revenues based on assumptions about the volume of transactions in the economy.)
Mr. Knutson. "In your literature the claim is made that the total money value of all transactions in 1933 was a trillion--we used to talk of millions when I came to Congress, then it was billions, now it is trillions--was a trillion, two hundred million?"
Dr. Townsend. "Yes, sir."
Mr. Knutson. "The authority for that was given as the Fifty-fifth Statistical Abstract of the United States. I sent over to the Library of Congress Friday and got the Fifty-fifth Statistical Abstract of the United States, and I could not find it. I wish that your statistician would give me the page where this information was obtained, because I am pretty busy and I would not like to go through that book again."
Mr. Hudson. "I have never made such a quotation from the Fifty-fifth."
Mr. Knutson. "I did not say that you had made it. It has been made in the literature that has been sent out and has been sent to me."
Mr. Hudson. "That is probably true. It does not appear in the Fifty-fifth Statistical Abstract. I could not find it."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 4, 1935. Report pages: 735-736
(Ed. Note: This exchange concerns the potential impact of the Townsend Plan's taxes on the value of the dollar.)
Mr. Hill. Dr. Townsend, I understood you to say that in 1929 the dollar turned over 132 times."
Dr. Townsend. "Yes, sir."
Mr. Hill. "What do you estimate would be the turn-over under the provisions of this bill?"
Dr. Townsend. "It should be vastly increased."
Mr. Hill. "About how much?"
Dr. Townsend. "Over anything we have ever known. I do not know that there is any particular way of making a definite estimate. I figure that under this system of taxation whereby everybody gets his shoulder under the load, making it so light that no one will feel it, particularly, seeing to it that a sufficient amount of money is in circulation constantly, forced there by the strength of the National Government, we shall be able to create a state of business that will quadruple anything we have ever known."
Mr. Hill. "Quadruple? That is multiplied four times?"
Dr. Townsend. "Yes, sir."
Mr. Hill. "Say, 528 times under the plan of this bill; $1 would turn over 528 times."
Dr. Townsend. "Approximately."
Mr. Hill. "That is, in a year?"
Dr. Townsend. "Yes."
Mr. Hill. "That would be 528 transactions on the average for a dollar?"
Dr. Townsend. "Yes, sir."
Mr. Hill. "Each transaction would bear a 2 per cent tax. The burden of tax that each dollar would carry would be twice 528, or $10.56."
Dr. Townsend. "Then we will easily reduce the tax, the rate of tax that is provided for in the bill. It can be reduced until no one will know that he is paying a tax. It will be insignificant--a half of 1 per cent will carry the entire pension roll, once we get fairly going under this system."
Mr. Hill. "$10.56 burden on each dollar would deflate the purchasing power of the dollar by how much? Have you figured that out?"
Dr. Townsend. "You cannot figure it out. You cannot possibly tell what the opposing forces of inflation are. There are opposing forces to inflation always. One of them lies in the fact that mass production has always a tremendous influence toward price deflation."
Mr. Hill. "If you had a velocity of turn-over of 528 times, and imposed upon that credit turn-over which ordinarily goes along with the dollar turn-over, you would have an inflation of the circulating currency and circulating credit that would be almost beyond the power of the mind to grasp. Do you think there would be any inflationary effects from that, that would tend to reduce the purchasing power of the dollar to practically nothing?"
Dr. Townsend. "I do not think there would be any tendency toward undue inflation at all for the simple reason that the entire tendency of competition would be the reverse. If you are in business and something happens to quadruple your volume of business, certainly you would quadruple your volume of profits."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, February 4, 1935. Report pages: 732
(Ed. Note: This exchange concerns potential adverse impacts from the taxes of the Townsend Plan.)
Dr. Townsend. "May I speak a word in reply to that?" "Gentlemen, think back a little bit. We had a war 20 years ago."
Mr. Knutson. "Yes."
Dr. Townsend. "If an increase in price means a tax, we paid a 100 per cent tax at that time and liked it. It was the best period of prosperity this country ever saw."
Mr. Knutson. "And what followed it?"
Dr. Townsend. "What followed it? Never mind what followed. We are not going to have any such thing as that follow. We propose a prosperity based on the turn-over of money such as we had in that day, and we are going to keep it up."
Mr. Knutson. "As I understand it, then, this is a bill to abolish the morning after the night before, speaking in terms of economics."
Dr. Townsend. "This is going to abolish the morning after, certainly."
SENATE HEARINGS
[Source: Report: ECONOMIC SECURITY ACT -- Hearings before the Committee on Finance United States Senate. 74th Congress, First Session. On S. 1130. U.S. Government Printing Office, 1935.]
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE SENATE FINANCE COMMITTEE, February 16, 1935. Report page: 1042
(Ed. Note: This continues the debate started during the House hearings about how much money in benefits the Townsend Plan might actually pay.)
The Chairman. "Doctor, why was it that you stated before the House Ways and Means Committee that this 2 per cent turn-over tax would get $24,000,000,000 a year, and now you intimate to the Committee that you will probably only receive a little over $5,000,000,000 a year? What has caused you to change your mind about that?"
Dr. Townsend. "I did not change my mind about that at all. It is very obvious, Mr. Chairman, that we cannot put eight million or seven million of old folks on the pension roll immediately, and as a consequence of the slowness of getting them on the pension roll, the full volume of transactions due to their spending is not going to be felt for maybe two or three years."
The Chairman. "As I understand it, then, you do think it would raise $24,000,000,000 a year in two or three years, but in the beginning it will probably not be over five billion?"
Dr. Townsend. "We probably would not be able to get all of the people on the pension roll either."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE SENATE FINANCE COMMITTEE, February 16, 1935. Report page: 1024
(Ed. Note: This exchange concerns one of the key flaws in the Townsend Plan, i.e., how to determine that the pensioner has in fact spent the monthly allotment in the month received.)
Senator Barkley. "How are you going to determine that he has spent it for commodities at the end of the month?"
Dr. Townsend. "The banker will be in a position to know."
Senator Barkley. "How?"
Dr. Townsend. "It will be a very difficult thing to ascertain."
Senator Barkley. "The banker has got to be the inspector for every one of the pensioners who has an account in his bank?"
Dr. Townsend. "Not necessarily the banker."
Senator Barkley. "Somebody will have to do the inspecting."
Dr. Townsend. "But not necessarily the banker. Everyone who is spending the money, who is known to be the recipient of it, is going to have neighbors immediately about him."
Senator Barkley. "So the neighbors are going to watch him?"
Dr. Townsend. "The neighbors are going to watch him, certainly."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE SENATE FINANCE COMMITTEE, February 16, 1935. Report pages: 1063-1064
(Ed. Note: This exchange further probes the issue of how anyone might be able to establish that a pensioner was in fact spending their pension within 30 days, as the Plan required.)
Senator Gerry. "Your idea is the community would take an interest in seeing that it would be spent?"
Dr. Townsend. "I think so."
Senator Gerry. "Did it work that way in prohibition?"
Dr. Townsend. "In prohibition?"
Senator Gerry. "Yes."
Dr. Townsend. "No. Why?"
Senator Gerry. "I am asking you."
Dr. Townsend. "Because there was very little affect on the part of the powers that had charge of the enforcement of the prohibition law, to do anything with it."
Senator Barkley. "There was also a laxity on the part of people in the community to keep the enforcement officers informed, to the extent that they did not want to be snooping around among their neighbors to find out whether or not there was a violation. Your bill set up an official snooping committee in each precinct in the United States to watch over the expenditure of this money, and follow it out to the ultimate results."
Dr. Townsend. "I cannot see that there would be any snooping necessary."
Senator Barkley. "What would the committee that you set up in the bill be required to do?"
Dr. Townsend. "To receive complaints."
Senator Barkley. "To receive complaints from whom?"
Dr. Townsend. "From those who thought the law was being violated."
Senator Barkley. "There would be a committee set up in each voting precinct to receive complaints from the neighbors who thought that one of their next door neighbors were spending some of the $200, or $400, or $600, if there happened to be three of them who were 60 years old living in the same household, in a way that they did not approve of?"
Dr. Townsend. "There would have to be some sort of committee until the people became accustomed to the new regime, the new system."
TESTIMONY OF DR. F. E. TOWNSEND BEFORE THE SENATE FINANCE COMMITTEE, February 16, 1935. Report page: 1028
(Ed. Note: Since the Townsend Plan proposed a tax on all transactions, it would be necessary, as this dialog points out, to monitor the transactions of all self-employed persons, such as farmers.)
Senator Barkley. "Your plan contemplates that the Secretary of the Treasury shall issue a license to every farmer in the nation for which he might pay whatever fee is fixed, and unless he so registers and is licensed he cannot sell what he has produced?"
Dr. Townsend. "We propose to have some measure such as that set up."
Senator Barkley. "That is true, though, that is a fact?"
Dr. Townsend. "Yes, that is true."