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Amiual Report
of the

Secretary of the Treasury
on the

State of the Finances
For the Fiscal Year Ended June 30, 1964

J



TREASURY DEPARTMENT
DOCUMENT NO. 3233
Secretary

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON : 1965
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C, 20402 - Price 32,25 (paper cover)




10

THE SECRETARY OF THE TREASURY
WASHINGTON

March 9, 1965.
DEAR SIRS:

Pursuant to the requirements of Section 262 of Title 5 of the
United States Code, I have the honor to submit to you herewith my
Annual Report on the State of the Finances for the Fiscal Year
Ended June 30, 1964.

<=>^DOUGLAS DILLON.

PRESIDENT OF THE SENATE.
SPEAKER OF THE H O U S E OF REPRESENTATIVES.




IU




BINDING SLIP
STYLE

CONTENTS
R E V I E W OF F I S C A L

OPERATIONS
Page

S u m m a r y of financial operations
Administrative budget receipts and expenditures
Receipts
Estimates of receipts
Expenditures
Estimates of expenditures
T r u s t receipts and expenditures
Receipts
Estimates of receipts
Expenditures
Estimates of expenditures
Receipts from and p a y m e n t s to t h e public
Corporations a n d other business-type activities of t h e Federal Government
Account of t h e Treasurer of t h e United States
• Public debt management and ownership
^
D e b t operations
Ownership of Federal securities
Taxation developments
International financial affairs
ADMINISTRATIVE

3
4
4
6
10
11
11
11
12
12
13
13
14
16
17
25
31
36
47

REPORTS

M a n a g e m e n t improvement program
Comptroller of t h e Currency, Office of t h e
Customs, Bureau of
Defense Lending, Office of
.
Director of Practice, Office of
Domestic Gold and Silver Operations, Office of
Engraving and Printing, Bureau of
Fiscal Service
.
.
Accounts, Bureau of
P u b h c Debt, Bureau of t h e
Treasurer of t h e United States, Office of t h e
Foreign Assets Control, Office of
I n t e r n a l Revenue Service
Mint, Bureau o f t h e
Narcotics, Bureau of
United States Coast Guard
United States Savings Bonds Division
United States Secret Service

71
75
79
92
93
. 94
96
100
100
106
111
117
118
134
141
145
155
158

EXHIBITS
PUBLIC DEBT OPERATIONS, CALLS OF GUARANTEED SECURITIES, REGULATIONS, AND
LEGISLATION

Treasury Notes and Treasury Bonds Offered and Allotted
1. Treasury notes
2. Treasury bonds

.

169
177

Treasury Bills Offered and Accepted
3. Treasury bills

.,

.

190

Guaranteed D e b e n t u r e s Called
4. Calls for partial redemption, before m a t u r i t y , of insurance fund debentures




200

VI

CONTENTS
Regulations
Page

5. Fifth amendment, October 14, 1963, to Department Circular No. 530,
Eighth Revision, regulations governing United States savings bonds.
6. Second amendment, October 14, 1963, to Department Circular No. 653,
Fifth Revision, United States savings bonds, Series E
7. Fourth amendment, October 14, 1963, to Department Circular No. 905,
Second Revision, United States savings bonds. Series H
8. Third amendment, January 27, 1964, to Department Circular No. 653,
Fifth Revision, United States savings bonds, Series E
9. Second Revision, April 7, 1964, of Department Circular No. 888,
regulations governing the special endorsement of United States
savings bonds of any series and the payment of matured Series
F, G, J, and K bonds by eligible paying agents
10. First amendment, April 7, 1964, to Department Circular No. 1036,
exchange offering of United States savings bonds, Series H._
11. Press Release, December 9, 1963, instructions for obtaining taxpayer
identifying numbers of owners of redeemed savings bonds
Legislation
12. An act to continue the existing temporary increase in the public debt
limit set forth in section 21 of the Second Liberty Bond Act
13. An act to increase temporarily the public debt limit set forth in section
21 of the Second Liberty Bond Act
14. An act to increase temporarily the public debt limit set forth in section
21 of the Second Liberty Bond Act
15. An act to extend for two years the authority of Federal Reserve banks
to purchase United States obligations directly from the Treasury
set forth in section 14(b) of the Federal Reserve Act

204
204
205
205

208
210
211

212
212
212
212

FINANCIAL POLICY

16. Statement by Secretary of the Treasury Dillon, January 28, 1964,
before the Joint Economic Committee
17. Remarks by Secretary of the Treasury Dillon, June 6, 1964, before the
Thirty-Fourth National Business Conference of the Harvard
Business School, on fiscal policy and economic growth

213
217

PUBLIC DEBT MANAGEMENT

18. Statement by Secretary of the Treasury Dillon, July 29, 1963, before
the House Ways and Means Committee, on the debt limit
19. Statement by Secretary of the Treasury Dillon, November 18, 1963,
before the Senate Finance Committee, on the debt limit
20. Statement by Secretary of the Treasury Dillon, June 23, 1964, before
the Senate Finance Committee, on the debt limit
21. Statement by Secretary of the Treasury Dillon, June 11, 1964, before
the House Banking and Currency Committee on H.R. 11499, to
extend existing authority of the Federal Reserve banks to purchase
public debt obligations directly from the Treasury
22. Remarks by Deputy Under Secretary of the Treasury for Monetary
Affairs Volcker, May 7, 1964, before the Money and Capital Market
Outlook Session of the Boston College Banking and Finance Conference, Boston, Massachusetts
23. Other Treasury testimony published in hearings before congressional
committees, July 1, 1963-June 30, 1964

223
229
231

235

237
239

TAXATION DEVELOPMENTS

24. Statement by Secretary of the Treasury Dillon, October 15, 1963,
before the Senate Finance Committee, on H.R. 8363, an act to
amend the Internal Revenue Code of 1954 to reduce individual and
corporate income taxes, to make certain structural changes with
respect to the income tax, and for other purposes
25. Remarks of the President at the signing of the tax bill, February 26,
1964
.
26. Statement by Secretary of the Treasury Dillon, June 29, 1964, before
the Senate Finance Committee, on H.R. 8000, the interest equalization tax



239
262
263

CONTENTS

VII

INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS
Page

27. Remarks by Secretary of the Treasury Dillon, September 17, 1963, at
the White House Conference on Export Expansion
28. Statement issued on October 2, 1963, by Secretary of the Treasury
Dillon, on behalf of the ''Group of Ten"
..
29. Remarks by Secretary of the Treasury DiUon, February 19, 1964,
before the Economic Club of Chicago, on the international balance
of payments
30. Statement by Secretary of the Treasury Dillon as Governor for the
United States, April 14, 1964, at the fifth annual meeting of the
Board of Governors of the Inter-American Development Bank,
Panama City, Panama
31. Remarks by Secretary of the Treasury Dillon, May 21, 1964, at the
eleventh annual international monetary conference of the American
Bankers Association, Vienna, Austria
32. Remarks by Secretary of the Treasury Dillon as Governor for the
United States, September 8, 1964, at the annual meeting of the
International Monetary Fund, Tokyo, Japan
33. Statement by Secretary of the Treasury Dihon as Governor for the
United States, September 9, 1964, at the IBRD, IFC, and IDA
annual discussion, Tokyo, Japan.-^
34. Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, December 28, 1963, before the American Economic Association and the American Finance Association, on balance-of-payments
adj ustment and international liquidity
35. Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, April 28, 1964, at the annual meeting of the U.S. Chamber .
of Commerce, on foreign investment and the balance of payments..
36. Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, May 21, 1964, at the eleventh annual international monetary
conference of the American Bankers Association, on the potentialities of our international payments system, Vienna, Austria.
37. Statement by Assistant Secretary of the Treasury Bullitt, October
29, 1963, before the Senate Foreign Relations Committee, on increase in capital of the IBRD
38. Statement by Assistant Secretary of the Treasury BuUitt, November
18, 1963, before the Foreign Operations and Government Information Subcommittee of the Cornmittee on Government Operations,
on local currency holdings
39. Statement by Deputy Assistant Secretary of the Treasury Trued,
November 14, 1963, before Subcommittee 4 of the House Judiciary
Committee, on H.J. Resolution 658
^_^.J_^
40. Treasury and Federal Reserve foreign exchange operations, MarchAugust 1963
•.;,...,
41. Treasury and Federal Reserve foreign exchange operations (September
1963-February 1964) and the gold pool
....
.
42. Press Release, July 17, 1963, on the U.S.- standby arrangeraent with
the International Monetary Fund
43. Excerpt from International Monetary Fund Press Release, July 18,
1963, on the U.S. standby arrangement
44. Press Release, July 21, 1963, joint Canadian-U.S. statement on the
interest equalization tax
_-_..
45. Press Release, December 19, 1963, announcing the renewal of an
exchange agreement between the United States and Mexico
..
46. Press Release, February 13, 1964, announcing the first U.S. drawing
from the International Monetary Fund.
47. Press Release, May 29, 1964, announcing the second U.S. drawing
from the International Monetary Fund
48. Press Release, June 16, 1964, containing the text of the communique
of the Ministers of the ''Group of Ten"
49. Ministerial Statement of the Group of Ten and Annex prepared by
Deputies, August 10, 1964
50. Other Treasury testimony published in hearings before congressional
committees, July 1, 1963-July 30, 1964



273
276
277

280
284
288
292

294
303

308
314

315
321
322
328
339
340
341
341
341
342
342
343
365

VIII

CONTENTS
GOLD AND SILVER OPERATIONS
Page

51. A m e n d m e n t to t h e gold regulations, April 24, 1964
52. Press Release, M a r c h 25, 1964, announcing t h a t silver certificates will
be redeemed only in bullion
53. Other Treasury testimony published in hearings before congressional
committees, July 1, 1963-June 30, 1964

366
368
369

ORGANIZATION AND PROCEDURE

54. Treasury D e p a r t m e n t orders relating to organization and p r o c e d u r e . .

369

ADVISORY COMMITTEES

55. Advisory committees utilized by t h e Treasury D e p a r t m e n t
Executive Order 11007

under
376

TABLES
Bases of tables
Description of accounts relating to cash operations

,

391
392

SUMMARY OF FISCAL OPERATIONS

1. S u m m a r y of fiscal operations, fiscal years 1940-64 a n d monthly 1964.

394

RECEIPTS AND EXPENDITURES

2. Receipts and expenditures, fiscal years 1789-1964
_.3. Refunds of receipts a n d transfers to trust funds, fiscal years 1931-64__
4. Administrative budget receipts and expenditui-es, fiscal years 1962,
1963, a n d 1964
5. T r u s t receipts and expenditures, fiscal years 1962, 1963, and 1964
6. I n v e s t m e n t s in public debt and agency securities (net), fiscal years
1962, 1963, a n d 1964
7. Sales and redemptions of Government agency securities in m a r k e t
(net), fiscal years 1962, 1963, a n d 1964
8. Interfund transactions excluded from both net budget receipts and
budget expenditures, fiscal years 1961-64
9. Interfund transactions excluded from both het t r u s t account receipts
and net t r u s t account expenditures, fiscal years 1961-64
10. Public enterprise (revolving) funds, receipts a n d expenditures for
fiscal year 1964 and net for 1963 and 1964
11. T r u s t enterprise (revolving) funds, receipts a n d expenditures for fiscal
year 1964 and net for 1963 a n d 1964
12. Administrative budget receipts and expenditures monthly and total
for fiscal year 1964
13. T r u s t receipts and expenditures monthly and total for fiscal year 196414. T r u s t receipts by sources and expenditures by major functions, fiscal
years 1956-64
15. Administrative budget receipts by sources and expenditures by major
functions, fiscal years 1956-64
16. T r u s t and other transactions by major classifications, fiscal years
1954-64
17. Receipts from a n d p a y m e n t s to t h e public, fiscal years 1954-64
18. Administrative budget receipts a n d expenditures based on existing
a n d proposed legislation, actual for t h e fiscal year 1964 and
estimated for 1965 and 1966
19. T r u s t and other transactions, actual for t h e fiscal year 1964 and
estimated for 1965 and 1966
20. Effect of financial operations on t h e public debt, actual for the fiscal
year 1964 and estimated for 1965 and 1966
21. Internal revenue collections by t a x sources, fiscal years 1936-64
22. Internal revenue collections and refunds by States, fiscal year 1964__
23. Deposits by t h e Federal Reserve banks representing interest on Federal Reserve notes, fi seal years 1947-64
i
24. Customs collections and p a y m e n t s by districts, fiscal year 1964
25. S u m m a r y of customs collections and expenditures, fiscal years 1963
a n d 1964
...
26. Postal receipts and expenditures, fiscal years 1926-64




396
404
406
418
423
424
425
426
427
429
430
432
433
434
438
440
442
445
447
448
454
455
456
457
458

CONTENTS

IX
Page

27. Increment resulting from reduction in weight of the gold doUar, as
of June 30, 1964
28. Seigniorage on coin and silver buUion, January 1, 1935-June 30,
1964

459
459

PUBLIC DEBT, GUARANTEED DEBT, ETC.

I.—Outstanding
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

Principal of the public debt, 1790-1964
.
Pubhc debt and guaranteed debt outstanding June 30, 1934-64
Public debt outstanding by classification, June 30, 1954-64
Guaranteed securities issued by Government corporations and other
business-type activities and held outside the Treasury, June 30,
1954-64
•Interest-bearing securities outstanding issued by Federal agencies
but not guaranteed by the U.S. Government, fiscal years 195^64.
Maturity distribution of marketable interest-bearing public debt,
June 30, 1946-64
Summary of public debt and guaranteed debt by classification,
June 30, 1964
Description of public debt issues outstanding June 30, 1964
.,-_
Description of guaranteed debt held outside the Treasury, June 30,
1964
Postal savings systems' deposits and Federal Reserve notes outstanding, June 30, 1946-64
Statutory limitation on the public debt and guaranteed debt, June
30, 1964
.
Debt limitation under the Second Liberty Bond Act, as amended,
1917-64

460
462
463
466
467
468
468
470
496
498
498
500

IL—Operations
41. Public debt receipts and expenditures by classes, monthly for fiscal
year 1964 and totals for 1963 and 1964
.
42. Public debt increases and decreases, and balances in the account of
the Treasurer of the United States, fiscal years 1916-64
43. Changes in public debt issues, fiscal year 1964
44. Issues, maturities, and redemptions of interest-bearing public debt
securities, excluding special issues, July 1963-June 1964
45. Allotments by investor classes on subscriptions for public marketable
securities other than regular weekly Treasury bills, fiscal year 1964.
46. Statutory debt retirements, fiscal years 1918-64
47. Cumulative sinking fund, fiscal years 1921-64

502
513
514
538
570
572
573

III.—United States savings bonds
48. Sales and redemptions of Series E through K savings bonds by series,
fiscal years 1941-64 and monthly 1964
1
-49. Sales and redemptions of Series E and H savings bonds by denominations, fiscal years 1941-64 and monthly 1964
50. Sales of Series E and H savings bonds by States, fiscal years 1963,
1964, and cumulative
IV.—Interest
51. Amount of interest-bearing public debt outstanding, the computed
annual interest charge, and the computed rate of interest, June 30,
1939-64, and at the end of each month during 1964
52. Computed annual interest rate and computed annual interest charge
on the pubhc debt by classes, June 30, 1939-64
53. Interest on the public debt by classes, fiscal years 1960-64
54. Interest on the public debt and guaranteed debt by tax status, fiscal
years 1940-64
.




574
578
579

580
581
583
584

X •

CONTENTS
V.—Prices and yields of securities
Page

55. Average yields of taxable long-term Treasury bonds by months,
October 1941-June 1964
56. Prices and yields of marketable public debt issues June 28, 1963,
and June 30, 1964, and price range since first traded

585
586

VI.—Ownership of governmental securities
57. Summary of Treasury survey of ownership of interest-bearing public
debt and guaranteed securities, June 30, 1963 and 1964
58. Estimated ownership of interest-bearing governmental securities
outstanding June 30, 1954-64, by type of issuer.

588
590

ACCOUNT OF THE TREASURER OF THE UNITED STATES

59. Assets and liabilities in the account of the Treasurer of the United
States, June 30, 1963 and 1964
60. Analysis of changes in tax and loan account balances, fiscal years
1955-64
....

591
592

STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES

61. Stock of money, money in the Treasury, in the Federal Reserve
banks, and in circulation, by kinds, June 30, 1964
62. Stock of money, money in the Treasury, in the Federal Reserve banks,
and in circulation, selected years, June 30, 1930-64
63. Stock of money by kinds, selected years, June 30, 1930-64
64. Money in circulation by kinds, selected years, June 30, 1930-64.
65. Location of gold, silver bullion at monetary value, and coin held by
the Treasury on June 30, 1964
66. Paper currency issued and redeemed during the fiscal year 1964 and
outstanding June 30, 1964, by classes and denominations

593
595
596
598
599
599

TRUST AND OTHER FUNDS

67. Holdings of public debt and agency securities by Government
agencies and accounts, June 30, 1960-64
68. Civil service retirement and disability fund, June 30, 1964
69. District of Columbia teachers' retirement and annuity fund, June 30,
1964
.
70. Employees health benefits fund. Civil Service Commission, Juiie 30,
1964
:.
71. Retired employees health benefits fund. Civil Service Commissiori,
June 30, 1964
......
72. Employees' life insurance fund. Civil Service Commission, June 30,
1964
.
,73. Federal disability insurance trust fund, June 30, 1964
i
74. Federal old-age and survivors insurance trust fund, June 30, 1964
75. Foreign service retirement and disability fund, June 30, 1964
76. Highway trust fund, June 30, 1964
77. Judicial survivors annuity fund, June 30, 1964
.78. Library of Congress trust funds, June 30, 1964
79. National service life insurance fund, June 30, 1964
.
80. Pershing HaU Memorial fund, June 30, 19.64
81. Philippine Government pre-1934 bond account, June 30, 1964
82. Railroad retirement account, June 30, 1964
83. Unemployment trust fund, June 30, 1964
84. U.S. Government life insurance fund, June 30, 1964

600
603
605
606
607
608
610
612
614
615
616
617
618
619
620
621
623
630

FEDERAL AID TO STATES

85. Expenditures made by the Government as direct payments to States
under cooperatiye arrangements and expenditures within States
which provided relief and other aid, fiscal year 1964

631

CUSTOMS OPERATIONS

86. Merchandise entries, fiscal years 1963 and 1964
..
87. Principal commodities on which drawback was paid, fiscal years
1963 and 1964
^




652
652

CONTENTS

XI
Page

88. Carriers and persons arriving in the United States, fiscal years 1963
and 1964
.
89. Aircraft and aircraft passengers entering the United States, fiscal
years 1963 and 1964
90. Seizures for violations of customs laws, fiscal years 1963 and 1964
91. Investigative activities, fiscal years 1963 and 1964

653
654
655
656

ENGRAVING AND PRINTING PRODUCTION

92. New postage stamp issues delivered, fiscal year 1964
93. Deliveries of finished work by the Bureau of Engraving and Printing,
fiscal years 1963 and 1964
.
......

656
657

INTERNATIONAL CLAIMS

94. Status of Class III Awards of the Mixed Claims Comission, United
States and Germany, and Private Law 509 as of June 30, 1964
95. Status of claims of American nationals against certain foreign
governments as of June 30, 1964

658
659

INTERNATIONAL FINANCIAL TRANSACTIONS

96. U.S. net monetary gold transactions with foreign countries and
international institutions, fiscal years 1945-64
97. Estimated gold reserves and dollar holdings of foreign countries
and international institutions as of June 30, 1963, December 31,
1963, and June 30, 1964
98. U.S. gold stock and holdings of convertible foreign currencies by
U.S. monetary authorities, fiscal years 1953-64
99. International investment position of the United States, total December 31, 1950; by area, December 31, 1962 and 1963
.
100. U.S. balance of payments, fiscal years 1963 and 1964
101. Assets and liabilities of the Exchange Stabilization Fund as of June 30,
1963 and 1964
.
.
102. Summary of receipts, withdrawals, and balances of foreign currencies
acquired by the United States without purchase with dollars,
fiscal year 1964
103. Balances of foreign currencies acquired by the United States without
purchase with dollars, June 30, 1964

660
662
665
666
668
669
671
672

INDEBTEDNESS OF FOREIGN GOVERNMENTS

104. Status of indebtedness of foreign governments to the United States
arising from World War I as of June 30, 1964
105. Status of German World War I indebtedness as of June 30, 1964—
106. Outstanding indebtedness of foreign countries on U.S. Government
credits (exclusive of indebtedness arising from World War I) as of
June 30, 1964, by area, country, and major program
107. Status of accounts under lend-lease and surplus property agreements
(World War II) as of June 30, 1964
.

674
675
676
678

CORPORATIONS AND OTHER BUSINESS-TYPE ACTIVITIES OF
THE UNITED STATES GOVERNMENT

108. Comparative statement of securities of Government corporations and
other business-type activities held by the Treasury, June 30,
1954-64
109. Capital stock, notes, bonds, and other securities of Government
agencies held by the Treasury or other Government agencies,
June 30, 1963 and 1964, and changes during 1964
110. Borrowing authority and outstanding issues of Government corporations and other business-type activities whose securities are issued
to the Secretary of the Treasury, June 30, 1964
111. Description of securities of Government corporations and other
business-type activities held by the Treasury, June 30, 1964
,
112. Summary statement of financial condition of Government corporations and other bueiiness-type activities, June 30, 1964
__




680
681
684
685
689

XII

CONTENTS
Page

113. Statement of loans outstanding of Government corporations and other
.business-type activities, June 30, 1964
114. Dividends, interest, and similar earnings received by the Treasury
from Government corporations and other business-type activities,
. fiscal years 1963 and 1964
.
_.

691
694

GOVERNMENT LOSSES IN SHIPMENT

115. Government losses in shipment revolving fund, June 30, 1964

696

PERSONNEL

116. Number of employees in the departmental and field services of the
Treasury Department, quarterly from June 30, 1963, to June 30,
1964
INDEX
.




697
699

SECRETARY, UNDER SECRETARIES, GENERAL COUNSELS, ASSISTANT
SECRETARIES, AND DEPUTY UNDER SECRETARIES FOR MONETARY
AFFAIRS SERVING IN THE TREASURY DEPARTMENT FROM
JANUARY 21, 1961, THROUGH DECEMBER 31, 1964 i
Term of service

Official

To

From

Secretary of the Treasury
Jan. 21, 1961

Douglas Dillon, New Jersey,
Under Secretary

Feb.

3, 1961

Apr. 27, 1964

Henry H. Fowler, Virginia.
Under Secretary of the Treasury for
Monetary Affairs

Jan. 31, 1961

Dec. 31, 1964

Robert V. Roosa, New York.
General Counsel

Apr. 5, 1961
Nov. 16, 1962

Oct.

Dec. 20, 1957
Apr. 5, 1961
Apr. 24, 1961
Dec. 20, 1961
Dec. 18, 1962
Sept. 18,1963

Dec. 19, 1961
Oct. 31, 1962

6, 1962

Oct. 15, 1964

Robert H. Knight, Virginia.
G. d'Andelot Belin, Massachusetts.
Assistant Secretaries
A. Gilmore Flues, Ohio.
John M. Leddy, Virginia.
Stanley S. Surrey, Massachusetts
James A. Reed, Massachusetts.
John C. Bullitt, New Jersey.
Robert A. WaUace, Illinois.
Deputy Under Secretary of the Treasury for
Monetary Affairs

Dec. 21, 1961
Dec. 3, 1963

Nov. 28, 1963

J. Dewey Daane, District of Columbia.
Paul A. Volcker, New Jersey.
Fiscal Assistant Secretary

June 19, 1955
June 15, 1962

Mar. 31, 1962

William T. Heffelfinger, District of Columbia.
John K. Carlock, Arizona.
Assistant Secretary for Administration 2

Sept. 14, 1959

A. E. Weatherbee, Maine.

1 For officials from September 11, 1789, through January 20, 1961, see the 1961 amiual report exhibit 32,
pp. 389-392.
2 The title of "Administrative Assistant Secretary" was changed to "Assistant Secretary for Administration" under the provisions of Public Law 88-426, approved Aug. 14, 1964.
XIU




PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF
TREASURY DEPARTMENT AS OF DECEMBER 31, 1964
Secretary of the Treasury
Special Assistant to the Secretary
Under Secretary of the Treasury
Special Assistant to the Under Secretary.
Under Secretary for Monetary Affairs
Deputy Under Secretary for Monetary
Affairs
Director, Office of Domestic Gold
and Silver Operations.
Deputy Director, Office of Financial
Analysis
Director, Office of Debt Analysis
.
Assistant to the Secretary (Debt Management)
General Counsel
.
Deputy General Counsel
Assistant General Counsel
Assistant General Counsel
Assistant General Counsel
Assistant General Counsel
Chief Counsel, Foreign Assets Control
Director of Practice
Assistant Secretary
Deputy Assistant Secretary and Director,
Office of Tax Analysis
Tax Legislative Counsel
Special Assistant for International Tax
Affairs
Assistant Secretary
Deputy Assistant Secretary
Aide to the Assistant Secretary
Director, Office of Law Enforcement Coordination
Assistant Secretary
Deputy Assistant Secretary
Deputy to Assistant Secretary, for International Monetary Affairs
Deputy to Assistant Secretary, for International, Financial, and Economic
AffairsAssistant Secretary
Special Assistant to Assistant Secretary..
Director, Employment Policy Program
Fiscal Assistant Secretary
Deputy Fiscal Assistant Secretary
Assistant Fiscal'Assistant Secretary
Assistant to Fiscal Assistant Secretary.
Assistant to Fiscal Assistant Secretary
Assistant Secretary for Administration
Deputy Assistant Secretary for Administration and Director, Office of Budget
and Finance.
.
Director, Office of Personnel
Director, Office of Management and
Organization
Director, Office of Administrative Services
Director, Office of Security




THE

Douglas Dillon
Robert Carswell
Vacancy
Douglass Hunt
Robert V. Roosa
Paul A. Volcker
Leland Howard
John H. Auten
R. Duane Saunders
Daniel S. Ahearn
G. d'Andelot Belin
Fred B. Smith
Roy T. Englert
Edwin F. Rains
Hugo A. Ranta
George F. Reeves
Stanley L. Sommerfield
Thomas J. Reilly
Stanley S. Surrey
Jacob A. Stockfisch
Lawrence M. Stone
Richard O. Loengard, Jr.
James A. Reed
James P. Hendrick
Commander G. H. Patrick Bursley, USCG
Arnold Sagalyn
Merlyn N. Trued (Acting)
Merlyn N. Trued
George H. Willis
Ralph Hirschtritt
Robert A. Wallace
Thomas W. Wolfe
Mrs. Mary F. Nolan
John K. Carlock
George F. Stickney
Hampton A. Rabon, Jr.
Boyd A. Evans
Frank F. Dietrich
A. E. Weatherbee
Ernest C. Betts, Jr.
Amos N. Latham, Jr.
James H. Stover
Paul McDonald
Thomas M. Hughes

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
Assistant to the Secretary (Congressional Relations)
Deputy Assistant to the Secretary (Congressional Relations)..
.
Assistant to the Secretary (Public Affairs)
Deputy Assistant to the Secretary (Public
Affairs)
Assistant to the Secretary (National Security
Affairs)
National Security Affairs Adviser
Director, Office of Foreign Assets Control.
Senior Consultant
Special Assistant to the Secretary and Director,
Executive Secretariat

Joseph M. Bowman, Jr.
(Vacancy)
Dixon Donnelley
Stephen C. Manning, Jr.
Charles A. Sullivan
Bradley H. Patterson, Jr.
Mrs. Margaret W. Schwartz
Seymour E. Harris
Donald I. Lamont

B U R E A U OF ACCOUNTS

Commissioner of Accounts
^
Assistant Commissioner
Special Assistant to Commissioner
Staff Assistant to the Commissioner
Assistant Commissioner for Administration
Chief Disbursing Officer
Chief Auditor
Deputy Commissioner for Systems
Deputy Commissioner for Central Accounts
and Reports
Deputy Commissioner for Deposits and Investments
Director, Defense Lending

Harold R. Gearhart
Sidney S. Sokol
Lyle D. Mosso
George Friedman
John H. Henriksen
Charles 0. Bryant
Steve L. Comings
Ray T. Bath
Howard A. Turner
Sidney Cox
Robert M. Seabury

B U R E A U OF CUSTOMS

Commissioner of Customs
Assistant Commissioner of Customs
Deputy Commissioner, Office of Administration
Deputy Commissioner, Office of Investigations.
Acting Deputy Commissioner, Office of Operations
Deputy Commissioner, Appraisement
Deputy Commissioner, Technical
Acting Deputy Commissioner, Collectors
Operations
Acting Deputy Commissioner, Office of Regulations and Rulings
Deputy Commissioner, Classification and
Drawbacks
Deputy Commissioner, Entry, Value, and
Penalties
Deputy Commissioner, Marine Administration
Acting Chief Counsel

Lester D. Johnson (Acting)
Lester D. Johnson
N. G. Strub
Lawrence Fleishman
David C. Ellis
Walter G. Roy
George Vlases, Jr.
Thomas J. Gorman, Jr.
Donald L. E. Ritger
William E. Higman
Burke H. Flinn
R. V. Mclntyre
Fred M. Ivey

B U R E A U OF E N G R A V I N G AND P R I N T I N G

Director, Bureau of Engraving and Printing. - Henry J. Holtzclaw
Assistant Director, Bureau of Engraving and
Printing
.
» Frank G. Uhler
_
B U R E A U OF T H E MINT

Director of the Mint
Assistant Director of the Mint

.

Miss Eva Adams
Frederick W. Tate

B U R E A U OF NARCOTICS

Commissioner of Narcotics
Deputy Commissioner of Narcotics
Assistant to the Commissioner of Narcotics




Henry L. Giordano
George H. Gaffney
John R. Enright

XV

XVI

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
B U R E A U OF T H E PUBLIC D E B T

Commissioner of the Public Debt
. Donald M. Merritt
Assistant Commissioner
Ross A. Heffelfinger, Jr.
Deputy Commissioner
Michael E. McGeoghegan
Deputy Commissioner in Charge, Chicago
Office
Jack P. Thompson
I N T E R N A L R E V E N U E SERVICE

Commissioner of Internal Revenue
Bertrand M. Harding (Acting)
Deputy Commissioner
Bertrand M. Harding
Assistant Commissioner (Administration)
Edward F. Preston
Assistant Commissioner (Inspection)
Vernon D. Acree
Assistant Commissioner (Compliance)
Donald W. Bacon
Assistant Commissioner (Data Processing)
Robert L. Jack
Assistant Commissioner (Planning and Research)
William H. Smith
Assistant Commissioner (Technical)
Harold T. Swartz
Chief Counsel
Sheldon S. Cohen
OFFICE OF T H E COMPTROLLER OF T H E C U R R E N C Y

Comptroller of the Currency
James J. Saxon
Administrative Assistant to the Comptroller. _ Albert J. Faulstich
First Deputy Comptroller
. . William B. Camp
Deputy Comptroller
Justin T. Watson
Deputy Comptroller
Thomas G. DeShazo
Deputy Comptroller.R. C. Egertson
Deputy Comptroller (Trusts)
Dean E. Miller
Chief National Bank Examiner
Daniel D. Moore
Chief Counsel
Robert Bloom
OFFICE OF T H E T R E A S U R E R OF T H E U N I T E D STATES

Treasurer of the United States
Deputy Treasurer
Assistant Deputy Treasurer

Mrs. Kathryn O'Hay Granahan
William T. Howell
Willard E. Scott

U N I T E D STATES COAST GUARD

Commandant, U.S. Coast Guard
Assistant Commandant
Chief of Staff

Admiral Edwin J. Roland
Vice Admiral W. D. Shields
Rear Admiral Paul E. Trimble

U N I T E D STATES SAVINGS BONDS DIVISION

National Director
Assistant National Director

William H. Neal
Bill McDonald

U N I T E D STATES S E C R E T SERVICE

Chief, U.S. Secret Service
Deputy Chief
Assistant Chief

James J. Rowley
Paul J. Paterni
E. A. Wildy
COMMITTEES AND BOARD

Chairman, Treasury Management Committee.
Chairman, Treasury Awards Committee
Chairman, Treasury Wage Board..^
Employment Policy Officer
Principal Compliance Officer




A. E. Weatherbee
Amos N. Latham, Jr.
Amos N. Latham, Jr.
Robert A. Wallace
Robert A. Wallace

•ORGANIZATION OF THE DEPARTMENT OF THE TREASURY-

December 11,1964

SECRETARY
UNDER SECRETflRr'

1 Office \
\ o f t fte >
\ Secretary I

\
DEPUTY UNDER
SECRETARY FOR
MONETARY
AFFAIRS

L„.^..^.^,

>H
ADVIN'ISI RATION'

«r

i

Anol,s,5

Sol ol
Pioqioms Optra ions
Slolislics

] Operating \
I Bureaus /

I
Bureau of
the Mint

U.S. Secret
Service

Internal
Revenue
Service

Office of ttie
Comptroller of
the Currency

U.S.
Coost Guard

Bureau of
Engraving and
Printing

U.S. Sovings
Bonds Division

I Ihe S«telar> of Itie Ireasur)-




CHART

1

Bureau of
Customs

Bureau of
Narcotics

Bureou of
Accounts

Bureau of the
Public Debt

Office of the
Treasurer
of the U.S.




R E V I E W OF FISCAL




OPERATIONS




Summary of Financial Operations
Net administrative budget receipts for the fiscal year 1964 totaled
$89.5 billion, an increase of $3.1 billion over the preceding year, due
principally to accelerated collections of corporate taxes and increased
collections of individual income taxes. Net administrative budget
expenditures for the year amounted to $97.7 billion, an increase of
about $5.0 billion over fiscal 1963. The administrative budget
deficit for fiscal 1964 was $8.2 billion.
Net trust receipts during the year increased to $30.3 billion; net
expenditures rose to $28.9 billion, resulting in an excess of receipts
amounting to approximately $1.4 billion.
On the basis of the consolidated cash statement, fiscal 1964 Federal
receipts from the public totaled $115.5 billion, and Federal payments
to the public were $120.3 billion, resulting in an excess of payments
amounting to $4.8 billion.
Public debt outstanding at the end of the fiscal year was $311.7
billion, an increase of about $5.9 billion over that of a year ago. The
Government's fiscal operations in 1963-64, and their effect on the
public debt are summarized as follows:
In billions of dollars

Administrative budget receipts and expenditures:
Netreceipts (—)
.'.
Net expenditures
Administrative budget deficit
Trust receipts and expenditures:
Netreceipts (—)
Net expenditures
Excess of receipts (—), or expenditures
.Net investments in public debt and agency securities
Net sales (—), or redemptions of Government agency securities in the
market
Increase (—), or decrease in checks outstanding, deposits in transit (net),
etc
Increase (—), or decrease in public debt interest accrued
Change in cash balances, increase, or decrease (—):
Treasurer's account
Held outside Treasury
Net increase in cash balances
Increase in public debt
*Less than $50 million.




1964 REPORT OF T H E SECRETARY OF T H E TREASURY

Administrative Budget Receipts and Expenditures
CHART 2

The Administrative Budget
Sil
..•'IT

$Bil.

1

92 6,.'-"'
..'1"'
90-

Expenditures

803
80Deficit>^ . /
70-

124

••••••••""" L

8.2

M

—
-

xiM
H^B^P^^

BBr
•1 B H III
:'" A

^^^P 89.5

^ " ' ^ " ' X ^jc^i^^wiCl

,„..<!»

^tB!

^S

Receipts

The increase of $3.1 billion in net administrative budget receipts
during fiscal 1964 brought the total to $89.5 billion, a new alltime
record. This overall rise occurred despite a decrease of $0.5 billion
in miscellaneous receipts, which are primarily from nontax sources
and despite the initial impact of reduced individual income tax rates
under the Revenue Act of 1964. The withholding rate against individual salaries and wages was dropped from 18 percent to 14 percent
early in March 1964.
Economic activity continued to expand through the fiscal year 1964
and tax receipts accompanied this general rise.
A comparison of net administrative budget receipts by major
sources for fiscal years 1963 and 1964 is shown below. Additional
data for 1964 on a gross basis are presented in table 18.
1964

1963

Increase, or
decrease ( - )

Source
I n millions of dollars
Internal revenue:
I n d i v i d u a l income t a x e s .
Corporation income taxes
Excise taxes
E s t a t e a n d gift taxes

47,588
21,579
9,915
2,167

Total internal revenue
Customs duties
Miscellaneous receipts
N e t a d m i n i s t r a t i v e b u d g e t receipts




,

48,697
23,493
10,211
2,394

1,109
1,914
296
226

81,249
1,205
3,922

.

84,794
1,252
3,412

3,545
47
-509

86,376

89,459

3,082

REVIEW OF FISCAL OPERATIONS

5

Individual income taxes.—Receipts from individual income taxes
amounted to $48.7 billion in fiscal 1964, accounting for 54 percent
of total budget revenues but only 36 percent of the increase in total
net budget receipts. A net gain of $1.1 billion over fiscal 1963 occurred despite an estimated $2.4 billion reduction attributable to the
Revenue Act of 1964.
Corporation income taxes.—Receipts from corporation income
taxes primarily depend on the amount of corporation profits for the
calendar year which ends in the fiscal year.
Corporation profits rose substantially from calendar year 1962 to
1963. Tax receipts in fiscal 1964 were further bolstered by the
speedup in estimated payments required under the Revenue Act of
1964. Over a seven-year period, tax payments previously made in
the following year will be gradually shifted into the current year.
Excise taxes.—Receipts from excise taxes are shown in the following
table.
1964

1963

Increase, or

decrease ( - )

Source
I n millions of dollars

Gross excise taxes
Less:
R e f u n d s of receipts
Transfers to h i g h w a y t r u s t f u n d . . .
N e t excise taxes

1

_

.

3,442
2,079
149
5,610
444
1,620
66

3,577
2,053
172
• 6,021
475
1,547
106

136
-27
23
410
31
-73
40

13,410

Alcohol taxes
T o b a c c o taxes
-_
T a x e s on d o c u m e n t s , other i n s t r u m e n t s , a n d playing c a r d s . . .
M a n u f a c t u r e r s excise taxes
Retailers excise taxes
Miscellaneous excise taxes
U n d i s t r i b u t e d d e p o s i t a r y receipts a n d u n a p p l i e d collections . .

13,950

540

•216
3,279

220
3,519

4
240

9,915

10,211

296

Net excise tax receipts, after deduction of refunds and transfers
to the highway trust fund, rose almost $300 million bringing the
total to . $10.2 billion for the fiscal year. Increases were general,
again reflecting the continued rise in economic activity. Exceptions
were the tobacco taxes which declined slightly because of the Surgeon
General's medical report and the miscellaneous excise taxes category.
Miscellaneous excise taxes show a decrease because of the phasing out
of the reduction of the tax on air transportation from 10 percent to
5 percent and the repeal of the tax on other forms of transportation,
both actions effective November 15, 1962.
Estate and gift taxes.—Estate and gift tax collections reached $2.4
billion in the fiscal year 1964, over 10 percent larger than in the
previous fiscal year. Since estate taxes are not payable until 15
months after death and the valuation of the estate is the lesser of




6

1064 REPORT OF TPIE SECRETARY OF THE TREASURY

the value at time of death or one year later, the rise reflected the
strong upsurge in stock prices which began late in calender year 1962.
Customs.—Customs duties increased 3.9 percent during the year,
reaching a net total of $1,252 million. This rise reflected increased
taxable imports accompanying the general rise in economic activity.
Miscellaneous receipts.—Miscellaneous receipts are a nontax revenue
source. The total of $3.9 billion received in fiscal year 1963 included
substantial foreign loan repayments as well as large rent receipts and
repayments to the unemployment trust fund by States. Each of
these categories was significantly lower in fiscal year 1964.
Estimates of receipts

T h e Secretary of the Treasury is required each year to prepare and
submit in his annual report to Congress estimates of public revenue for
the current fiscal year and. for the fiscal year next ensuing (act of
February 26, 1907 (5 U.S.C. 265)).
The estimates of receipts from taxes and customs for the current and
ensuing fiscal years are prepared by the Treasury Department. In
general, the estimates of miscellaneous receipts are prepared by the
agencies depositing these receipts in the Treasury.
The estimates of receipts and the legislative and economic assumptions upon which they are based are the same as those presented in
the Budget message of the President of January 25, 1965. The message recommended that some excise taxes be repealed and others
reduced. The other major revenue proposals involve important
activities financed through trust funds and so do not affect net administrative budget receipts. These consist of a hospital instoance program
for elderly persons and is self-financing. Combined employeremployee payroU contributions are recommended at 0.6 percent on
the first $5,600 of income to start in calendar year 1966. Also
recommended is an increase from $4,800 to $5,600 in the wage base
on which social security taxes are paid. This will take effect on
January 1, 1966, and will be coupled with changes in the paj^roU
taxes to be allocated to the Federal old-age and survivors insurance
trust fund and Federal disability insurance trust fund.
While the President recommended reductions in certain excise
taxes he proposed increases in certain others which are in the nature
of user charges. Increased or new taxes on general aviation gasoline
and jet fuels, both commercial and general, and a new tax on air
freight for commercial aviation are proposed. Receipts from the
existing two-cent tax on aviation gasoline will be kept in the general
fund rather than transferred to the highway trust fund, and the
5-percent ticket tax on air passengers will be made permanent. Also
proposed is a fuel tax for inland waterway users. Revenue estimates




REVIEW OF FISCAL OPERATIONS

7

for the fiscal years 1965 and 1966 assume that these recommendations
will be accepted by the Congress.
Under present law, the excise tax rates on distilled spirits, beer,
wines, cigarettes, passenger automobiles, and automobile parts and
accessories will be reduced on July 1, 1965, and the tax on general
telephone service will expire on that same date. The revenue estimates are based on proposed legislation which would make these
taxes permanent but the detailed estimates do not include the effect
of possible reduction or repeal which is shown only in total.
The Revenue Act of 1964 reduced individual and corporation income
tax rates and made various changes in the income tax structure. The
bulk of the tax reduction went into effect early in calendar year 1964
and the remainder on January 1, 1965. In 1965 the individual tax
rates are in a range from 14 percent to 70 percent. The taxable
income up to $2,000 for single persons and $4,000 for married couples
which, prior to 1964, was taxed at 20 percent in one bracket, has been
divided into 4 equal brackets which in 1965 will be taxed at rates
of 14, 15, 16, and 17 percent.
The combined normal and surtax rates on corporation incomes
above $25,000 dropped from 52 percent to 50 percent for 1964 and
became 48 percent in 1965. Incorporated small businesses received
an even larger tax rate reduction since the normal tax on corporation
income below $25,000 was reduced from 30 percent to 22 percent in
1964.
Corporations with annual income tax liabilities in excess of $100,000
are having their tax payments moved closer in time to the accrual of
tax liabilities. The Revenue Act of 1964 provided for a speedup of
payments starting in the calendar year 1964 and to be completed in
1970, when payments of estimated tax liabihties will be made quarterly
as the liability develops. This speedup in payments adds to Government receipts in the fiscal years involved but does not affect the tax
liabilities computed under the new lower rates.
Enactment of the 1964 tax act has accelerated the growth of the
economy toward full employment. The nation's output of goods and
services is expected to reach $660 billion in the calendar year 1965,
an increase of $38 billion over calendar 1964. Substantial gains in
personal income and corporate profits will accompany the growth in
output. Specifically, the fiscal year revenue estimates are based on
the following economic assumptions:




8

19 64 REPORT OF THE SECRETARY OF THE TREASURY
Calendar years
1963
actual

1964
preliminary

1965
estimate

In billions of dollars
Gross national product
Personal income
Corporation profits before taxes,

683.9
464.1
51.3

622.3
491.4
67.2

660
520
61

Estimates of tax revenues cannot be derived directly and simply
from the assumed levels of aggregate economic performance. The
definitions of taxable income in the tax statutes, which determine
tax liabilities, differ from the economic or statistical definitions of
income which are used to measm-e economic performance. In
addition, tax payments are received by the Treasury after the period
in which tax Habilities are incurred. For example, corporation
income tax collections now lag 6 months behind the period when
the taxable income was earned; there is also some lag between the
time when individual income and social security taxes are deducted
from earnings and the time employers transfer these sums to the
Treasury.
The 1964 income tax legislation has decreased budget receipts by
successively greater amounts for the fiscal years 1964, 1965, and 1966.
Despite the losses from income tax reduction and, in 1966, from
proposed excise tax cuts, revenues rose in fiscal 1964 and are expected
to continue rising in the fiscal years 1965 and 1966. Receipts for
fiscal 1965 are estimated to increase $1.7 bilhon over actual receipts
in 1964 to reach a total of $91.2 bilhon. A further rise of $3.2 billion
to a total of $94.4 billion is estimated for 1966. Receipts will have
risen for 5 consecutive years by fiscal year 1966, reaching a level
$16.7 billion above 1961. This revenue gain reflects an increase of
$157 billion in gross national product from calendar year 1960 to
calendar year 1965.
Actual administrative budget receipts for fiscal year 1964 and
estimated receipts for 1965 and 1966 are compared by major sources
in the accompanying table. Amounts shown for each revenue
source are the net amounts after deduction of refunds, transfers
to trust funds, and interfund transactions.




REVIEW OF FISCAL

OPERATIONS

Fiscal years
1964
actual

1965
estimate

1966
estimate

Increase, or
decrease (—),
1965 to 1966

In millions of dollars
Individual income taxes
C orporation income taxes
Excise taxes.
Estate and gift taxes
Customs
Miscellaneousreccipts
Net administrative budget receipts.

48,697
23,493
10,211
2,394
1,252
3,412

47,000
25.600
10,733
2,800
1,415
3.652

48,200
27,600
9,770
3,200
1,500
4,130

1,200
2,000
-963
400
85
478

89,459

91, 200

94,400

3,200

Individual income taxes.—Collections of individual income taxes
amounted to $48,697 million in the fiscal year 1964. They are estimated to fall $1,697 million in fiscal 1965 but then rise to $48,200
million in fiscal 1966, an increase of $1,200 million. The drop in
1965 was, of course, occasioned by the initial large impact of the
reduced tax rates despite rising incomes during the period. The
increase to 1966 reflects a substantial increase in the individual income
tax base offset in part by the second stage reduction of tax rates
which went into effect on January 1, 1965. The total effect on 1966
revenues of the individual income tax reduction is estimated at over
$11 billion at the presently assumed higher level of personal income,
but this higher level would not have been possible without the stimulus
of the tax reduction.
Corporation income taxes.—Corporation income tax receipts are
expected to rise $2,107 million from the fiscal year 1964 to 1965.
A further increase of $2 biUion is expected in fiscal 1966, bringing the
total to $27,600 million for that year. The two-stage reductions in
corporation tax rates in the calendar years 1964 and 1965 were more
than offset by increased corporate profits and the third of seven
steps in the acceleration of corporate payments on estimated income
tax liabilities.
Excise taxes.—Net excise tax revenues, excluding transfers to the
highway trust fund, are estimated to rise from $10,211 million in fiscal
1964 to an estimated $10,733 miUion in 1965 and to faU to $9,770
mUlion in fiscal year 1966. Proposed legislation to repeal or reduce
certain excise taxes at the beginning of fiscal 1966 will have reduced
collections by $1.5 billion.
There is some offset from several new and increased taxes on users
of the Federal airways and inland waterways systems. All receipts
from these soiu-ces will be deposited in the general fund. Collections
will also be increased from excises which remain unchanged reflecting
increased sales of the products and services involved.




10

19 64 REPORT OF T H E SECRETARY OF THE TREASURY

Estate and gift taxes.—Estate and gift tax receipts are estimated to
increase from $2,394 million in fiscal 1964 to $2,800 million in 1965,
and to $3,200 mUlion in 1966. Receipts from this source arise mostly
from collections of estate taxes which are payable 15 months after
death. The estimated increases in the fiscal years 1965 and 1966
therefore reflect rises in stock market prices and other asset valuations
occurring sometime earlier.
Customs.—Customs receipts are estimated to increase from $1,252
miUion in the fiscal year 1964 to an estimated $1,415 million in fiscal
1965, and to $1,500 million in 1966. These increases reflect enlarging
imports as a result of the anticipated continued expansion of economic
activity.
Miscellaneous receipts.—Miscellaneous receipts, which are all those
received by the general fund of the Treasury except for taxes and
customs duties and are measured after deduction of interfund transactions, are expected to be increased in both fiscal year 1965 and 1966.
Such receipts will rise from $3,412 mUlion in 1964 to $3,652 million in
1965, and then advance to $4,130 million in 1966. The major sources
of increased receipts are higher payments of earnings by the Federal
Reserve System and of rents on Outer Continental Shelf lands. In
1966 proposed legislation to accelerate sales from the strategic and
critical materials stockpile will add to the increase.
Expenditures

Administrative budget expenditures, which in fiscal 1964 totaled
$97.7 bUlion, are set forth by certain major functions in the table
below. More detaUed information is shown in table 15.
Increase, or
decrease (—)

1964

1963

Program

In milhons of dollars
National defense
International afi'airs and finance i
Space research and technology
Interest payments
Veterans'benefits and services.
Agriculture and agricultural resources 1
Health, labor, and welfare
Commerce and transportation .
other 2
Less interfund transactions. .
Total

.

. _ __

...
_

.
. . . . . . .
..
. . .

52,755
' 4,151
2,662
9,980
6,186
' 6,390
4,789
2,843
5,507

54,181
3,687
4,171
10,765
6,492
6,560
6,476
3,002
6,017

1,426
-464
1,619
785
306
170
686
159
610

513

664

151

92,642

97,684

5,042

' Revised.
1 Expenditures for the Food for Peace Program were reclassified from "Agriculture and agricultural resources" to "International aflairs and finance."
2 Includes programs relating to natural resources, housing and community development, education, and
general governinent.




REVIEW OF FISCAL

11

OPERATIONS

National defense expenditures accounted for 55.5 percent of total
administrative budget expenditures during fiscal 1964; interest payments accounted for 11 percent; agricultural programs 5.7 percent;
and health, labor, and welfare programs 5.6 percent.
Estimates of expenditures

In fiscal years 1965 and 1966, it is estimated that administrative
budget expenditures will be $97.5 billion and $99.7 billion, respectively.
The following table shows these estimated expenditures by major
program with comparative figures for the preceding year. Table 18
shows estimated administrative budget expenditures for these years
by agencies.

Program

1964
actual

Increase,
Increase,
1965
or de1966
or deestimate crease (—), estimate crease (—),
1966 from
1965 from
1965
1964
In millions of doUars

National defense
International affairs and finance i
Space research and technology
Interest payments
Veterans' benefits and services
Agriculture and agricultural resources
Health, labor, and welfare
Commerce and transportation
other 2
Less interfund transactions

64,181
3,687
4,171
10, 765
5,492
5,560
5,475
3,002
6,017

52,160
4,043
4,900
11,286
6,383
4,477
6,208
3,372
6,484

-2,021
356
729
521
-109
-1,083
733
370
467

61, 678
3,984
5,100
11, 594
4,623
3,944
8,328
2,804
8,333

-582
-59
200
308
-760
-533
2,120
-668
1,849

664

833

169

600

-233

97, 684

Total

97, 481

-203

99, 687

2,206

1 Expenditures for the Food for Peace Program were reclassified from "Agriculture and agricultural
resources" to "International affairs and finance,"
2 Includes programs relating to natural resources, housing and community development, education,
and general government.

Trust Receipts and Expenditures
Receipts

Trust receipts rose to $30.3 bilhon in the fiscal year 1964, approximately $2.6 billion above the preceding year, due primarily to fiscal
1964 being the first full fiscal year under the increased social security
tax rates which became effective January 1, 1963.
Net trust receipts for fiscal 1964, compared with 1963, are shown by
certain major sources in the following table. More detailed information is contained in table 5.




12

1964 REPORT OF THE SECRETARY OF THE TREASURY
Increase, or
decrease (—)

1964

1963
Source

I n millions of dollars
E m p l o y m e n t taxes
UnemploymeTit t a x deposits b y States
Excise taxes
I n t e r e s t o n t r u s t funds
O t h e r t r u s t receipts *

_

14,862
3,009
3,279
1,477
6,667

. _

Less i n t e r f u n d transactions
N e t t r u s t receipts

16,832
3,042
3,619
1,613
5,845

1,970
33
240
136
278

605

521

16

27,689

.

30,331

2,642

1 Includes Federal employee and agency payments to retirement funds, veterans' life insurance premiums,
and other misceUaneous trust receipts.

Estimates of receipts

In fiscal years 1965 and 1966, trust receipts are expected to continue
to rise, to $30.5 billion and $33.6 billion, respectively, reflecting higher
levels of employment and earnings. Estimated trust receipts by certain major sources for these two years are compared with the preceding
fiscal year in the summary table below. Considerably more detail
regarding trust transactions in fiscal 1964 and estimates for 1965-66
is shown in table 19.

Source

1964
actual

1965
estimate

Increase,
or d e crease (—),
1965 from
1964

1966
estimate

Increase,
or d e crease (—),
1966 from
1965

I n miUions of dollars
E m p l o y m e n t taxes
. _ _
U n e m p l o y m e n t t a x deposits b y States
Excise taxes
^
I n t e r e s t on t r u s t funds
_
o t h e r t r u s t receipts i
Less interfund transactions
N e t trust receipts. .

16,832
3,042
3,619
1,613
5,848

16,685
2,950
3,639
1,747
6,072

-147
-92
120
134
224

18,731
2,900
3,959
1,867
6,758

2,046
—60
320
120
686

621

579

58

599

20

30,331

30, 516

184

33, 616

3,101

1 Includes Federal employee and agency payments to retirement funds, veterans' life insurance premiums,
and other miscellaneous trust receipts.

Expenditures

Trust expenditures during the year amounted to $28.9 billion,
about $1.4 billion less than trust receipts, and $2.3 bUlion greater
than trust expenditures in fiscal 1963. The summary table, which
follows, compares trust expenditures during fiscal 1964 by major
function with those of 1963. Health, labor, and welfare programs
accounted for 78.8 percent of the yearns total trust expenditures;
commerce and transportation programs (principally the highway trust
fund) made up 12.1 percent of the total. DetaUs of trust expenditures
are shown in table 5.




13

REVIEW OF FISCAL OPERATIONS

Increase, or
decrease (—)

1963
Program

In miUions of doUars
National defense
International affairs and finance
Veterans' benefits and services
Agriculture and agricultural resources.
Health, labor, and welfare
Commerce and transportation
Other»
_

679
44
836
507
21,855
2,877
263

Less interfund transactions

487
62
666
496
22,733
3,482

1,479

-192
18
-169
-11
878
605
1,226

505

521

16

26,545

Total trust expenditures

28,886

2,340

1 Includes programs relating to natural resources, housing and community development, education, and
general government; also includes net transactions in deposit fund accounts. The major portion of the
increase is for housing and community development programs.

Estimates of expenditures

Trust expenditures in the fiscal years 1965 and 1966 are estimated
at $29.0 bUlion and $32.9 bUlion, respectively. The foUowing summary
table shows by major functions the estimated trust expenditures for
1965 and 1966, compared with the preceding year. More detaU regarding estimated trust expenditures for these years is contained in
table 19.

Program

1964
actual

Increase,
Increase,
1965
or de1966
or deestimate crease ( - ) , estimate crease (—),
1965 from
1966 from
1964
1965
In miUions of doUars

National defense
International affairs and finance
Veterans'benefits and services _
Agriculture and agricultural resources
Health, labor, and welfare..
Commerce and transportation
Other 1
Less interfund transactions
Total trust expenditures

487
62
666
« 496
22,733
3,482
1,479

811
-106
641
615
23,386
3,932
344

324
-168
-25
119
653
450
-1,135

982
258
514
495
26,649
3,690
1,010

171
364
—127
-120
3,163
-242
666

521

579

68

599

20

28,885

29,045

160

32,898

3,853

1 Includes natural resources, housing and community development, education, and general government,
and net transactions in deposit funds.

Receipts From and Payments to the Public
To assess the effect of the Government's financial transactions on
the private economy, it is helpful to consider total receipts from and
payments to the public as presented in a consolidated cash statement
showing the flow of these transactions between the Federal Government and the public. These totals are determined by adding administrative budget receipts and expenditures to trust fund receipts and
^expenditures with appropriate deductions for intragovernmental



14

19 64 REPORT OF THE SECRETARY OF THE TREASURY

transactions, along with an adjustment to expenditures for debt
issuances in lieu of checks, and adjustments for certain other transactions not involving exchanges of cash with the public. A detailed
explanation of this procedure was contained in the 1962 annual report,
page 31.
During fiscal 1964 total receipts from the public amounted to $115.5
billion, whUe total payments were $120.3 billion, an excess of payments
totaling $4.8 billion. The following summary shows Federal cash
transactions with the public for the fiscal years 1963-64 and estimates
for the two ensuing years. Additional detail is available in table 17.
Estimated

Actual
Receipts from and payments to the pubUc

1963

1964

1966

1966

In milhons of doUars
Receipts from the public:
Administrative budget (net)
Trust and other (net)..
Intragovernmental and other noncash transactions (—)_

86,376
27,689
-4,326

89, 469
30,331
-4,259

91,200
30, 516
-4,331

94,400
33,616
-4,626

Total receipts from the public

109,739

115, 530

117,384

123,490

Payments to the public:
Administrative budget (net)
... _
Trust and other (net)
Intragovernmental and other noncash transactions ( - ) .

92,642
26, 545
-5,436

97,684
28,885
-6,237

97,481
29,046
-5,133

99,687
32, 898
-6,187

Total payments to the public

113,761

120, 332

121,393

127,398

- 4 , 012

-4,802

- 4 , 009

-3,908

_

- _

. ..

Excess of cash receipts from, or payments to (—), the public

Corporations and Other Business-Type Activities of the Federal
Government
Various business-type programs administered by Government
corporations and other agencies are financed by appropriations, subscriptions to capital stock, borrowings from the U.S. Treasury or the
public, or revenues derived from their own operations.
Agencies having legislative authority to borrow from the Treasury
issue their formal securities to the Secretary of the Treasury, and the
amounts borrowed are reported in the agencies' financial statements
as part of the Government's net investment in the enterprise. Advances in fiscal 1964 by the Treasury, exclusive of refinancing transactions, totaled $7,198 million, and repayments during the year
amounted to $7,113 mUlion. Outstanding loans on June 30, 1964,
totaled $29,256 million.
Agencies having legislative authority to borrow from the public
either must have the terms of the securities to be offered approved by
the Secretary of the Treasury or must consult with the Secretary on
the proposed offering.



REVIEW OF FISCAL OPERATIONS

15

In fiscal 1964, the Congress granted agencies new authority to
borrow from the Treasury in the amount of $1,016 million, and reduced such authority by $749 mUlion, resulting in a net increase of
$267 million. Available unused borrowing authority totaled $21,111
million on June 30, 1964, compared with $20,928 million a year earlier..
The status of corporation and agency borrowing authority is shown in
table 110.
The interest rates on borrowings from the Treasury, unless fixed
by law, are determined each month by the Treasury taking into
consideration the Government's cost for its borrowings in the current market, as reflected by prevaihng market yields on Government
securities having maturities approximately equal to Treasury loans
to the agencies. Table 111 gives a description of the securities of
Government corporations and agencies held by the Treasury on June
30, 1964.
Interest payments, dividends, and distribution of earnings are
made either on the basis of operating results or in comphance with
statutory requirements. During fiscal 1964, $708 million was received in the Treasury as interest on advances to agencies and $201
miUion as other payments; details are contained in table 114.
Financial statements submitted to Treasury

Quarterly statements of financial condition, income and expense,
and source and application of funds are submitted to the Treasury
by Government corporations and agencies. Semiannual statements
of long-range commitments and contingencies are also required.
These reports are the basis for the combined financial statements
compiled by the Treasury which, together with the individual statements, are published periodically in the Treasury Bulletin.
Public enterprise and intragovernmental revolving funds, and
revenue producing activities financed by general and special funds,
are business-type activities included in the administrative budget
category. The total combined assets of these administrative budget
funds, including interagency items, amounted to $89,487 million
on June 30, 1964. The combined habihties, including interagency
items tand consisting principally of accounts payable and borrowings
from the public, amounted to $9,510 million. Borrowings from the
Treasury are considered part of the Government's investment and
are not included in habilities. Comparable totals for business-type
activities which are included in the trust fund category as of June
30, 1964, were $15,819 mUlion of assets and $10,393 million of habilities.
Operations of public enterprise funds resulted in a combined net
loss of $3,571 million; operations of intragovernmental revolvingfunds and business-type activities financed from general and special
743-160—65

3




16

1964 REPORT OF THE SECRETARY OF THE TREASURY

funds resulted in a combined net income of $416 milhon; thus, the
overall net loss of the Government's business-type activities amounted
to $3,155 million. Most of the operating loss of public enterprise
funds was accounted for by the Commodity Credit Corporation's net
loss of $2,710 milhon, and the net loss of the Post Office Department
(postal fund) which was $652 milhon.
Summary statements of the financial condition of Government
corporations and other business-type activities, as of June 30, 1964,
are shown in table 112.
Account of the Treasurer of the United States
The account of the Treasurer of the United States is printed in the
Daily Statement oj the United States Treasury in summary balance
sheet form. A more detailed balance sheet presentation is shown in
table 59.
The three major categories of the account are gold, silver, and the
general account. The gold held on June 30, 1964, principally at
the Fort Knox Depository with lesser amounts at mints and assay
offices, was valued at $15,461 million. Gold habilities totaled $15,341
million and included gold certificates issued (series 1934), the reservation for the gold certificate fund of the Board of Governors, Federal
Keserve System, and reserves against Federal Reserve notes and
U.S. notes. The free gold balance in the Treasurer's account was
$120 milhon at the end of the fiscal year.
The assets of the silver account at the fiscal yearend, consisting of
silver buUion and silver dollars, had a total value of $1,850 milhon,
against which Habihties (currency issued against free silver, etc.)
totaled a httle less than $1,811 milhon, leaving a silver balance
totaling $39 milhon.
Assets of the general account of the Treasurer, $11,036 milhon on
June 30, 1964, included gold and silver balances against which there
were no specific habilties or reserves, cash in the form of currency
and coin, unclassified collections, and funds on deposit with Federal
Reserve banks and other depositories. During the year there was
a decrease of $1,080 million in the balance of the account. The net
change is accounted for as follows:




REVIEW OF FISCAL OPERATIONS

17

Transactions affecting the account ofthe Treasurer of ihe United States, fiscal year 1964
[In miUion of dollars]

Balance June 30, 1963
Excess of deposits, or withdrawals (—), budget, trust, and
other accounts:
Deposits
Withdrawals

12, 116
121, 581
124, 066

Excess of deposits, or withdrawals ( —), public debt accounts:
Increase in gross public debt
Deduct:
Excess of Government agencies' investments in public debt issues
2, 745
Accrual of discount on savings bonds and
bills (included in increase in gross
public debt above)
3, 372
Less certain pubhc debt redemptions
(included above in withdrawals, budget,
trust, and other accounts):
—2,273
Total deductions

.

- 2 , 485

5, 853

- 3 , 844

2, 009

Excess of sales of Government agency securities in the market
Net transactions in clearing accounts (documents not received or
classified by the Treasurer of the United States)

886

Balance June 30, 1964.

- 1 , 490
11, 036

Public Debt Management and Ownership
The Treasury's primary task in managing the public debt is to
secure in a timely and economical fashion the funds needed to cover
Government expenditures in excess of receipts and to refinance
maturing securities as they come due. However, these borrowing
operations can have widely different impacts on the financial markets
and the economy depending on the manner in which they are carried
out. Debt management, accordingly, entails choices among the
range of possible securities and maturities, in the timing of debt
operations in terms of achieving an appropriate iafluence on the
financial environment, and, through the financial markets, on the
economy as a whole.
A major economic policy objective in recent years has been to
correct the serious deficit in the U.S. balance of payments. Debt
management has been used to help maintain U.S. short-term interest rates at levels reasonably competitive with rates available
in major foreign money markets, thus minimizing interest rate incentives to the transfer of investment funds abroad. However,




18

1964 REPORT OF THE SECRETARY OF THE TREASURY

persistent high levels of unemployment and unused industrial capacity have made it inappropriate to constrict the availability of
fimds to business, homebuyers, and State and local governments or
to bring simUar upward pressures on the structure of long-term interest rates. Accordingly, debt management policy has avoided
drawing funds from the mortgage market or from the corporate and
municipal markets in order not to interfere with a steady rise in
investment and economic activity, both important goals of domestic
economic policy. At the same time, with the volume of private
hquidity instruments, such as negotiable time certificates of deposit
issued by commercial banks, rising rapidly, it was important that
Treasury debt operations not contribute to an excess of total liquidity,
with potential inflationary implications. In addition to avoiding
the inflationary potential of an excessive buUdup in short-term debt,
the Treasury has continuously before it the objective of maintaining
a sound, weU-balanced maturity structure so that it wUl have at all
times flexibUity in its financing decisions.
In fiscal 1964 a number of developments importantly affected the
environment in which these objectives were pursued. The U.S.
balance-of-payments deficit increased substantially in the last half of
fiscal 1963. This deterioration led to an increase from 3 percent to
3}/2 percent in the Federal Reserve's discount rate in July 1963.
The President on July 18, 1963, announced a number of other measures, including the recommendation for an interest equalization tax ^
(see pages 47-48, and exhibit 26 for details) to bring the deficit back
down. One objective was to achieve a rise in yields for short-dated
paper; rates for three-month Treasury bills rose from about 3 percent
in June 1963 to about 33^ percent by December 1963, and remained
close to that level through June 1964. At the same time, however,
it was important to avoid bringing unnecessary upward pressure on
the long-term interest rates important for business investment
decisions.
An additional complication, later in the fiscal year, was the sensitivity of market expectations to the concern of some observers that
the $11.5 billion tax reduction program might lead to a potential
inflationary surge in both spending and credit demands. This concern, which later dissipated, for a time contributed to a cautious bond
market atmosphere, as did apprehension that interest rate increases
abroad might require a further rise in the Federal Reserve discount
rate to protect the U.S. balance of payments.
This difficult background for debt extension efforts was ameliorated
by the fact that the increase in the Federal debt was the lowest in three
years. The total Federal debt (the public debt and guaranteed debt
I Legislation imposing this tax was enacted on Sept. 2,1964 (PubUc Law 88-563).




REVIEW OF FISCAL

OPERATIONS

19

not owned by the Treasury) rose $6.1 billion to $312.5 bUlion on June
30, 1964, compared with a $7.8 billion increase in fiscal 1963, and a
$9.4 billion rise in fiscal 1962. Thus, whUe the debt continued the
irregular upward movement in progress since 1946, the rate of increase
slowed. Moreover, the large increase in holdings by Government
investment accounts and the Federal Reserve banks ($5.5 billion)
meant that only a limited amount of the increase in the debt was placed
with the general public.
CHART 3

The Federal Debt-Semiannually since 1946

1 Including public debt and guaranteed debt.

Changes in the Federal debt on a net basis reflect primarily, but
not entirely, the relationship between Federal Government receipts
and expenditures. In fiscal 1964 the administrative budget deficit
amounted to $8.2 billion, but $2.2 billion of this was covered by
reducing the Treasury's cash balance, by using net trust account
receipts, and by drawing on funds generated in other miscellaneous
accounts of the Federal Government. The cash balance of the
Treasurer of the United States, though reduced by $1.1 bUlion in
the course of the year, stood at $11.0 billion on June 30, 1964.
However, with borrowing needs still substantial and investor
attitudes and psychology frequently clouded by uncertainties. Treasury debt management operations often had to be conducted with
great care. Nevertheless, appreciable progress was made toward
major debt management objectives. Increases in the supply of
Treasury bUls, supporting the Federal Reserve's policy actions,
succeeded in helping to raise the 3-month Treasury bUl rate to around
33^ percent and in maintaining it around that level. At the same




20

19 64 REPORT OF THE SECRETARY OF THE TREASURY

time the Treasury prevented these increased bill issues from adding
unduly to the economy's liquidity, and creating an inflationary potential, by cutting back the volume of short-term debt other than bills.
Moreover, in fiscal 1964, as in the preceding fiscal year, the Treasury's
borrowing was done on balance without recourse to the commercial
banking system and bank holdings of Treasury securities actually
declined during the year.
Debt extension efforts were continued in order to maintain a sound,
weU-balanced debt structure, but were tailored carefully to the
absorptive capacity of the market and scheduled only at clearly
favorable junctures in order to avoid any danger of congestion.
Despite the shortening effect of the passage of time, the average
maturity of the marketable debt was held at 5 years, practicaUy
unchanged from the end of fiscal 1963 when it was 5 years 1 month.
By July 1964, foUowing a large advance refunding, the average
maturity was increased to 5 years 4 months.
Despite the rise in short-term interest rates and the large volume
of long-term bond issues by the Treasury, yields on long-term bonds
and mortgages remained quite steady. Long-term Treasury bond
yields, on average, rose a little from June 1963 to June 1964, but yields
on new corporate bonds, State and local government bonds, and mortgages were all unchanged or lower. This rate stabUity, in the face
of a continuing rise in business activity and credit demands and the
cautious attitude of many long-term investors, reflected the continuation of a large savings flow and substantial avaUability of funds for
investment in interest-bearing securities.
More detail on the results achieved is summarized in the following
pages.
Short-term debt

The Treasury increased regular bUl maturities by $3.5 biUion
during fiscal 1964. While this mainly reflected the desirability of
supporting the structure of money market interest rates for balance-ofpayments reasons, it also had the effect of putting more of the shortterm debt in a form which is routinely handled in regular weekly or
monthly auctions, minimizing the task of the market in absorbing and
distributing the additional supply and easing the problem of the Federal Reserve in relating its operations to Treasury flnancings. The
volume of regular weekly bUls was increased by $1.0 billion. Oneyear biUs outstanding rose by $2.5 billion, a result of the introduction
in September 1963 of a new monthly cycle of one-year bills, in the
amount of $1 biUion per month, to replace the previous quarterly
cycle of one-year bUls.




REVIEW OF FISCAL OPERATIONS

21

These increased biU issues helped maintain money market yields
at levels competitive with returns avaUable from investments in
foreign money markets. In order to keep the rise in bUls outstanding
from adding to the economy's hquidity. Treasury issues maturing
within one year other than bills were reduced by $7.4 bUhon, resulting
in a net decline durmg the year in the total of marketable debt due
within one year. This was the second successive decline in the underone-year marketable debt and, as chart 4 shows, brought the outstanding volume back close to the fiscal 1961 level.
CHART 4

Structure of the Under I-Year Marketable Debt

NOTE.—Coupon Issues Include all certiflcates, notes, and bonds maturing within one year.

A significant element in achieving the reduction in under-one-year
coupon debt was the continued use of the prerefunding technique in
connection with advance refundings. In prerefundings, holders of
outstanding debt approaching maturity within a year or less are offered
new and longer issues in exchange for their current holdings. In the
September 1963 and January 1964 advance refundings, holders of $5.9
bUhon issues due within a year accepted a prerefundmg offer and
extended into securities ranging from 5 years 2 months to 30 years
8 months in maturity.
As part of the program for placmg more of the one-year debt in
biUs on a regular roUover basis, no one-year coupon issues were
offered by the Treasury in the four operations to replace maturing
debt during fiscal 1964. Instead, 15-month notes were included as
the ''anchor" short-term issue in the August 1963 refimding, whUe
18-month notes were included in the refundings of November 1963 and




22

19 64 REPORT OF THE SECRETARY OF THE TREASURY

February and May 1964 maturities. In all, $6.4 billion of 15-month
notes and $22.7 billion of 18-month notes were issued on these occasions. Market response to these issues was favorable, indicating
that maturities longer than one year provided an appropriate and
acceptable vehicle for exchange offers to holders of maturing securities
interested in maiutaining their investment in short-dated paper.
The replacement of one-year certificates by 18-month notes also had
a moderately helpful effect on the average maturity of the marketable
debt, increasing it by about two-thirds of a month in fiscal 1964.
Debt extension efforts

The Treasury must constantly be alert to the need to place new
intermediate and longer term securities in the market, in order to
offset the effect of the passage of time, which is continuaUy reducing
the term to maturity of outstanding issues. Otherwise, an unduly
large portion of the debt would soon pile up in short-term form, straining the capacity of the market, using up some or all of the short-term
borrowing capacity which it is prudent to hold in reserve for emergencies, and, in some circumstances, adding so much to the economy's
liquidity as to be an inflationary influence.
As noted earlier, debt lengthening operations during flscal 1964
had to be conducted carefully in view of recurrent market expectations
of a substantial rise in yields on bonds which made many investors
reluctant to enter into long-term commitments. This change in environment from fiscal 1963 resulted from the continued strong uptrend
in the economy, from a belief in some circles that the Administration's
tax reduction program (enacted in late February 1964) would stimulate
an inflationary upsurge in buying with corresponding effects on
borrowing costs, from expectations that rising short-term rates would
spread to long-term rates, and from concern that interest rate increases abroad might require a tighter credit policy here.
Favorable opportunities nevertheless did arise for debt lengthening
operations. In advance refunding offers made in September 1963 and
January 1964 to holders of selected issues maturing in 1964-67, investors exchanged existing holdings for $2.0 bUlion of bonds maturing
in 20 years or more, $3.9 billion of bonds maturing in close to 10 years,
and $3.8 billion of bonds maturing in 5-7 years.
During the period from late January to late April 1964, when
expectations of rising yields were dominant because of the large income
tax cut and interest rate increases abroad, both the regular quarterly
refunding and new cash offerings were confined to short- and near-term
maturities. However, an additional $1.5 billion of 10-year bonds was
issued in the regular refunding of Treasury issues maturing in May




REVIEW OF FISCAL OPERATIONS

23

1964, as earlier concern of rising rate levels was dissipated by the
evidence of continuing orderly business advance and improvement in
the balance of payments. The restructuring of the over-one-year debt
t h a t occurred as a result of these operations is shown in chart 5.
CHART

5

Restructuring the Over 1-Year Marketable
Debt Since June 1959

The somewhat more cautious approach to debt lengthening necessitated by periodic spells of market uneasiness, combined with the new
18-month anchors on regular refundings, led to an increase of $7.4
biUion in 1-5 year maturities during the fiscal year, in contrast
with a much smaller increase of $1.0 billion in that sector in fiscal
1963. While issues in the 5-20 year range declined $2.5 billion,
issues due in 20 years or more were up $1.9 biUion.
The net effect of Treasury financing operations on the debt structure in fiscal 1964 was to hold the average length of the marketable
debt at five years. While this was a decline of one month from the
average maturity of 5 years 1 month a year earlier, an advance
refunding operation in July 1964, shortly after the end of the fiscal
year, succeeded in replacing over $9 bUlion of issues maturing within
the next three years with issues maturing in 1969, 1973, and 19 2.
Primarily, as a result of this operation, the average length of the
marketable debt was increased by 4 months, to 5 years 4 months on
July 31, 1964. Further detaUs on the maturity structure of the debt
on June 30, 1964, in comparison with prior years, wUl be found in
table 34.




24

19 64 REPORT OF THE SECRETARY OF THE TREASURY

The longer run usefulness of the advance refunding technique in
restructuring the over-one-year marketable debt is also illustrated
in chart 5. Covering the period beginning with June 1959, just before legislation facilitating the refunding of Treasury issues in advance of maturity was enacted, the chart shows that approximately
$17}^ biUion, or more than two-fifths of the $43 K billion of 5-20
year marketable debt outstanding on June 30, 1964, was the result
of advance refunding operations. Of the debt outstanding having
20 years or more to maturity, almost $10 billion, or close to threefifths was attributable to advance refunding, as against less than
$iy2 billion attributable to regular financing during the same period.
Market yields

The Treasury's debt extension operations were conducted without
appreciable upward pressure on market yields. Indeed, the January
advance refunding and the May offering of 10-year 4 ^ percent
bonds were followed by yield declines in all sectors (Government,
municipal, and corporate) of the bond market, reflecting in considerable part the favorable effect of these successful operations
in stimulating market confidence in the existing yield structure.
Chart 6, below, shows the developments in the rate structure of
the Government securities market in fiscal 1964, in comparison with
rate movements in earlier years. Yields on U.S. Government securities in aU maturity sectors moved upward during the first half of the
fiscal year to a peak in early January. A decline to mid-February
CHART 6

Market Yields At Constant Maturities' l960-'64

%
June 1964

\ ^

i

years.

/A

4>

:":'x'yi'i**T?-**x*:-:':':'y''-^

••IIB

iiiiiii iiiiiii|ii:;iipi

iililill

3^

^3Month
Bills

:::J:i:iS::W:::':':':®:::::¥S:¥S:::¥y

2> 0

1 ,

,

1 .

.

I

,

1 ,' .

1 ,

,

1 1 ,

1

,

1

,

1

1

1

.

1

<

1

I l l l l i

1 Estimated yields of U.S. Govemment securities at 1, 5, and 20 years; bank discount rates on
bills; monthly averages of end of week figures.




REVIEW OF FISCAL OPERATIONS

25

was foUowed by a new rise to a late March and early April peak.
Yields then declined again tlirough June 1964. Offering rates on
new three-month Treasury biUs, which had begun the fiscal year at
just under 3 percent, reached a little over 3K percent by mid-November
1963 and fluctuated around that level for the rest of the fiscal year.
Yields on one-year maturities foUowed much the same pattern, but
rose to a relatively higher peak, 3.92 percent, on a monthly average
basis, in the final quarter of the fiscal year.
Yields on maturities of five years and more also advanced, but
more gradually. The 5-year rate which had averaged 3.82 percent
in June 1963, reached a peak of 4.16 percent on a monthly average
basis in April 1964, but then dropped back to 4.02 percent in June.
Yields on 20-year maturities, which had averaged 4.02 percent in
both May and June 1963 averaged 4.24 percent in April 1964, before
declining to an average of 4.17 percent in June.
Commercial bank ownership

In addition to maintaining a balanced debt structure in terms of
maturities, the Treasury seeks to maintain a debt ownership pattern
which wiU give the least possible encouragement to the growth of
inflationary forces. While recognizing that commercial banks are in
part savings institutions, the Treasury has not wished to rely on
commercial bank holding of highly liquid short-term Federal debt in
excess of amounts that these banks feel necessary to support a growth
in other assets and in deposits in accord with the basic needs of the
economy.
During fiscal 1964, commercial bank ownership of U.S. Government
securities declined by $4 bUlion, foUowing a decline of a little less than
$1 bUlion in the previous year. For the entire banking system,
including the Federal Reserve banks, there was a decline of $1.3
biUion in holdings of U.S. Government securities during fiscal 1964,
since the large decline in commercial bank ownership was offset in
part by an increase of almost $3 billion in Federal Reserve holdings.
Thus, the increase of $6.1 biUion in the Federal debt over the year was
financed entirely outside the banking system, in accordance with the
Treasury's objective of financing budget deficits in a noninflationary
manner. Further detaUs on changes in ownership during fiscal 1964
on the part of both bank and nonbank investors are found on pages
31-36.
DEBT OPERATIONS

The primary area in which the Treasury works toward its debt
management objectives is the marketable debt. On June 30, 1964,
$206.5 biUion, or approximately two-thirds of the Federal debt of
$312,5 biUion, was in marketable issues. Of the total increase of $6.1




26

1964

REPORT OF T H E SECRETARY OF T H E

TREASURY

bUlion in the debt during the year, $3.0 biUion was accounted for by
marketable issues and $1.8 bUlion represented increases in special
issues to Government investment accounts. A summary of changes
in the debt during the year is shown in the table below.
June 30,1963 June 30,1964
Class of debt

Increase, or
decrease (—)

In billions of dollars
Pubhc debt:
Interest bearing:
Pubhc issues:
Marketable
Nonmarketable

203.5
53.6

Total interest-bearing public debt
Matured debt on which interest has ceased
Debt bearing no interest
Total public debt
Guaranteed debt not owned by Treasury
Total gross pubhc debt and guaranteed debt

_

3.0
.6

257.2
44.8

260.7
46.6

3.6
1.8

307.4
.3
4.1

305.9
.6

311.7
.8

5.9
.2

306. 6

Total pubhc issues
Special issues to Government investment accounts—

206.5
54.2

302.0
.3
3.6

_

312.5

6.1

5.4

(-*)

.5

•Less than $50 miUion.

The accompanying table summarizes the Treasury's major financing
n n p . r p i . t i n n s d n r i r i P ' f.hpi

fisp.al

vftfl.r.

T h f t T r p . a s n r v issnp.rl

.^iil fi h i l l i n n

of new marketable securities duriQg fiscal 1964, exclusive of the
refinancing of regular bUls (three-month, six-month, and one-year).
Some $9.5 billion of this total represented issues to raise new cash,
$4.5 bUlion of which was seasonal borrowing and was retired before
the end of the fiscal year. The remaining cash borrowing reflected
financing of the budget deficit and retirement of unexchanged maturing
securities in the refundings of maturing coupon issues. In addition
to new cash operations, $9.7 biUion of longer term securities were
placed with investors in the advance refunding operations of September
1963 and January 1964. The remaining $32.4 bUlion of new securities other than bUls issued in fiscal 1964 represented the refunding of
existing holdings at maturity, either through exchange offers or
thrbugh payment in cash and. the simultaneous offering of new issues.




27

REVIEW OF FISCAL OPERATIONS

Public offerings of marketable Treasury securities excluding refinancing of regular
bills (three-month, six-month, and one-year) fiscal year 1964
[In milhons of doUars]
Issued for cash
Date

Description

Issued in
exchange

For
For
For
In adnew- refund- matur- vance
ing refundmoney
ing
issue
ing

Total

BONDS AND NOTES

Apr. 1
Aug. 15
Sept. 15
Sept. 15
Sept. 15
Oct. 1
Nov. 15

13^% exchange note-Apr. 1,1968 i
3^4% note-Nov. 15,1964
3%% bond-Nov. 15, 1968
4% bond-Aug. 15,1973
:_.
43^% bond-May 15,1989-94 additionaL
11^% exchange note-Oct. 1,1968 i
3%% note-May 15,1965 3

Jan.
Jan.
Feb.
Feb.
Apr.
Apr.
May
May

4% bond-Aug. 15,1970 additional
4^4% bond-May 15,1975-85 additional
3%% note-Aug. 13, 1965 at 99.875
4% note-Aug. 15,1966 additional
3 ^ % note-Aug. 13,1965 additional at 99.70..
m % exchange note-Apr. 1,1969 i
4% note-Nov. 15, 1965 at 99.875
4 k % bond-May 15, 1974

22
22
15
15
8
1
15
15

Total bonds and notes..

2 168

411

3,201

115
4,365

1,477

168
6,398
1,591
3,894
1,260
115
7,977

2,223
748

2,223
748
6,202
1,810
1,066
12
8,560
1,532

9,716

6,202
1,810
1,066

1,591
3,894
1,260

43, 556

12
8,560
1,532
3,201

BILLS 4 (MATURITY VALUE)

Increase in one-year biU offeruigs:
July through September
October through December
January through March
April through June

507
505
502

996
507
505
502

Total increase
other biU offerings:
3.537% 160-day (tax anticipation) Mar. 23,1964.
2.866% 132.5-day average for strip s

2,510

2,510

1963
Oct. 15
Oct. 28

2,001
1,001

2,001
1,001

Jan. 15

3.650% 159-day (tax anticipation) June 22,1964.

2,501

2,501

8,013
9,490

8,013
51, 569

Total biUs
Total pubhc offerings

3,201

29,162

9,716

1 Issued only on demand in exchange for 2%% Treasury Bonds, Investment Series B-1975-80.
2 Issued subsequent to June 30,1963.
3 A cash offering (aU subscriptions subject to aUotment) was made for the purpose of paying off the
maturing securities in cash. Holders of the maturing securities were permitted to present them in payment
in lieu of cash to the extent subscriptions were allotted. For further detail see exhibit 1.
4 Treasury biUs are sold on a discount basis wdth competitive bids for each issue. The average price for
auctioned issues gives an approximate yield on a bank discount basis as indicated for each series.
6 Consists of additional amounts of 10 series of outstanding regular weekly Treasury bills, $100 million
maturing each week from Feb. 6 through Apr. 9,1964.

The two succeeding tables give further detaUs on the handling of
marketable Treasury maturities in fiscal 1964 (excluding the refinancing of regular bills). Table 45 provides additional data on allotments
by investor classes. The exhibits on public debt operations provide
further information on public offerings and allotments by issues in
tables and representative circulars.




28

1964 REPORT OF THE SECRETARY OF THE TREAStJitY

Disposition of marketable Treasury securities excluding regular hills (three-month,
six-month, and one-year) fiscal year 1964
[In milUons of dollars]
Securities
D a t e of
refundm g or
retirement

Description a n d m a t u r i t y d a t e

Issue d a t e

ReE x c h a n g e d for
deemed
n e w issue
for cash
or carTotal
ried to
In
maA t m a - advance
tured
t u r i t y refunddebt
mg

B O N D S , N O T E S , AND CERTIFICATES OF
INDEBTEDNESS

1963
A u g . 15
A u g . 15
Sept. 15
Sept. 15
Sept. 15
Sept. 15
Sept. 15
Sept. 15
Sept. 15
Oct.
1
N o v . 15
N o v . 15

3}4% certificate-Aug. 15, 1963..
2 H % b o n d - A u g . 15, 1963
3 ^ % certificate-May 15, 1964..
4 ^ % n o t e - M a y 15,1964
3 ^ % n o t e - M a y 15, 1964
3M% b o n d - M a y 15, 1966
4% n o t e - A u g . 15, 1966..
3 ^ % n o t e - F e b . 15,1967
__
3 M % note-Aug. 1.5, 1967
1 H % n o t e - O c t . 1, 1963
3 H % certificate-Nov. 15,1963.
i y 8 % n o t e - N o v . 15,1963
._

Aug.
Dec.
May
July
June
Nov.
Feb.
Mar.
Sept.
Oct.
Nov.
Nov.

15.1962
15,1954
15.1963
20.1959
23.1960
15,1960
15.1962
15.1963
15,1962
1,1958
15,1962
15,1959

1964
J a n . 22
J a n . 22
J a n . 22
J a n . 22
J a n . 22
J a n . 22
F e b . 15
F e b . 15
Apr. 1
M a y 15
M a y 15
M a y 15

3M% n o t e - A u g . 15,1964
5%, n o t e - A u g . 15, 1964
3 M % n o t e - N o v . 15, 1964
47^% n o t e - N o v . 15,1964
25^% b o n d - F e b . 15,1965
4 ^ % n o t e - M a y 15, 1965
33^% certificate-Feb. 15, 1964..
3 % b o n d - F e b . 15, 1964
1 1 ^ % n o t e - A p r . 1, 1964
3 ^ % certificate-May 15, 1964..
4 ^ % n o t e - M a y 15, 1964
3 M % n o t e - M a y 15,1964
__

Aug.
Oct.
Aug.
Feb.
June
May
Feb.
Feb.
Apr.
May
July
June

1,1961
15.1959
15,1963
15.1960
15,1958
15,1960
15,1963
14.1958
1,1959
15,1963
20.1959
23.1960

50
193

5,131
1,267
1,495
533.
1,877
735
445
812
848

506
731
2,470

1 3,823
1542

5,1,81
1,461
1,495
533
1,877
735
445
812
848
506
4,554
3,011

4,138
4,073
1,882

933
270
437
328
706
297
6,741
1,634
457
4,198
4,400
2,016

28,869

43,875

933
270
437
328
706
297
124
240
457
60
327
134

T o t a l b o n d s , notes, a n d certificates.

6,618
1,395

BILLS

1964
Mar. 23
J u n e 22

3.537% (tax anticipation) Mar. 23, 1964..
3.560% (tax anticipation) J u n e 22, 1964. _
T o t a l bills
T o t a l securities.

i Accepted In p a y m e n t in lieu of cash.
3 I n c l u d i n g tax a n t i c i p a t i o n issues redeemed for taxes.




Oct.
Jan.

15,1963
15,1964

2 2,001
2 2,501
4,502
9,794

2,001
2,601
9,716

4,502
48,377

29

REVIEW OF FISCAL OPERATIONS

Allotments of marketable Treasury securities excluding regular hills (three-month,
six-month, and one-year) fiscal year 1964 ^
, [In millions of dollars]
Allotments by investor
classes
Date of
financing

Description

Amount
issued

U.S. Gov
ernment
All
investment Comaccounts mercial others
and Federal banks 2
Reserve
banks

BONDS AND NOTES

1963
Aug. 15
Sept. 15
Sept. 15
Sept. 15
Nov. 15

3 ^ % note-Nov. 15,1964-F
Z%% bond-Nov. 15,1968
4% bond-Aug. 15,1973
4H% bond-May 15, 1989-94 additional.
3 ^ % note-May 15,1965-C

6,398
1,591

. 1964
Jan. 22
Jan. 22
Feb. 15
Feb. 15
Apr. 8
May 15
May 15

4% bond-Aug. 15, 1970 additional
43^% bond-May 15, 1975-85 additional.
Zy^% note-Aug. 13,1965-D
4% note-Aug. 15, 1966-A additional
3K%o note-Aug. 13, 1965-D additional.
4% note-Nov. 15, 1965-E
4 ^ % bond-May 15, 1974

2,223
748
6,202
1,810
1,066
8,560
1,532

1963
Oct. 15
Oct. 28

3.537% (tax anticipation) Mar. 23, 1964.
3.601%, strip 3

2,001
1,001

1964
Jan. 15

3.650% (tax anticipation) June 22,1964.

2,501

1,260
7,977

(*)
4,005

125
4,014

(*)

6,383
29

1,241
989
1,998
378
1,864

1,008
579
1,725
882
2,108

1,230
212
1,177
1,237
862
1,290

805
411
1,011
573
204
887
815

841
269

4,149
23
171

1,160
732

862

1, 439

BILLS

200

*Less than $500,000.
1 Excludes 1H% Treasury EA and EO notes issued in exchange for nonmarketable 2 ^ % Treasury Bonds,
Investment Series B-1975-80.
2 Includes trust companies and stock savings banks.
3 Consists of an additional $100 miUion each of 10 series of outstanding weekly bills issued in a strip on
Oct. 28, 1963, maturing Feb. 6 to Apr. 9,1964, inclusive.

Public nonmarketable debt increased by $0.6 billion during the year,
reaching $54.2 biUion on June 30, 1964. As shown in the table below,
the charige during the year was largely a result of $1.0 billion increase
in savings bonds offset by a $0.4 billion decline in investment series
bonds. Nonmarketable securities issued to foreign official agencies
declined by less than $50 mUlion during the year.
During fiscal year 1964, the Treasury continued the foreign borrowing operations begun two years earlier, when for the first time since
1918 the Treasury borrowed directly from foreign official agencies.
Nonmarketable securities denominated in foreign currencies increased
by $0.2 biUion during fiscal 1964, reaching a level of $0.8 billion on
June 30. Foreign nonmarketable securities pa3''able in dollars declined by $0.3 billion during the year, to $0.4 bUlion on June 30.
These operations are explained more fully on page 34 and exhibits
40 and 41.




30

1 9 6 4 REPORT OF T H E SECRETARY OF T H E TREASTJRY

June 30, 1963 June 30,1964

Class of issue

Increase,
or decrease (—)

In milUons of doUars
U.S. savings bonds:
Series E
SeriesH
Subtotal E and H
Series F and G...
Series J and K-_

39,166
7,193

_
._

Subtotal savings bonds
Certificates of indebtedness:
Foreign series.-_
Foreign currency series..
Treasury notes-Foreign series
Treasury bonds-Foreign currency series
Treasury certificates
Treasury bonds
U.S. retirement plan bonds
Treasury bonds:
REA series
Investment series.
Depositary bonds....
__

__._

_

46,359
246
1,709

1,378
—246
—146

1,563

48,314

49, 299

986

465
25
183
604
2

240
30
152
802
18
20
6

-225
5
-31
197
15
20
5

27
3,921
103

25
3,546
103

53,645

54,240

_

(*)
._

Total interest-bearing public nonmarketable issues

1,024
354

40,190
7,546
47, 737

_

-2
—375

(*)
595

•Less than $500,000.

U.S. savings bonds, which the holder may redeem on demand at
guaranteed redemption values, account for the largest portion of the
nonmarketable public debt. Series E and Series H, the only savings
bonds currently being sold, increased by $1.4 billion during the year,
reaching a total of $47.7 billion on June 30, 1964. These two series
purchased principally by individuals, represented almost 16 percent
of the total interest-bearing debt at the end of fiscal year 1964. Outstanding interest-bearing savings bonds of Series F, G, J, and K,
which mature 12 years from issue date, declined by $0.4 bUlion during
the year. The last issues of Series F and G savings bonds, which were
sold during the 11 year period May 1941-April 1952, matured on
April 1, 1964. Series J and K savings bonds, which were sold during
the five year period May 1952-April 1957, began to mature on May 1,
1964. At the close of fiscal 1964, $1.6 bUlion of unmatured J and K
bonds remained outstanding.
D e b t limit legislation

Under legislation enacted on May 29, 1963, a ceUing of $309 bUlion
was established on the outstanding Federal debt subject to limitation,
to be effective dming July and August 1963. The decision to provide
only temporary leeway for borrowing reflected a feeling that a clearer
view of the probable effects of tax changes as well as appropriations
for fiscal 1964 would be possible by the end of August. Uncertainties
remained, however, and on August 27 the $309 billion ceUing was
extended for another three months, through November 1963.




REVIEW OF FISCAL OPERATIONS

31

Legislation enacted on November 26, 1963, raised the statutory
limit to $315 bUlion for the period December 1, 1963, through June 29,
1964. Congress further provided that on June 30, 1964, the limit would
drop for that one day to $309 bUlion, after which it would revert to the
permanent level of $285 bUlion.
WeU before the end of June 1964, it became apparent that the
scheduled reductions were unrealistic in view of the Treasury's
current financing requirements and, furthermore, that an additional
increase would be necessary for the sound management of the Federal
debt in fiscal 1965. On the recommendation of the Secretary of the
Treasury, legislation (78 Stat. 225) was enacted on June 29, 1964,
raising the temporary ceUing to $324 bUlion for the period June 29,
1964 through June 30, 1965. This action by the Congress recognized
the President's view, expressed in the fiscal 1965 budget message
transmitted in January 1964, that:
^'Debt limitations which are so restrictive or so temporary in application as to necessitate several legislative revisions in a single year—
as last year—conflict with economical operation of the Government
and effective financial management, and involve both the Congress
and the Executive in unnecessarUy repetitive discussions of the same
issues. . . . "
Statements of the Secretary of the Treasury to congressional Committees requesting increases in the debt limit will be found in exhibits
18, 19, and 20. The legislative history of the statutory limit on the
debt is shown in table 40.
OWNERSHIP OF FEDERAL SECURITIES

Of the $312.5 billion Federal debt outstanding on June 30, 1964,
$156.4 bUlion, or one-half, was in the hands of private nonbank
investors. This group of investors comprises individuals (including
partnerships and personal trust accounts), insurance companies,
mutual savings banks, savings and loan associations, nonfinancial
corporations, pension funds, foreign and international accounts. State
and local governments, nonbank dealers, and nonprofit associations.
Commercial banks held $60.2 bUlion, representing less than one-fifth
of the debt. Federal Reserve banks held $34.8 bUlion and the remaining $61.1 bUlion was held in Government investment accounts,
primarUy social security and unemployment trust funds, veterans'
insurance funds, and Government employees' retirement funds. These
figures are graphically presented in chart 7 on page 32.
Individuals, the largest single investor group in the Federal debt
ownership structure, increased their ownership of Federal securities
during the fiscal year 1964 by $3.0 bUlion. Continued growth in
743-l!6i0—65

4




32

19 64 REPORT OF THE SECRETARY OF THE TREASURY

holdings of Series E and H savings bonds accounted for $1.4 billion
of the increase; and enlarged holdings of marketable issues for $1.9
bUlion. Holdings of the discontinued Series F, G, J, and K savings
bonds feU $0.3 biUion.
Sales of small denomination E bonds—bought mainly by payroll
savers—reached a post World War I I peak, and total dollar sales of
E and H bonds were higher than in any of the previous five fiscal years.
Thus, savings bonds participated in the general rise in all forms of
individuals savings during the period, with much of the increase due
to sales of small denoinination Series E bonds, reflecting the effective
savings bonds campaigns conducted throughout the year.
CHART 7

Ownership of the Federal Debt June 30,1964
SBil.

Total
300-

Gov't Invest.
Accounts

;;;;35:i^

ComI Banks ' ^

Federal
' Reserve
Private
Nonbank Investors

312/2

* ^ Individuals
Savings ^ ^ / i % ^ ^ \
Instilufians
V///A
,
} ^ i o ^ ^ Corps.
A l l Other ^ y ^ m / ^

M

Private nonbank investors acquired $4.7 bUlion of the total $6.1
biUion increase in the Federal debt during fiscal 1964. In addition.
Government investment accounts and Federal Reserve banks each
absorbed a total of $2.8 bUlion, and commercial banks hquidated a
net $4.1 bUlion. Investor class ownership of Federal securities on
selected dates is presented in the table on the opposite page.
Holdings of Federal securities by insurance companies on June 30,
1964, amounted to $10.9 billion, $0.1 billion less than a year earlier.
A little over one-half of this total ($5.6 bUlion) was held by life insurance companies which continued to reduce their holdings of shorter
term and nonmarketable governments, and accounted for the bulk
of the liquidation by insurance companies during the fiscal year.




REVIEW Of nsCAL OPERATIONS

33

Ownership of Federal securities ^ by investor classes on selected dates, 1941-64
[DoUar amounts in biUions]

June 30,
1941

Estimated ownership by:
Private nonbank investors:
Individuals 3_ ___
___
Insurance companies _
Mutual savings banks
Corporations *.__
state and local governments
Foreign and international 5
MisceUaneous investors ^

Feb. 28,
1946 2

June 30,
1963

June 30,
1964

Change
during
fiscal year
1964

__

$11.2
7.1
3.4
2.0
.6
.2
.5

$64.1
24.4
11.1
19.9
6.7
2.4
6.6

r$64.4
rll.O
6.1
'20.3
'21.5
15.8
12.5

$67.5
10.9
6.0
20.2
22.5
15.6
13.7

$3.0
-. 1
-.2
-.1
1.0
-.2
1.2

Total private nonbank investors.
Commercial banks
,
Federal Reserve banks
Federal Government investment accounts
_
_

25.0
19.7
2.2

135.1
93.8
22.9

151.7
64.4
32.0

156.4
60.2
34.8

4.7
—4.1
2.8

Total gross debt outstandmg

8.5

28.0

58.4

61.1

2.8

55.3

279.8

306.5

312.5

6.1

Percent of total
Percent owned by:
Private nonbank investors:
Individuals
Other
_
._
Total
_
Commercial banks
Federal Reserve banks
Federal Government investment accounts
Total gross debt outstanding

20
25
45
36
4

23
25
48
34
8

21
28

22
28

50
21
10

50
19
11

15

10

19

20

100

100

100

100

T Revised.
1 Gross public debt, and guaranteed debt of the Federal Government held outside the Treasury.
2 Immediate postwar peak of debt.
3 Includes partnerships and personal trust accounts. Nonprofit institutions and corporate pension trust
funds are included under "Miscellaneous investors."
* Exclusive of banks and insurance companies.
* Includes the investments of foreign balances and international accounts in the United States.
6 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, and dealers
and brokers.

The remaining companies in the insurance group, fire, casualty, and
marine insurance companies, showed only a small net reduction in
their holdings of Federal securities during fiscal 1964. In contrast
to life insurance companies, the fire, casualty, and marine group hold
predominantly short-term securities. Almost 90 percent of their
marketable Federal holdings on June 30, 1964, had maturities of
less than 10 years, resulting in an average maturity length for these
holdings of less than 6 years.
Mutual savings banks held $6.0 bUlion of Federal securities on June
30, 1964, $0.2 bUlion less than a year earlier.
Corporations (other than banks and insurance companies) continue
to maintain holdings of governments in the $20 billion to $21 bUlion
range aiid at the end of fiscal 1964 held $20.2 billion, $0.1 bUlion less
than a year earlier. There has been very little year-to-year flue-




34

19 64 REPORT OF THE SECRETARY OF THE TREASURY

tuation in this level since June 1960 although peak and low holdings
during each year have generally ranged from $23 billion to $19 billion.
State and local governments showed an increase of $1.0 bUlion in
their holdings of Federal securities during the fiscal year, partly as
the result of market conditions which stUl favored capital borrowing
by municipalities. Federal securities are used as an investment
outlet for that portion of the capital borrowing which is temporarily
idle before being utilized. Well over one-half of the $15.6 bUlion
Federal securities held by general purpose municipal funds on June 30,
1964, mature in the 12 months of fiscal 1965. However, there remains a sizeable investment in longer term securities, primarily in
endowment and sinking funds. State and local employee retirement
funds held $7.0 bUlion of Federal securities on June 30, 1964, $0.5
bUlion more than a year earlier. The investments of these funds are
concentrated in the longest term Treasury securities and the average
maturity of their marketable U.S. Government issues at the end of
fiscal 1964 exceeded 20 years.
Foreign balances invested in Federal securities dechned by $0.5
billion during the year, to a level of $9.9 billion on June 30, 1964.
Of this total, $1.3 bUlion was in the form of special nonmarketable
securities (denominated either in dollars or in certain foreign currencies) which were issued directly to foreign monetary authorities.
International and regional institutions increased their holdings by
$0.3 billion, to $5.7 billion at the close of the fiscal year. Major
changes were a $0.4 billion increase in the special noninterest-bearing
notes issued to the International Monetary Fund and a decrease of
$0.2 billion in the marketable securities held by the International Bank
for Reconstruction and Development.
Miscellaneous investors held approximately $13.7 billion of Federal
securities on June 30, 1964. Almost one-half of this total represented the $6.7 billion holdings of savings and loan associations which
showed a $0.5 billion increase during fiscal 1964. Activity of the
remaining investor groups (nonprofit associations, nonbank dealers,
corporate pension funds, and certain smaller institutions) resiUted
in a $0.7 billion net increase during the fiscal year.
Commercial banks, on balance, added to the supply of Government
securities in fiscal year 1964 as their holdings declined by $4.1 bUlion
in the 12-month period. Steadily increasing operating costs associated
with the January 1, 1962, and July 17, 1963, supplements to the
Federal Reserve's Regulation Q which authorized increases in rates
payable by member banks on their time and savings deposits, impelled
commercial banks to seek higher yielding outlets for some of the
funds that had previously been invested in Federal securities. This




REVIEW OF FISCAL OPERATIONS

35

trend towards lower holdings of governments has been intensified
by the loan demands associated with an expanding economy. Commercial banks participated actively in the two advance refundings
of fiscal year 1964 and accounted for $4.8 bUlion, or over 50 percent,
of public exchanges. However, banks were in the process of reducing
their investment in governments and holdings of 5ryear-and-over
maturities actually declined by over 20 percent from June 30, 1963,
levels.
The decline in total commercial bank holdings was centered in the
reserve city banks, as New York and Chicago institutions liquidated
$1.0 bUlion and other reserve city banks dropped $1.9 billion. The
smaUer country member and nonmember banks showed a net reduction
of $1.3 billion in holdings of Federal securities during the year.
The Federal Reserve System continued to promote firm short-term
interest rates in order to reduce incentives for capital outflows, while
encouraging growth in bank credit needed by an expanding economy
during fi.scal 1964, and acquired a net $2.8 billion of Federal securities
during the period. Acquisitions of Treasury bUls accounted for
$1.8 billion of this increase and net purchases of coupon securities for
the remaining $1.0 billion. The average maturity of the $34.8 billion
Federal securities held in the System Open Market Account on June 30,
1964, was 17K months, one-half month lower than a year earlier.
During fiscari964 Government investment accounts' holdings of
Federal securities increased by $2.8 billion, the largest fiscal year
increase since 1956. Of the $61.1 billion held on June 30, 1964,
$46.6 bUlion, or over three-fourths of the total, was in the form of
special issues held only by these accounts. Of the remaining $14.5
billion, a little over $12 billion was invested in marketable securities,
primarily intermediate and longer term issues. The largest increases
in total holdings during the year were registered by the Government
employee retirement funds ($1.1 biUion), the Federal old-age and
survivors insurance trust fund ($0.7 billion), the unemployment trust
fund ($0.6 billion), and the Federal savings and loan insurance corporation ($0.2 billion). Details on the ownership by Government
investment accounts are shown in tables 67-84.
A breakdown of the estimated ownership changes during fiscal
1964 is given by type of issue in the following table. A summary of
the Treasury survey of ownership of the interest-bearing public debt
and guaranteed debt for fiscal 1964 is shown in table 57.




36

1964 REPORT OF THE SECRETARY OF THE TREASURY

Estimated changes in ownership of Federal securities ^ by iype ofissue, fiscal year 1964
[In biUions of doUars]
Change accounted for b y Total
changes

Private
nonbank
investors

Commercial
banks

-0.1
-.2
.3

Marketable securities:
Treasury biUs:
Weekly—maturing within 3 rnonths.
Weekly—maturing in 3-6 months
Annual— .
Tax anticipation
__

-0.3
1.3
2.5

-1.3
.7
2.0

Total bills
Treasury certificates of indebtedness
Treasury notes
Treasury bonds, etc

3.5
-22.2
15.1
6.7

1.4
-4.1
1.1
5.2

3.2

3.5

1.0

1.0

-.3
.4

Government investment
accounts

(')

1.8
-.4
.4

Federal
Reserve
banks

(*)
(*)

TotalmarketableNonmarketable securities, etc.:
U.S. savings bonds
Special issues to Government investment accounts.. Treasury bonds, investment series
Other
Total nonmarketable, etc

2.9

1.1

Total change

6.1

4.7

(*)

(*)

1.2
.6

0.2
.2

-3.2
-.8
-.1

1.8
-14.5
15.2
.3

-.4
—.3

-4.1

2.8

1.0

.3

1.4

(*)
1.8

-4.1

-. 1
1.8
2.8

2.8

•Less than $50 million.
1 Gross pubUc debt, and guaranteed debt of the Federal Government held outside the Treasury.

Taxation Developments
During fiscal year 1964 three significant developments took place
in the field of taxation. The Revenue Act of 1964 was approved
which provides the largest tax cut ever enacted. The result of the
economic stimulus of reducing individual and corporate income taxes
by a net total of $11.5 bUlion will be to raise our level of economic
activity by providing more jobs, more wages, more profits, and more
tax revenues. Thus, the 1964 revenue act wiU help to bring us closer
to our national economic goals of full employment, accelerated growth,
and continued price stability.
The interest equalization tax is designed as a temporary measure
to strengthen our international economic position. The proposal for
this tax was included in the President's special message to the Congress
on July 18, 1963, on the balance of payments.
The House Committee on Ways and Means began a study of the
Federal excise tax structure. This study was a direct result of the
congressional interest generated during the debates on the Revenue
Act of 1964.
The hearings were to be conducted in two phases. The first phase,
which began on June 15, 1964, consisted of witnesses invited from
among tho^e who have done research in the field of excise taxes over



REVIEW OF FISCAL OPERATIONS

37

an extended period of time. This phase was intended as a useful
preface to the data to be presented by industry and other representatives concerning specific excise taxes during the second phase of
the hearings.
The committee requested all witnesses appearing in the second
phase of the hearings, which was scheduled to begin on July 21, 1964,
and last about two weeks, to evaluate the specific excise taxes with
respect to the following criteria:
1. Distribution of the tax among consumers by income levels.
2. Effect of the tax on sales of the industry.
3. Extent to which taxed items represent a business cost of other
products or services.
4. Sensitivity of excise tax revenue to changes of income.
5. Administrative and compliance problems with respect to specific
excise taxes.
Revenue Act of 1964

The Revenue Act of 1964, Public Law 88-272, was signed by
President Johnson on February 26, 1964. (See exhibit 25.) I t provides $11.5 billion of tax reduction scheduled over the calendar years
1964 and 1965 for individual and corporate income taxpayers. This
act is the most important domestic economic legislation since World
War II. The objective is to stimulate consumption and investment,
to accelerate the growth of the economy, and to achieve fuU employment.
The legislation was enacted more than one year after President
Kennedy presented recommendations to the Congress for major tax
reductions and structural revisions. For a discussion of the Presidential tax recommendations, see the 1963 annual report, pages 4 1 43 and pages 293-332. After extensive public hearings and lengthy
executive sessions the House Ways and Means Committee prepared
H.R. 8363 and reported it to the House of Representatives on September 13, 1963. The bUl passed the House on September 25, 1963.
The Senate Finance Committee also held extensive hearings ^ and
lengthy executive sessions and reported the bill on January 28, 1964.
The Senate passed the bUl on February 7, 1964. The Conference
Report was finaUy agreed to by both Houses on February 26, 1964.
When fuUy effective in 1965 the act will reduce tax liabilities of
individuals by $9.2 billion and of corporations by $2.4 billion. In
addition to rate reduction the act revises the Federal income tax
structure to make it more equitable by removing or restricting special
preferences based on sources and uses of income, and by preventing certain hardships under prior rules.
1 See exhibit 24, statement by Secretary DiUon, Oct. 15, 1963, before Senate Finance Comrnittee.




38

1964 REPORT OF THE SECRETARY OF THE TREASURY

The most distinctive feature of the act is a top-to-bottom reduction
in individual income tax rates. The rate scale which ranged from a
minimum of 20 percent to a maximum of 91 percent is replaced by
one rate ranging from 14 percent to 70 percent. The previous first
taxable income bracket is split into four brackets of $500 each on
which the rates wUl be 14, 15, 16, and 17 percent, respectively. Taxpayers with adjusted gross incomes (largely wage and salary income)
up to $3,000 receive the greatest cut, 39 percent of their Federal income tax bills. Fifty-nine percent of the individual tax reduction
goes to taxpayers with incomes below $10,000, who account for close
to 85 percent of all taxable returns.
A number of provisions included in the act are designed to lighten
the tax burden on low-income taxpayers and others with certain extraordinary expenses. Every taxpayer is granted a minimum standard
deduction of $300 from his adjusted gross income, plus $100 for each
additional exemption he claims up to a ceiling of $1,000. The deduction for chUd and other dependent care is liberalized by raising the
age limit of eligible children to 13, extending it to men whose wives
are institutionalized or incapable of self-care, increasing the maximum deduction to $900 for two or more chUdren or dependents, and
raising the income limitation for married women to $6,000. The
one-percent floor under deductible medicine and drug expenses of
taxpayers and dependent parents aged 65 and over is eliminated. A
moving expense deduction is provided for persons who move in order
to accept or to seek new employment. A taxpayer 65 or over is allowed to exclude from his taxable income any capital gain up to $20,000
of the sales price received for his personal residence. The retirement
income credit is liberalized by aUowing an aged couple to elect to
combine their retirement incomes and compute their credit on an
increased maximum base of $2,286. The dividend exclusion is increased to $100 in the case of single taxpayers and to $200 in the case
of married couples flling jointly and each having dividend income.
For the first time a general averaging rule is provided to deal with
the higher tax burden on fluctuating income. This rule wUl replace
a number of complicated provisions that permit certain kinds of income to be spread back.
A number of provisions reduce or eliminate special tax advantages
avaUable only to certain taxpayers. The dividend credit is eliminated
in two stages. The rules defining a personal holding company are
tightened so that this device cannot be used to shelter dividend and
other investment income of high bracket individuals at lower corporate
rates. The tax avoidance device of selling property for deferred payments without specifying the interest being charged is eliminated.
The value of group term life insurance provided by an employer in




REVIEW OF FISCAL OPERATIONS

39

excess of $50,000 m u s t b e included in the employee's taxable income.
An interest deduction is no longer allowed for indebtedness in connection with what is popularly called ''minimum deposit" or ''bank loan"
hisurance. The waitiug period before sick pay becomes excludable
from income is extended to 30 days if the employee receives more than
75 percent of his weekly wages, otherwise the waiting period is
unchanged from previous law. Deductions for casualty or theft losses
from nonbusiness property are limited to the amount of each loss in
excess of $100. The amount which Americans residing abroad for
more than three years may exclude from income subject to U.S. tax is
reduced from $35,000 to their first $25,000 of earnings.
The act also includes a number of other provisions which will
contribute more fairness to the tax structure. Minor State and local
taxes—such as those on cigarettes, alcohol, tobacco, automobile
license tags, and drivers' permits—^will no longer be deductible for
Federal income tax purposes, except where they are deductible as a
business expense. Taxpayers are now allowed deductions up to 30
percent of income for charitable contributions to any publicly supported organization, previously the 20-percent limitation applied.
The provisions relathig to the unlimited charitable deduction and
gifts of future interest are tightened. Individuals and corporations
are allowed to "carryover" excess charitable contributions for the
five succeediag years. The limitation on deducting travel expenses
for that part of a business trip within the United States which is
devoted to pleasure is repealed. A purchaser of a motor vehicle will
not be subject to a Federal tax lien against the motor vehicle, where
full and adequate consideration was given, unless at the time of
purchase he had actual knowledge of the existence of the lien. A
refund or credit of overpaid self-employment tax caused by the
operation of retroactive social security coverages agreements may be
obtained. Nonresident aliens who have U.S. income but are not
engaged in a U.S. trade or business are taxed at a flat rate of 30 percent
where gross U.S. uicome is not more than $19,000 in 1964 and $21,200
in 1965 and thereafter. The regular tax rates apply to nonresident
aliens who have hicome in excess of the above limitations. A taxpayer
is allowed a deduction for the taxable year in which he pays a tax or
other liabUity, even though he contests the liability.
The 1964 revenue act also contains substantial tax reduction and
revision for corporations. This stimulus to investment complements
the stimulus to consumer demand and together wUl produce a far
greater total addition to incomes and gross national product than
if the new tax law had concentrated on only one sector.
The combined corporate normal and surtax rate is reduced from
52 percent to 48 percent. The tax rate on the first $25,000 of corporate




40

19 64 REPORT OF THE SECRETARY OF THE TREASURY

net income is reduced from 30 percent to 22 percent in 1964. At the
same time the surtax rate is increased iu 1964 from 22 percent to
28 percent. In 1965 and thereafter the surtax rate wUl be 26 percent.
Other changes in the corporate tax system are designed to increase the
profitabUity of new business investment and put large and small businesses on a more equal footing. Corporations wUl gradually accelerate
their estimated tax payments to bring them on a current basis. The
shift occurs in such a way that payments for a corporation with regular
income wUl never be more in any calendar year than they would have
been before the rate reduction.
Large corporate enterprises avaUing themselves of multiple surtax
exemptions through forming chains of corporations wUl have to pay an
additional penalty tax to retain this advantage. The 2-percent
penalty tax on consolidated corporate returns is repealed; this wUl
permit those chain organizations which have been using multiple
surtax exemptions to make the transition to tax treatment as a single
unit without incurring a tax burden. Affiliated groups eligible to file
a consolidated return, but not doing so, may take under certain conditions a 100-percent deduction for intercorporate dividends received
from other members of the group, provided they forego multiple surtax
exemptions.
The 7-percent investment credit provided in the Revenue Act of
1962 is simplified and broadened by repealing the requirement that the
depreciable base of the asset be reduced by the amount of the credit
and by extending the credit to elevators and escalators. U.S. companies whose property has been seized in Cuba and other foreign lands
since the end of 1958 are allowed to use their expropriation losses to
offset annual income over a 10-year period. A tax-free status is
provided to a stock-for-stock reorganization, where the corporation
acquiring the stock exchanges either its voting stock or the voting
stock of a corporation which is in control of the acquiring corporation.
Retroactive qualification for certain pension plans under multiemployer collective bargaining agreements is permitted. A U.S. corporation is allowed to extend coverage under its qualified pension,
profit-sharing, etc., plan to certain U.S. citizens employed by subsidiaries operating outside of the United States. The practice of grouping
oU and gas properties for tax purposes into so-caUed "operating units"
is eliminated.
The act also contains provisions which relate to specific types of
corporations. A "face amount certificate company" may deduct the
interest on face amount certificates issued to investors, even though
the payments received from these investors are partially reinvested by
these financial institutions in tax-exempt bonds. But the deduction
is avaUable only to the extent that tax-exempt securities do not




REVIEW OF FISCAL OPERATIONS

41

constitute more than 15 percent of its average total assets held during
the taxable year. Three changes are made with respect to the
income tax of life insurance companies: The niarket discount on
bonds received by life insurance companies and small mutual companies may be treated as capital gain when the bonds are sold or
redeemed, rather than as ordinary income ratably accrued; the special
deduction for certain distributions by a company which changed from
a stock to a mutual company is extended to 1962; and, the deduction of
contributions to qualified pension and profit-sharing plans by certain
casualty companies is clarified. The regulated investment company
provisions are amended by: Extending the period from 30 to 45 days
during which notice must be given to stockholders that a dividend, or
part of it, is a capital gain dividend, and providing that distributions
by a unit investment trust liquidating an individual's interest are not
to be considered as giving rise to capital gains tax with respect to
interests of other investors stUl in the trust. The Code provisions for
subchapter S corporations are amended to provide that certain
distributions of money made after the close of a taxable year may be
treated as made at the close of that year in order to prevent double
inclusion of income, and that a corporate member of an affiliated group
may elect subchapter S treatment where the only other members of
the group are inactive subsidiary corporations.
Other provisions in the act relate to the tax treatment of capital
gains. The rules governing tax treatment of real estate other than
land are tightened so that within specified limits the portion of capital
gain resulting from excessive depreciation will be taxed at ordinary
tax rates rather than at much lower capital gains tax rates. The
rules governing stock options are tightened with the purpose of eliminating tax abuses that had developed in connection with such options.
Royalties on iron ore mined within the United States wUl be taxed at
capital gains rates rather than ordinary tax rates, just as coal royalties
are. Capital losses incurred in a given year may be used to offset as
much as $1,000 of ordinary income subject to tax for an indefinite
number of years untU the capital loss is exhausted.
Other legislation enacted

Legislation approved October 5, 1963 (45 U.S.C. 228c note) raised
the maximum monthly wage base for purposes of the taxes imposed
by the Railroad Retirement Act from $400 to $450. The new tax
base became effective for compensation paid for services rendered in
November 1963.
Legislation approved October 17, 1963 (26 U.S.C. 162 note) permits employees who have consistently accrued vacation pay for
income tax purposes to continue to do so for taxable years ending




42

1964 REPORT OF THE SECRETARY OF THE TREASURY

before January 1, 1965. Prior law limited this privilege to years
ending before January 1, 1963.
Legislation, approved November 7, 1963 (26 U.S.C. 3302) revises
the formulas for repayment to the Treasury of advances made to the
States for the payment of unemployment compensation pursuant to
the Temporary Unemployment Compensation Act of 1958 and
advances made prior to September 13, 1960, under title X I I of the
Social Security Act. Previously if such advances were not repaid
by a State within a specified time, the law provided for reduction of
the employer's credit against the Federal tax for the State unemployment tax. Each year that advances were not repaid by the State
the employer's credit was reduced further. The act limits the
reduction in the credit. Where advances were made before September 13, 1960, under title X I I of the Social Security Act, the new law
hmits the additional tax payable by employers to the Federal Government to 0.15 percent of wages for the years 1963-67. Thereafter, the
regular year-by-year reduction in the credit wUl apply. In the case
of unpaid advances under the Temporary Unemployment Compensation Act of 1958, the additional tax is limited to 0.15 percent of
wages for 1963 and 0.30 percent for any succeeding year. This
legislation further provides that a State can prevent the credit reduction in any year by paying to the Treasury on or before November 10
of the year an amount approximately equal, as determined by a
formula specified in the law, to the amount which employers would
have to pay through the credit reduction.
Pubhc Law 88-348, approved June 30, 1964, provides a one-year
extension of certain excise tax rates. The act also revises and clarifies
the casualty loss deduction on property expropriated by the Government of Cuba by limiting the deduction to individuals who were
citizens or residents of the United States on December 31, 1958, by
extending its application to intangible as well as tangible property and
by providing that the deduction shall apply only to losses sustained
in the period before January 1, 1964, and the taxable years ending
after December 31, 1958.
Public Law 88-342, approved June 30, 1964, provides that domestically manufactured tobacco products be subject to only one payment
of the internal revenue tax when they are exported and returned
unchanged to the United States for delivery to a manufacturer's
bonded factory, provided that such products otherwise conform to
the Customs and Internal Revenue Service regulations.
Legislation pending as of June 30, 1964

Income taxation.—^H.R. 394, passed by the House on July 8, 1963?
and reported to the Senate on June 30, 1964, would establish the
priority of liens in bankruptcy.



REVIEW OF FISCAL OPERATIONS

43

H.R. 3438, passed by the House on July 8, 1963, and reported to
the Senate on June 30, 1964, would make dischargeable unsecured tax
claims due and owing more than three years prior to bankruptcy and
would limit the priority accorded to taxes in the distribution of
bankrupt estates to those taxes which became legaUy due and owing
within three years preceding bankruptcy.
H.R. 4844, passed by the House on June 29, 1964, provides that
gain from installment obhgations which were transferred to a taxpayer from a decedent in taxable years before 1954, but on which
payments are stUl being made, may be reported by the recipient on a
pro rata basis as he receives installment payments without the
necessity of maintaining a bond with the Internal Revenue Service
to assure this reporting of iacome. From the standpoint of the
taxpayer, this is desirable because he saves the premiums which he
presently must pay to maintain these bonds. Nor does the bonding
appear necessary as a means of protecting revenues since the recipient
of the payments pays taxes on the income involved.
H.R. 5739, passed by the House on June 29, 1964, makes three
modifications in the present tax treatment of life insurance companies.
First, it extends the 8-year loss carryover to new companies regardless
of whether they are affiliated with other companies. Second, the biU
corrects an imperfection in present law which permits a double inclusion in the "shareholders surplus account" with respect to the excess
of net long-term capital gains over net short-term capital losses. This
double inclusion, which is removed by the bUl, permits the distribution
to shareholders of an amount equal to twice this capital gain without
the payment of tax at the time of distribution (with certain other
adjustments) under what is called "phase 3 . " Third, the bUl corrects
an imperfection in the additions which are required to be made to the
"policyholders surplus account." The bill provides that if any amount
added to the policyholders surplus account for any year increases or
creates a loss from operations, and part or all of that loss cannot be
used in any other year to reduce the company's taxable income, then
the policyholders surplus account for the last year to which this
loss may be carried is to be reduced by the amount of the unused loss
or, if less, the amount in the policyholders account (before making
any subtractions for that year).
H.R. 6455, passed by the House on AprU 30, 1964, and by the
Senate on June 26, 1964, provides an exemption from the tax on
unrelated business iacome in the case of labor unions and agricultural or horticultural organizations where three conditions are met.
First, the income must be used to establish, maintain, or operate a
retirement home, hospital, or similar facUity operated for the exclusive use of aged and infirm members of such organizations. Second,




44

1964 REPORT OF THE SECRETARY OF THE TREASURY

the income must be derived from agricultural pursuits on ground contiguous to the home, hospital, etc. Third, this income may not
represent more than 75 percent of the cost of maintaining and operating the facilities.
H.R. 7301, passed by the House on June 29, 1964, would amend
the "collapsible corporation" provisions of the tax laws so that they
will not apply to the sale of stock in a corporation which consents
to a special tax treatment on any later disposition by it of its assets.
H . R . 7307, passed by the House on June 29, 1964, provides that
a contracting party in the case of the extraction of minerals other
than gas or oil is not to share in the percentage depletion deduction
if he is neither an owner nor lessee of the property, he is required
by the contract to deliver the minerals extracted to another party,
and he is paid under the contract a fixed sum per unit delivered
which does not vary in accordance with the amount received by the
other party upon the disposition of these mineral units.
H.R. 10467, passed by the House on June 29, 1964, extends for
two more years certain temporary rules with respect to the deductibUity of accrued vacation pay.
Excise taxes.—H.R. 7267, passed by the House on June 29, 1964,
provides a refund of the 4-cents-a-gallon tax for gasoline used in
farming in an aircraft by an aerial applicator if the purchaser of
the gasoline and the farm owner, tenant, or operator waives his right
to obtain this refund. Presently this 4-cents-a-gallon tax refund
is available only to the farm pwner, tenant, or operator.
H.R. 98, passed b}^ the House on June 29, 1964, provides for a
credit or refund of internal revenue taxes paid or determined on
imported alcoholic beverages which have been found to be unmerchantable or not to conform to sample or specifications, and which,
under certain conditions, are exported or destroyed.
Social security.—H.Pv. 9393, passed by the House on June 29, 1964,
contains provisions afl.'ecting the old-age, survivors, and disability
insurance program in three ways: First, it permits a disabled worker
to establish the beginning of his disabUity, for purposes of social
security protection, as of the date he actually became disabled regardless of when he files his application; second, it extends through
AprU 15, 1965, the time within which certain ministers can elect to
be covered under social security; and, third, it validates certain earnings reported under social security of engineering aides working for
soil and water conservation districts in Oklahoma.
Administration, interpretation, and clarification of tax laws

During the fiscal year the Treasury Department published 72
Treasury decisions and 33 notices of proposed rulemaking relating to




REVIEW OF FISCAL OPERATIONS

45

tax matters. Many of these decisions and notices implemented the
Revenue Act of 1962 (Public Law 87-834). In the latter part of the
year the Department began the publication of proposed regulations
under the Revenue Act of 1964 (Public Law 88-272) signed by the
President on February 26, 1964.
Treasury decisions published included among other issues: The
computation of the investment credit authorized in the Revenue Act
of 1962; the election to deduct casualty losses in the taxable year
prior to that in which the loss occurred; rules relating to the SelfEmployed Individuals Tax Retirement Act of 1962; carryover of
earnings and profits in certain corporate acquisitions; revolving credit
sales; rules relating to mutual fire and casualty insurance companies;
and earned income from sources without the United States.
Notices of proposed rulemaking stUl pending at the end of the fiscal
year included those relating to: The classification of professional
services corporations, associations, trusts, and other organizations;
the consolidation of a group of export trade corporations; carryback
and carryover of unused foreign tax credit; gains from sales or exchanges of patents; the furnishing of additional information establishing the deductibility of charitable contributions; receipt of minimum
distribution by domestic corporations; and the determination of the
earnings and profits of a foreign corporation.
International tax matters

The interest equalization tax, first proposed by President Kennedy
in a special message to Congress on July 18, 1963, and referred to the
House Ways and Means Committee, was reported out by that committee on December 16, 1963. I t was passed by the House on March
5, 1964, and sent to the Senate. The Senate Finance Committee
began hearings on the act, with a statement from Secretary Dillon,
on June 29, 1964 (see exhibit 26). For a description of the major
provisions of the act, see the 1963 annual report, page 52 and pages
335-46.^
In his Foreign Assistance Message of March 19, 1964, President
Johnson, repeating a 1963 proposal by President Kennedy, recommended "legislation to provide a special tax credit for private investment by U.S. businessmen in less-developed countries." The proposed legislation provides for a credit against U.S. tax equal to 30
percent of new contributions of money or property to the capital of an
eligible enterprise conducted in a less-developed country and the investor's pro rata share of accumulated earnings of the enterprise which
are reinvested in the enterprise, to the extent that they exceed 50
percent of the increase in accumulated earnings. The biU has been
referred to the Ways and Means Committee.
1 The act was approved on Sept. 2,1964 (Pubhc Law 88-563).




46

1964 REPORT OF THE SECRETARY OF THE TREASURY

A provision of the Revenue Act of 1964 reduces the annual exemption for earned income from sources outside the United States of U.S.
citizens who are bona fide residents of a foreign country from $35,000
to $25,000.
A protocol to the Swedish income tax convention dealing primarUy
with the tax treatment of interest and dividends, was signed in October
1963. A protocol modifying the tax convention with the Netherlands
as it applies to the Netherlands AntUles was also signed in October.
The provisions of the protocol are described in the 1963 annual report,
page 53. In February 1964, a protocol was signed to the Greek
estate tax treaty, which brings the treaty into conformity with domestic law by iacluding in the estate tax base real property situated
abroad.
On May 27, 1964, the Senate Committee on Foreign Relations held
hearings on the 1962 income tax convention with Luxembourg, on the
1960 and 1962 protocols supplementing the Japanese treaty, and on
the three protocols signed earlier in the year. Acting on the recommendation of the committee, the Senate ratified the Greek protocol on
June 23, 1964.
On June 8, 1964, the President notffied the Senate of the withdrawal
of the income tax conventions with Israel, India, and the United
Arab Republic which were pending before the Foreign Relations Committee. These three treaties contained tax sparing provisions under
which the United States would grant a credit for taxes spared by the
other country.
During the year, Treasury representatives met with representatives
of a number of countries to negotiate new tax treaties or amend existing ones. Discussions of a protocol to the Belgian treaty were occasioned by a major revision in the Belgian income tax law. Negotiations with Germany to amend the present convention were
continued during 1964. SimUar meetings were held with Honduras.
Discussions were entered into with the PhUippines, ThaUand, Malaysia, and China for the purpose of negotiating new tax treaties. No
formal agreements had resulted from any of these discussions by the
end of the fiscal year.
Treasury officials represent the United States on the Fiscal Committee of the Organization for Economic Cooperation and Development (OECD). The (Committee proceeded, during the year, in the
preparation of a model estate tax convention, and of a report on tax
incentives to promote iavestment in less-developed countries.




REVIEW. OF FISCAL OPERATIONS

47

International Financial Affairs
The U.S. balance of payments and gold and dollar movements

The U.S. balance qf payments.—There was a substantial improve
ment in the U.S. balance of payments in fiscal 1964. The deficit on
regular transactions, whiqh excludes receipts from special intergovernmental transactions, amounted to $1.7 bilhon in the fiscal year
1964, down sharply from the $4.6 billion deficit the year before and
substantially below the $3.6 billion-$3.2 billion range for the 3 preceding fiscal years. The overall deficit after including all special
intergovernmental receipts, both from prepa3mients on U.S. Government loans and military exports and from net sales to foreign official
holders of all special nonmarketable U.S. Government medium-term
securities, amoimted to about $800 mUlion in fiscal 1964, compared
to $2.8 biUion for fiscal 1963, and a $3.3 biUion-$2.6 biUion range in
the previous 3 years.
This sharp decline in the deficit in fiscal 1964 reflected in considerable part the new or intensified steps in the Administration's overall
program to eliminate the payments deficit which were announced in
July 1963. Against the background of a deterioration in the balance
of payments which had developed during the latter part of calendar
year 1962 and early 1963, and on the basis of a thorough and comprehensive review of the entire payments situation and outlook by the
Cabinet Committee on Balance of Payments, under the chairmanship
of the Secretary of the Treasury, a special Presidential message on the
balance of paym.ents was transmitted to the Congress on July 18, 1963.
That message set forth a variety of further measures, some of which
were calculated to reinforce the general long-term program to
strengthen the payments position while a number of others were
designed to produce a more immediate impact.
To achieve additional savings in the Government's foreign pay-,
ments, President Kennedy's July 18 message set specific goals for
further reducing the impact on the balance of payments of expenditures abroad for economic assistance. I t also announced new measures, scheduled to become fully effective by the end of calendar 1964,
which were calculated to assure further substantial reductions in
military expenditures abroad, including payments for the acquisition
of strategic materials. Programs to increase the foreign earnings of
the private sector of the U.S. economy, particularly through expansion
of exports, were also intensified.
In addition to various measures of a more general or longer term
character designed to make both long- and short-term investments
in the United States more attractive compared to investment opportunities abroad, the President requested in that message that the
7)43-160—'65~n—5




48

1964 REPORT OF THE SECRETARY OF THE TREASURY

Congress enact a temporary excise tax, to be effective as of the following day, July 19, 1963, on acquisitions by Americans from foreigners
of foreign debt and equity securities, both new and outstanding,
maturing in three years or more.^ Legislation imposing this interest
equalization tax, in substantially the form proposed by the President,
was passed by the Congress and became law on September 2, 1964
(Public Law 88-563).
In 1963 President Kennedy established the Task Force on Promoting Increased Foreign Investment in U.S. Corporate Securities
and Increased Foreign Financing for U.S. Corporations Operating
Abroad. I t was charged with developing programs designed to
promote increased foreign investment in the securities of U.S. private
companies and guide U.S. based international corporations into making
increased use of the pools of savings now accumulating in nations
in which they do busiiness. Its mandate was reaffirmed by President
Johnson and its repoTt to the President was issued AprU 27, 1964.
The Task Force was chaired by Under Secretary Fowler.
The most encouraging development in the balance of payments in
fiscal 1964 was the large increase in the trade surplus, to a level $1.4
bUlion higher than fiscal 1963. Exports increased almost $3 billion,
most of which represented commercially financed exports, which
rose more than 16 percent from the preceding year whUe the increase
in Government-financed exports was about $50 mUlion. Imports—
as a natural result of, and generaUy in line with, the continuing improvement in domestic business activity—increased by $1.5 billion,
or about 9 percent. The basic factors contributing to this growth
in the trade surplus were the continued price stabihty in the United
States plus expanding business activity and import demand in other
free world countries. A smaller gain during the year was due to the
fact that U.S. Government economic assistance expenditures in the
form of dollar payments abroad showed a further decline, by more
than $300 miUion, to about $730 mUlion.
One of the largest elements in the improvement of our foreign
payments balance duiring the fiscal year 1964 was the sharply curtaUed outflow of U.S. private capital into foreign securities, as the
announcement and expected enactment of the interest equalization
tax brought immediate and substantial declines both in flotations
of new foreign issues here and in American purchases of outstanding
foreign issues. Net purchases of all foreign securities by Americans
were reduced from $1„7 biUion ia fiscal 1963 to about $400 million in
1964.
On private capital movements other than foreign security transactions, developments during the year were mixed. Direct investment
1 See exhibit 26. See also 1963 annual report, pages 52 and 335-46.




REVIEW OF FISCAL OPERATIONS

49

outflows showed a decline of about $200 miUion from the preceding
year, whUe outflows of other types of long-term U.S. capital increased
by about $650 million. There was also an increase of about $650
million in the recorded outflow of U.S. short-term capital, reflecting in
part the rapid rise in U.S. exports. Unrecorded transactions, which
are believed to be to some extent a reflection of unrecorded capital
movements, showed an improvement of almost $600 mUlion.
More than $900 million of the $1.7 biUion deficit on regular transactions in fiscal 1964 was covered by receipts fromspecial Government transactions. These consisted of about $350 mUlion of debt
payments to the U.S. Government in advance of maturity, $390
million received as advance payments on U.S. mUitary exports, and.
over $160 mUlion in receipts from net sales to foreign official institutions of special nonmarketable medium-term U.S. Treasury securities.
The remaining $831 million, which represents the overall deficit,
was to a very large extent financed through the growth in the dollar
holdings of foreign private banks and individuals, which increased
by $638 million. Another $250 mUlion was obtained through drawings from the International Monetary Fund; and the I M F also
provided, in effect, an additional $73 mUlion of financing by its net
absorption of doUars in transactions with other member countries.
Offsetting these items, there was a decline of $43 million during
the year in holdings of U.S. doUars by foreign official institutions,
plus a decrease of $238 mUlion in dollar holdings by international
institutions other than the I M F , and an addition of $56 mUlion to
official U.S. reserve holdings of convertible foreign currencies.
The total decrease in the U.S. gold stock was $207 mUlion.
Gold and dollar holdings.—Total gold and dollar holdings of foreign
countries (excluding gold held by the USSR, other Eastern European
countries, and China Mainland) amounted to an estimated $47.9
bUlion as of June 30, 1964. Of this total, official gold holdings were
$24.9 bUlion, official and private short-term dollar assets held with
banks in the United States were $21.4 bUlion, and estimated official
and private holdings of U.S. Government bonds and notes amounted
to $1.6 bUlion. (See table 97.)
During fiscal 1964 total foreign gold and dollar holdings increased
by $1.9 billion. Total gold holdings of foreign countries, derived
from all sources, increased by $1.3 billion, whUe total doUar holdings
increased by about $590 million. Foreign official dollar holdings
declined by $36 mUlion, whUe foreign private dollar holdings increased
by $627 miUion.
Western European countries increased their total gold and official
and private dollar assets by $1,059 mUlion, substantially more than
the gain of $854 mUlion by these countries during fiscal 1963. France




50

19 64 REPORT OF T H E SECRETARiY OF T H E

TREASURY

and Switzerland recorded the largest gains, $463 mUlion and $319
mUlion, respectively. Italian holdings declined by $383 million,
while those of the Netherlands and the United Kingdom declined
by $73 million and $63 million, respectively. Most other European
countries increased their gold and dollar assets. Gains were made by
most other areas, except Canada and Africa. Canadian gold and
dollar assets declined by $214 million, while African holdings decreased by $64 mUlion. Latin American holdings rose by $494
million. The total gain of Asiatic countries was $565 million, of
which $131 million was made by Japan. The rest of the world gained
$20 milhon.
During fiscal 1964, international and regional organizations increased their gold and dollar holdings by $206 million. The holdings
of the International Monetary Fund increased by $438 million, while
the holdings of other international and regional organizations declined by $232 miUion.
^
The estimated official gold holdings of the world (excluding the
USSR, other Eastern European countries, and China Mainland)
rose from $41.7 bUlion on June 30, 1963, to $42.9 billion on June 30,
1964. Of this total, the United States held $15.6 billion and international and regional institutions $2.4 billion.
Treasury foreign exchange reporting system.—Data relating to capital
movements between the United States and foreign countries have
been coUected by the Treasury Department since 1935. The data are
obtained from reports by banks, brokers, and nonbanking concerns
to the Treasury Department through the Federal Reserve banks.
The reports provide information on liabilities to foreigners, claims on
foreigners, and securities transactions with foreigners, and constitute
the basis for statistics on the dollar holdings of foreign countries and
international institutions and other statistics on capital movements
which enter into the U.S. balance of payments.
Under the continuing program designed to insure the adequacy of
the Treasury statistics for analysis and policy formulation, a comprehensive revision of the reporting forms filed by banks and brokers
was introduced at the end of fiscal 1963, and the first data derived
from the revised forms were published in the July 1963 issue of the
Treasury Bulletin. Subsequently, the Treasury continued its examination of the problems and needs in the reporting of capital movements data, including matters raised by the Committee for Balanceof-Payments Statistics review in connection with its examination of
all U.S. balance-of-payments statistics. A new benchmark survey of
holdings of U.S. Government bonds and notes for foreign accounts
was taken as of July 31, 1963, to provide a currently valid basis for
this statistical series. A survey was also taken of the types of money




REVIiEW OF FISCAL OPERATIONS

51

market paper and other assets held for foreign account by reporting
banks.
As a means of reducing the reporting burden on U.S. firms to the
minimum necessary to obtain reliable statistics, a study was undertaken of the reports filed by relatively small nonbankiag firms. As
a result of this study, it was decided to raise the exemption level for
reporting by such firms in order to relieve several hundred smaller
firms of the burden of reporting without significantly affecting the
validity of the statistics. In addition, an investigation was undertaken of means for improving the reporting of assets held abroad by
nonbanking corporations, and for obtaining reports from various
types of financial intermediaries which may not have been reporting
adequately. A. portion of the program for improvement of reporting
by nonbanking firms was put into effect early in fiscal 1965.
Treasury exchange and stabilization agreements

At the end of fiscal year 1964, Treasury exchange agreements were
in effect with Argentina, ChUe, and Mexico.
A two-year Treasury exchange agreement with Brazil, in the
amount of $70 mUlion, which exphed on May 15,1963, was amended
several times during fiscal 1964 to grant extensions of time for BrazU's
requhed repurchase of cruzehos. The amendment signed on July 30,
1964, provided for a postponement of $25.3 mUlion in principal repayments due to the Treasury, under the terms of the agreement,
during the remainder of 1964. According to this amendment, repayment was to be effected by BrazU in monthly installments beginning
in January 1965 with full repayment to be achieved in December
1966. The rescheduling of Brazil's obligation to the Treasury supplemented the multUateral rescheduling and refinancing of certain debt
obligations agreed between Brazil and nine "Hague Club" countries,
including the United States, which was announced in Paris on July 1,
1964.
Under the one-year Treasury exchange agreement with Argentina,
which became effective on June 7, 1962, and which was extended for
an additional 4 months on March 27, 1963, Argentina drew the full
amount of the funds provided, $50 million, by the exphation date,
October 6, 1963.
A one-year $10 million Treasury exchange agreement negotiated
with the Government of Chile was fully drawn when it exphed on
January 30, 1964. Subsequently, on March 13, 1964, the United
States announced a $70 million program of further assistance to Chile
under the Alliance for Progress. The assistance included a one-year
$15 milhon Treasury exchange agreement, a $40 million loan from the
Agency for International Development, and a $15 million loan from




52

1964 REPORT OF THE SECRETARY OF THE TREASURY

the Export-Import BanJ^. The program conformed to the recommendations of the panel of experts of the Organization of American
States in its review of Chile's ten-year development plan in that it
provided new support for Chile's continuing self-help program to
promote the growth of per capita income. The Treasury Department
entered into the exchange agreement to support monetary stabilization in Chile in conjunction with a $25 million standby arrangement
which the International Monetary Fund had authorized on February
14, 1964. As of June 30, 1964, Chile had drawn $9 million against
the Treasury exchange agreement.
Another Treasury exchange agreement with Mexico, the thhd in a
series of two-year agreements, was renewed effective on January 1,
1964, to enable Mexico to draw $75 million. As of June 30, 1964, no
drawing had been made by the Government of Mexico.
Foreign exchange operations

Although the balance-of-payments deficit for the fiscal year was
greatly reduced from that of preceding years there were other influences
on the dollar which made it necessary and deshable for the United
States, through the Treasury and Federal Reserve, to undertake
exchange operations to deal effectively with a variety of market
pressures.
The assassination of President Kennedy in November 1963 gave
rise to some speculative pressure directly on the dollar which was
quickly met through coordinated Central Bank operations.
Most pressures arose indhectly, however, as a result of the key role
played by the dollar in international trade and finance. As a reserve
currency held by private traders and commercial banks the world over
as well as by foreign central banks, movements of funds between other
countries and from private to official hands affect the dollar in the
exchange market and may bring pressure on our gold reserves even
when our balance of payments is unaffected by such movements.
One such movement during the fiscal year was occasioned by the
large balance-of-payments deficit which Italy ran in its international
accounts both because of an adverse trade balance and an outflow of
capital: Much of the outflow from Italy went to Germany and
Switzerland with the result that the dollar, the currency in which the
transfers were made, while growing stronger against the Italian l h a
was weakening in terms of the Deutsche Mark and the Swiss franc.
An example of pressure on the dollar arising from the transfer of
dollars abroad from private to official hands is^ found each year in the
practice of yearend "window-dressing" by foreign banks and businesses. This practice arises from the desire of the foreign concern
to show in its yearend statement the greatest possible liquidity in its




REVIEW OF FISCAL OPERATIONS

53

own currency. As a result a foreign bank which normally holds
large amounts of dollars to meet the needs of its customers and for
investment will in December offer these dollars for sale against its
own currency. The increased supply of dollars placed in the market
for this reason will frequently drive the exchange rate to the point
where the central bank of the country concerned must intervene in
the market by buying the dollars and adding them to its own holdings.
A further type of transaction which influences the exchange markets and central bank holdings of dollars without necessarily affecting
the U.S. balance of payments arises from the tightening of domestic
credit by a foreign country. During this period many of the continental European countries felt that such a tightening of credit was
desirable to combat potential or actual inflationary pressures. The
result of such action is for the commercial banks of the country and
other holders of dollars to repatriate them in order to obtain their
own currency to meet their local credit needs. In such circumstances
money may of course also be attracted from other countries including
the United States and in the latter case our balance of payments as
well as exchange markets are affected.
The details of the operations undertaken to meet the pressures
generated by various sources are described in detaU in articles pubhshed semiannually by the Federal Reserve Bank of New York
which, as agent or manager, carries out the operations of both the
Treasury and the Federal Reserve. See exhibits 40 and 41.
The International Monetary Fund

During the fiscal year 1964, the Fund provided assistance through
the sales of various currencies, amounting to $726.3 million to 19
member countries. During this period, drawings of the United
States, $250 million, and of Italy, $225 million, accounted for 65 percent of the total. The Fund sold the equivalent of $58.5 miUion to 2
other European countries (Turkey and Yugoslavia), $97.4 mUlion to
7 countries in Asia and Africa (Indonesia, Liberia, Morocco, Somalia,
Sudan, Syria, and the United Arab Republic), and $95.4 million to 8
Latin American countries (Argentina, Bolivia, Chile, Colombia, Costa
Rica, Haiti, Honduras, and Nicaragua).
Most of the drawings during fiscal 1964 were made under existing
standby arrangements. The majority, in addition, required a waiver
of the provision of Article V, Section 3 of the Fund Agreement, which
places a limit of 25 percent of a member's quota on drawings by that
member within any 12-month period. The drawing of the United
Arab Republic for $16 million brought the Fund's holdings of Egyptian pounds to 215 percent of its quota. Accordingly, the United
Arab Republic was granted the first waiver of the Fund's require-




54

19 64 REPORT OF THE SECRETARY OF THE TREASURY

ment that limits the Fund's holdings of a member's currency to 200
percent of its quota. This UAR drawing was the second to be authorized under the Fund decision of March 1963, which is designed to
provide additional balance-of-payments support to those member
countries, exporting primary products, which experience temporary
declines in their export earnings due to circumstances largely beyond
their control.
The Italian purchase, in March 1964, represented that country's
first use of Fund resources. The drawing was within Italy's gold
tranche and was designed to assist Italy in financing her recent
balance-of-payments disequilibrium. The United States made its
first use of Fund resources in February,^ purchasing nondollar currencies for sale to other countries which had repurchase obligations
to the Fund. This became necessary early in February 1964, when
the Fund's holdings of U.S. dollars, together with the undischarged
repurchase obligations incurred in U.S. dollars by members under
Article V, Section 7(b) of the Fund Agreement, reached 75 percent of
the U.S. quota. At this point, the Fund under Article V, Section
7(c) (iii) is precluded from accepting U.S. dollars in repurchase
transactions with members. Another drawing for the same purpose
was made in June.^
Of the total drawings during this period only 6.6 percent, as compared with 71.4 percent for the previous year, were in U.S. dollars.
The increasing proportion of nondollar drawings is in accord with
the Fund's decision that drawings should be made predominantly
in the currencies of those countries in a strong balance-of-payments
position. As of June 30, 1964, the equivalent of $7,660.4 million
in various currencies had been purchased from the Fund by 51
member countries.
Currency repurchases in fiscal 1964 by 25 member countries and
Cuba totaled the equivalent of $355.3 million. Approximately 39
percent of this was accounted for by Canadian repurchases of $138.5
million equivalent during the period. The equivalent of $37.3 million
was repurchased by 4 European countries, $77.4 million by 8 countries
in Asia and Africa, and $102.1 million by 13 Latin American countries.
Although Cuba withdrew from membership in the Fund on April 2,
1964, the equivalent of $12.5 million was repurchased by Cuba in
partial repayment of its net obligations to the Fund. Currency
repurchases have increasingly been made with a wider variety of
currencies. Of the total repurchases during fiscal 1964, only $102.9
million, or 29.0 percent, was made in U.S. dollars. As of June 30,
1964, cumulative repurchases by 43 countries totaled the equivalent
of $5,369.2 million.
1 See exhibit 46.
2 See exhibit 47.




REVIEW OF FISCAL OPERATIONS

55

In fiscal 1964, new and extended standby arrangements amounted
to the equivalent of $2,193.2 million, as compared with $1.4 billion
in fiscal 1963. The three largest standby transactions during fiscal
1964 accounted for nearly 50 percent of the total. The British
standby of $1 billion with the Fund succeeds a similar arrangement
which expired in August 1963. I t is designed to supplement British
reserves, to protect against any temporary pressures which might
arise against sterling. The Japanese standby, agreed to in March
1964 in conjunction with Japan's acceptance of Article V I I I obligations, was designed to provide additional resources in support of
Japan's reserve position in the event of temporary balance-of-payments
difficulties. As of June 30, 1964, $1,825.6 million was stiU available
under the 19 agreements in effect.
During the past year, 8 countries increased their quotas, 17 countries
became members, and one country, Cuba, withdrew from the Fund,
thereby raising total membership to 102 with quotas aggregating
$15,616.85 million on June 30, 1964.
The third annual consultation between the Fund and the United
States was held in May 1964, in accordance with arrangements under
which members of the Fund which have accepted the convertibility
obligations of Article V I I I of the Fund's Articles of Agreement
consult with the Fund on a voluntary basis.
As agreed among the Ministers and Governors of the Group of
Ten (the members of the Fund which are parties to the December
1961 "General Arrangements to Borrow") at the Eighteenth Annual
I M F Meeting in September 1963, "a thorough examination of the
outlook for the functioning of the international monetary system and
of its probable future needs for liquidity" was carried out during the
year. This study was carried on by Deputies of the Ministers and
Governors. During the period under reference Under Secretary
Robert V. Roosa, as Deputy of Secretary Dillon, chaired the deliberations of the Deputies.
On August 10, 1964, the Ministers and Governors issued a "Ministerial Statement of the Group of Ten and Annex Prepared by
Deputies" (see exhibit 49). In this Statement the Ministers and
Governors reafihmed their conviction that the present international
monetary structure based on fixed exchange rates and the established
price of gold has proved its value as a foundation on which to build
for the future. They further agreed that increasingly close cooperation among monetary authorities was essential and that, in regard
to liquidity, supplies of gold and reserve currencies are fully adequate
for the present and immediate future needs of the world monetary
system, although continuing growth of world trade and payments is
likely to entail a need for larger international liquidit}^ which may be




56

19 64 REPORT OF THE SECRETARY OF THE TREASURY

met by an expansion of credit facilities supplemented perhaps over
the longer run by the use of some new form of reserve asset.
The Ministers and Governors noted the central position of the
International Monetary Fund in the international credit structure.
In order to further the Fund's capabilities, the Ministers and Governors agreed to support a moderate and general increase in member
quotas in the Fund and to support relative adjustments in those individual quotas which are clearly out of line. In reaching this agreement among themselves, the Ministers and Governors recognized
that the responsibility for decisions concerning an increase in quotas
rests with the Fund itself and cannot be determined by the Group of
Ten alone.
In its Annual Report released at the same time as the statement
of the Ministers and Governors of the Group of Ten, the Fund management discussed the matter of international liquidity from the Fund's
standpoint. Regarding quota increases, the Report concluded that
"there is a case for an increase in Fund quotas," and suggested that
the question should be examined in detail at an early date, preferably
immediately after the 19th Annual Meeting. (The normal quinquennial review of quotas would occur in 1965 in accordance with the
Articles.) Thus both the Fund management and the governments of
the Fund's major members have suggested early action on the matter
of Fund quota increases.
Programs for financing economic development

The International Bank—During the past fiscal year, the International Bank (IBRD) authorized 37 loans in 27 different countries
and territories totaling $810 million, a substantial increase from the
1963 total of $449 million. Of the development projects assisted by
the Bank, electric power loans accounted for nearly half, $375 million,
of the year's total, while transportation loans accounted for $314
million; industrial loans, primarily to development finance corporations, totaled $73 million; agricultural loans amounted to $27 million;
and telecommunications and water supply projects accounted for
$19 million and $2 million, respectively. Disbursements of loan funds
during the past fiscal 3^ear amounted to $559 million.
The Bank has continued to sell participations in Bank loans without
its guarantee. Sales for fiscal 1964 totaled $173 million, of which $126
million was in sales from portfolio and $47 million in participations
by investors who agreed to take up parts of Bank loans at the time of
the signing of the loan agreements. As of June 30, 1964, cumulative
sales totaled $1,788.6 million, of which all except $69 million was sold
without the Bank's guarantee. For the second consecutive year, the
funded debt declined. An increas.e of $4.5 million, arising from




REVIEW OF FISCAL OPERATIONS

57

issuance to investors of bonds which were sold on a delayed delivery
basis in previous years, was more than offset by the repayment of
$7.8 million of maturing obligations and by the Bank's purchase and
redemption of $24.1 million of bonds to meet purchase fund and
sinking fund requirements. In addition, one refunding issue—consisting of $100 million of two-year, 4 percent U.S. dollar b o n d s ^ w a s
placed, entirely outside the United States, during the year. As of
June 30, 1964, total funded debt outstanding was $2,491.8 million.
Through June 30, 1964, the Bank had extended a total of 386
loans in 73 countries and territories amounting to $7,754.1 million
net of cancellations, refundings, and terminations; of this amount,
a cumulative total of $5,984.4 million had been disbursed. Total
principal repayments amounted to $1,586.2 miUion, of which $772.7
million had been repaid to the Bank and $813.5 million repaid to
purchasers of borrowers' obligations sold by the Bank. At the end
of fiscal 1964, the total reserves of the Bank totaled $846,234,457,
consisting of the $288,119,454 Special Reserve and Supplemental
Reserve of $558,115,003. During the past year, 4 members increased
their subscriptions while 17 countries accepted membership in the
Bank, thus raising total membership to 102 with capital subscriptions
totaling $21,186 million.
An increase of $1 biUion in the authorized capital stock of the
Bank became effective on December 31, 1963, thereby raising the
total authorized capital of the Bank from $21 billion to $22 billion.
This increase was designed to provide for the admission of new
members and for special increases in existing members' quotas.
Under the authority of Pubhc Law 88-178 of November 13, 1963
(22 U.S.C. 286e-la), the U.S. Governor voted in favor of the proposal.
No appropriation was required, since none of the increase will besubscribed by the United States.^ See exhibit 37.
In September 1963, the Executive Directors of the Bank adopted
a resolution discontinuing the automatic allocation of the Bank's
net income into the Supplemental Reserve against losses on loans
and guarantees. In light of this decision, only $47.5 million of the
year's net income of $97.5 million was transferred to the Supplemental
Reserve. Since the financial position of the Bank has made it
unnecessary to transfer the balance of the year's net income to
reserves or otherwise retain it, the Executive Directors have recommended that this balance of $50.0 million be transferred to the
International Development Association as a grant. The Executive
Dhectors have also recommended^to the Board of Governors an
amendment to the Bank's Articles of Agreement giving the Bank
1 In May 1963, the National Advisory Council recommended this proposal in a Special Report (House
Document No. 154, 88th Congress, 1st session).




58

19 64 REPORT OF THE SECRETARY OF THE TREASURY

authority to make, participate in, or guarantee loans to the International Finance Corporation (IFC), within a proposed limit of four
times the unimpaired subscribed capital and surplus of the Corporation.
Such loans would augment the moderate resources of the I F C and
provide greater flexibility to the Corporation's operations.
Aside from financing development projects, the Bank has during
the past year assisted the less-developed areas of the world in a variety
of other ways. I t has continued to furnish technical, advisory, and
planning assistance to member countries, to develop the local institutions required for the mobUization and channeling of capital into
productive uses, and to form international consultative groups
designed to coordinate the provision of external aid. During fiscal
1964, such groups for Colombia, Nigeria, and Tunisia met under
the chairmanship of the I B R D to hear proposals under the development plans of the respective countries. The consortia for aid to
India and Pakistan have also continued to meet and discuss the
development plans of the two countries and to make additional financial
commitments for the current requirement of each nation under their
respective plan.
The International Development Association.—The International
Development Association was established as an affiliate of the International Bank in September 1960 to promote economic development
in the less-developed areas of the world. By providing assistance on
very liberal financial terms, it has been able to minimize the borrower's
debt service requirements and the resulting balance-of-payments
burden. During the past fiscal year, the IDA approved a total of 18
credits in 8 countries amounting to $283.2 million. The total commitments authorized by the IDA have thereby increased during the
period by 57 percent to a cumulative total, as of June 30, 1964, of 57
development credits in 22 countries or territories amounting to $778.3
million. Disbursements also increased during the fiscal year from
$68.4 milhon on June 30, 1963, to a total of $192.5 milhon as of June 30,
1964.
With the admission of 17 new members during the past year, the
IDA had, as of June 30, 1964, 93 members, 17 Part I members (economically advanced) and 76 Part I I members, with total initial subscriptions of $987,445,000. In addition to these initial subscriptions,
Sweden has made two special supplementary contributions totaling
$10,090,000 to IDA resources.!
On June 29, 1964, with the formal notification of the required number of countries, a $750 million increase in the freely usable resources
of the IDA became effective. This increase was designed to permit
1 In July 1964, Sweden paid to the Association its third special supplementary contribution amounting to
the equivalent of $5,045,000 in convertible kronor.




REVIEW OF FISCAL OPERATIONS

59

the Association to continue its assistance in the promotion of economic
development in member countries on terms which bear less heavily on
the balance of payments than conventional loans. I t was recommended to the Board of Governors by the Executive Directors in
September 1963, and strongly endorsed by the National Advisory
Council.! Under the authority of the International Development
Association Act, as amended on May 26, 1964 (Public Law 88-310),
the U.S. Governor voted in favor of the proposal.
This $750 million increase will be provided by 15 Part I countries
together with Luxembourg, a new Part I country, and Belgium, which
became the 94th member of the IDA on July 2, 1964, thereby raising
the number of Part I countries to 18.^ Payment of this increase in
capital resources will be made in three equal installments of $250
milhon each, the first being due in November 1965, one year after the
final payment on the subscriptions to IDA's initial resources. Except
in the case of Belgium and Luxembourg, the new resources will take
the form of additional contributions, rather than subscriptions, and
will therefore not carry voting rights. One-half of the contributions
of Belgium and Luxembourg, on the other hand, are considered to be
initial subscriptions with voting rights, while the balance has been
deemed additional contributions. Of the $750 million increase, the
United States will provide 41,6 percent, or $312 million.
Taking account of all additional contributions and new members,
IDA's total subscriptions and supplemental resources combined
amounted to $1,666,172,000, as of June 30, 1964, of which $1,446,257,000 was in convertible funds.^
The International Finance Corporation.—The International Finance
Corporation (IFC) is an affiliate of the International Bank designed
to supplement the development activities of the Bank by encouraging
the growth of productive private enterprises in member countries.
The IFC provides financing by investing in the debt or equity issues
of the private sector, in conjunction with larger commitments from
local and foreign investors, without governmental guaranty of repayment. During the past fiscal year, the I F C approved a total of 18
investments, including 2 supplementary investments, in 13 countries
amounting to $20,789,005, including $2,920,000 in the form of standby
and underwriting commitments. All but two of these investments
included or consisted entirely of subscriptions to shares; $12,093,433
of the year's total operations was in the form of equity investments.
1 See Special Report to the President and to Congress on Increase in Resources ofthe International Development Association (House Document No. 156, 88th Congress, 1st session).
2 In July 1964, the Government of Kuwait, a Part I member, also decided to participate in the replenishment of IDA resources, with a contribution of $3.36 miUion.
3 As of Aug. 19, 1964, formal notification had not yet been received from 3 countries, with contributions
totaling $47,988,000, participating in the $750 milUon increase of IDA resources.




60

19 64 REPORT OF THE SECRETARY OF THE^ TREASURY

Eleven of the 18 commitments approyed during the past year were
for the establishment or expansion of private companies engaged in
manufacturing or processing. The remainder were for the purpose of
establishing or strengthening industrial development finance companies in seven different countries. As of June 30, 1964, the IFC had
extended a cumulative total of 76 commitments to enterprises in 29
different countries amounting to $95.7 million net of cancellations,
terminations, and $7,351,546 worth of securities under standby and
underwriting commitments acquired by others; $76.5 million had
been disbursed and $20.5 million of IFC investments had been sold.
During the fiscal 1964, 5 countries accepted membership in the
IFC, increasing the number of members to 78 and total subscribed
capital by $766,000 to a total, payable in gold or dollars, of
$98,964,000. On September 5, 1963, an increase in the authorized
capital stock of the IFC from $100 million to $110 million became
effective. This increase had been provided for, up to a maximum of
$10 million, in Section 2 of Article I I of the Corporation's Articles of
Agreement, and is designed solely to accommodate the initial subscriptions of new members. Under the authority of Section 5 of the
International Finance Corporation Act (Public Law 350, 84th
Congress), the U.S. Governor, Secretary DUlon, voted in favor of
the proposal.
The Inter-American Development Bank.—The Inter-American Development Bank (IDB) was established in 1959 to help accelerate the
economic and social development of Latin America. The United
States and all Latin American countries except Cuba are members of
the Bank.
The resources administered by the Bank have been made available
for economic and social development through three separate loan
funds: The Ordinary Capital resources of the Bank are available to
member countries on conventional terms similar to those of the World
Bank; the resources of the Fund for Special Operations are available
to finance economic and social assistance on repayment terms easier
than those applying to Ordinary Capital loans; the Social Progress
Trust Fund is available for projects in the social development fields
for long periods at low interest rates, and are generally repayable in
the currencies of the borrowers. Through June 30, 1964, the Bank
had authorized a total of 89 loans totaling $413,509,000 from its
Ordinary Capital, 39 loans totaling $126,522,000 from the Fund for
Special Operations, and 81 loans amounting to $386,347,000 from the
Social Progress Trust Fund. Total disbursements from all three
fimds amounted to $304.0 million by June 30, 1964.
To obtain additional external resources for the economic and social
development of Latin America, the Bank placed its third bond issue.




REVIEW OF FISCAL OPERATIONS

61

a 20 year, 4K percent, $50 million issue, in the United States in April
1964. This was the Bank's second bond issue in the United States,
and raised the Bank's total borrowings to $149.2 million.
While the initial resources of the Bank totaled $959 million, $813
million Ordinary Capital and $146 milhon in the Fund for Special
Operations, an overall increase in the resources of the I D B became
necessary to continue the Bank's operations as a major force in the
Alliance for Progress. This increase, which became effective in
January 1964, consists of: (1) a $1 billion increase in the authorized
callable capital stock of the Bank; (2) a 50-percent increase ($73.2
million) in existing members' quotas in the Fund for Special Operations; and (3) an additional increase of $300 million in the Bank's
authorized capital (both paid-in and callable) to provide for the
admission of new members. The U.S. participation in the increase
in Ordinary Capital amounted to $411,760,000, and in the Fund for
Special Operations to $50.0 million.
During fiscal 1964 the resources of the Social Progress Trust Fund
were increased by $131 million to permit the Bank to continue its
social development activities. The U.S. contribution to the Social
Progress Trust Fund now totals $525 million.
,
At the Fifth Annual Meeting of the Board of Governors of the
I D B held in April 1964, the Governors recommended that member
governments approve a major expansion in the Bank's Fund for
Special Operations. The recommendation provides for an increase
of $900 million in the resources of the Fund for Special Operations
through additional contributions payable in each member's national
currency. As a concomitant of this expansion, it is understood that
the United States would make no further contributions to the Social
Progress Trust Fund, and that the expanded Fund for Special Operations would assume responsibility for financing the social development projects previously handled by the Trust Fund. The U.S.
contribution to this proposed expansion would be $750 million,
payable in 3 equal annual installments, on or before December 31,
1964, 1965, and 1966.^
The Export-Import Bank.—During the fiscal year ending June 30,
1964, the Export-Import Bank authorized over $1.7 billion in loans,
guaranties, and export credit insurance. Credits for development
projects totaled $570.2 million. Exporter credits and guaranties
totaling $216.8 million were extended by the Bank, and $445.8 million
was committed through the Foreign Credit Insurance Association
(FCIA).
1 On July 2, 1964, the National Advisory Council sent to the President and the Congress its own report
on the subject, strongly recommending legislation to permit the United States to join the proposed increase
(House Document No. 316, 88th Congress, 2d session).




62

1964 REPORT OF THE SECRETARY OF THE TREASURY

The Export-Import Bank disbursed $398.4 million during fiscal
1964. During the year private participations in Eximbank loans
totaled $476 million of which $372 million represented sales of portfolio participation certificates to private financial institutions. The
Bank earned $181.7 milhon from interest and fees and paid $34.4
million in interest on funds borrowed from the Treasury. A dividend
of $50 million was declared on the stock of the Bank held by the
Secretary of the Treasury. At the end of the fiscal year the Bank's
retained income reserve for contingencies amounted to $880 million
and its uncommitted lending authority was $3,459 million. Receipts
of principal and interest on the Bank's outstanding credits during
fiscal 1964 contributed over $845 million to the U.S. balance of
payments.
The Agency jor International Development.—The Agency for International Development (AID) is responsible for the economic assistance
activities of the United States which includes development lending,
development grants and technical cooperation, supporting assistance,
contributions to international organizations and programs, investment
guaranties, surveys of investment opportunities and for negotiating
loans involving U.S.-owned local currencies including those acquired
under section 104(e) and 104(g) of Public Law 480, as amended.
AID is also responsible for administering funds appropriated under
the Inter-American Program for Social Progress (Public Law 86-735)
as well as the Alliance for Progress established under a separate title
of the Foreign Assistance Act of 1962 (Public Law 87-565) which
includes a separate provision for development loans and grants for
Latin America.
Total dollar commitments by AID in fiscal 1964 amounted to
$2.3 billion of which $1.4 billion, or 61 percent, was on a loan basis.
The Near East and South Asia received $843 million, Latin America
$631 mUlion, the Far East $352 mUlion, and Africa $201 mUhon.
The remainder ($247 million) comprised nonregional programs such
as U.N. Technical Assistance and the U.N. ChUdren's Fund plus
general program support and administrative expenses. AID continues to follow a policy of minimizing balance-of-payments impact
of expenditures of foreign assistance funds by directing procurement
toward the United States. Under present procedures approximately
80 percent of all foreign assistance funds are utUized for the procurement of U.S. produced goods and services.
Annual meetings of international financial institutions

International Monetary Fund and International Bank.—The 1964
annual meetings of the boards of governors of the International
Monetary Fund and the International Bank for Reconstruction and




REVIEW OF FISCAL OPERATIONS

63

Development and its affiliates was held in September in Tokyo,
Japan. The U.S. delegation was headed by Secretary DUlon as
U.S. Governor. Under Secretary of the Treasury for Monetary
Affahs Roosa, Assistant Secretary Bullitt (U.S. Executive Dhector
of the I B R D ) , and Mr. WiUiam B. Dale (U.S. Executive Dhector of
the Fund) acted as temporary Alternate Governors. The delegation
included members of the agencies constituting the National Advisory
CouncU on International Monetary and Financial Problems, members
of congressional committees, and other officials of the Government
concerned with the aft'ahs of the international financial organizations.
At the meeting of the Fund Governors, Secretary Dillon reviewed
domestic developments in the United States and the steps taken to
improve the balance-of-payments position of this country. (See
exhibit 32.) He commented on the studies of the international
monetary system by the International Monetary Fund and by the
Group of Ten. The Secretary supported the proposal for general
and selected quota increases and for exchange of information and
consultation among industralized countries subject to volatile flows of
capital, coupled with expanded use of bilateral credit arrangements.
He also stressed the need for measures in handling Fund quota subscriptions "to mitigate the repercussions of gold payments on the
gold reserves of the contributiag members and of the reserve centers
that may be affected." He endorsed the continuance of studies
designed to assure that the international monetary system would be
prepared to meet any need for enlarged supplies of unconditional
liquidity that may develop over the coming years.
Secretary DUlon also addressed the Governors of the International
Bank and its affiliated institutions, the International Development
Association (IDA) and the International Finance Corporation (IFC).
(See exhibit 33.) He commended the innovations in operations and
policies which had resulted from intensive internal review, and supported the proposals to transfer a portion of the Bank's fiscal 1964
earnings to IDA; to permit the Bank to lend to the I F C ; and to
request the Executive Directors of the Bank to draft a convention
establishing voluntary institutional facilities for the arbitration and
conciliation of investment disputes. The Secretary also emphasized,
in connection with the Bank's plaiis to borrow substantial amounts for
an expansion of its lending operations, the need for broadening its
access to private financial markets in industrialized countries that
are accumulating international reserves. The Governors approved
the transfer, as a grant, of $50 mUlion of the Bank's earnings to IDA,
recommended that the Articles of Agreement of both the Bank and
I F C be amended to enable the Bank to make loans to IFC for relending to private companies, and authorized the Executive Directors




64

19 64 REPORT OF THE SECRETARY OF THE TREASURY

to prepare a final text of a convention on investment arbitration and
conciliation for submission to governments.
Inter-American Development Bank.—Secretary DUlon, as U.S. Governor of the Bank, led the U.S. delegation to the Fifth Annual Meeting
of the Bank held in Panama in AprU 1964. Assistant Secretary of
the Treasury for International Affahs Bullitt acted as temporary
Alternate Governor. The delegation also included Mr. Tom Killefer,
U.S. Executive Director of the Bank, representatives of the agencies
constituting the National Advisory CouncU on International Monetary and Financial Problems and Members of Congress cpncerned
with inter-American affairs. In his statement to the Governors (see
exhibit 30), Secretary DUlon noted the success of the Bank in mobilizing private capital for the economic development of Latin America.
In this connection he commented that the recent increase in the
authorized capital stock of the Bank would result in an accelerated
rate of lending activities. The Secretary also indicated support for
the proposed increase in the resources of the Fund for Special Operations, mentioned earlier in this report.
Organization for Economic Cooperation and Development.—The third
Ministerial CouncU meeting of the Organization for Economic Cooperation and Development (OECD) met in Paris on November 19-20,
1963. I t was attended by Deputy Assistant Secretary Merlyn N.
Trued. The CouncU of Ministers found that the prospects in member
countries were on the whole better than in 1962. Progress in the
United States, the United Kingdom, and Canada, was particularly
noted. In the expectation that economic growth wUl be supported
by suitable measures, the Ministers indicated that gross national
product of the OECD area as a whole for the years 1960-64 wUl
probably correspond to the growth target of 50 percent set for the
decade of the 1960's by the first Ministerial CouncU in 1961. The
importance of internal stabUity for balanced economic growth was
stressed.
The Economic Policy Committee of the OECD held regular meetings
throughout the year to discuss the overaU economic situation of the
member countries. Under Secretary for Monetary Affairs Roosa was
a member of the U.S. delegation at these meetings.
The Treasury has participated in the activities of two working
parties of the Economic Policy Committee. The Working Party on
Policies for the Promotion of Better Payments Equilibrium (Working
Party 3) met at intervals of four to six weeks with Under Secretary
Roosa as Chairman of the U.S. delegation. This group reviews the
payments situation of both surplus and deficit countries and tries to
achieve coordinated action, towards the goal of international monetary
stability. The Working Party on Policies for the Promotion of




REVIEW OF FISCAL OPERATIONS

65

Economic Growth (Working Party 2), is concerned with implementing
the 50 percent collective growth target set in 1961. A high-ranking
Treasury official serves on the U.S. delegation.
During the year significant improvements in the Code of Liberalization of Capital Movements were proposed and subsequently
adopted by the CouncU of the Organization. These changes were
developed by the Committee for Invisible Transactions, which is
primarUy responsible within the OECD for the progressive removal of
restrictions on the international movement of services and capital,
including implementation in the framework of the Code of Liberalization of Current Invisible Operations and of Capital Movements.
As part of the Trade Committee's continuing efforts to expand
trade among nations, several meetings were held to discuss the possibUity of bringing the antidumping laws and procedures of member
nations into closer harmony. The Trade Committee also discussed
the nature of and problems arising from the procurement practices
of member countries and undertook a study of the effects of excise
tax rebates and import equalization taxes on competitive positions
in international trade. The Treasury Department provided assistance
in the discussion on these topics, supplying detaUed information on
pertinent aspects of the U.S. tax system in connection with the
border tax study.
The Development Assistance Committee (DAC) of the OECD continued to coordinate development aid programs of member countries
to achieve a greater degree of harmonization of the policies of donor
countries and more effective use of such aid. In July 1963 representatives of the Treasury participated in a meeting of DAC which adopted
resolutions relating to policies designed to improve the common aid
effort of DAC members in providing assistance to developing countries. DAC membership includes Belgium, Canada, Denmark,
France, Germany, Italy, Japan, Norway, the Netherlands, Portugal,
the United Kingdom, the United States, and the Commission of the
European Economic Community.
The Annual Aid Review of the DAC provides for careful study and
examination of each member's program and enables a comparison of
relative aid burdens and general aid policies. The U.S. review was
held on May 26, 1964.
The Economic Development and Review Committee of the OECD
reviews annually the economies of the member countries and issues
a public report; the Treasury participated in the Committee's formal
examination of the U.S. economy. The Treasury also participates in
the work of other committees of the O E C D . A Treasury observer
regularly attended meetings of the Managing Board of the Em-opean
Monetary Agreement.




66

1^64 REPORT OF THE SECIRETARY OF THE TREASURY

The General Agreement on T a r i f s and Trade.—The Treasury continues to participate in the work of the Trade Expansion Act Advisory
Committee, the Trade Executive Committee, the Trade Staff Committee, and the Trade Information Committee. Preparations for the
Kennedy round negotiations moved into the public phase with the
issuance by President Kennedy on October 22, 1963, of the public list
of products to be considered for possible reductions in rates of duty
under the Trade Expansion Act. Hearings before the Trade Information Committee extended over 64 working days; 674 briefs were received and 578 individuals presented testimony before the Committee.
The Kennedy round of trade negotiations was officially opened at
a meeting of Ministers on May 4, 1964, at Geneva and it has been
agreed that negotiations are to be based on an across-the-board (linear)
reduction of tariff's.
Discussions were being held on substantive, technical, and procedural issues at the end of fiscal 1964.
During the year a Treasury representative participated in the
regular meetings of the GATT committee on balance-of-payments
restrictions, with particular reference to trade impediments to U.S.
exports.
The United Nations .Conference on Trade and Development.—The
initial session of the Conference (convened in accordance with Resolution 1785 (XVII) adopted by the General Assembly of the United
Nations on December 8, 1962) was held in Geneva March 23-June 16,
1964. The Conference produced 60 individual recommendations
relating to primary commodities, manufactured goods, financing of
international trade, invisibles, and new institutional arrangements.
The Treasury participated in the activities of the U.N. Economic
Committee in preparation for the Conference and a representative of
the Treasury served as a member of the U.S. delegation during the
meeting at Geneva.
Lend-lease silver

Repayments continued during fiscal 1964 of those obligations which
still remained outstanding at the beginning of the year on account of
Treasury sUver transferred to certain countries during World War I I
under the authority of the Lend-Lease Act of March 11, 1941. Liquidation of these obligations is nearly completed. The Lend-Lease
Silver Liability account of the Government of Saudi Arabia was
settled and closed on the books of the Treasury Department upon
receipt from that Government of a final cash repayment in the amount
of $122,287.42. This is equivalent to 95,091.31 fine troy ounces of
silver converted on the basis of the market price for silver on the date
of the receipt of the payment.




REVIEW OF FISCAL

67

OPERATIONS

A cash repayment of $1,977,184.97, equivalent to 1,529,229 fine
troy ounces of silver converted on the basis of the monetary value,
was received from Pakistan and taken into the account of the Treasurer of the United States during the fiscal year.
Lend-lease silver transactions as of J u n e 30, 1964
[In millions of fine ounces except where otherwise specificaUy indicated]
Silver transferred from the
Treasury to
lend-lease for
account of
foreign
governments
Australia
Belgium
_
Ethiopia
.
Fiji
- --India
Netherlands
Pakistan
Saudi Arabia
United Kingdom

_

_.
-__ .-

___
_.

__

Total

SUver returned
and taken into
the account Silver being DoUar re- Silver to be
payments returned
of the Treas- returned
urer of the
(millions)
United States

11.8
.3
5.4
.2
172.5
66.7
53.5
2 22.3
88.1

11.8
.3
5.4
.2
172.2
56.7
48.8
1.4
88.1

0.3

410.8

384.9

0.3

i$5.5
3 20.4

0.1

25.9

,1

1 Equivalent to 4.6 miUion fine troy ounces of silver converted on the basis of the market price on dates
of receipts, or the monetary value.
2 Includes 1,031,250 ounces lost at sea while in transit.
3 Equivalent to 19.9 million fine troy ounces of silver converted on basis of the market price on dates of
receipts.







ADMINISTRATIVE




REPORTS




Management Improvement Program
The Treasury Department's management improvement program
seeks to insure maximum effectiveness in reducing costs, increasing
productivity, and improving efficiency at all operating and staff levels
throughout the Department.
Reported savings from improved administration and program
management in fiscal 1964 amounted to more than $29.5 million,
including nearly $3.5 mUlion produced through the Incentive Awards
Program. This figure, the highest reported in the 18 years since the
program began, significantly exceeds the previous high of $20 million
achieved in the fiscal year 1954. In addition, there were many
accomplishments which cannot be measured in terms of manpower
or dollars.
The more significant management improvements of Treasury
bureaus are treated in this annual report in the succeeding administrative reports of the separate offices and bureaus.
Special studies and projects

The comprehensive evaluation of the Bureau of Customs missions,
organization, and management begun in fiscal 1963 was completed.
A draft report of the survey, conducted by staff from Treasury's
Office of Management and Organization, Office of Budget and Finance,
Office of Personnel, and the Bureau of Customs was under review at
the end of fiscal 1964. Some of the recommendations and suggestions
made during the survey have been implemented; and several ad hoc
committees have been established to evaluate the budgetary impact
of the recommendations and to plan implementation schedules.
Other management projects were conducted jointly by bureau
personnel and staff from the Office of the Administrative Assistant
Secretary. A study was made with I R S to determine ways and means
of coordinating the work of the Chief Counsel's office with that of the
Office of the Assistant Commissioner (Technical) of the Internal
Revenue Service to minimize duplication and achieve the best manpower utilization. Recommendations have been implemented with
annual savings of about $814,000 or 86 man-years. Assistance was
rendered the Bureau of the Mint in developing a long-range coinage
forecast, evaluating existing production facilities, planning to increase
coin production pending completion of the new mint, and assisting in
the search for additional short-term production facUities and equipment. Staff participated in a study of Bureau of Narcotic's field
personnel to bring about better manpower utilization by freeing agents
of clerical work. The study recommended augmenting clerical staffs
to make more agent time available for law enforcement.
The experience of Treasury with its field liaison representatives
to the twelve Federal Executive Boards (FEB) has led the Department to extend the F E B liaison principle to the Washington, D.C.
level; and all bureaus with field organizations have designated a
representative to work with Office of the Secretary staff members on
F E B matters.




71

72

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Financial management

The Treasury Department's central fiscal role led to important
developments in financial reporting practices. These included,
among other things, the withdrawal of cash from the Treasury and a
reduction of Government-wide administrative costs and workloads.
These developments are discussed more fully in the Bureau of Accounts
section of this annual report.
Two new Internal Revenue A D P service centers at Austin, Tex.,
and Cincinnati, Ohio, began processing business tax returns under
the A D P master file concept in January 1964. Systems specifications
and A D P handbook instructions were revised to improve the system
operation based on a continuing analysis of the system and to incorporate legislative changes. The A D P equipment in other service
centers and the National Computer Center was updated to process
more efficiently the volume of returns and documents.
Specifications have been prepared for the application of A D P to
the accounting and reporting of Customs revenues and other collections, appropriations, trust and deposit funds, and seized property.
Marked progress was made during the year in converting certain
payroll activities to a centralized computer system utilizing Internal
Revenue Service facilities. On July 1, 1963, the Bureau of Accounts
installed an improved administrative accounting system, which conforms to principles of the General Accounting Office relating to the
apphcation of accrual accounting and provides data for internal
cost-based budgets, including depreciation of capitalized personal
property and annual leave accruals.
During fiscal 1964 the development of audit and appraisal plans
was emphasized by: The appraisal of the systems of internal audit
in two bureaus; the audit of administrative accounts and certain
related procedures and practices in the Office of the Secretary; and
close liaison with the General Accounting Office audit staff.
Personnel management

Among the new personnel programs introduced by the President,
the one on the status of women received particular emphasis. On
March 10, 1964, the Secretary of the Treasury appointed nine career
women to form the Department's Advisory Committee on the Status
of Women. This Committee was specifically enjoined to: Suggest
measures for making the program for equal employment opportunity
for women more effective within the Treasury; serve as a focal point
for progress on the program; and, stimulate positive action to encourage the employment of women wherever appropriate and provide
information to the Department on the value of full utilization of skills
of women.
Action was taken to strengthen other programs including employeemanagement cooperation, employee training and development, and
recruitment.
The Department's Office of Personnel concentrated on the following
activities during the year:
A revised performance rating plan was issued to promote better
evaluation of employee performance.
Improved qualification standards applicable to all Treasury criminal investigators were developed as well as a master training program
for Treasury-wide use for criminal investigators.



ADMINISTRATIVE REPORTS

73

A chapter on nondiscrimination was added to the Treasury Personnel Manual and the manual's format was revised to conform with the
codification of the Federal Personnel Manual.
I t assumed leadership in the new program to place mentally
retarded persons in positions for which they are fully qualified.
The placement of handicapped persons in all categories was substantially increased.
The placement of a larger number of juveniles for 1964 summer
employment in cooperation with the Washington Action for Youth
program.
The drastic reduction of employee appeals to the department level
as a result of a new policy of resolving appeals at lower management
levels.
The extensive utilization of A D P equipment in the preparation of
many personnel reports previously prepared manually.
An increase in the number of employee organizations granted
formal recognition on a nationwide basis from four to five. Exclusive
recognition has now been granted in 109 Treasury units representing
more than half of the Treasury bureaus.
The Equal Employment Opportunity Program.
Treasury bureaus continued technical training to develop specific
skills and career development to insure maximum utilization of
employee potential. Treasury employees participated in many short
courses for middle managers and executives sponsored by the Civil
Service Commission, the Bureau of the Budget, the Department of
Defense, the Brookings Institution, and universities and colleges.
Long-term development programs included the ten-month resident
courses of the National War College, the Industrial College of the
Armed Forces, the U.S. Naval War College, and Princeton University's
"Educational Program for Federal Officials at Mid-Career."
The Department participated in the first National Institute of
Public Affairs Awards Program and three Internal Revenue Service
employees were selected in nationwide competition for these awards.
They attended Harvard University, Stanford University, and the
University of Virginia, for a year of graduate study related to their
career plans.
Resources both within and outside the Treasury Department were
used to meet training needs. An agreement was reached with the
Civil Service Commission and the General Services Administration
Institute for those agencies to deal directly with Treasury bureaus on
interagency training matters. This decentralization of administration
and the streamlining of nominating procedures resulted in a savings
of hundreds of man-hours and much paperwork in the Office of
Personnel and ih the Treasury bureaus.
Incentive awards program

Estimated first-year savings from employee suggestions and services
recognized under the Treasury Incentive Awards Program reached
$3,477,064 in the fiscal year 1964, an increase of over 61 percent from
1963.
The number of suggestions from employees increased by 59 percent
and those adopted increased by 37.9 percent. The estimated firstyear savings from adopted suggestions amounted to $604,855 or a 71




74

19 64 REPORT OF THE SECRETARY OF THE TREASURY

percent increase over fiscal 1963. The most outstanding suggestion
of the year was made by an Internal Revenue Service employee who
invented a new mail opening table, with a first-year estimated savings
of $57,000.
Although the number of Superior Performance Awards decreased
by 196, the estimated savings on which the awards were based
increased $1,103,290, or 171 percent, over fiscal year 1963. The
amount of awards increased by 4 percent. The Department has
many positions for which there are established quantitative and
qualitative standards and performance awards give particularly effective recognition to employees who have exceeded those standards and
thereby contributed to the improvement of operations.
The number of Special Act or Service Awards increased by 50
percent and the amount paid by 20 percent in fiscal 1964, as compared
with 1963. Estimated first-year savings from these amounted to
$1,125,511. The largest award in this category was earned by five
employees of the Internal Revenue Service for a study made of the
Informal Conference Function. Implementation of the recommendations in that study resulted in estimated savings to the Service of
$924,450 annually.
Safety program

The Treasury's disabling injury frequency rate (the number of
lost-time injuries per million man-hours) for calendar 1963 compares
favorably with the lowest rates ever recorded by the Department. The
Treasury Safety CouncU reorganized its working structure to establish
six new committees to handle specific safety problem areas and improve accident prevention techniques, thereby reducing the Department's accident toll.
Property and facilities management

During fiscal 1964 the Treasury declared as excess personal property
having an original acquisition cost of about $14 million and reassigned
within Department installations on a nationwide basis about $1
million worth of property. The Treasury Department transferred
to other Federal agencies excess personal property having an original
acquisition cost of about $3 million. About $5 million of excess
personal property was received without reimbursement from other
Federal agencies. About $10 million worth of property was deemed
to be surplus, and over $5 million worth was released. Representative
of the items acquired from other Federal agencies were aircraft parts,
electronic equipment, military equipment, and a,nchor chain that the
U.S. Coast Guard acquired from the Department of Defense.
Title and descriptive data on 24 excess real properties, comprising
60 acres of land, were reviewed and transmitted to appropriate GSA
regional offices. In addition, six public domain properties involving
approximately 200 acres of land were declared excess to Coast Guard
needs and were referred to the Department of Interior.
Of the six new Federal office buildings completed by the GSA
during fiscal 1964, Treasury received space in four. In all instances
this involved the release of commercial space and in Memphis, Tenn.,
resulted in the placement in one building of seven previously scattered
Treasury offices.




ADMINISTRATIVE REPORTS

75

Treasury participated in GSA plans to estabhsh interagency motor
pool systems in 7 locations, and 41 Treasury vehicles were scheduled
for transfer to such motor pools.
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency has largely completed
the essential outlines of a long-needed program to equip the National
Banking System with the tools necessary to perform its functions of
directiag the flow of the Nation's capital resources to their best and
most productive uses. The Comptroller of the Currency, as the
Administrator of the National Banking System, is charged with the
responsibUity of maintaiaing the public's confidence in the System
by sustainmg the banks' solvency and liquidity. An equally important public objective is to fashion the controls over bankiag so that
banks may have the discretionary power to adapt their operations
sensitively and efficiently to the needs of a growing economy.
To reform the structure of bankiag regulations and procedure, the
policies and practices of the first 100 years of the National Banking
System have been put to the fundamental test of whether they were
needed hi order to maintain the solvency and liquidity of banks.
Wherever a restrictive control did not meet this test, the Office has
endeavored to broaden the discretionary powers of the national banks,
insofar as this appeared desirable and was permissible under existing
law. Wherever existing law appeared unduly restrictive, legislative
change has been advocated.
Among bankiag policies and practices which have been rethought
and modernized, the following are illustrative of the hundreds of new
actions: Liberalization of the use of preferred stock; authorization to
use capital debentures; permission to use stock option and employee
stock purchase plans; clarification of the authority to underwrite
public securities; simplification of the rules relatiag to iavestment
securities; complete revamping of the trust regulations; authorization
for the collective investment of managing agency accounts; broadening
of the authority to make hnprovement and development loans, business and commercial loans, and construction, residential, and condominium loans; recognition of the authority to engage in lease
financing, factoring, and export transactions; broadening of the
applicabUity of the exceptions to the lending limit; recognition of the
authority to engage in mortgage servichig and other services ancillary
to banking; broadeniag of the authority to participate ia community
development projects by contributions or loans; recognition of the
authority to extend computer, accounting, payroll, and other similar
services to bank customers, and recognition of the authority to accept
corporate savhigs accounts.
In continuance of a program to strengthen administration in the
field organization, as well as in the Washington office, the scope of
activities and responsibilities discharged in the field was broadened.
The titles of the heads of the 14 national bank regions were changed
from regional chief national bank examiners to regional comptrollers
of the currency. Regional comptrollers were authorized to recruit
and train national bank examiners and to deal directly with national
bank officials on matters requiring attention as the result of bank




76

19 64 REPORT OF THE SECRETARY OF THE TREASURY

examinations. Strengthening the role of the regional comptrollers
has resulted in faster notifications to national banks, facilitated more
effective relationships with national bank officials, and made possible
the resolving of issues and the making of decisions at the regional level
as far as compatible with applicable laws, policies, and views of the
Comptroller. The regional comptrollers also were authorized to
approve contem Uated cash dividends and certain banking house investments; to grant preliminary approvals for the payment of stock
dividends and the sale of additional common stock, and to issue certificates of final approval of capital increases by stock dividends and
sales of additional common stock for cash.
In a reorganization of the Washington administrative staff, the
duties of deputy comptrollers of the currency have been recast on a
functional, rather than geographic, basis. Whereas deputy comptrollers formerly were responsible for supervision of a group ot national bank regions, now each of these deputies is responsible for a
functional area that permits more expeditious formulation and execution of overall policy. The First Deputy Comptroller is Acting Comptroller in the absence of the Comptroller of the Currency. Other
deputies have responsibility for bank supervision and examination,
for new charters, and for domestic banking operations. In addition,
there are: A Deputy Comptroller for Trusts who supervises the fiduciary activities of national banks under a complete reorganization of
the Trust Division undertaken a year earlier; a Deputy Comptroller
for mergers and branches; and a Deputy Comptroller for international
banking and finance. An international operations group to supervise
the overseas activities of national banks was established and recruitment and training procedures were undertaken to provide a corps of
examiners for the foreign areas.
The year marked the increasing acceptance by bankers and others
interested in banking of tne National Ba,nking Review, a quarterly
journal of policy and practice published by the Comptroller's Department of Banking and Economic Research. I t is avaUable on a subscription basis. The third and fourth in a series of Comptroller's
manuals were issued in a continuance of the policy of keeping national
banks and examiners informed. These are the Comptroller's Policy
Guidelines for National Bank Directors and Instructions, Procedures,
and Forms for National Bank Examiners.
The 101st Annual Report of the Comptroller of the Currency contains
an analysis, of the state of the National Banking System and the texts
of merger decisions, changes in the administration of this office, as
well as a detailed review of the program of reform in policy and procedure. Other innovations in the Comptroller's annual report are
the publication of his principal addresses, testimony on legislative
matters, selected congressional correspondence, and selected communications to tlie nationa] banks.
Status of national banks

Under the stimulus of new authority granted national banks, banking performance has reached a new high level in growth of deposits,
loans, investments, and earnings. The table below, the number of
national banks and banking offices, by States, June 30, 1964, presents
the structure of the National Banking System on that date.




ADMINISTRATIVE REPORTS

77

Number of national banks and banking offices, by States, June 30, 1964
National banks

state
United States 2
Alabama
Alaska
Arizona
Arkansas
California
Colorado...
_.
Connecticut
Delaware
District of Columbia.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana. _
Iowa
Kansas
Kentucky...
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio-.-.
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
.
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Virgin Islands

Total

With
branches

Unit

4,702
78
5
3
62
71
110
24
5
7
177
54
2
10
407
123
101
169
83
47
22
48
92
90
192
30
88
47
122
3
50
144
33
207
31
40
218
216
11
401
4
26
33
74
534
11
28
124
27
76
106
35
1

Number
Number
of branches of national
of national banking
banks
offices 1

7,553
56
0
0
40
45

no
9
4
0
177
31
0
4
407
67
83
145
44
18
8
25
36
44
190
9
75
47
106
1
40
53
15
112
9
36
102
193
6
256
0
7
28
33
534
7
18
67
11
76
95
35
0

22
5
3
22
26
0
15
1
7
0
23
2
6
0
56
18
24
39
29
14
23
56
46
2
21
13
0
16
2
10
91
18
95
22
4
116
23
5
145
4
19
5
41
0
4
10
57
16
0
11
0
1

12, 255

99
38
158
39

177
43
161
101

1,591

1,662

0
139
3
42
0
100
39
86
0
229
20
24.
104
119
61
162
287
321
6
37
13
0
16
29
10
367
44
723
237
4
^37
23
195
669
52
154
34
168
0
50
25
260

a4

0
23
0
2

110
163
8
49
177
154
41
96
407
352
121
193
187
166
83
210
379
411
198
67
101
47
138
32
60
511
77
930
268
44
655
239
206
1,070

56
180
67
242
534
61
•3
5
384
341
76
129
35
3

D.C—aU3
1 Number of banking offices is the sum of total national banks and number of branches of national banks.
2 Includes Virgin Islands.
3 Includes national and nonnational banks in the District of Columbia, all of which are supervised by the
ComptroUer of the Currency.




78

1964 REPORT OF THE SECRETARY OF THE TREASURY

The assets, liabilities, and capital accounts of national banks at the
beginning, middle, and end of the fiscal year 1964 are indicated in
the table below.
Assets, liabilities, and capital accounts of national hanks on J u n e 29, 1963,
December 20, 1963, and J u n e 30, 1964
[In millions of dollars]
Item

J u n e 29, 1963 Dec. 20, 1963 J u n e 30, 1964
(4,537 b a n k s ) (4,615 banks) (4,702 b a n k s )

ASSETS

78,383
34,012
15,174
2,164

83,388
33,384
16,380
2,408

88,519
31,551
17, 591
2,191

129, 733

135, 560

139,852

28,641
n.a.
n.a.
2,417
518
1,436

28,635
1,457
24
2,591
575
1,388

29,513
761
47
2,683
609
1,642

162, 745

170, 230

175,107

63, 256

67,740

66,030

54,055
6, 212
11, 429
8,627
1,934

56, 606
3,874
11, 523
9,009
2,072

61,000
5,999
12,228
8,648
2,075

..

145,513

150,824

155,980

D e m a n d deposits
_.
T i m e a n d savings deposits
R e d i s c o u n t s a n d other liabilities for borrowed m o n e y
F e d e r a l funds p u r c h a s e d
__. __ .
Acceptances executed b y or for account of b a n k s a n d outstanding
.__
_O t h e r liabilities .
.
.

86,893
58,620
600
n.a.

89,390
61,434
395
1,309

89,681
66,299
79
787

531
3,093

584
3,570

620
3,344

149,737

156,682

160 810

L o a n s a n d discounts
_
.
_.
..
U . S . G o v e r n m e n t obligations, direct a n d guaranteed
Obligations of States a n d political subdivisions
0 ther b o n d s , notes, a n d d e b e n t u r e s
.

._ _

T o t a l loans a n d securities
C a s h , balances w i t h other b a n k s , a n d cash i t e m s i n process of
coUection .
_
_ _ . . _ _ _
F e d e r a l funds sold
.
D i r e c t lease financing _
_
_
F i x e d assets
_ _
C u s t o m e r s ' UabiUty on acceptances o u t s t a n d i n g
O t h e r assets
T o t a l assets._ ___ . __ _.
LIABILITIES

D e m a n d deposits of i n d i v i d u a l s , p a r t n e r s h i p s , a n d corporations
- -_- T i m e a n d savings deposits of i n d i v i d u a l s , p a r t n e r s h i p s , a n d
corporations
D e p o s i t s of U . S . G o v e r n m e n t
Deposits of s t a t e s a n d political subdivisions _
Deposits of b a n k s . . .
__ .
Certified a n d officer's checks
Total deposits.

T o t a l liabilities
CAPITAL ACCOUNTS

Commonstock
Preferred s t o c k . . . .
- -

T o t a l capital accouuts

- -

.
_.

__

T o t a l habilities a n d capital accounts

n.a. Not available.
1 Less than $500,000.




45

304

3,984

4,190

3,846
25

.

C a p i t a l stock, total

Surplus...
U n d i v i d e d profits
Reserves

0)
3,871

Debentures

3,959
25

4,162
28

6,526
2,331
280

6,700
2,529
290

6,950
2,491
362

13,008

13,548

14 297

162, 745

170, 230

175,107

ADMINISTRATIVE REPORTS

79

Bureau of Customs
The major responsibility of thie Bureau of Customs is to administer
thte Tariff' Act of 1930, as amended. Primary duties include the
assessment and collection of all duties, taxes, and fees on imported
merchtadise, the enforcement of customs and related laws, and the
administration of certain navigation laws and treaties. As an
enforcement organization, it engages in combating smuggling and
frauds on the revenue and enforces the regulations of numerous other
Federal agencies.
Management improvement program

Special search for economies.—The intensive program to reduce
operating costs through better utilization of manpower, which was
renewed in November 1962, was responsible for the initiation of
several major improvement projects and the completion of others in
fiscal 1964. The actual savings and the elimination of need for funds
which otherwise would have had to be requested, realized during the
year and anticipated as annual recurring savings when the improvements are fully effective, are estimated to be over $730,000, an increase
of approximately $400,000 over 1963. This saving is the largest
achieved in over ten years.
Management surveys.—More than half of the total estimated
savings, $444,000, resulted from the management surveys of 60 collection, appraisement, agency, comptroller, and laboratory districts.
The reallocation of manpower, simplification of procedures, and
elimination of surplus positions produced these savings.
Reduction of entry verification costs.—Plans were implemented during
fiscal 1964 for procedures to go into effect on August 1, 1964, to
reduce verification of liquidated formal entries in the comptrollers'
offices and to increase the review of liquidated entries under the
internal check system in the collectors' offices. These changes are
expected to effect a savings of approximately $100,000 in the comptrollers' offices when fully implemented, while continuing to ensure
the accuracy and reliability of liquidating work.
Liguidation of entries.—During fiscal year 1964, for the third
consecutive year, a substantial reduction in the backlog of formal
entries ready for tentative liquidation was accomplished. The number of entries decreased to 292,000 on June 30, 1964, a reduction of
more than 15 percent from 1963. This was achieved primarily by
maintaining a close check of any available manpower for liquidating
entries so that entries could be transferred from overloaded districts
to other districts where there was an excess liquidating capacity.
Simplification of customs requirements affecting international travel.—
Air passengers arriving at U.S. ports of entry may now orally declare
their effects in lieu of preparing a detailed written declaration. Passengers not exceeding theh exemption and not having articles shipped
are cleared following an oral declaration, accompanied by a simple
3%'' X 8'^ card containing certain identifying information.
Passengers departing the United States who take and intend to
bring back valuable effects of foreign origin now may register them
for a duration of three years. Formerly, these effects had to be
registered before every departure.
743-16i0—65—-7 .




80

1964 REPORT OF THE SECRETARY OF THE TREASURY

A simplified procedure for handling the baggage of other than precleared commercial ahcraft passengers transiting the United States
who have checked their baggage at a foreign port of departure for
shipment through the United States fco a foreign destination was
initiated in fiscal 1964 on a test basis. This procedure, to be used at
the airlines' option, was devised to provide a more efficient customs
control of in-transit baggage.
Facilitation of international trade.—FoUowing tests initiated in fiscal
1963 (see 1963 annual report, j)age 97) special procedures were established at 22 ports for export a h cargo laden on domestic flights for
transfer to international flights at ports of exportation. The requirement of cording, sealing, or labeling individual packages of air cargo
shipped in bond has been waived for cargo securely fastened on bulk
handling devices. The placement of a single in-bond warning stamp
on each such device has been ascertained to be sufficient customs
control.
Commercial aircraft kits containing duty-free and tax-free liquor
and tobacco are now supervised and controlled by new procedures
which provide uniform protection of the revenue. These kits must
be sealed with serially-numbered U.S. Customs seals by aircrew personnel prior to landing at a U.S. port and must remain sealed whUe
on the ground unless inside an authorized airline in-bond liquor
storeroom.
The period for making timely entry for merchandise released under
an immediate delivery permit bas been extended from two days, excluding the day of release, Saturdays, Sundays, and holidays, to at
least four days. This assists importers by eliminating the necessity
for written requests to obtain extensions of the 2-day period.
Entry of articles under a temporary importation bond is now permitted without formal appraisement and liquidation and with only
such examination as the collector deems necessary; and exportation
is now permitted without examination and authentication, except
under special circumstances. However, in order to cover any liquidated damages if the conditions of the entry are violated, the temporary importation bond has been raised from one and one-quarter to
double the estimated duties. Reduction in man-hours formerly
requhed for handling temporary importations has resulted in annual
recurring savings of $15,000.
,
When an entry has not been filed within the prescribed period
for merchandise released under an immediate delivery permit and
there are mitigating circumstances, the collector has been authorized
to cancel a claim for liquidated damages upon the receipt of $25.
This was increased from $10 to $25 in order to adequately reimburse
the Government for the expense of processing the claim and to
provide a sufficient deterrent to prevent the recurrence of the
violations.
The intercoastal residue cargo procedure has been modified to
provide greater convenience to shippers and more flexibUity and speed
in the handling of this t37^pe of manifest. A listing of all optional
ports of discharge on the cargo manifest of vessels arriving at one
coast and proceeding to the other coast or the Great Lakes area
wUl no longer be requhed if the intended ports of discharge are not
definitely known. As a result, the forwarding of reports of actual




ADMINISTRATIVE REPORTS

81

ports of discharge to the first port of arrival on the first coast will
be discontinued and the control of discharge of residue cargo will be
shifted to the first port of arrival on the second coast.
Delegations of^ authority.—The Customs Regulations were amended
to grant authority to collectors to: Settle cases in which the amount
of the penalty, forfeiture, or forfeiture value is $2,000 or less (authority
formerly limited to cases of $500 or less); and cancel liquidated
damages of $500 or less in those bond cases in which the collectors'
authority had been limited to $200.
Guidelines have been established in the Customs Regulations for
action on penalties in cases of faUure to report arrival of carriers
and faUure to declare merchandise.
Collectors were also authorized to waive registration requirements before the exportation of certain articles for repairs, etc., if the duty on the
exported article would be less than $25, and if, upon return to the
United States, it wUl be cleared on a mail or other informal entry.
Fees and charges.—Seven customs and navigation fees have been
increased to assure that services rendered are as self-sustaining as
possible. In addition, the procedure for furnishing the names and
addresses of importers of merchandise appearing to infringe a registered patent has been revised and a related fee structure established.
The charge for this information for a 2-month period is $1,000; for
a 4-month period, $1,500; and a 6-month period, $2,000.
Training and orientation.—During fiscal 1964 training and
instruction was provided for employees of other inspectional agencies
who perform customs functions, foreign customs officials, and customs
inspectors.
The development of a servicewide training course for new customs
inspectors was completed in April 1964, when a 6-week pilot course
at Fort Slocum, N.Y., was concluded.
A customs inspectors' manual containing detaUed instructions in
layman's language for the performance of inspectional duties was
completed during fiscal 1964, for distribution to field offices in July
1 9 6 4 . . . .
Basic customs instructions for employees of other inspection agencies
who perform customs functions in a dual or multiple screening
operation have been prepared and wUl be combined in a booklet
with instructions from the Public Health Service, the Immigration
and Naturalization Service, and the Agriculture Department.
In cooperation with the Agency for International Development,
60 foreign customs officials from 22 countries were given orientation
training in U.S. Customs Service operations.
Puhlicrelationsdevelopments.—-C^\Qhvdi.t\oiOioi\hQ>^\ive,di>Vi of Customs
175th anniversary year featured the following: An anniversary
proclamation by the President; an anniversary slogan cancellation
stamp on maU in 28 U.S. cities; the sale of 40,000,000 commemorative postal cards; an anniversary slogan on franked envelopes and
an anniversary seal on stationery; three dimensional customs plaques
for display in customs offices and public reception areas; and numerous
ceremonies and celebrations throughout the country.
Measures to welcome travelers and people transacting business
with customs more pleasantly as well as to improve employee efficiency and morale were: Major decorative improvements; the display




82

19 64 REPORT OF THE SECRETARY OF THE TREASURY

of three new Customs Service posters and U.S. Travel Service posters;
and the redesign of the customs inspectress uniform.
Improvements of forms and reporting requirements.—The master
copy of forms printed at the Government Printing Office wUl now be
prepared at the Bureau of Customs on a varityper. The resultant
savings for fiscal 1964 were $16,000 and recurrent savings are estimated at approximately $20,000.
During fiscal 1964, 50 forms were revised, 11 new ones established,
2 consolidated, and 18 forms were abolished.
The reporting procedures of the Customs Agency Service were
simplified by abolishing six monthly reports, one record form, and
several reports and forms debased and used in field offices. One form
was established for the uniform monthly reporting of seizures, recoveries, arrests, and dispositions.
The use of serially-numbered baggage stamps has been reduced
for the identification of baggage which has been inspected by customs.
Through the use of other means of identification, printing costs wUl
be reduced by an estimated $20,000.
Safety.—Special instructions were issued concerning the use of
firearms and for protecting the hearing of employees who work in
close proximity to jet aircraft. Four safety bulletins have been distributed to field offices and headquarters.
A program is in progress to provide all border interceptor vehicles
of the Customs Agency Service with combined electronic sirens and
public address systems. This equipment is intended to minimize the
danger for all concerned on the public highways.
Other improvements to reduce operation costs.—The results of efforts
to encourage and increase participation in the management improvement program included estimated annual recurring savings of approximately $59,800 from improvements by principal field officers and
$19,700 saved from the 583 approved employeefsuggestions.
Pursuant to the revised Treasury Department Incentive Awards
Regulations, the Bureau made the following improvements: Established incentive awards committees in every customs collection
district; authorized principal field officers to approve Special Act or
Service Awards up to $1,000 if based on tangible savings; authorized
local awards up to $1,000 and Certificates of Award, Special Act
of Service, and Adopted Suggestion Award seals and action on appeals
when a suggestion involves a local matter only; and established
eligibUity requhements for distinguished service awards to citizens
not employed by the Treasury Department.
A highly successful regional conference at which coUectors,
appraisers, and comptroUers met with Bureau headquarters representatives was conducted at Laredo, Tex. By discussing various
phases of customs activity, these principal field officers acquhed
a better understanding of policies and programs which will result
in greater uniformity and efficiency of administration and management
of the Customs Service. Similar regional conferences are planned at
6-month intervals in the other regions.
A special summary of recurring departures from prescribed
procedures found in management inspection reports of collection
districts was issued to all collectors. This summary provided an




ADMINISTRATIVE REPORTS

83

item-by-item guide for use by field officers in conducting independent
surveys and for taking corrective action.
Projected planning for future savings.—A comprehensive management survey of the Customs Service was completed in fiscal 1964.
A study of the missions, organization, and activities of both field and
headquarters offices will be completed and it is expected that action
wUl be taken to implement its recommendations.
A committee is studying the application of automatic data
processing equipment to appropriation and revenue accounting.
This is a long-range project requhing the reorganization of fiscal
activities and the development of new forms and procedures
compatible with automatic data processing.
On May 8, 1964, the Secretary of the Treasury authorized the
establishment of a joint customs-ahline working group on air cargo.
This group of customs and industry representatives will review
present customs and airline procedures for handling international
cargo in order to find ways to expedite cargo movement and meet
the problems resulting from expansion of ah cargo operations,
introduction of cargo jet ahcraft, and development of automated
cargo handling systems.
Work related to cotton textiles.—Upon receipt of dhectives issued
by the President's Cabinet TextUe Advisory Committee under the
Long-Term Cotton Textile Arrangement, Customs implemented and
administered a total of 187 import quotas on cotton textiles and
cotton textile products manufactured or produced in various countries;
in addition, 15 prohibitions were imposed on the entry or withdrawal
for consumption of merchandise in specific categories. Weekly
status reports on all of the quotas and weekly cumulative import
statistics on merchandise in 11 categories under observation were
furnished the Interagency TextUe Administrative Committee for its
use.
Collections

Revenue collected by the Customs Service during the fiscal year
1964 reached a record high of $1,813 million, or 5.3 percent more than
the $1,722 million collected in 1963. This total includes customs
duty collections, excise taxes on imported merchandise collected for
the Internal Revenue Service, and certain miscellaneous collections.
Customs duties alone amounted to more than $1,284 million. Larger
customs collections than in 1963 were reported by 37 out of the 45
customs districts. Collections and payments by customs districts
are shown in table 24. The major classes of all collections by the
Customs Bureau are shown in table 25.
Almost 38 percent of all imports into the United States during fiscal
1964 were duty free. These included commodities imported free for
Government stockpile purposes or authorized by special acts of
Congress for free entry. The 62 percent which was dutiable constituted the basis of customs duties on imports.
Bureau operations

Carriers and persons entering.—More than 174 million persons were
subject to customs inspection in fiscal 1964, a 6.4 percent increase in
carriers and a 6.2 percent increase in persons entering the United
States, as shown in tables 88 and 89.




84

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Entries of merchandise.—The volume and value of imports hito the
United States continued their rise in fiscal 1964, with total value
reaching $17.8 billion. The volume and type of entries handled
during the past two years are shown in table 86.
Drawback transactions.—Drawback allowance on the exportation
of merchandise manufactured from imported materials and for certain other export transactions usually amounts to 99 percent of the
customs duties paid at the time the goods are entered. The total
drawback paid in fiscal 1964 as reflected in table 87 by principal
commodities was $15,266,354, 14.3 percent less than in fiscal 1963.
Appraisement of merchandise {including Customs Information Exchange).—Invoices filed during fiscal 1964 increased 6.3 percent, to
2,649,412. The number of packages examined by appraisers' personnel totaled 1,748,728, an increase of 13.1 percent over fiscal 1963.
The backlog of unappraised invoices more than 30 days old rose to
550,495, an increase of 23.9 percent over fiscal 1963. During the year,
3,078,367 individual line items were verified, each requhing 4 verifications. Of these, changes were made in roughly 60 percent of the
verified elements. A substantial portion of these changes were of an
editorial nature. It is estimated that substantive changes were made
in approximately 25 percent of our reports.
Under the Antidumping Act of 1921, as amended (19 U.S.C.160171), 25 complaints were received, compared with 42'' in 1963. The
disposal of 28 cases left 27 under iavestigation at the end of fiscal
1964. Ten cases were referred to the U.S. Tariff Commission for -a
determination as to possible injury to American industry. Two
findings of dumping were made. Five new cases on countervailiag
duty were received, three of which were closed.
No new cases involving convict labor were received during this
year, but one " received during the previous year was closed.
*
The activities of the Customs Information Exchange in New York,
N. Y., continued at approximately the same high level as that of 1963.
Appraisers' reports of classification and value, covering a cross section
of imported merchandise received at each port, totaled 79,000.
There were 6,091 reports of value differences durmg fiscal 1964 and
6,947 differences in classification, both iacreased from 1963. A portion of this increase may have resulted from new commodities received,
but the larger portion resulted from the introduction as of August 31,
1963, of the new Tariff Schedules of the United States (19 U.S.C.
1202).
Detailed investigations abroad to obtain information for appraisement decreased to 216 in 1964.
Technical services.—The 9 district laboratories and 1 branch laboratory of the Division of Technical Services analyzed over 126,000
samples in fiscal 1964. This decrease of about 12,000 samples was
accounted for mostly by the transition under the new Tariff Schedules
from simple to more difficult and time-consuming samples. Most of
the samples were submitted to the laboratories to assist in appraisement and tariff classification. Other classes analyzed were: Seizures,
mainly narcotics and other prohibited merchandise; samples tested
for other Government agencies; and preshipment samples, submitted
" Revised.
•




ADMINISTRATIVE

85

REPORTS

by importers when requesting the rate of duty on a prospective import.
In addition to actual analyses, the field laboratories and the Division's
headquarters office provided consultation services for appraising,
for classifying, and to other customs officers.
The Division of Technical Services also analyzed cargo sample
weighing data to assure accuracy and precision within statistical
control limits.
Approval of several bulk weighing and sampling equipment installations was recommended. Installation of a truck scale in Brooklyn,
N.Y., was completed. Construction of similar scales in Manhattan,
N.Y., and in Boston, Mass., are in progress.
The program in cooperation with the Immigration and Naturalization Service to improve U.S. border stations was continued. Construction was completed on eight such facilities, two are in progress,
and contracts were awarded for five others. Construction plans for
14 major projects, involving space for Customs, prepared by General
Services Administration were reviewed and appropriate changes recommended. Such facilities were completed at two locations.
Export control.—The following table compares export control activities in fiscal 1963 and 1964.

1963

Activity

Export declarations authenticated
Shipments examined
Number of seizures
Value of seizures
Export control employees

4, 856,637
398,183
345
$683, 984
217

1964

5,065,217
359, 097
403
$421,778
218

Percentage
increase, or
decrease (—)
4.3
-9.8
16.8
-38.3
.5

Protests and appeals.—Protests filed by importers against the rate
and amount of duty assessed and appeals for reappraisement filed by
importers who did not agree with appraisers as to the value of merchandise are shown in the following table.
1963

P r o t e s t s a n d appeals

Protests:
F i l e d w i t h collectors b y i m p o r t e r s (formal)
Filed w i t h collectors b y i m p o r t e r s (informal)
A p p e a l s for r e a p p r a i s e m e n t filed w i t h collectors

. .

34,271
50,416
13,694

1964

37,050
57,586
25,700

Percentage
increase

8.1
14.2
87.7

Marine activities.—During fiscal 1964 four meetings of the Subcommittee on Tonnage Measurement of the Intergovernmental
Maritime Consultative Organization (IMCO) and its working group
were held in London to discuss matters affecting the international
tonnage measurement of ships. Each meeting was attended by a
U.S. delegation headed by a Customs representative. Certain recommendations formulated by the Subcommittee were approved at meetings of the Maritime Safety Committee and the Council. T h e
Recommendations of the Subcommittee on Tonnage Measurement
were presented to the Assembly of IMCO and adopted, with a direc-




86

19 64 REPORT OF THE SECRETARY OF THE TREASURY

tion to the Maritime Safety Committee to prepare and approve
certain additional recommenclations in matters of detail to be incorporated in and made a part of the previous material. The further
recommendations on details, formulated by the Subcommittee, were
considered h j the Maritime Safety Committee at a meeting in April
1964 and were communicated to governments by the SecretaryGeneral of IMCO in May 1964.
The recommendations, which are proposed for incorporation into
national tonnage measurement regulations, would permit the permanent closing of certain shelter-deck and other ^^open" spaces on ships
whUe retaining present tonnage advantages when the ship's draft is
less than the permissible maximum. When the ship's draft is sufficiently shallow so that a prescribed mark on the ship's sides is not
submerged, the shelter-deck and other ^'open" spaces are to be exempted from inclusion in tonnage; when that line is submerged, the
tonnage is to be determined without aUowing exemption of those
spaces.
A customs representative again participated in the work of the
Group of Experts established by IMCO to study measures to facUitate maritime travel and the transport of goods by sea. The group
was directed to consider the regulations of governments or public
authorities in regard to ships entering or leaving port and the
documents, varying both in number and character, which are requhed
to be presented at various ports. The group attached to its report
to the IMCO CouncU a draft Convention on FacUitation of International Maritime Traffic and an annex of standards and recommended
practices in governmental requhements for arriving and departing
vessels on international voyages by sea.
The Convention is proposed as the legal foundation for the annex,
which contains provisions to facilitate maritime traffic and prevent
unnecessary delays tb ships, passengers, crews, cargoes, and baggage.
The IMCO CouncU authorized distribution of the attachments to
governments for consideration, with the understanding that they
would constitute the basic documents for the consideration of a
diplomatic conference to be convened in March 1965 for the purpose
of negotiating, concluding, and signing such a Convention.
A customs representative led the U.S. delegation to the meeting
of the Group of Experts on Facilitation of International Waterborne
Transportation under the auspices of the Organization of American
States (OAS) at the Pan American Union in Washington in June.
This group is preparing an annex of standards and recommended
practices simUar to that drafted under the auspices of IMCO. The
OAS annex is to be attached to the Convention of Mar del Plata
signed by a number of countries, including the United States on
June 7, 1963. This annex follows that adopted at IMCO, pursuant
to a U.S. recommendation to avoid unnecessary confusion resulting
from small differences between the provisions. I t is believed that
this annex will also prove helpful in reducing paperwork in connection
with arrivals and departures of vessels on international voyages.
Admeasurement.—During the fiscal year 4,174 admeasurements of
vessels of all sizes and types for all ports were completed. There
were also 370 readmeasurements and adjustments of tonnages of



ADMINISTRATIVE

87

REPORTS

vessels. The total admeasurements for the fiscal years 1964 and
1963 were thus 4,544 and 4,027, respectively.
At the end of the fiscal year there were 266 pending applications for
measurement of commercial vessels and 162 for yachts.
Documentation.—Vessels in the American merchant marine
documented for commercial use increased to 45,493 in fiscal 1964
whUe those documented as yachts rose to 11,056. The following
table compares the volume of marine documentation during fiscal
years 1963 and 1964.
Activity

Total vessels documented at end of year
Documents issued (registers, enrollments, and licenses)
Licenses renewed and changes of master endorsed
Mortgages, satisfactions, notices of lien, bills of sale, abstracts
of title, and other instruments of title recorded
Abstracts of title and certificates of ownership issued
Certificates and permits
Name changes

1963

1964

Percentage
increase, or
decrease (—)

54,423
17,344
50,433

56,549
18,984
52,324

3.9
9.5
3.7

15, 666
7,360
1,476
1,095

16, 503
7,311
1,550
1,515

5.3
-.7
5.0
8.4

Yacht privileges and tonnage taxes.—Bermuda was added to the
list of countries whose yachts may be issued cruishig licenses exempting them from entr}?- and clearance requirements at ports in the
United States. The Republic of the Ivory Coast and the Republic
of Guinea were added to the list of nations which are exempt from
the payment of special tonnage tax and light money.
Waivers.—Several waivers of the coastwise shipping and other
navigation laws were issued in the interest of national d'efense, upon
request of the Secretary of the Interior, the Secretary of the Army,
and the Assistant Secretary of Defense, for the use of foreign-flag
vessels in trades and activities usually reserved for U.S. vessels.
In one instance, vessels engaged in dredging in the Detroit River
were permitted to transport the dredged material to disposal areas
in Canadian waters without reporting arrival, entering, or clearing.
Entry, clearance, and use of vessels.—The requirements for clearances from American ports of passenger-carrying vessels of foreign
nations signatory to the International Convention for the Safety of
Life at Sea, 1948, were amended to permit the acceptance of certificates issued by the U.S. Coast Guarcl as evidence of compliance with
Convention requhements.
Appropriate instructions were issued: To permit the filing of manifests and shippers' export declarations in the trade with Puerto
Rico and possessions of the United States on or before the seventh
business day after departure, instead of the fourth business day as
previously, subject to the posting of a bond; to permit vessels arriving to take bunkers or ship's stores to be boarded by repahmen and
others checking vessel equipment without loss of the exemption from
entry requirements to which the vessel would otherwise be entitled;
to inform collectors of customs of an opinion of the Attorney General
of the United States that the provisions of law which prohibit dredging in domestic waters by foreign-built vessels do not extend to the
Vhgin Islands; and to provide that a crew list shall not be requhed




88

19 64 REPORT OF THE SECRETARY OF THE TREASURY

on the foreign clearance of an unmanned barge under American
registry.
The following table compares entrances and clearances of vessels
in fiscal years 1963 and 1964.
1963

Vessel m o v e m e n t s

Entrances:
D i r e c t from foreign ports
Via o t h e r domestic p o r t s

1964

Percentage
increase

Total
Clearances:
D i r e c t t o foreign p o r t s
Via other domestic p o r t s

_.

__

Total

48,651
40,172

4.2
3.8

88,823 '

4.0

44,576
38,253

47,386
40, C91

6.3
4.8

82,829

_

46,674
38, 699
85,373

_ . _ _ _

87,477

5.6

Law enforcement and investigative activities

Throughout the fiscal year the reorganization recommendations of
the 1963 task force (see 1963 annual report, page 91) conthiued to be
implemented. Seven new regions of the Customs Agency Service
were established which resulted in'increased efficiency and effectiveness at all levels.
Investigations completed.—The Customs Agency Service completed
20,937 investigations during the fiscal year 1964, compared with
22,077 last year. While the statistics reflect a decrease, there was
actually a marked increase in investigative activity which is accounted
for by the new reporting procedures which became effective on July 1,
1963. The new concept, while reducing the numerical total of cases
opened and closed, actually caused an acceleration of activity, as
shown in the accompanying table. I t includes a comparison of the
arrests and disposition thereof during the fiscal years 1963 and 1964.
Activity

Arrests
Convictions
Dismissals and acquittals
Nolle pressed
Not indicted
Under, or awaiting indictment
Turned over to State and other Federal authorities for prosecution
.

Percentage
increase, or
decrease (—)

1964

1963

1,587
681
1369
54
26
625

1, 801
780
115
19
14
769

13.5
14.5
-68.8
-64.8
-46.2
23.0

279

386

38.4

1 Shown as two separate items in 1963.

The number and types of cases investigated during the fiscal years
1963 and 1964 under customs, navigation, and related laws administered and enforced by Customs are shown in table 91.
The most active enforcement regions were: Western (headquarters at Los Angeles, Calif.), with 894 arrests and 466 convictions;
Southwestern (headquarters at Houston, Tex.), with 556 arrests and
228 convictions; and Northeastern (headquarters at New York, N.Y.),
with 246 arrests and 49 convictions.
Cooperation with other officers.—Officers of the Customs Agency
Service cooperated with Federal, State, and local law enforcement




ADMINISTRATIVE

89

REPORTS

agencies and with officials of foreign governments in 5,553 cases.
Although this represents a numerical decrease from fiscal 1963, the
actual increase in amount of cooperation was obscured by the 1964
change in case accountabUity.
Seizures, general.—A total of 6,299 seizures were made by the
Customs Agency Service in fiscal 1964, having an appraised value of
$16,469,387, while fines and penalties associated with the seizures
amounted to $12,848,664.
Seizures, narcotic and other drug.—On October 10, 1963, customs
officers at Laredo, Tex., seized 76 pounds, 5K ounces (34,629.53 grams)
of French heroin, the largest ever recorded on the Mexican border.
Intensive investigation in the United States, Mexico, and Canada,
implicated members of one of the most important gangs of narcotic
traffickers in the world.
Approximately 81 pounds (36,741.60 grams) of smoking opium
were seized in 6 separate cases involving merchant seamen. Twelve
pounds, 14 ounces (5,840.06 grams), of cocahie were seized in Miami
from persons arriving by air from South America.
The huge increase in marihuana seizures occurred principaUy in the
San Diego, Calif., area, with other large seizures across the Texas
border and around Los Angeles.
The foUowing table compares narcotic and drug seizures during
1963 and 1964.
Percentage
increase, or
decrease ( - )

Fiscal years
Drug seizures
I

Narcotic drugs (weight in grams):
Heroin
__
Number of seizures
Raw opium
Number of seizures
Smoking opium.__
Number of seizures
Others.,Number of seizures
Marihuana:
Bulk (weight in kilograms).-_
Number of seizures..
Cigarettes (number)
Number of seizures

1963

1964

15,721.00
142 >
^ 23,864.98

41,765.73

12

220
13,021.71

8

2, 760.13

32, 734.33

10

17

4,383.52

187
876.703

470
1,230

119

12,919.87

323
3,194.228

594
944
143

165.7
54.9
-45.4
-33.3
1, 086.0
70.0
194.7
72.7
264.3
26.4
-23.3
20.2

» Revised.
•

Work of foreign offices.—Original information developed by our
representatives in Hong Kong was dhectly responsible for the execution of a criminal case in San Francisco which resulted in seizure of
44 pounds, 11.57 ounces (20,286.41 grams) of prepared opium and
the arrest, conviction, and deportation of 14 Chinese seamen.
Other activities of our representatives in the Far East included
development of information that resulted in assessment of approximately $395,000 in fines, penalties, and additional duties in the United
States, plus seizures of fraudulently entered jade jewelry, watches,
etc., valued at more than $20,000. Approximately 23 arrests were
made in the United States as a result of information obtained by our
representatives in the Far East.
In the Orient a number of investigations disclosed fraud in documentation of shipments destined for the United States where non-




90

19 64 REPORT OF THE SECRETARY OF THE TREASURY

existent "ex-factory" prices, charges, and commissions were claimed
with a view to decreasing U.S. duty. Havhig such information
available, U.S. appraisers were better able to protect customs revenues at home.
Customs seizures of merchandise throughout the coimtry during
fiscal 1964 for violation of laws enforced by the Customs Service
showed an increase of 18 percent in the number of seizures and a decrease of 8.9 percent in the appraised value, as compared with fiscal
1963. DetaUs of these seizures by number and value are shown in
table 90.
Cuban surveillance program.—Customs agency manpower and resources continue to be taxed to the limit in enforcing the Neutrality
Act and in the Cuban smweillance program in Florida and other lower
east coast areas.
Foreign trade zones

During fiscal 1964 the number of entries received in Foreign Trade
Zone No. 1 at New York, N.Y., were 2.1 percent less than in fiscal
1963. All other activities in the zone showed substantial increases
over last year. Large quantities of radios, wool and cotton piece
goods, bulk liquors, cameras, Brazil nuts, bottled liquors, chemicals,
alligator sldns, machinery, caviar, talc, zinc and lead ingots, and
tungsten ore were stored and approximately 6,700 manipulations
operations were performed. A new activity in the zone this year
involved the transfer of barrels of overproof whiskey from the port
of New York to the zone where the contents were dumped into stainless steel storage tanks. When a duty-paid permit was received,
the whiskey was pumped into a tank truck for delivery to the importers' bottling plant.
The number of entries received in Foreign Trade Zone No. 2 at
New Orleans, La., increased 38.7 percent over last year, while duties
and internal revenue taxes increased 27.6 percent. Various manipulations operations were completed at the zone during the year.
There were 590 manipulations operations performed in Foreign Trade
Zone No. 3 at San Francisco, Calif., during fiscal 1964. The number
of entries received in the zone increased 18.7 percent over fiscal
year 1963. Long tons received in the zone increased 26.8 percent
and theh value 35.6 percent.
Foreign Trade Zone No. 3-A began operations at San Francisco,
Cahf., on July 9, 1963.
There were substantial increases in the following activities at
Foreign Trade Zone No. 5, Seattle, Wash.: Entries received, 7
percent; long tons received, 8.9 percent; value of goods entering
the zone, 35.5 percent; value of goods delivered from the zone, 3.3
percent; and duties and internal revenue taxes collected, 1.4 percent.
Manipulations operations performed in the zone were the converting
of trucks into campers (for subsequent entry as passenger vehicles),
the cutting to lengths of woolen fabrics; removing liquors from cases
and repacking separately, repacking of marine compasses, fishingnets, tonometers, microscope parts, woolen sweaters and suits,
jewelry, brocade wearing apparel, and electrical instruments.
Activities at Foreign Trade Zone No. 7, at Mayaguez, P.R.,
consisted of repacking of dental iastruments, repacking and re-




91

ADMINISTRATIVE REPORTS

marking of toys, and assembling window opener parts hito complete
operators.
During the fiscal year 1964 the number of entries received at
subzone No. 7-A, Penuelas, P.R., increased 50 percent over 1963.
Raw chemicals valued at $3,733,105 were received and $8,211,195
worth of finished products were shipped out.
The number of entries received at Foreign Trade Zone No. 8,
Toledo, Ohio, increased 89.4 percent from 1963. Merchandise
received and shipped consisted of 32 different commodities from 18
countries. The main operation consisted of public warehousing.
Other operations were the conversion of panel trucks to campers by
the addition of domestic conversion kits, the sorting and repacking of
twist drUls, combining and readdressing cartons of alcoholic beverages,
and the cutting of aluminum ingots into smaller lengths.
The following table summarizes foreign trade zone operations
during fiscal 1964.
Received i n zone
T r a d e zone

Long tons

NewYork
__.
N e w Orleans
_
SanFrancisco
-_. Seattle
_
Mayaguez
P e n u e l a s (subzone)
Toledo

D e l i v e r e d from zone

Number
of entries

5,286
3,002
6, 504
1,121
22
12
1,775

Value

44,561 $39,327, 634
19,308 10,682,471
2,991,799
1,394
1,183,394
463
32,559
15
3,733,105
203,152
40,122 94,072,594

Long t o n s

Value

47,065 $47,091,256
20,309 11,154,442
3,084,188
2,241
1,037,863
443
43,328
13
8,211,195
138,261
36,238 38,286,856

Duties and
internal
revenue
taxes
collected
$6,819,654
2,203,127
704,274
164,916
7,414
105,137
1,055,221

Customs ports of entry, stations, and airports

The limits of the ports of San Francisco-Oakland, Calif.; Niagara
Falls, N.Y.; Minneapolis, Minn.; and St. Paul, Minn., were extended
and redescribed to include areas not heretofore covered.
Grand Portage, Minn.; Trout River, N.Y.; Charlotte, N . C ; and
Port Lavaca-Point Comfort, Tex., were designated as customs ports
of entry. Tucson, Ariz., was designated as a customs station.
The designations of Crosby, N. Dak.; Pigeon River Bridge, Minn.;
and Malone, N.Y., as customs ports of entry were revoked.
The names of the foUowing previously designated airports of entry
were changed as indicated: Broward County Airport, Fort Lauderdale, Fla., to Fort Lauderdale-Hollywood International Airport; C.A.A.
Field, Juneau, Alaska, to Juneau Municipal Airport; International
Falls Municipal Airport, International Falls, Minn., to Falls International Airport.
Cost of administration

Customs operating expenses amounted to $75,583,145, including
export control expenses and the cost of additional inspection reimbursed by the Department of Agriculture.
The following table shows man-year employment data in the fiscal
years 1963 and 1964.




92

1964 REPORT OF THE SECRETARY OF THE TREASTJRY
Operation

Regular customs operations:
Nonreimbursable
Reimbursable 1

Man-years
1963

Man-years
1964

Percentage
increase

T o t a l regular c u s t o m s e m p l o y m e n t - E x p o r t controL _
A d d i t i o n a l inspection for D e p a r t m e n t of Agriculture
Total employment

7,768
324

7,792
351

0.3
8.3

8,092
217
221

8,143
218
228

.6
.5
3 2

8,530

_

8, 589

.7

1 Salaries reimbursed to the Government by the private firms who received the exclusive services of
these employees.

Office of Defense Lending
The Office of Defense Lending is responsible for the following functions which had been transferred to the Secretary of the Treasury.
Activities under the Defense Production Act

The making and administering of loans to private business enterprises under the authority of section 302 of the Defense Production
Act of 1950, as amended (50 App. U.S.C. 2153), were assigned to the
Secretary of the Treasmy by Executive Order No. 10489, dated
September 26, 1953. Under this authority consideration may be
given only to applications for loans which are certified as essential
for national defense purposes by the Office of Emergency Planning
of the Executive Office of the President.
No new loans were authorized during- the fiscal year 1964. Loans
outstanding were reduced from $53 mUlion to $17.9 million during
the year. Notes payable to the Treasury amounting to $21.1 million
as of June 30, 1963, were paid in full and interest payments of $0.6
million were made. Out of net earnings accumulated since the inception of this program transfers amounting to $14.75 million were
made to the account of General Services Admhiistration, Revolving
Fund, Defense Production Act, during the year.
Activities under the Federal Civil Defense Act

The lending functions under section 409 of the Federal Civil Defense Act were transferred to the Secretary of the Treasury on September 28, 1953, pursuant to section 104 of the Reconstruction
Finance Corporation Liquidation Act (50 App. U.S.C. 2261). Since
the close of fiscal 1955 no administrative expense allowance has been
authorized for this program, and no applications for new loans have
been accepted. Outstanding loans and deferred participation commitments amounted to $547,135 and $31,149, respectively, as of June
30, 1964. Notes payable to the Treasury were reduced $60,000 to a
total of $105,000 and interest payments of $6,339 were made during
the year.
Liquidation of Reconstruction Finance Corporation assets

The Reconstruction Finance Corporation was abolished effective
at the close of June 30, 1957, pursuant to the provisions of Reorganization Plan No. 1 of 1957. I t s remaining assets, liabilities, and
securities were transferred to the Secretary of the Treasury, the



ADMINISTRATIVE REPORTS

93

Administrator of the Small Business Administration, the Housing and
Home Finance Administrator, and the Administrator of General
Services. The Secretary of the Treasury is responsible for completing
the liquidation of business loans and securities with individual balances of $250,000 or more as of June 30, 1957, securities of and loans
to railroads, securities of financial institutions, and the windup of
corporate affahs.
Net income and proceeds of liquidation amounting to $2.5 million
were paid into the Treasury as miscellaneous receipts in fiscal 1964,
thus making a total of $53.1 mUlion paid since July 1, 1957. The
portfolio of R F C loans and securities amounted to $4.9 million on
June 30, 1964, a reduction of $2.3 mUlion from the $7.2 mUlion outstanding a year earlier. Total reductions in loans, securities, and
commitments have amounted to $50.5 million, approximately 91
percent of the portfolio of $55.5 million transferred to the Secretary
of the Treasury on July 1, 1957.
Office of the Director of Practice
Treasury Department Order No. 175-1, effective July 1, 1963 (see
exhibit 54), transferred the Office of the Director of Practice from the
Internal Revenue Service to the Office of the Secretary of the Treasury, to be under the immediate supervision of the General Counsel.
The power of attorney functions previously administered by the
Office of the Director of Practice were retained by the National Office
of the Internal Revenue Service at the time of this organizational
change.
The Director of Practice receives and acts upon applications for
enrollment to practice as attorneys or agents before the Internal
Revenue Service; institutes and provides for the conduct of disciplinary proceedings relating to enrolled attorneys and agents; makes
inquiries with respect to matters under his jurisdiction; and performs
such other duties as are necessary or appropriate, or as are prescribed
by the Secretary of the Treasury.
Amendments tp Treasury Department Circular 230 were issued
during the fiscal year to reflect the new status of the Office of the Director of Practice and the conflict of interest statutes.
To conform to the amendments to Circular 230 the procedure was
revised, whereby a declaration, rather than an application for consent,
is filed by a former officer or employee of the Internal Revenue Service
with respect to his participation in a specific tax matter before the
Service.
The Apphcation for Enrollment to Practice was also revised during
the year. The new form consolidates three separate forms previously
used relating to attorneys and certified public accountants, examinees,
and former Internal Revenue Service employees. I t also simplifies
the filing requirements.
A reduction in time for processing applications for enrollment and
for renewal of enrollment cards was effected by coordinated efforts
with the Internal Revenue Service in the issuance of a Manual Supplement directing district offices of IRS to complete the processing of all
applications within a minimum period of time and, if possible, within




94

1964 REPORT OF THE SECRETARY OF THE TREASURY

30 days. Before-and-after studies have indicated appreciable success
as the result of this coordinated effort.
Applications for enrollment approved this year totaled 7,626 (4,241
attorneys and 3,385 agents, consisting of certified public accountants,
successful Special Enrollment Examination candidates, and former
Internal Revenue Service employees). Approximately 77,000 attorneys and agents were enrolled to practice before the Service at
the end of fiscal 1964. Renewal cards issued during the year totaled
6,475, consisting of 3,444 to attorneys and 3,031 to agents.
The Special Enrollment Examination held in Internal Revenue
Service district offices in September 1963 was taken by 752 persons.
Of the 451 who were notified in January 1964 that they had passed,
279 had been enrolled to practice by the end of the fiscal year. Examinees have a period of three years in which to file for enrollment
after notification of their successful completion of the examination.
The Office processed and closed 388 derogatory information cases
during the fiscal year and had 198 cases under review on June 30, 1964,
76 relating to attorneys and 122 relating to agents. There were also
158 cases under investigation (58 relating to attorneys and 100 relating to agents).
During the year there were 74 disciplines imposed (reprimands,
resignations, suspensions, denials, abandonments, or withdrawals).
One case was heard by a hearing examiner and was awaiting his
decision at the end of the fiscal year.
Each district director has authority to determine that a tax return
preparer is not eligible for limited practice before the Service without
enroUment, if the preparer is not of good character or reputation, or
if the preparer conducts his practice in an unethical manner. The
district director's decision is appealable by the preparer, to the Director
of Practice. During the fiscal year, 23 appeals were filed by preparers
with the Director of Practice and 21 appeals were resolved.
Office of Domestic Gold and Silver Operations
The Office of Domestic Gold and Silver Operations, in the Office
of the Under Secretary for Monetary Affahs, assists the Under
Secretary in the formulation, execution, and coordination of policies
and programs relating to gold and sUver in both theh monetary and
commercial aspects. The Office administers the Treasury Department Gold Regulations relating to the purchase, sale, and control of
iadustrial gold, gold coin, and gold certificates; issues licenses and
other authorizations for the use, import and export of gold, and for
the importation and exportation of gold coin; receives and examines
reports of operations; and investigates and supervises the activities of
users of gold. Investigations into possible violations of the Gold
Regulations are coordinated with those of the U.S. Secret Service,
the Bureau of Customs, and other enforcement agencies.
Gold controls

The comprehensive examination of gold reports, verification of
records, and field inspections have been continued.
Purchases of gold for industrial use from the Treasury.—The gross
sales of gold for industrial use by the Treasury increased in the




ADMINISTRATIVE

95

REPORTS

calendar year 1963 to 3,068,345 fine ounces, as compared with
2,746,046 ounces in calendar 1962. Examinations of the books and
reports of the gold users, however, show no indication of hoarding or
excessive inventories. The use of gold in jewelry rose because of
continued economic prosperity, and its use in electronics and other
related industries also increaseci.
Gold coin licensing.—The volume of applications for the importation of gold coin and the number of cases involving coins acquhed
abroad without a license and attempts to hnport such coins continued
at a high rate. Report forms have been prepared for the use of
Customs authorities in order to expedite the settlement of such cases
and to reduce the amount of paperwork involved; and the Bureau of
Customs has inserted information concerning gold controls into their
chculars.
End uses of gold.—The compilation of statistics concerning the end
uses of gold was continued. During the fixst half of the calendar
year 1963, the end-use certificates provided data for only a few broad
categories. However, during a part of the second half of 1963 a new
form which called for more detaUed information went into effect.
Since the information for the two halves of the calendar year were not
collected on the same basis, the estimated allocations by use for the
first and second halves of the year are shown in separate tables below.
Estimated allocation of gold by use, J a n u a r y - J u n e 1963

Fine ounces

End use

Dollars,
based on
$35 per ounce

Percent

1,104,594
197,148
144,717
324,859

_
__

Total

$38,660,790
6,900,180
5,065,095
11,370,065

62.36
11.13
8.17
18.34

1,771,318

Jewelry and arts.Dental
space and defense
other industry

61,996,130

100.00

Estimated allocation of gold by use. July-December 1963

Fine ounces

End use

Jewelry and arts
Dental
Space and defense, electrical and electronics
Space and defense, other
Industrial, electrical and electronics.
Industrial, other
._ . .
Total

.-

.- _ -_
-

..

Dohars,
based on
$35 per ounce

1,330,943
172,020
136, 976
7,537
169, 571
67, 075

$46, 583,005
6, 020,700
4, 794,160
263,795
5,934,985
2, 347,625

70.64
9.13
7.27
.40
9.00
3.56

1,884,122

65,944, 270

100. 00

Percent

Gold certificates.—An amendment to the Gold Regulations was issued
on April 24, 1964. This amendment constitutes a general license for
the holding of all gold certificates issued prior to January 30, 1934.
(See exhibit 51.) I t will ease the problems presented by collectors
of paper money who wish to hold these historic pieces. The repeal
of the requirement that gold certificates be delivered to the Treasury
Department means, in effect, that they wUl no longer be presented
for redemption.
r743-16i0-^6'5^

^
S




96

1964 REPORT OF THE SECRETARY OF THE TREASURY

Gold and silver legislation

Bills relating to gold.—Various proposed measures relating to the
stimulation of gold production were introduced in the Congress during
the fiscal year. Treasury policy with respect to these proposals was
indicated in statements and information supplied to congressional
committees. (See exhibit 53.)
Bills relating to silver.—A number of bills were introduced to change
the silver content of the coinage, to prohibit the sale of sUver by the
Treasury, and to prohibit the redemption of silver certificates in
buUion. All of these bills had implication for United States coinage
and for planning to assure an ample volume of coins in circulation to
meet the needs of the country. The Treasury Department opposed
action on all these proposals, pending completion of a comprehensive
Treasury study of these questions early in 1965.
Numerous bills were introduced in Congress during the fiscal year
1964, dealing with the price of sUver, U.S. sUver policy, and related
matters, which were referred to the respective committees on Banking
and Currency for further consideration. As of June 30, 1964, no
definite action had been taken by either committee on any of the bills.
(See exhibit 53.)
Bureau of Engraving and Printing
The Bureau of Engraving and Printing designs, engraves, and prints
U.S. currency. Federal Reserve notes, securities, postage and revenue
stamps, and various commissions, certificates, and other forms of engraved work for U.S. Government agencies, as well as bonds and
postage and revenue stamps for the governments of insular possessions
of the United States.
Management attainments

During fiscal 1964 the Bureau extended recognition to 19 employee
organizations pursuant to Executive Order 10988 on employeemanagement cooperation. Some organizations representing different
classes of employees received more than one kind of recognition,
as foUows: 8 on an informal basis, 1 on a formal basis, and 15 on an
exclusive basis. Union negotiations by top management resulted in a
signed basic agreement with one union. The Bureau's Employment
Policy Review Board pursued its studies of administrative practices
at all management. levels to assure continued compliance with the
Treasury Department's nondiscrimination policy.
In planning to meet the Bureau's production program, maximum
UtUization of manpower was a primary consideration. Manpower
requirements were reviewed throughout the year and each vacancy
was evaluated in terms of need and efficiency before a request was
made for a replacement. The number of employees at the beginning
and end of the year were the same, 2,938. To hold employment to a
minimum while providing for a projected 13-percent increase in
currency requirements, the Bureau contracted for the purchase of
additional high-speed intaglio currency presses to be operational in
the fiscal year 1965. The new equipment will expand the printing of
currency from 18 to 32 notes to the sheet. Major recurring savings
in manpower and costs associated with further expansion of the




ADMINISTRATIVE REPORTS

97

32-subject program are anticipated, in addition to approximately
$22,000,000 accumulated savings already realized.
The Bureau conducted engineering studies, analyses of production
processes, and quality control surveys to improve methods, operations,
and efficiency, and to further insure development and practice of sound
quality control systems. Improvements were made in equipment and
processes in the manufacture of currency and postage stamps. To
facUitate operations, further modifications were made on sheet-fed
rotary currency presses and web-fed rotary stamp presses. Other
Bureau research activities to improve the quality of its products
related to inks and ink components, paper, tape, film, adhesives,
presses, and equipment.
Close liaison was maintained with the Department of Agriculture
concerning the food stamp program; the Post Office Department to
plan for postage stamps; the Canal Zone Government to plan for
commemorative air maU stamps; the Internal Revenue Service for its
requirements for revenue stamps; and the Office of the Treasurer and
the Federal Reserve System for their requirements for U.S. currency
and Federal Reserve notes.
During fiscal 1964, the Bureau's Internal Audit Staff released 79
financial and management type audits containing 42 recommendations.
Forty-four audit recommendations, some of which were applicable to
prior fiscal years, were cleared and only 25 were stUl under consideration at the close of the year.
Through the excess property program the Bureau received $12,497
from the sale of obsolete equipment and excess material. Equipment
valued at $18,926 was obtained at no charge through the Federal
utUization program.
Annual recurring savings of $25,065 are estimated to accrue from
adopted employee suggestions. There were 289 cubic feet of noncurrent records transferred from office space to the records storage
area and 666 cubic feet of obsolete records destroyed. In response to
968 requests, 53 new forms were prepared, 43 eliminated, 4 consolidated, and 301 improved and revised.
Continued emphasis on the Treasury Department's safety program
resulted in a steady improvement of the Bureau's safety record.
Eighty-five Bureau training classes were attended by 2,017 Bureau
employees and 6 from other agencies; 158 employees attended 29 programs conducted by other agencies; and 31 employees attended programs conducted by nongovernment organizations.
Management improvements during fiscal 1964 resulted in annual
recurring savings of 152 man-years and approximately $1,677,705.
All realized savings were applied against production costs and were
reflected either in billing rates or in inventory valuations.
New issues of postage stamps and deliveries of finished work

New issues of postage stamps delivered by the Bureau in fiscal 1964
are shown in table 92. A comparative statement of deliveries of
finished work for the fiscal years 1963 and 1964 appears in table 93.
Finances

Bureau operations are financed by reimbursements to the Bureau of
Engraving and Printing fund, as authorized by law. Comparative
financial statements follow.



98

19 64 REPORT OF THE SECRETARY OF THE TREASURY
Statement of financial condition June 30, 1964 and 1963
Assets

June 30, 1964

Current assets:
Cash:
Onhand
With the Treasury
Accounts receivable
Inventories:'
Finished goods •.
Work in process
Raw materials
Stores
Prepaid expenses

June 30, 1963

$12
5,333,878
2, 564,730

$746,727
5, 586, 571
2, 031, 021

1, 940,984
3, 649,869
969, 258
1, 044,655
57,176

1,356, 059
3, 743,900
1, 036,858
1, 064,567
73,134

Total current assets

15, 560, 562

15, 638.837

Fixed assets: 2
Plant machinery and equipment
Motor vehicles
Office machines
Furniture and fixtures
Dies, rolls, and plates
Building appurtenances
Fixed assets under construction

20,116, 698
146,665
251,174
468,778
3, 955, 961
2, 676,807
295,267

18,457, 911
97,785
242,381
444, 492
3, 955,961
2, 558,323
68,204

27, 911,350
13,730.821

25,825, 057
12,335, 541

14,180, 529
455

13,489, 516
4,132

14,180,984

13,493,648

—

Less accumulated depreciation
Excess fixed assets (^vritten down to 10% of book value)
Total fixed assets
Deferred charges...

147,119

132,498

Totalassets

29,888,665

29, 264,983

Liabilities and investment of the United States
Liabilities: 3

$1,116, 028

$312,109

1,142,553
1,685, 726
136,905
624,930
307

1,174,878
1,743, 658
166,197
651, 571
1,760

4, 706, 449

4, 050,173

3, 250, 000
22,000, 930

3,250, 000
22, 000,930

25, 250,930
—68,714

25, 250, 930
—36,120

Total investnient ofthe U.S. Governnient

25,182,216

25,214,810

Total liabilities and investnient of the U.S. Government.

29,888,665

29, 264,983

Accounts payable
Accrued liabilities:
Payroll
Accrued leave
other
Trust and deposit liabilities
otherliabilities

'-

Totaliiabilities
Investnient ofthe U.S. Government:
Appropriation from U.S. Treasury
Donated assets, net 2
Accumulated earnings, or deficit {—y

1 Finished goods and work in process inventories are valued at cost, including administrative and service
overhead. Except for the distinctive paper which is valued at the acquisition cost, raw materials and
stores inventories are valued at the average cost of the materials and supplies on hand.
2 Plant machinery and equipment, furniture and fixtures, office machines and motor vehicles acquired
on or before June 30, 1950, are stated at appraised values. Additions since June 30, 1950, and all building
appurtenances are valued at acquisition cost. The act of Aug. 4, 1950 (31 U.S.C. 181a) which estabhshed
the Bureau of Engraving and Printing fund specifically excluded land and buildings valued at about
$9,000,000 from the assets of the fund. Also excluded are appropriated funds of about $1,100,000 expended
or transferred to GSA for extraordinary expenses in connection with uncapitalized building repairs and
plans for air conditioning. Dies, rolls, and plates were capitalized at July 1, 1951, on the basis of average
unit costs of manufacture, reduced to recognize their estimated useful hfe. Since July 1, 1951, all costs of
dies, rolls, and plates have been charged to operations in the year acquired.
3 The outstanding commitment of $7,906,174 as of June 30, 1964, as conipared with $6,991,069 at June 30,
1963, includes $2,177,087, representing the balance due for a prototype multicolor postage stamp web-fed
intaglio printmg press to be delivered in fiscal year 1966. It also includes $1,400,200 for the acquisition of
5 sheet-fed intaglio printing presses for currency production. Most of the balance represents aimual term
contracts for materials and supplies for delivery in the ensuing fiscal year.
4 The act of Aug. 4,1950, provided that customer agencies make payment to the Bureau at prices deemed
adequate to recover all costs incidental to performing work or services requisitioned. Any surplus accruing
to the fund in any fiscal year is to be paid into the general fund of the Treasury as miscellaneous receipts
except that any surplus is applied first to restore any impairment of capital by reason of variations between
prices charged and actual costs.




99

ADMINISTRATIVE REPORTS
Statement of income and expense, fiscal years 1964 Gi'^d 1963
I n c o m e a n d expense

1963
$26,424,992

O p e r a t i n g r e v e n u e : Sales of p r i n t i n g
O p e r a t i n g costs:
Cost of sales:
D i r e c t labor i
Durect m a t e r i a l s u s e d

1

P r i m e cost
O v e r h e a d costs:
Salaries a n d indirect labor i
F a c t o r y supplies
R e p a i r p a r t s a n d supplies
E m p l o y e r ' s share personnel benefits
R e n t s , c o m m u n i c a t i o n s , a n d utilities
O t h e r services
1
Depreciation and amortization
Gains (—), or losses o n disposal or r e t i r e m e n t of fixed assets
S u n d r y expense (net)

$28,464,977

10,099,336
4,242,064

10,004,372
4,043,654

14,341,400

14,047,9

8,165,638
1,191,023
310,949
1,386,242
503,736
253,081
1,601.022
-2,634
46,531

7,718,968
1,216,557
287,993
1,322,479
505, 507
296,860
1,612,843
49,484
93,777

Total overhead

13,455, 588

13,104,468

T o t a l costs 2

27; 796,988

27,152,394

369,331
479,177

200,556
508,080

Less:
N o n p r o d u c t i o n costs:
S h o p costs c a p i t a h z e d
Cost of miscellaneous services r e n d e r e d other agencies

848,508
Cost of p r o d u c t i o n
N e t increase (—), or decrease i n finished goods a n d w o r k i n process inventories
Cost of sales
O p e r a t i n g profit, or loss (—)
Nonoperating revenue:
O p e r a t i o n a n d m a i n t e n a n c e of incinerator a n d space utilized b y other
Treasury activities.
.
O t h e r services

708,636

26,948,480

26.443,758

-490,894
26,457. 586

1,993,398
28,437,156

-32,594

27,821

421,323
57,854

398,468
109,612

479,177

508,080

N o n o p e r a t i n g costs:
Cost of miscellaneous services r e n d e r e d other agencies.

479,177

508,080

N e t profit, or loss (—) for t h e y e a r 3.

-32, 594

27,821

1 I n J u n e 1964 a p r o c e d u r a l change was m a d e t o adjust t h e a m o u u t recorded i n t h e accrued leave liability
account to insure agreenient w i t h t h e actual v a l u e of a n n u a l leave to t h e credit of employees as at t h e close
of t h e b i w e e k l y p a y period i m m e d i a t e l y preceding t h e e n d of t h e fiscal y e a r . Heretofore differences b e t w e e n
a c t u a l a n d recorded leave liability were a b s o r b e d b y adjusting t h e percentages u s e d i n d e t e r m i n i n g t h e
accrued leave costs t o b e charged i n t o o p e r a t i o n s i n s u b s e q u e n t periods.
2 N o a m o u n t s are i n c l u d e d i n t h e accounts of t h e fund for (1) i n t e r e s t o n t h e i n v e s t m e n t of t h e Governm e n t i n t h e B u r e a u of E n g r a v i n g a n d P r i n t i n g fund, (2) depreciation on t h e B u r e a u ' s buildings ex:cluded
from t h e assets of t h e fund b y t h e act of A u g . 4,1950, a n d (3) certain costs of services performed b y o t h e r
agencies on behalf of t h e B u r e a u .
3 See t a b l e o n p r e v i o u s page, footnote 4.




100

19 64 REPORT OF THE SECRETARY OF THE TREASURY
^
Statement of source and application of funds, fiscal years 1964 o,nd 1963
F u n d s provided and applied

F u n d s provided:
Sales of p r i n t i n g . . . J
.
O p e r a t i o n a n d m a i n t e n a n c e of incinerator a n d space utilized b y o t h e r
T r e a s u r y activities
O t h e r services

1964

1963

i, 424,992

$28.464,977

421,323
57,854

398,468
109,612
28,973, 057

Less cost of sales a n d services (excluding depreciation a n d other charges
n o t r e q u i r i n g e x p e n d i t u r e of funds: Fiscal y e a r 1964, $1,598,388; fiscal
y e a r 1963, $1,662,327)

25,338,375

27,282,908

Sale of s u r p l u s e q u i p m e n t . . _
Decrease i n working c a p i t a l .

1,565, 794
17,810
734, 551

1,690,149
10,153

T o t a l funds p r o v i d e d

2, 318,155

1, 700,302

2, 245, 012

619,930

73,143

110,742
969,630

2,318,155

1, 700,302

F u n d s applied:
Acquisition of fixed a s s e t s . .
Acquisition of e x p e r i m e n t a l e q u i p m e n t ; a n d p l a n t repairs a n d alterations
t o be charged t o future operations
Increase i n w o r k i n g capital
T o t a l funds a p p l i e d .

Fiscal Service
BUREAU OF ACCOUNTS

The major functions of the Bureau are Government-wide in scope:
Central accounting and reporting; disbursing for virtually.all civilian
Federal agencies; supervising the Government's depositary system;
determining qualifications and underwriting limitations of companies
to write fidelity and other surety bonds covering Government activities; investing Government trust funds and other funds; administering
Treasury loans and advances to Government corporations and agencies; and staff participation in the joint financial management improvement program.
Pursuant to Treasury Department Order 185-2, dated June 24,
1964 (see exhibit 54), the Ofiice of Defense Lending was abolished and
its functions transferred to the Commissioner of Accounts effective
at the close of June 30, 1964.
Management improvement

Annual recurring savings of $710,635 were realized in fiscal 1964 as
a result of the Bureau's continuing search for operating economies.
The major portion, $684,000, occurred in the disbm-sing area primarily
from the increased use of electronic data processing equipment. Significant benefits^were also realized from management surveys, application of a job analysis program at the first-line supervisory level,
and added emphasis at all levels to improve the quality of suggestions
submitted under the Treasury Department Incentive Awards Program.
During the year the Bureau's middle management executive development program, formulated in conjunction with and conducted by
staff of American University, was offered on 3 separate occasions to a
total of 52 Treasury employees, including 17 from outside the Bureau
of Account)S,




ADMINISTRATIVE REPORTS

101

Systems improvements

As a result of a joint study under the Joint Financial Management
Improvement Program, Department Chcular No. 1075 was issued on
M'ay 28, 1964. The circular is designed to improve the timing of
large advance payments made by agencies to States, educational
institutions, and others under Federal grants and other programs.
The deferment of these payments to coincide more closely to the
actual cash requirements of the recipients in carrying out the programs
involved has a substantial potential for saving public debt interest.
Another joint project resulted in legislation to permit use of statistical
sampling procedures in voucher examination, which also has a considerable Government-wide potential for savings in administrative
costs.
Improvements in fiscal operations to bring about a more favorable
effect on the balance of payments included letter-of-credit arrangements for better timing of cash withdrawals from the Treasury to
finance local cost projects of the Agency for International Development.
In the case of contributions to the United Nations, the same objective
was achieved through the issuance of noninterest-bearing nonnegotiable bonds, rather than the advance of Treasury cash prior to the
time funds were actually needed by the U.N. agencies. Other
methods included the reserving of foreign currencies on an unfunded
basis, thereby releasing for current use currencies which had previously
been set aside for future use by certain special programs; and the
issuance of local currency checks, rather than U.S. dollar checks, for
making payments in certain excess currency countries (where the
United States owns more local currency than needed for regular
operations) to beneficiaries of the Veterans' Administration, Social
Security Administration, Raikoad Rethement Board, and the CivU
Service Commission.
As a result of collaboration between the Bureau and the Department
of Defense, proposed legislation was submitted to Congress to permit
single (or composite) checks supported by a list of individual recipients,
to be drawn in favor of banking institutions for credit to recipients'
personal bank accounts for salary and other periodic payments.
Action initiated in fiscal 1963 for a voluntary system of withholding
State and D.C. income taxes from the salaries of Federal employees
whose place of employment is outside the State of residence was
completed with the issuance of Department Circular No. 1074, on
September 19, 1963. Bureau staff worked with the Civil Service
Commission and other agencies on this procedure which assists the
States in the administration of theh tax laws and the employees by
shnplify ing theh tax payments.
Central accounting and reporting

In April 1964 the Division of Central Accounts and the Division of
Central Reports were consolidated. The new Division of Central
Accounts and Reports provides the organizational integration
compatible with the operational integration that wUl result from the
electronic computer system being installed for central accounting
and reporting.
The maintenance of the Government's unified system of central
accounts is one of the principal responsibUities of the newly created




102

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Division, as is the compUation of the Government's major financial
reports. The central accounts, in addition to serving as an accounting
basis for compUing receipt and expenditure data for Government
financial statements, serve to interlock the accounting results of the
Government's disbursing, collecting, and administrative offices and
the Treasurer of the United States.
During fiscal 1964 a total of 3,486,521 accounting items were
processed by the central and regional offices, a slight reduction from
the previous year due to continued paperwork simplification.
Considerable progress was made in applying the computer system
to the central accounting and reporting function. By June 30, 1964,
master files were established on magnetic tape with all codings and
classifications necessary to produce the large variety of output data
requhed from the system.
Further refinements were made during the year to the monthly
reports being submitted by Federal agencies on obligations incurred
by object of expenditure. The consolidated Government-wide
reports are stiU in an experimental stage, and are being evaluated for
possible future publication.
The more significant changes relating to accounting and reporting
for foreign currencies include procedures for the reservation
of foreign currencies for program purposes on an unfunded basis,
pursuant to section 508 of Public Law 88-257, approved December 31,
1963 (77 Stat. 856), and a complete revision of the foreign currency
account structure. For details regarding total receipts, withdrawals,
and balances of foreign currencies, see tables 102 and 103.
Internal auditing

Twenty audit reports were made during the year of Bureau and
nonbureau activities, two of which were operational audits of certain
Bureau functions. Comprehensive surveys were also made of the
Denver, New York, and Washington regional disbursing offices.
Six audits of Bureau activities- and one nonbureau activity were in
process at fiscal yearend.
Staff assistance was furnished the Fiscal Management Division,
Office of the Administrative Assistant Secretary, by the Bureau's
Internal Audit Staff in designing and installing a complete accrual
accounting system for the Office of the Comptroller of the Currency.
Disbursing operations

Again in fiscal 1964 the average cost of processing checks and bonds
was reduced, this year to 3.11 cents. These costs include amortization of owned (capitalized) E D P equipment, but exclude postage.
. During most of the fiscal year 1964 the Division of Disbursement
operated 11 regional disbursing offices servicing over 1,500 offices of
agencies located throughout the United States, its possessions, and
the PhUippines. The Division assumed the disbursing operations of
the Department of State in 14 countries, and is now rendering disbursing service for 24 embassies located in certain foreign countries
in Central and South America and the Far East.
Due to the centralization of high volume payments in EDP-equipped
offices, the regional disbm-sing offices in Dallas, Tex., and Portland,
Oreg., were closed in July and August 1963, respectively. In July



ADMINISTRATIV^E

103

REPORTS

1963 the computer system installed in the Washington Regional Office
became operative. Six of the eight regional disbursing offices located
in the contiguous United States now utilize E D P systems to prepare
social secmity benefits, veterans' benefits, and other types of recurring
payments. More than 88 percent of the Bureau's checks were issued
by the electronic method.
There follows a comparison of the fiscal year 1963 and 1964 workloads:
Volume 1

Classification
1963
Payments:
Social security benefits
.
Veterans' benefits.Income tax refunds
Veterans' national service life insurance dividend program
Other
Adjustments and transfers
_ ._
Savings bonds issued- . .

. 1964

.
:

Total

_ _
...
._

...

•177,966,489
63,011,104
40,704,667
6,076,295
44,768,616
127,112
4,529,171

189,431,084
62,721,888
42,358,609
4,406,015
45,932,888
111,758
5,087,062

337,183,454

.

350,049,304

1 Excludes reimbursable items numbering 3,481,807 in 1963 and 13,427,282 in 1964. The increase was
accounted for chiefly by check volume associated with the Railroad Retirement Board.

Deposits, investments, and related activities

The types of depositary services and the number of commercial
banking institutions authorized to provide each service, as of June 30,
1964, are shown in the following table:
Type of service provided by depositaries

Receive proceeds of deposits by taxpayers and sale of public debt securities for credit in
Treasury tax andloan accounts
_
_
...-.
Receive deposits from district directors of internal revenue, military finance officers, and
other Government officers.
.^^Maintam official checking accounts of postmasters, clerks of U.S. courts, and other Government officers
—
Furnish bank drafts to Government officers in exchange for collections
Service State unemployment compensation benefit payment and clearing accounts
Operate limited banking facilities at military installations:
In the United States and its outlying areas
Foreign

Number of
banking
institutions

11,946
995
4,637
2,250
56
278
158

Investments.—Government trust funds are invested in marketable
U.S. securities and in special securities issued for purchase by the
major trust funds as specffically authorized by law.
The Railroad Rethement Act, as amended by the act of October 5,
1963 (45 U.S.C. 228o(b)), changed the applicable interest rates on
special securities issued to the raUroad rethement account. These
interest rates are now equal to the average market yield, at the end
of the month preceding the date of issue, borne by all marketable
public debt securities not due or callable until three years from the
end of that month, adjusted to the nearest one-eighth of one percent,
but in no case less than three percent per annum. With this change,
interest rates on the special public debt securities issued to all major
trust funds, except the unemployment trust fund and the highway
trust fund, are related to the average market yield on marketable




104

1964 REPORT OF THE SECRETARY OF THE TREASURY

public debt securities. By law the two exceptions continue to be
related to the average coupon interest rate on public debt securities.
The annual reports for 1960 (pages 22-4) and 1961 (pages 74-5)
contain additional information on special public debt securities issued
to trust funds. See table 67 for holdings of public debt and agency
securities by Government agencies and accounts.
Loans by the Treasury.—The loan agreements with those Government corporations and agencies having authority to borrow from the
Treasury to finance certain programs are administered by the Bureau
of Accounts. During fiscal 1964 the initial loan was made to the
Department of the Interior under the Helium Act, as amended (50
U.S.C. 167j). At the close of the fiscal year, the Department of the
Interior under this authority had borrowed $2 million, leaving an
unused borrowing authorization of $20 mUlion. Tables 109,110, and
111 show the status of Treasury loans to Government corporations
and agencies as of June 30, 1964.
Surety bonds.—The Secretary of the Treasury issues certificates
of authority to qualffied corporate sureties to execute bonds in favor
of the United States (6 U.S.C. 8). These certificates are renewable
each June 1 and a list of the qualffied corporate sureties is published
as of that date in the Federal Register (Department Chcular No. 570,
Revised). On June 30, 1964, a total of 249 companies held certificates.
Agencies of the executive branch are required to obtain blanket,
position schedule, or other types of surety bonds covering employees
who must be bonded. Though not requhed, the legislative and
judicial branches are permitted to follow this procedure. A summary
of the agencies' bonding activities follows:
June 30, 1963
Number of officers and employees covered:
Executive branch
Legislative and judicial branches
Total

-

.

._ . . _.

.
...

Total
Total premiums paid by Government (aimual basis):
Executive branch
.
__
. . .
Legislative and judicial branches
Total
Administrative expenses:
Executive branch
..
. . .
Legislative and judicial branches..
....

_..

979,036

$3,424, 001, 530
12,085, 500

$3,309,998,940
11, 921,000
3, 321,919, 940

282, 596
1,980

230 362
1,776

284, 576

.

977,383
1,653

3,436, 087, 030

.

958,622
1,688
960,310

.

Aggregate penal sums of bonds procured:
Executive branch
Legislative and judicial branches

Total

June 30, 1964

232,138

42,968
764

43, 708
580

43,732

44, 288

Foreign indebtedness

World War I.—On May 28, 1964, an agreement was reached with
the Government of Greece providing for the refinancing of the
$12,167,000 loan granted that Government in 1929 as postwar




ADMINISTRATIVE REPORTS

105

financial aid. The principal sum of $13,155,921 will be repaid with
interest at 2 percent per annum, the payments to be used to finance a
cultural and educational exchange program between Greece and the
United States.
The Government of Finland made payments during the year
totaling $396,484 which were used to finance certain educational
exchange programs with Finland (20 U.S.C. 222). For status of all
World War I indebtedness to the United States see tables 104 and 105.
World War II.—Under lend-lease and surplus property agreements,
debtor governments made U.S. dollar payments of $68.9 miUion
(including the dollar value of silver repaid) and the equivalent of $7.2
million in foreign currencies. See table 107 for status of the lend-lease
and surplus property accounts administered b}'^ the Treasury.
Credit to the United Kingdom.—Payments during the year by the
United Kingdom under the financial aid agreement of December 6,
1945, as amended March 6, 1957, totaled $123.1 million, of which
$66.9 million was interest. Through June 30, 1964, cumulative
payments totaled $1,385.8 million of which $784.9 million was interest.
An unmatured principal balance remains of $3,149.1 million; there
also remains to be paid interest installments totaling $139.8 million
which were deferred by agreement.
Japan, postwar economic assistance.—The Government of Japan
made payments in fiscal 1964 of $19.8 million principal and $11.6
million interest on its indebtedness arising from postwar economic
assistance. Cumulative payments through June 30 totaled $48.1
million as principal and $17.7 million as interest, leaving an unpaid
principal balance of $441.9 million.
Germany, postwar economic assistance.—The Federal Republic of
Germany made interest payments of $5.0 million on its indebtedness
arising from postwar economic assistance. Cumulative payments
through June 30 totaled $799.6 million as principal and $210.9 million
as interest, leaving an unpaid principal balance of $200.4 mUlion.
Principal installments have been prepaid through July 1, 1965.
Claims against foreign governments

Awards of Mixed Claims Commission, United States and Germany.—
Under the agreement of February 27, 1953, the Federal Republic of
Germany paid $4 million to the Treasury on April 1, 1964. These
funds were used to make an additional distribution to holders of
awards certified by the Mixed Claims Commission as a result of claims
arising from World War I. See table 94 for the status of the fund.
Awards of Foreign Claims Settlement Commission.—The Government
of Poland paid the fourth installment of $2 million under the agreement
of July 16, 1960. These funds are for payment of claims of American
nationals against Poland. The Foreign Claims Settlement Commission expects to complete adjudication of these claims by March 31,
1966. See table 95 for status of all active claims funds.
Depositary receipts

The following table shows the volume of depositary receipts for the
fiscal years 1958-64. (See the 1962 annual report, page 141 for
further details.)




106

1964 REPORT OF THE SECRETARY OP THE TREASURY
Income and
social
security

Fiscal year

1958.1959I960
1961
1962 .
1963
1964

-.

..

__

...

8,481,465
8,961, 762
9,469, 057
9, 908, 068
10,477,119
11,161,897
11, 729, 243

Raih-oad
retirement
taxes
10,947
10, 751
10,625
10, 724
10, 262
9,937
9,911

Federal
excise
taxes
681,210
604,933
598,881
618,971
610, 026
619,519
633,437

Total

9,173,622
9,577,446
10, 078, 563
10, 537, 763
11, 097,407
11, 791,353
12, 372, 591

NOTE.—Comparable data for 1944-57 will be found in the 1962 amiual report, p. 141.

Government losses in shipment

Claims totaling $343,716 were paid from the revolving fund established by the Government Losses in Shipment Act, as amended.
Table 115 shows the status of the fund and detaUs of operations
under the act.
Other operations

Recovery of proceeds of credit instruments.—During fiscal 1964
inquhies were sent to all insured banks in the country concerning
funds held for payment of credit instruments outstanding for one
year or more, payable to Government departments, agencies, or
officers. As a result, $644,941.01 was recovered by the Treasury.
Donations and contributions.—Bureau receipts deposited into the
Treasury during the year as ''conscience fund^' contributions amounted
to $30,872.81. Other unconditional donations totaled $496,528.84.
Such receipts by other Government agencies amounted to $15,886.70
and $34,985.58, respectively. Conditional gUts to further the defense
effort amounted to $4,711.98. Gifts of money and the proceeds of
real or personal property donated in fiscal 1964 for the purpose of
reducing the public debt amounted to $3,296.33, of which $3,000.00
was used to purchase and rethe public debt securities.
The Secretary of the Treasury is authorized by Public Law 88-260
approved January 23, 1964 (78 Stat. 5) to accept gifts in honor of or
in memory of the late President John F. Kennedy. GUts credited
to this account amounted to $1,215.81.
Withheld foreign checks.—On August 1, 1963, Department Chcular
No. 655 was amended to permit delivery of U.S. Government checks
to payees residing in Bulgaria.
BUREAU OF THE PUBLIC DEBT
The Bureau of the Public Debt, in support of the management of
the public debt, has responsibility for the preparation of Treasury
Department chculars offering public debt securities, the direction of
the handling of subscriptions and making allotments, the formulation
of instructions and regulations pertaining to each security issue, the
issuance of the securities, and the conduct or dhection of transactions
in those outstanding. The Bureau is responsible for the final audit
and custody of rethed securities, the maintenance of the control accounts covering all public debt issues, the keeping of individual
accounts with owners of registered securities and authorizing the issue
of checks in payment of interest thereon, and the handling of claims
on account of lost, stolen, destroyed, or mutUated securities.




ADMINISTRATIVE REPORTS

107

The Bureau maintains its principal office and headquarters in
Washington, D.C. In addition, offices are maintained in Chicago,
ill., and Parkersburg, W. Va., where most Bureau operations related
to U.S. savings bonds are handled. Under Bureau supervision many
transactions in public debt secmities are conducted by the Federal
Reserve banks and their branches as fiscal agents of the United States.
Selected post offices, private financial institutions, industrial organizations, and others (approximately 19,150 in all) cooperate in the
issuance of savings bonds.
Management improvement

A pUot study conducted in cooperation with the Army Finance
Center established the feasibility of obtaining issue data on magnetic
tape and microfilm, rather than on individual registration stubs, from
issuing agents who use electronic computers to inscribe a large volume
of Series E savings bonds. The system, adopted in June 1964 for
issues by the Army Finance Center, wUl result in savings both for
the Bureau and the Department of the Army. Discussions are underway with other large issuing agents who have expressed an interest
in the new procedures.
Authority was granted in June 1964 to issue Series H savings bonds
in punch card form. The bond will be placed in use early in the fiscal
year 1965. Its use wUl reduce security printing costs substantially.
A continuing review of the E D P system in the Parkersburg office
established the feasibility of augmenting the equipment configuration
to increase the efficiency of the system, enable it to absorb workload
increases, and provide for some future expansion. Accordingly, provision was made for the acquisition of two additional system components which will be delivered early in fiscal 1965.
A number of refinements were introduced into the E D P system to
take advantage of new programming techniques, utUize new item
designs, and reduce program running time. Among the programs
and routines rewritten were those covering the stub and retired bond
audits, balancing, and caveat entry and removal.
Procedures under which the Chicago office initiates and the Parkersburg office handles Series E alphabetic and numeric inquhies were
revised to eliminate various clerical and manual key punch operations
and reduce overall processing time.
The project of microfilming the numerical registers in which rethements of Series E paper savings bonds were manually posted was
completed. Prints of the film were made for use in a high speed
information retrieval system utUizing rotary mechanical files. This
resulted in a substantial reduction in personnel and space requhements
in the Chicago office.
Search activities in the Chicago office relating to appreciation type
savings bonds were consolidated in the Division of Rethed Savings
Bonds, and there was a related reorganization of the units in that
Division and the Division of Loans and Currency Branch resulting
in more effective utilization of personnel and equipment and the
elimination of certain supervisory positions.
In the Washington office retroactive interest payment operations
on Federal Housing Administration debentures were mechanized.
Changes in the shipping forms and procedures eliminated the need




108

1964 REPORT OF THE SECRETARY OF THE TREASURY

for preparing individual shipping advices covering registered securities
issued by the Division of Loans and Currency.
The Federal Reserve banks were generally authorized to process
redemption and redemption-exchange transactions of registered marketable and investinent series securities without submitting such items
to the Bureau for review of assignments and supporting evidence
prior to payment. This change, effective January 2, 1964, provided
for prompter payment of registered securities.
One of the issuing agents which operates an employee savings plan
has been authorized to reissue Series E bonds registered in the name
of the trustee of the plan, in order to make distribution of the bonds
to participants in the plan. The agent will transmit the retired bonds
and reissue stubs direct to the Parkersburg office. This procedure
will save processing costs in the Federal Reserve bank to which the
issuing agent reports its transactions.
Bureau operations

One measure of the work of the Bureau is the change in the composition of the public debt. The debt falls into two broad categories:
public issues and special issues. Public issues consist of marketable
Treasury bills, certificates of indebtedness, notes, and bonds; and nonmarketable securities, chiefiy U.S. savings bonds and Treasury bonds
of the investment series. Special issues of certificates, notes, and
bonds are made by the Treasury directly to various Government
trust and certain other accounts and are payable only for these
accounts.
During the year, 30,263 individual accounts covering publicly held
registered securities other than U.S. savings bonds were opened and
49,214 were closed. This reduced the number of open accounts on
June 30, 1964, to 223,233 covering registered securities in the principal amount of $12,867 million. There were 421,509 interest checks
with a value of $405,926,189 issued to owners of record during the
year.
Redeemed and canceled securities other than savings bonds received
for audit included 5,235,550 bearer securities and 471,792 registered,
securities, a total of 5,707,342. Coupons totaling 18,151,514 were
received.
A summary of public debt operations handled by the Bureau
appears on pages 17 to 36 of this report, and in tables 29 to 58.
U.S. savings bonds.—The issuance and redemption of savings bonds
results in a heavy administrative burden for the Bureau of the Public
Debt, involving: Maintenance of alphabetical and numerical ownership records for the 2.6 billion bonds issued during the past 29 years;
adjudication of claims for lost, stolen, and destroyed bonds (which
totaled 1.9 mUlion pieces on June 30, 1964); and the handling and
recording of rethed bonds.
Detailed information on sales, accrued discount, and redemption of
savings bonds wUl be found in tables 48 to 50, inclusive.




ADMINISTRATIVE

109

REPORTS

There were 100.1 mUlion stubs representing the issuance of Series
E bonds received for registration, making a grand total of 2,551.2
mUlion, including reissues, received through June 30, 1964.
All registration ^ stubs of Series E savings bonds and all rethed
Series E savings bonds are now microfilmed, audited, and destroyed,
after requhed permanent record data are prepared by an E D P system.
The following table shows the status of processmg operations in the
Parkersburg office.
Balance

Fiscal year

Received

MicroKeyfilmed p u n c h e d

Converted
to
magnetic
tape

Audited
and
classified

Destroyed
Unfilmed

Not
keypunched

Not
converted
to
magnetic
tape

Unaudited

S t u b s of issued card t y p e Series E savings b o n d s [in m i l h o n s of pieces]
147.0
87.2
88.7
91.0
94.3
100.1

Total

146.0
84.7
90.7
90.2
93.9
98.2

144.8
82.6
92.4
88.7
95.0
97.6

124.7
102.5
92.2
89.1
95.0
97.6

141.6
83.6
92.9
88.9
93.0
98.4

58.3
154.4
154.1
69.6
96.2

608.3

1958-59
1960
1961
1962
1963
1964

603.7

601.1

601.1

598.4

532.6

1.0
3.5
1.5
2.3
2.7
4.6

2.2
6.8
3.1
5.4
4.7
7.2

22,3
7.0
3.5
5.4
4.7
7.2

5.4
9.0
4.8
6.9
8.2
9.9

9.4
4.6
1.9
3.2
3.8

2.6
5.4
2.3
4.4
5.8

R e t i r e d card t y p e Series E savings b o n d s [in millions of pieces]
62.7
55.2
59.7
62.4
64.9
70.1

Total

62.2
54.3
60.6
61.3
64.3
70.0

61.9
52.5
61.5
61.1
64.1
68.9

53.3
60.0
62.4
61.1
64.3
68.9

60.1
52.4
62.8
60.3
63.5
69.1

20.6
93.0
95.0
48.3
83.4

375. 0

1958-59
I960-..
1961
1962
1963
1964

372.7

370.0

370.0

368.2

340.3

0.5
1.4
.5
1.6
2.2

0..8
3.5
1.7
3:0
3,8

R e t i r e d p a p e r t y p e Series E savings b o n d s [in millions of pieces]
0.8
21.8
22.4

1962
1963
1964
Total

..-

0.8
21.2
22.4

0.7
20.8
22.1

0.7
20.8
22.1

0.7
19.9
22.3

5.1
23.4

45.0

44.4

43.6

43.6

42.9

28.5

0.6
.6

0.1
1.1
1.4

0.1
1.1
1.4

0.1
2.0
2.1

Of the 87.5 million Series A-E saving bonds redeemed prior to release
of registration and received by the Bureau during the year, 85.2
million, or 97.4 percent, was redeemed by approximately 16, 000
authorized paying agents. These agents were reimbursed quarterly
at the rate of 15 cents each for the fhst 1,000 bonds paid and 10 cents
each for all over the fhst 1,000. During the year a total of $11,036,074,
an average of 12.95 cents per bond, was paid to the agents.
The following table shows the number of savings bonds outstanding
as of June 30, 1964, by series and denomination.




no

1964 REPORT OF THE SECRETARY OF THE TREASURY
D e n o m i n a t i o n (in t h o u s a n d s of pieces)

Series i

Total
$10

E

$25

$50

$75

$200

$100

c

D...
F
G
J
K

457,331 768 242,866 102, 998 131
6,731
1
2
(*)
1
1
3
1
4
11
2
19
10
52
25
62
163
67
387
470

77,850 7,789

T o t a l . . - . 465,212 768 242,983 103, Oil 131

H._j
A
B

78, 097 7,789

::::

1
1
3
15
20
76
131

....

....

$1, 000 $5, 000 $10,000 $100, 000

$500
12,028
2,566

(*)
(*)
1
3
5
32
40
125
14,800

12,855
3,756

(*)
(*)

44
91

""sis"

1
5
11
51
107
262

1
3
16
40

17, 048

378

2

(*)

1
25
42

1
1

203

4

* Less than 500 pieces.
1 Currently only bonds of Series E and I-I are on sale.

The following table shows the number of issuing and paying agents
for Series A - E savings bonds by classes.

Post
offices 1

J i m e 30

Banks

Buildmg
, and
savings
and
loan
associations

Credit
unions

Companies
operatmg
pa^'^roll
plans

All
others

Total

Issuing agents
1945
1950
1955
1960
1961
1962
1963
1964

...

24,038
25,060
2,476
1,093
1,061
1,046
1,011
977

15,232
15,225
15,692
16,436
13,505
13, 559
13, 644
13,908

3,477
1,557
1,555
1,851
1,617
1,670
1,679
1,702

2,081
522
428
320
285
281
269
252

2 9,605
3,052
2,942
2,352
2,045
1,978
1,857
1,783

550
588
643
590
573
560
528

54,433
45,966
23, 681
22,695
3 19,103
19,107
19,020
19,150

57
56
60
16
16
15
15

13,466
16, 691
17, 652
19,153
3 15,449
15,553
15, 735
15,991

(2)

P a y i n g agents
1945
1950
1955
1960
1961..
1962
1963
1964

13,466
15,623
16,269
17,127
13, 670
13, 687
13,826
14,039

874
1,188
1,797
1,605
1,690
1,739
1,779

137
139
169
158
160
155
158

1 Estimated by the Post Office Department for 1955 and thereafter. Sale of Series E savings bonds was
discontinued at post offices at the close of business on Dec. 31,1953, except in those localities where no other
public facilities for their sale were available.
2 "All others" included with companies operating payroll plans.
3 Substantial reduction due to reclassification by Federal Reserve banks effective Dec. 31,1960, to include
only the actual number of entities currently qualified.

Interest checks issued on current income type savings bonds
(Series G, H, and K) during the year totaled 5,184,764 with a value of
$312,765,375. New accounts established for Series H bonds, the
only current income type savings bond presently on sale, totaled
155,310, while accounts closed for Series H bonds totaled 117,685,
an increase of 37,625 accounts.
Applications received during the year for the issue of duplicates
of savings bonds lost, stolen, or destroyed after receipt by the registered owner or his agent totaled 34,652. In 14,854 of these cases




ADIVEINISTRATIVE REPORTS

111

the issuance of duplicate bonds was authorized. In addition, 12,101
applications for relief were received in cases where the original bonds
were reported as not being received after having been maUed to the
registered owner or his agent.
OFFICE OF THE TREASURER OF THE UNITED STATES

The Treasurer of the United States is responsible for the receipt,
custody, and disbursement, upon proper order, of the public moneys
and for maintaining records of the source, location, and disposition
of these funds. The Office of the Treasurer uses the facUities of the
Federal Reserve banks as fiscal agents of the United States to perform many of its functions. These include: The verification and destruction of U.S. paper currency; the redemption of public debt securities; the keeping of cash accounts in the name of the Treasurer;
the acceptance of deposits made by Government officers for credit;
and the custody of bonds held to secure public deposits in commercial
banks.
Commercial banks qualifying as depositaries provide banking
facUities for the Government in the United States and in foreign
countries. Data on the transactions handled for the Treasurer by
Federal Reserve banks and commercial banks are reported daily to
the Treasurer and are entered in the Treasurer's general accounts.
The Treasurer maintains current summary accounts of all receipts
and expenditures; pays the principal and interest on the public debt;
provides checking account facUities for Government disbursing officers, corporations, and agencies; pays checks drawn on the Treasurer
of the United States and reconciles the checking'accounts of the disbursing officers; procures, stores, issues, and redeems U.S. currency;
audits redeemed Federal Reserve currenc}^; examines and determines
the value of mutUated currency; and acts as special agent for the
payment of principal and interest on certain securities of U.S. Government corporations and on certain securities issued by Puerto Rico
on or before January 1, 1940.
The Office maintains facUities at the Treasury to: Accept deposits
of public moneys by Government officers; cash U.S. savings bonds
and checks drawn on the Treasurer; receive excess and unfit currency
and coins; and to conduct transactions in both marketable and nonmarketable public debt securities. The Office also prepares the Daily
Statement of the United States Treasury and the monthly Circulation
Statement of United States Money.
Under the authority delegated by the Comptroller General of the
United States, the Treasurer processes claims arising from forged
endorsements and other irregularities involving checks paid by the
Treasurer and passes upon claims for substitute checks to replace
lost or destroyed unpaid checks.
The Treasurer of the United States is Treasurer of the Board of
Trustees of the Postal Savings System. She is also custodian of
bonds held to secure public deposits in commercial banks, bonds held
to secure postal savings on deposit in such banks, and miscellaneous
securities and trust funds.
f7.43-16'0^^6i5^

^9




112

1964 REPORT OF THE SECRETARY OF THE TREASURY

Management improvement

The program started in fiscal 1963 for purchasing rather than renting E D P equipment, where it was in the interest of the Government
to do so, was completed in fiscal 1964. The purchase program wUl
result in total savings in the form of reduced appropriations requirements estimated at $4.6 miUion for the fiscal years 1963-71. An
analysis of the projected costs of purchasing and maintaining other
leased equipment resulted in the purchase of 6 pieces of electric accounting equipment from which annual savings of over $5,000 wUl be .
realized after recovery of the capital investment in 1967.
Plans were completed during fiscal 1964 to have all checks adaptable
to machine processing recorded on tape during the first card-to-tape
conversion operation, thus reducing the number of checks requiring
handling as exceptions. The greater reading efficiency of the card-totape converters acquired in fiscal 1963 has greatly reduced the number
of checks rejected as not adaptable to machine processing.
Government disbursing officers issue either green checks (with the
amounts punched thereon) or buff checks (amounts not punched at
time of issue). Some progress has been made as a result of intensified
efforts to encourage disbursing officers to issue only green checks
where feasible. This lowers costs at the Federal Reserve banks where
the amounts are punched into buff checks upon receipt.
Assets and liabilities in the Treasurer's account

A summary of the assets and liabUities in the Treasurer's account
at the close of the fiscal years 1963 and 1964 is shown in table 59.
Gold.—Fiscal 1964 was the seventh consecutive year that the
Treasurer's gold assets have declined. However, the net reduction
of $272.0 mUlion shown in table 59, representing disbursements of
$1,113.6 mUlion offset by receipts of $841.6 mUlion, on the basis of
daily Treasury statement, was appreciably less than the decline in
any of the 6 preceding fiscal years.
Silver.—The Treasurer's Office continued a policy of reducing the
amount of silver certificates outstanding so sUver bullion securing such
certificates could be released to the Bureau of the Mint for coinage.
The results achieved for the fiscal year are summarized in the following
table on the basis of the Daily Statement of the United States Treasury:
Silver at
$1.29-f peroz.
[In millions]
Silver bullion available for release at begiiming of fiscal year 1964:
Silver balance 1
Less silver certificates in Treasury cash
Availability of bullion:
Increased by:
Reduction in silver certificates outstanding
Reduced by:
Decline in Treasury holdmgs of standard silver dollars.
Bullion exchanged for certificates
Total bullion available for release during the fiscal year..
Actual releases at request of Bureau of the Mint
..
Silver bullion available for release at end of fiscal year 1964:
Silver balance i
Less silver certificates in Treasury cash
1 See table 59.




$17.8
-12.1

$5.7

315.9
62.8
62.2 -125.0
196.6
-169.4
39.3
-12.1

27.2

ADMINISTRATIVE

113

REPORTS

The issue of Federal Reserve notes in the $1 denomination was
begun in November 1963, pursuant to legislation enacted June 4,
1963 (Public Law 88-36 which amended 12 U.S.C. 418). These
notes are being issued to replace retired $1 silver certificates and
thus free silver to meet coinage needs.
To prevent the market price of sUver from exceeding its monetary
value the Secretary issued instructions on July 22, 1963 (28 F.R. 7530)
offering to exchange sUver bullion at the New York and San Francisco
assay offices, the exchanges to be accompanied by an equivalent
reduction in the amount of outstanding silver certificates.
By March 1964 the supply of sUver dollars had been reduced to
approximately 3 million, and since these could not be distributed
equitably because of their numismatic value, the Secretary of the
Treasury on March 25, 1964, exercised the option given him by the
act of June 4, 1963, and announced that silver certificates would
thereafter be redeemed in sUver bullion at the New York and San
Francisco assay offices.^
The following table summarizes silver bullion transactions of aU
types during 1964:
Silver bulhon
Held to
secure
silver
certificates

Fiscal year 1964

Monetary
value

Held for coinage, etc.

Monetary
value

Cost value Recoinage
value

(In milhons)
On hand July 1,1963
_._
Received(+), or disbursed(—), n e t . . . . . .
Exchanged for silver certificates.. _. . . .
Released for coinage .
Used in coinage
.

_

-62.2
-169.4

On hand June 30,1964...

.

$4.3
-8.5

$22.5
-.9

+$2.2

+169 4
-163 8

-11.4

-2.0

14

10.2

.2

1,846.8

$2,078.4

Balances with depositaries.—The following table shows the number
of each class of depositaries and balances on June 30, 1964.
Deposits to the
Number of
credit of the
accounts with Treasurer ofthe
depositaries i United States
June 30,1964

Class

Federal Reserve banks and branches
other depositaries reporting directly to the Treasurer
Depositaries reporting through Federal Reserve banks:
General depositaries, etc - . Special depositaries, Treasury tax and loan accounts
Foreign depositaries 3
__
TotaL.-

..
....
.

36 2 $1,172,833,841
45
38,821, 526
1,887

267,124, 514
9,179,608,425
53,959,759

13,977

10,712,348,065

_

1 Includes only depositaries having balances with the Treasurer of the United States on June 30, 1964.
Excludes depositaries duly designated for this purpose but having no balances on that date and those designated to furnish official checking account facilities or other services to Government officers, but which are
not authorized to maintain accounts with the Treasurer. Banking institutions designated as general depositaries are frequently also designated as special depositaries, hence the total number of accounts exceeds
the number of institutions involved.
2 Includes checks for $233,819,839 in process of collection.
3 Principally branches of U.S. banks and of the American Express Co., Inc.
1 See exhibit 52.




114

1964 REPORT OF THE SECRETARY OF THE TREASURY

Bureau operations

Receiving and disbursing public moneys.—^Moneys collected by
Government officers are credited to the account of the Treasurer of
the United States either by deposits with the Treasurer at Washington,
with Federal Reserve banks, or with designated Government depositaries. All payments are withdrawn from this account. Moneys
deposited and withdrawn in the fiscal 3''ears 1963 and 1964, exclusive
of certain intragovernmental transactions, are shown in the following
table on the daily Treasury statement basis.
D e p o s i t s , w i t h d r a w a l s , a n d balances iu t h e T r e a s u r e r ' s a c c o u n t

1963

B a l a n c e at beginning of fiscal year

$10,430,393,549

C a s h deposits:
I n t e r n a l r e v e n u e , c u s t o m s , t r u s t fund, a n d other collections
P u b l i c d e b t receipts 1
.
Less:
Accrued discount on savings b o n d s a n d T r e a s u r y bills
P u r c h a s e s b y G o v e r n m e n t agencies
Sales of securities of G o v e r n m e n t agencies in m a r k e t
T o t a l deposits

.. ..

$12,116 176 163

114,453,793,551
227,000,711,290

121,581,066,544
230, 012,138,001

-2,857,938,673
r - 4 2 , 2 0 9 , 870, 586
'7,190,401,724

-3,372,296,050
—51,118,494,823
8,917 936 633

r 303, 577, 097,306

306,020 350 305

Cash withdrawals:
B u d g e t a n d t r u s t accounts, etc
..
P u b h c debt redemptions i
.
Less:
R e d e m p t i o n s i n c l u d e d in b u d g e t a n d t r u s t accounts
R e d e m p t i o n s b y G o v e r n m e n t agencies
.. r
R e d e m p t i o n s of securities of G o v e r n m e n t agencies in m a r k e t . . . .
Total withdrawals

.. .

_. .^

C h a n g e i n clearing a c c o u n t s (checks o u t s t a n d i n g , deposits in t r a n s i t ,
unclassified transactions, etc.), n e t deposits, or w i t h d r a w a l s ( - ) . .
Balance at close of fiscal year

1964

118,476,596,149
219,341,901,015

124,065,882,136
224,158,871,740

-1,824,574,500
-40,228,780,832
"•7,164,727,225

-2,273,223,086
-48,373,355,385
8,031,959,150

' 302,929,869, 057

305 610 134 555

1,038,554,365

-1,490,660,704

12,116,176,163

11,035,731,209

r Revised.
1 For details see table 41.

Issuing and redeeming paper currency.—By law the Treasurer is
the agent for the issue and redemption of U.S. paper currency. The
Treasurer's Office procures aU U.S. paper currency from the Bureau
of Engraving and Printing and places it in circulation as needed,
chiefly through the facUities of the Federal Reserve banks and their
branches.
The Federal Reserve banks and branches, as agents of the Treasury,
redeem and destroy the major portion of the U.S. currency as it
becomes unfit for circulation. A small amount is handled directly by
the Treasurer's Office.
Federal Reserve banks issue Federal Reserve notes; they also redeem these notes, cut them in half, and forward the halves separately
to Washington where the Currency Redemption Division ot the
Treasurer's Office verifies the lower halves and the Office of the
Comptroller of the Currency verifies the upper halves. Both halves
are then destroyed under the direction of a special committee.
The Currency Redemption Division redeems imfit paper currency
of all types received from local sources in Washington and from
Government officers abroad; and examines and identifies for lawful
redemption all burned and mutUated currency received from any




ADMINISTRATIVE

115

REPORTS

source. During fiscal 1964 such currency was examined for 44,781
claimants and payments made totaling $14,807,717.
A comparison of the paper currency of all classes, including Federal
Reserve notes, issued, redeemed, and outstanding during the fiscal
years 1963 and 1964 follows.
Fiscal year 1964

Fiscal year 1963
Pieces
Outstanding July 1
Issues during year
Redemptions during year
Outstanding Jnne 30

Amount

3, 783, 776, 539 $35,.848, 273,859
1, 818, 874, 687 9, 685,107, 640
1, 682, 566, 500 8,048, 605,339
3, 920,084, 726 37,484, 776,160

_
,.,.,

Pieces

Amount

3, 920,084, 726 $37,484, 776,160
1,866,174, 623
10,239,966, 528
1, 669,350,864
8,165, 614,017
4,116,908,485
39, 569,128, 671

Table 66 shows by class and denomination the value of paper
currency issued and redeemed during the fiscal year 1964 and the
amounts outstanding at the end of the year. Tables 61 through 65
give details on the stock and circulation of money in the United States.
Checking accpunts of disbursing officers and agencies.—As of June 30,
1964, the Treasurer maintained 2,174 checking accounts, compared
with 2,310 the year before. The number of checks paid by categories
of disbursing officers during fiscal 1963 and 1964 follows.
Number of checks paid

Disbursing officers

1963
Treasury
Army .
Navy
Air Force
other

.

'

_.
...

. . -. . . .
_

_

Total

.
___

.
__

_
_

_

.
. . . . . .
. .

. .
.

1964

337, 475, 327
29,123, 250
32,107,033
33, 688, 542
34,417,927

355,813, 618
27,813,399
33,034,809
33,340,716
24, 244, 516

466, 812,079

474, 247,058

Settling check claims.—During the fiscal year the Treasurer processed
398,000 requests to stop payment on Government checks, and 41,600
requests for information and for photostatic copies of paid checks.
Fifty-five thousand requests for removal of stop payments were
processed.
The Treasurer acted upon 223,000 paid check claims during the
year, including those referred to the U.S. Secret Service for investigation which involved the forgery, alteration, counterfeiting, or
fraudulent issuance and negotiation of Government checks. Reclamation was requested from those having liability to the United States on
35,962 claims, and $3,586,000 was recovered. Settlements and
adjustments were made on 27,600 forgery cases totaling $3,598,000.
Payments from the check forgery insurance fund, established to
enable the Treasurer to expedite settlement of check claims, totaled
$552,000. As recoveries are made, these moneys are restored to the
fund. Settlements totaling $3,859,000 have been made from the
check forgery insurance fund since its establishment on November 21,
1941 (31 U.S.C. 561-564).




116

1964 REPORT OF THE SECRETARY OF THE TREASURY

Claims by payees and others involving 92,000 outstanding checks
were acted upon. Of these, 79,000 were certified for issuance of
substitute checks valued at $47,830,000 to replace checks not received,
i.e., lost, stolen, or destroyed.
CoUecting checks deposited.— Government officers during the year
deposited more than 7,123,000 commercial checks, drafts, money
orders, etc., with the Cash Division in Washington for collection.
Custody of securities.—-The face value of securities held in the
custody of the Treasurer as of June 30, 1963, and June 30, 1964, is
shown in the following table.
JuneSO

Purpose for which held

1964

1963
As collateral:
$117,903,100
To secure deposits of public moneys in depositary banks
.
To secure postal savings funds
. . . _. .
.
16,953,500
In lieu of sureties
.
...
4, 637,400
In custody for Govermnent officers and others:
35,796,249,444
For the Secretary of the Treasury 1.
....
. .
For Board of Trustees, Postal Savings System
.
.
190, 737,000
For the Comptroller of the Currency.
._
. . .
13,960,000
For the Federal Deposit Insurance Corporation
1,132,228,100
For the Rural Electrification Administration
.
. ._ .
119,931, 043
For the District of Columbia
121,196,078
For the Commissioner of Indian Affairs.. .
. . . . . .
36,438,425
Foreign securities 2
12,060,226,132
others
86,256,956
For Government security transactions:
1, 710,531, 950
Unissued bearer securities.._
...
Total
51,407,249,128

$118,313,100
16,927, 000
6, 591,000
35,609,163,447
432,079, 000
14, 790,000
1,142, 077,900
125,639,626
130, 646, 529
35,800,800
12,056,059,132
79, 604,970
1,630,409,950
51,398,102,454

1 Includes those securities listed in table 109 as in custody of the Treasury.
2 Issued by foreign governments to the United States for indebtedness arising from World War I.
3 Includes U.S. savings bonds in safekeeping for individuals.

Servicing securities for Federal agencies and for certain other governments.—In accordance with agreements between the Secretary of the
Treasury and various Government corporations and agencies and
Puerto Rico, the Treasurer of the United States acts as special agent
for the payment of principal of and interest on their securities. These
payments during the fiscal year 1964, on the basis of the Daily Statement of the United States Treasury were as follows.
Payment made for

Principal

Banks for cooperatives.. . . .
.
District of Columbia Armory Board
Federal home loan banks
...
Federal Housing Administration.
..
Federal intermediate credit banks....
Fecieral lanci banks ^
Federal National Mortgage Association
Puerto Rico _
Others
Total
1 On the basis of checks issued.




-

$1,066,000,000
._

.

Interest paid
with principal
$18, 567,494

3, 090, 675,000
293, 304,450
2, 781,865,000
426, 638,300
173,392,000
192, 500
. 43,400

77,282,031
2,979,438
68, 520, 840
120, 683
5

107, 864,142
78, 002,093
65, 728
2,243

7,832,110, 650

167,470,491

39,065, 744 210,466, 238

Registered
interest i

$29, 967, 735
9,098,009

Coupon
interest

$842, 520
23, 689, 512

ADMINISTRATIVE

117

REPORTS

Office of Foreign Assets Control
The Office of Foreign Assets Control is responsible for administering
the Treasury Department's freezing controls under section 5(b) of
the Trading with the Enemy Act. The controls under the Foreign
Assets Control Regulations over assets in the United States of Communist China anci North Korea and over all trade and financial
transactions with those areas and their nationals were continued
during the fiscal year 1964. The prohibitions under the regulations
relating to the purchase and importation of Communist Chinese and
North Korean merchandise and the procedures for specified commodities of types principally imported from mamland China prior to the
regulations also remained relatively unchanged. The enforcement
measures taken by the Control during fiscal 1964 included, in addition
to $35,000 in fines and forfeitures coUected, one successful criminal
prosecution and five indictments. On May 5, 1964, the Foreign
Assets Control Regulations were extended to North Vietnam.
On July 8, 1963, the Cuban Assets Control Regulations were issued
under section 5(b) of the Trading with the Enemy Act and also under
section 620(a) of the Mutual Defense Assistance Act of 1951. These
regulations replaced the previously existing Cuban Import Regulations. The Cuban Assets Control Regulations apply to Cuba and
nationals thereof and are essentially the same controls as are applied
to China, North Korea, and North Vietnam under the Foreign Assets
Control Regulations. That is, they prohibit all unlicensed financial
and commercial transactions by Americans with Cuba or nationals
thereof.
Following the issuance of the Cuban Assets Control Regulations, a
census was conducted of blocked Cuban assets in the United States.
The following tables summarize the value of U.S. assets owned by
Cuba and Cuban nationals as disclosed by the census.
Value of U.S. assets owned by Cuba and Cuban nationals, by type of asset and
location of owner, J u l y 8, 1963
[In U.S. dollars]
Type of asset
Bullion, currency, and coin
Deposits
Notes, drafts, and debts maturing within one year..
Other notes, drafts, and debts to nationals
Financial securities payable in dollars
Financial securities not payable in dollars
Interest of associated foreign persons
Miscellaneous personal property and liens
Real property, mortgages, and other rights
Interest in estates and trusts
Insurance policies and annuities
All other property
.
Total




Cuba
3,386
573, 714
507, 048
436, 624
727, 570
291, 649
128, 819
477, 909
544, 577
305,426
807, 455

144,804,177

Not Cuba
3,673
2, 879, 927
2,205
11,157
226, 671
52, 950
407, 020
6,221

Unknown
79, 985
168,475

8,536

8,262
175, 250

3, 598,360

431, 972

118

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Value of U.S. assets owned by Cuba and Cuban nationals, by type of asset and type
of owner, July 8, 1963
[In U.S. dollars]

T y p e of asset

Individual

Bullion, cmTency, a n d c o i n . . .
3,386
Deposits
-10,814, 796
N o t e s , drafts, a n d d e b t s m a tm-ing w i t h i n one year
33,051
Other notes, drafts, a n d d e b t s
to nationals
1,363,889
F i a a n c i a l securities p a y a b l e
2, 667,838
i n dollars .
F i u a n c i a l securities n o t p a y able i n dollars _-17, 516, 747
I n t e r e s t of associated foreign
persons _ . .
_. . . Miscehaneous personal p r o p e r t y a n d liens
Real p r o p e r t y , mortgages, and
other rights
..
79,176
542,159
I n t e r e s t i n estates a n d t r u s t s
I n s u r a n c e policies a n d a n n u 5, 314,194
ities
_ . 107, 940
All other p r o p e r t y
Total

38,443,176

Corporation

Partnership

Unincorporated
association

Other

Unknown

3,673
5,324, 708

177, 763

54,193
1,161,094

1,072

33, 289, 724

144,097

42,381

168,475

798, 076

274, 957

10,859

1, 019,124

4,840

262,439

49, 249, 439

4, 578, 413

407, 020
135, 040
1,054

397, 679
2,418
8,030
12, 504, 752

370, 013
90, 597, 871

609, 687

54,193

18, 960, 035

169, 547

The Office of Foreign Assets Control also administers the Transaction Control Regulations which supplement the export controls
exercised by the Department of Commerce over direct exports from
the United States to the Soviet bloc. The Transaction Control
RegiUations prohibit, unless licensed, any person within the United
States from purchasing or selling or arranging the purchase or sale
of internationally controlled strategic commodities located outside
the United States for ultimate delivery to the Soviet bloc. As in
the case of the Foreign Assets Control Regulations, the prohibitions
apply not only to domestic American companies but also to foreign
firms owned or controlled by persons within the United States. The
jurisdiction previously exercised under the Foreign Assets Control
Regulations and the Transaction Control Regulations with respect
to patent and technical data licensing agreements was transferred
from the Office of Foreign Assets Control to the Office of Export Control, Department of Commerce, effective April 1, 1964.
Internal Revenue Serviced
The Internal Revenue Service is responsible for collecting internal
revenue and for administering the internal revenue laws. Fundamental objectives of the Service are sustaining public confidence in the
revenue system and encouraging voluntary compliance with the tax
laws. The Service is also responsible for administering certain other
statutes including the Federal Alcohol Administration Act (27 U.S.C.
201-212), the Liquor Enforcement Act of 1963 (18 U.S.C. 1261, 1262,
3615), and the Federal Firearms Act (15 U.S.C. 901-909).
1 Additional information AviU be found in the separate Annual Report of the Commissioner of Internal
Revenue.




ADMINISTRATIVE REPORTS

119

IVIajor management improvements

Benefits from management improvements.—On June 30, 1964, there
were approximately 100 improvement projects scheduled or in process
which were of sufficient scope, depth, and potential impact to warrant
control by and periodic reporting to top management. Eleven individual management improvement actions were completed, each of
which resulted, or will result, in annual savings in excess of $100,000.
Improvements in the management of operations, approved or implemented, will eventually result in recurring annual benefits of approximately $9.8 million. In addition, nonrecurring benefits exceeded
$1 million, and savings to other agencies totaled $5.1 million. Thus,
the total of savings in all categories exceeded $15.8 million.
Committee on Resources Utilization.—Several of the more significant
accomplishments made during the year had been recommended by
the Commissioner's Committee on Resources Utilization. These
recommendations were designed to achieve optimum resources utilization through improvements in organization structure and systems
and procedures, as well as through development and implementation
of adequate machinery (methods, techniques, criteria) by which the
Service is assured that manpower is advantageously utilized. Sixty of
the 72 recommendations of the Committee have been approved, many
of which had been fully implemented and the others partially implemented or under active study at the end of the year.
Two Committee studies completed during the year are especially
noteworthy. One dealt with ways and means of minimizing duplication of work on regulations, legislation, and rulings performed by the
Office of the Assistant Commissioner (Technical) and the Office of
the Chief Counsel. Principal changes stemming from recommendations, which are estimated at $814,000, are:
(a) Responsibility for developing regulations is to be centered in
the Legislation and Regulations Division of the Chief Counsel's
Office. The change ^\all give this Division the basic responsibility
for representing the Commissioner in the Administration's tax legislative program, and for drafting legislation and developing regulations.
(b) Basic responsibility for rulings continues m t h the Tax Rulings
Division in the Office of the Assistant Commissioner (Technical).
The second study was concerned with major improvements in
informal conferences with taxpayers. The comprehensive revision
of conference procedures recommended will result in annual recurring
savings estimated at $924,450. Implementation of the new procedures is scheduled for 1965.
Reports program.—The reports program provides a systematic approach to determine the data required by all levels of management
and to develop integrated reporting systems to supply the necessary
information at the least cost. Emphasis is placed on maximum
utilization of the Service's A D P system. Annual reporting costs
have steadily declined from $15.8 million in fiscal 1961 to $13.3
mUlion in fiscal 1964, while at the same time providing managers with
better and more timely information for planning, controlling, and
evaluating operations.
The program was expanded in 1964 to permit the National Office
Reports Division to render independent analyses of current operating
programs. Such analyses reflect the interrelationship of programs




120

19 64 REPORT OF THE SECRETARY OF THE TREASURY

and provide top management with a basis for appraising operations
in terms of the Service's overaU goals and objcjctives.
Reorganizations

Realignment of field ofiices.—The redesignation of certain Internal
Revenue Service regions and districts as ordered by the Secretary of
the Treasury (see 1963 annual report, pages 142 and 407-9) became
effective on January 1, 1964. This realignment reduced the number
of regions from 9 to 8, the number of districts from 62 to bS, and the
number of proposed service centers from 9 to 7. Implementation of
this reorganization was substantially complete by the end of fiscal
1964. Annual recurring savings, originaUy estimated at $3.5 million,
are now expected to yield approximately $3.8 mUlion.
Reorganization of^ National Ofiice of Chief Counsel.—On March 24,
1964, the I R S Chief Counsel, announced a reorganization of the
National Office of the Chief Counsel, effective AprU 1, 1964, to
provide a more efficient organization for maximum utilization of top
legal and executive talent.
Personnel

During fiscal year 1964 new measures were instituted to control
grade structure and insure better control of work assignments and
their relation to superior qualifications as a prerequisite for promotion.
Personnel technicians participated in financial planning at all levels
to provide manpower and position classffication advice relating to
proposed changes. Within the personnel organization, advances were
made in streamlining the organization and providing for more automation of personnel processes and reports in the interests of reducing costs and improving operations.
Nondiscrimination program.—The nondiscrimination program,
which caUs for special emphasis on the employment of women in high
level professional and management positions, the physically and
mentally handicapped, and minority group members, received increased support and action. AU phases of this program were featured
in a series of top management issuances directed toward more active
participation and policy promotion throughout the Service. As a
result, a greater awareness of the importance of the program has been
created at aU levels of management.
Training

Service officials met with State tax representatives under the
auspices of the National Association of Tax Administrators in June
1964 to discuss legislation enacted on October 23, 1962 (26 U.S.C.
7516) which permits the Internal Revenue Service to provide training
assistance to the States. I t was decided that a survey of State
training needs was required. The survey, to be conducted by the
National Association, is expected to provide a firm basis for rendering
assistance in a practical, economical manner.
The first experimental regional training center was set up in the
Western Region. A director has been selected and operations
planning has begun for the National training center which is to be
opened in the fall of 1964. DetaUed planning was also undertaken
for the second field training 'center to be located in the Central Region.



ADMINISTRATIVE REPORTS

121

Space

Over the past few years, the Service has made excellent progress in
improving the quality of its offices whUe maintaining one of the best
rates of utilization (average square feet per employee) in Government.
Additional space was acquired for 138 offices in fiscal 1964, relieving
crowded conditions and accommodating staff expansion. The following offices were moved into new or modernized buUdings: Brooklyn,
Cincinnati, Miami, San Francisco, Seattle, and Manhattan.
Interpretation and communication of tax Jaw to taxpayers

Reasonable and effective administration of the tax laws depends in
large measure upon sound interpretation and widespread communication of the laws to taxpayers. The Service strives to assist taxpayers
in understanding their rights and obligations through several programs
which include: Direct personal assistance in district and local offices;
publication of guides covering specific tax problems as well as general
situations; dissemination.of information through various news media;
promotion of high school level courses in returns filing; and the
preparation and distribution of regulations, rulings, and tax forms
with instructions.
Taxpayer publications program.—In fiscal 1964 the Service issued
approximately 60 publications in plain everyday language, as a means
for self-help, information, and guidance to taxpayers on most aspects
of Federal taxation. In addition, detailed instructions are furnished
with most tax return forms. One of the most important publications.
Your Federal Income Tax, is used in the taxpayer assistance and
teaching taxes programs.
Public information program.—The Internal Revenue Service's
accelerated public information program, initiated in fiscal 1963,
continued to provide, through mass information media, maximum
information for the taxpaying public.
These information efforts contributed to public understanding of
the new regulations on travel and entertainment expenses. Throughout the year the expanding automatic data processing system was
widely publicized to help insure more complete and accurate preparation of returns.
Following the enactment of the Revenue Act of 1964 on February 26,
1964 (78 Stat. 19) special information campaigns were conducted to:
Advise employers of new withholding rates; provide information on
preparation of 1964 estimated tax returns on the basis of new tax
rates and other provisions of the law; and provide instructions to help
taxpayers avoid underwithholding.
. The interest and cooperation of the press and other mass media
throughout the country helped insure a continuing flow of important
tax information to the public.
Taxpayer assistance program.—The taxpayer assistance program is
a basic component of the Service's program for fostering voluntary
compliance. On July 1, 1963, the Service instituted a new and
broadened year-round taxpayer assistance program. Since this is the
first year under the new system, the data gathered cannot be compared
with information provided in this report in prior years, However, as
the statistics below iiidica te, the demand for assistance is great.




122

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Almost 23 million taxpayers throughout the United States received
help with their tax returns or tax problems during fiscal 1964. Of
these, more than 14.4 million received help through telephone inquiries, the method stressed as the type of assistance taxpayers
should normally seek. The other 8.6 million taxpayers visited
Internal Revenue Service offices. Of these, 7.0 million were furnished
self-help assistance in preparation of their returns and answers to
their specific tax inquiries. The major portion of the tax return,
schedule, or form was completed by Service employees for the remaining 1.6 million taxpayers. The Service used less than 310,000 mandays in furnishing the various types of assistance.
Tax return forms program.—The administrative work in the return
forms area was increased during fiscal 1964 by recent legislation,
improvements, and changes in operations which required the revision
of existing forms and the creation of new ones. The Revenue Act of
1964 necessitated the preparation of new rate tables for income and
withholding taxes. The Revenue Act of 1962 required revision of the
schedule used to report capital gains on individual income tax returns.
Section 401 of the Internal Revenue Code as amended on October 10,
1962, by the Self-Employed Individuals Tax Retirement Act (26
U.S.C. 37), necessitated a new form and corresponding revisions of
income tax returns to reflect the self-employed retirement deduction.
An operational improvement requiring two new forms was the adoption
of a meter for the sale of documentary stamps. The Service also
consolidated three forms and a separate schedule into a single form to
improve the Employer's Annual Federal Unemployment Tax Return.
Regulations program.—Seventy-four final regulations, 2 Executive
orders, and 33 notices of proposed rulemaking, relating to matters
other than alcohol and tobacco taxes, were published in the Federal
Register. These regulations were issued under provisions of the
Internal Revenue Code of 1954, subsequent public laws, or on the
basis of an administrative determination.
TwehT^e public hearings on the provisions of the proposed regulations,
which were published this year, were held in accordance with the provisions of the Administrative Procedure Act,, Approximately 800
taxpayers or their representatives participated.
Internal revenue collections and refunds

Gross collections.—Internal revenue coUections reached $112.3
bUlion in fiscal year 1964, an increase of $6.3 billion over 1963. Collections of individual income taxes increased $1.6 billion, or
3.0 percent, in spite of a decline in collections during the last half
of the fiscal year due to the reduced withholding rates established
by the Revenue Act of 1964. Although the act reduced corporation income tax rates, it accelerated payment dates for certain
corporations. Those corporations which estimate that their liability
wUl exceed $100,000 are now required to make payments of such
excess in the fourth and sixth months of their tax year as well as the
ninth and twelfth months. Consequently, receipts from this source
rose $2.0 bUlion, or ^,S percent, over 1963 during the latter half of the
fiscal year.
Employment taxes increased $2.0 billion, or 13.3 percent, over 1963.
Gains in these taxes reflected the rising number of employed people



123

ACMlNlSTRATlVE REPORTS

and increases in the tax rates. The Federal insurance contributions
tax rate, effective January 1, 1963, rose from 3)8 percent to 3% percent
on the first $4,800 of taxable wages. Since the tax is paid in equal
amounts by employee and employer, the combined rate rose from
Q}i to 7}i percent, a 16-percent increase for the first half of fiscal year
1964 over the comparable six-month period in fiscal 1963. The
self-employment insurance contributions tax rate rose also, from 4.7
percent to 5.4 percent beginning with the calendar year 1963. In
contrast with the other employment taxes but in line with the high
level of employment were the decreased rates and resulting decreased
collections from the Federal unemployment insurance tax. This tax
is paid by employers of 4 or more people on the first $3,000 of each
employee's wages. The rate, applicable to returns due January 31,
1964, decreased from 3.50 percent to 3.35 percent. Since only 5.0
percent of employment tax coUections were from the Federal unemployment insurance tax, the impact of the 10.3 percent decrease in collections from that source was slight.
Excise tax collections increased $540.5 mUlion-, or 4.0 percent, in
1964. The three largest sources, distUled spirits, gasoline, and
cigarettes, accounted for 52.3 percent of total excise tax collections in
1963 and for 51.4 percent in 1964. Gains were recorded in distilled
spirits and gasoline collections in 1964, but since the January 1964
Report of the Surgeon GeneraVs Advisory Committee on Smoking and
Health fiscal year figures on cigarette taxes paid have shown losses
culminating in a $33.8 million, or 1.7 percent drop.
A comparison of collections in the fiscal years 1963 and 1964 by
principal types of tax is shown below. Collections from 1936-64
by detaUed categories are given in table 21.

Source

In thousands of doUars
1963

Income taxes:
Corporation
Individual:
Withheld by employers
Other

22,336,134

24,300,863

38,718,702
14,268,878

39,258,881
15,331,473

Total individual income taxes
Total income taxes
Employment taxes:
Old-age and disability insurance
Unemplojrment insurance
Railroad retirement

52,987, 581
75,323,714

54, 590,354
78,891,218

13.484,379
948,464
571,644

15,557,783
850,858
593,864

Total employment taxes
Estate and gift taxes
Excise taxes:
Alcohol
Tobacco
Other excise

15,004,486
2,187,457

17,002,504
2,416,303

Total excise taxes
Total collections

13,409,737
105,925,395

3,441,656
2,079,237
7,888,844

3,577,499
2.052, 545
8,320,188
13,950,232
112,260,257

Refunds.—Refunds of internal revenue, comprising both principal
and interest, totaled $7.2 billion in fiscal 1964, compared with $6.6
billion in 1963. Gross collections, less refunds, amounted to $105.1
billion in fiscal 1964. This amount differs from administrative




124

1964 REPORT OF THE SECRETARY OF THE TREASURY

budget receipts which include gross collections of internal revenue,
receipts from miscellaneous sources, and customs duties reduced by
transfers to trust fund accounts and interfund transfers as well as
refunds of receipts.
Receipt and processing of returns

Number of returns filed.—In the fiscal year 1964, taxpayers filed
100.1 mUlion tax returns, 2.2 miUion more than in 1963. Individual
income tax returns increased 1.4 million to 64,201,000. Declarations
of estimated income tax increased slightly, halting a downward trend
of the past few years. Employment tax returns increased 0.6 mUlion.
Information returns totaled more than 330 mUlion, compared with
327 mUlion in 1963.
Automatic data processing.—New service centers, one at Austin,
Texas, serving the Southwest Region and one at Cincinnati, Ohio,
serving the Central Region, began processing business returns under
the A D P master file concept, effective January 1, 1964, as planned.
The Kansas City, Lawrence, and Ogden service centers plan to process bushiess returns under the master file concept beginning January
1965, for the Midwest, Northeast and New York, and Western regions,
respectively. At the end of fiscal 1964, the Business Master FUe
contained over 2.3 miUion taxpayer entities, or accounts, an increase
of 95 percent since July 1, 1963. The establishment of a nationwide
Business Master File is in process and will be completed in 1965 when
all seven IRS service centers will participate in the program.
During fiscal 1964, the Chamblee Service Center (formerly called
the Atlanta Regional Center) was in its thhd year of processing
business returns for the Southeast Region and in its second year of
processing individual returns. At the end of the year the Individual
Master File contained 8.4 miUion taxpayer accounts. The PhUadelphia Service Center was in its second year of processing business
returns, and will begin processing individual returns for the MidAtlantic Region on January 1, 1965. This is in keeping with the
modified implementation schedule which provides for two years' experience with business returns before a region starts on individual
returns.
The establishment of an IRS data center in Detroit to perform all
of the Service's data processing functions not directly related to the
processing of returns and related documents has been approved.
Work programs are being defined and operating plans developed.
Negotiations with the General Services Administration are under
way for acquhing a specific site for this center which is scheduled to
be operational January 1, 1966.
Service center functions.-—The service centers at Chamblee, Ga.,
Lawrence, Mass., Kansas City, Mo., and Ogden, Utah, processed 63.9
million individual income tax returns, an increase of 6.4 miUion, or
11.2 percent, over fiscal year 1963. Of these returns, 53.8 mUlion
were 1963 tax year returns filed during the 1964 filing period, and
10.1 million were 1962 tax year returns filed during the 1963 filing
period but processed after June 30. The returns processed during
January-June 1964 represent 84.5 percent of the 1963 tax year
returns fUed. The increase in 1964 resulted from: (1) increased
efficiency in the Chamblee Service Center; (2) the accelerated returns



ADMINISTRATIVE REPORTS

125

processing program in the other service centers during the last half
of the fiscal year which permitted them to process an additional 3.5
mUlion returns normally processed after June 30; and (3) the delay
in the returns processing program during the last half of fiscal year
1963, which resulted in carrying over 10.1 million returns for processing in the first half of fiscal 1964, compared with 8.4 million
carried over into the first half of fiscal 1963. In addition, the service
centers processed approximately 5.0 mUlion declarations of estimated
income tax.
The four service centers now operating under the nationwide A D P
system (Chamblee, Philadelphia, Austin, and Cincinnati) processed
6.0 mUlion business returns, or 29.9 percent of those filed, compared
with approximately 3.0 million, or 15.3 percent of the total filed in
fiscal 1963. In conjunction with the business returns operations,
the centers processed 2.2 million additional documents to record such
actions as payments on accounts, name and address changes, and
audit and collection adjustments. The above data includes full
fiscal year 1964 figures for the Chamblee and Philadelphia service
centers, and for the last half of the fiscal year for the Austin and
Cincinnati centers.
Enforcement activities

The Service expends a substantial portion of its resources on
enforcement activities to preserve and strengthen the self-assessment
system and promote the voluntary compliance essential to that
system.
Examination of returns.—During the fiscal year returns audited
by field audit techniques increased 1,262, whUe office audit examinations decreased 230,359. The decline in office audit examinations
is consistent with the cutback planned in 1963 to provide a more
balanced program by shifting emphasis from the examination of small
nonbusiness returns to the audit of small business returns and of
nonbusiness returns with adjusted gross income over $10,000. Despite
the decrease in the number of returns examined, the amount of additional tax and penalties recommended rose significantly.
The following table compares the number of returns examined
during the last two fiscal years:
I In thousands of returns

Type of return

Income tax:
Corporation
Individual and
Exempt organizations
Total income tax
Estate and gift taxes
Excise and employment taxes
Grand total
.

._
fiduciary
__

I
_

__
_

._.

'141 I
3,495
7
3,644
30
176
3,849

163
3,236
10
3,409
31
180
3,620

r Revised. Formerly included exempt organizations.

The yield in additional tax and penalty recommendations as a
result of the 3.6 miUion examinations was $2.55 bUlion, the largest




126

19 64 REPORT OF THE SECRETARY OF THE TREASURY

amount ever achieved in a single year. An increase was realized in
every tax area. Corporation examinations produced 27 percent more
additional tax and penalties, and individual and fiduciary deficiencies
rose 9 percent over the preceding year.
Mathematical verification.—Over 63.4 mUlion of the 63.9 mUlion
individual income tax returns reported above under Service center
functions, as processed in fiscal 1964, were mathematicaUy verffied.
This increase of 5.9 mUlion, or 10.3 percent, over fiscal 1963 was
attributed to most of the same causes responsible for the increase
in returns processed detailed in the above section. The number of
errors disclosed rose by 6.1 percent to 2.6 mUlion, 64.4 percent of
which represent errors resulting in additional revenue, whUe the
remainder represent errors resulting in decreased revenue.
The net yield to the Government was $92.9 miUion, compared with
$78.7 mUlion in fiscal 1963. This rise in net yield is attributed in
addition to the reasons reported earlier for increases in returns processed and ejxamined to an increase of more than $4, or 4.9 percent, in
the average increase error, while the average decrease error remained
almost constant.
National identity file.—With the establishment of the nationwide
master file of individual income taxpayers proceeding according to a
schedule of gradual extension on a regional basis to best assure its
success, an interim computer procedure has been installed to identify
filers of more than one individual income tax return for the same tax
period. The magnetic tape files are computer-searched to identify
multiple filers and all cases of duplication are extracted for followup
by the appropriate enforcement personnel. This eliminates the timeconsuming procedure under which district office index files are
manually searched to identify multiple refund cases.
The majority of the duplicates resulting from the search of returns
for the tax year 1962 did not represent duplicate filing but involved
incorrect identification by the taxpayer. Followup on the selected
potential yield cases resulted in a total of over $2 million in additional
assessments and refunds canceled. Aside from the additional revenue
yield, the national identity file will be of substantial assistance in the
reduction of processing costs through the purification of taxpayer
accounts.
Delinquent returns and delinquency investigations.—During fiscal
1964 the Service secured 1.1 million delinquent returns representing
$275.5 million in unreported tax, interest, and penalties. Approximately 66,000 of these returns, representing $57.6 mUlion, were
secured by district audit divisions incidental to the examination of
returns. The remainder of more than 1.0 million delinquent returns,
representing $217.9 million was secured through the established
delinquent returns program. This was an increase of 4.0 percent, or
39,000 delinquent returns, and $31.3 million, or 16.8 percent, over
1963. More manpower was utilized in the program in 1964 which is
one of the major means by which the Service strives to ensure that
all taxpaying entities satisfy the filing and payment requhements
under the internal revenue laws.
In addition, 1.77 million delinquency investigations were conducted,
an increase of 3.4 percent over the record of 1.7 mUlion in 1963.
These delinquency investigations result primarily from a check of




ADMINISTRATIVE

127

REPORTS

records of previously filed returns and constitute one of the major
methods of detecting nonfilers.
A nationwide compliance survey in selected geographical areas of
special tax stamp requirements for coin-operated amusement and
gaming devices was completed during 1964 in coordination with the
Department of Justice drive on organized crime. The survey resulted
in $511,500 in tax and penalties on 9,095 unreported devices.
Summary of additional tax from direct enforcement.—A detaUed
comparison of additional tax from dhect enforcement during the last
two fiscal years is shown in the following table:

In thousands of doUars

Sources

1963
Additional tax, interest, and penalties resulting from examination
Increases in individual income tax resulting from mathematical verification
National Identity File
Tax, interest, and penalties on delinquent returns _ __
Total additional tax, interest, and penalties ..
Claims disaUowed

1

1964

..

235,267

2,062,008
165, 501
2,260
275,480

..

2,243,356

2,505,249

1,080,794

445,556

1,859,975
148,113

Tax fraud investigations, indictments, and convictions.—During
fiscal year 1964 a significant increase in full-scale investigation completions and prosecution recommendations was coupled with a decline
in the number of preliminary investigations completed. Full-scale
investigations totaled 3,797. Prosecution was recommended in
2,392 cases, an increase of 184 cases, or 8.3 percent, from 1963. Preliminary investigations declined from 10,873 to 9,846. This reduction
resulted from closer evaluation of allegations of fraud. The streamlining of training programs and the greater use of technical investigative aids increased the effectiveness of special agents, resulting in
the completion of more full-scale investigations with prosecution
recommendations.
Indictments were returned against 1,577 defendants. In cases
reaching the courts, 1,314 pleaded guilty or nolo contendere, 224 were
convicted, 81 acquitted, and 188 cases dismissed. These compare
with 1,117 pleas of guilty or nolo contendere, 176 convictions, 73
acquittals, and 230 dismissals in the preceding year. There were
1,538 convictions in fiscal 1964, while the average for the last ten
fiscal years (excluding those for alcohol, tobacco, and firearms tax
violations) was 1,251.
The Service continued to participate in the Department of Justice
drive on organized crime through the investigation of the tax affahs of
major racketeers and by conducting nationally coordinated and independent raids on wagering tax law violator establishments. Raids
were made in 284 cities, and resulted in the arrest of 988 persons, the
seizure of 193 automobiles, $665,000 in currency, and considerable
gambling equipment.
Alcohol and tobacco tax and firearms administration.—The attack
on the illicit liquor traffic initiated in 1958, applied through concentration on the apprehension of major violators, disruption of the fiow
(743-160—<6i5

10




128

19 64 REPORT OF THE SECRETARY OF THE TREASURY

of raw materials necessary for the production of illicit sphits, and the
arrest of violators at the time of distillery seizures, has proven to be
a sound enforcement approach and was continued in fiscal 1964.
Syndicate operations in the New York and Mid-Atlantic Regions involving large continuous process stUls have been virtually eliminated.
In fiscal 1964, violators were identffied and listed as defendants in
87.1 percent of the 6,646 cases made for violation of the liquor laws.
A total of 416 major violators were convicted, with lengthy prison
sentences imposed in most cases.
Violations in 14 Southern States accounted for 91.3 percent of the
distilleries seized, 95.5 percent of the mash seized, 79.8 percent of the
vehicles seized, and 85.0 percent of the arrests during 1964. Seizures
of mash and nontaxpaid distilled spirits were about the same as last
year while the number of distilleries seized increased 8.4 percent.
The number of arrests was down 3.6 percent and vehicles seized
declined 5.5 percent from the previous year. Principal data on seizures are shown in the following table:
Number of
stills seized

Fiscal year
1955
1956
1957 .
1958
1959
1960
1961
1962
1963
1964

_ _

...

.

12.509
14,499
11,820
9.272
9,225
8,290
6.826
6,886
6,213
6,837

GaUons of
mash seized
7,375,300
8, 643, 200
6,756, 600
5,140,800
4,655,600
4,274,400
3,669,500
3,424,500
3,092,600
3,123,800

Number of
arrests made ^
10, .545
11,380
11,513
11,631
10,912
10,376
9,503
9,126
8,507
8.1i)8

1 Includes arrests for firearms violations and tobacco tax violations, which numbered 300 and 1, respectively, during 1964,

In the supervision of distilled spirits plants the Service continued
to place emphasis on attaining more effective manpower utilization.
A long-range plan was prepared in which a staffing goal of 421 positions was proposed for inspectors (on-premises) which compares
with an on-rolls figure of 484 on July 1, 1963. With a decrease of
five in the number of plants requiring supervision during the year
the plan was based on a continuing program of analysis and modernization.
During fiscal 1964 a total of 31,538 on-site inspections of plants
and permittees was completed, an increase due largely to the phasing
of advanced inspector trainees into an independent productive
capacity. Efforts to strengthen self-assessment and to facilitate
the measurement of taxpayer compliance were continued through
the audit approach to on-site inspection. Procedures under this
approach make greater use of modern audit methods and techniques
and substitute a system of spot checks and selective sampling for
routine inspection accounting. These procedures also require evaluation of the records system established by plant proprietors in order
that full advantage may be taken of such internal controls.
Concern on the part of the public over firearms, their use in crimes,
and theh control culminated in the decisions of United States Attorneys to take a closer look at violations of the Federal and National




ADMINISTRATIVE REPORTS

129

Fhearms Acts in terms of prosecutive action. This has resulted in
an increase in firearms investigations throughout the nation.
Collection of past-due accounts.—Almost 3.1 million accounts became
past due in fiscal 1964, 6.5 percent more than in 1963. A large part
of this increase was due to increased activity at the service centers
(where past-due accounts are established) in June 1964, compared
with June 1963. However, the amount of delinquent tax involved,
$1,463 million, was $12 mUlion less than last year.
In fiscal 1964 special efforts were made to reduce the inventory.
Despite the large number of new accounts issued in June, which
offset much of the inroads made in inventory levels through the
first 11 months, the 1964 inventory totaled 956,000 accounts, an
actual reduction of 1.2 percent from fiscal 1963. Moreover, this
represents the second lowest June inventory since 1954. The amount
of delinquent taxes involved in accounts pending at the close of
fiscal 1964 was $1,098 mUlion, $57 mUlion over the preceding year.
The Service continued to emphasize and expand the trust fund
tax collection prograin under which immediate contacts are made
to collect withholding and similar trust fund taxes from employers
and excise taxpayers who have failed to pay the tax when due. A
total of 114,000 trust fund accounts, 27,000 more than in 1963, was
collected whUe still in notice status, before past-due accounts were
established. In addition, over 10,000 dishonored checks, submitted
in payment of trust fund taxes, amounting to $8 mUlion, were
collected.
Appeals and civil litigation.—District audit divisions referred 21,494
prestatutory notice income, estate, and gift tax cases to regional
appellate divisions at the request of taxpayers, a 20.9 percent increase
over those referred in fiscal 1963. The appellate divisions disposed
of 18,794 prestatutory and poststatutory notice cases during 1964,
while on June 30, 1964, the inventory of these cases in appellate
divisions was 16,921. Petitions filed with the Tax Court of the United
States numbered 5,614. The Supreme Court decided seven tax cases,
sustaining the Government's position in five and rejecting it in two.
The circuit courts of appeals decided 520 cases (exclusive of coUection
litigation and alcohol and tobacco tax matters). The Government
won 344 of these cases, lost 139, and the remaining 37 cases were
decided partly for the Government and partly for the taxpayer.
Many taxpayers choose to contest theh liabilities by suing for refund in the U.S. district courts or the Court of Claims rather than
the Tax Court. The district courts decided 227 cases for the Government, 180 for the taxpayer, and 45 partly for each in fiscal 1964.
The Court of Claims decided 14 cases for the Government, 15 for the
taxpayer, and rendered 7 split decisions.
International activities

The Internal Revenue Service performs three broad but distinct
functions abroad: Furnishing technical assistance to other countries
in the process of strengthening and modernizing their tax administration; participating in the negotiation of tax conventions with foreign
governments and preparing regulations under these pacts; and administering Federal tax laws affecting mainly U.S. citizens and businesses abroad.




130

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Foreign tax assistance program.—ResponsibUity for this program is
vested in the Foreign Tax Assistance Staff, which was activated during
fiscal year 1963 and enlarged in fiscal 1964 to meet requests from an
increasing number of countries. To ensure effective coordination
both within the Service and among other agencies and organizations
such as the Agency for International Development, the Department
of State, and the Alliance for Progress, the Staff operates as an integral
p a r t of the Commissioner's office.
Overseas assistance usually covers the full range of tax administration. The Service representatives assigned abroad under this program
function in an advisory capacity to the tax officials of the host countries. In this manner the tax administration experience and knowhow, not only of the United States but of other.countries as well, are
made avaUable to the participating countries on an organized and
systematic basis.
The Service received more than 150 foreign officials from 41 countries, most of whom received specialized training for periods ranging
from a few days to several months. These visits are coordinated
with the Internal Revenue Service tax assistance teams in the visiting
officials' country to promote maximum application of the concepts of
tax administration acquired in this country.
Tax conventions.—Discussions took place in Washington with
representatives of one country and abroad with six countries in an
effort to conclude four new income tax conventions and three tax
conventions supplementing those already in existence. The texts of
such agreements were in various stages of development at the close
of the fiscal year.
Supplementary protocols to tax conventions with the Swedish,
Dutch, and Greek governments were signed during the fiscal year.
The Senate Foreign Relations Committee opened hearings on May
27, 1964, on an income tax convention with the Grand Duchy of
Luxembourg, two supplementary protocols to the income tax convention with Japan, the s^upplementary protocol to the Swedish
income tax convention, and the protocol supplementing the income
tax convention with the Netherlands as it relates to the Netherlands
Antilles.
On June 8, 1964, the President withdrew from Senate consideration
the income tax conventions with India, Israel, and the United Ai^ab
Republic.
International operations.—Through the Office of International
Operations, which administers Federal tax laws outside the United
States, the Service conducted a taxpayer compliance and education
program abroad during fiscal 1964. Twenty-three agents traveled in
excess of 120,000 miles to visit 100 cities in more than 50 countries,
where they prepared returns for 4,958 U.S. taxpayers reporting a
total tax liability of $1.8 million. A total of 15,052 persons were
assisted. Agents also conducted 14 schools attended by 613 mUitary
tax instructors, who assist Armed Forces personnel abroad.
Service officials consulted with foreign authorities on the disposition
of seven cases involving double taxation. Also, the Director of
International Operations, with other personnel of the National Office,
met with Canadian tax officials to assure continuing mutually satisfac-




ADMINISTRATIVE REPORTS

131

tory arrangements for the exchange of information between the two
countries.
Under the provisions of section 6046(a) of the Internal Revenue
Code of 1954, as amended by the Revenue Act of 1962, U.S. citizens
who were officers or directors of foreign corporations in which U.S.
shareholders held 5 percent or more interest, and each U.S. shareholder,
were required to file an information return as of January 1, 1963.
Approximately 24,500 of these returns were received during fiscal
1964. They provided data concerning the extent of U.S. interest
with respect to unrepatriated earnings of foreign companies and other
financial data. When these data are tabulated, the Service will have
for the first time, an inventory of U.S. shareholders with 5 percent or
more interest in a foreign corporation together with an inventory of
foreign corporations in which they have an interest.
Planning activities

The I R S planning activities, their objectives, capabilities, and
annual updating procedures, are discussed in detail in the 1963
annual report, pages 140-2.
Short-range operational planning.—Since the long-range goals can
be attained only over a period of several years, an important aspect
of the Service's planning activity is to define with maximum precision
that portion of the plan which can be achieved in the next budget
year and to estimate the funds necessary to support these activities.
Revisions to short-range guidelines and priorities are made after
appropriation of funds so that the final work plans conform with
available resources.
Detailed work-planning and control systems are used for analyzing
and appraising worldoad and determining short-range manpower
requirements in the Service's accounting, returns processing, delinquent accounts, and delinquent returns activities. These systems
provide for identffication and evaluation of operational steps, assignment of appropriate priorities to the various work phases, and the
allocation of manpower in accordance with the predetermined
priorities.
The allocation of resources to carry out approved work plans is
reflected in the financial plan where annual appropriations are allotted
for the Service's various offices and activities. The financial plan
provides National and regional program managers with a ^'blueprint"
as to the kinds and amounts of work they are expected to complete
and the manpower and resources that wUl be given them to do it.
This is the final step in the Service's budget cycle and represents t h e
culmination of planning which begins with the long-range plan and
preparation of annual budget request. The financial plan is subject
to modffication throughout the year as needs arise and to the extent
that compensating or supplementary resource changes are possible.
Long-range planning.—The importance of the growth factor in
determining long-term Service needs is demonstrated by the constantly
increasing volume of tax returns filed. Between 1930 and 1939 the
tax returns workload tripled, from 6 to 18 million. By 1960 the
number had increased to 94 million, more than 5 times the 1939
total. Approximately 98 million were filed during the 1963 calendar
year. On the basis of projections recently prepared by the Statistics




132

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Division the volume of returns filed wUl reach 112 mUlion in 1970
and will exceed 120 million by 1975.
The taxpayer compliance measurement program (TCMP), initiated
in fiscal 1963, is now in process. The delinquent accounts phase
was installed on a nationwide basis on January 1, 1963; a revised
continuation of this phase was installed on January 1, 1964. The
delinquent returns phase, an initial nonfarm-business survey, conducted only in the Southeast Region, was installed and completed
during May 6-August 31, 1963. A limited test survey of ^^farm
business" on which field work in six regions wUl be done will begin
in September 1964. I t is planned to extend delinquent returns
surveys to other regions, as returns processing is undertaken under
ADP. The returns filed phase was inaugurated on January 1, 1964,
and provides for the analysis of a nationwide sample of 100,000,
1963 individual income tax returns filed in 1964.
Organizational planning.—The Service conducts continuing studies
and projects to increase the effectiveness, productivity, and economy
of the various organizational elements. Tn the last year, these
included:
(1) A series of tests at selected locations of the need for providing
additional clerical assistance to technical personnel, and of the relationship of the additional costs of such clerks to the productivity
of such offices.
(2) The requirements of various divisions of the National Office
were examined in terms of the most effective organization to be established in the I R S Data Center, to be built in Detroit.
Systems development.—Several projects to modernize tax administration through systems development and improvement were completed or made marked headway during fiscal 1964. Some of these
projects involved the improvement of the Service's Master File A D P
system. Investigations of optical character recognition equipment
. and magnetic tape reporting, as devices for reducing input costs, were
accelerated. A project to improve the efficiency of output printing
operations was completed with the instaUation and operation of a
microfilm printer at the National Computer Center. A pilot project
was developed to determine the feasibility of transmitting data
between the service centers and the National Computer Center
through the General Services Administration Federal Telecommunications System (voice network).
The development of a plan defining objectives and blocking out
project areas as a basis for proceeding with the establishment of a
Service-wide information storage and retrieval system was also
undertaken. Some segments of the system relating to the reporting
of legal issues have already been installed. Another 1964 project
concerned plans to establish a master file of exempt organizations to
enable the Service to improve IRS administration in this area and to
have information more readily available for other parts of the Treasury
Department and the Congress.
Current research ^pro^ram.—Research activities in fiscal 1964 continued on a broad front with analysis of administrative means to
implement the provisions of the Revenue Act of 1964 accounting for
much of the research output. Of the studies to facUitate the administration of the Revenue Act of 1964, the more signfficant were:




ADMINISTRATIVE REPORTS

133

Changes in individual deductions, especially the impact of the new
minimum standard deductions; optional tax tables; withholding tax
tables; and the timing of the reduced rate of withholding under
the act.
To provide information for meeting operating and compliance
problems, surveys were made of: Taxpayer compliance in reporting
capital gains on selected real estate transactions; the manner and
extent to which taxpayer identffication numbers were reported on
information returns by taxpayers for the calendar year 1963; and
taxpayer compliance in reporting interest income from redeemed
Series E bonds. Work continued on two ways of more effectively
using information documents. First, the initial phase of an experimental program begun last year to furnish a comprehensive system
of compliance foUowup on apparent discrepancies resulting from
computer comparisons of income shown on information documents
with that reported on tax returns was completed. Second, plans
were developed for the improvement of information documents to
permit their more effective utilization by the automatic data processing system and by reporting entities.
Inspeclion activities

Internal audit.—An independent review and appraisal of all Service
operations is conducted through the internal audit program. This
is a protective and constructive service to the Commissioner and all
other levels of management. The program covers all organizations
and activities of the Service and includes a determination as to
whether policies, procedures, and controls at all levels of management
adequately protect the revenue and are being carried out efficiently
and effectively. Emphasis is placed on the examination of those
organizational segments which are most closely connected with the
collection of taxes and the enforcement of the tax laws. The continuing goal is to bring into proper focus those conditions that require
corrective action, as well as those activities that have been conducted
efficiently.
Internal security.—Successful administration of the voluntary
self-assessment system of taxation depends to a large extent on the
integrity and good faith of the American people, which in turn is
based on their confidence in the integrity and impartiality of the
officers and employees of the Service. To aid management in maintaining this public confidence, the Internal Security Division provides
management with timely, factual, objective information on any
matter that represents a potential threat to the integrity standards of
the Service.
Sixty-seven cases of actual or suspected attempts by taxpayers or
their representatives to bribe employees of the Service to influence
their actions in tax examinations, tax collections, or other tax matters
pending before the Service occurred during the fiscal year. There
were eight indictments of taxpayers or their representatives during the
year for bribe attempts, and additional prosecutions are expected in
a number of pending cases. This makes a total of 28 persons indicted
for such bribe attempts during the past 3 years. To date 20 persons
have been convicted.




134

1964 REPORT OF THE SECRETARY OF THE TREASURY

Investigations completed during the fiscal year totaled 8,221. In
addition, police checks were made on 5,075 employees considered for
short-term temporary appointments.
Bureau of the Mint ^
The major functions of the Bureau of the Mint are the manufacture,
distribution, and redemption of domestic coins; the receipt, processing,
custody, disbursement, and movement of gold and silver buUion; the
manufacture of medals of a national character and special medals for
other U.S. Government agencies; the manufactm^e of foreign coins;
and other technical services.
The Director of the Mint, with offices in Washington, D . C ,
administers and supervises all activities of the Bureau. In fiscal
1964 six field institutions were in operation: The Philadelphia and
Denver mints; the New York and San Francisco assay offices; the
silver bullion depository in West Point, N.Y., which is an adjunct of
the New York Assay Office; and the gold bullion depository in Fort
Knox, Ky. Electrolytic refineries for refining precious metals are
located in New York and Denver, and the latter also performs assays
for the public. The engraving, the proof coin, and medal production
divisions are in Philadelphia. Unchculated coin sets are packaged
in San Francisco.
Management improvement

In all areas of business an intensified demand for coins during the
enthe fiscal year 1964 continued to accompany the general economic
advancement of the United States. The collective efforts of Mint
management officials were directed accordingly to more immediate
buildup of the domestic coinage program. The actions taken resulted
in a new production record for the fourth successive year. The
increase for the period 1959-64 was over 174 percent. The annual
output for these years was as follows:
Fiscal year

Number of
coins produced
(in billions)

1959
I960
1961--

1.6
2.6
3.1

Percent
increase over
previous year

63.4
19.2

Fiscal year
1962
1963
1964

Number of
coins produced
(in billions)

Percent
increase over
previous year

3.5.
3.6
4.3

13.1
4.8
18.7

The maximum use of existing, manufacturiag facilities and available
funds was effected in fiscal 1964 by innovations with respect to minor
coinage metals, improvements in plant and equipment, and multiple
shifts of personnel working 24 hours a day, six and seven days a week.
Coinage metals.—Large quantities of copper and nickel were purchased from the U.S. Government stockpile of metals through the
General Services Administration. In September 1963, the Mint
adopted the policy of purchasing from private industry rolled nickel
strip, ready for blanking, for use in the 5-cent cupronickel coinage.
This procedure permitted all of the roUing and melting capacit}^^ of the
1 Additional information is contained in the separate ^TiTzwaZ i?epor^ o/i'Ae ZJzrecior o/^fte Mmi.




ADMINISTRATIVE REPORTS

135

two mints to be utUized in the production of the bronze cents and
the sUver denomhiations. One-cent coinage at Philadelphia was further implemented by the purchase of zinc in weight-controlled slabs,
cast in a size appropriate for adding directly to a bronze melt, thus
eliminating the shearing of the zinc. Later in the year contracts for
bronze strip were awarded to private industry. This, in turn, eliminated melting and rolling of the bronze alloy in the two mints, a
measure of particular significance because the 1-cent is the denomination requhed in greatest volume for chculation.
Plant and equipment.—At the Philadelphia Mint, a large vault was
converted into greatly needed storage space for coin blanks, and the
proof coin blank annealing and burnishing area was remodeled. Also,
die production facUities were improved. An automatic cone machhie
acquhed for use in the production of coinage die blanks requires a
minimum of attention from the operator who is freed to perform other
duties in the area. The production of die blanks was thereby increased by 333 percent. A new slab-coil annealing furnace was also
instaUed and placed in operation.
Construction of a basement and one-story addition to the Denver
Mint was begun in fiscal 1964. The extension will provide more
space for annealing and cleaning equipment; rolling capacity; storage
of coinage ingots; receiving copper in palletized form, eliminating
hazardous makeup operations; and increased storage space for raw
materials.
In Denver's melting and refining division two additional electrical
furnaces were converted from 125 to 175 kilowatts, similar modifications to other furnaces previously having proven economical.
Improvements from, new installations in the New York Assay Office
included: An incinerator in the refinery for processing silver; a ventilating system for the fifth fioor laboratory; and an acid fume removal
system in the assay division. Working conditions were not only improved, but many health hazards were eliminated.
Other actions.—During a peak workload period at the Philadelphia
Mint, additional employees were obtained on a reimbursable basis
from the Internal Revenue Service. The form used in processing
proof coin orders was revised and designed to replace the envelope
then used, with savings in postage and the cost of envelopes and labor.
Close liaison was maintained with the Post Office Department at both
Philadelphia and San Francisco in order to assure efficiency in the
mailing of proof coins and uncirculated coins. The latter are packaged into sets at the San Francisco plant. The Philadelphia Mint
cooperated closely with the Treasury's Division of Disbursement to
determine the most effective way of handling refunds for proof coin
orders which could not be filled in their entirety. Over 15,000
punched cards were furnished the disbursing office for this purpose.
The transportation and communications service of the General Services Administration has been very helpful in arranging for shipments
of coins, blanks, and bullion. Surplus property acquired at Philadelphia and Denver was valued at approximately $50,000.
Under the Bureau of the Mint's records management program,
records were disposed of or transferred to Federal records centers
according to previously established schedules. Safety, always an
extremely important program in the Mint institutions because of




136

1964 REPORT OF THE SECRETARY OF THE TREASURY

manufacturing and other types of operations, received regular and
special attention at every level of the organization by all available
means.
Legislation .—LegislQ.tion approvedAugust 20, 1963 (31 U.S.C. 291)
provided the Bureau of the Mint with the much-needed authorization
to construct and equip buUdings for required Mint operations.
Plans for the initial construction project, a new Mint building in
Philadelphia, progressed during the fiscal year. The city of Philadelphia, upon the formal request of the Treasury Department, set
aside a tract of land for this purpose. Preparations were made to
clear the 5.3 acre site which is located in the Independence Mall
urban renewal area.
Domestic coinage

During fiscal 1964 the PhUadelphia and Denver mints produced
4.3 bUlion U.S. coins, the greatest number coiaed in any year. The
unprecedented rate of coinage is 2.7 times as large as the 1.6 bUlion
annual production five years ago, and represents an increase of 19
percent over the previous record of 3.6 billion pieces in fiscal 1963.
Finished coins were shipped from the mints as rapidly as possible in
order to relieve the nationwide coin shortage which became
progressively more acute.
Before the end of fiscal 1964, plans were developed to double the
rate of coin production by the end of fiscal 1965. These plans were
based on the purchase of both bronze and nickel strip from private
industry, converting the San Francisco Assay Office to accommodate
facilities for the blanking, annealing, and cleaning of planchets,
acquiring presses from the Department of Defense, purchasing of
new presses, and converting proof coin operations to the production
of coins for circulation.
Production of U.S. coins, fiscal 1964
Number i
Denomination
In millions
1-cent pieces
5-cent pieces
Dimes..
Quarter dollars
Half dollars
Total

standard
gross
weight

Distribution (based
on pieces)

Short tons

Face value

Percent

2,678.3
629.7
614.6

$26.8
31.5
61.5

9,182
3,471
1,694

62;
15
14

254.9
147. 6

63.7
73.8

1,756
2,033

6
3

4,325.0

257.2

218,136

Metalhc
composition

95% copper, 6% zinc.
75% copper, 25% nickel.
900 parts silver, 100 parts
copper.

100

Do!

1 Includes 3,536,230 sets of proof coins manufactured at Philadelphia. A set consists of one coin of each
denomination currently minted.
2 Consists of 4,935 tons of silver, 11,874 tons of copper, 868 tons of nickel,, and 459 tons of zinc.




137

ADMINISTRATIVE REPORTS
Foreign coinage

The Philadelphia Mint manufactured coins for two foreign governments during fiscal 1964, as shown in the following table.
Foreign coinage by ihe Philadelphia Mint, fiscal 1964
Government
Ethiopia i
Phihppines 2

Number
produced
(m miUions)

Denomination

10 cents
5 centavos

..

...

30
50

..

Total

Metalhc composition
95% copper, 5% zinc.
80% copper, 20% zinc.

80

1 Coined in October 1963.
2 Coined in July and August 1963.

Issue and stock of coins

The mints issue coins for general chculation through the facUities
of the 12 Federal Reserve banks and their 24 branches and the Office
of the Treasurer of the United States in Washington, D.C. These
37 facilities dehver the coins to commercial banks which place them
in actual circulation. Proof coins and uncirculated coins are packaged
in sets and sold dhectly to the public by the mint offices. All of the
subsidiary silver and minor coins produced in fiscal 1964 were issued
during the year, as were 18.3 million standard silver dollars from
earlier min tings.

Issue of U.S. coins

Denomination

Number i

Face value

Short tons

In miUions
1-cent pieces
6-cent pieces
..
Dimes.
.
. . .
. . . . . . . .
Quarter dollars
..
Half dollars
Silver dollars..
Total

.
..

standard
Distribution
(based
gross weight
on pieces)

2,678.3
629.7
614.6
254.9
147.6
18.3

$26.8
31.5
61.5
63.7
73.8
18.3

9,182
3,471
1,694
1,756
2,033
540

4,343.3

275.6

18,676

Percent
62
15
14
6
3

(*)
100

* Less than one-half of 1 percent.
1 Includes 3,534,173 sets of proof coins sold by the mint.

The total stock of domestic coins i n the United States, both within
and outside the Treasury, estimated monthly by the Office of the
Director of the Mint, is divided into three classes: Minor coins (1 and
5 cent pieces); subsidiary sUver (dimes, quarter dollars, and half




138

19 64 REPORT OF T H E SECRETARY OF T H E TREASURY

dollars); and standard sUver dollars. The stock at the close of the
fiscal years 1963 and 1964 is compared below.
Face value (in mihions)
stock of U.S. coins

Minor coins
Subsidiary silver coins
Silver dohars

.

June 30,1963 June 30,1964

..

Increase, or
decrease ( - )

$681:8
1,824.9
486. 0

Total

...

$737.7
1,999.5
484.7

$55.9
174.6
-1.3

2,992. 7

_.

3,221.9

229.2

Gold transactions
o^i.^

n^

^ — . . ^ j ^

—^—4.^—-^

..,^^^—-^^

^4? ^ , ..

IJ

U , , l l * ^ ,^

4 ^

^,,^.<-^

J,,

^ £ -i-l,^

mint institutions is located at the PhUadelphia and Denver mints,
the New York and San Francisco assay offices, and the Fort Knox
Depository. The amount held at Fort Knox, 0.3 bUlion ounces
valued at $11.5 bUlion, remained unchanged throughout fiscal-1964.
Total gold holdings of the five institutions, the receipts, and issues
for the year are summarized in the following table.
Quantity.
Gold holdings and transactions (excluding intermint
transfers i)

Fine ounces
Short tons

Holdings on June 30,1963

.__

Total receipts

Total issues

.

439.6

$15,387.4

24
16
42

.7
.5
1.2

24.7
16.2
42.4

82

.

Issues in fiscal year 1964:
Sales for domestic industrial, professional, and artistic useExchanges for scrap gold
Exchanges for other than scrap gold
.
other monetary issues

Net decrease in holdings

In milhons

15,073

Receipts in fiscal year 1964:
Newly mined domestic gold
Scrap gold from domestic sources
Foreign and other misceUaneous deposits

Holdings on June 30,1964

Value at'$35
per ounce

2.4

83.3

115
2
18
196

3.3
.1
.5
5.7

117.1
23
18.3
200 1

.

.

. .

331

9.7

337 8

14,824

...

432.4

15 132 9

249

7.3

254 5

I Intermint transfers amounted to 27,842 ouuces (1 ton) valued at $974,460 in fiscal 1964.

Silver transactions

The mints and assay offices received approximately 5 million fine
ounces of silver bullion in fiscal 1964. Deposits from domestic sources,
including silver in newl}^ mined gold deposits, and in various forms
of scrap, amounted to more than 3 million ounces. Recoinage bullion
resulting from melting uncurrent silver coins withdrawn from circulation provided 1.6 million ounces of silver. Other miscellaneous
receipts, such as operative recoveries, sweeps, settlement surplus, etc.
were 0.3 million ounces.




ADMINISTRATIVE

139

REPORTS

The Philadelphia and Denver mints processed 144 mUlion ounces
of silver into subsidiarjT^ coins from the following classes of silver:

1.
2.
3.
4.

I n millions
of ounces
126. 7
15. 4
. 4
1. 5

Source of silver bullion for coiiiage
M a d e available from t h e r e t i r e m e n t of silver certificates
Bullion o r d i n a r y
Newly mined domestic, a c t of July 3 1 , 1946
Recoinage bullion from u n c u r r e n t U.S. silver coin melted
Total

-:

144. 0

Sales of Treasury silver from stocks of bullion ordinar}?^ amounted
to 1.5 million ounces, and from sUver at monetary value of $1.29 +
per ounce, 6.6 mUlion ounces. In addition, 2.9 miUion ounces in bars
were issued in exchange for deposits of silver; and 48.1 million ounces
in bars were issued in exchange for silver certificates. The latter
transactions were made under authority of section 2 of the act of
June 4, 1963 (31 U.S.C. 405a-l) which provides that the Secretary
of the Treasury ma}^ exercise this option.
Silver i n . t h e West Point Depository amounted to 897.8 million
ounces and 792.2 million ounces, respectively, at the beginning and
close of the year. Transactions for the five institutions were as
follows:
Quantity i
SUver buUion holdings and transactions (excluding intermint transfers)

Fine ounces
(in miUions)

Holdings on June 30,1963

1,576. 8

Keceipts in fiscal year 1964:
Newly mined domestic silver. . . . .
Recoinage bullion from uncurrent U.S. silver coins
Deposits in exchange for fine bars. _
.._.
other miscellaneous receipts
_ ....
Totalreceipts

.
...
...

.

Issues in fiscal year 1964:
Manufactured into U.S. subsidiary silver coins
Sales for domestic industrial use .
Bars issued in exchange for silver deposits... ".
Bars issued in exchange for silver certificates 2
Other misceUaneous issues
Totalissues

. . . .
_._

...

.
.
_
_. . .

...

Holdings on June 30,1964

(*)

Short tons

54,063.5
.6
55.3
100.9
11.6

1.6
2.9
.3
4.9

168.5

144.0
8.1
2.9
48.1
.1

4,936.4
277.5
100.9
1, 650.6
3.2

203.3

6,968. 7

1,378. 5

47,263 3

* Less than 50,000 ounces.
1 Does not include 64.7 million fine ounces (2,220 tons) of Treasury sUver held by other agencies of the
U.S. Government.
2 Issued pursuant to Instructions of Secretary of the Treasury, Julv 22,1963, as provided under section 2
of the act of June 4,1963 (31 U.S.C. 405a-l).
R e v e n u e deposited into the general fund of the T r e a s u r y

The Bureau of the Mint deposited $70.8 mUlion into the general
fund of the Treasury in fiscal 1964, exceeding the previous year's
revenue by more than $23 mUlion. Ninety-seven percent of the total
represented seigniorage derived from the manufacture of coins.
Seigniorage on the 3.3 bUlion minor coins and 1.0 bUlion subsidiary
sUver eoins amounted to ,.$68.7 hiUlion, a 53 percent increase ovei




140

1964 REPORT OF THE SECRETARY OF THE TREASURY

1963. Other revenue, including handling charges on gold bullion
and other bullion charges; the sale of medals, proof and uncirculated
coin sets; and miscellaneous items totaled over $2 mUlion. The
latter included $2,024.78 in increment resulting from reduction in
the weight of the gold dollar and $47.05 hi seigniorage from the
revaluation of 121.30 fine ounces of sUver previously received under
the act of July 31, 1946. A comparison of deposits durhig fiscal
1963 and 1964 is shown, as follows.
In miUions
Revenue deposited into the general fund of the Treasury
1963

1964

Seigniorage on subsidiary silver coinage
Seigniorage on minor coinage

$6.8
38.1

$21 0
47.8

AU other

44.9
2.8

68.7
2.1

47.7

70.8

Total

__
-_.

Monetary assets and liabilities

Monetary assets and liabUities of the mint institutions on June 30,
1963, and June 30, 1964, are compared in the following statement.
In miUions
Item
June 30,1963 June 30,1964
Gold buUion...
Silver bullion
...
Silvercoin
Minor coin
__ .
Minor coinage metal, etc

Assets
$15,387.4
. 2,021.5
20.4
.2
.9

..

Total assets. _
BuUion fund
Minor coinage metal fund
Pther misceUaneous
Total liabilities

$15,132.9
1,774.8
2.7
2
,7

17,430.3

...

16,911.4

Liabihties
_

_ _

_

_

17,429.4
.4
.6
17,430.3

16,910.5
"

.9
16,911.4

* Less than $50,000.

Gold and silver production and consumption in the United States

Statistics on the domestic refinery production and industrial consumption of gold and silver are compiled on a calendar year basis
by the Office of the Director of the Mint.
Production data are based on the deposits of newly mined material
received by U.S. mints and assay offices and privately owned refineries.
The deposits are traced back through the various refining processes
to determine the States where the ores were mined. In 1963, the
major gold producing State was South Dakota which accounted for
39 percent of the total output; Utah ranked second, foUowed by
Arizona, Nevada, and Alaska. The major sUver producing State




141

ADMESriSTRATIVE REPORTS

was Idaho, accounting for 47 percent of the total. Following next
in order were Arizona, Utah, Montana, and Colorado. Total production for the calendar years 1962 and 1963 is compared as foUows:
U.S. gold production
(16 States)
Calendar
year

U.S. silver production
(23 States)

Fine
ounces

Fine
ounces

Value at
$35 per ounce

Valuei

Tn miUions
1962
1963

1.6
1.6

$54.5
6L4

36.3
35.0

$39 5
44.8

1 The annual average market price of silver per fine ounce was $1.0863 in 1962 and $1.2804 in 1963.

Consumption data represent the net amount of gold and sUver
issued for industrial, professional, and artistic use by mint institutions,
private refiners, and dealers. Net issues are obtained by deducting
from gross issues, the amount of gold and sUver contained in secondary
material (scrap) received by the same concerns during the year.
Data for 1962 and 1963, as described above, are summarized in the
foUowing table:
U.S. gold consumption
Item

1962

U.S. silver consumption 1
1962

1963

1963

Fine ounces in miUions
Total issues of bullion in various forms
Returns of secondary materials (scrap) _.
Net issues 2

4.6
.9

4.3
1.3

180.8
70.4

204.5
94.6

3.6

2.9

110.4

110.0

1 Does not include silver used in coinage.
2 The equivalent of domestic industrial consumption.

Bureau of Narcotics ^
The Bureau of Narcotics administers the Federal laws controUing
narcotic drugs and marihuana and carries out the responsibUities of
the Government under the international conventions and protocols
relating to these drugs.
Bureau responsibility for regulating the legitimate supplies of
narcotic drugs for medical and scientific purposes involves supervision of U.S. imports and exports of these drugs, and control of the
manufacture and domestic trade in them to prevent diversion into
Ulicit channels. Enforcement duties include apprehension of interstate and international violators of narcotic laws and cooperation
with State and local law enforcement agencies. On request of foreign
police authorities, Bureau agents assist in mutually beneficial investigations of international narcotic traffickers. The recently expanded
program in cooperation with foreign countries has greatly curtaUed
smuggling of narcotic drugs into the United States.
» For further information see the separate Bureau of Narcotics report. Traffic in Opium and Other Dangerous Drugs for the Year Ended December 31,1963.




142

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Management improvement

Information obtained from t h e Bureau of Narcotics field offices
established in Bangkok, ThaUand, and Alexico City, Mexico, in fiscal
1963 indicated the need for additional field offices. Accordingly, an
office was established in Singapore in September 1963 and another in
Hong Kong in December 1963.
A complete and detailed manual of instructions for conducting
field security investigations was prepared. This manual is estimated
to have accomplished a saving of $4,000, or half of 1 man-year in 1964.
Control of manufacture[andJmedicaKdistribution

The Bureau issues permits for imports of the crude materials, for
exports of finished, drugs, and for the intransit movement of narcotic
drugs and preparations passing through the United States from one
foreign country to another. I t supervises the manufacture and distribution of narcotic medicines within the United States and has
authority to license the growing of opium poppies to meet the medicinal needs of the country if and when their production might become necessary in the public interest.
The operational authority of the Bureau is largely derived from the
Narcotics Manufacturing Act of 1960 (21 U.S.C. 501-517; 2.6 U.S.C.
4702, 4731). For details concerning the Bureau's operations under
this legislation, see the 1963 annual report, page 155.
During fiscal 1964, 67,111 kilograms of raw opium were, imported
from India and 415,857 kilograms of coca leaves were imported from
Bolivia and Peru to meet medical requirements for opium derivatives
and cocaine and to supply nonnarcotic coca flavoring extracts. The
latter were obtained as a byproduct from the same leaves from which
the cocaine was simultaneously extracted.
,,
The quantity of narcotic drugs exported during 1964 increased to
836 kilograms 94 grams from 472 kilograms 594 grams exported during the previous year.
There were 1,580 thefts of narcotics, amounting to 74,348 grams,
reported during 1964 from persons authorized to hancUe the drugs,
compared with 1,608 thefts amounting to 71,260 grams in 1963.
Practically all of the approximately 359,195 persons registered to
engage in lawful narcotic and marihuana activities were employed in
the manufacture, wholesale or retail distribution, or dispensing or
prescribing of narcotic drugs for legitimate medical uses.
Enforcement activities

Some noteworthy results of the accelerated Bureau enforcement
program abroad are indicated by several seizures of large quantities
of narcotic drugs by foreign police authorities, assisted by Bureau of
Narcotics agents: In Mexico City, Mexico, 20 kUograms of pure
heroin, the largest single seizure of herom in that country; 112 kilograms of morphine base at MarseUle, France, concealed among 15,000
sheep pelts shipped from Turkey; more, than a half ton of opium and
the arrest of two flagrant narcotic traffickers near Afyon, Turkey; 718
kilograms of prepared opium concealed in 1,032 cans of pineapple
ready for shipment from Bangkok, Thailand, to Hong Kong, and the
arrest of the owner of a newly formed pineapple packing company;
more than 2 kUograms of cocaine seized in Guayaquil, Ecuador, and




ADMINISTRATIVE

143

REPORTS

2 kUograms of cocaine seized in Mexico City, Mexico; 60 kUograms
of heroin seized at Montreal, Canada, in addition to nearly 1 kUogram
of heroin seized at New York City from the same group, which
included a Mexican ambassador and a Uruguayan ambassadordesignate, who were arrested and convicted on charges of consphacy
to smuggle the heroin from France to the United States via Canada.
This investigation, linked to the Rosal-Tarditti case of 1960, was a
coordinated attack by the French Surete Nationale, the Royal
Canadian Mounted Police, and Bureau of Narcotics agents in Europe,
Mexico, and the United States.
-, During fiscal 1964 the Bureau seized a total of 48,676 grams of
narcotics, principally heroin, in the Ulicit traffic, while seizures of
marihuana amounted to 10,311,492 grams bulk.
The number of violaters of the narcotic laws reported by Federal
narcotic enforcement officers is shown in the accompanying table.
Number of violators of ihe narcotic and m a r i h u a n a laws prosecuted during i h e .fiscal
year 1964 '^ith iheir dispositions and penalties
Narcotic laws
Registered persons
State
court

Federal
court
Convicted
Acquitted

Nomegistered persons
Federal
court

State
court

717
43

6

..

Marihuana laws
Nomegistered persons
State
court

Federal
court

329
15

87
6

/

Totali

1,104

6

..

206

Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos
Sentences imposed

105
8

25

.

Fines imposed..

. .

4

3,987

$750

7 1,325

4

$19,525

$96,640

380

4

$9,515

Yrs. Mos.
3

371
$5,400

Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos.
Average sentence per conviction
1964
1963

4

Average fine per conviction
1964
1963

$125

2

3

$250

5
6

$135
166

6

4
4

......

$59
91

4
4

3
4

$109
5 -

3
5

6

$51
206

1 Some cases tried in Federal courts and some cases tried in State courts are made by Federal and Stat©
oflacers working in cooperation.
I n t e r n a t i o n a l control and cooperation

Opium, coca leaves, marihuana, and theh more important derivatives have been internationally controlled by the terms of the Opium
Conventions of 1912, 1925, and 1931. Under Article I I of the 1931
Convention and the international Protocol of November 19, 1948,
12 secondary derivatives of opium and 59 synthetic drugs have been
>743-l'6i0—J65

11




144

19 64 REPORT OF THE SECRETARY OF THE TREASURY

found by the World Health Organization to have addicting qualities
simUar to morphine or cocaine and have been brought under the
controls provided by the treaties. For. further detaUs concerning
international control and cooperation, see the 1963 annual report,
page 156.
T h e International Opium Protocol of 1953 limits world production
of opium to that (quantity needed only to provide world requhements
for medical and scientific purposes. As of June 30, 1964, this Protocol,
which came into force March 8, 1963, had been ratified by 49 countries.
Cooperation with States, counties, and local authorities

ExceUent cooperation among Federal, State, and local narcotic law
enforcement agencies continued in free exchange of information and
in coordinating the investigation and prosecution of steadUy increasing
numbers of minor violations and routine inspections by State and local
authorities.
Drug addiction

As of June 30, 1964, the Bureau recorded 53,559 active addicts,
compUed from reports by Federal, State, local, and private agencies.
The Advisory Commission on Narcotic and Drug Abuse presented
its final report to the President during fiscal 1964. Recommendations
of the Commission were under consideration by the Executive Branch
of the U.S. Government at the end of fiscal 1964.
The Use of Narcotic Drugs in Medical Practice and the Medical
Management of Narcotic Addicts, prepared jointly by the American
Medical Association CouncU on Mental Health and the National
Academy of Sciences—National Research Council Committee on Drug
Addiction and Narcotics, further clarifying the joint statement on
narcotic addiction in the United States issued by these two bodies in
May 1962, wa$ published in the Journal of the American Medical
Association, September 21, 1963.
Training schools

The Bureau of Narcotics Training School was created primarUy to
provide special training in methods and techniques of narcotic law
enforcement for State and local law enforcement officers. During
the fiscal year 1964 the school held eight 2-week sessions and graduated
234 students: 150 State and local police officejrs; 8 inspectors of the
Food and Drug Administration; 30 military iavestigative personnel;
9 foreign police officials; and 37 Bureau of Narcotics agents.
In November 1963 the Dhector participated in a seminar on narcotic problems in developing countries of Africa, sponsored by the
United Nations, at Addis Ababa, Ethiopia.
The Bureau planned and organized on-the-job training programs
for 23 police officials from 12 foreign countries. Short seminars and
conferences were arranged for some 50 visiting officials. District
supervisors discussed the training program at numerous meetings of
State, local, and international law enforcement agencies.
A program of weekly refresher sessions is conducted in the districts.
Each district supervisor plans these sessions to provide professional
instruction and guidance in conducting narcotic investigations. The
program includes discussions of current court decisions, policy directives, and improved techniques in narcotic investigations. U.S.




ADMINISTRATIVE REPORTS

145

attorneys and others conversant with narcotic enforcement procedures
participate as instructors. Programs are tailored to meet the needs
of each district. The Bureau provides training materials, directives,
publications, films, and other communications media for this program'
During the fiscal year 1964, 30 narcotic agents were trained at the
Treasury Law Enforcement School.
The Technical Investigative Aids School provides 3 weeks of
training in all types of scientific investigative aids applicable to all
law enforcement agencies of the Treasury Department. Basic
electricity and its extension into the field of electronics; the latest
security systems; practice in use of equipment; and general training
in principles and techniques of using investigative aids are included.
Eight narcotic agents attended this school during the fiscal year
1964.
The Bureau conducted its third District Supervisors' conference
in Washington on March 16-18, 1964, with 14 district supervisors,
3 inspectors, and 1 agent-in-charge in attendance. Guest speakers
included the Superintendent of St. Elizabeths Hospital, who discussed the American Medical Association-National Research Council
joint statement on use of narcotic drugs in medical practice and
medical management of narcotic addicts; and the Assistant Chief,
Research Method Evaluation, National Office Laboratory, Internal
Revenue Service, who discussed neutron activation analysis.
United States Coast Guard
The U.S. Coast Guard is responsible for enforcing or assisting in
the enforcement of Federal laws on the high seas and waters subject
to the jurisdiction of the United States. These laws govern navigation, shipping and other maritime operations, and the related protection of lU'e and property. The Service also coordinates and
provides maritime search and rescue facilities for marine and air
commerce and the Armed Forces. Other functions include promoting
the safety of merchant vessels, furnishing ice breaking services, and
developing, installing, maintaining, and operating aids to maritime
navigation. The Coast Guard has a further responsibUity for maintaining a state of readiness to function as a specialized service of the
Navy in time of war or national emergency.
Management iinprovement

During the fiscal year, documented recurrent and one-time monetary savings estimated at $7,252,500 were realized through the management improvement efforts of Coast Guard personnel, including
some $333,000 resulting from the military and civilian incentive
awards program.s. Not included in the above figure was a $4.5 million
saving gained by the U.S. Navy from adoption of a Coast Guard
management improvement, which substantially improved the performance of AN/ARC-38 radio equipment widely used by naval
facilities. The major Coast Guard cost reduction during the fiscal
year, estimated at $1,626,000, resulted from the closing of numerous
shore stations and the conversion of light stations from manned to
automatic operation.




146

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Search and rescue

A long-range plan to develop more effective search and rescue
techniques and equipment was underway at the close of fiscal 1964.
One result of such a research program was the development of the
air droppable pump, which has been responsible for saving many
hves by keeping sinking vessels afloat.
The Atlantic Merchant Vessel Reporting System (AMVER) continued to coordinate the services of merchant ships in search and rescue cases, plotting the movements of some 1,000 vessels in the North
Atlantic Ocean daily.
Some typical examples of Coast Guard assistance rendered during
fiscal 1964 are summarized below.
Search for missing A.ir Force tankers.—On August 28, 1963, the
Coast Guard Eastern Area Commander began an air search for two
U.S. Air Force KC-135 tanker aircraft reported overdue at their
destination. Homestead Air Force Base, Fla. The intensive search,
carried out by as many as 25 Coast Guard, Air Force, and Navy
planes, was continued through September 2. Wreckage located during the search indicated that there had been a midair collision with
the loss of the 11 occupants of the 2 aircraft.
Ship collision.^A collision involving the freighter Fernview and the
tanker Dynafuel in Buzzards Bay on November 14, 1963, brought an
immediate response from Coast Guard air and surface rescue craft.
The injured aboard the stricken vessels were removed by helicopters,
while surface vessels extinguished fires. The evacuation of all aboard
the disabled ships had been completed, before the Dynafuel capsized
and sank.
Thirty rescued from ice floes.—A Coast Guard ice skiff rescued 25
persons from an ice floe which had broken loose from the shore near
Camp Perry, Ohio, on February 24, 1964. Ahnost simultaneously a
similar rescue took place at St. Clair Shores, Ohio, when five more
were removed from an ice floe b}^^ a skiff and police helicopter.
A M V E R assistance in medical case.—A message received by the
Coast Guard's Ocean Station Charlie from the motor ship Margarita
on April 22, 1964, reported the death of one crewmember and the
illness of several others, with the same symptoms. The Atlantic
Merchant Vessel Reporting System (AMVElR) computer in New
York City provided the names of vessels havi^ng doctors in the area
of the Margarita. The SS France rendezvoused with the Margarita
and placed a doctor aboard, who diagnosed the illness as typhoid.
Disabled fishing vessel located.—A search was undertaken by the
Coast Guard Western Area Commander to locate the disabled fishing
vessel Miss Florida, last sighted on August 15, 1963, southeast of
Salina Cruz, Mexico. Coast Guard aircraft were permitted by the
Mexican Government to use Acapulco as a base of operations and
were assisted in the search by other Central American countries. The
Miss Florida was located with merchant vessel assistance; a Coast
Guard amphibian arranged a rendezvous of the lost vessel m t h the
USS Vancouver which towed her into Acapulco.
A tabulation of search and rescue assistance for fiscal year 1964
follows. (A comparison with fiscal 1963 is not given because of a
revision in reporting format.)



ADMINISTRATIVE

147

REPORTS

Response b y :
Operations
Aviation
units
ASSISTANCE CALLS R E S P O N D E D TO
FOR:
P r i v a t e vessels
...
..
C o m m e r c i a l fishing vessels
_
. . .
O t h e r commercial vessels
. _. . . .
G o v e r n m e n t vessels.^.
... ...
..
Vessel ( t y p e n o t identified)
. .
._
P r i v a t e aircraft
Conimercial aircraft- .
..
M i l i t a r y aircraft
.
..
O t h e r aircraft
.. .
.
Aircraft ( t y p e n o t identified) _-_ .
.
Pp.r.«;onnol o n l y
Miscellaneous

1,789
522
253
41
113
199
59
354
9
18
1,101
221

2,678
1,393
501
108
92
161
20
119
4

4,679

.

...

ASSISTANCE CASES,
PERSONS INVOLVED
Lives s a v e d _
Medical assistance r e n d e r e d
Otherwise assisted

1,757
980

5,743

24,891

1 35,313

1,002
. 25
256
216
18
145
675
960
1,034
920
1,735

263
177
2,462

738
2,192
13,435

104
63
305
615
1,039
1,061
1,148

153
325
1,108
1,678
3,490
3,773
410

2,003
2,394
16,153
216
275
533
2,088
3,253
5,563
5, 754
3,293

7,237

27,302

41,525

.
...

T o t a l assisted

436
231 ,

17,107
2,600
1,491
224
425
201
30
69
7

Total

21, 574
4,515
2,245
373
630
561
109
542
20
18
3,294
1,432

2,932
2,367
79,484
84,783

PROPERTY INVOLVED INCLUDING
CARGO (VALUE)
Vessels
. .. ..
Aircraft
Miscellaneous
.
.
Total

Shore
units

6,986

Total

MAJOR T Y P E OF ASSISTANCE
RENDERED:
Located
.
Refloated
.
Towed
...
Aircraft escorted
.
F u e l e d or repaired
. . ..
Personnel rescued _ .
..
Medical.j.
...
...
...
Searches
..
•
A t t e m p t s to a s s i s t . .
... .
Other assistance
T y p e of assistance n o t i n d i c a t e d . .
.
Total .

Ships

..

$863,520,000
757,844,400
517,899,700
2,139,264,100

1 Excludes 6,212 attempts.

Marine inspection and allied safety measures

During the fiscal year 1964, 4,656 marine casualties were reported,
6 of which were major and requhed marine boards of investigation.
These inquhies revealed that 191 lives were lost from vessel casualties,
182 from personal accidents, and 255 deaths were from miscellaneous
causes. (These figures exclude pleasure craft covered by the Federal
Boatmg Act of 1958 (46 U.S.C.^ 527).)
Of the six casualties investigated by marine boards, four were
caused by explosions. These mishaps, resulting in 25 fatalities, involved the tankships SS Bunker Hill in Puget Sound and SS San
Jacinto off Cape Hatteras, the drill barge C P . Baker in the Gulf of
Mexico, and the unmanned railway barge Palmer at Alameda, CalU.
Five other lives were lost as a result of the capsizing of a small passenger vessel, the Two Georges, at Boynton Beach, Fla. The sixth
accident was the collision of the M/V Dynafuel and the M/V Fernview,
described in an earlier part of this report.




148

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Recreational boating.—Forty-five States now number undocumented
vessels under procedures approved by the Coast Guard. On December 31, 1963, there were 3,483,754 boats numbered in the United
States: 3,260,963 by State systems and the remainder by the Coast
Guard. During 1963, 4,388 pleasure craft accidents were reported,
leading to 1,104 deaths, 1,164 injuries, and property damage estimated
at $4,797,000. Collisions with other vessels were the principal cause
of accidents, most of the fatalities resulted from capsizings, while explosions were the primary cause of property damage. Coast Guard
units boarded 203,721 motorboats during the year, finding safety
violations and numbering discrepancies in about 28 percent of the
cases.
Tabulated below are certain of the marine inspection functions of
the Coast Guard, comparing the workload for fiscal years 1963 and
1964:
Number

Inspection activities
1963
Inspections for certification
Drydockings
Reinspections _.
Factory inspections 2._ __
Miscellaneous inspections
...
Merchant vessel plans reviewed
Violations of navigation and inspection laws
(administrative penalty action completed)

1 4, 741
5,725
5,529
1,396,549
24,131
31,013
56,294

Gross tonnage
1964
1 5,644
5,882
6,134
1,251,350
27,886
36,605

1963
11,261,185
13,417,295
9,638,154

1964
9,604,360
13, 757,828
12,584,433

54,759

' Includes initial inspections to obtain first certificates.
2 Includes such iteras as hferafts, hfejackets, flares, etc.

Merchant marine technical activities.—A study of past marine
casualties involving open hopper barges led to the issuance of
regulations, eft'ective June 1, 1964, prescribing construction standards
for all new barges carrying dangerous cargoes.
The Coast Guard continued to study the problems of hazards
associated with the water transportation of chemicals. Pending the
development of a system for rating the various hazards, tentative
evaluations are being made on a case-by-case basis.
Approximately 20 hydrofoU vessels are now operating in U.S.
waters, 18 of which are similar to the 34-foot surface pierchig Albatross,
the fixst American hydrofoil. The Coast Guard was reviewing plans
for two larger hydrofoils, 62-feet and 70-feet in length, of the
submerged foil design, at the end of fiscal 1964.
Merchant Marine Council meetings, conferences, and publications.—
The Merchant Marine Council held five regular committee meetings
and one public hearing to consider proposed amendments to
regulations.
. To promote maritime safety the Coast Guard participated in 30
meetings in this country, and was actively or indhectly concerned
with 21 meetings held in London by the Intergovernmental Maritime
Consultative Organization (IMCOJ.
The Coast Guard continued to distribute the publications Pleasure
Craft, the Recreational Boating Guide, and the Proceedings of the



149

ADMINISTRATIVE REPORTS

Merchant Marine Council, aimed at promotiag recreational boating
safety and safety of life at sea.
Merchant marine personnel.—Merchant marine personnel were
issued 73,065 documents during fiscal 1964. Coast Guard shipping
commissioners processed 7,742 sets of shipping articles involving
482,706 individual transactions relating to the shipment and discharge
of seamen.
Merchant marine investigating sections in major U.S. ports and
merchant marine details in foreign ports investigated 16,573 cases of
alleged negligence, incompetence, and misconduct. In 897 of these
cases charges were preferred and hearings held before civUian
examiners. Security checks were made of 19,792 persons deshing
employment on merchant ships.
Law enforcement

The special Coast Guard patrols of the Florida Straits and Bahama
Islands area were continued because of the unstable Cuban situation.
The expanded patrol required the transfer of additional personnel
and air and surface units to the 7th Coast Guard District.^ The
enforcement of international fishery conservation treaties in the
Berhig Sea and Gulf of Alaska required the special assignment of
four large cutters and two seagoing tugs to that area during fiscal
1964. These special patrols in the south Florida and Alaska areas
appear to be a continuing requhement.
The following table compares the Coast Guard workload in the
major enforcement areas for fiscal years 1963 and 1964.
Number
Enforcement work

Vessels boarded
Waterfront facilities inspected
Reported violations of:
Motorboat Act
Port security regulations
Oil PoUution Act
Other laws
Explosives:
Loading perniits issued
Loadings supervised
Tons covered by issued permits
Other hazardous cargoes inspected—

827
783
238,507
6,953

Military readiness

As part of the mUitary readiness program, 26 Coast Guard ships
participated in Navy refresher training during the fiscal year. Torpedo tubes were installed on 7 vessels, with 29 more to be so equipped.
The Coast Guard continues to make extensive use of shore based Navy
educational facilities for specialized training of technicians.
Cooperation with other Federal agencies

The extent of Coast Guard assistance to other Federal agencies,
includhig the Alcohol Tax Unit (Internal Revenue Service), the Coast




150

19 64 REPORT OF THE SECRETARY OF THE TREASURY

and Geodetic Survey, the Fish and Wildlife Service, and the Weather
Bureau for fiscal 1964 is indicated by the following:
T y p e of unit rendering assistance to other agencies (operating
. hours):
Larger vessels. __•
Aircraft
Small boats
Assistance to t h e Weather Bureau ( n u m b e r ) :
Reports furnished
Warnings disseminated

22, 251
2, 877
7, 557
133, 235
2, 039

Aids to navigation

On October 15, 1963, the Stonehorse lightship was replaced by a
shore-based light and a lighted buoy as part of a continuing program
to replace overage lightships and employ more economical aids to
navigation. Also contributing to the cost reduction effort was the
conversion of 11 formerly manned light stations to automatic operation. Two other light stations were disestablished.
A major revision of the radiobeacon system was completed on the
Atlantic and Pacific Coasts of the United States. The Coast Guard
has reached an agreement with the Canadian Government to adopt
the new system on the Great Lakes during fiscal 1965.
A statistical comparison of the volume of aids to navigation maintained by the Coast Guard as of March 31, 1964, follows:
Nmnber

Navigational aids

Number

Navigational aids

1964
Loran transmitters
Radiobeacons _.
Fog signals (except sound buoys)
Lights (including lightships)
D aybeacons
Buoys:
Lighted (including sound)

...

69
190
582
10,982
7,113
3,647

1964
B uoys—Continu ed
Unlighted sO'Und
Unlighted....
River type
Total

.

.

342
11,445
8,298
42,668

Ocean stations

The Coast Guard continued its operation of four ocean stations in
the North Atlantic and two in the North Pacific. These ships,
spending 74,557 operating hours on patrol, provided meteorological,
navigational, communications, and rescue services for air and marine
commerce and collected various scientific data.
Oceanography

Fifteen Coast Guard vessels were equipped for comprehensive
oceanographic surveys and plans are being developed to use this
capability on ocean station patrols. During the fiscal year, the icebreaker Northwind conducted an oceanographic survey of the Arctic
area north of Siberia, and the cutter Casco participated in an international cooperative investigation of the tropical Atlantic.
Coast Guard intelligence

During the fiscal year 2,737 internal security and criminal iavestigations were made as well as 12,255 national agency checks. In




ADMINISTRATIVE REPORTS

151

addition 22,357 merchant mariners and 12,977 applicants for port
security cards were screened before theh documents were issued.
Operational facilities

Floating units.—As part of the Coast Guard program to replace
overage and obsolete ships, the fixst of the newly designed 210-foot
WPC-class medium patrol cutters was completed in fiscal 1964, and
ccinstruction began on a 378-foot WPG-class high endurance cutter.
Three 82-foot patrol boats were built and assigned to permanent stations. On June 30, 1964, the Service had in active commission 324
ships, which spent 535,744 operating hours afloat.
Shore units.—The Shore Units Plan for the Coast Guard was approved by the Secretary of the Treasury, and implementation began
in the fiscal year 1964 with the closing of 17 lifeboat stations. T h h t y one of the new 44-foot motor lifeboats are now in operation at shore
stations. One such craft proved its worth when rough weather rolled
it under 360 degrees while on a rescue mission off the Umpqua River
Bar (Oregon). The vessel righted itself without injury to its crew or
engine failure, and completed its mission.
Aviation and aircraft.—The Coast Guard operated 146 ahcraft including 50 helicopters which spent 78,926 hours in the a h during the
fiscal 3^ear. In addition 13 turbine-powered amphibious helicopters
were procm-ed to replace overage models, and new helicopter detachments were commissioned at Savannah, Ga., and Houston, Tex.
Communications.—Two modern communications systems have been
installed thi'oughout the Service: Radio ecjuipment with single sideband capability now provides improved reliability and range for voice
communications between a h and surface units; and V H F / F M equipment offers better short range search and rescue communications as
well as increased coverage of the Maritime Mobile Safety and Calling
frequency.
Engineering developments

Civil engineering.—To expand search and rescue capabilities, two
new major stations are being constructed at Mayport, Fla., and Opa
Locka, Fla., near Miami. At Juneau and Ketchikan, Alaska, Sand
Island, Hawaii, and Guam in the Marianas Islands, the rebuilding
and consolidation of industrial facilities was undertaken. A new loran
station was completed at Angissoq, Greenland, and major additions
were made at the loran stations at Ejde, in the Faeroes Islands and
Sandur, Iceland. A major fire at the Coast Guard^s St. Louis Base
and the earthquake in Alaska requhed substantial rehabUitation and
replacement of buildings.
Electronics engineering.—Specially developed procedures are being
used to salvage aircraft electronics equipment submerged in salt
water as the result of aircraft accidents. Substantial savings are
attributed to the system through the reclamation of expensive avionics
material previously considered not salvageable. A radar altimeter
warning system has been developed and installed on HH-52A
turbine-powered helicopters to warn pilots when their aircraft is
in close proximity to land or water. The Coast Guard is developing
both low and high speed teletype systems to be operated in conjunction with the existing chain of loran-C stations. The use of




152

19 64 REPORT OF THE SECRETARY OF THE TREASURY

strategically located loran-C facilities would permit teletype coverage
of much of the,world at a relatively low cost.
Naval engineering.—The shipbuilding program continued to progress
and by the end of the fiscal year, a 157-foot coastal buoy tender,
another 210-foot medium endurance cutter, and a 100-foot inland
buoy tender had been launched. The first of the tender and barge
combinations for handling aids to navigation on the Missouri River
was placed in service. Contracts have been awarded for construction
of several other vessels in the replacement program, including the
first of the 378-foot high endurance cutters. The construction of
small boats, such as the 44-foot steel motor lifeboat, also continued
at a rapid pace.
Aeronautical engineering.—The engines of HU-16E Grumman
Albatross amphibians, used throughout the Coast Guard, are being
modified to increase their reliability. The project was 70 percent
complete by June 30, 1964.
Testing and development.—Fog detection equipment is being
developed by the Coast Guard with the aim of converting isolated
fog signal stations from manned to automatic operation. Two prototype remote control systems for controlling aids to navigation are
being tested. One, which controls and monitors 16 functions, has
been used successfully for several months to control a light station
from a hfeboat station 15 miles away. The second system controls
and monitors a light and fog signal from a remote point over two miles
away.
Coast Guard Reserve

The Coast Guard's program to acquire adequate training vessels
for reservists with seagoing mobilization billets was advanced when
the CGC Tanager, a former Navy minesweeper, was refitted and
placed in service. Another vessel, the USS Lamar, is to be transferred
from the Navy to the Coast Guard to augment afloat training of reservists on a combatant-type ship. The CGC Courier, a cargo-type vessel
formerly used as a floating transmitter for the Voice of America, was
released for reserve training purposes, and is expected to prove
valuable for instruction in dangerous cargo handling and other
shipboard operations.
' The aviation training program was also broadened to allow certain
reservists to gain experience aboard operational aircraft, and to
permit others to receive effective ground training through use of
surplus aircraft.
Personnel

Public Law 88-130, approved in September 1963 (14 U.S.C. 211
et seq.) made major changes in the system for appointment, promotion,
separation, and retirement of Coast Guard officers. The new law
will alleviate the ''hump'' problem, which slowed down promotions,
and improve career management for officers. Under the new competitive promotion system the best qualified ofiicers are selected for
advancement, whUe those passed over twice are separated or retired.




ADMINISTRATIS^E

153

REPORTS

The personnel strength of the Coast Guard as of June 30, 1963
and 1964 is shown in the following table:
Nmnber
Personnel
1964

1963
M i l i t a r y personnel:
Commissioned ofl&cers
Chief w a r r a n t oflQ.cers
W a r r a n t officers
Cadets
Enlisted m e n
TotaL

-

32,305

2,595
2,237
203

2,757
2,292
180
5,229

_

3,569
22,673

3,620
24,286

26,242

27 906

.

.. ...
. .

- -

.

-.

—

Civilian personnel:
Salaried (General Service)
Wageboard
Lamplighters

. .

Total

——

R e a d y reservists:
Ofhcers
Enhsted men
Total

32,016

.

3,293
867
207
385
27,553

5,035

.

3,185
862
170
414
27,385

--

.

.

.

--

-..

The table below reflects the changes in the number of officers on
active duty as of June 30, 1963 and 1964:
Number
Officers
1963
A d d i t i o n s of commissioned oflficers:
Coast G u a r d A c a d e m y g r a d u a t e s . .
Reserve oflficers called t o active d u t y
F o r m e r m e r c h a n t m a r i n e oflficers a p p o i n t e d
Oflficer C a n d i d a t e School g r a d u a t e s
_:.

94
14
5
157

143
103

229
.

354

107
122

Total

109
24
0
221

270

Total
Losses of commissioned oflficers:
Regular i
._
Reserve o n c o m p l e t i o n of obligated service

N e t gain

1964

246

41

108

1 Through retirements, resignations, revocations, and deaths.

Recruiting and training.—Fifty-nine main recruiting stations and
50 substations were manned by 252 recruiters. During the fiscal
year there were 13,857 applicants for enlistment in the regular Coast
Guard and 4,854 were enlisted. The Reserve received 5,368 applications and enlisted 2,763.
Training for foreign visitors.—Under the sponsorship of other
Government agencies, about 91 visitors from 30 foreign countries
received various types of training through Coast Guard facUities.
Coast Guard education program.—The education and training




154

19 64 REPORT OF THE SECRETARY OF THE TREASURY

programs sponsored by and participated in by the Service are
summarized for fiscal years 1963 and 1964 as follows:

Education and training programs

Number
1963

Coast Guard Academy:
Applications
Applications approved
Appointments
Cadets
Graduates (Bachelor of Science degrees)
Oflficer training completed:
Oflficer Candidate School graduates
Postgraduate
Flight training
Helicopter pilot training
C-130B aircraft training
Short term specialized com'ses
.
Off-duty courses at civihan schools
Enlisted training completed:
Coast Guard basic petty officer schools
Navy basic petty ofhcer schools
Advanced schools (Coast Guard and Navy)
Specialized courses (Service and civilian schools)
Oflf-duty education (Civilian schools)
Correspondence courses completed:
Coast Guard Institute courses completed
U.S. Armed Forces Institute courses completed.
Naval correspondence schools courses completed.

5,050
4,963
228
. 562
94

1 3,941
2,761
280
548
109

158
54
30
22
13
363
409

221
63
31
22
23
588
594

1,197
460
931
627
216

1,447
385
76
1,687
238

10,044
311
6,000

9,858
249
11,480

I College Board Entrance Examinations introduced this year.

Public Health Service support.—On June 30, 1964, there were 92
Public Health Service personnel on duty with the Coast Guard, serving at 22 shore stations and aboard ships assigned to ocean stations
and Arctic and Antarctic operations.
Coast Guard Auxiliary

The AuxUiary, a voluntary nonmilitary organization functioning
in 648 communities, conducted public instruction courses in safe
boating whiich were attended by 139,410 persons in fiscal 1964.
Courtesy examinations of the safety equipment of some 169,800
motorboats were rnade by specially qualified AuxUiarists. The AuxUiary also cooperated with the regular Coast Guard in making 2,850
regatta patrols, and participated in 6,095 assistance missions which
were instrumental in saving 261 lives. As of June 30, 1964, this organization had 23,137 members, including 5,006 instructors and 7,932
inspector-examiners. The membership operated 15,104 facilities,
consisting of boats, aircraft, and radio stations,,
Fiscal and supply management

The Coast Guard now has support agreements with the Defense
Supply Agency, which permit it to requisition directly from DSA most
items common to- all of the Armed Forces and to dispose of excess
materials through Defense Department holding activities. In another cooperative eft'ort the Coast Guard began participation in the
Department of Defense Military Standard Transportation and Movement Procedures (MILSTAMP).
During the fiscal year two new computers we]:'e purchased to replace




ADMINISTRATIVE

155

REPORTS

older models and update the data processing^ systems used in Headquarters and for the Merchant Vessel Reporting Program.
F u n d s available, obligations, and balances

The following table shows the amount of funds avaUable for the
Coast Guard during fiscal 1964 and the amounts of obligations and
unoblisiated balances.
Fimds
available i

Total appropriated funds.--

Total reimbursements
Trust fund, U.S. Coast Guard gift fund
Grand total

...

..

$97,067
18,310
115,188
7,186,446

366,498, 975

7,417, Oil

15, 945, 537
25,845, 923

.

Reimbursements:
Operating expenses . . _ ._
._ ._ . .
Acquisition, construction, and improvement

$259,696,394
19,481,690
34,284,812
53, 036, 079

373,915,986

..

$259,793,461
19, 500, 000
34, 400, 000
60.222, 525

15, 945, 537
11, 777, 366

14,068, 557

41, 791,460

27, 722, 903

14,068,557

50, 951

35, 536

15,415

415,758,397

Appropriated funds:
Operatingexpenses . . .
_. .
Reserve training .
. ._
Retired pay...
. _
. .
Acquisition, construction, and improvement

Net total
obhgations

394,257,414

21, 500, 983

Unobligated
balance 2

1 Funds available include unobligated balances brought forward from prior year appropriations as foUows:
Acquisition, construction, and improvements:
Appropriated funds
.
$9,222,525
Reimbursements
.^
4,838,178
U.S. Coast Guard gift fund
_.
15,223
2 Unobligatedbalanceof $21,255,003 under the acquisition, construction, and improvements appropriation
remains available for obligation in fiscal 1965. These funds are progiammed for obligation in fiscal 1965 for
the following general purposes:
Department
Coast Guard of Defense
projects
projects
$2,103,000
For projects deferred in fiscal 1964 to be subsequently accomplished.
5,083,446 "~$i4,'068,'557
For completion of projects started in fiscal 1964
7,186,446

Total.

14, 068, 557

United States Savings Bonds Division
The primary responsibilit}^ of the U.S. Savings Bonds Division is
to promote the sale and retention of savings bonds and the sale of
savings stamps. The savings bonds program makes a vital contribution to Government financing and debt management policy as one
of the most significant means through which the Treasury achieves
the broadest possible ownership of the public debt.
M a n a g e m e n t improvement

The Sayings Bonds Division is headed by a National Director and
Assistant National Director and consists of two principal branches:
Sales, and Advertising and Promotion. The Division's Management
Committee is composed of the two branch chiefs, together with the
National Director and Assistant National Director. The main
purpose of the Committee is the continuing improvement of the Division's services.
The Division has 6 regional offices and offices in the 50 States and
the District of Columbia through which sales materials are disseminated. A relatively small sales and service staff recruits, trains.




156

19 64 REPORT OF THE SECRETARY OF THE TREASURY

and services a large volunteer savings bonds sales corps. Liaison
is maintained with all types of banking and finance, business, labor,
agricultural, and educational institutions, as well as with other civic
organizations. Their volunteer services are enlisted to sell savings
bonds at banks, savings and loan associations, credit unions, certain
post offices (those in communities where there is no other sales outlet),
and business establishments operating the payroll savings plan.
In October 1963 a survey was, made of 105,000 savings bonds
purchasers to determine the purposes for which bond buyers save,
the reason they selected savings bonds as the medium, and the ways
in which they hear about the savings bonds program. Information
obtained from the survey is being used in planning program activities
for 1965, in designing advertising material to incorporate the most
popular appeals, and in determining the efl'ectiveness of various
advertising media. The principal findings of the survey have been
published for the use of financial writers, magazines and newspapers,
and other interested parties.
A new centralized system of collecting and publishing monthly
savings bonds sales statistics from the Federal Reserve banks was
adopted by using the automatic data processing equipment of the
Bureau of the Public Debt. This new system wUl ehminate 75-80
percent of the manual work performed by the 52 State offices and
wUl result in a saving of some three and one-third man-years. These
savings, varying from a few man-days to a man-month in State
offices, wiU be applied to dhect promotional activities.
The Forms Improvement Program was marked by the simplffication of the field reporting system for payroll savings campaigns.
The number of forms used was reduced from seven to four, with
two of the revised forms bearing the greatest reportuig volume.
Several other sales forms were revised to conform with new facets
of the 1964 sales program.
Examples of the Division's continuing efforts to improve services
in the procurement and distribution of consumer and advertising
materials include: Setting up an ''offset" service for aU newspapers,
magazines, and other publications using the offset method of reproduction where glossy proofs only are required rather than the more
expensive mats and electros; adding a new editorial media service
for the two monthly question-and-answer columns on savings bonds,
UtUizing existing manpower and inexpensive production; and further
centralization of maUing lists along with mailing list surveys to accomplish the most economical and effective use of publication, radio,
and TV materials.
Promotional activities

The focal point of the Division's promotional activities during
the fiscal year 1964 was the ''Operation Security" drive conducted
froni May 1 through July 4, 1964. Its theme: ' T h e security of the
Nation and the security of the individual," highlighted the various
campaigns, reaching all Americans during the year, including the
largest, the payroll savings campaign.
On May 1, 1964, a new $75 denomination bond was added to the
Series E bonds. President Johnson opened the 1964 "Operation
Security" bond campaign with the purchase of the first of these new



ADMINISTRATIVE REPORTS

157

denomination bonds which bear the portrait of the late President
Kennedy. This new denomination bond, which serves to ffll out the
smaller denomination line of E bonds, has a maturity value of $75
and an issue price of $56.25.
To launch "Operation Security" within industry, the U.S. Industrial
Payroll Savings Committee, a volunteer committee formed by the
Treasury Department the previous fiscal year under the successful
chahmanship of Harold S. Geneen, President of international Telephone and Telegraph, met in Washington on November 5, 1963.
Secretary DUlon, the principal speaker, outlined the goals of
the campaign to the 34 business and industrial leaders present
and announced that Frank R. MUlikin, President of the Kennecott
Copper Corporation and chahman for the copper industry in the
1963 campaign, had agreed to serve as chairman for the calendar year
1964. Under the leadership of this Committee, more than 9,000
business firms completed person-to-person campaigns during J a n u a r y September 1964 and obtained nearly 750,000 new enrollments in the
payroll savings plan. The results for nine months of the calendar
year indicate that the number of new enrollments in industry during
1964 is keeping pace with the peacetime record of new participants
attained during 1963. In addition to the new enrollments, many
thousands of employees already participating in the payroll savings
plan increased the amount of their systematic savings.
The fuU cooperation of organized labor contributed to the success
of the campaign within industry. Through the National Labor
Advisory Committee for Savings Bonds, the sales program was
widely publicized by the national unions who distributed leafiets to
their members explaining the benefits of savings bonds ownership.
Another important part of the 1964 "Operation Security" drive was
the successful campaign within the Federal Government for greater
employee participation in the payroll savings plan. This campaign,
under the leadership of the Interdepartmental Savings Bond Committee, chahed by John W. Macy, Jr., Chahman of the CivU Service
Commission, increased the number of Government employees (civUian
and mUitary) enrolled in the program to over two and one-thhd
million participants at the end of fiscal 1964, an increase of 7.3
percent from the previous year.
In addition to these concerted drives, the Division coordinated many
individual drives to promote the sale of Series E and H bonds which
enlisted the aid of national organizations and community institutions.
"Community Bond Campaigns" were held in many of the Nation's
cities and .towns during fiscal 1964 under the dhection of State and
regional field representatives of the Division, with the assistance of
a large volunteer corps. Executives of the Nation's major national
organizations, representing more than 60 mUlion members, met in
Washington in December 1963 to organize and dhect the national organizations campaigns under the chahmanship. of Bernard B. Burford,
Secretary-Treasurer of Optimist International. The goal of the 1964
drive was to encourage each f amUy to buy a bond during the year.
Sales promotion of savings stamps, with the women's organizations
acting as volunteer leaders, was accomplished primarUy through the
Nation's schools. The "Junior Astronaut" program, initiated during
the 1962-63 academic year, was continued in the fiscal year 1964




158

1964 REPORT OF THE SECRETARY OF THE TREASURY

with more than 5 mUlion students receiving a certificate signed by the
7 Mercury astronauts designating each one as a "Junior Astronaut"
for his stamp purchases. The sales of 110 raillion savings stamps
was the largest number sold in any of the past four fiscal years.
Of major importance to all campaign and promotion activities,
undertaken by the U.S. Savings Bonds Division, is the voluntary
assistance provided by the Advertising Council and its task force
agencies who prepare and donate advertising and promotional material. In addition, the contributions and cooperation of industrial,
banking, and community volunteers are of immeasurable value to
the sales program. The donated advertising time and space alone
is conservatively valued at more than $50 million annually. Because
of this support, the costs to the Government of promoting the sale of
E and H bonds are held to a minimum and average approximately
one-tenth of one percent of annual sales.
Sales of Series E and H savings bonds during fiscal yearl964 totaled
$4.7 bUlion. DetaUs of sales, redemptions, and amount outstanding
will be found in tables 48-50.
United States Secret Service
Principal functions of the U.S. Secret Service are the protection of
the President of the United States, the members of his immediate
f amUy, the President-elect, the Vice President or other officer next in
order of succession to the office of President, and the Vice-Presidentelect; the protection of a former President, at his request, for a reasonable period after he leaves office; the detection and arrest of persons
committing any offenses against the laws of the United States relating
to obligations and secmities of the United States and of foreign
governments; and the detection and arrest of persons violating certain
laws relating to the Federal Deposit Insurance Corporation, Federal
land banks, and Federal land bank associations. The duties of the
Service are defined by section 3056, title 18, United States Code.
Management improvement

During fiscal 1964 the management program of the Service continued
to emphasize activities for better manpower utilization, economy of
operations, and increased productivity. The Inspection Staff continued to anal^^ze procedures and methods at the time of each field
office and headquarters section inspection.
The program to equip field offices with dictating/transcribing
equipment to better utUize the time of trained investigators and increase their production potential moved ahead.
The study of the classification of the handwriting of suspects in
check and bond forgery cases by data processing equipment was
continued. I t was demonstrated that whUe it is possible to make
comparisons mechanically, the necessity for the independent judgment
of skilled technicians remains. This indicates that E D P techniques
are not sufficiently advanced at this time to make their utilization
practicable for this purpose. Studies are being conducted regarding
the adaptation of A D P to the huge volume of correspondence received
in connection with the Service's protective responsibilities.
Continuing studies were made regarding the adoption of techniques
and standards which would expedite the handling of criminal investi-




ADMINISTRATIVE REPORTS

159

gations. The method of handling investigations relating to the
redemption of Government securities bearing duplicate numbers was
changed in order that they could be processed more rapidly.
The Service is working with the Atomic Energy Commission and
other Treasury bureaus on the Neutron Activation Analysis in an
effort to determine the possibility of the application of atomic energy
to the suppression of counterfeiting.
The deletion of obsolete cards from the master index files in all
offices was nearly completed and the project extended to the removal
of other obsolete material.
Plans were developed to provide for the relocation to the NEAR
site of members of the Treasury Guard Force to protect Treasury
property and to assist in managing the site.
Other improvements included the development of a simplified voice
radio code for two-way radio communications; a nationwide survey
of telephone costs connected with the Federal Telecommunications
System (FTS) and Centrex exchanges, and the conversion to machine
preparation of a counterfeit note index which is a necessity in eacb
field office.
Protective and security activities

The most important responsibUity of the Secret Service continued
to be the protection of the First Family and the Vice President, and
the widow of the late President Kennedy and her minor children.
The protection of Mrs. Kennedy was provided by Public Law 88-195,
December 11, 1963, and is effective for two years from that date.
Investigations concerning protective activities increased from 753
in 1963 to 2,020 in 1964, or 168.3 percent. There were 252 cases
pending at the close of the fiscal year, which was 384.6 percent more
than at the close of the previous year. Arrests resulting from investigations of these cases increased from 81 in 1963, to 105 in 1964, or 29.6
percent.
Enforcement activities

Sustained efforts to suppress counterfeiting continued as the amount
of counterfeit money printed reached a new high. The public was
protected from heavy losses through seizure of the plants and most
of the counterfeited product before it could be passed. Counterfeiting operations again included organized gangs as well as printing
firms and the surreptitious use of equipment by employees, or owners
of small piinting establishments.
During the fiscal year 44 plants for the manufacture of counterfeit
money were seized and 737 persons arrested for counterfeiting offenses.
Counterfeit money received amounted to $7,752,450, an increase of
127.2 percent from 1963, but only $530,434 reflected loss to the public
because Secret Service agents seized $7,222,015 before it coiUd be
passed.
The seizure of $2,163,000 in counterfeit $20 and $50 notes on the
Federal Reserve Bank of San Francisco in July 1963, at San Francisco,
Calif., was the largest in Secret Service history. At the same time
negatives for counterfeit $1, $2, $5, $20, and $50 bills were confiscated
and a number of persons arrested. The notes were a new issue of
good quality. Only a few were passed before the seizure.
'743-160—M65^

1'2




160

19 64 REPORT OF THE SECRETARY OF THE TREASURY

A passer of counterfeit notes was arrested in Memphis, Tenn., when
he attempted to sell $6,300 in counterfeit $10 notes on the Federal
Reserve Bank of St. Louis to a Secret Service undercover agent. The
plant was seized in Little Rock, Ark., and four other men were arrested.
Two young men were arrested in Louisiana for passing $20 counterfeit
notes on the Federal Reserve Bank of Kansas City in Tulsa, Okla.
At the time of their arrest in July they admitted the manufacture of the $9,500 in these notes in their possession. The plant was
subsequently seized in Tulsa. A man arrested in MUwaukee, Wis.,
when ne attempted to pass a counterfeit $10 note on the Federal
Reserve Bank of Chicago, admitted manufacturing a large amount
of the notes in his print shop at Oak Creek, Wis. On July 22, 1963,
a Chicago plant where counterfeit $5 notes on the Federal Reserve
Bank of Chicago were manufactured was seized and the owner of the
printing firm arrested. This note, of excellent quality, had been
passed in 17 States from Massachusetts to Utah. Approximately
$1,750,000 in exceUent quality counterfeit $10 and $20 notes on the
Federal Reserve Bank of Chicago were seized from the trunk of an
ex-convict's car on July 30, in Indianapolis, Ind. The manufacturer
of the notes had been under surveUlance since April 1963. None of
the notes had been passed.
During August 1963 new counterfeit $20 notes on the Federal
Reserve Bank of San Francisco appeared in Burbank, Calif. An
undercover agent infiltrated a gang and caused the arrest of three men
in North Hollywood, seizing $35,000 in counterfeits and the plates
used to manufacture them.
During September 1963 the owner of a small print shop in Ohio was
arrested for manufacturing $278,000 in counterfeit $20 notes on the
Federal Reserve Bank of Cleveland. Two other plant seizures, one
in White Plains, N.Y., and the other in Oakdale, La., resulted in six
arrests and the seizure of $60,000 in counterfeit $5 notes on the Federal
Reserve Bank of New York and $20 notes on the Federal Reserve
Bank of Atlanta. In the last two cases less than $100 worth had
been passed on the public.
Durhig October 1963 in California, a British subject was arrested
for counterfeiting $20 notes on the Federal Reserve Bank of San
Francisco. Approximately $500,000 in uncut counterfeits were seized
with the equipment on which they were printed. None of these
notes were passed. Partners in a newly-purchased printing business
in Texas were arrested for manufacturiag $15,000 in counterfeit
$20 notes on the Federal Reserve Bank of Dallas. They succeeded in
passing only two notes before their arrest.
A suspicious purchase of 100 percent rag bond paper in San Diego,
Calif., during October 1963 led to the arrest of 3 men who admitted
manufacturing approximately $126,000 in counterfeit $20 notes on
the Federal Reserve Bank of San Francisco.
Information received through the Denver, Colo., office in March
1963 led to the arrest a year later of two Canadians, in Toronto, by the
Royal Canadian Mounted Police. Their plant and $202,000 in
counterfeit $10 and $20 notes on the Federal Reserve Bank of San
Francisco were seized.
After months of investigation, two men were arrested in Detroit,
Mich., during April 1964 for seUing to an undercover agent approxi


ADMINISTRATIVE REPORTS

161

mately $120,000 in counterfeit $20 notes, drawn on the Federal
Reserve Bank of Chicago. While in custody one defendant directed
special agents to an additional cache of $153,000. In June an agent,
who was introduced to a Detroit hoodlum, completed another purchase of $54,000 in these notes and arranged for a later transaction
which lead to the seizure of an additional $812,000. More than
$1,496,000 in these notes were seized before they could be placed in
circulation and 90 persons were arrested for selling, passing, and
possessing them.
In April 1964 in Seattle, Wash., a counterfeit note passer, who had
$17,000 in counterfeits in his car, was arrested. From a hidden
mountainside "grave" near San Gabriel, Calif., numerous plates,
negatives, and other paraphernalia were recovered. This issue was
one of the most deceptive issues of $20 Federal Reserve notes ever
seized. The counterfeiter made his notes on 11 of the 12 Federal
Reserve banks, excluding only the Federal Reserve Bank of Philadelphia. He combined more than 250 variations of series, check
letters, face plate and back plate numbers, and serial numbers. He
had been taught the trade of counterfeiting by his uncle, who served
three prison terms within 30 years for counterfeiting.
Service representatives in Cleveland, Ohio, believed that a man
had been attempting to engage in counterfeiting for several years.
Investigations faUed to produce enough evidence to cause an arrest
until he was located in Buffalo, N.Y., using an alias and producing a
plate for counterfeit $5 Federal Reserve notes.
In February 1964 a man on three years probation for a previous
counterfeiting offense was arrested for manufactming $5 and $10
notes on the Federal Reserve Bank of San Francisco. In the same
month a new counterfeit $10 note on the Federal Reserve Bank of
New York appeared in Newark, N.J. I t was apparent that the note
was being distributed by an organization because it was at once
available to criminal informants in New York and New Jersey.
Undercover agents inffitrated the organization and, when completing
a deal for $100,000 in the notes, three of the principals were arrested
and the enterprise smashed.
In M a y 1964 a notorious Cleveland hoodlum delivered $20,000 in
counterfeit notes on the Federal Reserve Bank of New York to one
of his New York City contacts. The Service confiscated these notes
and later arrested him with two accomplices in New York and seized
$200,000 in new counterfeit $100 notes on the Federal Reserve Bank
of Atlanta. None of these deceptive notes was passed on the public.
The principal is considered the head of a criminal organization which
has been a source of trouble to local and Federal enforcement authorities in the East for many years.
During fiscal 1964, $157,740 in U.S. currency was received in foreign
countries. This amount represents only a part of that manufactured
and chculated because much of it does not come to the attention of
this Service. The Secret Service works closely with Interpol as well
as with police officials throughout the world. Many foreign police
officials receive instructions on detection of counterfeits from the
Service, both in Washington and from Service employees who travel
abroad on other assignments. Close liaison is maintained with finance
officers and employees of the Defense Department throughout the




162

19 64 REPORT OF THE SECRETARY OF THE TREASURY

world and data on U.S. counterfeits in circulation is furnished to
them. Instructions on disposition of counterfeit notes which come
to the attention of State Department representatives abroad are also
provided. Our offices in Hawaii and Paris maintain close cooperation
with foreign authorities in their respective areas.
The counterfeiting in the United States of the money of other
countries is another phase of our activities in the suppression of
counterfeiting. During fiscal 1964, the Service seized 171,390 counterfeit Cuban pesos. During October 1963 a Cuban was arrested in New
York when he delivered 14 counterfeit plates bearing impressions
of a 50 peso Cuban note to an undercover agent. Other arrests in
this case were made in Arlington, Va., and in Baltimore, Md., where
the notes were manufactured. Sixteen hundred notes worth 80,000
pesos were seized.
^
In December 1963 two men were arrested in Florida for counterfeiting Cuban pesos and quantities of them were seized.
During the fiscal year the Service seized 74,580 counterfeit Dominican pesos oro and arrested six men in Florida.
The following table summarizes receipts of counterfeit money
during the fiscal years 1963 and 1964:
Counterfeit money received, fiscal years 1963 and 1964
Receipts of counterfeit currency and coins
Counterfeit money received in the United States:
Loss to the public. Seized before circulation
..

1963

1964

Percentage
increase, or
decrease (—)

$564,321.91
2,848, 005.31

$530,434.45
7,222,015.78

-6.0
153.6
127.2

3,412,327.22

7, 752,450.23

Counterfeit U.S. currency received in foreign countries

n.a.

$157, 740

Counterfeit Cuban pesos received iu the United States ._
Counterfeit Dominican Republic pesos oro received in the
United States.
... ...
..

n.a.'

171,390

n.a.

74, 580

Total

n.a. Not available.

Dming December 1963 a criminal group in Chicago began distributing counterfeit $100 Series E savings bonds. Intensive investigation resulted in a conspiracy case and the arrest of twelve of the
criminal elite of Chicago. Of the 319 bonds seized, 271 had been
passed to financial institutions.
During the past fiscal year, the Service investigated 41,236 cases
of the forgery of Government checks involving a face amount of
$4,121,346.02, and the arrest of 3,192 persons.
The Service investigated 5,795 cases involving the forgery of U.S.
savings bonds, with a face amount of $730,457.62. Seventy-four
persons were arrested for bond forgery offenses in 1964.
During July 1963 two narcotic addicts were arrested in New York
for the theft, forgery, and negotiation of approxiniately 131 U.S.
Treasurer's checks, arnounting to $17,472.82.
A husband and wife were arrested in July 1963 for the forgery and
negotiation of more than 100 U.S. Treasurer's checks in 11 States
from 1961-63.



ADMINISTRATIVE REPORTS

163

A joint investigation with postal inspectors resulted in the arrest
early in 1964 of three defendants who had stolen three mail pouches
in Minnesota, which contained approximately 150 U.S. Treasurer's
checks. Thirty-two of the checks had been forged and cashed in
various cities in the Midwest and the rest burned.
In May 1964 special agents in Cleveland went to a place to arrest
a man for check forgery. The suspect opened fixe, wounding one of
the special agents, and was shot by the other. The suspect has a
history of narcotics and burglary arrests.
The "fencing" of stolen Government bonds to underworld organizations and the cashing of some of these bonds years after they have
been stolen has been increasing. Nearly $13,000,000 worth of stolen
bonds in denominations of $1,000 or more is outstanding.
A lifelong criminal, known as "Funeral Ben", was sentenced for
forging 24 U.S. savings bonds and altering the names of the registered
owners on other bonds which he had stolen.
The cooperative efforts of the Secret Service and the F B I resulted
in the recovery of more than $200,000 in unforged bonds, stolen in
December 1963 from a bank in Arkansas. The bonds were traced
through three receivers of stolen property.
U.S. savings bonds with maturity value of $7,500 and one $500
2)^ percent U.S. Treasury note were stolen from a residence in Michigan in October 1953. Early in 1964, the Treasury note was received
in the normal course of business by the Treasury from an individual
who purchased it at a pawnbroker's sale in 1956. The burglar, who
was located in Philadelphia, Pa., admitted the theft and said he had
pawned the note and burned the bonds.
The first full year of enforcement of the September 1962 legislation
(18 U.S.C. 491), which prohibits certain acts involving the use of
tokens, slugs, disks, devices, papers, or other things similar in size
and shape to lawful coins or other currency of the United States,
clearly shows the deterrent effect of the law. During fiscal 1964, arrests dropped to 35, from 59 in the last 9 months of fiscal 1963, as
the risk of Federal investigation and prosecution became more widely
known.
The alteration of dates or mint marks on coins for the purpose of
enhancing theh numismatic value had previously not been held to be
a violation of the law (18 U.S.C. 331). However, during the year,
the Department of Justice and the Treasury General Counsel reversed
this position. The reversal caused an immediate increase in this type
of case.
Violations of the Gold Reserve Act continued to require a considerable amount of investigative thne during the year. An amendment
to the gold regulations issued on AprU 24, 1964 (see exhibit 51), which
removed all restrictions on the acquisition and holding of U.S. gold
certificates of certain types was an aid in reducing the workload in
this type of violation. Close coordination is maintained with the
Treasury Department's Office of Domestic Gold and SUver Operations.
In September 1963 three men were arrested in PhUadelphia for the
theft of approximately 600 ounces of gold from the Western Electric
Company, where the metal is used to plate parts of transistors used
for radar aud component parts of space satellites.




164

1964 REPORT OF THE SECRETARY OF THE TREASURY

The following tables show the number of criminal and noncriminal
investigations completed by the Secret Service in fiscal years 1963
and 1964:
Criminal and noncriminal cases investigated, fiscal years 1963 and 1964
Cases investigated

1963

1964

Percentage
increase, or
decrease (—)

10,378
47,505
7,169
1,080
5,837

Total

12,166
41,236
5,795
2,217
10, 601

17.2
-13.2
-19.2
105.3
81.6

71, 969

Counterfeiting
Forged Government checks.
Forged Goverrunent bonds..
Miscellaneous criminal
Miscellaneous noncriminal.

72, 015

.1

Number of arrests, fiscal years 1963 and 1964
Offenses

1963

Counterfeiting
Forged Government checks.
Forged or stolen bonds
Miscellaneous
Total

1964

662
3,343
81
121

737
3,192
74
171

4,207

Percentage
increase, or
decrease (—)
11.3
-4.5
-8.7
41.3

4,174

Secret Service personnel participated in training activities of other
agencies by lecturing to mUitary enforcement organizations, employees
of the Peace Corps and the Agency for International Development,
as well as to the F B I National Academy, and to all levels of enforcement agencies throughout the United States on the detection of
counterfeits and the problems relating to forgery of Government
checks and bonds.
Cooperation with State, county, and local authorities

The Secret Service has always recognized that close cooperation
and coordination of effort with local authorities is imperative to the
successful enforcement of its responsibUities and has always sought to
hnprove those ties. Such efforts were given increased attention during
the year, especially with regard to our protective responsibUities.
A total of 171 persons was arrested tor crimes other than counterfeiting and forgery, making a total of 4,174 persons arrested during
the fiscal year 1964. Cases of all types investigated by the Service
totaled 72,015.
Offenses investigated by the Secret Service resulted during the
year in the conviction of 3,609 persons. Of all Secret Service cases
brought to trial in fiscal 1964, 98.0 percent resulted in convictions.
The trends in crimes over which this Service has jurisdiction
remain generally consistent with nationwide trends in other crimes.
Training schools

Since adequate training continued to be.recognized as a vital part
of the Secret Service program to increase the productivity of employees, training activities were increased during the year. In




ADMINISTRATIVE REPORTS

165

addition to regular participation in Treasury basic enforcement
schools, the Service conducted Secret Service training schools, questioned document schools, and trained emplo3^ees at polygraph schools,
electronic schools, marksmanship training courses, Defense Department foreign language school, swimming courses, chemical-bacteriological-radiological schools, and at outside courses in management.
Members of the Treasury Guard Force received training at a small
arms manufacturing plant, in connection with the use, care, and
repair of weapons. An expanded internal training program is being
developed for the White House Police Force with some of its members
attending the F B I National Academy and the International Association of Chiefs of Police Supervisory School.










EXHIBITS




Public Debt Operations, Calls of Guaranteed Securities, Regulations,
and Legislation
Treasury Notes and Treasury Bonds Offered and Allotted
EXHIBIT 1.—Treasury notes
Two Treasury circulars, one containing a cash ofl'ering and the other an exchange offering, are reproduced in this exhibit. The circulars pertaining to the
other note offerings during 1964 are similar in form and therefore are not reproduced in this report. However, the essential details for each issue are summarized in the first table following the circulars and the final allotments of the
new notes issued for cash or in exchange are shown in the second table.
DEPARTMENT CIRCULAR NO. 17-63.

PUBLIC DEBT

TREASURY

DEPARTMENT,

Washington, October 24, 1963.
I. OFFERING OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, subject to allotment, at
par and accrued interest, from the people of the United States for notes of the
United States, designated 3% percent Treasury notes of Series C—1965. The
amount of the offering under this circular is $7,600,000,000, or thereabouts.
The following securities maturing November 15, 1963, will be accepted at par
in payment or exchange, in whole or in part, for the notes subscribed for, to
the extent such subscriptions are allotted by the Treasury:
?>}i percent Treasury certificates of indebtedness of Series D—1963; or
4% percent Treasury notes of Series C—1963.
The books will be open only on October 28, 1963, for the receipt of subscriptions
for this, issue.
II. DESCRIPTION OF NOTES

1. The notes will be dated November 15, 1963, and will bear interest from that
date at the rate of 3Ji percent per annum, payable semiannually on May 15 and
November 15, 1964, and on May 15, 1965. They will mature May 15, 1965, and
will not be subject to call for redemption prior to maturity.
2. The income derived from the notes is subject to all taxes imposed under the
Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local
taxing authority.
3. The notes will be acceptable to secure deposits of public moneys. They
will not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000, and $500,000,000. Provision will be made
for the interchange of notes of different denominations and of coupon and registered notes, and for the transfer of registered notes, under rules and regulations
prescribed by the Secretary of the Treasury.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing IJnited States notes.
169




170

19 64 REPORT OF THE SECRETARY OF THE TREASURY
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Office of the Treasurer of the United States, Washington, D . C , 20220.
Only the Federal Reserve banks and the Treasury Department are authorized
to act as official agencies. Commercial banks, which for this purpose are defined
as banks accepting demand deposits, may submit subscriptions for account of
customers pTovided the names of the customers are set forth in such subscriptions.
Others than commercial banks will not be permitted to enter subscriptions except
for their own account. Subscriptions from commercial banks for their own
account will be restricted in each case to an amount not exceeding 50 percent of
the combined capital, surplus, and undivided profits of the subscribing bank.
Subscriptions will be received without deposit from banking institutions for their
own account, Federally-insured savings and loan associations, States, political
subdivisions or instrumentalities thereof, public pension and retirement and other
public funds, international organizations in which the United States holds membership, foreign central banks and foreign States, dealers who make primary markets
in Government securities and report daily to the Federal Reserve Bank of New
York their positions with respect to Government securities and borrowings
thereon, Federal Reserve banks and Government investment accounts. Subscriptions from all others must be accompanied by payment (in cash or in securities of
the two issues enumerated in paragraph 1 of section I hereof, which will be
accepted at par) of 2 percent of the amount of notes applied for, not subject to
withdrawal until after allotment. Registered notes submitted as deposits should
be assigned as provided in section V hereof. Following allotment, any portion
of the 2 percent payment in excess of 2 percent of the amount of notes allotted
may be released upon the request of the subscribers.
2. All subscribers requesting registered notes will be required to furnish appropriate identifying numbers as required on tax returns and other documents submitted to the Internal Revenue Service, i.e., an individuaPs social security number
or an employer identification number.
3. All subscribers are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any
notes ofthis issue, until after midnight October 28, 1963.
4. Commercial banks in submitting subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
5. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, to allot less than the amount of notes applied for, and to make
different percentage allotments to various classes of subscribers; and any action
he may take in these respects shall be final. Subject to these reservations, and the
submission of a written certification by the subscriber that the amount of the
subscription does not exceed the amount of the two eligible securities (listed in
paragraph 1 of section I) owned or contracted for purchase for value, at 4 p.m.,
eastern daylight saving time, October 23, 1963, all subscriptions from States,
political subdivisions or instrumentalities thereof, public pension and retirement
and other public funds, international organizations in which the United States
holds membership, foreign central banks and foreign States, Federal Reserve
banks and Government investment accounts will be allotted in full. In the
absence of such certification the total amount of subscriptions entered by any
subscriber will be allotted on the basis of the allotment to be publicly announced.
The basis of the allotment will be publicly announced, and allotment notices will
be sent out promptly upon allotment.
IV. PAYMENT

1. Payment at par and accrued interest, if any, for notes allotted hereunder
must be made or completed on or before November 15, 1963, or on later allotment.
Payment will not be deemed to have been completed where registered notes are
requested if the appropriate identifying number, as required by paragraph 2 of
section III hereof, has not been furnished; provided, however, if a subscriber has
applied for but is unable to furnish the identifying number by the payment date
only because it has not been issued, he may elect to receive, pending the furnishing




EXHIBITS

171

ofthe identifying number, interim receipts and in this case payment will be deemed
to have been completed. In every case where full payment is not completed, the
payment with application up to 2 percent of the amount of notes allotted shall,
upon declaration made by the Secretary of the Treasury in his discretion, be
forfeited to the United States. Payment may be made for any notes allotted
hereunder in cash or by exchange of securities of the two issues enumerated in
paragraph 1 of section I hereof, which will be accepted at par. Where payment
is made with certificates or notes in bearer form, coupons dated November 15,
1963, should be detached and cashed when due. In the case of registered notes,
the final interest due on November 15, 1963, will be paid by check drawn in
accordance with the assignments on the notes surrendered, or by credit in any
account maintained by a banking institution with the Federal Reserve bank of its
district.
V. ASSIGNMENT OF REGISTERED NOTES

1. Treasury notes of Series C—1963 in registered form tendered as deposits
and in payment for notes allotted hereunder should be assigned by the registered
payees or assignees thereof, in accordance with the general regulations of the Treasury Department, in one of the forms hereafter set forth. Notes tendered in payment should be surrendered to a Federal Reserve bank or branch or to the OfRce
of the Treasurer of the United States, Washington, D.C, 20220. The maturing
notes must be delivered at the expense and risk of the holder. If the new notes are
desired registered in the same name as the notes surrendered, the assignment
should be to ''The Secretary of the Treasury for 3% percent Treasury Notes of
Series C—1965"; if the new notes are desired registered in another name, the assignment should be to ''The Secretary of the Treasury for 3Ji percent Treasury
Notes of Series C:—1965 in the name of
"; if new notes in coupon form are desired, the assignment should be to "The Secretary of the Treasury
for 3% percent Treasury Notes of Series C—1965 in coupon form to be delivered
to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
banks of the respective districts, to issue allotment notices, to receive payment for
notes allotted, to make delivery of notes on full-paid subscriptions allotted, and
they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve banks.
DOUGLAS DILLON,

Secreiary of ihe Treasury.

DEPARTMENT CIRCULAR NO. 3-64.

PUBLIC DEBT

TREASURY

DEPARTMENT,

Washington, January 31, 1964I. O F F E R I N G OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99.875 percent of their
face value, from the people of the United States for notes of the United States,
designated 3% percent Treasury notes of Series D—1965, in exchange for the following securities maturing February 15, 1964, singly or in combinations aggregating $1,000 or multiples thereof:
S}i percent Treasury certificates of indebtedness of Series A—1964; or
3 percent Treasury bonds of 1964.
The cash payment due subscribers on account of the issue price of the notes will
be made as set forth in section IV hereof. The amount of the offering under this




172

1964 REPORT OF THE SECRETARY OF THE TREASURY

circular will be limited to the amount of eligible securities tendered in exchange
and accepted. The books will be open only on February 3 through February 5,
1964, for the receipt of subscriptions for this issue.
2. In addition to the offering under this circular, holders of the securities enumerated in paragraph 1 of this section are offered the privilege of exchanging all
or any part of such securities for 4 percent Treasury notes of Series A—1966
(additional issue), which offering is set forth in Department Circular, Public Debt
Series—No. 4—64, issued simultaneously with this circular.
II. D E S C R I P T I O N O F NOTES

1. The notes will be dated February 15, 1964, and will bear interest from that
date at the rate of S^i percent per annum, payable on a semiannual basis on
August 15, 1964, and February 15 and August 13, 1965. They will mature
August 13, 1965, and wiil not be subject to call for redemption prior to maturity.
2. The income derived from the notes is subject to all taxes imposed under
the Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
3. The notes will be acceptable to secure deposits of public moneys. They
will not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000, and $500,000,000. Provision will be made
for the interchange of notes of different denominations and of coupon and registered notes, and for the transfer of registered notes, under rules and regulations
prescribed by the Secretary of the Treasury.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes.
III.

SUBSCRIPTION A N D ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Office of the Treasurer of the United States, Washington, D.C, 20220.
Banking institutions generally may submit subscriptions for account of customers,
but only the Federal Reserve banks and the Treasury Department are authorized
to act as official agencies.
2. All subscribers requesting registered notes will be required to furnish appropriate identifying numbers as required on tax returns and other documents
submitted to the Internal Revenue Service, i.e., an individual's social security
number or an employer identification number.
^
3. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of notes applied for; and any
action he may take in these respects shall be final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out
promptly upon allotment.
IV. PAYMENT

1. Payment for the face amount of notes allotted hereunder must be made on
or before February 17, 1964, or on later allotment, and may be made only in
securities of the two issues enumerated in paragraph 1 of section I hereof, which
will be accepted at par, and should accompany the subscription. Payment will
not be deemed to have been completed where registered notes are requested if
the appropriate identifying number, as required by paragraph 2 of section III
hereof, has not been furnished; provided, however, if a subscriber has applied for
but is unable to furnish the identifying number by the payment date only because
it has not been issued, he may elect to receive, pending the furnishing of the
identifying number, interim receipts and in this case payment will be deemed to
have been completed. Coupons dated February 15, 1964, should be detached
from the certificates and bonds in bearer form and cashed when due. The cash
payment of $1.25 per $1,000 on account of the issue price of the notes will be




EXHIBITS

173

made to subscribers, in the case of bearer securities following acceptance of the
securities, and in the case of registered bonds following discharge of registration.
In the case of registered bonds, the final interest due on February 15, 1964,
together with the cash payment of $1.25 per $1,000 due subscribers, will be paid
by check drawn in accordance with the assignments on the bonds surrendered, or
by credit in any account maintained by a banking institution with the Federal
Reserve bank of its district.
V. ASSIGNMENT OF REGISTERED BONDS

1. Treasury bonds of 1964 in registered form tendered in payment for notes
offered hereunder should be assigned by the registered payees or assignees thereof,
in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, in one of the forms hereafter set forth,
and thereafter should be surrendered with the subscription to a Federal Reserve
bank or branch or to the Office of the Treasurer of the United States, Washington,
D . C , 20220. The maturing bonds must be delivered at the expense and risk of
the holder. If the notes are desired registered in the same name as the bonds surrendered, the assignment should be to "The Secretary of the Treasury for exchange
for 3J^ percent Treasury Notes of Series D—1965"; if the notes are desired registered in another name, the assignment should be to "The Secretary of the Treasury
for exchange for 3% percent Treasury Notes of Series D—1965 in the name of
"; if notes in coupon form are desired, the assignment should
be to "The Secretary of the Treasury for exchange for 3% percent Treasury Notes
of Series D—1965 in coupon form to be delivered to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up
to the amounts indicated by the Secretary of the Treasury to the Federal Reserve
banks of the respective districts, to issue allotment notices, to receive payment
for notes allotted, to make delivery of notes on full-paid subscriptions allotted,
and they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve banks.




DOUGLAS DILLON,

Secretary of the Treasury.

Summary of information pertaining to Treasury notes issued during the fiscal year 1964
Department
circular

Date of
preliminary announce- Number
ment

Date

Concurrent
offering
circular
number

Treasury notes issued for exchange or for cash

^

Allotment
Date sub- payment
Date of
Date of scription date on
issue maturity
books or before
closed
(or on
later
allotment)

>4^

o
1963
July 24

Oct. 23
1964
Jan. 30

13-63

1963
July 25

17-63
3-64

ZH percent Series C-1965 issued at par for cash 2

Oct. 24
1964
Jan. 31

3% percent Series F-1964 issued at par in exchange for—
3^2 percent Series C-1963 certificates maturing Aug. 15, 1963;
2y2 percent Treasury bonds of 1963.

4-64

Jan. 30

4-64

Jan. 31

3-64

Mar. 26
Apr. 29

5-64
6-64

Mar. 27
Apr. 30

7-64

3}i percent Series D-1965 issued at 99.875 in exchange for—
3H percent Series A-1964 certificates maturing Feb. 15, 1964;
3 percent Treasury bonds of 1964.
4 percent Series A-1966 (additional issue) issued at par in exchange forSH percent Series A-1964 certificates maturing Feb. 15, 1964;
3 percent Treasury bonds of 1964.
3% percent Series D-1965 (additional issue) issued at 99.70 for cash—..
4 percent Series E-1965 issued at 99.875 in exchange for—
3]4 percent Series B-1964 certificates maturing May 15, 1964;
i H percent Series A-1964 notes maturmg May 15, 1964;
ZH percent Series D-1964 notes maturing May 15, 1964.

1 Coupons dated Aug. 15, 1963, were detached from the certificates and bonds in
bearer form and cashed when due.
2 Holders of 33^ percent Treasury certificates of Series D-1963 and m percent Treasury notes of Series C-1963, both of which matured Nov. 15, 1963, were not offered
preemptive rights tp exchange their holdings for the new notes.
3 See Department Circular No. 17-63 in this exhibit for provisions for subscription
and payment.
^ See Department Circular No. 3-64 in this exhibit for provisions for subscription
and payment.




1963
July 31 lAug. 15

1963
Aug. 15

1964
Nov. 15

Noy. 15

1965
May 15

Oct. 28 INov. 15

1964
Feb. 15

Aug. 13

1964
1964
Feb. 5 4 Feb. 17

o

1966
1962
Feb. 155 Aug. 15

Feb. 5 8 Feb. 17

1965
1964
Feb. 15 7 Aug. 13
May 15 Nov. 15

Mar. 31 Apr. 8
May 6 'May 15

5 Interest payable from Feb. 15, 1964.
6 Coupons dated Feb. 15, 1964, were detached from the certificates and bonds in
bearer form and cashed when due.
7 Interest payable from Apr. 8, 1964.
8 Payment was permitted by credit in Treasury tax and loan accounts.
8 Coupons dated May 15,1964, were detached from the certificates and notes in bearer
form and cashed when due. A cash payment of $1.25 per $1,000 (on account of the
issue price of the notes) was made to subscribers''in the case of bearer securities following
their acceptance and in the case of registered notes following discharge of registration.

W
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SI
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d

Allotments of Treasury notes issued during ihe fiscal year 1964, by Federal Reserve districts
[In thousands]
Z% p e r c e n t Series F-1964 n o t e s issued in
exchange for—i
F e d e r a l R e s e r v e district

Boston
_NewYork
Philadelphia
Cleveland
Richmond
Atlanta.
Chicago
S t . Louis
Minneapolis
..
Kansas City
.
Dallas
San Francisco . Treasury.--

2J^ p e r c e n t
Treasury bonds
of 1963
maturing
A u g . 15,1963

Z}i p e r c e n t
Series C-1966
notes 2
T o t a l issued

_
-_

$41,861
4,363,609
53,241
111,609
21,005
43, 076
161,541
76,037
39,404
54,660
23,463
137, 004
4,614

$26,756
683,327
45,437
63, 584
15,922
34,992
147, 636
68,999
17,247
76,077
25,067
60,829
1,338

$68, 617
5, 046,936
98,678
176, 093
36,927
78, 067
309,177
145, 036
56,651
130, 637
48, 530
197,833
6,962

$164,709
5,761,921
88,009
232,465
133,697
144, 598
636,357
138,810
92,266
126,722
95, 909
430,329
31,024

__

-

5,130,923

1,267,211

6,398,134

7,976,816

_

.-.

..

__

_-

__

--__ __ _ __

Total note allotments
Securities eligible for exchange:
E x c h a n g e d i n c o n c u r r e n t offerings
T o t a l exchanged N o t s u b m i t t e d for exchange

-

T o t a l securities eligible for exchange

Footnotes at end of table.




ZH p e r c e n t
Series C-1963
certificates
maturing
A u g . 15,1963

3 K p e r c e n t Series D-1965 n o t e s issued in
exchange for—i

T o t a l issued

$79,947
4,636,247
44,586
45,636
28, 646
47, 648
212,361
54,663
26,200
44,217
62,863
234,023
18,716

$14,462
340,226
20, 397
45,418
5,045
26,460
89,362
15,213
10, 986
17,892
18,612
60, 689
1,746

$94,409
4,976,473
64,982
91, 053
33, 691
74,098
301,713
69, 776
27,186
62,109
81,465
294, 712
20,462
6,202, 029

...

5, 636,631

666,498

1,082,106

.
__
_ .

Z}i p e r c e n t
3 percent
Series A-1964 T r e a s u r y b o n d s
of 1964
certificates
maturing
maturing
F e b . 15,1964 3 F e b . 15,1964 3

728,274

1,810,379

6,130,923
49,712

1,267,211
193,498

6,398,134
243,210

6,617,636
123,678

1,394,772
. 239, 629

8, 012,408
363,107

6,180,636

1,460,709

6,641,344

6,741,214

1,634,301

8,375,515

Allotments of Treasury notes issued during the fiscal year 1964, by Federal Reserve districts—Continued
[In thousands]
4 percent Series A-1966 notes issued in
exchange for—i
Federal Reserve district

4 percent Series E-1965 notes issued in exchange for-

3% percent
ZH percent
i H percent
3 percent
Series D-1965 ZH percent
ZH percent
Series A-1964 Treasury
Series B-1964 Series A-1964 Series D-1964
notes«
Treasury
certificates
certificates bonds of 1964 Total issued
Treasury
Total issued
maturing
maturing
maturing
notes
notes
Feb. 15,1964 4 Feb. 15, 1964 4
May 15,1964 8 maturing
maturing
May 15,1964 8 May 16,1964 (

O
SJ
1^

O
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
DaUas
San Francisco_—
Treasury

_
_

_

__

---

Total note aUotments
Securities eligible for exchange:
Exchanged in concurrent offerings
Total exchanged
Not submitted for exchange
.-Total securities eligible for exchange.

$60,865
482,319
11,764
78, 262
22,302
63, 263
194,285
53,360
27,351
38, 505
12, 745
35,430
1,664
1, 082,105

$10,331
219,387
20,093
41, 251
16,082
33,381
170, 722
37,048
26,161
36, 217
24,142
92,425
1,034

$48, 584
326, 086
42,685
70,127
46,196
61,479
141,135
45,866
36,623
52,335
57, 349
139, 745
60

$26,683
3,460,906
14, 263
44,525
17,731
34, 763
88,878
32, 611
14,182
36,964
32,698
24,827
1,215

$43,419
3, 038,604
48,613
26,917
19,347
27,855
100,805
34, 575
34,364
43,234
16,068
13,804
4,018

$24,183
603, 061
48, 722
75,837
36,378
62,160
205,067
64,449
27,790
63,682
46,974
20,817
1,030

$94,285
7,102, 571
111, 598
147, 279
72,456
124, 768
394,740
131,635
76,336
142,880
96,740
59,448
6,263

1, 066, 270

3,829, 246

3,451,623

1, 279,130

8, 559,999

6,202, 029

728, 274

5, 535, 531

308, 613

619, 551

603,835

1, 531,899

4, 071,174
328, 526

1,882,966
133,124

10,091,898
522,137

1,810,379

6, 617,636
123, 678

1,394, 772
239, 529

8, 012,408
363,107

4,137, 759
60,487

6,741, 214

1,634, 301

8,375, 515

4,198, 246

1 Subscriptions were aUotted in full.
2 Subscriptions from States, political subdivisions or instrumentalities thereof,
pubhc pension and retirement and other public funds, international organizations in
which the United States holds membership, foreign central banks and foreign States,
Govemment investment accounts, and the Federal Reserve banks were aUotted in full
if the subscriber certified that it owned a like or greater amount ofsecurities that could
be used in payraent for the notes. Subscriptions from all others in amounts up to
$100,000 were aUotted in fuU; amounts over $100,000 were aUotted 21 percent, but not
less than $100,000 to any one subscriber.




$71,196
701, 706
31,867
119, 613
38,384
96,634
365, 007
90,408
53,612
74,722
36,887
127,855
2,698

2, 016, 089

3 4 percent Treasury notes of Series A-1966 were also offered in exchange for this
security.
4 ZH percent Treasury notes of Series D-1966 were also offered in exchange for this
security.
6 Subscriptions in amounts up to $50,000 were allotted in fuU; amounts over $50,000
were aUotted 9 percent, but not less than $50,000 to any one subscriber.
8 i H percent Treasury bonds of 1974 were also offered in exchange fort his security.

W

m
o

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o

EXHIBITS

177

EXHIBIT 2.—Treasury bonds
Two Treasury circulars representative of the six bond offerings during the
fiscal year 1964 are reproduced in this exhibit; an exchange offering for maturing
issues and an advance refunding exchange offering. Circulars pertaining to the
other bond offerings are similar in form and therefore are not reproduced in this
report. However, the essential details for each issue are summarized in the first
table following the circulars and the final allotments of the new bonds are shown
in the second table.
DEPARTJVIENT CIRCULAR NO. 16-63.

PUBLIC DEBT

TREASURY DEPARTMENT,

Washington, September 6, 1963.
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions from the people of the United
States for bonds of the United States, designated 4J4 percent Treasury bonds of
1989-94:
(1) at 98.65 percent of their face value in exchange for 3}^ percent Treasury
certificates of indebtedness of Series B-1964, dated May 15, 1963, due IVEay 15,
1964;
(2) at 97.70 percent of their face value in exchange for 4^^ percent Treasury
notes of Series A-1964, dated July 20, 1959, due IMay 15, 1964;
(3) at 98.35 percent of their face value in exchange for 3% percent Treasury
notes of Series D-1964, dated June 23, 1960, due IVIay 15, 1964;
(4) at 98.65 percent of their face value in exchange for 3% percent Treasury
bonds of 1966, dated November 15, 1960, due May 15, 1966;
(5) at 98.00 percent of their face value in exchange for 4 percent Treasury
notes of Series A-1966, dated February 15, 1962, due August 15, 1966;
(6) at 99.40 percent of their face value in exchange for 3H percent Treasury
notes of Series B-1967, dated March 15, 1963, due February 15, 1967; or
(7) at 99.10 percent of their face value in exchange for 3% percent Treasury
notes of Series A-1967, dated September 15, 1962, due August 15, 1967.
Interest adjustments as of September 15, 1963, and the cash payments due to
the subscriber on account of the issue prices of the new bonds will be made as set
forth in section IV hereof. The amount of the offering under this circular will
be limited to the amount of eligible securities tendered in exchange and accepted.
Delivery of the new bonds will be made on September 18, 1963. The books will
be open only on September 9 through September 13, 1963, for the receipt of
subscriptions for this issue.
2. In addition to the offering under this circular, holders of all of the eligible
securities are offered the privilege of exchanging all or any part of such securities
for 4 percent Treasury bonds of 1973, and the holders of the certificates and notes
maturing on May 15, 1964, are also offered the privilege of exchanging them for
S% percent Treasury bonds of 1968, which offerings are set forth in Department
Circulars, Public Debt Series—Nos. 15-63 and 14-63, respectively, issued
simultaneously with this circular.
3. Nonrecognition of gain or loss for Federal income tax purposes.—Pursuant to
the provisions of section 1037(a) of the Internal Revenue Code of 1954 as added
by Public Law 86-346 (approved September 22, 1959), the Secretary of the
Treasury hereby declares that no gain or loss shall be recognized for Federal
income tax purposes upon the exchange with the United States of the eligible
securities enumerated in paragraph one of this section solely for the 4>^ percent
Treasury bonds of 1989-94. Section 1031(b) of the Code, however, requires
recognition of any gain realized on the exchange to the extent that money is
received by the security holder in connection with the exchange. To the extent
not recognized at the time of the exchange, gain or loss, if any, upon the obligations surrendered in exchange will be taken into account upon the disposition or
redemption of the new obligations.
II. DESCRIPTION OF BONDS

1. The bonds now offered will be an addition to and will form a part of the series
of 4:}i percent Treasury bonds of 1989-94 which are described in Department
Circular, Public Debt Series—No. 11-63, dated May 16, 1963, will be freely
interchangeable therewith, and are identical in all respects therewith except that




178

1964 REPORT OF THE SECRETARY OF THE TREASURY

interest on the bonds to be issued under this circular will accrue from September 15,
1963. Subject to the provision for the accrual of interest from September 15,1963,
on the bonds now offered, the bonds are described in the following quotation from
Department Circular No. 11-63:
" 1 . The bonds, dated April 18, 1963, bear interest from that date at the rate
of 4:% percent per annum, payable on a semiannual basis on November 15, 1963,
and thereafter on May 15 and November 15 in eaeh year until the principal
amount becomes payable. They will mature May 15, 1994, but may be redeemed
at the option of the United States on and after ]\iay 15, 1989, at par and accrued
interest, on any interest day, on 4 months' notice of redemption given in such
manner as the Secretary of the Treasury shall prescribe. From the date of redemption designated in any such notice, interest on the bonds called for redemption
shall cease.
"2. The income derived from the bonds is subject to all taxes imposed under
the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the U lited States, or by any local taxing
authority.
''3. The bonds are acceptable to secure deposits of public moneys.
"4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, are available in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision has been made for the interchange
of bonds of different denominations and of bearer and registered bonds, and for
the transfer of registered bonds.
"5. If the bonds are owned by a decedent at the time of his death and thereupon
constitute a part of his estate, they will be redeemed at par and accrued interest
at the option of the representative of the estate, provided the Secretary of the
Treasury is authorized by the decedent's estate to apply the entire proceeds of
redemption to payment of the Federal estate taxes on such decedent's estate.
"6. The bonds are subject to the general rules a id regulations of the Treasury
Department, now or hereafter prescribed, goveriing United States securities."
IIL SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Office of the Treasurer of the United States, Washington, D . C , 20220.
Banking institutions generally may submit subscriptions for account of customers,
but only the Federal Reserve banks and the Treasury Department are authorized
to act as official agencies.
2. All subscribers requesting registered bonds will be required to furnish
appropriate identifying numbers as required on tax returns and other documents
submitted to the Internal Revenue Service, i.e., an individual's social security
number or an employer identification number.
3. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of bonds applied for; and any
action he may take in these respects shall be final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out
promptly upon allotment.
IV. PAYMENT

1. Payment for the face amount of bonds allotted hereunder must be made on
or before September 18, 1963, or on later allotment, and may be made only in a
like face amount of securities of the seven issues enumerated in paragraph 1 of
section I hereof, which should accompany the subscription. Payment will not
be deemed to have been completed where registered bonds are requested if the
appropriate identifying number, as required by paragraph 2 of section III hereof,
has not been furnished; provided, however, if a subscriber has applied for but
is unable to furnish the identifying number by the payment date only because
it has not been issued, he may elect to receive, pending the furnishing of the
identifying number, interim receipts and in this case payment will be deemed
to have been completed. Cash payments due from subscribers (paragraphs 7
and 8 below) should accompany the subscription. Cash payments due to subscribers (paragraphs 2 through 6 below) will be made in the case of bearer securities following their acceptance and in the case of registered securities following
discharge of registration. In the case of registered securities, the payment will
be made by check drawn in accordance with the assignments on the securities




EXHIBITS

179

surrendered, or by credit in any account maintained by a banking institution
with the Federal Reserve bank of its district.
2. 3}i percent certificates of indebtedness of Series B-1964'—Coupons dated
November 15, 1963, and May 15, 1964, must be attached to the certificates when
surrendered. Accrued interest from IVEay 15 to September 15, 1963 ($10.86277
per $1,000) plus the payment ($13.50 per $1,000) due to the subscriber on account
of the issue price of the bonds will be credited, accrued interest from April 18 to
September 15, 1963 ($16.86402 per $1,000) on the bonds to be issued will be
charged, and the difference ($7.49875 per $1,000) will be paid to subscribers.
3. 4K percent notes of Series A-1964'—Coupons dated November 15, 1963,
and JVIay 15, 1964, must be attached to the notes in bearer form when surrendered.
Accrued interest from May 15 to September 15, 1963 ($15.87636 per $1,000) plus
the payment ($23.00 per $1,000) due to the subscriber on account of the issue
price of the bonds will be credited, accrued interest from April 18 to September 15,
1963 ($16.86402 per $1,000) on the bonds to be issued will be charged, and the
difference ($22.01234 per $1,000) will be paid to subscribers.
4. 5% percent notes of Series D-1964'—Coupons dated November 15, 1963,
and May 15, 1964, must be attached to the notes in bearer form when surrendered.
Accrued.interest from May 15 to September 15, 1963 ($12.53397 per $1,000) plus
the payment ($16.50 per $1,000) due to the subscriber on account of the issue
price of the bonds will be credited, accrued interest from April 18 to September 15,
1963 ($16.86402 per $1,000) on the bonds to be issued will be charged, and the
difference ($12.16995 per $1,000) will be paid to subscribers.
5. 5% percent honds of 1966.—Coupons dated November 15, 1963, and all
subsequent coupons, must be attached to the bonds in bearer form When surrendered. Accrued interest from May 15 to September 15, 1963 ($12.53397 per
$1,000) plus the payment ($13.50 per $1,000) due to the subscriber on account of
the issue price of the new bonds will be credited, accrued interest from April 18
to September 15, 1963 ($16.86402 per $1,000) on the bonds to be issued will be
charged, and the difference ($9.16995 per $1,000) will be paid to subscribers.
6. 4 percent notes of Series A-1966.—Coupons dated February 15, 1964, and all
subsequent coupons, must be attached to the notes in bearer form when surrendered.
Accrued interest from August 15 to September 15, 1963 ($3.36957 per $1,000)
plus the payment ($20.00 per $1,000) due to the subscriber on account of the issue
price of the bonds will be credited, accrued interest from April 18 to September 15,
1963 ($16.86402 per $1,000) on the bonds to be issued will be charged, and the
difference ($9.16995 per $1,000) will be paid to subscribers.
7. SYs percent notes of Series B-1967.—Coupons dated February 15, 1964, and
all subsequent coupons, must be attached to the notes in bearer form when surrendered. Accrued interest from August 15 to September 15, 1963 ($3.05367
per $1,000) plus the payment ($6.00 per $1,000) due to the subscriber on account
of the issue price of the bonds will be credited, accrued interest from April 18 to
September 15, 1963 ($16.86402 per $1,000) on the bonds to be issued will be
charged, and the difference ($7.81035 per $1,000) must be paid by subscribers.
8. 3% percent notes of Series A-1967.—Coupons dated February 15, 1964, and
all subsequent coupons, must be attached to the notes in bearer form when surrendered. Accrued interest from August 15 to September 15, 1963 ($3.15897 per
$1,000) plus the payment ($9.00 per $1,000) due to the subscriber on account of
the issue price of the bonds will be credited, accrued interest from April .18 to
September 15, 1963 ($16.86402 per $1,000) on the bonds to be issued will be
charged, and the difference ($4.70505 per $1,000) must be paid by subscribers.
v . ASSIGNMENT OP REGISTERED SECURITIES

1. Treasury notes and bonds in registered form, tendered in payment for bonds
offered hereunder should be assigned by the registered payees or assignees thereof,
in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, in one of the forms hereafter set forth,
and thereafter should be surrendered with the subscription to a Federal Reserve
bank or branch or to the Office of the Treasurer of the United States, Washington,
D . C , 20220. The securities must be delivered at the expense and risk of the
holder. If the new bonds are desired registered in the same name as the securities
surrendered, the assignment should be to "The Secretary of the Treasury for
exchange for 4}^ percent Treasury Bonds of 1989-94"; if the new bonds are
desired registered in another name, the assignment should be to ''The Secretary
of the Treasury for exchange for iyi percent Treasury Bonds of 1989-94 inlthe




180

19 64 REPORT OF THE SECRETARY OF THE TREASURY

name of
";if new bonds in coupon form are desired, the assignment should be to ''The Secretary of the Treasury for exchange for 4}^ percent
Treasury Bonds of 1989-94 in coupon form to be delivered to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up
to the amounts indicated by the Secretary of the Treasury to the Federal Reserve
banks of the respective districts, to issue allotment notices, to receive payment
for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted,
and they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve banks.
DOUGLAS DILLON,

Secretary of the Treasury.
DEPARTMENT CIRCULAR NO. 7-64.

PUBLIC DEBT

TREASURY

DEPARTMENT,

Washington, April SO, 1964.
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par, from the people of
the United States for bonds of the United States, designated 4}4 percent Treasury
bonds of 1974, in exchange for the following securities maturing May 15, 1964:
3}{ percent Treasury certificates of indebtedness of Series B-1964;
0^ percent Treasury notes of Series A-1964; or
3 ^ percent Treasury notes of Series D-1964.
The amount of the offering under this circular will be limited to the amount of
eligible securities tendered in exchange and accepted. The books will be open
only on May 4 through May 6, 1964, for the receipt of subscriptions for this issue.
2. In addition to the offering under this circular, holders of the securities
enumerated in paragraph 1 of this section are offered the privilege of exchanging
all or any part of such securities for 4 percent Treasury notes of Series E-1965,
which offering is set forth in Department Circular, Public Debt Series^—No. 6-64,
issued simultaneously with this circular.
II. DESCRIPTION OF BONDS

1. The bonds will be dated May 15, 1964, and will bear interest from that
date at the rate of 4>^ percent per annum, payable semiannually on November 15,
1964, and thereafter on May 15 and November 15 in each year until the principal
amount becomes payable. They will mature May 15, 1974, and will not be
subject to call for redemption prior to maturity.
2. The income derived from the bonds is subject to all taxes imposed under
the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions df the United States, or by any local taxing
authority.
3. The bonds will be acceptable to secure deposits of public moneys.
4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision will be made for the interchange
of bonds of different denominations and of coupon and registered bonds, and for
the transfer of registered bonds, under rules and regulations prescribed by the
Secretary of the Treasury.
5. Any bonds issued hereunder which are owned by a decedent at the time of
his death and thereupon constitute a part of his estate will be redeemed at par
and accrued interest prior to maturity, provided the Secretary of the Treasury is
authorized by the representative of the estate to apply the entire proceeds of
redemption to payment of the decedent's Federal estate taxes.




EXHIBITS

181

6. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Office of the Treasurer of the United States, Washington, D.C. 20220.
Banking institutions generally may submit subscriptions for account of customers,
but only the Federal Reserve banks and the Treasury Department are authorized
to act as official agencies.
2. All subscribers requesting registered bonds will be required to furnish
appropriate identifying numbers as required on tax returns and other documents
submitted to the Internal Revenue Service, i.e., an individual's social security
number or an employer identification number.
3. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of bonds applied for; and any
action he may take in these respects shall be final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out promptly
upon allotment.
IV. PAYMENT

1. Payment for the face amount of bonds allotted hereunder must be made on
or before May 15, 1964, or on later allotment, and may be made only in securities
of the three issues enumerated in paragraph 1 of section I hereof, which will be
accepted at par, and should accompany the subscription. Payment will not be
deemed to have been completed where registered bonds are requested if the
appropriate identifying number, as required by paragraph 2 of section III hereof,
has not been furnished; provided, however, if a subscriber has applied for but is
unable to furnish the identifying number by the payment date only because it
has not been issued, he may elect to receive, pending the furnishing of the identifying number, interim receipts and in this case payment will be deemed to have
been completed. Coupons dated May 15, 1964, should be detached from the
certificates and notes in bearer form and cashed when due. In the case of registered notes, the final interest due on May 15, 1964, will be paid by check drawn
in accordance with the assignments on the notes surrendered, or by credit in any
account maintained by a banking institution with the Federal Reserve bank of
its district.
v . ASSIGNMENT OF REGISTERED NOTES

1. Treasury notes of Series A-1964 and Series D-1964 in registered form tendered
in payment for bonds offered hereunder should be assigned by the registered
payees or assignees thereof, in accordance with the general regulations of the
Treasury Department governing assignments for transfer or exchange, in one of the
forms hereafter set forth, and thereafter should be surrendered with the subscription to a Federal Reserve bank or branch or to the Office of the Treasurer of the
United States, Washington, D . C , 20220. The notes must be delivered at the
expense and risk of the holder. If the bonds are desired registered in the same
name as the notes surrendered, the assignment should be to "The Secretary of the
Treasury for exchange for 4J4 percent Treasury Bonds of 1974"; if the bonds are
desired registered in another name, the assignment should be to "The Secretary
of the Treasury for exchange for 4>4 percent Treasury Bonds of 1974 in the name
of
"; if bonds in coupon form are desired, the assignment
should be to "The Secretary of the Treasury for exchange for 4>^ percent Treasury
Bonds of 1974 in coupon form to be delivered to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
banks of the respective districts, to issue allotment notices, to receive payment
for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted,
and they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve banks.




ROBERT V. ROOSA,

Acting Secretary of the Treasury.

Summary of information pertaining to Treasury bonds issued during the fiscal year 1964

Date of
preliminary announcement

Department
circular

Number

Concurrent
offering
circular
number

Date of
issue

Treasury bonds issued for exchange

Date

(X)
Allotment
Date sub- payment
Date of scription date on
maturity books or before
(or on
closed
later
aUotment)

to

o
1963
Sept. 4

Sept. 4

14-63

15-63

1963
Sept. 5

Sept. 5

15-63,16-63

14-63,16-63

Sept. 4

16-63

Sept. 5

14-63,15-63

1964
Jan. 8

1-64

1964
Jan. 9

2-64

Jan.

2-64

Jan.

1-64

8




9

1963
Sept. 16

ZH percent of 1968 issued at prices indicated below in exchange for—
ZH percent Series B-1964 certificates maturing May 15,1964 (99.35);
4% percent Series A-1964 notes maturing May 15, 1964 (98.40);
3^4 percent Series D-1964 notes maturing May 15,1964 (99.05).
4 percent of 1973 issued at prices indicated below in exchange for—
3K percent Series B-1964 certificates maturing May 16, 1964 (98.85);
4% percent Series A-1964 notes maturing May 15, 1964 (97.90);
3M percent Series D-1964 notes maturing May 15, 1964 (98.65);
ZH: percent Treasury bonds of 1966 maturing May 16, 1966 (98.86);
4 percent Series A-1966 notes maturing Aug. 15, 1966 (98.20);
Z% percent Series B-1967 notes maturing Feb. 16, 1967 (99.60);
ZH percent Series A-1967 notes maturing Aug. 15, 1967 (99.30).

1968
Nov. 15

1963
1963
Sept. 13 • Sept. 18

o
1973
Aug. 15

.

Sept. 13 2 Sept. 18

W

Sept. 15
O

1994
i H percent of 1989-94 (additional issue) issued at prices indicated below in exchange for—-_
May 15 Sept. 13 * Sept. 18
>
334 percent Series B-1964 certificates maturing May 15, 1964 (98.65);
4% percent Series A-1964 notes maturing May 15, 1964 (97.70);
3 Apr. 18
3M percent Series D-1964 notes maturing May 15, 1964 (98.35);
o
ZH percent Treasury bonds of 1966 maturing May 15, 1966 (98.65);
>xj
4 percent Series A-1966 notes maturing Aug. 15, 1966 (98.00);
35/^ percent Series B-1967 notes maturing Feb. 16, 1967 (99.40);
3% percent Series A-1967 notes maturing Aug. 16, 1967 (99.10).
1970
1984
1964
4 percent of 1970 (additional issue) issued at prices indicated below in exchange for—
Aug. 15 Jan. 17 9 7 Jan. 29
3% percent Series E-1964 notes maturing Aug. 15,1964 (99.05);
6 percent Series B-1964 notes maturing Aug. 15, 1964 (98.36);
June 20«
3% percent Series F-1964 notes maturing Nov. 15,1964 (99.05);
i H percent Series C-1964 notes maturing Nov. 15, 1964 (98.16);
>
2 ^ percent Treasury bonds of 1965 maturing Feb. 15, 1965 (100.25)
Ui
i H percent Series A-1965 notes maturing May 15, 1966 (98.20).
1960
1985
•d
434 percent of 1975-85 (additional issue) issued at prices indicated below in exchange for—.. Apr. 5 5 May 15 Jan. 17 6 8 Jan. 29
3% percent Series E-1964 notes maturing Aug. 15, 1964 (99.95);
5 percent Series B-1964 notes maturing Aug. 15, 1964 (99.25);
3M percent Series F-1964 notes maturing Nov. 15,1964 (99.95);
i H percent Series C-1964 notes maturing Nov. 15,1964 (99.05);
2H percent Treasury bonds of 1966 maturing Feb. 15, 1965 (101.15);
i H percent Series A-1966 notes maturing May 16, 1965 (99.10).

Apr. 29

7-64

Apr. 30

6-64

434 percent of 1974 issued at par in exchange for—
334 percent Series B-1964 certificates maturing May 16,1964;
i H percent Series A-1964 notes maturing May 15, 1964;
ZH percent Series D-1964 notes maturing May 15,1964.

1 Coupons dated Nov. 15, 1963, and May 15, 1964, were required to be attached to
bearer securities submitted in exchange and payments were made to subscribers for
accrued interest from May 15 to Sept. 15,1963, and on account of the issue prices of the
bonds as follows (per $1,000): certificates, $10.86277 plus $6.50; i H percent notes,
$16.87636 plus $16.00; and ZH percent notes, $12.63397 plus $9.60.
2 C oupons as indicated below and aU subsequent coupons were required to be at.
tached to bearer securities submitted in exchange and payments were made to aU subscribers as follows (per $1,000):
Paid on
account
EarUest
Accrued interest paid
of issue
coupon
price of
Security
attached
For period
Amount
bond
33.4% Ctf. B-64
Nov. 15,1963 May 15-Sept. 15
$10.86277
$11.50
4K% Note A-64
Nov. 15,1963 May 15-Sept. 16
15.87636
21.00
3%%NoteD-64
Nov. 16,1963 May 15-Sept. 16
12.63397
14.50
3%% Bond 1966
Nov. 15,1963 May 15-Sept. 16
12.63397
11.60
4% Note A-66
Feb. 15.1964 Aug. 15-Sept. 16
3.36957
18.00
354% Note B-07
Feb. 15,1964 Aug. 16-Sept. 15
3.05367
4.00
3%%NoteA-67
Feb. 15,1964 Aug. 15-Sept. 16
3.16897
7.00
3 Interest payable from Sept. 16,1963.
4 See Department Circular No. 16-63 in this exhibit for provisions for subscription and
payment.
6 Interest payable from Jan. 22,1964.
6 Coupons dated as shown below and aU subsequent coupons were required to be
attached to bearer securities submitted in exchange and accrued interest from the date
shown below imtil Jan. 22,1964, was paid to aU subscribers.
Coupon
Accrued
Security
attached
interest from
ZH7o Note E-64, 5% Note, 2H% Bond
Feb. 15.1964 Aug. 15,1963
3%% Note F-64, i H % Note, iH7o Note
May 16,1964 Nov. 15,1963




1964
May 15

1974
May 15

May 6

May 15

7 Accrued interest on old security (Col. 2) and amount due subscriber on account ot
issue price of new bond (Col. 3) were credited to subscriber, accrued interest on new
bond (Col. 4) and amount due from the subscriber on account of the issue price of new
bond (Col. 5) were charged to subscriber, and difference paid to subscriber (Col. 6)
or collected from subscriber (Col. 7) as foUows (per $1,000):
Security
3 ^ % Note E-64
6%NoteB-64...

Col. 2
Col. 3 Col. 4
Col. 5 Col. 6
$16.30435 $9.50 $23.57915
$2.22620
21.73913 16.50

23.67916

Col. 7

14.65998

3%% Note F-64
.__
7.00549 9.60 23.67916 ___
____ $7.07366
4>^%NoteC-64
_
9.10714 18.50 23.67915
4.02799
2 ^ % Bond 1966
11.41304 _____ 23.67915 $2.60
14.66611
4^%NoteA-65
8.64011 18.00 23.67915
3.06096
8 Accrued interest on old security (Col. 2) and amount due subscriber on account of
issue price of new bond (Col. 3) were credited to subscriber, accrued interest on new
bond (Col. 4) and amount due from subscriber on account of issue price of new bond
(Col. 5) were charged to subscriber, and difference paid to subscriber (Col. 6) or collected from subscriber (Col. 7) as follows (per $1,000):

X

Security
Col. 2
Col. 3 Col. 4
Col. 5 Col. 6
Col. 7
3M% Mote E-64
$16.30435 $0.50 $7.93966
$8.86479
5%NoteB-64
21.73913 7.50 7.93966
2L 29957
3M% Note F-64
7.00549 0.50 7.93956
10.43407
iVsJo Note C-64
9.10714 9.60 7.93956
10.66768
2 ^ % Bond 1966
IL 41304
7.93966 $1L 50
8.02652
4^%NoteA-65
8.64011 9.00 7.93966
9.70065
«See Department Circular No. 7-64 ta this exhibit for provisions for subscription
and payment.

(X)
00

(X)

Allotments of Treasury bonds issued during the fiscal year 1964, by Federal Reserve districts
[In thousands]
3 percent Treasury bonds of 1968 issued in exchange for—i
Federal Reserve district

ZH percent Series 4 ^percent Series 3 ^percent Series
B-1964 certificates A-1964 Treasury D-1964 Treasury
notes maturing notes maturing
maturing
May 15,1964 2
May 15,1964 2
May 16,1964 2

Boston
New York
PhUadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis '.
Minneapolis.
Kansas City
Dallas
San Francisco
Treasury

$33,761
366,683
5,007
8,733
19,152
14,200
76, 069
16,370
12,376
10,499
7,511
47,650
2,695

Total bond aUotments
Securities eligible for exchange:
Exchanged in concurrent offeriags

619,595
875,319
1,494,914
4,198,246
5,693,160

Total exchanged
Not submitted for exchange
Total securities eUgible for exchange.




CD

a

Total issued

O

$35,023
300, 086
27,008
67,896
15,866
16,386
154,161
16,115
24, 781
24,069
13,166
81,160
1,763

$77,902
768,626
33,251
96,191
42,382
39, 082
257,678
34,896
41,320
39,020
22,060
134,173
4,853

194,370

777,469

1,691,434

338,925

1,099, 783

2,314,027

533,295
4,399, 700

1,877,252
2,016,089

3,905,461
10,614,035

4,932,995

3,893,341

14,519,496

$9,128
101,867
1,236
19,662
7,364
8,496
28,448
2,411
4,164
4,452
1,384
5,373
495

o
W
Ui
O

Hi

o
•^

»^
W
SJ

Allotments of Treasury bonds issued during the fiscal year 1964, by Federal Reserve districts—Continued
[In t h o u s a n d s ]
4 p e r c e n t T r e a s u r y b p n d s of 1973 issued i n exchange f o r -

F e d e r a l R e s e r v e district

Boston
New York
PhUadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
MinneapoUs
K a n s a s City___-'
DaUas..
.
San Francisco...1
Treasury

_
"

__

Total bond allotments
Securities eUgible for exchange:
E x c h a n g e d in c o n c u r r e n t offerings
T o t a l exchanged
N o t s u b m i t t e d for exchange
T o t a l securities eUgible for exchange.

4 percent
i % percent
3 H percent
ZH percent
33^ percent
Z^A p e r c e n t
Z H percent
Series A-1966 Series B-1967 Series A-1967
Series B-1964 Series A-1964 Series D-1964
Treasury
Treasury
Treasury
Treasury
T o t a l issued
certificates
Treasury
Treasury
b o n d s of 1966
notes m a notes manotes m a maturiag
notes m a notes m a maturing
turiag M a y turiag M a y
turing Aug. turing F e b . turing Aug.
M a y 15,
M a y 16,
16,1964 3
15,1964 3
16,1967 4
15,1967 4
16,1966 4
1964 3
1966 4
$15,683
309,188
715
1,181
989
2,933
103,974
4,128
2,153
10,433
317
48,189
15

$19, 595
84, 616
7,987
4,448
7,092
6,309
38,463
8,062
7,407
9,437
4,682
14,397
1,037

$16,821
532,307
6.081
40,580
4,446
11,431
47, 537
10, 705
15, 585
19,447
27,040
50,143
234

$36,416
283,977
14, 782
18,885
8,896
9,567
127,798
17,720
17,993
22,948
20,828
39, 743
2,448

$41,376
186, 236
1,865
6,016
1,359
10,061
28,831
23,690
6,671
9,770
4,398
19,139
668

$30,804
301,687
10,236
26,822
12,198
11,196
73, 092
11,187
35,250
11,137
20,417
174,127
2,389

$45,682
387,784
8,612
9,379
9,563
14,478
76,366
29,177
18,660
14,605
17,354
84,051
726

$205,377
2,085, 795
50,278
107,310
44,542
65,974
496,061
104,659
103, 719
97, 777
95, 036
429,789
7,617

499,898

213, 622

782,366

621, 001

340,079

720, 641

716,437

319, 773

1,094,896

114,450

104,739

91,149

131,877

2,861,900

1,494,914
4,198,246

633,295
4,399, 700

1,877,252
2,016,089

735,451
2,862,023

444,818
4,009, 692

811,690
3,474,846

848,314
4,433,214

6.745,734
25,393,709

6,693,160

4,932, 996

3,893,341

3, 697,474

4,454,410

4,286, 535

6,281, 628

td

3,893,834

995, 016

fej

32,139,443

F o o t n o t e s at e n d of t a b l e .




(X)

Allotments of Treasury honds issued during the fiscal year 1964, hy Federal Reserve districts—Continued

(X)

[In thousands]

G:>

4 K percent T r e a s u r y b o n d s of 1989-94 (additional issue) issued in exchange for—i
4 percent
ZH percent
Z H percent
i H percent
ZH percent
ZH percent
ZH percent
Series A-1966 Series B-1967 Series A-1967
Series B-1964 Series A-1964 Series D-1964
Treasury
Treasury
certificates
Treasury
Treasury
Treasury
Treasury
T o t a l issued
b o n d s of 1966
maturing
notes manotes manotes manotes manotes mamaturing
turing M a y turing M a y
turing Feb. turing Aug.
turing Aug.
M a y 16,
M a y 15,
1964 5
15, 1964 5
15,1967 8
15,1967 e
15,1964 5
15,1966 6
1966 6

F e d e r a l R e s e r v e district

SI

o
SJ

Boston
NewYork
.
Philadelphia
Cleveland
... .
.
Richmond
Atlanta
Chicago . _ _ . - _
S t . Louis
Minneapolis
,
Kansas City
Dallas - . . . - . _- _ . . . .
S a n Francisco
T r e a s u r y . __

_
_

.. ..

_

...

....

-

131,877

1,260,466

SJ
Kl

340,079

720,541

716, 437

6,485,268

o

444,818
4, 009, 592

811,690
3,474,845

848,314
4,433, 214

6, 745,734
25,393,709

4,454,410

4,286, 535

5,281, 528

32,139,443

$58
54,588
47, 233
82
300
195
1,275
463
156
130
113
46
100

$320
80,873
99
1,010
50
1,790
529
57
125
239
5,957
100

125,403

317,427

114,450

104, 739

1,119,493

407,892

1, 669,826

621,001

633,295
4,399, 700

1,877,252
2, 016,089

735,461
2,862, 023

5, 693,160

4, 932, 995

3,893,341

3, 597,474

75
200
32,711
1,676
156
260
99
10,804

._

Total bond allotments
Securities eligible for exchange:
E x c h a n g e d in concurrent offerings

_

T o t a l exchanged
_
N o t s u b m i t t e d for exchange.— _.




91,149

$318
98,193
743
242
140
269
2,461
289
209
19
280
11,177
120

$7,606
321, 935

_ _ _ . _ _ . _ _

T o t a l securities eligible for exchange

o

325
3,657
621
130
655
26
12,176
201

$16,067
984,123
58,864
1,935
2,539
4,243
90,853
4,137
1,982
2,121
13,395
78,855
1,352

$962
235, 297
3,190
203
28
86
43,322
199
875
455
11, 659
21, 044
108

1,494,914
4,198, 246

-

$3,423
82,610
7,595
248
1,821
3,379
5,637
461
399
477
979
17,651
723

375,421

_

_-

_.

$3,380
110,627
4
75

Ui

O
SJ

>

H^

SJ
H

>
d
Ui

SJ
K|

Allotments of Treasury honds issued during the fiscal year 1964, by Federal Reserve districts—Continued
[In thousands]
4 percent Treasury bonds of 1970 issued in exchange for— i
Federal Reserve district

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Mianeapolis—
Kansas City
DaUas
San Francisco
Treasury

-.-

Total bond aUotments
Securities eligible for exchange:
Exchanged tn concurrent offerings
Total exchanged
Not submitted for exchange
Total securities eligible for exchange.

4H percent
iJ4 percent
6 percent
ZH percent
ZH percent
2H percent
Series A-1966
Series C-1964
Series E-1964
Series B-1964
Series F-1964
Treasury
Treasury notes Treasury notes Treasury notes Treasury notes bonds of 1965 Treasury notes
maturing
maturing
maturing
maturing
maturing
maturiag
Aug. 15, 1964 7 Aug. 15, 1964 7 Nov. 15, 1964 ^ Nov. 16, 1964 7 Feb. 16, 1966 7 May 15, 1965 7

Total issued

$21,826
414,188
9,750
23,269
6,369
12,871
61,726
15,239
13,515
18,794
28,332
65,848
2,220

$12,126
62,410
1,484
4,649
1,957
2,067
9,009
7,747
1,806
3,446
7,664
5,264
55,151

$8,452
203,643
4,882
8,263
1,372
5,341
25, 054
4,191
3,280
5,196
3,492
5,016
364

$4,665
160,564
5,799
14, 623
1,612
2,330
10,386
3,999
347
1,268
2,081
3,687
30

$18,687
244,922
12,922
42,089
32, 665
22,883
100,167
32,490
42, 222
31,360
43,849
28,857
485

143,469
2,158
31,412
723
1,953
18,723
4,077
1,721
2,791
2,266
4,868
260

$72, 724
1,219,096
36, 995
124, 295
44, 698
47, 445
225, 064
67, 743
62, 890
62, 845
• 87,584
113, 540
58, 510

693,946

164, 679

278,436

211,391

653, 588

221, 389

2,223,429

X

w
I—l

w

I—I

238,582

105, 792

168,476

116,733

62,854

75, 642

932, 528
4, 086,1-54

270, 471
2,045,263

436,911
6,961,223

328,124
3,867,196

706,442
3,975,768

297,031
1,815,710

2,971. 507
21,751,304

5, 018,682

2,315,724

6,398,134

4,195, 320

4,682,210

2,112,741

Ui

24,722,811

748, 078

Footnotes at end of table.




OO

Allotments of Treasury bonds issued during the fiscal year 1964, by Federal Reserve districts—Continued

(X)
GO

[In thousands]
434 percent Treasury bonds of 1976-85 issued in exchange for—i
Federal Reserve district

CO
05

2H percent
5 percent
i]4 percent
4M percent
ZH percent
ZH percent
Series B-1964
Series C-1964
Treasury
Series A-1965
Series E-1964
Series F-1964
Treasury notes Treasury notes Treasury notes Treasury notes bonds of 1966 Treasury notes
maturiag
maturiag
maturing
maturing
maturing
maturing
Aug. 15, 1964 8 Aug. 16, 1964 8 Nov. 15, 1964 8 Nov. 16, 1964 8 Feb. 15, 1965 8 May 15, 1965 8

Total issued

SJ
•d

o
SJ

Boston . .
_. ._ . . . . .
_- __. ._
New York.-.
PhUadelphia-_
_
Cleveland
.
Richmond __
__ _
Atlanta
__
Chicago.- _
- _
- St. Louis
Minneapolis
KansasCity
_. . .
Dallas
_ . _ . . _ .
_.
- _
San Franscisco ._.
.. _
Treasury
_
_. ._
. . .

$608
185,731
224
325
140
441
28,925
385
138
442
390
20,458
375

Total bond allotments
._
Securities eligible for exchange:
Exchanged ta concurrent offerings
Total exchanged
^^-_.._.___________ __--___-_
Not submitted for exchange.-

238, 582

105,792

158,475

116,733

52,854

75,642

748,078

693,946

164,679

278,436

211,391

653, 588

221,389

2,223,429

SJ
Kl

932,528
4,086,154
5,018, 682

270,471
2,045,253

436,911
5,961,223

"328,124
3,867,196

706,442
3,975,768

297,031
1,815,710

2,'971, 507
21,751,304

o
>^

2,315,724

6,398,134

4,196,320

4, 682, 210

2,112,741

24,722,811

Total securities eligible for exchange^




$1,677
61, 669
2, 659
. 540
569
394
812
1,009
296
790
710
1,081
33,686

$4,431
89,499
38,661
302
5
511
17,707
1,171
. 285
6,846
142
16

$3,968
104,926
428
238
1,035
217
2,463
223
66
1,903
493
726
47

$136
42,085
315
1,148
952
401
1,833
420
703
1,528
83
3,229
21

$2,400
60,951
488
1,089
218
330
4,210
1,052
336
1,623
2,235
597
113

$13,220
644,861
42, 575
3,642
2,919
2,294
56, 950
4,260
1,639
6,571
9,767
26,233
34,257

O

»^
t-3

M
Ui

O
SJ

>

S3

>
Ui

Si
Kl

Allotments of Treasury bonds issued during the fiscal year 1964, ^V Federal Reserve districts—Continued
[In thousands]
43^ percent Treasury bonds of 1974 issued ta exchange for —'
Federal Reserve district

ZH percent Series D i H percent Series AZH percent Series B 1964 certificates ma- 1964 Treasury notes ma- 1964 Treasury notes ma0
0
turing May 15, 1964 1 turing May 16, 1964 1 turing May 15, 1964 1
0

Boston
New York
PhUadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
DaUas
San Francisco
Treasury
Total bond allotments
Securities eligible for exchange:
Exchanged in concurrent offeriags
Total exchanged
Not submitted for exchange
Total securities eUgible for exchange
1 Advance refundiag; aU subscriptions were aUotted in full.
2 4 percent Treasury bonds of 1973 and 43^ percent Treasury bonds of 1989-94 were
also offered in exchange for this security.
8 ZJ4 percent Treasury bonds of 1968 and i}i percent Treasury bonds of 198^94 were
also offered in exchange for this security.
< i}i percent Treasury bonds of 1989-94 were also offered in exchange for this security.




$4,883
173,341
23,971
8,653
1,620
4,036
44,197
16,345
7,447
11,181
1,580
10,760
600

$66,639
306,066
19,136
26,936
10,483
13,855
82,017
18,421
17,301
24,810
13,129
26,238
6,531

$43,278
294,028
15, 063
33,779
6,152
17,384
88, 481
18,344
27,233
24,377
11,843
23,974

Total issued

$104,800
773,425
68,170
69.367
17.256
35, 274
214,695
63,110
61,981
60.368
26, 662
69,972
6,930

603,835

1,631,899

3,829,246

3,461,623

1,279,130

8,559.999

4,137,769
60,487

4,071,174
328, 626

1,882,965
133,124

10,091,898
522,137

4,198,246

4.399,700

2,016,089

10, 614,036

308,513

619, 661

5 Z]4 percent Treasury bonds of 1968 and 4 percent Treasury bonds of 1973 were also
offered ta exchange for this security.
6 4 percent Treasury bonds of 1973 were also offered in exchange for this security.
7 i H percent Treasury bonds of 1975-85 were also offered in exchange for this security.
8 4 percent Treasury bonds of 1970 were also offered IQ exchange for this security,
e Subscriptions were aUotted ta fuU.
1 4 percent Treasury notes of Series E-1965 were also offered in exchange for this
0
security.
(X)
CO

190

19 64 REPORT OF THE SECRETARY OF THE TREASURY
Treasury Bills Offered and Aijcepted
i

EXHIBIT 3.—Treasury bills
During the fiscal year 1964 there were 52 weekly issues each of 13-week and
26-week Treasury bills (the 13-week bills represent additional issues of bills with
an original maturity of 26 weeks), 2 issues of tax anticipation series, 11 one-year
issues, and one issue of a strip of weekly bills representing additional amounts
of 10 series of outstanding bills. Four press releases inviting tenders, which are
representative of the releases for the four types of bill issues, are reproduced in
this exhibit as follows: strip of issues, October 16, 1963; tax anticipation series,
January 2, 1964; one-year issues, April 24, 1964; land weekly issues, April 29,
1964. Also reproduced is the press release of May 4, 1964, which is representative
of the releases announcing the acceptance of tenders for all types of issues.
PRESS RELEASE OF OCTOBER 16, 1963
The Treasury Department, by this public notice, invites tenders for additional
amounts of 10 series of Treasury bills to an aggregate amount of $1,000,000,000,
or thereabouts, for cash. The additional bills will'be issued October 28, 1963,
will be in the amounts, and will be in addition to the bills originally issued and
maturing, as follows:
\
•

Amount of
additional
issue
$100,000,000
100,000,000
100,000,000
100,000,000
100,000.000
100,000,000
100,000,000
100,000,000
100,000, 000
100,000,000

Origmal issue dates 1963

August 8 August 15
August 22
August 29
September 6
September 12
September 19
September 26 . _
October 3
October 10

Days from
Oct. 28, 1963,
to maturity

Maturity dates 1964

February 6
__ February 13
February 20
February 27
__. March 5
March 12 .
March 19
March 26
AprU 2
April 9

'
_i
-.i
..^
_._
. .
:_i

.

1
!____

101
108
115
122
129
136
143
150
157
164

Amount
outstanding
(hi miUions)
$801
800
801
800
802
800
801
800
798
800

1,000,000,000

The additional and original bills will be freely interchangeable.
Each tender submitted must be in the amount of $10,000, or an even multiple
thereof, and the amount tendered will be applied to each of the above series of
bills on the basis of the ratio of each series to the total of all series. (For example, an accepted tender for $50,000 will be applied $5,000 to the issue with
original date of August 8, 1963, and $5,000 to each of the additional weekly
issues through the issue with original date of October 10, 1963.)
The bills offered hereunder will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest. They will be issued in bearer form
only, and in denominations of $1,000, $5,000, $10,000; $50,000, $100,000, $500,000,
and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve bariks and branches up to the
closing hour, one-thirty p.m., eastern daylight saving time, Tuesday, October
22, 1963. Tenders will not be received at the Treasury Department, Washington.
In the case of competitive tenders the price offered must be expressed on the
basis of 100, with not more than three decimals, e.g., 99.925. Fractions may
not be used. A single price must be submitted for each unit of $10,000, or even
multiple thereof. A unit represents $1,000 face amount of each issue of bills
offered hereunder, as previously described. It is urged that tenders be made on
the printed forms and forwarded in the special envelopes which will be supplied
by Federal Reserve banks and branches on application therefor.
Banking institutions, generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks




EXHIBITS

191

and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall be
final. Noncompetitive tenders for $100,000 or less (in even multiples of $10,000)
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids, provided, however, that
if the total of noncompetitive tenders exceeds $200,000,000, the Secretary of the
Treasury reserves the right to allot less than the amount applied for on a straight
percentage basis with adjustments where necessary to the next higher multiple
of $10,000. Settlement for accepted tenders in accordance with the bids must
be made or completed at the Federal Reserve bank or branch in cash or other
immediately available funds on October 28, 1963.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on the principal
or interest thereof by any State, or any of the possessions of the United States,
or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered
to be interest.
Under sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is not considered to
accrue until such bills are sold, redeemed, or otherwise disposed of, and such
bills are excluded from consideration as capital assets. Accordingly, the owner
of Treasury bills (other than life insurance companies) issued hereunder need
include in his income tax return only the difference between the price paid for
such bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made, as ordinary gain or loss. Purchasers of a
strip of the bills offered hereunder should, for tax purposes, take such bills on to
their books on the basis of their purchase price prorated to each of the ten outstanding issues using as a basis for proration the closing market prices for each of
the issues on October 28, 1963. (Federal Reserve banks will have available a
list of these market prices, based on the mean between the bid and asked quotations furnished by the Federal Reserve Bank of New York.)
Treasury Department Circular No. 418, Revised, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue. Copies
of the circular may be obtained from any Federal Reserve bank or branch.

PRESS RELEASE OF JANUARY 2, 1964
The Treasury Department, by this public notice, invites tenders for
$2,500,000,000, or thereabouts, of 159-day Treasury bills, to be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided.
The bills of this series will be designated Tax Anticipation Series, they will be
dated January 15, 1964, and they will mature June 22, 1964. They will be
accepted at face value in payment of income taxes due on June 15, 1964, and to
the extent they are not presented for this purpose the face amount of these bills
will be payable without interest at maturity. Taxpayers desiring to apply these
bills in payment of June 15, 1964, income taxes have the privilege of surrendering
them to any Federal Reserve bank or branch or to the Office of the Treasurer of
the United States, Washington, not more than fifteen days before June 15, 1964,
T43-li6'0—6'5

14




192

1964 REPORT OF THE SECRETARY OF THE TREASURY

and receiving receipts therefor showing the face amount of the bills so surrendered.
These receipts may be submitted in lieu of the bills on or before June 15, 1964,
to the District Director of Internal Revenue for the district in which such taxes
are payable. The bills will be issued in bearer form only, and in denominations
of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity
value).
Tenders will be received at Federal Reserve bariks and branches up to the
closing hour, one-thirty p.m., eastern standard time, Thursday, January 9, 1964.
Tenders will not be received at the Treasury Department, Washington. Each
tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not more
than three decimals, e.g., 99.925. Fractions may npt be used. It is urged that
tenders be made on the printed forms and forwarded in the special envelopes
which will be supplied by Federal Reserve banks ; or branches on application
therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their own
account. Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve banks and branches, following which public;announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for $400,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids. Payment of accepted
tenders at the prices offered must be made or completed at the Federal Reserve
bank in cash or other immediately available funds dn January 15, 1964.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Cpde of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
but are exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the possessions of the United States, or
by any local taxing authority. For purposes of taxation the amount of discount
at which Treasury bills are originally sold by the United States is considered to
be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of,
and such bills are excluded from consideration as capital assets. Accordingly,
the owner of Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their
issue. Copies of the circular may be obtained flrom. any Federal Reserve bank
or branch.
PRESS RELEASE OF APRIL 24, 1964
The Treasury Department, by this public notice, invites tenders for
$1,000,000,000, or thereabouts, of 359-day Treasury bills, to be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided.
The bills of this series will be dated IVEay 6, 1964, and will mature April 30, 1965,




EXHIBITS

193

when the face amount will be payable without interest. They will be issued in
bearer form only, and in denominations of $1,000, $5,000, $10,000, $50,000,
$100,000, $500,000, and $1,000,000 (maturity value).
Tenders^ will be received at Federal Reserve banks and branches up to the
closing hour, one-thirty p.m., eastern daylight saving time, Thursday, April 30,
1964. Tenders will not be received at the Treasury Department, Washington.
Each tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not more than
three decimals, e.g., 99.925. Fractions may not be used. It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve banks or branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompained by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment iSy an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for $200,000 or
less without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids. Payment of accepted
tenders at the prices offered must be made or completed at the Federal Reserve
bank in cash or other immediately available funds on IVEay 6, 1964.
The income derived from Treasury bills, whether interest or gain from the
sale or other disposition of the bills, does not have any exemption, as such, and
loss from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on the principal
or interest thereof by any State, or any of the possessions of the United States,
or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered
to be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code
of 1954 the amount of discount at which bills issued hereunder are sold is not
considered to accrue until such bills are sold, redeemed or otherwise disposed of,
and such bills are excluded from consideration as capital assets. Accordingly,
the owner of Treasury bills (other than life insurance companies) issued
hereunder need include in his income tax return only the difference between the
price paid for such bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve bank or branch.
PRESS RELEASE OF APRIL 29, 1964
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $2,100,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing IVEay 7, 1964, in the amount of
$2,100,427,000, as follows:
91-day bills (to maturity date) to be issued May 7, 1964, in the amount of
$1,200,000,000, or thereabouts, representing an additional amount of bills dated
February 6, 1964, and to mature August 6, 1964, originally issued in the amount
of $900,431,000, the additional and original bills to be freely interchangeable.




194

19 64 REPORT OF THE SECRETARY OF THE TREASURY

182-day bills, for $900,000,000, or thereabouts, to be dated May 7, 1964, and
to mature November 5, 1964.
The bills of both series will be issued on a discpunt basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest. They will be issued in bearer form
only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000,
and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve b^nks and branches up to the
closing hour, one-thirty p.m., eastern daylight saving time, Monday, May 4,
1964. Tenders will not be received at the Treasury Department, Washington.
Each tender must be for an even multiple of $1,000, and in the case of competitive tenders the price offered must be expressed!on the basis of 100, with not
more than three decimals, e.g., 99.925. Fractions may not be used. It is urged
that tenders be made on the printed forms and forwarded in the special envelopes
which will be supplied by Federal Reserve banks or branches on application
therefor.
'
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their own
account. Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the' right to accept or reject any
or all tenders, in whole or in part and his action in any such respect shall be final.
Subject to these reservations, noncompetitive tenders for $200,000 or less for the
additionaL bills dated February 6, 1964 (91 days remaining until maturity date
on August 6, 1964) and noncompetitive tenders for '$100,000 or less for the 182day bills without stated price from any one bidder will be accepted in full, at the
average price (in three decimals) of accepted competitive bids for the respective
issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve banks on May 7, 1964, in cash or
other immediately available funds or in a like face amount of Treasury bills
maturing May 7, 1964. Cash and exchange tenders will receive equal treatment.
Cash adjustments will be made for differences between the par value of maturing bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the
sale or other disposition of the bills, does not have any exemption, as such, and
loss from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
but are exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the possessions of the United States, or
by any local taxing authority. For purposes of taxation the amount of discount
at which Treasury bills are originally sold by the United States is considered to
be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed Or otherwise disposed of, and
such bills are excluded from consideration as capital assets. Accordingly, the
owner of Treasury bills (other than life insurance cpmpanies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at riiaturity during the taxable
year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve bank or branch.




195

EXHIBITS
PRESS RELEASE OF MAY 4, 1964

The Treasury Department announced last evening that the tenders for two
series of Treasury bills, one series to be an additional issue of.the bills dated February 6, 1964, and the other series to be dated May 7, 1964, which were offered
on April 29, were opened at the Federal Reserve banks on May 4. Tenders were
invited for $1,200,000,000, or thereabouts, of 91-day bills and for $900,000,000,
or thereabouts, of 182-day bills. The details of the two series are as follows:
91-day Treasury bUls
maturiag Aug. 6,1964
Range of accepted competitive bids
Price
High,...
Low
Average.

I 99.126
99.115
99.120

Approximate
equivalent
annual rate
3.462%
3. 501%
2 3. 482%

182-day Treasury biUs
maturing Nov. 6,1964
Approximate
equivalent
annual rate

Price
. 176
.169
.165

3.608%
3.642%
2 3.629%

1 Excepting 3 tenders totaling $1,665,000. 96% of the amount of 91-day bills bid for at the low price was
accepted. 46% of the amount of 182-day bUls bid for at the low price was accepted.
2 On a coupon issue of the same length and for the same amount invested, the return on these bills would
provide yields of 3.56%, for the 91-day bUls, and 3.75%, for the 182-day biUs. Interest rates on biUs are quoted
ta terms of bank discount with the return related to the face amount of the bills payable at maturity rather
than the amount invested and their length in actual number of days related to a 360-day year. In contrast,
yields on certificates, notes, and bonds are computed in terms of interest on the amount invented, and relate
the number of days remaining in an interest payment period to the actual number of days in the period, with
semiannual compounding if more than one coupon period is involved.

Total tenders applied for and accepted by Federal Reserve districts
District
Boston
New York
Philadelphia..
Cleveland
Richmond
Atlanta
Chicago
St. LouisMinneapolis..
Kansas City..
DaUas
.._.
San Francisco.
Total

AppUed for
$23,945,000
l,312,3yl,000
27,584,000
20,498,000
11, 007,000
38,744, 000
190,698,000
31,235,000
19,498,000
28,102,000
32, 602,000
80,327,000

Accepted
$13,945,000
796,691,000
12,684, 000
20,498, 000
11,007,000
36,704, 000
141,298, 000
26,235,000
19,468.000
28,102,000
24,602,000
70,127.000

1,816,631,000 11.200,151, 000

AppUed for
$1,559, 000
1,071,861,000
8.529, 000
6,293.000
3,468,000
9, 543,000
118.637,000
9,100,000
6, 601.000
6, 702,000
9, 674.000
73, 911,000
1,326,768,000

* Includes $213,008,000 noncompetitive tenders accepted at the average price of 99.120.
- Includes $58,931,000 noncompetitive tenders accepted at the average price of 98.165.




Accepted
$1, 669,000
728,101,000
3, 529,000
6, 293.000
3,468,000
8, 543, 000
61,637,000
7,600,000
4,726,000
6.702,000
7,674,000
60,361,000
2900,193,000

CO

Summary of information pertaining to Treasury bills issued during the fiscal year 1964
[Dollar amounts in thousands]
Maturity value

Prices and rates
Total bids accepted

Tenders accepted
Date of
issue

Date of
maturity

Days to
matu- Total applied for
rity 1
Total accepted

On competitive
basis

On noncompetitive basis

For cash

In exchange

Competitive bids accepted

Low
High
EquivaAverage lent average
price per
hundred rate (per- Price per Equiva- Price per Equivacent)
hundred lent rate hundred lent rate
(percent)
(percent)

Amount
maturing
on issue
date of
new
offering

o
SJ

o
"^
H

Regular Weekly
Ui
July

5
5
11
11
18
18
26
25
Aug. 1
1
16
15
22
22
29
29
Sept. 6
5
12
12
19
19
26
26

Oct.
Jan.
Oct.
Jan.
Oct.
Jan.
Oct.
Jan.
Oct.
Jan.
Nov
Feb.
Nov.
Feb.
Nov.
Feb.
Nov.
Feb.
Dec.
Mar.
Dec.
Mar.
Dec.
Mar.
Dec.
Mar.

3.1963
2,1964
10,1963
9.1964
17.1963
16.1964
24.1963
23.1964
31.1963
30.1964
7.1963
6.1964
14,1963
13,1964
21,1963
20,1964
29,1963
27,1964
5,1963
6,1964
12,1963
12,1964
19,1963
19,1964
26,1963
26,1964




181
91
182
91
182
91
182
91
182
91
182
91
182
91
182
92
182
91
182
91
182
91
182
91
182

039,711
257,300
147,103
268,101
098,939
272,923
848,476
463,841
987,156
457,845
979.824
577,966
342,495
372,566
235,925
560,966
173,896
697,968
441,035
667, 671
957,952
133,854
118, 633
257,530
280,430
272,938

$1,300,661 $1,086,695
764,324
800,050
1,300,303 1,046,286
800,351
749,223
1,300,289
979,059
800,123
732,067
1,300,056 1,062,345
800,497
741,134
1,300, 655 1,054, 763
799,911
742,994
1,301,271 1,053,821
800,503
740,401
1,300,845 1,036, 638
800,116
734,834
1,300,913 1,049,331
800, 672
740,227
1,300,180 1,080, 250
800,493
762,385
1,300,875 1,087, 731
801, 671
762,010
1,300,112 1,033,001
799,974
734,745
1,300, 797 1,017, 792
800, 730
736,816
1,301,052 1,028,921
799,927
746,090

$213,866
45, 726
254,018
51,128
321,230
68,056
247, 711
69,363
245,902
56,917
247,460
60,102
264,307
65,282
261, 682
60,445
219, 930
48,108
213,144
49, 661
267, 111
66. 229
283,006
63,914
272,131
63, 837

$1,110,991
722, 674
1, 285,238
797,666
1, 285,469
796,618
1,162,729
-737,689
1,146,249
738,371
1,104,719
737,861
1,194,496
766,984
1,106,792
722,895
1,165,091
747,382
1,028,993
729,469
1,163,800
746,034
1,122,813
727,214
1,164,662
741, 559

$189,560
77,376
15,066
2,796
14,820
3,505
137,327
62,808
164,406
61, 540
196, 562
62, 642
106,350
33,132
194,121
77,777
135.089
53,111
271,882
72,202
136,312
53,940
177,984
73.616
136,500
58,368

99.247
98.445
99.200
98. 346
99.193
98.304
99.190
98.29799.176
98. 282
99.178
98. 287
99.157
98. 261
99.152
98.260
99.132
98. 234
99.145
98.237
99.155
98. 251
99.138
98. 220
99.146
98.227

3.011
3.093
3.164
3.272
3.192
3.355
3.206
3.369
3.263
3.398
3.253
3.389
3.336
3.441
3.355
3.462
3.396
3.494
3.384
3.487
3.343
3.460
3.409
3.522
3.379
3.507

2 99.256
2 98.452
2 99.211
2 98.361
99.203
98.318
99.196
98.306 ^
2 99.183
2 98.290
99.183
98. 292
99.163
2 98.267
2 99.154
2 98.257
2 99.134
2 98. 236
2 99.146
2 98.242
99.161
98.262
2 99.146
98.230
99.160
2 98.234

2.980
3.079
3.121
3.242
3.153
3.327
3.185
3.351
3.232
3.382
3.232
3.378
3.311
3.428
3.347
3.448
3.389
3.489
3.378
3.477
3.319
3.438
3.378
3.501
3.363
3.493

99.244
98.437
99.184
98.315
99,183
98.288
99.183
98.291
99.170
98. 277
99.173
98.284
99.166
98.254
99.150
98.246
99.130
98. 231
99.143
98. 235
99.150
98. 238
99.136
98. 216
99.144
98. 222

3.024 $1,300,470
800, 502
3.109
3.228 1,302,008
800,450
3.333
3.232 1,300,736
800.045
3.386
1.300, 237
3.232
800,263
3.380
1,301,686
3.284
799,994
3.408
1,300,975
3.272
799,156
3.394
3.339 1.301, 608
800,035
3.464
3.363 1, 301,692
800,397
3.469
1,302,377
3.404
800,153
3.499
3.390 1,302,666
800, 647
3.491
3.363 1.300.264
800,265
3.485
1,301, 702
3.418
800, 595
3.529
1,301,835
3.386
800.046
3.517

o
SJ

>

SJ

o
M
SJ

>

Ui

31
31
7
7
14
14
21
21
29
29
Dec. 5
6
12
12
19
19
26
26

Jan.
Apr.
Jan.
Apr.
Jan.
Apr.
Jan.
Apr.
Feb.
Feb.
Feb.
Feb.
Mar.
Mar.
Mar.
Mar.
Apr.
Apr.
Jan.
Apr.
Feb.
May
Feb.
May
Feb.
May
Feb.
May
Mar.
June
Mar.
June
Mar.
June
Mar.
June

1964
2
2
9
9
16
16
23
23
6
13
20
27
5
12
19
26
2
9
30
30
6
7
13
14
20
21
27
28
5
4
12
11
19
18
26
25

1964
Jan.
2
2
9
9
16
16
23
23
30
30

Apr.
July
Apr.
July
Apr.
July
Apr.
July
Apr.
JiUy

2
2
9
9
16
16
23
23
30
30

Oct.

3
3
10
10
17
17
24
24

328

Nov.

91
182
91
182
91
182
91
182
101
108
115
122
129
136
143
150
157
164
91
182
91
182
91
182
91
182
90
181
91
182
91
182
91
182
91
182

2,046,047
1,203,144
2,274, 600
1,260,238
2,178,885
1,306,062
2,264,587
1,277,779

1,300,835
798,164
1,301,297
800,296
1,300,409
800,355
1,302,268
799,739

1,079,898
740,158
1,037,460
728, 662
969,740
716,353
1,043,216
729,016

220,937
57,996
263.847
71, 734
330, 669
86.002
259,152
70,723

1,128,382
745, 649
1,155,540
756,409
1,214, 772
776, 642
1,162,403
746,366

>2,107, 670

1,000,920

996, 600

4,320

1,000,920

1,866, 663
1, 646,462
2,051,149
1,219,011
2,201,396
1,431,394
2,320,731
1,431,394
1,986,979
1, 614,308
1,909,856
1,312,887
2,176,058
1,769,226
2,009,947
1, 576,424
2,048,076
1,724,443

1,300,313
800,313
1,300, 519
799,976
1,302,060
800, 631
1,201, 626
800,300
1,201,292
801, 679
1,300,546
799,967
1,300,311
800,981
1,301,337
800,163
1,309,063
804,309

1,050,124
729,945
1,062,302
737, 628
1,054,293
734,220
922, 710
724,332
981,659
744,251
1,079,876
745, 219
1,036, 683
726,940
1,026,005
729,857
1,089,303
743,997

250,189
70,368
248,217
62,348
247, 767
66,411
278,916
76,968
219,733
57,428
220, 670
64, 748
264, 628
74,041
276,332
70,306
219,760
60,312

1,234,932
776, 870
1,164,284
746,868
1,286,712
796,672
1,012,407
726,163
1,080,464
769,138
1,031,485
697, 266
1,164,379
736,160
1,080,099
713,965
1,180.934
741,020

2,085,380
1,446,848
2,050,888
1,388,187
2,349,066
1,741,144
2, 634,917
1, 733,383
2,167,079
182 1 1,571,979

1,301,323
800,466
1,300,846
800,403
1,301,065
800,444
1,303,384
800, 615
1,300,475
800,267

1,088,764
766,331
1,021,770
734,443
973,780
708,290
1,037,481
732,164
1,061,298
739,601

212,559
46,135
279,075
65,960
327,275
92,154
265,903
68.461
239,177
60,766

1,127,476
717,896
1,165, 680
737,788
1,283,078
797,161
1,146, 968
738,183
1,220,444
768,003

91
182
91
182
91
182
91
182
91

172,463
62,506
145.757
43,887
85.637
24,713
139,965
63,373

99.139
98.223
99.126
98.196
99.126
98.196
99.118
98.167

3.407
3.515
3.459
3.669
3.468
3.568
3.489
3.626

99.148
2 98.234
2 99.129
98.204
99.131
2 98.206
2 99.126
2 98.174

3.371
3.493
3.446
3.653
3.438
3.661
3.458
3.612

99.136
98. 218
99.124
98.190
99.123
98.190
99.117
98.158

3.418
3.526
3.465
3.680
3.469
3.680
3.493
3.644

98.675

3.601

98.687

3.667

98.672

3.608

65,381
23,443
136,235
63,108
16,348
4,069
189,219
76,147
120,828
42, 641
269,061
102,701
136,932
64,831
221,238
86,198
128,119
63,289

99.127
98.187
99.Ill
98.169
99.099
98.141
99.109
98.150
99.130
98.175
99.107
98.145
99.116
98.149
99.106
98.140
99.110
98.161

3.452
3.686
3.617
3.621
3.564
3.678
3.524
3.660
3.480
3.630
3.532
3.670
3.501
3.662
3.537
3.679
3.622
3.667

99.132
98.196
2 99.116
98.190
2 99.103
98.160
99. I l l
98.166
99.134
98.180
2 99.113
2 98.154
99.118
98.154
99.116
2 98.149
2 99.115
98.154

3.434
3.570
3.497
3.580
3.649
3.659
3.517
3.647
3.464
3.620
3.509
3.661
3.489
3.651
3.501
3.661
3.501
3.651

99.123
98.185
99.108
98.154
99.097
98.135
99.108
98.146
99.128
98.173
99.103
98.138
99.114
98.147
99.104
98.136
99.108
98.160

3.469
3.690
3.629
3.651
3.672
3.689
3.629
3.667
3.488
3.634
3.549
3.683
3.505
3.665
3.545
3.687
3.529
3.659

1,300,655
800,950
1,301,271
801,786
1,300,846
800,667
1,300,913
800.428
1,300,180
801,296
1,300,875
800,219
1,300,112
800,929
1,300,797
800,700
1,301,062
798,837

173,847
82, 670
146,265
62, 615
17,977
3,283
156,426
62,432
80,031
32,264

99.109
98.154
99.107
98.146
99.103
98.140
99.106
98.166
99.116
98.174

3.524
3.661
3.534
3.669
3.549
3.679
3.538
3.648
3.601
3.613

99.114
98.164
2 99.110
98.164
99.109
98.154
99.108
98.161
99.118
98.180

3.505
3.632
3.621
3.661
3.525
3.661
3.529
3.638
3.489
3.600

99.107
98.151
99.105
98.140
99.100
98.136
99.105
98.154
99.113
98.170 1

3. 533
3.667
3. 641
3. 679
3. 660
3.687
3.541
3. 651
3. 509

1,300,835
800,050
1,301,297
800,351
1,300.409
800,123
1,302,368
800,497
1.300.313
799,911

3.620

1,300,551
800,033
1,300,303
801,369
1,300,289
800,442
1,300,056
801,100

M
|X}
tiJ
n
g
a
g

Footnotes > a t e n d of t a b l e




CO

Summary of information pertaining to Treasury bills issued during the fiscal year 1964—Continued

CO
(X)

[Dollar amounts in thousands]
Prices and rates

Maturity value
Tenders accepted
Date of
issue

Date of
maturity

1964
1964
Feb. 6 M a y 7
6 Aug. 6
13 M a y 14
13 A u g . 13
20 M a y 21
20 A u g . 20
27 M a y 28
27 A u g . 27
Mar. 5 June 4
5 Sept. 3
12 J u n e 11
12 S e p t . 10
19 J u n e 18
19 S e p t . 17
26 J u n e 25
26 S e p t . 24
Apr. 2 July
2
1
2 Oct.
9
9 July
8
9 Oct.
16 J u l y 16
16 Oct. 15
23 J u l y 23
23 Oct. 22
30 J u l y 30
30 Oct. 29
M a y 7 Aug. 6
7 Nov. 5
14 A u g . 13
14 N o v . 12
21
20
 A u g .. 19
21 N o v
http://fraser.stlouisfed.org/ g . 27
28 A u
28 N o v . 27

Federal Reserve Bank of St. Louis

Days to
matu- Total applied for
rity!

Total accepted

On competitive
basis

On noncompetitive basis

For cash

Total bids accepted

In exchange

Competitive bids accepted

High
Low
EquivaAverage lent avprice per
erage
hundred rate (per- Price per Equiva- Price per Equivahundred lent rate hundred lent rate
cent)
(percent)
(percent)

Amount
maturiag
on issue
date of
new
offering

$242, 745 $1,195,009
60, 568
837,338
266, 616 1,288, 784
66,135
897,469
250,376 1,022,171
64,173
817,461
205,425 1,084, 755
66,241
838,199
220, 610 1,110,068
56, 678
820,098
251, 437 1, 287,198
64,556
896; 447
249, 233 1,068, 948
67,158
814, 720
237, 703 1,158,699
61,110
827,815
211,315 1,126,174
55, 792
807, 737
249, 856 1, 040,003
63, 412
805, 884
313,100 1,183, 566
93, 901
896, 918
235, 306 1,001,368
68, 911
807, 664
211, 348 1,123,090
63, 304
837, 882
213,128 1,045, 461
59,131
817, 684
237, 285 1,188, 790
76, 275
896, 705
227, 312
930, 266
65, 781
816, 680
197,046
996,851
51. 893
827. 606

$105,442
63,093
13,793
3,412
178,977
83,494
116,945
63, 603
191, 737
82,350
12,854
3,818
233,037
84,084
148,868
72,387
174,386
93, 720
260, 689
94,145
16, 940
3,132
198, 710
93,129
78,193
62, 600
154, 810
82, 709
11, 763
3,747
271,816
83, 810
203,133
72. 485

o
SI

o

Regular Weekly—Continued
91 $2,084,117 $1,300,451 $1,057,706
182 1, 668, 627
900,431
839,863
91 2,464, 606 1,302, 677 1,036,061
182 1, 726,906
900,881
834,746
91 2,195,140 1,201,148
950,773
182 1,901,187
900,965
836, 782
91 2,137,792 1,201,700
996,275
182 1, 677, 676
901,802
846,561
91 2, 245, 729 1,301, 805 1,081,295
182 2,097, 935
902, 448
845, 770
91 2,199,322 1.300,052 1,048, 615
182 -1-, 667, 467
900,266
-835,709
91 2, 264,134 1, 301,985 1,062, 752
182 1, 909.846
898,804
831, 646
91 2, 661, 783 1, 307, 567 1,069,864
182 1, 782,183
900, 202
839,092
91 1,962,077 1, 300, 560 1,089. 245
182 1, 632,369
901, 457
845, 666
91 2,343, 607 1, 300, 592 1,050, 736
182 1, 674, 275
900,029
836, 617
91 2,187. 898 1,200, 606
887, 406
182 1, 747. 482
900,050
806,149
91 2,159, 519 1, 200,078
964, 772
182 1,862,172
900, 793
831,882
91 1,855, 315 1, 201, 283
989, 935
182 1, 688,013
900, 482
837,178
91 1,816, 751 1, 200, 271
987,143
182 1,321, 468
900, 393
841, 262
91 2,172, 633 1, 200, 553
963, 268
182 1,837,378
900, 452
824,177
91 2, 258, 276 1, 202,081
974, 769
182 1, 633,350
900, 490
834, 709
91 2,072, 927 1,199,984 1,002, 938
183 1, 709, 200
900,091
848,198

SJ

99.114
98.173
99.106
98.150
99.107
98.140
99.103
98.128
99.093
98.090
99.107
98; 122
99.106
98.116
99.103
98.109
99.109
98.124
99.114
98.128
99.119
98.136
99.125
98.149
99.129
98.172
99.120
98.165
99.118
98.168
99.120
98.181
99.121
98.172

3.505
3.615
3.640
3.660
3.534
3.679
3.647
3.703
3.689
3.777
3.633
- 3. 716
3.638
3.726
3.550
3.740
3.525
3.710
3.604
3.703
3.485
3.687
3.463
3.662
3.446
3.616
3.482
3.629
3.491
3.625
3.482
3.598
3.475
3.595

99.120
98.180
99.115
98.166
99.110
2 98.146
2 99.107
2 98.132
2 99.096
2 98.093
2 99. I l l
98.130
2 99.108
98.120
99.107
98. I l l
99.114
98.131
99.118
98.132
99.125
98.146
99.128
98.154
99.132
98.176
2 99.125
98.176
99.121
98.174
2 99.122
98.188
99.124
2 98.176

99.112
3.481
98.168
3.600
99.104
3.501
98.146
3.628
99.105
3.521
98.138
3.667
99.102
3.633
98.127
3.695
99.092
3.676
98.086
3.772
99.104
3.517
3. 699 ^ 98.116
3.529
99.104
3.719
98.115
99.102
3.533
3. 736
98.108
99.106
3.505
3.697
98.120
3.489
99.113
3.695
98.124
99.116
3.462
98.132
3.667
99.123
3.450
3.651
98.147
99.126
3.434
3. 608
98.170
99.115
3.462
3.608
98.159
'99.115
3.477
3.612
98.166
99.118
3.473
98.177
3.584
99.120
3.465
98.17n
3. 588

3.513 $1,300,519
3.624
4 800,503
3.545 1,302,060
3.667
4 800,116
3.541 1,201, 626
3.683
4 800,672
3.553 1,201,292
3.706
4 800,493
3.692 1, 300, 546
3.786
4 801, 671
3.545 1,300, 311
3. 727
4799,974
3.545 1, 301, 337
3.729
4 800,730
3.663 1,309,053
3.742
4 799, 927
3.637 1,301, 323
3.719
4 798,154
3.509 1,300, 845
3.711
4 800,296
3.497 1,301,055
3.695
800,355
3.469 1,303, 384
3.665
799, 739
3.458 1,300,475
3.620
800,313
3. 501 1, 300,451
3.642
799, 976
3.501 1,302, 577
• 3. 628
800,631
3.489 1, 201,148
3.606
800,300
3.481 1, 201, 700
^ 6nn
sni fi7Q

Ui

o
SJ

>
SJ

o

w
SJ
fej

>

Ui

d

SJ

Kl

June

4
4
11
11
18
18
25
26

Sept.
Dec.
Sept.
Dec.
Sept.
Dec.
Sept.
Dec.

3
3
10
10
17
17
24
24

91
182
91
182
91
182
91
182

2,131, 961
1,916, 746
2,265,340
1, 634,832
2,154.164
1, 559, 794
2,022,015
1, 903, 706

1,201, 964
904, 729
1, 201,130
900, 518
1,200,661
901,049
1, 201,309
900,065

996,106
850, 681
966, 251
836,172
965, 684
836,047
989, Oil
831, 927

205,859
54,048
234, 879
64, 346
234, 977
65,002
212. 298
68,138

999,425
822, 628
1,189, 792
897, 600
1,186, 940
898, 228
1,099,494
857,131

99.121
98.185
99.125
98. 204
99.116
98.185
99.121
98. 202

3.478
3.689
3.462
3.553
3.496
3.590
3.478
3.556

99.124
98.190
99.128
98. 209
99.123
98.192
99.125
98. 205

3.465
3.680
3.460
3.543
3.469
3.576
3.462
3.551

99.119
98.185
99.123
98.199
99.114
98.181
99.119
98. 201

3.486
3.590
3.469
3.562
3.505
3.598
3.485
3.558

98.428

3.637

98.437

3.517

98.421

3.553 $2, 500,103

98.388

202, 539
82,101
11,338
2,918
13, 721
2,821
101,815
42, 934

1,301, 806
799, 967
1.300,052
800,981
1,301,985
800,163
1,307, 567
804, 309

3.650

98.400

3.623

98.370

3.691

96.368
96.395
96.364
96.347
96.380

3.682
3.575
3.686
3.633
3.590

2 96.412
96.410
96.380
2 96.365
2 96. 400

3.629
3^. 660
3.570
3.616
3.670

96.342
96. 391
96.358
96. 340
96.371

3.598 $2,003,691
3.679
3.592
3.640
3.599

Tax Anticipation
1963
O c t . 15

1964
M a r . 23

160 $2,958,086 $2,001,249 $1, 869,063

1964
J a n . 16

J u n e 22

169

2, 780,322

2,600,812

2,394, 640

$132,186 $1,994, 614
106, 272

$6, 635

2, 500.812

One-Year
1963
J u l y 15
Sept 3
Oct. 1
Nov. 4
Dec. 3

1964
J u l y 15
A u g . 31
Sept. 30
Oct. 31
N o v . 30

366 $4,495,219
363 2, 631, 674
366 2,395,445
362 1,890,885
363 2,794,550

1964
Jan.
3

D e c . 31

363

2,113,284

1,000,309

972, 632

27, 677

Feb.
Mar.
Apr.
May
June

1965
J a n . 31
F e b . 28
M a r . 31
A p r . 30
M a y 31

360
362
367
359
363

2.211,893
3 , 412,300
'
2, 668,234
1,883,834
2,207, 671

1,000,393
1,000,520
1,001,464
1,001,439
1,000,141

969,833
981,093
882,970
984,405
982,014

30,660
19,427
118,494
17,034
18,127

6
3
8
6
2

$1,997,942 $1, 783.048
i; 001,143
936,890
1,001,960
954,944
1,000, 273
966,328
1.004, 801
844,496

$214,894 $1,988,946
64,253 1,001,143
47,016 1,001,960
33,945 1,000,273
160,305 1,004,801
1,000,309

96.262

1,000,393
1,000, 620
1,001,464
1,001,439
1,000,141

96.320
96.214
96.312
96.306
96.260

1 The 13-week bills represent additional issues of bUls with an original maturity of
26 weeks.
2 Relatively small amounts of bids were accepted at a price somewhat above the high
shown. However, the higher price is not shown in order to prevent an appreciable
discontinuity in the range (covered by the high to low prices shown) which would
make it misrepresentatlve.
3 An additional $100 million each of 10 series of weekly biUs issued in a strip for cash
(see press release dated Oct. 16, 1963, in this exhibit).
4 In addition, $100,092,000 of the strip of bills issued on Oct. 28, 1963, matured.
NOTE.—The usual timing with respect to issues of Treasury bUls is: Press release
inviting tenders, 8 days before date ofissue; closing date on which tenders are accepted
3 days before date of issue; and press release announcing acceptance of tenders, 2 days
before date of issue. Figures are final and may differ from those shown in the press
release announctag preliminary results of an offering.




$8,997

3.714

2 96.276
3.680
3.765
3.719
3.705
3.719

96.336
2 96.225
96.334
96.316
96.269

3.665
3.764
3.697
3.694
3.710

96.312
96. 207
96.306
96.296
96.246

Ui

3.688
3.772
3.726
3.714
3.723

Noncompetitive tenders (without stated price) from any one bidder were accepted
in full at the average price for accepted competitive bids for each issue up to the following amounts: 13-week issues, $200,000; 26-week issues, $100,000; strip of bills, $100,000
(in even multiples of $10,000); tax anticipation series, $400,000; and 1-year issue of
July 15, 1963, $400,000, and remainiag 1-year issues, $200,000.
All equivalent rates of discount shown are on a bank-discount basis.
Qualified depositaries were permitted to make payment by credit in Treasury tax
and loan accounts for not more than 60 percent of the amount of the 1-year issues of
Dec. 3, 1963, and Apr. 8,1964, aUotted to them for themselves and their customers up
to any amount for which they were quahfied ta excess of existiag deposits when so
notified by the Federal Reserve bank of their district.

CO
CO

200

19 64 REPORT OF THE SECRETARY OF THE TREASURY
Guaranteed Debentures Called

EXHIBIT 4.—Calls for partial redemption, before maturity, of insurance fund
debentures
During the fiscal year 1964, there were 19 calls for partial redemption, before
maturity, of insurance fund debentures, 8 dated September 19, 1963, and the
others dated March 25, 1964. The notices of call were published in the Federal
Register of September 26, 1963, and March 31, 1964. The notice covering the
16th call of the 4}^ percent Series A A mutual mortgage insurance fund debentures
is shown in this exhibit. Since the other notices of call are similar to this exhibit,
they have been omitted but the essential details are summarized in the table
following the notice of call.
NOTICE OF CALL. FEDERAL REGISTER OF MARCH 31, 1964
To Holders of 4)i Percent Mutual Mortgage Insurance Fund Debentures, Series AA:
NOTICE OF CALL FOR PARTIAL R E D E M P T I O N , B E F O R E MATURITY, OF i H P E R C E N T
MUTUAL MORTGAGE INSURANCE F U N D D E B E N T U R E S , SERIES AA

Pursuant to the authority conferred by the National Housing Act (48 Stat.
1246; U.S.C, title 12, sec. 1701 ei seg.) as amended' public notice is hereby given
that mutual mortgage insurance fund debentures. Series AA, bearing interest at
4J^ percent included in the denominations and serial numbers designated below,
are hereby called for redemption, at par and accrued interest, on July 1, 1964,
on which date interest on such debentures shall cease:
4ys Percent Mutual Mortgage Insurance Fund Debentures, Series AA
Range of inclusive serial
numbers within which
Denomination
called debentures fall
$50
--__ 16, 869 to 25,396
100
/ 84, 267 to 148, 307 and
500
1,000
5,000
10,000

_.__

22, 435 to
72, 162 to
18, 980 to
12, 067 to

38,874
127, 549
27, 588
18, 467

IMPORTANT
Although the above inclusive serial numbers include Series A A debentures with
other than 4}^ percent interest, only those Series AA debentures bearing interest
at the rate of 4}^ percent are included in this call.
No transfers or denominational exchanges in debentures covered by the foregoing call will be made on the books maintained by the Treasury Department on
or after April 1, 1964. This does not affect the right of the holder of a debenture
to sell and assign the debenture on or after April 1, 1964, and provision will be
made for the payment of final interest due on July 1, 1964, with principal thereof
to the actual owner, as shown by the assignments thereon.
The Commissioner of the Federal Housing Administration hereby offers to
purchase any debentures included in this call at any time from April 1, 1964, to
June 30, 1964, inclusive, at par and accrued interest, to date of purchase.
Instructions for the presentation and surrender of debentures for redemption on
or after July 1, 1964, or for purchase prior to that date will be given by the
Secretary of the Treasury
, P. N.

APPROVED: March 25, 1964.
JOHN K .

BROWNSTEIN,

Federal Housing Commissioner.

CARLOCK,

Fiscal Assistant Secretary of the Treasury.
Final six months' interest will be paid with principal at the rate of $20,625 per
$1JOOO on debentures redeemed on July 1, 1964.
Final interest will be paid with principal at the rate of $0.113324 per $1,000
per day from January 1, 1964, to date of purchase on debentures purchased
between April 1 and June 30, 1964, inclusive.




Summary of information contained in the notices of call for partial redemption of insurance fund debentures during t he fiscal year 1964
i H percent mutual mortgage
insurance fund debentures.
Series AA, fifteenth call
Notice of call.
Redemption date
_
Serial numbers called by denominations:
$60
_
100.

Sept. 19,1963..
__ Jan. 1, 1964

13,925-16,855 _ _ _
63,566-63,849,
63,864r-64,043,
64,158-84,266.
16,890, 16,892-22,412...
600.
1,000...
_
_ 52,260-63,324, 63,326-72,087
6,000...
16,045-15,285, 16,290-18,978
10,000
__
_
_. 9,971-12,063
Final date for transfers or denominational ex- Sept. 30, 1963..
changes (but not for sale or assignment).
Redemption on call date, amount of interest $20.626..
per $1,000 paid in fuU with prmcipal.
Presentation for purchase prior to call date:
Period
_. Oct. 1-Dec. 31, 1963
Amount of accrued interest per $1,000 $0.112092 from July 1, 1963, to
per day paid with priacipal.
date of purchase.
i H percent section 220,
housing insurance fund
debentures. Series CC,
fifth caU
Sept. 19,1963
Notice of call.Jan. 1, 1964
Redemption date
Serial numbers called by denominations:
$60
16-26
100
92-130
600
- 28-38
1 86-113
1,000
28-36
6,000
- 10,000
3,007-3,310
Final date for transfers or denominational Sept. 30, 1963
exchanges (but not for sale or assignment).
Redemption on call date, amount of interest $20.625.. - per $1,000 paid in fuU with principal.
Presentation for purchase prior to caU date:
Oct. 1-Dec. 31, 1963
Period
Amount of accrued interest per $1,000 per $0.112092 from July 1, 1963, to
day paid with principal.
date of purchase. "




i H percent mutual mortgage
iasurance fund debentures.
Series A A, sixteenth call

i H percent housing insurance
fund debentures, Series BB,
tenth caU

i H percent housing iasurance
fund debentures, Series BB,
eleventh caU

Mar. 26, 1964..
July 1,1964

Sept. 19, 1963.
Jan. 1,1964

Mar. 25, 1964.
July 1, 1964.

229-887
1,929-6,733.-

894-984.
6,772-7,714.

_

16,869-26,396.
84,267-148,307, 148,676
22,43&-38,874._
72,162-127,549
18,980-27,588..
12,067-18,467
Mar. 31, 1964 .

669-1,798._ 1,604-6,781
573-631
4,393-9,588
Sept. 30, 1963

1,807-2,026.
6,805-7,486.
649-1,046.
9,595-10,968.
Mar. 31,1964.

$20,625-.

$20.625..

$20,625.

Apr. 1-June 30,1964
$0.113324 from Jan. 1, 1964, to
date of purchase.

Oct. 1-Dec. 31, 1963.
$0.112092 from July 1, 1963, to
date of purchase.

Apr. 1-June 30, 1964.
$0.113324 from Jan. 1, 1964, to
date of purchase.

i H percent section 220,
housing insurance fund
debentures. Series CC,
sixth caU

4 ^ percent section 221,
housing insurance fund
debentures. Series DD,
third call

i H percent servicemen's
mortgage insurance fund
debentures, Series E E ,
twelfth caU

Mar. 25, 1964
July 1, 1964

Mar. 25, 1964.
July 1, 1964

32-46
148-20i
41-62
134-177
37-49
6,058-'6',748
Mar. 31, 1964
$20,625

93-1,827
380-12,600
68-3,361
1 470-12,394
166-3,983
667-2,985
Mar. 31, 1964
-

Apr. 1-June 30, 1964
$0.113324 from Jan. 1, 1964, to
date of purchase.

$20,626

.

Apr. 1-June 30, 1964
$0.113324 from Jan. 1, 1964, to
date bf purchase.

Sept. 19.1963.
Jan. 1, 1964
590-1,071.
4,103-7,721.
1,071-1,998.
3,862-3,870, 3,890-7,275
867-1 341.
693-1,114.
Sept. 30, 1963.
$20,626
Oct. 1-Dec. 31, 1963.
$0.112092 from July 1, 1963. to
date of purchase.

to

o

Summary of inf ormation contained in the notices of callfor partial redemption of insurance fund debentures during ihe fiscal year 1964—Con.
4>^ percent servicemen's mortgage insurance fund debentures. Series EE, thirteenth
call

i H percent armed services
housing mortgage insurance
fund debentures. Series F F ,
seventh call

i H percent armed services
housing mortgage insurance
fund debentures, Series F F ,
eighth call

Mar. 25, 1964
July 1, 1964
1,072-2,726
7,725-20,168
2,002-4,893
7,276-16,058
1,342-2,785
1,120-2,841
Mar.31, 1964

Sept. 19, 1963..
Jan. 1, 1964..-.

Mar. 25, 1964..
J u l y l , 1964-..

Sept. 19, 1963.
Jan, 1, 1964.

o

2J^ percent war housing insurance fund debentures,
Series H, twenty-ninth call
Oi

)^

Notice of caU
Redemption date
Serial numbers caUed by denominations:
$50
100.500
1,000
5,000
10,000
Final date for transfers of denominational exchanges (but not for sale or assignment).
Redemption on caU date, amount of interest
per $1,000 paid in full with principal.
Presentation for purchase prior to caU date:
Period
Amount of accrued interest per $1,000 per
day paid with principal.

_-

62-114
794-1,440
220-301
1,042-1,786
256-330
7,851-9,175
Sept. 30, 1963-.

4,859-4,978.
18,497-19,022.
6,364-6,488.
22,298-22,676.
5,159-5,203.
50,989-50,999, 51,001-52,089.
Sept. 30, 1963.

$20.625

$20.625

9,176-9,407
Mar. 31, 1964..
$20.625

Apr. 1-June 30, 1964
$0.113324 from Jan. 1, 1964, to
date of purchase.

Oct. 1-Dec. 31, 1963
$0.112092 from July 1, 1963. to
date of purchase.

Apr. 1-June 30, 1964
$0.113324 from Jan. 1, 1964, to
date of purchase.

Oct. 1-Dec. 31, 1963.
$0.067935 from July 1, 1963, to
date of purchase.

2J^ percent war housing insurance fund debentures, Series
H, thirtieth caU

3% percent section 203, home
improvement account debentures. Series HH, first
call

4 percent section 203, home improvement account debentures, Series HH, second caU

'ly^ percent Title I housiag insurance fund debentures,
Series L, eighteenth call

Mar. 25, 1964.
J u l y l , 1964.-.

Sept. 19. 1963..
Jan. 1, 1964....

Mar. 26,1964..
July 1, 1964. _.
1
6-13.
1-2.3-6-

201-211.
483-663.
186-203.
663-692.
84-92.

O
SJ

o

Mar. 25, 1964.
J u l y l , 1964.

1-5-

SJ

$12.60.
Ui

o
>
S3

o
Notice of caU
Redemption date
Serial numbers caUed by denominations:
$60
100
600
1,000
5,000
10,000
.
Final date for transfers or denomiaational exchanges (but not for sale or assigimient).
Redemption on call date, amount of interest
per $1,000 paid in fuU with principal.
Presentation for purchase prior to call date:
Period
Amount of accrued uiterest per $1,000 per
day paid with priacipal.




4,979-4,995-.19,023-19.230-.
5,489-5,630...
22,676-22,860- .
5,204-6,240..62,090-53,128-.
.Mar. 31, 1964.

i-2l'
Sept. 30, 1963-.

Mar. 31, 1964.

Mar. 31, 1964.

Ui

$12.60-

$18.75

$20.00

$12.60.

SJ

Apr. 1-Juno30, 1964
$0.068681 from Jan. 1, 1964, to
date of purchase.

Oct. 1-Dec. 31, 1963
$0.101902 from July 1, 1963. to
date of purchase.

Apr. 1-June 30, 1964
$0.109890 from Jan. 1, 1964, to
date of purchase.

Apr. 1-Jnne 30, 1964.
$0.068681 from Jan. 1, 1964, to
date of purchase.

S)

d

2H percent Title I housing msurance
fund debentures, Series R, sixteenth
caU
Notice of call
. .
Redemption date
-..
Serial numbers caUed by denomhiations:
$50
100
600
1,000-.
5,000.....
.
.
10,000.
Final date for transfers or denominational exchanges (but not
for sale or assignment).
Redemption on call date, amount of interest per $1,000 paid in
fuU with prmcipal.
Presentation for purchase prior to caU date:
Period
Amount of accrued interest per $1,000 per day paid with
principal.




3 percent Title I housing insurance
fund debentures. Series T, fifteenth
caU

3 percent Title I housing iasurance fund debentures, Series
T, sixteenth caU

Mar. 25, 1964
July 1, 1964

Sept. 19,1963..
Jan. 1,1964

Mar. 25, 1964.
July 1,1964.

646-558 -•1,329-1,563
329-383
688-867

-

641-683
1,967-2,228
621-691
1,393-1,609 . .
396

-

584-623.
— . 2,229-2,532.
692-772.
1,610-1,903.

Mar. 31, 1964„

Sept. 30, 1963..

Mar. 31, 1964.

$13.75

$15.00

$15.00.

Apr. 1-June 30,1964.
$0.076549 from Jan. 1, 1964, to date of
purchase.

Oct. 1-Dec. 31,1963$0.081622 from July 1, l"9"63", to date of
purchase.

Apr. 1-June 30, 1964.
$0.082418 from Jan. 1, 1964, to
date of purchase.

X

w
Ui

o
CO

204

19 64 REPORT OF THE SECRETARY OF THE TREASURY
Regulations

EXHIBIT 5.—Fifth amendment, October 14, 1963, to Department Circular No. 530,
Eighth Revision, regulations governing United States savings bonds
TREASURY DEPARTMENT,

Washington, October I4, 1963.
Section 315.11(c) of Department Circular No. 530, Eighth Revision, as amended
(31 CFR, Part 315) is hereby amended by the addition of the following:
(c) Bonds that may be excluded from computation. * * *
(9) bonds of Series E or Series H purchased with the proceeds of bonds of Series
J or Series K, at or after maturity, where such matured bonds are presented for
that purpose in accordance with the provisions of Department Circular No. 653,
Fifth Revision, as amended, offering bonds of Series E, and Department Circular
No. 905, Second Revision, as amended, offering bonds of Series H.
JOHN K . CARLOCK,

Fiscal Assistant Secretary of the Treasury.
EXHIBIT 6.—Second amendment, October 14, 1963, to Department Circular
No. 653, Fifth Revision, United States savings bonds. Series E
TREASURY DEPARTMENT,

Washington, October I4, 1963.
Section 316.7(b) of Department Circular No. 653, Fifth Revision, dated
September 23, 1959, as amended (31 CFR, Part 316, Supp. 1963), is hereby
amended as follows:
Sec. 316.7. Limitation on holdings. * * *
(b) Special limitation for owners of maturing savings bonds of Series F, G, J,
anci K. Owners of outstanding bonds of Series F, Series G, Series J, and Series K
are hereby granted the privilege of applying the proceeds of the bonds, at or after
maturity, to the purchase of Series E bonds without regard to the general limitation on holdings, under the following restrictions and conditions:
(1) This, privilege extends to all owners of matured and maturing bonds of
Series F, Series G, Series J, and Series K, except borids registered in the names of
commercial banks in their own right (as distinguished from a representative or
fiduciary capacity). For this purpose commercial banks are defined as those
accepting demand deposits.
(2) It is subject to the restrictions prescribed in section 315.6 of the savings bond
regulations.^
(3) The matured bonds must be presented to a Federal Reserve bank or branch
for the specified purpose of taking advaritage of this privilege.
(4) Series E bonds may be purchased with the proceeds of the matured bonds
only up to the denominational amounts that the proceeds thereof will fully cover;
any difference between such proceeds and the purchase price of Series E bonds
will be paid to the owner.
(5) The Series E bonds will be registered in the name of the owner in any
authorized form of registration.
(6). They will be dated as of the first day of the month in which the matured
bonds are presented to a Federal Reserve bank or branch.
(7) This privilege will continue until terminated by the Secretary of the
Treasury.
I JOHN K . CARLOCK,

Fiscal Assistant Secretary of ihe Treasury.
> Department Circular No. 630, curreat revision.




EXHIBITS

205

E X H I B I T 7.—Fourth a m e n d m e n t , October 14, 1963, to D e p a r t m e n t Circular N o .
905, Second Revision, tJnited States savings b o n d s . Series H
TREASURY

DEPARTMENT,

Washington, October 14, 1963.
Section 332.7(b) of D e p a r t m e n t Circular No. 905, Second Revision, d a t e d
September 23, 1959, as amended (31 C F R , P a r t 332, Supp. 1963) is hereby
amended as follows:
Sec. 332.7. Limitation on holdings. * * *
(b) Special limitation for owners of maturing savings honds of Series F, G, J ,
and K. Owners of outstanding savings bonds of Series F , Series G, Series J, and
Series K are hereby granted t h e privilege of applying t h e proceeds of t h e bonds,
a t or after m a t u r i t y , t o t h e purchase of Series H bonds without regard t o t h e
general limitation on holdings, under t h e following restrictions a n d conditions:
(1) This privilege extends to all owners of m a t u r e d a n d maturing bonds of
Series F , Series G, Series J, a n d Series K, except bonds registered in t h e names of
commercial banks in their own right (as distinguished from a representative or
fiduciary capacity). For this purpose commercial b a n k s are defined as those
accepting d e m a n d deposits.
(2) I t is subject to t h e restrictions prescribed in sec. 315.6 of t h e savings bond
regulations.^
(3) T h e m a t u r e d bonds m u s t be presented t o a Federal Reserve b a n k or branch
for t h e specified purpose of taking a d v a n t a g e of this privilege.
(4) Series H bonds m a y be purchased with t h e proceeds of t h e m a t u r e d bonds
only u p t o t h e denominational a m o u n t s t h a t t h e proceeds thereof will fully cover;
any difference between such proceeds a n d t h e purchase price of Series H bonds
will be paid t o t h e owner.
(5) T h e Series H bonds will be registered in t h e name of t h e owner in any
authorized form of registration.
(6) T h e y will be dated as of t h e first day of t h e m o n t h in which t h e m a t u r e d
bonds are presented to a Federal Reserve b a n k or branch.
(7) This privilege will continue until t e r m i n a t e d by t h e Secretary of t h e
Treasury.
JOHN K

CARLOCK,

Fiscal Assistant Secretary of ihe Treasury.

E X H I B I T S.-—Third a m e n d m e n t , J a n u a r y 27,1964, to D e p a r t m e n t Circular No. 653,
Fifth Revision, United States savings bonds. Series E
TREASURY

DEPARTMENT,

Washington, J a n u a r y 27, 1964Sections 316.5, 316.9, and 316.18 of D e p a r t m e n t Circular N o . 653, Fifth Revision dated September 23, 1959, as amended (31 C F R , P a r t 316, Supp. 1963), are
hereby amended effective M a y 1, 1964, t o read as follows:
Sec. 316.5 Description {registered form only—denominations—issue date, etc.),-—
Series E bonds are issued only in registered form a n d in denominations of $25,
$50, $75, $100, $200, $500, $1,000, $10,000, a n d $100,000 (which is provided for
trustees of employees' savings plans). Each bond will bear t h e facsimile signature
of t h e Secretary of t h e Treasury a n d an i m p r i n t of t h e Seal of t h e T r e a s u r y
D e p a r t m e n t . At t h e time of issue, t h e issuing agent will inscribe on t h e face of
each bond t h e n a m e a n d address of t h e owner andl t h e n a m e of t h e coowner or
beneficiary, if a n y ; will enter in t h e upper right-hand portion of t h e bond t h e
issue date (which shall be t h e first day of t h e m o n t h and year in which p a y m e n t
of t h e issue price is received by an authorized issuing a g e n t ) ; a n d will i m p r i n t
t h e agent's dating s t a m p in tbe lower right-hand portion t o show t h e date t h e
bond is actually inscribed. As indicated in section 316.3(b), t h e issue date is
i m p o r t a n t in determining t h e date on which t h e bond becomes redeemable, its
m a t u r i t y date a n d yield thereto as well as its intermediate yields. Accordingly,
1 Department Circular No. 530, current revision.




206

19 64 REPORT OF THE SECRETARY OF THE TREASURY

it should n o t be confused with t h e date on t h e agent's dating s t a m p . A Series E
bond shall be valid only if an authorized issuing agent receives p a y m e n t therefor,
duly inscribes, dates, stamps, a n d delivers it. See section 316.6 for forms of
registration a n d section 316.9 for issue prices of bonds.
Sec. 316.9. Issue prices of honds.—The issue prices of t h e various denominations
of Series E bonds follow:
Denomination
(face value)

$25.00
50.00
75.00
100.00
200.00
500.00
1,000.00
10,000.00
100,000.00 1

]
'

Issue (purchase)
price

L
L

-.

$18. 75
37.50
56. 25
75.00
150.00
375.00
750.00
7, 500. 00
75,000.00

Sec. 316.18. Payment or redemption (in generaiy,'—A Series E bond m a y be
redeemed a t t h e option of t h e owner a t any time after two m o n t h s from t h e issue
date a t t h e appropriate redemption value as shown in t h e tables a t t h e end of
this circular, which apply to bonds bearing various issue dates back t o M a y 1,
1941. T h e redemption values of bonds in t h e denomination of $100,000 ^ (which
was authorized as of J a n u a r y 1, 1954) are not shown in those tables. However,
t h e redemption values of bonds in t h a t denomination will be equal to t h e t o t a l
redemption values of t e n $10,000 bonds b e a r i n g ' t h e same issue dates. T h e
redemption values before m a t u r i t y of bonds of Series E in t h e denominations of
$75 are set forth in t h e appended table. A Series E bond in a denomination
higher t h a n $25 (face value) m a y be redeemed in p a r t b u t only in t h e a m o u n t of
an authorized denomination or multiple thereof. P a y m e n t of a Series E bond will
be m a d e upon presentation a n d surrender of t h e b o n d b y t h e owner t o authorized
paying agencies as follows:
,
J O H N K . CARLOCK,

Fiscal Assistarit Secreiary of the Treasury.
1 The $100,000.00 denomination is available for purchase only by trustees of employees' savings plans
described in section 316.7(c).




207

EXHIBITS

UNITED STATES SAVINGS BONDS—SERIES E
TABLE OF R E D E M P T I O N VALUES AND I N V E S T M E N T YIELDS FOR $75 DENOMINATION BONDS
Table showing: (1) How bonds of Series E, $75 denomination, increase in redemption value during
successive half-year periods following issue; (2) the approximate investment yield ou the purchase price
from issue date to the beginning of each half-year period; and (3) the approximate investment yield on the
current redemption value from the beginning of each half-year period to maturity. Yields are expressed
in terms of rate percent per annum, compounded semiannuaUy.

Face valueIssue price.-

$76.00
56.26

Period after issue date

First H year
H to 1 year
1 to IH years
IH to 2 years
2 to 2H years
2H to 3 years
3 to ZH years
ZH to 4 years
4 to i H years
i H to 6years
5 to 5H years
5H to 6 years
6 to 6H years
QH to 7 years
7 to 7H years
7H years to 7 years and 9 months
FACE VALUE (7 years and 9 months from issue date).

Approximate investment yield

(1) Redemp- (2) On purchase (3) On current
tion values dur- price from issue redemption
ing each half- date to begin- value from beyear period ^
ning of each ginniag of each
(values increase
half-year
half-year
on first day of
period ^
period ^ to
period shown)
maturity

$56.26
56.73
57.67
58.53
69.70
60.84
6L98
63.21
64.50
- 65.86
67.20
68.58
69.96
7L37
72.81
74.25
76,00

Percent
0.00
1.71
2.33
2.67
3.00
3.16
3.26
3.36
3.46
3.63
3.59
3.64
3.67
3.70
3.72
3.74
3.75

1 3-month period ta the case of the 7^-year to 7-year and 9-month period.
2 Approximate investment yield for entire period from issuance to maturity.

1743-160




Percent
2 3.75
3.89
3.96
4.01
4.01
4.03
4.05
4.06
4.06
4.04
4.03
4.02
4.01
4.01
3.99
4.06

208

1964 REPORT OF THE SECRETARY OF THE TREASURY

EXHIBIT 9.—Second Revision, April 7, 1964, of Department Circular No. 888,
regulations governing the special endorsement of IJnited States savings bonds
of any series and the payment of matured Series F, G, J, and K bonds by
eligible paying agents
TREASURY DEPARTMENT,

Washington, April 7, 1964Department Circular No. 888, Revised, dated April 8, 1953, as supplemented
(31 CFR, 1963 Supp., 330), is hereby further amended and issued as a Second
Revision.
AUTHORITY: Sees. 330.1 to 330.12 issued under sec. 22, 49 Stat. 21, as amended;
31 U.S.C. 757c.
Sec. 330.1. Purpose of regulations.—These regulations prescribe a procedure
whereby qualified paying agents may specially endorse United States savings
bonds of certain classes, with or without the owners' signatures to the requests
for payment, and make provisions for such agents either to pay certain of the
bonds so endorsed or to forward them to the Federal Reserve bank or branch
servicing their accounts for payment or for any authorized exchange. Section
330.3 describes the eligibility of various classes of bonds for processing under the
procedure provided in this circular, and sec. 330.8 sets out which of these classes
may be paid by such agents and which should be forwarded to a Federal Reserve
bank or branch. UNDER NO CIRCUMSTANCES SHALL THE PROVISIONS OF THIS CIRCULAR BE USED TO GIVE EFFECT TO A TRANSFER, HYPOTHECATION, OR PLEDGE OF A BOND OR TO PERMIT
PAYMENT TO ANY PERSON OTHER THAN THE OWNER OR COOWNER. VIOLATION OF THESE PROHIBITIONS WILL BE CAUSE
FOR THE WITHDRAWAL OF AN AGENT'S PRIVILEGE TO PROCESS
ANY BONDS UNDER THIS CIRCULAR.
Sec. 330.2. Agents eligible to process bonds.—^Any institution qualified as a paying
agent of United States savings bonds under the provisions of Department Circular
No. 750, as revised, may establish its eligibility to employ the procedure authorized
by this circular upon application on Treasury Department Form PD 2291 to the
Federal Reserve bank of the district in which it is located. This form provides
a certification that by duly executed resolution of its governing board or committee the institution has been authorized to apply for the privilege of processing
and paying bonds in accordance with the provisions and conditions of Department
Circular No. 888, including all supplements, amendments, and revisions thereof,
and any instructions issued in connection therewith. If the application is approved, the Federal Reserve bank will so notify the institution on Treasury Department Form PD 2292. The Secretary of the Treasury reserves the right to
withdraw from any institution at any time the authority granted thereto under
these regulations.
Sec. 330.3. Bonds eligible for processing.—The procedure provided in these
regulations may be employed in connection with the redemption or exchange of
any savings bond upon the request of its registered owner or either coowner.
The term ''owner" is defined to include individuals, incorporated and unincorporated bodies, executors, administrators, and other fiduciaries named on a bond.
This procedure does not apply, however, to cases where payment or exchange
is requested by a parent in behalf of a minor named on a bond as owner. Also,
it does not apply to requests made be surviving beneficiaries, or to any cases
requiring a death certificate or other documentary evidence.
Sec. 330.4. Guaranty given io ihe United States.^-A paying agent by the act of
paying or presenting to the Federal Reserve bank or branch either for payment or
for exchange a bond bearing the special endorsement prescribed in this circular
shall be deemed thereby (a) to have unconditionally guaranteed to the United
States the validity of the transaction, including the identification of the owner
and the disposition of the proceeds or the new bonds, as the case may be, in
accordance with his instructions, (b) to have assumed complete and unconditional
liability to the United States for any loss which may be incurred by the United
States as a result of the transaction, and (c) to have unconditionally agreed to
make prompt reimbursement for the amount of the loss upon request of the Treasury Department.
Sec. 330.5. Evidence of owner-s authorization to agent.—By the act of paying or
presenting to the Federal Reserve bank or branch for payment or for exchange a
bond bearing the special endorsement described in sec. 330.6, the paying agent
represents to the United States that it has obtained adequate instructions from



EXHiBrrs

209

the owner with respect to payment or exchange of the bond and disposition of
its proceeds or the new bond, as the case may be. To support this representation, agents should maintain such records as may be necessary to establish the
receipt of such instructions as well as records establishing compliance therewith.
Sec. 330.6. Endorsement of bonds.—Each bond p.rocessed under these regulations shall bear the following endorsement*.
"Request by owner and validity of transaction guaranteed in accordance
with T.D. Circular No. 888, Revised.
(Name and location of agent)"
This endorsement must be placed on the back of the bond in the space provided
for the owner to request payment. (See sec. 330.7 for additional instructions
covering bonds inscribed in coownership form.) The endorsement stamp must
be legibly impressed in black or other dark-colored ink. The Federal Reserve
bank of the district will furnish rubber stamps for impressing the above endorsement or, in lieu thereof, will approve designs for suitable stamps to be obtained
by paying agents.. Requests for endorsement stamps to be furnished or approved by the Federal Reserve bank shall be made in writing by an officer of the
institution.
Sec. 330.7. Bonds in coownership form.—In addition to the endorsement prescribed in sec. 330.6, the paying agent shall, in the case of bonds registered in
coownership form, indicate which coowner requested payment or exchange.
This should be done by encircling in black or other dark-colored ink the name of
such coowner (or both coowners if a joint request for payment or exchange is
made) as it appears in the inscription on the face of the bond.
Sec. 330.8. Payment or exchange of bonds.
Ta) By paying agents.
(1) Payment of Series A - E bonds, inclusive, for cash.—Bonds of Series A to E,
inclusive, bearing the special endorsement may be paid by a paying agent pursuant to the authority and subject, in all other respects, to the provisions and conditions of Department Circular No. 750, as revised, and the instructions issued
pursuant thereto. Bonds so paid will be combined with other Series A to E
bonds paid under that circular and forwarded to the Federal Reserve bank or
branch servicing the agent's account.
(2) Payment of MATURED Series F, G, J, and K honds.—Matured savings
bonds of Series F, G, J, and K may be paid by paying agents whose eligibility
has been duly established pursuant to sec. 330.2, No fees will be paid to the
agents for making these payments. Such matured bonds may be paid only under
the provisions and conditions of this subsection and such instructions as may be
issued pursuant thereto. It will be required that (i) the bonds be of a class which
may be processed by special endorsement (see sec. 330.3), (ii) the owner has
requested the payment (see sec. 330.3), (iii) the bonds bear no material alteration,
irregularity, mutilation, or other defect that may be a basis for questioning
payment thereof, and (iv) the bonds bear the special endorsement (see sec. 330.6).
The payment of matured bonds of Series F, G, J, and K shall be made in accordance with the following provisions:
(a) A Series F or J bond shall be paid at its face value.
(6) A Series G or K bond shall be paid at its face value, together with the final
interest due thereon, as shown below:
Amount payable (face value
plus final interest)
Authorized denominations
Series G
Series K
$100 (Series G only)
$101. 25
500
506. 25
$506. 90
1,000
1, 012. 50
1, 013. 80
5,000
^
5, 062. 50
5, 069. 00
10,000
10, 125. 00
10, 138. 00
100,000 (Series K only)
101, 380. 00
(c) Each bond shall bear on its face, in the upper right portion, a payment
stariip setting forth the word "PAID" and the amount of the payment (including
the final interest on Series G and K bonds), the date of payment (month, day,
year), and the name and location of the paying agent including the ABA transit
number or other identifying code approved or assigned by the Federal Reserve
bank of the district (the payment stamp prescribed for use under Department
Circular No. 750, as revised, may be used).




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1964 REPORT OF THE SECRETARY OF THE TREASURY

(d) The proceeds of each bond shall be disposed of pursuant to the owner's
instructions.
(e) Each payment shall be subject to the guaranty and liability provisions of
sec. 330.4 hereof.
(/) Paying agents shall be subject to such other instructions governing these
payments as may be issued by the Federal Reserve bank of the district.
Immediate settlement, subject to adjustment, will be made with the paying agent
by the Federal Reserve bank or branch servicing its account for the total amount
due on the paid bonds submitted hereunder at any one time.
(3) Payment of Series E, F, and J honds on redemption-exchange for Series H
bonds.—All outstanding Series E bonds, and all Series F and J bonds received
not later than six months from the month of maturity, presented for redemptionexchange under the provisions of Department Circular No. 1036, which bear the
special endorsement, may be paid by a paying agent pursuant to the authority
and subject, in all other respects, to the provisions and conditions of Department
Circular No. 750, as revised, and the instructions issued pursuant thereto.
(b) By Federal Reserve hanks.
(1) General.—All bonds forwarded to a Federal Reserve bank or branch for
payment or exchange under this circular must be accompanied by appropriate
instructions governing the transaction and the disposition of the redemption
checks or the new bonds, as the case may be. The bonds must be kept separate
from any bonds the agent has paid, and they must be presented in accordance
with such instructions as may be issued by the Federal Reserve bank of the
district.
(2) Payment.—Savings bonds presented to an eligible paying agent for payment
which it elects to process by special endorsement under the provisions and conditions of this circular must be forwarded to the Federal Reserve bank or branch
servicing the agent's account for payment (i) if the bonds are not payable under
(a) of this section, or (ii) if being payable thereunder, the agent does not elect to
make the payment.
(3) Exchange.—Series E, F, and J bonds presented for redemption-exchange
which the agent elects to process but not to pay under (a) (3) of this section, as
well as any savings bonds submitted for exchange, in whole or in part, pursuant
to an authorized exchange offering and processed by special endorsement under
this circular, must be forwarded to the Federal Reserve bank or branch.
Sec. 330.9. Functions of Federal Reserve banks.-^The Federal Reserve banks,
as fiscal agents of the United States, are authorized and directed to perform such
duties, and prepare and issue such instructions, as may be necesssry to the fulfillment of the purpose and requirements of this circular. The Federal Reserve
banks may utilize any or all of their branches in the performance of these duties.
Sec. 330.10. Modification of other circulars.—The provisions of these regulations
shall be considered as amendatory of and supplemeritary to Department Circulars
Nos. 530, 653, 654, 750, 751, 885, 905, and 906 and any revisions thereof, and
those circulars are hereby modified where necessary to accord with the provisions
hereof.
;
Sec. 330.11. Other circulars generally applicable.^—Except as provided in these
regulations, the circulars referred to in the preceding section will continue to be
generally applicable.
Sec. 330.12. Supplements, amendments, or revisions.—The Secretary of the
Treasury may at any time, or from time to time supplement, amend or revise the
terms of these regulations.
JOHN K . CARLOCK,

Fiscal Assistant Secretary of the Treasury.
EXHIBIT 10.—First amendment, April 7, 1964, to Department Circular No. 1036,
exchange offering of United States savings bonds. Series H
TREASURY DEPARTMENT,

Washington, April 7, 1964*
Section 339.1 of Department Circular No. 1036, dated December 31, 1959 (31
CFR, 1963 Supp., 339) is hereby amended as follows:
Sec. 339.1. Exchange of certain Series E, F, and J bonds with the privilege of
deferral of Federal income tax.




EXHIBITS

211

(c) Description of bonds and definitions.—
(1) Description of bonds.—This section shall apply to:
(i) All outstanding Series E bonds; and
(ii) All Series F and J bonds, provided such bonds are received not later than
six months from the month of maturity by an agency authorized to accept subscriptions for exchange. 1
JOHN K . CARLOCK,

Fiscal Assistaiit Secreiary of ihe Treasury.
EXHIBIT 11.—Press release, December 9,1963, instructions for obtaining taxpayer
identifying numbers of owners of redeemed savings bonds
PRESS RELEASE OF DECEMBER 9, 1963
The Treasury announced today that instructions are being issued to banks and
other financial institutions to request owners of Series E, F, and G savings bonds
on which any amount of interest is earned to insert their taxpayer identifying
numbers (social security account numbers or employer identification numbers)
on the bonds when they are presented for payment beginning January 1, 1964.
This action is in furtherance of the Treasury's program to obtain taxpayer
identifying numbers from all recipients of interest paid on registered public
debt securities.
The Treasury is not making it a mandatory requirement at this time that
owners of savings bonds of the three above-mentioned series furnish their taxpayer identifying numbers when redeeming their bonds. Consideration is being
given, however, to the issuance of regulations which would make the furnishing
of the numbers mandatory at time of redemption with respect to E bonds issued
on and after a specified date in the future. (Series F and G savings bonds are no
longer on sale.) Applicants for Series H savings bonds, the current income companion bond to the E bond, are now required to furnish their taxpayer identifying
numbers before the bonds are issued.
The Treasury is also giving consideration to a long-range program under which
taxpayer identifying numbers will eventually appear on all E bonds when they
are issued. The Treasury is at present giving thought to means by which, under
a long-term program, the processes of changeover to the new method will be
gradual and thereby lessen its impact upon the 19,000 bond issuing agents who
perform the issuing job without cost to the Treasury. The first phase of the program will cover bonds issued for Federal civilian and military personnel. The
Treasury will also at this time approve the placement of taxpayer identifying
numbers on E bonds upon application submitted to it by those issuing agents
desiring to do so who operate a payroll savings plan.
The Treasury requests that the owners of Series E, F, and G savings bonds,
and also Series J savings bonds, on which any amount of interest is earned, who
mail their bonds to the Office of the Treasurer of the United States, Washington,
D . C , 20220, or to a Federal Reserve bank or branch for payment, write their
taxpayer identifying numbers on the bonds, below and to the left of the seal,
avoiding any printed matter wherever possible.
The Treasury will not furnish an annual statement to bond owners showing
the total amount of interest they received on their E, F, G, and J bonds. They
should, therefore, plan to post interest as received in a record of their choice, in
order that it may be correctly reported in their tax returns. A form for computing E bond interest earned each time bonds are redeemed may be obtained
from the agent paying the bonds.
1 Series J bonds which become ineligible for exchange under this circular because of faUure to present them
for that purpose not later than six months from the month of maturity may be exchanged under the provisions of section 332.7(b) of Department Circular No. 906, Second Revision, as amended.




212

1964 REPORT OF THE SECRETARY OF THE TREASURY
Legislation

EXHIBIT 12.—An act to continue the existing temporary increase in the public
debt limit set forth in section 21 of the Second Liberty Bond Act
[Public Law 88-106, 88th Congress, H.R. 7824, August 27,1963]

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That, during the
period beginning on September 1, 1963, and ending on November
30, 1963, the public debt limit set forth in the first sentence of
section 21 of the Second Liberty Bond Act, as amended (31
U.S.C. 757b), shall be temporarily increased to $309,000,000,000.
Approved August 27, 1963.

J^ebt limit.
u^^^e^^^Ante,
p. so.

EXHIBIT 13.—An act to increase temporarily the public debt limit set forth in
section 21 of the Second Liberty Bond Act
[Public Law 88-187, 88th Congress, H.R. 8969, November 26,1963]

Be it enacted by the Senate and House of Representatives of ihe
United Staies of America in Congress assembled. That, during the
period beginning on December 1, 1963, and ending on June 30,
1964, the public debt limit set forth in the first sentence of section
21 of the Second Liberty Bond Act, as amended (31 :U.S.C. 757b),
shall be temporarily increased to $309,000,000,000. Because of
variations in the timing of revenue receipts, the public debt
limit as increased by the preceding sentence is further increased
through June 29, 1964, by $6,000,000,000.
Approved November 26, 1963.

PubUc debt limit.
hi^^ses^Ante
pp. 60,13i.

EXHIBIT 14.—An act to increase temporarily the public debt limit set forth in
section 21 of the Second Liberty Bond Act
[Public Law 88-327, 88th Congress, H.R. 11376, June 29,1964]

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled. That, during the
period beginning on the date of the enactment of this Act and
ending on June 30, 1965, the public debt limit set forth in the
first sentence of section 21 of the Second Liberty Bond Act, as
amended (31 U.S.C. 757b), shall be temporarily increased to
$324,000,000,000.
Approved June 29, 1964.

Public debt limit.
£cSase^^^
72 stat.*i758.

EXHIBIT 15.—An act to extend for two years the authority of Federal Reserve
banks to purchase United States obligations directly from the Treasury set
forth in section 14(b) of the Federal Reserve Act
[Public Law 88-344, 88th Congress, H.R. 11499, June 30,1964]

Be it enacted by ihe Senate and House of Representatives of the
United Staies of America in Congress assembled. That section 14(b)
of the Federal Reserve Act, as amended (12 U.S.C. 355), is
amended by striking out "July 1, 1964" and inserting in Heu
thereof "July 1, 1966" and by striking out "June 30, 1964" and
inserting in lieu thereof "June 30, 1966".
Approyed June 30, 1964.




Federal Reserve
ei^stat^s?^^^^**
76 stat! 112.

EXHIBITS

213

Financial Policy
EXHIBIT 16.—Statement by Secretary of the Treasury Dillon, January 28, 1964,
before the Joint Economic Committee
The performance of the American economy during 1963 has already been
reviewed in detail in the Economic Report. Consequently, I shall not dwell
upon this past record today. Instead, I should like to explore with you some of
the implications of recent and prospective developments for the broad range of
financial and economic policies, both domestic and international, with which I
am directly concerned.
Unfilled needs at home
The current advance in business activity—now extending over three full years—
has remained remarkably well balanced. But I think it is now abundantly clear
to all that we cannot be satisfied simply to head off a new recession, or to continue
with the current gradual expansion in output. For, despite the growth in the
economy last year more of our citizens were unemployed during December than
was the case a year earlier. We can and must do better.
The true measure of our task is not simply the 5}^ percent of our labor force
that is currently unemployed. In addition, we must provide jobs for the rapidly
increasing number of younger workers who will be entering the labor force over
the remaining years of this decade, and for those further millions who will be
displaced from existing jobs by mechanization and automation.
A broad consensus has been reached among leaders in all sectors of our economy,
and I believe within the Congress too, that thoroughgoing tax reduction, lifting
from the private economy the shackles of wartime tax rates, is the greatest single
step that can be taken to speed the creation of new job opportunities.
Tax reduction is not a cure-all. To overcome stubborn pockets of poverty,
lack of adequate training for too many workers, and remaining barriers to equal
employment opportunity will require the kind of coordinated and many-sided
effort—by business and labor as well as by the Federal Government, by States,
and by local communities—that the President has outlined for us. But tax
reduction, with its stimulating effects permeating into every sector of the economy,
must be the centerpiece of any effective attack on unemployment and poverty,
for the more specific remedies for these problems can be fully effective only in a
more buoyant economic environment, an environment in which a trained man
can find employment for his skills and in which there are strong economic incentives for upgrading workers and overcoming barriers of race and color.
The tax bill as passed by the House and approved by a bipartisan 12-5 vote in
the Senate Finance Committee provides particularly large reductions for those at
the bottom end of the scale. Although most low income families pay little if
any income tax, those that do will obtain substantial relief. For families with
total personal income of $3,000 or less and for individuals with personal income
of $1,500 or less—including not only sources of income reported on tax returns
but also social security and other transfer payments—taxes would be cut by an
average of more than 60 percent. And ma,ny of the 1.5 million taxpayers who,
under the bill, will no longer pay any income tax whatsoever are in this group.
Overall, the bill, as reported by the Senate Finance Committee, provides a net
reduction in personal tax liabilities of nearly $9.5 billion, or about 80 percent of
the total tax reduction provided. The great bulk of this money will move directly
into consumer markets. Over $5.5 billion of the net reduction in personal tax
goes to taxpayers with incomes of $10,000 or less. These people—85 percent of
all taxpayers—now carry 50 percent of the individual tax load. Under both
House and Senate versions of the bill, they will receive 60 percent of the individual
tax reduction. Consequently, the combination of rate reduction and structural
reform will shift to the higher income brackets a somewhat larger share of the
tax load. Taxpayers in the bottom income group—reporting earnings of $3,000
or less^—will get three times the percentage tax reduction of those earning $50,000
and up.
Those who have suggested that the individual tax reductions favor the upper
income groups forget that, by the very nature of our steeply progressive tax rate
structure, any across-the-board rate reductions must inevitably mean greater
increases in the aftertax incomes of those in the higher brackets. To achieve
equal percentage increases in aftertax income would require maintenance of a
rate schedule much as at present, running up to a top rate of 90 or 91 percent.




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

It would mean total abandonment of any thought of across-the-board reductions
in our current excessively high rates. But this would be to abandon one of the
chief objectives of the bill: a decisive shift away from the excessively high marginal rates that inhibit incentives and serve as a source or excuse for many of
the distortions in our tax structure.
While drastically cutting these excessively high, war-born rate schedules, the
tax bill gives its greatest proportional benefits tp low income individuals. It
imposes a smaller proportion of the total tax liability on lower income taxpayers.
And, in the Senate Finance Committee version, which in this respect is much to
be preferred, the bill gives no further benefits to capital gains. For all those
reasons, there can be no question but that the tax bill will mean a marked and
healthy improvement in our income tax structure. It will not by any means
remove all the inequities in our present tax law. I wish it had been possible to
do more. But, even so, there can be no doubt that the present bill will mark a
significant step in the direction of greater equity in our tax law.
Expectations that the tax program will be enacted have already helped to
account for the strength of business activity in recent months. But expectations of tax reduction cannot alone provide the needed stimulus. Not until the
bill is actually passed by the Congress and signed by the President can withholding rates be reduced and the new spending power generated for consumers,
at a rate of close to $800 million per month, work its way through the market
into expanded employment. And not until then can our citizens plan ahead in
the sure knowledge of greater aftertax returns for new investment and productive
effort. That is why the President has been so insistent that congressional
action on the bill be completed just as rapidly as possible.
Tax reduction, the Budget, and financing the deficit
The tax reduction program reflects a deliberate decision to rely upon the
private sector of the economy to provide the motive force for the more rapid
economic progress that our situation demands. The essential corollary of that
decision—firm restraint on the total of Federal i spending—is unambiguously
stated in the President's budget. With expenditures in check, all the added
revenues that will be generated by economic expansion during fiscal 1965 can
be devoted to reducing the deficit and putting us securely on the path toward
early restoration of budgetary balance. When joined with continued sound
financing of our transitional deficits, this budgetary outlook offers assurance that
neither inflationary excesses nor capital market congestion will impede our
progress toward the achievement of full employment.
The events of the past year have clearly illustrated that we can soundly finance
our budgetary deficit during an orderly advance ; in business activity without
bringing heavy pressures on the capital market. Over $14% billion of new marketable Treasury securities maturing in more than 5 years, including $3% billion
maturing in more than 10 years, were placed with individuals and institutional
investors during calendar year 1963. On two occasions long-term bonds were
sold through competitive bidding. And the further development and refinement
of the advance refunding technique, which provides a means of encouraging
investors to extend their commitments in Government securities with a minimum impact on the capital markets, greatly facilitated our accomplishment.
The net result was a reduction of $3 billion in the outstanding 1-5 year debt
despite the effects of the passage of time in bringing more issues into that category.
Overall there was a further increase in the average maturity of our marketable
debt to five years and one month, the longest for any December since 1955.
Debt maturing within one year was increased by $2 billion, reflecting the decision to concentrate much of our new cash financing in the bill market to help
keep short-term interest rates in line with those abroad. This enlargement of
the short-term debt was easily absorbed without creating excessive liquidity.
The entire increase in the debt was placed outside the commercial banking
system. Commercial bank holdings of Government securities actually declined
during calendar year 1963 by $3}^ billion and their total holding of Government
securities today are only one percent higher than when the current expansion got
under way.
Last year also saw a record volume of long-term credit flowing into the private
sector of the economy and to State and local governments. This accelerated
flow provided ample evidence that our progress in restructuring the Federal debt
has not inhibited economic activity. Mortgage ra.tes—perhaps the most significant of all interest rates in terms of their potential impact on private spending—




EXHIBITS

215

actually declined, even while almost $30 billion of additional mortgage credit,
by far the largest amount in any single year, was being made available on liberal
terms to builders and homebuyers. Today, mortgage rates are as low as at any
time since the recession year of 1958 and building activity is at new peaks, a sharp
contrast to the pattern of tightening markets and declining volume characteristic
of earlier postwar expansion.
Market yields on State and local government securities, while tending to rise
moderately during the latter part of the year, averaged lower than during all but
one of the past 7 years, while the volume of financing reached a new record of
$11 billion. Rates charged by banks for business loans remained stable at the
lower levels reached in the last recession, and new corporate bond financing remained available at rates very close to, and in the case of medium quality credits
somewhat below, the levels prevailing when the current expansion began.
It is against this background that we intend to continue to finance our future
deficits in a manner that will avoid contributing either to a buildup of excessive
liquidity in the economy or to unnecessary pressures on key market interest
rates. In doing so, we are of course conscious of the fact that an expanding
economy, benefiting from the stimulus of tax reduction, should generate still
higher demands for credit from business and individuals, just as these demands
have risen over the past three years. But, unlike the situation a year ago we
can now look forward to a sharp reduction in the fiscal 1965 budget deficit, a
fact that should help relieve the concern that has been expressed in some quarters
that financing requirements will outpace our savings potential. With a surplus
in trust accounts and the normal purchases of the Federal Reserve, foreigners,
and others that regularly absorb Treasury securities, the residue to be financed
in the market should be Quite manageable. While we will face the usual large
seasonal needs for cash during the first half of the coming fiscal year, a large
portion will be offset by a substantial surplus during the second half of the fiscal
year. Moreover, the volume of savings seeking long-term investment outlets
has remained very large throughout the expansion period, and it should not be
forgotten that the higher incomes generated by reduced taxes and rising levels
of business activity will further enlarge this flow.
Interest rates and the problem of international capital flows
These market developments and appropriate debt management and monetary
policies cannot, of course, be fully appraised without considering their relationship to our pressing balance-of-payments problem. In a world of convertible
currencies and increasingly free capital movements among countries, no industrialized nation can expect to keep its own money markets entirely insulated from
developments in the principal markets abroad. Certainly, developments during
1963, when swelling outflows of long- and short-term capital for a time threatened
to undermine the dollar and bring unbearable strains on the international financial system, have pointed unambiguously to the need to achieve a reasonable
balance between the costs and returns on capital in our market and those abroad.
The recorded outflow of U.S. capital in the second quarter of 1963 reached an
annual rate of nearly $7.0 billion. As a result, the gradual, but steady, progress
we had been making in other directions to restore balance in our international
payments was overwhelmed. Prompt and effective action to staunch this
capital outflow could not be deferred. Therefore, use was made of the traditional tools of monetary policy—including a rise in the Federal Reserve discount
rate from 3 to 3}^ percent in July—to bring our structure of short-term money
market rates into better alignment with those prevailing abroad.
But the enormous volume of our savings seeking long-term investment outlets
clearly indicated that any attempt to bring about the sharply higher levels of
long-term interest rates required to restrain the outflow of long-term capital to
more sustainable amounts would not have been practicable, and, in addition,
would have necessitated a degree of credit contraction entirely out of keeping
with our domestic economic situation. It was in these circumstances that
President Kennedy on July 18 announced the proposed interest equalization tax.
By increasing the cost of capital to foreigners borrowing in our market by the
equivalent of about one percent per year, the effects of this excise tax in diverting
foreign borrowers to other markets are closely analogous to an increase in the
entire structure of domestic interest rates.
No one can be happy with the necessity of taking action of this type to restrain
the outward flow of capital. But the need was clear; flotations of new foreign
securities in our market had reached an annual rate of over $2 billion a year




216

19 64 REPORT OF THE SECRETARY OF THE TREASURY

during the first half of 1963, almost double the already high rate of 1962 and more
than triple the more normal volume of the years from 1959 to 1961. Moreover,
there were no indications that the flow would fall back to earlier levels of its own
accord. Quite the contrary; it gave indications of growing even larger.
The interest equalization tax is a transitional measure. The fundamental
solution to the problem of long-term capital outflows must be found in other
efforts at home and abroad. One essential is to strengthen our own economy,
so that investment in the United States is more attractive for our own citizens
and foreigners alike. More specifically, one of the important benefits of the tax
reduction program will be to increase the profitability of domestic investment and
to generate more outlets at home for our savings.
At the same time, the danger of massive demands from abroad converging on
our market can be gradually relieved by improvement in the capital markets of
other industrialized countries as they become more fully capable of meeting the
financial needs generated by their own growth. In this connection, the Treasury
has recently completed an intensive survey of European capital markets and provided it to your committee for publication. I am hopeful that this review of
those markets will be useful in developing greater understanding of both the
problems and the potential for progress.
Balance-of-payments improvement
The effectiveness of the moderate upward pressures on the short-term rate
structure and the proposed interest equalization tax in curtailing the outward
flow of capital was strikingly demonstrated duringi the second half of the year,
when reductions in the outflow of private capital were largely responsible for the
dramatic improvement in our payments position. The deficit on regular transactions, after reaching the clearly unsustainable seasonally adjusted annual rate
of over $5.0 billion during the second quarter, dropped to a rate of $1.6 billion
during the third quarter. While final data for the full year are still lacking,
this third quarter rate appears to have been maintained or even slightly improved
upon during the fourth quarter. The deficit on regular transactions during the
entire second half of 1963 was the smallest for any equivalent period since 1957.
For the year as a whole, despite the sharp deterioration over the first six months,
it appears to have been reduced to about $3 billion, roughly $600 million below the
figure for 1962.
Special intragovernmental transactions, which are excluded from calculation
of the regular deficit, have had the effect of absorbing a portion of the dollars
flowing into foreign hands. These transactions were in somewhat smaller volume
than in 1962, because of smaller debt prepayments and smaller advance payments
on military exports. Nevertheless, our overall deficit—measuring the increase
in our liquid liabilities to foreigners and the decline in our reserves—fully reflected
the sharp improvement in the second half of toe year. If the special, nonmarketable, medium-term, convertible Treasury securities sold to foreign official institutions are considered a balance-of-payments receipt rahter than a liquid liability,
preliminary reports indicate that the overall deficit for 1963 should be about $1.9
billion, as compared to $2.2 bilhon last year and $2.4 bilhon in 1961. If the $700
million of these issues sold during the year are disregarded, the overall deficit
would be about $2.6 billion. Thus, despite the sharp deterioration in the early
months ofthe year, we were able in 1963 to maintain tne pattern of improvement
from the average deficits of $3.7 bilhon that characterized the 1958 to 1960 period.
These encouraging developments deserve mention. But at the same time, we
must all recognize that the gains are still far too limited, and that temporary
improvement is not enough. The need for resolute action on the balance-ofpayments problem is no less a matter of national concern than it was six months
ago. Action on the interest equalization tax must be completed without changes
that would impair the effectiveness of the bill reported by the House Wa3^s and
Means Committee. The comprehensive program announced last July to reduce
the balance-of-payments cost of our military and foreign aid programs must be
pressed forward with undiminished vigor and resolution to realize the anticipated
$1 billion of savings on Government payments abroad by the end of this year.
And imaginative and energetic efforts by business and Government to capitalize
on our fine record of price stability and to expand export markets are particularly
necessary if we are to move into early payments balance.
1963 also saw a marked decline in the drain on our gold stocks. To some
degree, this reflected the added supply of gold reaching world markets from the
Soviet Union, as well as the continued usefulness of the informal cooperation




EXHIBITS

217

among leading countries in dealings on the London gold market. But in addition,
foreigners, and particularly private foreigners, chose to build their dollar balances
at a more rapid rate. For the 12 months as a whole, our loss of gold came to $461
million, well below the average of $873 million in 1961 and 1962 and the much
larger outflows, averaging nearly $1.7 billion, of the years 1958 to 1960. This in
itself is a sign of sustained confidence in the stability of the dollar and in the
strength of existing monetary arrangements. But this strength can be preserved
only if there is continuing evidence that our balance of payments is indeed under
firm control.
The international payments mechanism
The prospect of the ehmination of our deficit has, in turn, helped to focus
attention on the potential problems that may arise over the years ahead in assuring an adequate supply of international liquidity once the United States is no
longer supplying dollars on balance to the rest of the world. In order that these
problems may be anticipated and the further evolution of the international
monetary system guided along constructive and agreed lines, the same Group of
Ten nations that in 1962 agreed to supplement the ordinary resources of the IMF
with the Special Borrowing Arrangements took an important decision last October.
They agreed to examine thoroughly the outlook for the functioning of the system
and its probable future needs for liquidity, and to appraise and evaluate means
for meeting these needs.
To this end, a working group of deputy finance ministers from each country has
been established under the chairmanship of Under Secretary Roosa, and has been
meeting periodically since October. These senior officials, each accompanied by
representatives of their central banks, have been assigned the task of systematically examining the present system as it has heretofore evolved, assessing the
possible magnitude and nature of the needs of the future, and developing possible
approaches toward meeting these needs.
At present, this working group is still in the process of isolating the major
issues in this vast and complicated area through the process of frank and full
discussion, with each representative setting aside the details of his daily work so
that he can participate intensively in this review. The group is also drawing
upon the resources of the International Monetary Fund, the Bank for International Settlements, and the Organization for Economic Cooperation and Development, each of which is represented in the discussions by a senior official, providing
further assurance of a thoroughgoing, realistic appraisal. It is expected that the
stage of more active negotiation, preliminary to the formulation of any specific
recommendations which the deputies may decide to submit for review by the
finance ministers themselves, will be reached during the spring.
Meanwhile, a parallel study of these problems is also going forward within the
IMF, focusing particularly on those aspects related to the functions of the Fund
itself.
In closing, I should emphasize again that, valuable as these studies of international liquidity will doubtless prove to be, their relevance for the present U.S.
balance-of-payments situation is very limited. There is no prospect of somehow
obtaining relief from the urgent necessity of eliminating our balance-of-payments
deficit. The evaluation now underway is based on the prospect that our balanceof-payments deficit will in fact be ended. The responsibility inescapably rests
upon us to make that assumption an accomplished fact.
EXHIBIT 17.^—Remarks by Secretary of the Treasury Dillon, June 6, 1964, before
the Thirty-Fourth National Business Conference of the Harvard Business
School, on fiscal policy and economic growth
When the Kennedy Administration took office, one of the most urgent tasks
confronting it was the need to rethink the role of fiscal policy in relation to all
other elements of overall economic policy.
That need was imperative both because of the persistently sluggish performance
of our domestic economy, and because of the mounting deficits in our balance of
payments, which had seriously eroded confidence in the dollar and had caused a
rapidly accelerating outflow of gold. We were then in the midst of our fourth
postwar recession, and each of the three previous recessions had been marked
by successively shorter and weaker recoveries. Unemployment was far too high.




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1964 REPORT OF THE SECRETARY OF THE TREASURY

Business investment was wholly inadequate to stimulate needed growth or to
maintain the competitive posture of American industry in a rapidly changing
world.
The great challenge was to find a new way to promote more rapid and steadier
economic growth at home, and at the same time restore confidence in the dollar
by whittling down and eventually eliminating our balance-of-payments deficit.
There were many gloomy prophets who insisted this couldn't be done and conjured up an irreconcilable conflict between encouraging domestic growth and
eliminating balance-of-payments deficits. More rapid growth, they argued,
means more demand for everything, including imports. Also, they claimed, the
pressures it puts on the labor markets and on plant capacity lead inevitably to
higher prices, which both hinder exports and further inflate imports.
The fact, however, is that a strong, healthy, and vigorously expanding domestic
economy is essential to sustained confidence in the dollar and to balance-ofpayments equilibrium. For in any overall long-run appraisal of our balance of
payments, the imperatives are that our industry remain in the forefront of technology, that our productivity rise fast enough to satisfy the pressures for higher
real wages and income while maintaining stable prices, and that our economy
crackle with investment opportunities fully comparable, or superior, to those
abroad. All of these are the fruits of domestic growth, fruits now well on their
way toward ripening under the policies of the past three and one-half years.
The situation that confronted us in 1961, and still continues, ruled out the use
of extremely low interest rates. We simply could not permit short-term interest
rates to drop to the levels of earlier postwar recessioiis without courting a massive
outflow of short-term capital. On the contrary, with interest rates already
substantially higher in nearly all other countries, even maintaining the January
1961 level of short-term rates entailed grave risks. Ways had to be devised, and
promptly, to shore up our short-term interest rates, while assuring a ready availability of longer term credit at reasonable rates to bolster lagging domestic investment. In short, the very real dangers in our balance-of-payments situation
necessarily limited the freedom of monetary policy and gave it a new challenge:
To facilitate investment at home without provoking an outflow of capital abroad.
This meant that fiscal policy had to assume a larger share of the task of encouraging and sustaining domestic growth. That is why, from the day President
Kennedy took office, we looked to fiscal policy to move us once again, as we are
now moving, toward full employment, and assigned it a more active role than perhaps ever before in our history.
;
But that basic determination promptly raised questions involving tax and
expenditure policy. The big question was whether to increase Government
expenditures or to reduce taxes, or, to come to the heart of the matter: Whether
to rely upon the latent energies of the private sector or to expand Government
activity.
Our fundamental problem in early 1961 was sluggish growth and inadequate
incentives for investment. Postwar expansionary forces had been dissipated.
Tax rates were siphoning off too much income to allow the private economy to
reach full employment. The result was inadequate demand, with increased
unemployment and evermore frequent recessions.
Larger Government expenditures, if well timed, could, of course, have boosted
demand and thereby cut unemployment. But, unless such expenditures could be
clearly justified on their own merits, their long-run contribution to productivity
and investment would be uncertain at best. Thus, they seemed to offer less
benefit to the balance of payments than the path we chose: tax reduction.
We were convinced that tax reduction could achieve the necessary expansion
of purchasing power by freeing the private economy from high and restrictive
wartime tax rates, originally designed to restrain strong and inflationary pressures
that no longer existed. Lower tax rates, we felt, would also offer the much needed
long-run stimulus to growth that comes from added incentives to invest and to
produce. These, in turn, would lead to cost-cutting improvements in technology,
thus strengthening our international competitive position and enhancing our
trade balance. And greater profitability in the domestic economy would also
encourage the employment of funds here, instead of abroad. Both of these
results would directly help our balance of payments.
In the early days of the Administration, therefore, and without hesitation, we
decided to employ fiscal policy—and, more specifically, tax policy—to expand
the role of the private sector of our economy as the primary force in achieving
our national economic goals. We also felt that, having made this decision, we




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219

should not lose the opportunity it presented of making long-needed reforms in
our tax system. Thus, an already large task became even greater. And, while
the basic blueprint—tax reduction to expand the private sector of our economy,
accompanied by long overdue tax reform—was set forth by President Kennedy
at the very beginning of his Administration, concrete results were necessarily
piecemeal, and took years, rather than months.
Our choice of tax reduction called for expenditure restraint, since there would
necessarily be a temporary lag in Federal revenues. Yet, in 1961, there were
overriding national priorities, all of which cost money: the need to bring our military defenses to a higher plateau of readiness, the special requirements of the
Berlin crisis, the rapidly expanding space program. And, of course, the interest
on the national debt. We could not cut down in those areas, but we could, and
did, hold down sharply the rate of spending in other areas.
That record of expenditure restraint comes through clearly when you compare
expenditures, incurred and planned, in the four fiscal years from 1961 through
1965 with those of the preceding four years, a period in which considerable stress
was placed on prudent budgeting. It is true that we find overall budget expenditures in the 1961-65 period increasing at an average of about $4 billion a year
compared to just over $3 billion a year during the earlier period. But the breakdown of the increases during the two periods is very revealing. For the fiscal
1957-61 period we find budget expenditures for defense, space, and interest on
the debt increasing by $6.5 billion, with expenditures in all other areas going up
by a nearly equivalent $6 billion. In the fiscal 1961-65 period, on the other
hand, expenditure increases for defense, space, and interest will almost double,
amounting to about $12 billion, but the policy of expenditure restraint is evident
in the sharp decline in the increases for all other expenditures, which will total
only about $4 billion, one-third less than the comparable increase during the
earlier 4-year period.
^As we had planned and expected, the need for increasing outlays in defense
and space has now leveled off. That fact, joined with the thorough-going economy drive which President Johnson is so forcefully spearheading, means that
funds are now being freed both to meet vital domestic needs such as the proverty
program and to speed the achievement of a balanced budget.
It was necessary to get the major increases in defense and space spending
behind us before we could safely implement our full program of tax reduction.
But rather than wait, we promptly undertook two major moves to improve the
climate for business investment, moves that could be instituted without any
excessive loss of revenue. They were the Revenue Act of 1962, with its central
provision of a 7-percent investment tax credit, and the administrative liberalization of depreciation, both landmarks of progress in our drive to spur the modernization of our capital equipment. Together, they increased the profitability of
investment in new equipment by more than 20 percent. This was equivalent
in terms of incentives to invest to a reduction in the corporate profits tax from
52 percent to about 40 percent.
These measures brought the tax treatment of investment in the United States
more closely in line with that provided by other industrial countries—thus removing an unwarranted inducement to invest overseas—while at the same time
working toward a more efficient, competitive, and profitable home economy.
They were also accompanied by significant improvements in the equity of our
tax structure, as well as by limitations on the use of tax havens abroad.
Although these were major achievements, they were merely first steps in our
integrated, long-range program to stimulate the private sector of the economy.
The biggest impediment to a more robust private sector still remained: The high
individual and corporate income tax rates, born out of wartime inflation, that
continually prevented the economy from reaching and maintaining its full potential. In so doing, they reduced taxable income, held revenues at inadequate
levels, and thus were self-defeating in any effort to restore budgetary balance.
The Revenue Act of 1964 substantially embodies the tax program we proposed
to break the grip of these high tax rates upon our economy. Since we desired,
at the same time, to improve tax equity, that act also substantially reduces the
tax burden on those citizens whose incomes are inadequate by any standard.
I think it can truly be said that the Revenue Act of 1964 is not only a giant stride
forward in our drive to secure self-generating, long-run economic growth, but is
also a milestone in improving the equity of our tax system. The fact is that
revenue raising reforms in the 1964 and 1962 acts, taken together, totaled $1.7




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1964 REPORT OF THE SECRETARY OF THE TREASURY

billion, almost three times the $600 milhon in new revenues produced by all
other revenue acts since 1940.
While the prime purpose of our overall tax program is, and always has been,
the long-range stimulation of our economy to permanently higher levels, the
timing of the program has been important in sustaining the present expansion,
and deliberately so. We must not, however, let this question of timing obscure
the underlying objectives of the tax program. The fact that the Revenue Act
of 1964 is having some beneficial counter-cyclical effects should not be taken to
mean that we have succeeded in developing a new and effective counter-cyclical
tool.
There remain, in my opinion, great obstacles to the use of tax policy for purely
counter-cyclical purposes. The chief of these obstacles is the fact that, within
our constitutional system, a long lag typically intervenes between a request for
a change in tax rates and legislative approval. Unless and until some method
is worked out—acceptable to the Congress and consistent with its prerogatives—
whereby tax rates can be varied without undue delay, the purely counter-cyclical
function of tax policy will remain outside our arsenal of economic tools.
This does not mean that cyclical changes in tax policy would not be useful.
Nor, fortunately, does it mean that tax policy is entirely impotent in moderating
cyclical fluctuations today. By promoting sustained growth and a stronger
economy, tax policy can be and, as it has been developed over the past three and
one-half years, now is an important counter force:both to recessions and to inadequate growth. But we clearly have a major piece of unflnished business to
resolve before we can claim that tax policy is fully equipped to do for us the job
that any modern economy requires of it.
It is, of course, far too early to reach any flnal judgment on the results of this
year's $11.5 billion reduction in personal and corporate taxes. Some observers
have expressed surprise that its effects upon consumer spending so far appear to
be moderate; others are relieved that the tax cut has not overheated the economy.
I have always expected, and have so stated repeatedly, that the tax cut would not
create a sudden spurt of consumer spending, but would gather momentum gradually, with the full stimulus not being felt until next year.
We can, however, take a reading of the cumulative effects of our earlier actions,
including the 1962 investment credit and depreciation reform. So far as our
domestic economy is concerned, the current expansion is now in its 40th month,
the longest peacetime expansion in this century except for the half-hearted recovery from the depths of the great depression of !the thirties. Gross national
product in real terms has already increased by 17 percent since the beginning of
recovery in March 1961. This far exceeds the record of the two previous recoveries. And prospects are favorable for continued expansion for many more
recordbreaking months to come.
While still too high, the unemployment rate has begun to diminish perceptibly,
moving down to 5.1 percent in May, compared with the 5.7 percent average of
1963. More striking has been the decline in the jobless rate for married men,
which at 2.6 percent in May is now lower than at any time since July 1957, seven
years ago. The comparatively large number of teenagers entering the labor
force in recent years presents a special and very difficult problem, but even here,
the jobless rate of 15.0 percent thus far in 1964 is nearly a full percentage point
below the 1963 rate.
Recent gains in total employment have been impressive: In the year ending
last month, jobs rose by about 2 million to 70.8 million, more than twice as much
as the 800 million gain during the preceding 12-month period. Increased employment and better use of our productive facilities have been accompanied by betterthan-average productivity gains, reflected both in higher personal incomes and
higher profits. Indeed, the performance of profits has provided the best possible
answer to talk of a long-term profits squeeze and lack of investment incentives.
Corporate earnings before tax have risen sharply, reaching an annual rate of $56
billion in the first quarter of this year, $1.7 billion higher than the last quarter of
1963 and $7.7 billion, or 16 percent, higher than during the first quarter of 1963.
With tax liabilities in the first quarter already reflecting the new reduced corporate
tax rates, corporate profits after taxes ran at the rate of $31.1 billion, more than
20 percent higher than in the same quarter of last year and more than 60 percent
higher than in the first quarter of 1961.
At the same time, the recovery has witnessed a large and steady rise in real
take-home pay for labor, as evidenced by the fact that, after taxes and adjust-




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221

ment for price increases, the average weekly take-home pay for a wage earner with
three dependents is today ten percent larger than it was in early 1961.
It is highly significant that all of these economic gains have been accomplished
in an environment of price stability. Average wholesale prices are no higher today than they were six years ago. This price stability has been of critical importance to our balance of payments, and is now beginmng to pay off in terms of increased competitiveness in our export industries. Our trade balance has recently
improved, instead of deteriorating, as many had feared, in response to the sustained gains in domestic production. For the past nine months, our trade surplus
has been running at an annual rate of $6 biUion, compared to a rate of less than
$4}^ billion in the previous 18 months. While some of this improvement results
from special and temporary factors, it also undoubtedly reflects real gains in
American competitiveness.
Overall, our balance-of-payments deficit has declined sharply since the middle
of last year. Since then, the annual rate of deficit on regular transactions, which
averaged more than $3}^ billion for the past six years, and last year amounted to
$3.3 billion, has been cut in half. This has enabled us to staunch the heavy
drains on our gold stock. The latest figures of our overall gold stock show that
as of May 31st our holdings of gold were slightly above those at the end of last
July: Ten months with no net loss at all, compared with a loss of $1.7 billion in
the single year 1960.
Much of this improvement in our balance of payments stems from specific
measures: The proposed interest equahzation tax on purchases of foreign securities; the tying of larger proportions of our aid; and economies in our military
spending abroad. Part of it is due to temporary factors. It is clear that we
have no cause for complacency, for, while we expect our payments deficit to be
significantly reduced this year, we cannot relax until it is ended entirely. But
happily, evidence is accumulating that we have "turned the corner" in our
balance of payments, which, like the domestic economy, is beginning to show the
favorable effects of the more active fiscal and tax policies, complemented by
appropriate monetary policies, that have characterized the past three years.
These effects are quite apparent in investment spending, the key area in terms
of both our domestic growth and our balance of payments. Plant and equipment outlays, you will recall, leveled off and even declined after mid-1962, following the break in stock prices and reflecting widespread business uncertainty.
But, by the second quarter of last year, less than a year after the new depreciation
rules and the tax credit became effective, they were rising strongly and are now
running almost one-sixth higher than in the first quarter of 1963. Further
sizeable increases are in sight through the rest of this year. It seems clear that
these successive increases in planned expenditures largely reflect the widening
recognition of the new incentives implicit in the recent tax measures, including
not only the 1962 measures, but this year's two-stage reduction in corporate tax
rates to 48 percent.
For example, steel companies are planning a 1964 increase of 25 percent in
their capital spending programs, as are the railroads; motor vehicle makers
outlays will be 20 percent higher, and so on across the whole range of American
industry.
For manufacturing as a whole, according to the latest Commerce-SEC Survey,
1964 planned plant and equipment expenditures are expected to rise 13 percent
above 1963 outlays, and the average rise for all industries will be a tenth higher
than last year.
I should point out here that the 1964 act also restores the investment credit
to the form originally recommended by the Administration. The earlier requirement that the depreciation basis of new investment benefiting from the credit
be reduced by the amount of that credit has now been eliminated. This change
has almost doubled the value of the credit, while at the same time greatly simplifying the accounting problems raised by the 1962 provision.
A recent study by George Terborgh of the Machinery and Allied Products
Institute emphasizes the importance of the investment credit and goes on to
illustrate the extent to which the 1962 and 1964 acts, taken together, raise prospective aftertax returns and accelerate the recovery of capital investment. His
study estimates that, in order to have achieved effects upon aftertax returns of
capital comparable to those of the 1962 and 1964 measures, it would have been
necessary to either:
Cut corporate tax rates from 52 percent to 34 or 29 percent, depending upon
the assumed proportion of equity to total capital, or to have allowed an




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initial depreciation of from 53 to 57 percent of asset cost, or to have reduced
the cost of new capital equipment by 16 percent.
It is hardly surprising that investment activity is responding to incentives of
this magnitude^—even though it will be some time before the cumulative impact
is fully realized—and that investment spending is npw spearheading the recovery.
The proportion of capital spending to real GNP^—GNP in terms of constant 1954
prices—after dropping for so long, has at last been turned around and is once
again rising, reaching 8.8 percent during the past six months, up from 8.4 percent
in 1961 and 8.6 percent in 1962. We expect to continue at this higher level,
thus helping our long-run growth and productivity and improving our payments
balance by absorbing more of our savings here at home.
The ready availability of credit has also had a favorable influence on the
growing strength of domestic investment, but we!have found ways of making
this credit available without driving short-term interest rates sharply lower.
Instead, with the economy expanding vigorously at home, monetary pohcy has
been able to discharge its full share of the task of defending the dollar. Our
short-term rate structure has been brought into better alignment with those
prevailing overseas, and our monetary authorities are now in a flexible position,
prepared to meet whatever further contingencies may arise in the balance of
payments.
In the relatively short span, therefore, of less than three and one-half years,
both Americaa economic policy and practice have taken new and dramatic turns
for the better. Our economy is no longer on the wane, but surely and strongly
on the rise. And we can now look forward, in all sober corifidence, to the coatinuation of a peacetime economic recovery of greater durability and strength than in
any comparable period in this century.
Equally important, the past three and one-half years constitute a significant
watershed in the development of American economic policy. For they have borne
witness to the emergence, first of all, of a new national determination to use
fiscal policy as a dynamic and affirmative agent in fostering economic growth.
Those years have also demonstrated, not in theory, but in actual practice, how
our different instruments of economic policy—expenditure, tax, debt management,
and monetary policies—can be tuned in concert toward achieving different, even
disparate, economic goals. In short, those years have encompassed perhaps our
most significant advance in decades in the task of forging flexible economic
policy techniques capable of meeting the needs of our rapidly changing economic
scene.
Even so, much remains to be done. We dare not relax our efforts. Of all the
challenges looming ahead, the major one, I believe, is to insure the continuation
of cost-price stability. Our price record to date is a good one; but we must now
sustain it, as more rapid growth absorbs the slack in our unused human and
physical resources.
In a competitive world economy, linked by fixed rates of exchange, domestic
costs and prices must be kept in reasonable alignment with those abroad. This
is not a problem unique to the United States, for it is being faced, in one form or
another, by virtually every free industrialized country. But, in our own case,
with our payments in deficit, the range of tolerance is even narrower.
New ways of meeting this challenge are being developed, here and abroad,
through so-called incomes policies. In practice, the methods vary widely. In
basic concept, however, they all entail some expression of the public interest in
the results of the wage-bargaining and price-making process, when large unions and
large firms have a considerable degree of market power. In our own case, this
approach is a purely voluntary one. It is embodied in the wage-price guideposts
developed by the President's Council of Economic Advisers for appraising the
consistency of pattern-setting wage and price decisions with overall price stability.
We have placed much emphasis on this approach because it seems to us to
represent a natural and needed complement to the mixture of fiscal, tax, and
monetary policies that we have fashioned. Certainly, appropriate use of the
traditional policy instruments remains essential if we are to be successful in
maintaining price stability. But unless prices remain stable and wages are kept
within the bounds of productivity increases, conflicts in goals will inevitably
arise. If that happens, monetary and fiscal policies, at times, will, in the quest
for price stability, need to be more restrictive than is consistent with rapid and
sustained growth.
The same general point can be put another way: Government has at its disposal
a range of policy instruments that, used wisely and flexibly, can help immensely




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223

in steering our economy toward more rapid growth, toward balance-of-payments
equilibrium, and toward price stability. But without the cooperative eftorts of
business and labor in maintaining price stability our policies will be rendered
incomplete and inadequate. With that cooperation I am confident that this
Nation can fully capitalize on its enormous economic potential, and continue to
lead the free world to greater prosperity for all.

Public Debt Management
EXHIBIT 18.—Statement by Secretary ofthe Treasury Dillon, July 29,1963, before
the House Ways and Means Committee, on the debt limit
When the Congress last considered the debt limit in May, it took the rather
unusual step of enacting a new temporary debt limit to extend only through the
first two months of fiscal 1964. The reason for this action was, of course, the
exceptional degree of uncertainty attached to any projections of our budgetary
position for the entire fiscal year. In referring to the $309 billion temporary debt
limit for the months of July and August 1963, your committee report stated:
"* * * This is designed to give your committee and the Congress more
time to consider the appropriate limitation for the balance of the fiscal year
1964. By the end of August, congressional action on appropriations can be
expected to have progressed to the point where it will be possible to obtain
a much clearer picture of probable expenditures for the fiscal year 1964.
By this time also it is hoped that the consideration of the President's tax
proposals will have reached the point where it is possible to more accurately
forecast the impact of any congressional action on revenues for the fiscal
year 1964."
Furthermore, the Senate Finance Committee, at the time of its action on the
previous extension, felt that mcreasing the debt limit only until August 31, 1963,
might not allow it sufficient time to evaluate the budget situation for the fiscal
year 1964. It urged that more time may be needed to determine the level of
expenditures resulting from the appropriations enacted, and "more time may be
required to consider the tax measures now pending in the Committee on Ways and
Means."
In deference to this position of both committees, and the continued absence of
sufficient hard, factual information on which to base the debt limit requirement
for the full fiscal year 1964, I am here today only to request an extension of the
present $309 billion temporary debt limit through November 30, 1963.
The progress of the Congress on both appropriations and the tax bill in the
intervening months has not measured up to the pace hoped for by this committee.
Only two appropriations bills, covering about seven percent of the budget, have
been enacted, and the tax bill has not yet been reported out by this committee.
In this situation any estimate of the debt limit required for the full 1964 fiscal
year would involve a considerably larger element of guesswork than has usually
been the case.
Fortunately, however, our budgetary position has substantially improved
since I last discussed the debt limit with you on May 1. Therefore, it seems wise
to extend the present temporary debt limit for an additional three months, that is
to November 30th, by which time we are certain to have a much sounder basis
upon which to determine the debt limit requirements for the remainder of the
fiscal year.
Unless new debt limit legislation is enacted, the temporary ceiling will expire
on August 31st and the debt ceiling will revert to its permanent level of $285
billion. Current estimates indicate that the debt will be about $307 billion on
August 31st, $22 billion above its permanent level. It is obvious that action
must be taken.
I would now like to review with the committee the unexpectedly favorable
developments during May and June which have given us this extra leeway under
the debt ceiling. A table attached to this statement lists the various changes
in our actual cash position on June 30, as compared to the estimates given the
committee at the beginning of May.
On May 1, we were estimating a budget deficit of $8.4 billion. As you know,
the deficit actually turned out to be $2.2 billion less than this, $6.2 billion. The
smaller budget deficit was produced by a combination of receipts almost $900
743i-l'e0—^65——li6




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1964 REPORT OF THE SECRETARY OF THE TREASURY

million greater than we had expected and budget expenditures more than $1.3
biUion lower than we had anticipated on May 1. Normally, the differences
between estimates and final results are reasonably well balanced between those
on the down side and those on the up side; but in recent months we have had the
unusual and most gratifying experience of finding almost all of the changes from
our estimates moving in the same direction, toward a lower budget deficit and
an improved cash position.
Of the almost $900 million improvement in our revenue position, about $400
miUion was accounted for by receipts from individual income taxes, an increase
largely attributable to the fact that the economy expanded at a faster rate than
we had anticipated. Receipts from corporation income taxes were also about
$300 million higher than had been estimated. The remainder of the increase in
receipts, about $200 million, came from increased estate and gift taxes and miscellaneous items.
Practically the entire $1.3 billion reduction iri budget expenditures from the
level estimated on May 1 was due to decreases in outpayments. The volume of
asset sales during fiscal 1963 turned out to be very close to the estimate furnished
this committee by the Budget Bureau in May. The rnajor expenditure reductions
were in the Defense Department, the Veterans' Administration, and the Housing
and Home Finance Agency. Although Defense expenditures (including military
assistance) turned out to be very close to the January estimate, they were about
$300 million below the level estimated pn May 1.' Veterans' Administration
outlays were $200 million lower, and expenditures by the Housing and Home
Finance Agency were $300 miUion below the May 1 estimate. The Director
of the Budget, Mr. Gordon, wiU provide further details on the expenditure reductions and the sales of assets in his statement.
Looking to fiscal 1964, we find that thus far in July expenditures are
running very close to the levels estimated last May. There is no indication
of any increase in expenditures, such as might have been expected had any part
of the improvement represented only a temporary postponement in spending.
In addition to higher budget receipts and lower budget expenditures, trust
funds and other nonbudget items added more to the Treasury's cash balance
than had been anticipated. Net receipts from the unemployment trust fund
were $300 miUion higher than projected, and net receipts from the highway trust
fund were $100 miUion higher. As a result of a number of other offsetting factors,
trust funds and other nonbudget items added a net amount of $200 million to
the Treasury's cash balance over what had been anticipated in May.
To round out the picture, I would like to discuss recent developments affecting
the debt and our borrowing requirements in the near-term future. The public
debt on June 30 was $800 miUion higher than we had anticipated on May 1.
$400 million of this unplanned increase in the debt came from sales of savings
bonds and special foreign issues, neither of which is subject to close control in
response to shifts in our cash balance.
Normally, redemptions of savings bonds exceed sales during the April-June
period. Since savings bonds sales had done better,than usual during the first
quarter, we assumed a break even on savings bonds during the second quarter.
However, when the final figures were in, they showed that second quarter sales
had done even better than expected, and, contrary to the usual seasonal pattern,
the net addition to savings bonds outstanding was about $300 miUion. This
gratifying second quarter performance of Series E and H savings bonds was the
best since 1955.
During May and June, we sold $100 million more of special security issues to
foreign central banks than we had anticipated on May 1. The proceeds of these
issues provide us with funds which we can use in the same manner as any other
borrowings; however, the timing of these issues is determined solely by balanceof-payments needs rather than by ordinary debt management criteria.
The remaining $400 million unplanned increase in our debt occurred in connection with the sale of 4 percent bonds of 1970 which were offered to the public
on June 11. Even at that late date, we were projecting a budget deficit of $7.2
billion, $1 billion higher than actually occurred, and the market situation appeared
to be exceptionally favorably for an issue of intermediate maturity. Our intention was to raise $1.5 biUion with this bond issue. ' However, the issue proved
to be even more popular than we or the market had expected. In order to prevent a serious speculative situation from developing in the Government securities
market, we felt obliged to make a special overallotment on subscriptions. In-




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225

eluding this special overallotment, $1.9 billion of the bonds were sold, $400 million
more than originally planned.
The improvement in our overall cash position, in which this very successful
June bond offering played a minor role, has permitted us, contrary to our earlier
expectations, to go through the entire month of July without any cash borrowing
operations. In fact, our entire third quarter borrowing program has been scaled
down. On May 1, we were contemplating a cash borrowing need of $6 billion
during the third quarter, including any cash borrowings in June. It now appears
that our cash requirements can be met with a borrowing program of only $4
billion, half of which has already been accomplished, by the June issue to which I
have referred.
The substantial deviation of the actual budget deficit from the best estimate
that we could make only two months before the end of the fiscal year clearly
demonstrates the need for a substantial margin for contingencies in establishing
a debt limit to cover any considerable span of time. In this particular instance,
all of the differences worked in our favor. On other occasions, particularly in
those instances where the economy is growing at a slower rate than anticipated,
the variations from our estimates are likely to be just as large in the other direction.
I have a very keen appreciation of this fact of life, because of the 1961 experience. When I appeared before this committee on June 15, 1961, the latest and
best information available to us pointed to a budget deficit of $2.5 billion for the
fiscal year that was to end only fifteen days later., Twelve days later, when I
appeared before the Senate Finance Committee, the continuing inflow of information made it evident that our projection had been too optimistic, and we revised our estimate of the budget deficit for fiscal 1961 up to $3.0 biUion. As it
turned out, we were still far from the mark, because the actual deficit turned out
to be $3.9 biUion.
When, despite the Government's best efforts, it is possible to miss the mark
by as much as $1.4 billion only two weeks before the end of the fiscal year and by
as much as $900 million only four days before the end of the fiscal year, it leads
one to an acute awareness of both the limitations of budget estimating in an
organization as large and complex as the U.S. Government and of the need for
substantial operating leeway to deal with contingencies.
Another point which the recent experience demonstrates is that this Administration can and will keep expenditures at the lowest possible level, irrespective of the
size of the debt limit. The fact that we found ourselves in an unexpectedly improved budgetary position did not lead us to cut back on the program of asset
sales which we had set out to accomplish, a program which we know is strongly
supported by this committee and the Congress. The fact that we found ourselves
with somewhat more room under the debt limit than we had contemplated did
not lead us to increase expenditures. Although the improvement in our revenue
position would have permitted a rise in expenditures under the debt limit established by the Congress, expenditures actually declined. This experience should
provide substantial assurance that an adequate allowance for contingencies under
the debt limit will not be abused.
At the last hearing, the committee found it useful to have daily cash and debt
projections available when it sought to establish a debt limit covering only a
relatively short period into the future. For this reason, we have attached our
latest daily projections covering the period through November 30.
You wiU note that the present $309 biUion debt limit wiU provide us with a
leeway of about $1 billion during September and early October. ^ From October
15 through November 14, however, the margin under the debt limit will fluctuate
between $200 miUion and $700 mUlion.
The projections indicate that on November 15 the debt wiU rise to $309.3
biUion with a cash balance of only $4.3 bUlion. During the latter pnrt of November, prudent debt management requires a rise in the debt to $310.1 billion on
November 30, in order to buUd up the larger cash balances needed to meet the
large outflows that are characteristic of early December.
It is apparent from these figures that we cannot assure the committee that we
wiU be able to operate throughout the entire month of November under the
present $309 biUion debt ceUing. We would hope that new debt hmit legislation
could be enacted by mid-November. The narrow margins under which we will
be operating can only be accepted because of the shortness of the period for which
this debt limit extension is requested.




226

19 64 REPORT OF T H E SEICRETARY OF T H E TREASURY

In summary, we are not yet in a position to formulate with reasonable accuracy
a debt limit request designed to cover the entire fiscal year 1964. Since our
improved budgetary and cash position will allowi us to operate under a $309
billion debt ceiling for 2^2 to 3 months longer than we had expected, I recommend
a simple 3 months' extension of the temporary debt ceiling at its current level of
$309 biUion.
Finally, in view of the fact that I am not asking; for any extension of the debt
ceihng beyond November 30 or any increase in the present $309 billion temporary
debt limit, I have not included any conjectures coricerning the limit that will be
necessary beyond November 30 to cover the remainder of the fiscal year to
June 30, 1964. Such an estimate is not necessary :to action by the Congress on
this request. To inquiries concerning that figure,: I can only reply that it will
be substantially below the $320 billion figure so frequently mentioned as a minimum at the time of the previous action.
Actual Treasury cash position as of June 30, 1963, compared with estimate prepared for debi hearings hefore House Ways and Means Committee, April 26, and
May 1, 1963
[In billions of dollars]
Estimated
in April
Cash balance (excluding gold)_.
Debt subject to limit- __ .

Actual

Increase

8.0
306.3

n.i
306.1

3.1
.8

' +23.9
. -24.0
-L4
: +2.1

+24. 7
-22.7
-L2
+2.9

.9
L3
.2
.8
3.1

__ ._.

Reconcilation:
Actual cash balance March 31,1963
__
Items affectiag cash balance (April 1-June 30):
Net budget receipts
..
.
Budget expenditures.
__
Trustfunds, etc. (net)._
Change in public debt

7.4
. _

_

+.6

+3.7

'

8.0

ILl

'
;

-LO
+L2

-LO
+L2

:

-2.6
+L6
+2.6

-2.5
+L9
+.3
+.1
+2.6

.4
.3
.1

+2.1

+2.9

.8

306.3

306.1

Total
1

Cash balance June 30,1963
_.
Actual debt subject to limit March 31,1963
Net changes (April 1-June 30):
Attrition
_
Bills.. .
Bonds
June tax bills
June borrowiag _
Savings bonds
.__
Foreign securitiesSpecial issues
_.
...
__.




'

.:

Total.
Debt subject to limit June 30,1963

303.2

_.

+.3

+.3

EXHiBrrs

227

Major reasons for cash improvement from April 1—June 30, 1963
[In billions of dollars]
Budget receipts
Individual income taxes
+0.4
Mostly in the withheld area-income levels higher than anticipated.
Corporation income taxes
+. 3
Reflecting a higher level of taxable corporate proflts for the calendar year 1962 than had
been estimated in January.
Allother (net)
+.2
Total increase in Budget receipts
0.9
Budget expenditures
Defense Department (includiag military assistance)
_
—. 3
Atomic Energy Commission
—. 1
Veterans' Administration
—. 2
Commodity Credit Corporation
—. 1
Housiag and Home Finance Agency
_.
—. 3
All other (net)
-.3
Total decrease in Budget expenditures
1.3
Trust funds, etc. (net)
Unemployment trust fund
+. 3
Quarterly deposits by States were much heavier than expected in May; withdrawals by
States were lower than anticipated.
Highway trust fund
+. 1
Payments to States in May and June were lower than anticipated in view of commitments expected.
Other
.._
-.2
Due to a combination of miscellaneous factors, such as an increase in investment transactions of Government sponsored enterprises, a decrease hi deposit fund accounts, and a
decrease in checks outstanding.
Total increase on account of trust funds, etc. (net)
.2
Public debt
June borrowing
+. 4
$1.5 billion assumed in April; actually $1.9 billion.
Savings bonds
_
_
+. 3
A break even of sales (iacluding accrued discount) and redemptions was assumed for the
April-June period. Actually, sales exceeded redemptions.
Foreign securities
+. 1
Unexpected sales.
Total increase in public debt
8
Total cash increase




3.1

Estimated cash balance and debt subject to limit day-by-day for period July—Novemher 1963

to

[In biUions of dollars]

C a s h balance D e b t subject
(excludiag
to h m i t
gold)

m.i

JuneSO

__

..

CO

05

Day

1
2
3
4
6
€
7 8
9
10
11
12
13
14
15
16
17
18
19
20.
21-..
22
23 _
24
26 26
27 _
28
29 . .
30
31

N o v e m b e r 1963

October 1963

S e p t e m b e r 1963

A u g u s t 1963

J u l y 1963

00

.....

...
_.

_.

_
..

.._.

111.0
»10.7
110.6
HOLIDAY
1 10.0 1
Saturday
Sundav
19.2
18.8
18.5
18.3
18.1
Saturday
Sundav
17.7
17.5
17.4
17.2
17.0
- -Saturday
Sundav
16.9
16.7
16.6
6.7
6.4
Saturday
Sundav
6.2
6.1
6.1

Cash balance D e b t subject Cash balance D e b t subject Cash balance D e b t subject C a s h balance D e b t subject
(excluding
to h m i t
(excluding
to h m i t
(excluding
to h m i t
to h m i t
(excluding
gold)
gold)
gold)
gold)

O

1 306.1
1 306.0
1 305. 9
1 306.0
1 306.0
1 305.8
1 305. 8
1 306. 8
1 306. 8
1 306.1
1 306. 0
1 306.0
1 306.1
1 306.1
1 306. 0
1 306. 2
1 306.1
1 306.1
306.1
306.0
305.9
306.1
306.1

5.6
5.7
Saturday
Sundav
6.7
5.3
4.9
4.9
4.9
Saturday
Sundav
5.0
5.0
5.2
6.1
6.5
Saturday
Sundav
5.7
6.1
6.4
6.6
6.8
Saturday
Sundav
6.7
6.5
6.3
6.1
6.0
Saturdav

306.1
305.1
305.0
305.0
305.0
306.0
306.0
305.0
305.0
305.0
306.3
305.3
305.3
305. 3
305.2
306.2
305.2
306.2
306.2
307.2
308.0
307.1

Sunday
HOLIDAY
6.7
6.3
6.0
5.6
Saturday
Sundav
4.9
4.6
4.4
4.6
4.6
Saturday
Sunday
4. 6
4.9
6.1
7.3
8.4
'
Saturday
Sundav
8.9
9.3
9.7
9.7
9.7
Saturday
Sundav
9.6

308.0
308.0
308.0
308.0
307. 9
308.0
308.0
308.0
307.9
307.9
307. 9
307. 9
307. 9
307.9
307.8
307.8
307.8
307.8
307.7
307.4

9.8
9.6
9.2
8.8
Saturday
Sundav
8.0
7.4
7.0
6.6
6.4
Saturday
Sunday
6.2
6.6
6.4
6.2
6.1
Saturday
Sunday
6.8 1
6.5
6.3
6.1
4.9
Saturday
Sunday
4.6
4.6
4.6
4.5

307.9
307.9
307.9
307.9
307.8
307.8
307.8
307.8
307.8
307.8
308.4
308.4
308.4
308.4
308.4
308.3
308.3
308.3
308.8
308.7
308.7
308.7
307.8

5.5
Saturday
Sunday
5.6
5.3
5.1
4.9
4.7
Saturday
Sunday
4.7
4.6
4.4
4.3
4.3
Saturday
Sunday
4.5
^
.. 4.7
6.1
6.4
6.6
Saturday
Sunday
6.7
5.7
5.6
H O L ][ D A Y
6. 6 1
- Saturday
1

1
1 Actual.




308.8

O
308.7
308.7
308.7
308.7
308.7

W
Ui

308.7
308.7
308.7
308.7
309.3
309.3
309. 3
309.3
310.0
310.0

o

O

310.0
309.9
309.9
310.1

>
Ui

d

EXHIBTTS

229

EXHIBIT 19.^Statement by Secretary of the Treasury Dillon, November 18,
1963, before the Senate Finance Committee, on the debt limit
At the end of this month, the second temporary extension in the debt limit
since late May of this year will expire. In the absence of new legislation, the ceiling
wUl revert from $309 billion to its permanent level of $285 billion. This would
be more than $23 billion below our latest estimates of the actual amount of outstanding debt subject to the limit on November 30.
Consequently, the need to extend the temporary limit promptly is imperative.
Moreover, the limit must also be increased to enable us to meet our financial
obligations during the remainder of the fiscal year. These obligations wUl require
new debt financing within the first few days of next month, financing which wUl
have to be announced before the end of this month.
Our projected borrowing needs over the remainder of the fiscal year are illustrated on the attached table. The second column shows the estimated size of the
debt at semimonthly intervals, assuming at each date a cash balance of only
$4.0 billion, well below the amount we normally maintain, and equivalent to less
than half of our average monthly expenditures. Actually, we know that our
debt cannot be adjusted abruptly in response to short-lived, but frequently very
large, swings in receipts and expenditures from one day to the next, or from week
to week, as these estimates assume. Even with the most careful planning, we
must frequently carry a substantially larger cash balance. But without any
allowance for that contingency, or for other unforeseen developments, our debt
will reach successively higher peaks of more than $310 billion in mid-December,
nearly $313 billion in March, and more than $314 billion by June 15.
These figures are consistent with our latest review of the outlook for both,
receipts and expenditures. This review indicates that our deficit for the current
fiscal year should approximate $9.0 billion, substantially less than the $11.9
biUion estimated last January in the President's budget. That decided improvement reflects both higher receipts and smaller expenditures than originally foreseen.
Our current estimates of fiscal year receipts take into account the impact of the
tax program passed by the House of Representatives in September and now being
considered by your committee. We estimate that this program, with the rate
reductions becoming effective on January 1 of next year, would entail a net
revenue loss of $1.8 billion during fiscal 1964 after allowing for the stimulus to the
economy and the larger base of taxable incomes that would result. That revenue
loss from the tax program is $900 million smaller than the $2.7 bUlion estimated
in January, when the program was proposed, because the rate reductions in the
House bill are scheduled to take effect six months later than originally anticipated.
I should point out that the tax program, because it affects revenues only with a
lag, has very little bearing upon the amount of our cash needs through mid-March
when borrowing needs are seasonally high. It would add approximately $1.6
billion to our needs by June 15, when the debt will reach its peak for the year.
The primary effect of the tax bill on fiscal year 1964 revenues would come through
the proposed reduction in withholding rates.
The revenue outlook has also been improved because economic activity, profits,
and personal income will clearly be significantly higher in calendar 1963 than we
anticipated at the time of the President's budget message. These factors are the
principal determinants of fiscal 1964 revenues, and we expect the result will be an
additional $1 billion in receipts. Consequently, total receipts are now projected
at $88.8 billion, $1.9 billion higher than estimated in January.
MeanwhUe, the reductions in appropriations by the Congress, together with
the continuing, intense efforts of the Administration to achieve every practicable
economy within the framework of congressional authorizations, are being refiected
in a significantly lower rate of spending than originally estimated. Sizable savings
are spread through a number of programs. These savings wiU more than offset
increased costs in two areas—for interest on the public debt and for farm price
support programs—which are expected to exceed earlier estimates. As the
Director of the Budget will outline in greater detail, our expenditure estimates in
some respects must still be considered tentative, largely because the Congress has
not yet taken final action on some appropriation iDiUs. But, there is a clear prospect
that total spending in fiscal 1964 can be held to $97.8 biUion, or approximately $1
biUion below the figure estimated in January.
The resulting budgetary deficit of $9.0 billion would actually be less than the
$9.2 billion estimated last January in the absence of any tax reduction.




230

19 64 REPORT OF THE SECRETARY OF THE TREASURY

The debt limit legislation passed by the House on November 7 and now before
your committee provides for an increase in the temporary ceiling to $315 billion
through June 29, 1964. The bill then provides that the limit would return to
$309 billion for one day, June 30, before expiring. As indicated by the table,
this authorization to issue additional debt will meet our calculated needs through
the remainder of the fiscal year only on the assumption that the cash balance can
be maintained at $4 billion, and only by cutting deeply into the customary and
highly desirable margin for contingencies and flexibility during our period of peak
needs in March and June.
I must point out that, over the past 10 years, the flnal estimates of both revenues
and expenditures contained in the January budget document for the fiscal year
which is then more than half completed have each had an average error of $1}^
billion. The comparable error in the estimates of the net deficit or surplus has
averaged $1.3 billion. Therefore, I believe that the $315 billion limit provided
by the House bill is the very minimum that can be accepted.
It must be recognized that a ceiling so close to our projected needs entails
definite risks, particularly at the time of our peak requirements next June. Those
risks can be prudently accepted only because experience during the first quarter
of next year—particularly in connection with the usual heavy March corporate
profits tax payments—will provide a basis for reappraising our needs in ample
time to enact appropriate new legislation, if that should become necessary.
Of course, if the tax program were not to be enacted by January 1st and its
impact on revenues delayed, the allowance for contingencies would then be somewhat larger. However, during the middle of June, the period of peak need, the
allowance would still be below what has always been considered normal in the
past.
I must also point out that, because of the extremely large receipts that flow
into the Treasury during the latter half of June, it will be impracticable to reduce
the cash balance on June 30 to less than $5 billion,which would be necessary to
stay within a $309 billion debt ceiling on that day assuming a budgetary deficit
of $9 billion, as presently estimated. Including allowance for the usual retirement of tax anticipation bills during that period, income substantially exceeds
current cash needs. These surplus funds are, however, quickly required to meet
our obligations in early July, when receipts are seasonally very low. This recurrent pattern means that the cash balance must temporarily rise over the end
of the fiscal year, to something like $7 billion, if we are to avoid changes in the
outstanding debt so large and abrupt as to be seriously disturbing to the market.
Under these circumstances, the debt limit of $309 billion provided in the House
bill for June 30 will not be adequate unless the budgetary deficit is reduced substantially below the $9 biUion figure now foreseen.
With this caveat, I believe that the House bUl provides an acceptable debt
ceiling for the remainder of the fiscal year. It is certainly fully expressive of
the compelling need and desire, shared by the Congress and the Administration,
to maintain restraints on expenditures. In so doing, it does entail risks in impairing the usual margin for unforeseen contingencies and fiexibility.
Experience has shown us the extra and highly undesirable costs and difficulties
of managing a debt when it is pressing closely against the ceiling. It is essential
that we maintain a margin for financing flexibility, not only to make it possible
to take advantage of favorable financing opportunities when they present themselves, but also to permit us to allow for a normal range of uncertainty in gauging
the response of the market to our necessarily huge financing operations. In recent
years, the necessity to maintain a reasonable equilibrium between the level of shortterm rates in our market and markets abroad to minimize disturbing capital flows
between countries has sometimes required a substantial increase in our sales of
short-term securities on short notice, adding to the need for operating flexibility.
And, whenever the debt rises very close to the ceUing, and our financing fiexibUity
is thus exhausted, the danger arises that planning and executing acquisitions of
Treasury debt for the Federal trust funds, as required by our trustee function,
will be adversely affected by our inability to issue additional debt to them.
For these reasons, I could not contemplate discharging my responsibilities for
managing the finances of our Government prudently and economically within
a debt ceihng any lower than that provided in the House bill. With the understanding that present estimates indicate the likelihood that it wUl be necessary
to make the fiscal year 1965 legislation effective next June 30th rather than July
1st, I recommend enactment of this bill in its existing form. You may be assured




231

EXHIBITS

that the executive branch will strive in every practicable way to realize a budgetary
outcome that will enable us to maintain our debt within this tight ceiling.
Public debt subject to limitation, fiscal year 1964
[In bilhons of dollars. Assumes tax cut (effective January 1964—as passed by House)]
Operating
cash balance
(excluding
free gold)

Normal allow-j Total public
ance to
debt lunitaPublic debt provide flexi- tion required
subject to
bility in
to provide
limitation financiug and normal allowfor conance
tiugencies

Actual
June 12,1963 (low balance for June).
June 30
July 16
July 31
August 16
August 31
September 16
September 30
October 16
October 31

4.2
11.1
7.7
6.2
6.1
6.1
4.4
8.9
6.1
3.7

306.3
306.1
306.0
305.1
305. 0
306.8
307.6
307.0
306.8
306.8

3.3
4.2

307.9
308.5

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

310.7
307.6
310.4
309.6
310.6
310.1
312.9
307.9
311.6
310.7
310.8
311.4
314.2
308.1

Estimates (.based on projected actual cash balance)
November 15.
N ovember 30Estimates (based on constant minimum operating
cash balance of $4.0 billion)
December 16
December 31
January 16, 1964..
January 31
February 15
February 28
March 16
March 31
April 15
April 30
May 15
May 31
June 16
June 30

3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0

313.7
310.6
313.4
312.6
313.6
313.1
315.9
310.9
314.6
313.7
313.8
314.4
317.2
311.1

EXHIBIT 20.—Statement by Secretary of the Treasury Dillon, June 23, 1964,
before the Senate Finance Committee, on the debt limit
In the absence of new legislation, the $315 billion temporary debt limit, under
which we are currently operating, is scheduled to drop for the one day of June 30
to $309 billion and on July 1 the limit will revert to its permanent level of $285
billion.
The latest published figure we have for the public debt subject to the limit is
$311.9 billion as of June 18. While there are many cross currents in the last
two weeks of June, our best estimate is that the debt will still approximate $312
billion on June 30. This means that if the debt limit is not raised before then, the
outstanding debt will exceed the limit by about $3 billion on Jurie 30 and by more
than $26 billion on July 1 when the ceiling drops to its $285 billion permanent
level.
It is clearly imperative that these scheduled reductions in the debt limit not
be allowed to occur. We simply cannot put the U.S. Government in the impossible
posture of being unable to refinance maturing securities or to pay legal obligations
as they come due. We can do grave damage to the credit of the United States
if we permit the debt limit to be inadequate for even one day. The issue goes
well beyond the question of sound domestic financial housekeeping to the far
greater issue of the financial responsibility or irresponsibility of our Government.
In a world which recognizes economic and financial strength as the essential
foundation for military and political power, we cannot permit the slightest doubt




232

1964 REPORT OF THE SECRETARY OF THE TREASURY

to arise in any quarter regarding the ability of the United States at all times to
meet all of its obligations instantly and fully.
The outlook for the public debt in fiscal 1965 is shown in the attached table
which is the same as that presented to the House Ways and Means Committee
on May 25. The table gives projected levels of the debt for midmonth and
month-end dates through June 30, 1965. It reflects the usual temporary seasonal
borrowing requirements as well as the need to finance the deficit anticipated for
the year as a whole.
The debt projections shown in the table are, of course, based on the same
mechanical assumption that has been used in past debt limit hearings: Namely,
that the Treasury's operating cash balance holds unchanged at $4.0 billion. On
this basis, the table shows that the debt is expected to swing up to temporary
peaks of $320.5 biUion on December 15 and $321.0 billion on March 15 before
the usual yearend decline brought on by the heavy June tax receipts.
The assumption of a constant $4.0 billion operating cash balance focuses
attention on the impact of the projected pattern of receipts and expenditures on
the debt and this is appropriate in a debt limit hearing. However, in actual
practice it is not feasible to hold the cash balance unchanged, as I am sure the
members of this committee are fully aware. The actual operating cash balance
necessarily fluctuates over a wide range. Moreover, the $4 billion figure assumed
is a very conservative estiriiate of the average amount needed to permit the
day-to-day operations of the Treasury to be conducted in an efficient manner.
The Treasury's operating balance has, in fact, averaged substantially higher
than $4 billion during each of the past five years.
During the past six months, for example, a period in which we have made a
vigorous effort to hold down the operating cash balance, it has averaged $5.1
biUion. With cash expenditures averaging $10 billion per month over the same
period, it has not been easy to operate on so tight a rein. It has been safe only
because, as an emergency support, we could count on obtaining funds overnight
if necessary through the authorization to borrow temporarily from the Federal
Reserve banks.
The table also shows the customary $3 billion leeway required for flexibility
arid contingencies. This provision, regularly requested by both democratic and
republican administrations, represents the minimum margin of safety needed
to cover circumstances which cannot be foreseen, iricluding the inescapable uncertainties in our month-to-month projections of revenues and expenditures.
Hardly less important, this margin of flexibility also is needed because of the impossibility, indeed the undesirability, of precisely matching the timing of our
borrowing operations to our changing cash needs. Treasury borrowing is necessarily done in relatively large amounts and in an orderly sequence. These sizable
financings should be and are timed in such a way as to avoid unnecessary market
disturbance and, where possible, to take advantage of favorable market conditions whenever they appear. Our borrowing operations cannot be adjusted to
passing changes in our net inflow or outflow of cash, but rather must anticipate
needs over a period of time.
The final column in the table shows the debt limit required when we add this
$3 billion safety margin to each of the semimonthly projections of the public
debt. It is clear from these figures that a $324 billion debt limit is necessary to
provide adequate room for maneuver in managing our finances responsibly and
economically.
I should emphasize that our peak debt requirements are primarily a reflection
of the recurrent seasonal pattern in our receipts and expenditures. And it is
this peak requirement which determines the appropriate level for the debt ceiling.
As I have pointed out to your committee before, the debt rises substantially
during the first half of every fiscal year, in years of budget surplus as well as in
years of budget deficit. This is so because we receive only about 44 percent of
our annual revenues in the first half of each fiscal year, the July-December period,
with the remaining 56 percent flowing in during the second half, which includes
the big corporate tax payment months of March and June. As a result, the
Treasury always has to borrow heavily in the July-December period but can
then, depending on the state of the budget, pay off some or all of this seasonal




233

EXHIBITS

borrowing out of the heavy receipts which flow in from mid-March to the end
of the fiscal year.
This means that the peak of the debt in any giyen fiscal year is importantly
infiuenced by the previous year's results. Generally speaking, whenever we run
a deficit in one year the debt ceiling for the following year must be increased in
roughly the same degree. Conversely, a surplus in one year should permit a
reduction in the debt ceiling for the following year. Fiscal 1965 is no exception to
this general rule. Since we are incurring a substantial deficit in fiscal 1964, a
substantial increase in the 1965 debt limit is essential in order to meet the seasonal
requirements brought on by reduced receipts prior to the heavy flow of tax payments that begins on March 15. Our need for a $9 biUion increase in the debt
limit for fiscal 1965 rests largely on this fact and is only influenced in a relatively
minor degree by the deficit that is projected for fiscal 1965.
Let me now turn to the fiscal background of our debt limit recommendation.
The following table presents the fiscal 1964 and fiscal 1965 estimates of receipts
by the Treasury and of expenditures by the Budget Bureau that were released by
the President May 22 and presented to the Ways and Means Committee on May
25.
Administrative budget receipts and expenditures, fiscal years 1964 o,nd 1965
[In billions of dollars]
January budget estimates
1964
Expenditures
Receipts
Deficit ( - )

98.4
88.4

._
.._.

1965

.„

97.9
93.0

-10.0

-4.9

Current estimates
1964
98.3
89.5
-8.8

1965
97.3
91.6
-6.8

The table shows that the deficit for fiscal 1964 is lower than was estimated in
January and that the deficit for fiscal 1965 is higher. But the significant point
is that these new estimates for fiscal 1964 and fiscal 1965 indicate that the overall
two-year deficit will be $300 million less than was originally estimated in January.
The estimate of $5.8 billion for the fiscal 1965 deficit is some $900 million more
than the $4.9 billion deficit projected in the President's January budget message,
even though the Budget Bureau's spending estimate for fiscal 1965 has been
reduced by $600 million from the earlier estimate. This increase in the 1965
deficit is due almost entirely to changes made by the Congress in the tax bill as
compared to the assumptions that were used by the President in his budget
message.
Most important is the fact that the tax bill went into effect about one month
later than had been assumed in the President's budget message. This meant
that the 18-percent withholding rate continued for one month longer than had
been projected with a consequent benefit of some $800 million to fiscal 1964
revenues (the monthly dollar difference between the 18-percent withholding rate
and the current 14-percent withholding rate). But it also meant that estimated
fiscal 1965 revenues will be reduced correspondingly since final net payments on
1964 liabilities by individual taxpayers next spring will be lowered by the same
amount.
The second factor is that the llevenue Act of 1964, as finally enacted, will
result in about $500 million less revenue in fiscal 1965 than had been provided
in the tax bill as it passed the House, which was necessarily used as the basis
for the revenue estimates in the budget document.
These two changes in the tax program—together with minor refinements in
the projections of economic activity and taxable incomes^—have reduced projected
revenues for fiscal 1965 to $91.5 billion, $1.5 billion lower than the January estimate. But, as noted earlier, the impact of these lower revenues on the size of
the deficit has been partially offset by the $600 milhon reduction in expenditures
nowvforeseen by the Budget Bureau.




234

1964 REPORT OF THE SECRETARY OF THE TREASURY

Finally, I should like to note that the experience of recent weeks has been
somewhat more favorable than these May 22d projections would suggest.
Expenditures are running well below expectations. Should this more favorable
experience persist, we can expect to finish up fiscal 1964 with better overall
results than the table indicates. This would leave us with a somewhat larger
cash balance on June 30th than we had earlier expected which, in turn, would
reduce our needs for new cash financing over the next few months.
I would now like to mention briefly some broader and longer run considerations
which form the background to this debt limit hearing. We are in the early
stages of the biggest tax cut our Congress has ever approved-or this Nation has
ever enjoyed. We expect this to provide a major long-term stimulus to the
economy, to put new strength into our private business system, and to strengthen
our ability to compete in international markets. However, I think everyone
recognized, when this approach was proposed by, the Administration and approved by the Congress, that there would be transitional deficits that would
have to be financed and that an appropriate debt limit adjustment would be
required. In order to hold these deficits to the minimum, both in size and time,
and to minimize the requisite increase in the debt limit President Johnson is
making a maximum effort to hold down Federal expenditures.
We, in the Treasury Department, for our part, always have before us, as a
primary purpose, the protection of the financial integrity of the United States.
No one is more dedicated to responsible finance and strict expenditure control
than I am. But effective control of Federal spending cannot be achieved by
restriction at the tag end of the expenditure process when the bills come due.
Our bills must be paid promptly and in full if the credit of the United States is
to be maintained.
The proper place to control expenditures is in the appropriations process and
in the Federal agencies which spend the money. President Johnson is continuing
to press for economy in Government, so you can be confident that a reasonable
debt ceiling will not be abused. Of course, Congress has not yet completed
action on fiscal 1965 appropriations, and expenditure estimates at this time are
necessarily tentative. However, there is a basis for confidence, I think, in the
fact that the May 22d estimates show expenditures for fiscal 1964 and fiscal
1965 combined to be $700 million less than was estimated in January.
If we continue to hold Federal expenditures under control, the outlook for
decreasing the burden of our public debt is good. Indeed, by the end of this
fiscal year, the Federal debt is expected to amount to about 50 percent of our
current gross national product as compared to 52}^ percent last year. This is a
smaller percentage than at any time since World War II financing added so
greatly to the public debt. At the close of fiscal 1946, as you may recall, the
debt was about 127 percent of the gross national product. With the continued
growth in the economy that is generally expected, the ratio of the debt to GNP
should fall still further during fiscal 1965, dropping below the prewar levels of
fiscal 1939 and 1940.
I think we are well started on an orderly and constructive program that will
stimulate our economic growth, protect our financial stability at home and the
key role of the dollar abroad, and also express the fiscal responsibility of the
American people. Under these circumstances, I strongly urge that you approve
the $324 billion temporary public debt limit which we are requesting for fiscal
year 1965 as the minimum consistent with meeting our financial obligations and
handling the public debt in an economical and responsible fashion.




235

EXHIBITS
Estimated puhlic debt subject to limitation, fiscal year 1965
tin billions of dollars. Based on constant minimum operating cash balance of $4.0 billion]

Date

June 30July 16—
July 31
August 16
August 31
September 16
September 30
October 15
October 31
November 15
November 30December 16
December 31
January 15
January 31
February 16
February 28
March 15
March 31
April 16
April 30
May 15
May 31
June 16
June 30

1964

—

Operating
cash balance
(excluding
free gold)

Pubhc debt
subject to
limitation

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

307.9
311.0
311.8
313.5
314.2
316.9
311.2
316.0
316.3
318.1
317.7
320.6
316.0

3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0

310.9
314.0
314.8
316.6
317.2
319.9
314.2
318.0
319.3
321.1
320.7
323.6
319.0

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

318.9
318.0
319.1
318.2
321.0
315.4
319.2
315.6
316.7
317.1
319.9
313.9

3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0

321.9
321.0
322.1
321.2
324.0
318.4
322.2
318.6
319.7
320.1
322.9
316.9

1965

.-

Allowance
Total
to provide
public debt
flexibility
limitation
in flnancing
and for
required
contingencies

EXHIBIT 21.—Statement by Secretary of the Treasury Dillon, June 11, 1964,
before the House Banking and Currency Committee on H.R. 11499, to extend
existing authority of the Federal Reserve banks to purchase public debt obligations directly from the Treasury
I am happy to appear before you this morning in support of H.R. 11499.^
This bill would extend until June 30, 1966, the existing authority of the Federal
Reserve banks to purchase directly from the Treasury public debt obligations
up to a limit of $5 billion outstanding at any one time.
This authority, which would otherwise expire at the end of this month, was first
granted in its present form in 1942 for a temporary period. It has been renewed
on eleven separate occasions since that time. While used only very sparingly
during these past 22 years, and not at all since 1958, I strongly share the conviction of my predecessors that maintenance of this authority is essential to the
proper and economical management of the finances of the Government.
The value of the direct purchase authority does not rest on its frequent or
extensive use. Rather it is designed to provide protection against the inevitable
uncertainties in estimates of receipts and expenditures and in our borrowing
operations and the unforeseen contingencies that can arise from time to time.
At no time in our financial planning do we look upon this authority as a substitute
for market financing or a cheap source of funds. But its contiriuing availability
as a backstop for all our Treasury cash and debt management operations both
permits more economical management of our cash position over the years and
assures our ability to provide needed funds almost instantaneously in the event
of a national emergency.
»See exhibit 15.




236

1964 REPORT OF THE SECRETARY OF THE TREASURY

The reasons we feel that maintenance of this authority is essential can be summarized under three points. First, year in and year out it provides us with the
margin of safety that is necessary if we are to permit our cash balance to fall to
exceptionally low levels during periods of seasonally lean revenues. This, in
turn, allows the public debt to be kept to a minimum and saves interest costs to
the Government.
During the past six months, for instance, we have succeeded in holding the
Treasury's operating cash balance down to an average of $5.1 billion, or only
about half of an average month's cash expenditures. That average has implied,
of course, much lower balances during some periods, as we awaited heavy receipts
or the proceeds of cash borrowings. With budgetary and trust fund paymentrS
running at a rate of over $10 billion per month, these low balances could be
maintained, even for brief periods, only because as an emergency support we
could count on obtaining funds overnight, if necessary, through the authorization to borrow temporarily from the Federal Reserve banks. As recently as
this past April, it appeared possible that use of the authority might be necessary
to tide us over a short period before sizable individual tax collections began to
flow in. In the end, that did not prove necessary. But without the potential
abUity to borrow directly from the Federal Reserve, it is clear that prudence
would have compelled us to enlarge our cash balance by borrowing additional
amounts in the market at a time when market conditions were unfavorable and
interest costs had temporarily risen.
In the second place, there is always the possibility that erratic swings in money
market conditions and sentiment may produce disturbances of a character that
would warrant postponement of a planned Treasury borrowing. In such instances, it is the availability of direct access to Federal Reserve credit that would
permit us the flexibility required in such a situation to draw on our cash and to
await more propitious market circumstances.
Finally, and perhaps most crucial in an uncertain world, the direct purchase
authority is available to provide an immediate source of funds for temporary
financing should this be required by a national emergency. It is, unfortunately,
possible to visualize the kind of situation in which Our financial markets would
be disrupted and even paralyzed at a time when large amounts of cash had to
be raised to maintain governmental functions and meet the emergency. Consequently, the direct purchase authority is a key element in all our financial
planning for a national emergency or a nuclear attack. And this is the reason
why this authority is required for as much as $5 billion, even though in the past
little more than a quarter of that amount has ever been used.
Consistent with these three points, I want to emphasize that the direct purchase authority is viewed by us as a temporary accommodation to be used only
under unusual circumstances. The Treasury fully agrees with the general principle that its new securities should meet the test of the market and that purchases
of Treasury obligations by the central bank should normally be made through
that same public market. Moreover, this direct purchase authority should not
be considered a means by which the Treasury may independently attempt to
influence credit conditions by circumventing the authority of the Federal Reserve
to engage in open market operations in Government securities. In that connection, it is important to emphasize that any direct recourse by the Treasury to
Federal Reserve credit under this authority is subject to the discretion and
control of the Federal Reserve itself.
This borrowing authority has not been abused in the past. The accompanying
table, providing details on the instances of actual use, shows clearly that it has
been used only rarely and for limited periods. The borrowings are promptly
shown on both the weekly Federal Reserve and end-of-month Treasury statements, assuring the widespread publicity that is the best possible deterrent to
abuse. In addition, the Federal Reserve must include such information in its
annual report to the Congress. And, of course, this borrowing, like any other
Treasury borrowing, is subject to the debt limit.
It is a happy circumstance that we have not had to use this authority for more
than six years. But, as an insurance policy against financial emergency and an
essential backstop to our cash management, it must be kept available in case of
need.




237

EXHIBITS
Direct borrowing from Federal Reserve banks, 1942 to date
Calendar year

1942
...
1943
1944 1946
1946
1947 . - .
.
1948
1949
I960
1961
1952
1953
1964 . . .
__
_
1966
1966
1957
1958
1959
I960
1961
1962
1963
1964 through June 9

Days
used

.-

.

-

...
. . . .
-

.

. _

19
48
none
9
none
none
none
2
2
4
30
29
15
none
none
none
2
none
none
none
none
none
none

Maximum
amount at
aay time
(raillions)

Number of
separate
times
used

Maximum
number of
days used at
any one time

$422
1,320

4
4

6
28

484

2

7

220
108
320
811
1.172
424

1
2
2
4
2
2

2
1
3
9
20
13

207

1

2

EXHIBIT 22.—Remarks by Deputy Under Secretary of the Treasury for Monetary
Affairs Volcker, May 7, 1964, before the Money and Capital Market Outlook
Session of the Boston College Banking and Finance Conference, Boston,
Massachusetts
In representing the Treasury in this session today, I do have a special responsibility to set out with some care the magnitude of our own cash needs and the
factors curreri;tly influencing our own approach to the market. And, I would also
like to take a little time to review some of the developments of the past few years,
as a prologue for any judgments of the future.
First, with respect to our own borrowing needs, we find ourselves in a quite
different—and on the whole much more satisfactory—position than for some time.
This change stems in good part from the prospect for a substantial decline in the
budgetary deficit during fiscal 1965. In terms of the cash budget, which (apart
from any change in our cash balance) measures the net call of the Government on
the market for funds, the President in January projected a decline in the deficit
from $8.3 billion during the current fiscal year to $2.9 billion during fiscal 1965.
These figures will of course need to be reviewed and updated as the Congress
completes its work and as we assess further the prospective levels of profits and
income that will determine our tax receipts.
While that review process has not yet proceeded far enough to permit me to give
you any later figures today, we can at least make a mental adjustment for the consequences of the Revenue Act of 1964 becoming effective about a month later, and
in somewhat different form, than assumed in the budget document. The result
of maintaining withholding rates at the old level for an extra month is to raise
revenues by $800 miUion or so in the current fiscal year, to be offset by an equivalent reduction in fiscal 1965. In addition, the reform elements in the bill as enacted will cost a little more revenue next year than had been anticipated. But,
after these adjustments, we can stiU look forward to a significant year-to-year
decline in the deficit, with implications for not only our own borrowing needs but
also, I believe, for both the general market environment and for monetary policy.
The smaUer deficit anticipated in fiscal 1965 does not mean that our cash needs
over the remainder of the current calendar year wiU be appreciably smaUer than
has been typical of other recent years. In fact, we now expect that, including
some allowance for normal attrition of maturing issues, we may need to seU some




238

19 64 REPORT OF THE SECRETARY OF THE TREASURY

$9 billion of new marketable debt from June through December, the usual period
of heavy seasonal needs. That would be larger than borrowing needs over the
same period last year—when we could draw upon the exceptionaUy high cash
balances that had been built up at the end of June—but closely in line with 1961
and 1962 experience. However, it is worth pointing out that these projected
requirements are substantially below those of the latter part of 1958 and 1959,
when, you wiU recaU, the market was under heavy pressure.
Moreover, there is a very significant difference in the financing outlook at this
time as compared to developments during any of the past three fiscal years. Our
projected cash needs for the fiscal year as a whole make it possible to look forward
to a sharp reduction in our outstanding marketable debt during the latter part of
that period. In sharp contrast to experience since 1961, when the marketable
debt has failed to decline appreciably during the first half of a calendar year, we
should be able to retire perhaps $6 billion of marketable debt between December
and June of 1965, mostly in March and June following the receipt of corporate
income taxes. Consequently, the residue of more lasting debt to be placed outside Treasury investment accounts should be on the order of $3 billion or less, not
so much more, I would think, than a reasonable projection of possible Federal
Reserve arid foreign purchases over the course of the fiscal year.
The clear implication is that we can, within a framework of prudently financing
the net cash deficit, accept the logic of meeting the bulk of our seasonal needs
through temporary financing in the short-term market, perhaps chiefly by the use
of tax anticipation instruments.
The fact that very considerable progress has been made in recent years in not
only ending, but reversing, the shortening of the debt structure characteristic of
earlier postwar years also adds to our flexibility in meeting our further needs.
It is well known that, with the help of a series of advance refundings, a sizable
chunk of our outstanding debt has been moved from the 1-5 year maturity category into longer-term issues.. But few observers have fully appreciated the
result: from the end of 1960 through 1963, the debt maturing in more than 5 years
rose by almost as much as the total increase of $18.6 billion in marketable Treasury
securities over that period. In that sense, almost all of our cumulative deficit
over that period was financed long-term.
I do not mean to imply that, with the average maturity of the marketable debt
again at five years, we have lost interest in further sales of longer securities. We
know we must run hard as time passes even to maintain the current maturity
distribution, and in a period of continuing business expansion, we do not want to
loose opportunities to place more of our "permanent" debt in "permanent"
hands. This was, of course, one of the objectives of including a ten-year 4>1
percent bond in the refunding for which the books closed only yesterday. But,
I do think it fair to say that, while we cannot afford to be relaxed about the debt
structure, we do not face the kind of pressing problem' that dictates we try to force
further extension in an unreceptive market—that we can, in this phase of our
operations, afford to await opportunities that should arise to place longer securities,
at times when the market is clearly "beckoning", and the additional securities can
be fitted into the debt structure without taxing the market's capacity or compromising the objective of maintaining a free fiow of credit to other uses.
Put another way, the improved budgetary outlook, combined with the progress
that has been made in restructuring the debt, makes it possible for us, with some
confidence, to foresee placing our own debt into the market rather unobtrusively,
instead of our operations becoming a major independent influence on interest
rate levels.
So much for our own part in the market. For the rest, I would only like
to suggest a little perspective on the kinds of projections of credit demands that
we all have, upon occasion, been hearing represent a threat to the current rate
structure. You will recall—notably in the spring of 1961 and again last December—forebodings that the business advance would soon bring sharply higher
credit demands and strong interest rate pressures, and at times the bond market
has clearly reflected these anticipations by precautionary markdowns in price.
It is a fact that credit demands have increased through this period, as would be
expected in a growing economy. The net increases in corporate. Government,
foreign, consumer and mortgage debt, and in bank loans, which amounted to
about $32 billion in 1960, reached nearly $56 billion in 1962, and perhaps $62
billion last year—almost double the 1960 figure. But it is equally true that
mortgage, municipal bond, and second-grade corporate bond rates are today




EXHIBITS

239

significantly lower than at the bottom of the 1960-61 recession, that bank loan
rates are unchanged, and that high grade corporates are only very slightly higher.
Without trying to be too sophisticated or detailed about it, but without being
inaccurate either, this rate stability can be explained by the fact that a growing
economy generates more savings as it develops more credit demands. The
recent willingness of savers to accumulate large amounts of funds in liquid form
at institutions which in turn channel those funds into long-term markets—a
process which has been aided and abetted by the higher rates paid by savings
institutions—has been especially helpful in maintaining a balance in the supplies
and demands for longer-term credit. The other side of the coin is that increases
in the money supply itself have been of moderate dimensions, considerably less
than the growth in GNP itself.
As I myself appraise this experience—and without trying to read the future
precisely either in terms of the influences bearing on policy or the prospective
volume of credit demands—one lesson seems to me quite clear. An orderly
and well-balanced business advance—an advance, by the way, still well below
the point at which limitations on capacity or manpower become evident—is
quite capable of generating the new savings necessary to balance rising credit
demands. Nor do I see persuasive evidence that tax reduction necessarily
introduces a wholly new element into this picture. It is implicit in the budgetary
outlook that the reduced tax rates already enacted are consistent with smaller
credit demands from the Federal Government, and confident as I am of the
ultimate effectiveness of the tax program in stimulating the economy, nothing
that has happened so far suggests that the coming rise in business activity, or in
private credit demands, will be out of keeping with the kinds of increases we saw
during much of 1961, and again toward the latter part of 1963.
In fact, looking at the categories of credit demand one by one, and considering
particularly the probability that mortgage demands will not continue to rise so
rapidly from year to year—and looking, too, at the prospects for a larger corporate
cash flow and at least temporary increases in the rate of individual savings—it
seems to me the burden of proof lies quite on those who anticipate strong upward
pressures growing out of domestic credit flows on the current structure of interest
rate.
EXHIBIT 23,—Other Treasury testimony published in hearings before congressional committees, July 1, 1963-June 30, 1964.
Secretary of the Treasury Dillon
Statement on the debt limit, published in hearings before the Committee on
Ways and Means, House of Representatives, 88th Congress, 1st session, October
29, 1963, pp. 2-5.
Statement on the debt limit, published in executive hearings before the Committee on Ways and Means, House of Representatives, 88th Congress, 2d session.
May 25, 1964, pp. 1-6.
Statement on proposed changes in the Federal Reserve System embodied in
H.R. 3783, H.R. 9631, H.R. 9685, H.R. 9686, H.R. 9687, and H.R. 9749, published in hearings before the Subcommittee on Domestic Finance of the Committee on Banking and Currency, House of Representatives, 88th Congress, 2d
session. Vol. 2, March 5, 1964, pp. 1230-1236.

Taxation Developments
EXHIBIT 24.—Statement by Secretary of the Treasury Dillon, October 15, 1963,
before the Senate Finance Committee, on H.R. 8363, an act to amend the
Internal Revenue Code of 1954 to reduce individual and corporate income
taxes, to make certain structural changes with respect to the income tax, and
for other purposes.
Last January, the President sent to the Congress a broad program of tax
reduction and structural reform designed to meet the Nation's most pressing economic problems: chronic unemployment, underutilization of industrial capacity,
and continuing deficits, both in our international balance of payments and in our
Federal budget.
1743-160—65—-17




240

1964 REPORT OF THE SECRETARY OF THE TREASURY

The President recommended significant cuts in individual and corporate tax
rates. He also recommended structural revisions that would broaden the tax
base and remove certain inequities to permit larger reductions in tax rates than
would otherwise have been possible.
The bUl before you was drafted in the House after full consideration of the
President's program. It is generally in accord with the President's program,
although it differs in certain specific respects. It reduces tax revenues in scale,
form, and with a timing pattern that meets the urgent needs of our economy—
and the reduction is within the limits of fiscal prudence. With one important
exception—in the treatment of capital gains—the bUl fairly distributes the
benefits of tax reduction among all income groups. It also contains important
provisions that relieve hardship and lessen favoritism.
The need for a major program of tax reduction and revision is pressing. I firmly
believe that to delay its passage would incur serious economic risks. Therefore,
I appear before you today to urge your committee to give favorable consideration
to H.R. 8363 as passed by the House with one principal exception. Because of
the urgency of prompt action, I recommend that the committee eliminate the
provisions in the biU dealing with capital gains, specifically those that relate to
the new 40-percent inclusion factor and the new 21-percent ceUing rate for so-called
Class A capital gains. The Administration's position has always been that these
controversial and complex features should only be dealt with in connection with
the related and inseparable problem of the treatment of unrealized capital gains
at death.
The tax reductions contained in this bill have been strongly endorsed by both
business and labor, by financial leaders at home and abroad, and by a large cross
section of the most distinguished economists in our universities. After months
of public debate in the press and other media, the bUl was approved by a very
substantial majority of the House of Representatives. In sum, there is a national
consensus that the bill is a necessary and proper measure that is vital to our
economic progress.
I. T H E IMPORTANCE OF TAX REDUCTION
A. ECONOMIC E F F E C T S

The President's tax program addresses the basic problem of chronic underemployment of manpower, plant, and equipment that has plagued us for more than
five years. For the past 6 years unemployment has averaged 6 percent, and it
has not fallen below 5 percent during that period. The rate of capacity utilization
for plant and equipment has remained well below preferred operating rates.
Recessions have occurred all too frequently, and recoveries have fallen progressively shorter of full employment. Finally, corporate profits and the ratio of
expenditures on plant and equipment to gross national product have been below
previous postwar levels.
Despite the encouraging 1963 performance in certain sectors of the economy, I
wish to emphasize that the underl5dng situation has not changed since the President presented his program last January. Although retail sales, personal income,
civilian employment, and gross natipnal product have all reached record levels
during the present recovery, which has been under way since February 1961, our
more pressing economic problems remain with us. Unemployment this year has
averaged 5.7 percent and in September 5.6 percent of the labor force was still
unemployed. Capacity utilization remains well below preferred operating levels.
A serious deficit in the balance of payments persists. Moreover, there is reason to
beheve that the expectation of major tax reduction has contributed to the 1963
advance. Businessmen and individuals have based their spending plans, to some
extent, upon their anticipation of significant across-the-board tax reductions. A
substantial cutback of the proposed tax reductions, or a further delay in their
implementation, might seriously affect the economy's vitality.
The present business cycle expansion is now in its 32d month. It is already
seven months longer than the expansion which ended in the recession of 1960 and
now equals the average duration of our postwar peacetime recoveries. But in




EXHIBITS

241

the 32d month of continued expansion, the unemployment rate is only shghtly
less than it was in the depths of the 1954 recession. Although the economy is
growing, it is doing so in a cyclical fashion in which the cycles mirror the economy's
underlying inability to sustain, over any extended period, the rate of growth
required to provide employment for our rapidly growing labor force.
When the President said in January that the "largest single barrier to full
employment of our manpower and resources and to a higher rate of economic
growth is the unrealistically heavy drag of Federal income taxes on private purchasing power, initiative, and incentive", he voiced a widely held view. Without
the basic reduction in tax burdens proposed in H.R. 8363, we increase the likelihood
of repeating the disappointing record of recent business cycles. When recession
occurs, the economy will fall from a plateau well below full employment and the
subsequent recovery will again fall short of that goal. This is not to say that
unless tax reduction is enacted, and enacted soon, recession will necessarily follow.
It is only to suggest that without the thrust that significant tax reductions can
provide, there is no basis in recent experience to predict or expect that the economy
will break out of the disappointing pattern of recent years. On the other hand, a
substantial across-the-board reduction- in taxes should give our economy the
impetus it needs to put an end to this pattern of recession. While I recognize
that a sustained period of rapid economic expansion such as we envisage with
enactment of H.R,. 8363 would be a new experience for the American economy, it
would only parallel what is now being regularly achieved by the countries of
Western Europe.
Our persisting problem has been insufficient demand. The Federal Government has the capacity to meet this problem and since the enactment of the
Employment Act of 1946 it has had a clear responsibility to do so. Two entirely
different courses are open. Either additional Government expenditures, which
mean bigger central Government, or an increase in the growth of the private sector
can stimulate our economy. The choice is whether the Government or private
consumers and investors will control how our increased output is to be used.
The Administration, in supporting H.R. 8363, has chosen the free enterprise,
private economy course. It prefers that course. This is the course that leaves to
private individual and corporate spenders the decision as to which particular goods
and services shall be purchased with the increase in demand that will flow from
the substantial reductions we are recommending in our harsh tax rates. I feel
certain that the great majority of Americans agree with the Administration's
preference for the tax reduction, private economy route to full production and full
employment. The enactment of H.R. 8363 will carry out their desires.
H.R. 8363 is fully adequate to set us on a new path of growth. Tax reduction
will augment both individual incomes and corporate earnings. Individual income tax liabilities will be lowered by $9 bilhon. This will enhance consumer
. purchasing power, to be spent and respent, circulating through the economy, in
a way that will increase overall consumer spending by several times the amount
of the intitial tax cut.
This sustained increase in the demand for consumer goods and services will in
turn stimulate greater investment in plant and equipment. At the same time,
tax reductions for corporations and businessmen wUl provide new investment
incentives by raising the net return on capital. Taken together with last year's
depreciation reform and investment credit, the profltability of new investment
will be increased by nearly 35 percent, and corporate tax liabilities wUl be reduced
by more than $4.5 billion. This increased profitability wUl bring enlarged investment spending, which in turn will generate still higher incomes and expanded
consumption outlays.
Finally, the rise in our national output will expand the revenues of State and
local governments and mitigate their mounting financial problems. State and
local governments will be better able to support badly needed public facilities and
services, and the pressure they are now under to raise tax rates or find new sources
of tax revenue will be substantially reduced.




242

19 64 REPORT OF THE SECRETARY OF THE TREASURY

Thus the tax program envisaged in H.R. 8363 will have a balanced impact
upon the economy, stimulating both consumption and investment. The forward
thrust provided for the economy will be greater than if the tax reduction were
concentrated on either sector alone.
The higher level of business investment under a more favorable tax environment
will greatly increase the productivity of our economy. This improved productivity will facilitate the development of new and better products, thus enabling
us to compete more effectively in international trade. A higher rate of return on
investment will make investment at home more attractive relative to investment
abroad, and will also attract more foreign capital to our shores. Substantial
improvement of the investment environment in the United States is essential if
we are to achieve a stable balance in our international payments. This is why
the President, in his recent statement on the balance of payments, urged the tax
reduction program as the single most important step that could be taken to achieve
balance abroad as well as growth at home.
B. BUDGETARY I M P A C T

While we strongly advocate tax reduction as the best means of achieving a
desirable, full employment growth rate, we also believe that it must be accompanied by a most prudent management of the Government's fiscal affairs. Our
repressive tax structure prevents our economy from operating at reasonably full
capacity. This failure to reach capacity operations in turn reduces profits and
incomes and so reduces our revenues. Therefore, paradoxical though it may seem,
tax reduction today provides the best and quickest route to a balanced budget.
This comes about simply from the fact that the tax base rises and falls with
economic activity. The economic expansion we can expect from passage of H.R.
8363 will thus "feed back" increased tax revenues sufficient to achieve a balanced
budget at substantially reduced tax rates, provided expenditures are restrained.
With prompt enactment of this bill, we now expect the deficit for fiscal year
1964 to be less than $9.2 bUlion, which was the deficit originally forecast by the
President last January before any allowance for the effects of tax reduction. This
improved budgetary outlook reflects the economy's expansion and resulting higher
tax revenues, the delay in the effective date of the tax cuts, and also a reduction
in prospective expenditure levels.
As for fiscal year 1965 and following years, the President has assured the Congress
that he intends to maintain a tight rein on expenditures and that a substantial
part of the tax revenues from economic expansion will be used to reduce the
budgetary deficit until balance is reached. On this basis—and barring an unforeseen slowdown of the economy or international contingency—the President
expects to submit a budget for fiscal 1965 with a deficit less than presently forecast
for fiscal 1964, despite the fact that the second stage of the tax reduction will
have gone into effect and that the revenue loss from tax reduction in 1965 (before
feedback) will be $5 biUion greater than in 1964.
The House in turn has emphasized these factors by specifically referring to
them in section 1 of the bill. The bill states:
It is the sense of Congress that the tax reduction provided by this Act
through stimulation of the economy, will, after a brief transitional period,
raise (rather than lower) revenues and that such revenue increases should
first be used to eliminate the deficits in the administrative budgets and then
to reduce the public debt.
Thus, our real choice regarding budget deficits is whether we shall have a small
and temporary increase in our deficit as a byproduct of much needed tax revision
designed to stimulate the economy and lead to budgetary balance, or whether
we shall continue to live with the deficits that have characterized recent years
and which, in the absence of tax reduction, will stay with us no matter how much
we attempt to limit expenditures. This is so because our present repressive tax
structure guarantees recurring recessions and underemployment of our human
and material resources, which inevitably bring deficits in their wake.
During the recent debate on H.R. 8363 in the House of Representatives, virtually the only element of controversy was over the way in which to ensure the
expenditure control needed to reach balance in the next few years. There was
little disagreement on the necessity for prompt and broad scale tax reduction.




EXHIBITS

243

There was rio disagreement at all over the fact that such tax reduction should
be accompanied by firm expenditure control.
It was the view of a substantial minority that the necessary expenditure
control could best be achieved by setting limits on the estimates of expenditures
for the fiscal years 1964 and 1965 which are to be submitted by the President
next January. A fundamental weakness in this particular approach is the
fact that actual expenditures for these two years could vary significantly from
the January estimates for many reasons, a good number of which are not subject
to Presidential control. Past experience has shown this to be the case. On
the other hand, expenditures can never exceed the amounts actually appropriated
by the Congress. Effective expenditure control thus requires a joint effort by the
President and the Congress. Recognizing this fact the majority of the House
felt that the generally desired expenditure control would be more likely of achievement during the years ahead by the acceptance of joint Presidential and congressional responsibility as outlined in section 1 of the bill. The President on numerous
occasions has clearly indicated his sympathy for this approach and his recognition of the need for expenditure control. With the cooperation of the Congress,
I am certain that it can be achieved. There is thus no reason to delay the long
needed reduction in our repressive tax rates.
Some people have criticized tax reduction on the ground that the temporary
increase in the budgetary deficit that would flow from enactment of H.R. 8363
would pose an unacceptable danger of inflation. This criticism is based upon
an erroneous view of the cause of inflation. Whether inflation occurs depends
on the state of the whole economy, not just on the Federal budget. It can be
due either to an excess of demand over supply or to a situation where costs of
production rise more rapidly than productivity. For the past five years neither
type of inflation has been present in our economy. Wholesale prices have stayed
level since 1958 and wage increases remain within the bounds of the improvement
in productivity.
At present our economy is marked, not by inflationary pressures, but by
unused plant capacity and unemployed workers. Our idle resources are fully
capable of producing an additional $30 biUion to $40 billion of goods and services
which would match the increased private spending that we can expect from this
bill. Under such conditions additional private spending, stimulated by a tax cut,
will increase output and employment rather than prices.
II.

SIZE, TIMING, AND DISTRIBUTIONAL

EFFECTS

Let me now discuss this bill in greater detail.
A. G E N E R A L OUTLINE

The bill provides across-the-board individual and corporate rate reductions,
which, when combined with the various structural changes, will reduce revenues
by $7.08 billion in the calendar year 1964, and by $11.08 billion in calendar year
1965.
On January 1, 1964, individual income tax rates are to be reduced by twothirds of the full reduction planned for 1965. The calendar year 1964 rates will
range from 16 percent to 77 percent, instead of the present range of 20 percent
to 91 percent. The withholding rate will drop on January 1, 1964, from 18 percent
to 15 percent. On January 1, 1965, tax rates ranging from 14 percent to 70
percent will become effective and the withholding rate will drop to 14 percent.
(See attached table I for greater detail.)
On January 1, 1964, the corporate normal tax rate, which is applicable to all
taxable corporate income, will be reduced from 30 percent to 22 percent, a reduction of 26.7 percent. Simultaneously the surtax rate, which applies to corporate
taxable income in excess of $25,000, will be raised from 22 percent to 28 percent.
These changes will reduce the combined normal and surtax rate from its present
52 percent to 50 percent. On January 1, 1965, the surtax rate will be reduced
by 2 percentage points to 26 percent. For 1965 and subsequent years, the combined normal and surtax rate will thus be 48 percent.
The principal revenue effects, based on 1963 levels of income, before any feedback in revenue from economic stimulation may be summarized as foUows:




244

1964 REPORT OF THE SECRETARY OF THE TREASURY
Calendar year liabilities
1964

1965

In millions of doUars
Rate changes:
Individuals
Corporations ._

-6,310
-1,320

—9 470
—2,190

-7,630

— 11,660

+1,165
+
76

+1,220
+
90

+1,240

+1,310

_ __

-

495
190
685

-

_._

+
+

670
115
555

+
-

720
135

+

585

Total
Structural changes, capital gains revision, and revision of 1962 legislation:
Revenue raising:
Individuals
Corporations __
Total _
Revenue reducing:
Individuals
Corporations
_

__

Total
Total structural:
Individuals
Corporations
Total...
Total:
Individuals
Corporations..
Total . .

_

_

500
226

— 726

_..

-

-5,640
-1,435

- 8 , 750
-2,326

-7,075

___ '

— 11,076

NOTE.—See attached Table II for greater detail. The capital gain revisions will create revenue gains during the first 2 years they are in effect due to their "unlocking" effect; but a revenue reduction will occur after
1965. See Table VI for detail.

The effect on budget receipts is estimated to be:
Fiscal year receipts
1964

1966

In millions of dollars
Rate changes:
Indi viduals.. _
Corporations:
Before acceleration of payments
Acceleration of payments

-2,430

Total corporations
Total rate changes
Structural changes and capital gains revision:
Total

.
:

+

260

-1,320
+ 900

+

.-_

-7,630

260

-

420

-2,170
20

-7,960
+ 655

-2,190

.—7,396

Structural changes and capital gains revision affect corporation income tax
payments only in the fiscal year 1964; the effect of such changes in the fiscal year
1965 is the same as on calendar year 1964 liabilities.
These estimated reductions in budget receipts are based on calendar year 1963
estimated income levels and are computed before any account is taken of the
stimulating effect on the economy, over and above current rates of economic
growth, of the tax reductions. The net revenue cost after taking account of
economic stimulus, is estimated to be $1.8 billion in the fiscal year 1964 and $3.5
billion in the fiscal year 1965.
B. INDIVIDUALS AND CORPORATIONS

H.R. 8363, when taken in conjunction with the 1962 tax action, distributes
the benefits of tax reduction between individuals and corporations in proportion
to their relative contributions to Federal revenues from the income tax.




EXHIBITS

245

The bill, when fully effective, would reduce individual liabilities by $8.75
billion, which nearly equals 80 percent of the total tax reduction. Such emphasis
on the individual income tax is entirely appropriate, however, in the light of the
significant reductions in corporate taxes effected last year through revision of
depreciation guidelines and enactment of the investment tax credit. These two
provisions reduced corporate tax liabilities by about $2.25 billion in 1962. They
also reduced individual taxes payable on the profits of unincorporated business
by about another $250 million. When these tax actions are included, the reductions made in 1962 and proposed for 1965 total $13.6 billion for both individuals
and corporations. Of this total just over $4.5 billion, or one-third, will go to
corporations and the remaining two-thirds will go to individuals, an allocation
which is roughly in proportion to the current division of income tax revenues
between corporations and individuals.
Viewed from another standpoint, the net individual tax reduction, excluding
capital gains provisions, will reduce present tax liabilities for individuals by just
under 19 percent. The combined effects of this bill, depreciation reform, and
last year's investment tax credit, wUl reduce corporate tax liabilities by something
more than 17 percent.
C. EQUITABLE DISTRIBUTION AMONG INDIVIDUALS

The bill distributes the tax reduction equitabl3^ Taxpayers at all income
levels will receive significant tax reductions, averaging 18.8 percent even after
taking account of structural changes. Those at the lowest income levels, however, wfll receive the largest percentage tax reductions while those at higher
income levels will receive smaller percentage reductions. Those persons with
incomes of less than $3,000 wUl be given tax reductions averaging about 38 percent. On the other hand, persons with incomes of $50,000 or more will receive
reductions averaging approximately 13 percent. These differentials (presented
in more detail in the attached tables III and IV) are equitable since even minimal
tax burdens impose hardship on those at very low income levels and since even
small percentage reductions applied to higher brackets represent large amounts
of aftertax incomes.
The equitable distribution of tax reductions this bill contains would be seriously
distorted if the structural revisions accompanying the rate reductions were significantly altered. These revisions reduce liabUities for those with incomes of
less than $5,000 and partially offset the rate reduction impact among those with
higher incomes. Without the structural revisions, tax reduction would be much
less favorable to the needy persons at low income levels and much more favorable
to persons with higher incomes.
III.

TAX RATES

A. INDIVIDUAL TAX RATES

The most important part of H.R. 8363 is a top-to-bottom reduction in individual income tax rates. These rates, which now range from 20 percent to 91
percent, are reduced in two steps to a new level of 14 to 70 percent. The 14-to
70-percent rates would take effect in 1965. For the 1964 interim year, the rates
would be two-thirds of the full reduction, to range from 16 to 77 percent.
With the exception of adjustments at the bottom end of the tax scale favoring
single taxpayers with $1,500 or less of taxable income and married persons with
less than $3,000 of taxable income, and adjustments in the upper levels where
the rate scale has long been recognized as unrealistically high, the rate reductions
are geared to the present tax scale with reductions varying from 14 to 17 percent
in various brackets. These variations are necessary because of the desirability
of rounding in the interest of avoiding fractional rates.
A distinctive feature of this rate scale is the manner in which it would treat
the present first taxable income bracket. This bracket, which includes the first
$2,000 of a single person's taxable income—income after deductions and exemptions—and the first $4,000 of a married couple's taxable income, is currently
taxed at the rate of 20 percent. Over 50 percent of all taxpayers have taxable
incomes that fall wholly within this bracket and pay tax at only the 20-percent
rate. H.R. 8363 would split the bracket into four equal segments, $500 segments
for single persons and $1,000 segments for married couples. Tax rates of 14, 15,
16, and 17 percent would apply to these four brackets. These rates average 22.5
percent less than the existing rate. This average does not, however, fully describe
the effect of this provision. About 10 percent of aU taxpayers would pay tax




246

19 64 REPORT OF THE SECRETARY OF THE TREASURY

only at the 14-percent tax rate. For them the passage of H.R. 8363 would represent a 30-percent tax reduction. Another 10 percent would pay tax at only the
14- and 15-percent rates. They would receive an average percentage reduction
in tax of between 25 and 30 percent. Still another 15 percent of all taxpayers
would be subject to a rate no higher than 16 percent, or an average reduction of
25 percent.
The new tax rates on income in brackets above the present first taxable income
bracket up to a taxable income of $100,000 for a married couple will be 14 to
17 percent below present rates. But since these taxpayers also share in the
reductions in lower brackets, the average tax reduction even for these levels is
about 16 percent to 18 percent. The new rates on taxable incomes in excess of
$100,000 will show reductions of 17 percent to 23 percent below present rates.
The top rate will be 21 percentage points less than the current maximum of 91
percent, a reduction of 23 percent.
The present top bracket rates were originaUy enacted to ensure an equitable distribution of the sacrifices required by an all-out war effort. They are unrealistic
today. Although individuals expend their best efforts and take investment
risks for many reasons, the financial reward is an extremely important, if not
critical, one. Reduction of the highest tax rates should, therefore, stimulate
risk taking and effort, to the benefit not only of the taxpayers involved but to
the entire economy as well. Moreover, a reduction in the highest rates will
make it less rewarding for some of our most productive citizens to expend their
energies in activities and planning designed to avoid the consequences of the
present high tax rates. Finally, cuts in these high brackets will lose little revenue
since few people actually pay these rates.
B. CORPORATE TAX RATES

The House bill reduces combined corporate normal and surtax rates from 52
percent to 50 percent in 1964 and 48 percent in 1965. Reversal of the historic
trend toward high taxes will greatly improve business expectations and create
more favorable conditions for new investment. When the rate reductions are
fully effective, corporate income tax liabilities will be reduced by $2.2 billion a
year.
The reduction of corporate rates is an essential step in the continuing objective of stimulating economic growth. By raising profitabihty rates, greater
incentives are provided for modernization of facilities and expansion of productive capacity. At the same time additional funds are supplied internally to
finance expansion plans. To these reductions must be added the annual tax
savings of $2.25 billion resulting from the recent reduction in useful lives for
depreciation purposes and the enactment last year of the investment credit.
As a result of these measures American business will be in an unusually favorable
position to expand.
1. Benefits to Small Business
The proposed corporate rate structure is designed to give important tax benefits to small businesses. The House bill reduces the normal rate from 30 percent
to 22 percent on the first $25,000 of taxable income. In effect, the taxes of a
business with income under $25,000—a group that includes 467,500 out of 576,000
taxpaying corporations—will be reduced by 26.7 percent, against a reduction
of 7.7 percent for very large companies. (See table V.) The tax structure
will thereby strengthen the internal financing of small businesses that have less
ready access to the capital markets and are more dependent on internal funds
for new investment. The vitality of small business that is so essential to our
competitive economy will thus be better assured. The over nine million small
individual proprietorships will of course benefit from comparable reductions in
individual income tax rates.
2. Current Payment of Corporate Income Tax
The House bill will ultimately place large corporations on a current payment
basis as in the case of individuals. It proposes a shift toward quarterly payments
of tax in the corporation's taxable year. Corporations with tax liabilities in
excess of $100,000 will be required to make first and second quarterly current
payments of 1 percent each in 1964, the quarterly percentages increasing to 4
percent in 1965, 9 percent in 1966, 14 percent in 1967, 19 percent in 1968, 22
percent in 1969, and finally 25 percent in 1970. Through this plan, by 1970
tax payments of all large corporations would be fully current, with 25 percent




EXHIBITS

247

of their year's tax liabilities in excess of $100,000 paid in each quarter. Payment
requirements would be subject to the relief provisions of present law.
The corporations involved should experience no difficulty in adjusting to the
current payments schedule. Because no payments would be required on the
first $100,000 of tax liabilities, its effects would be limited to 15,000 or so large
corporations and only a small proportion of those companies would have substantial accelerated payments to make. The 15,000 large corporations account
for about 2)4 percent of the total number of corporations with taxable income.
Many of the larger companies that will be subject to the full effect of accelerated payments conventionally fund their tax liabilities by investment in Treasury
tax notes and other short-term securities. In general, then, the accelerated
payments would not disturb their net working capital. Current payments
would liquidate accrued income taxes payable and, therefore, reduce short-term
liabilities by an equivalent amount.
The payment system of the bill is so designed that no corporation would make
greater payments in any one year than under present law since the reduced tax
liabilities resulting from lower tax rates would offset acceleration of tax payments,
IV.

STRUCTURAL REVISIONS

A. INDIVIDUAL INCOME TAX

1. Measures to Relieve Hardships and Inequities
H.R. 8363 contains a number of provisions in the individual income tax area
that provide relief for individuals and families at the lowest income levels, including many older persons. It would also remove inequities the existing tax
system imposes on persons whose incomes fluctuate widely from year to year.
The revenue cost of these provisions is $435 miUion. Unless otherwise noted,
these revisions would go into effect on January 1, 1964. They are designed to
meet tax hardships which cannot be alleviated by rate reductions alone.
(a) The minimum standard deduction.—The bill provides each taxpayer with
a minimum standard deduction of at least $300 plus an additional $100 for each
exemption after the first. A married couple with no dependents would thus have
a $400 minimum standard deduction, or $200 each if they filed separately. The
standard deduction would still be optional, of course, and the taxpayer will still
be free to itemize his deductions. The maximum limit to the standard deduction
of $1,000 wiU continue to apply regardless of the number of exemptions.
The minimum standard deduction is a far less costly and much more effective
method of providing relief for those with low incomes than an increase in the
personal exemption. Moreover, since it involves an adaptation of the familiar
standard deduction, it is a recommendation readily effected and understood.
The minimum standard deduction would relieve many persons whose incomes
are near subsistence levels of the tax liabUities they may incur under present law.
A single person under 65 would not be subject to income tax untU his income exceeds $900, whereas at present he may be taxed on income in excess of $667.
For a single person with an income of $900, the minimum standard deduction is
equivalent to an increase in the personal exemption of over $233. A married
couple with income of $1,600 would not be taxed whereas they now may be taxed
on income in excess of $1,333, for them the standard deduction is equivalent to an
increase of $133 per exemption. A married couple with two children would
remain free of tax until their income exceeded $3,000, as compared to their
present nontaxable level of $2,667. Such a married couple with two children
would be granted the equivalent of an increase of $83 per exemption.
Since the minimum standard deduction bases relief upon the number of exemptions, it grants additional relief to the very poor aged or blind. For example, a
widow, aged 65 or more is not under this provision taxable on an income, not
counting her nontaxable social security benefits, of less than $1,600 a year. An
older married couple would be exempt from tax on an income, again excluding
social security benefits, of $3,000 a year or less. The minimum standard deduction wUl, therefore, greatly help those of our Nation's older taxpayers who must
live on low incomes.
The revenue cost of this provision is estimated to be $320 million a year.
Almost aU of the tax saving would be granted to taxpayers with incomes of less
than $5,000.
(b) Liberalization of the deduction for the care of children and disabled dependents.—The biU will modify the present deduction for the expenses of child care




248

1964 REPORT OF THE SECRETARY OF THE TREASURY

and the care of dependents unable to look after themselves so as to make it more
equitable and more meaningful. The bill raises from $600 to $900 the maximum
deduction in the case of widows, widowers, and ,persons with disabled spouses
when such people have two or more children or other eligible dependents to support. It also raises the age limit from eleven to twelve for children of the taxpayer
for whom the deduction may be claimed. The bill grants the deduction to a
man whose wife is incapacitated or institutionalized.
The annual revenue cost of these changes would be $5 million a year.
(c) Income averaging.—H.R. 8363 provides a practical and uniform solution
to the long-standing problem of the inequitable treatment that a progressive tax
system can impose on individuals with receipts of income bunched in one year.
Present law contains a variety of complex schemes applicable to limited situations.
Under this bill, taxpayers could average the amount of current income in excess
of I33>^ percent of average income for the immediately preceding four years,
provided the excess is over $3,000. The tax on the income subject to averaging
would be five times the tax payable on one-fifth of the amount. Capital gains,
already subject to special tax provisions, are not eligible for the averaging provision. Neither may the provision be used to reduce the tax which would
otherwise be due on wagering gains.
The provision would reduce revenues by $40 million.
(d) More liberal treatment of employee moving expenses.—Under existing law
a transferred employee may generally exclude from his gross income sums reimbursed by his employer for the basic expenses of moving to a new permanent duty
station. Similar allowances received by a newly hired employee may not be so
excluded, nor is any deduction allowed to any employee for nonreimbursed
expenses.
The House bill provides a new moving expense deduction which will be available
under certain conditions to all employees, whether newly hired or transferred,
whose expenses are not excluded from income under;present law. The deduction
is allowable in computing adjusted gross income, so that employees who elect
the standard deduction may also claim this new deduction. The deduction
includes the reasonable expenses of moving household goods and personal effects
and of family travel between the old and the new residence. (The deduction
would not be allowed to a transferred employee who excludes reimbursements
for moving expenses under present law.) By allowing this new deduction for
moving expense, the bill removes the discrimination in present law in favor of
reimbursed transferred employees. It would also promote the mobility of labor
and thus enhance employment.
The estimated annual revenue cost is $60 million.
(e) Liberalization of the medical expense deduction, for the aged.—Under present
law a tax^payer over 65 may deduct all of the medical expenses of himself or his
spouse except in the case of the cost of medicines and drugs where his deduction
is limited to the amount in excess of 1 percent of adjusted gross income. The
bUl eliminates this 1-percent floor for a taxpayer aged 65 or over for the experises.
of medicines and drugs for himself or his spouse. The medical expenses of our
senior citizens are much heavier on the average than similar expenses for younger
persons and they may often include large amounts for medicines and drugs. The
present 1-percent floor on the deduction would also be removed in the case of
taxpayers who pay expenses for medicines and drugs, on behalf of aged dependent
parents.
The revenue cost of this provision is $10 million.
(f) Liberalization of the deduction for charitable contributions.—Under present
law, individuals are permitted to deduct the amount of their contributions to
charitable organizations up to a limit of 20 percent of their adjusted gross income.
Deductions amounting to an additional 10 percent of adjusted gross income
are permitted for contributions to churches, educational institutions, and medical
and research facilities.
The bill would also make the present limitation more uniform and more liberal,
extending the 10-percent additional deduction to donations to nonprofit organizations which are publicly supported and controlled. Such organizations would
include community chests, health organizations such as the Cancer Society,
the Red Cross, museums, symphony orchestras, etc. It would not include
contributions to private foundations and trust funds.
Although very important to many philanthropic organizations, the revenue
cost of this provision is expected to be nominal.




EXHIBITS

249

2. Base Broadening and Equity
' The remaining provisions affecting the individual income tax are ones which
would raise revenue. The measures are vital to the bill, for without the $1
billion they would raise, rate reductions of the magnitude proposed would not be
possible within the limits of fiscal prudence. Furthermore, these provisions
improve tax equity, so vital to our system of voluntary compliance, by removing
unwarranted special provisions and unncessary complexities and inequities.
(a) Restriction of the deduction for State and local taxes paid.—Under the single
largest base broadening measure contained in H.R. 8363 the deduction for
nonbusiness taxes paid would be limited to State, local, and foreign income and
real property taxes, and State and local personal property and general sales taxes
including compensating use taxes. The provision would not affect taxes incurred
in carrying on a business or producing income, which would remain fully deductible.
The-bill, in effect, prohibits the deduction of State and local taxes on cigarettes,
liquor and gasoline, license fees on motor vehicles and operators' permits, and
miscellaneous taxes such as admissions or occupancy taxes. Although eliminating the deduction for these items will produce a relatively large amount of
revenue, it will have a minor impact on the average taxpayer because the burden
is widely dispersed.
Limiting the deduction for taxes as provided would be an important step
forward in tax equity. Under present law the deductibility of special taxes often
depends on the form rather than the substance of the tax. Cigarette taxes,
for example, are only deductible if they are levied directly on the consumer,
or separately stated and passed on to him at the retail level. As a result, cigarette
taxes are currently deductible for residents of 26 States and are not deductible
in. 21 States. Three States have no cigarette taxes.
• This provision would simplify preparation of returns because the taxes in
- question are typically estimated on the basis of incomplete records or no records
at all. It would eliminate present confusion over the relation between the legal
form of the tax and its deductibility. The unprecise nature of the deductions
claimed for these taxes not only makes it difficult for taxpayers to derive fair
benefits from the deduction, it also makes it difficult for the Internal Revenue
Service to audit claims.
Certain excise taxes now deductible are, in effect, payments for special benefits
provided the users of special facilities. For example, in 1961, 96 percent of the
$3.5 biUion collected from State motor fuel taxes was aUocated to highway construction and maintenance. Like the Federal gasoline tax, which is nondeductible, these State motor fuel taxes form part of the price for the use of the highways.
In the same maimer that toll charges on highways and fees paid for the use of
State parks are not now deductible, gasoline taxes paid for the personal use of
highways should not be deductible.
This provision of the bill would provide $520 million in additional revenues,
which makes it the largest single base broadening provision in H.R. 8363.
(b) Repeal of dividend credit and increase of dividend exclusion.—Present law
provides an exclusion from taxable income of the first $50 of dividend income
($100 for a married couple where each has $50 or more of dividend income) and
a credit against tax liability of 4 percent of dividends which exceed $50. ^ The
HouseIDUI would reduce the tax credit to 2 percent, effectivein 1964, and eliminate
it in 1965. The biU would increase the amount of exclusion to the first $100 of
dividend income ($200 for a married couple), effective in 1964.
The House action is necessary to justify the rates adopted for middle and upper
income brackets. The net revenue gain from the House action is estimated at
$120 million in 1964 and $300 million in 1965. The repeal of the credit would
gain $370 miUion but would be offset somewhat by the higher exclusion which
would cost $70 million.
• The $50 exclusion was enacted in 1954 primarily for the benefit of yery small
shareholders. It presently eliminates completely the taxation of dividends for
two million filers. The House-adopted $100 exclusion would remove from taxation the dividends of another one miUion taxpayers. Under the biU, a married
couple would have to have more than $6,000 of stockholdings before their dividends
($200) would be at aU taxable, on the basis of the current average dividend yield
of 3.2 percent. For the vast majority of our citizens such an investment represents a sizeable amount.
In addition to the one miUion taxpayers whose dividends wUl become completely
tax-free under the House bill, a further one miUion taxpayers wUl receive more tax
relief from the additional $50 exclusion (or $100 for a married couple) than they do




250

19 64 REPORT OF THE SECRETARY OF THE TREASURY

from the present 4-percent credit. At a tax rate of 20 percent, for example,
dividends would have to exceed $300 before a single taxpayer would no longer
benefit more from the additional exclusion than the credit, and his stockholdings
•would generally be in excess of $9,375. In the case of a married couple filing
jointly the comparable figures would be dividends of $600 on holdings valued at
$18,750.
Even for taxpayers with all of their income from dividends, the loss of the
dividend credit is offset in practically all cases by the reduction in personal income
tax rates. In the very few cases where this does not occur the increased dividend
payments which corporate income tax reduction will produce, will still ensure an
increase in aftertax income. Thus all dividend recipients will be better off under
the bill than they are today.
The 4-percent credit, enacted in 1954, sought to provide relief from so-called
"double taxation" and to stimulate equity financing relative to debt financing,
and thus promote economic growth. There is no clear evidence to indicate that
the dividend credit increased equity financing and investment. Indeed, the ratio
of equity to long-term debt financing fell from 77. 3 percent in 1950 to 72.7 percent
in 1960. Since 1954, the economy's growth rate has not been impressive.
As for the double taxation relief the dividend credit provides, its benefits accrue
to taxpayers in a very inequitable fashion. For example, as shown in table III
of the attached Exhibit. 3^ (under proposed rates), the lowest income bracket
obtains relief from 4.3 percent of the extra burden the corporate tax allegedly
imposes; the highest bracket enjoys a 12.2-percent relief. The existing dividend
credit therefore provides the greatest benefits to high income individuals. The
4-point reduction in the corporate tax, however, would remove 7.7 percent of the
corporate tax burden from all stockholders, rich and poor. It is a much more
straightforward and fair way of providing investors some measure of tax relief.
The revenue gain from the House provision is $300 million.
(c) The sick pay exclusion.—Employees who are absent from work because of
illness or injury and who continue to receive wages or salaries under employerfinanced wage or salary continuation plans (commonly known as "sick pay")
under present law may exclude from income subject to tax up to $100 a week of
amounts so received. The wage exclusion is unrelated to hospital or medical
costs which are excluded from income anyway if employer financed or subject to
the medical expense deduction if paid by the employee. The wage exclusion
applies from the first day the employee is injured or hospitalized; otherwise there
is only a seven-day waiting period.
As the law now operates, wage continuation payments are very often excluded
from income because of minor illness or injury. This means an employee who
stays at home because of a slight injury which requires little or no medical care
and stUl gets his salary or wages may exclude from income up to $100 a week of
his pay. His coworker, similarly injured, but who stays on the job, enjo3^s no
such exclusion.
The House bUl restricts the exclusion to cases of absences due to more prolonged and, hence more serious, illness or injury. The present $100 a week
exclusion would continue to apply but only after an employee has been absent
from work for 30 calendar days, whether or not he is injured or hospitalized.
The revenue gain from the House provision would be $110 million.
(d) Minor casualty losses.—The justification of the nonbusiness casualty loss
deduction is similar to that for the medical expense deduction. The two adjust
abihty to pay for tax purposes to take into account extraordinary, nonrecurring
losses of a type hkely to be so large and unexpected that they inffict unusual
hardship on the taxpaj^er. A certain amount of minor loss or damage is common
to everyone's experience and should be treated as a part of ordinary living expenses. The fact that most individuals are prepared financially to meet these
minor losses is well attested by the popularity of deductible clauses in automobile
insurance policies.
It is estimated that enactment of this provision will increase revenues by $50
million a year.
(e) Group term life insurance and hank loan insurance.-—Present law does not
require employees to include in their taxable income compensation received in the
form of protection provided by employer-financed group term life insurance.
Employers, however, may deduct such premiums as a business expense. This
is the only kind of employer-financed life insurance which is not included in emJ Omitted from this exhibit; for document reference see note at end pf this statement.




EXHIBITS

251

ployee income. Within recent years, widespread use of this exclusion privilege
has developed beyond its original purpose. The provision of jumbo group term
insurance coverage for high income executives has become a rather common
method of providing substantial tax-free compensation for services. In some
cases executives have enjoyed, without paying any tax on the premiums, the
benefit of Ufe insurance coverage of close to $1,000,000, which protects their
families and may substantially augment their estate.
H.R. 8363 would place a dollar limit on the amount of group term life insurance
which can be enjoyed free of tax. An employee would be required to include in
income for tax purposes the cost of group term life insurance protection provided
by his employer to the extent the protection exceeds $30,000. If the employee
makes contributions toward the insurance, such contributions will be attributed
to the amount of insurance protection which exceeds $30,000. The amount to be
included in income may be computed from simple tables constructed on a very
favorable basis.
The bill exempts retired employees from this provision. It will affect less than
one percent of those employees now receiving group term life insurance protection
from their employers.
Abuses have also developed in connection with arrangements which permit a
taxpayer to purchase a life insurance, annuity, or endowment contract almost
wholly with borrowed funds. Under such an arrangement the policy holder
begins immediately to borrow substantial amounts against the cash value of the
policy to pay the premiums, and claims a tax deduction for the interest paid on
such loans. The device takes advantage of interest deductibility, while the corresponding buildup on the reserves in the policy is not currently taxed and can
escape all income tax.
The bill contains a provision which will effectively control these abuses. The
provision is consistent with section 264 of present law, which disallows a deduction
for interest on indebtedness incurred or continued to purchase or carry a single
premium life insurance, annuity, or endowment policy. The bill would not affect
the normal use of life insurance policies as collateral for loans.
It is estimated that the two provisions described here will increase revenues by
$15 million a year.
(f) Personal holding companies.—The House bill would curb the use of personal
holding companies to shelter passive investment income and certain personal
service income from tax at individual income tax rates.
Present law permits a taxpayer to shelter such passive income (which in the
case of dividends would be taxed under the House bill at corporate rates as low as
3.3 percent and not more than 7,2 percent) in a closely held corporation which has
as little as just over 20 percent of its gross income from an active business. Since
the active business need have no net income, a small investment in a business
where expenses wash out income can save today as much as 82.5 percentage points
of individual tax on sheltered portfolio investments. The House bill increases
to just over 40 percent the proportion of gross income required to be derived from
an active business to avoid personal holding company status. It also tightens
the definition of personal holding company income in the areas of rentals, royalties,
and capital gains to outlaw devices that have been frequently used to shelter
portfolio investment income.
The House bill affords generous relief provisions to permit companies adversely
affected by the changes to adjust their affairs.
The revenue gain from the changes in taxation of personal holding companies is
estimated at $15 million.
(g) Gifts of future interests.—The bill denies the charitable contribution deduction in the case of certain gifts of future interests which involve tangible
personal property. This provision, for example, would prevent a taxpayer from
claiming a charitable deduction in the year in wMch he donates some item of
tangible personal property, most frequently paintings or other art objects, to a
charitable institution such as a museum, if he continues to retain possession and
enjoyment of the property for a period other than that of his life or the life of
his spouse. In these cases the deduction will only be permitted when the property
is actually transferred to the receiving institution.
The revenue gain from this provision is nominal.
B. T H E CORPORATE I N C O M E TAX

1. Multiple Surtax Exemption
Certain structural changes are essential to limit the benefits of lower [normal
tax rates to their intended purpose of aiding smaU businesses. Many large




252

1964 REPORT OF THE SECRETARY OF THE TREASURY

enterprises are exploiting the competitive advantage designed for small business
by operating through multiple corporate units and obtaining numerous surtax
exemptions of $25,000. Exhibit 13 ^ illustrates cases where several hundred
outlets of the same business were separately incorporated, thereby often substantially reducing the effective rate of tax for the business. As a result of this
practice the Federal income taxes of these businesses are appreciably below those
paid by competitive enterprises of a comparable size which operate through a
single corporation. They are at the same time endangering the continued
existence of the small, independent firm by this tax advantage. Since the proposed change in corporate rates would provide even greater relative tax advantages, effective measures are urgently needed to restrict the use of the surtax
exemption by multiple corporate groups under the same ownership and control.
Continuation of tax benefits to multicorporate enterprises cannot be condoned
simply because in sonie cases they were formed for valid business and legal
reasons rather than for tax avoidance. That tax benefits may not have been the
main or only purpose in these cases should not be allowed to obscure the fact
that the tax benefits of multiple surtax exemptions are very substantial and are
not warranted by the underlying purpose of the surtax exemption. These
multicorporate groups do not experience financial impediments similar to those
experienced by the small corporations which the surtax exemption is designed
to aid. Even where for legal reasons separate incorporation of the units may be
required, the economic and financial resources of multicorporate groups are
equal to those of its combined members or a comparable large single corporation.
Hence it is paradoxical that a feature of the tax law designed to aid small firms
serves to enhance the financial well-being and strength of their large multicorporate competitors.
The bill meets this problem by imposing additional taxes on the taxable income
of affiliated corporations that do not file consolidated returns and elect to retain
multiple surtax exemptions. The additional tax rates would be 6 percent on
the first $25,000 of income.
Although the provision does not fully eliminate the unwarranted tax advantages
of multicorporate organizations, it generally precludes increasing those advantages through the proposed reduction in the normal tax rate designed to assist
independent small business.
Enactment of these proposals would add an estimated $35 million to tax receipts.
2. Two-Percent Tax on Consolidated Returns
Affiliated corporations filing consolidated returns are now subject to an additional 2-percent tax on their consolidated net income. The House bill provides
for the repeal of this additional tax.
Repeal of the 2-percent tax is consistent with the treatment of affiliated corporations as an economic unit. Its repeal, therefore, should be contingent upon the
adoption of the proposals concerning multiple surtax exemptions for commonly
controlled corporations. Elimination of the 2-percent tax on consolidated returns will then facihtate the transition of multicorporate structures to more
rational taxation and permit the lower rates on small business.
Enactment of this provision would reduce Federal revenues by $50 million.
3. The Aggregation of Oil and Gas Properties
Prior to 1954, taxpayers were permitted to combine certain mineral deposits
in a tract or parcel of land for the purpose of computing the net income limitation
on the deduction for percentage depletion. This practice did not work satisfactorily in the case of some hard minerals, such as coal, and the law was amended
in 1954 to permit other forms of property grouping if the properties were in one
"operating unit." While the change was brought about by the problems of the
hard minerals industry, it was also made applicable to the oil and gas industry
although that industry did not request any change. The grouping practices
that have evolved in the oil and gas industry as a corisequence of the 1954 legislation have been used to minimize taxes in a way that does not seem to have been
contemplated by the 1954 legislation and does not accord with sound and ordinary
business practices in the industry. It is these undesirable grouping practices
induced by the 1954 legislation that should be curbed. A company able to
select and combine high cost with low cost properties located over wide geographical areas, including some properties and excluding others as best suits its
tax picture, can readily circumvent the application of the 50-percent net income
1 Omitted from this exhibit; for Document reference see note at end of this statement.




EXHIBITS

253

limitation. The excess net income from profitable properties is used to increase
the lower net income or losses on other properties with the result that none
of the properties is affected by the 50-percent limitation. As a result larger
percentage depletion allowances may be taken.
In general, H.R. 8363 restores the pre-1954 rules governing the grouping of
operating mineral interests in the case of oil and gas properties for taxable years
beginning after December 31, 1963. It provides that oU and gas operators may
elect to maintain separate deposits as separate properties or may combine some
or all deposits falling within a single tract or parcel of land. It also provides
that interests participating under a unitization agreement will be treated as one
property even though included in different tracts of land.
Primarily larger operators with widely scattered holdings will be affected by
the aggregation proposal. The information available to the Treasury indicates
that most small operators in the oil and gas industry have not used the broad
aggregation rule and thus would not be affected by its elimination. For instance
90 percent of this provision's estimated revenue gain (of $40 million) is attributable
to the 32 largest producers. The aggregation proposal does not affect producers
of minerals other than oil and gas.
V. CAPITAL GAINS
A. BASIC PROVISIONS

Under present law 50 percent of the net capital gains of individuals on assets
held more than six months are includable in income subject to tax at the regular
rates, except that the tax may not exceed 25 percent on such net gains in any
event. Thus the general rate reduction of the House bill automatically reduces
the tax on long-term capital gains for all those below a 50-percent marginal tax
rate, at which point the 25-percent ceiling takes hold. Under the House bill this
marginal rate starts at $44,000 of taxable income for a married taxpayer instead
of $32,000 under present law.
The House bill provides a further reduction for assets sold after a two-year
holding period. Only 40 percent of the gain on such assets would be included in
income instead of 50 percent and the maximum tax would be 21 percent instead
of 25 percent. Capital gains on assets held more than six months but not more
than two years would continue to be includable at 50 percent with a maximum
tax of 25 percent. The so-called statutory capital gains—income not truly
derived from the sale of capital assets, such as lump-sum distributions from pension plans, gain on cutting of timber inventories and the like—would remain in
the 50-percent inclusion—25-percent maximum rate category. For those taxpayers not using the alternative rate—97 percent of all tax returns with capital
gains—the combination of the reduction in the inclusion factor and the lower
ordinary income rates affords a 35-percent reduction in tax on capital gains as
opposed to a 19-percent reduction on ordinary income.
These capital gain provisions of the House bill are unacceptable. They provide
a rate reduction which will largely benefit our wealthier citizens without treating
a concomitant problem of equity ,in capital gains taxation, namely that gains
which are unrealized at the time of death are never subject to income taxes.
A man who accumulates an estate from salary or dividends, or business profit,
pays income tax on the accumulation during his lifetime and then if the estate
is large enough, his estate may be liable for estate tax when he dies. The same
is true of a man who builds up a valuable business and sells it before he dies.
However, the individual who holds appreciated assets until death, as well as
his heirs, escape all income and capital gains tax applicable to their gains, since
the tax cost or basis to the heir is stepped up to the value of the property in the
gross estate of the decedent. This situation is not only a special benefit to owners
of capital assets, but it seriously "locks-in" capital holdings. Indeed, it may be
a principal cause of the "lock-in" problem for which other remedies are suggested.
Older taxpayers frequently feel they can't afford to sell appreciated capital
assets when they know that the capital gains tax can be completely avoided by
keeping the asset in their hands and then passing it to their heirs.
The President specifically stated in his Tax Message last January that no reduction in the capital gains rate of taxation is justified unless a tax is imposed "at
capital gains rates on all net gains accrued on capital assets at the time of transfer
at death or by gift." The Ways and Means Committee had substituted a tentative provision for carryover of a decedent's basis at death which was reasonably
satisfactory, since it meant that the capital gains tax on the before-death appreciation would be paid when the property was sold by the heir. At the last moment,




254

19 64 REPORT OF THE SECRETARY OF THE TREASURY

however, the Ways and Means Committee decided to delete the provision because
it was dissatisfied with the language presented to it and wanted more time to
work out technical detaUs. Without a provision either for carryover of basis or
for taxation at the time of transfer at death, the capital gains rate changes should
be deleted from the House bill and the entire matter put over until the problem
can be solved as a whole. Without closing the escape hatch by which our wealthier
taxpayers can avoid all taxation on substantial amounts of capital gains, there is no
justification for a reduction in rates of primary benefit to such taxpayers. The
present 50-percent inclusion factor and 25-percent ceiling provide enough of an
advantage for those whose income is derived from profits on the sale of capital
assets. Moreover, since the House provisions involve a three-step arrangement
of capital gain inclusions and two maximum rates, they seriously complicate the
capital gain portion of the tax return and of the Code.
The deletion of this feature would lower the long-run annual revenue loss by
about $140 million. We would, however, have to forego a temporary two-year
increase in revenues during fiscal 1965 and 1966, which had been foreseen because
of the initial one-time "unlocking effects" of the reductions in capital gain tax
rates. These revenue effects are shown in detail in table VI.
B. OTHER CAPITAL GAINS PROVISIONS

1. Gains on the Sale of Depreciable Real Estate
The House bill deals with the sale of real estate at a gain after the taxpayer
has taken advantage of the accelerated methods of depreciation allowed under
present law. The provision is necessary to curb the single most serious abuse that
has arisen in the sale of real property, the conversion of ordinary income to capital
gain by early sale after use of fast depreciation. Under the bill, if a building is
sold within one year after its acquisition, any gain up to the amount of post-1963
depreciation taken on the building is to be treated as ordinary income. If the
building is sold during the first eight months of the second year, gain is to be
treated as ordinary income to the extent of the excess of depreciation taken over
straight-line depreciation. Beginning with the twenty-first month after acquisition, the excess of actual depreciation taken over straight-line depreciation which
is to be treated as ordinary income will be diminished by one percent per month.
After ten years, any gain will be treated as long-term capital gain except that
major improvements are to be treated as having a separate holding period.
It is estimated that this provision would increase revenues by $15 million a year.
2. Stock Options
The House bill imposes certain new limitations on the capital gains tax treatment of benefits arising from executive stock option plans. First, the bill provides
that stock purchased pursuant to option must be held for a period of three years
foUowing the exercise of the option, if the spread between the market value at the
time of exercise and the option price is to be treated as a capital gain. Under
present law, the stock need be held only six months after exercise or two years from
grant. This has encouraged quick sales and speculative profits, contrary to the
incentive purpose of the stock option provisions.
'
Next, the bill provides that an option may be outstanding for no more than
five years (instead of ten as under present law) to qualify for special treatment, and
if the price of the stock declines in this period, the option price may not be reduced.
These provisions will encourage the early acquisition of a proprietary interest by
the employee and will ensure that the employee will only profit at times when the
price of the stock is higher than at the time of the original grant.
The bill also provides that the option must be issued at 100 percent of market
value, not at some level below market value as under present law. Also, with the
exception of corporations whose net worth is less than $2 million, no employee who
owns 5 percent or more of the stock in a corporation will be eligible for capital
gains treatment on stock option benefits. There is no need to provide an ownership incentive for employees who are already substantial stockholders. Other
provisions are set forth in the report accompanying the House bill.
The bill continues the treatment of present law in the case of nondiscriminatory employee stock purchase plans. The revenue effect of the stock option provisions will be nominal.
3. Interest on Deferred Payments
The bill contains a provision which will curb abuses in cases in which assets
are sold by means of deferred, or installment, payments. At present, when the
interest in installment payments is shown separately, it is taxed as ordinary




EXHIBITS

255

income to the seller and is deductible by the buyer. However, the seller may
convert the interest payments to capital gains by simply failing to specify the
interest as a separate component of each installment and caUing the payments
noninterest bearing. Frequently the designation of interest is immaterial to the
buyer, who may deduct the whole purchase price anyway as depreciation, or may
be tax exempt.
The bill provides that if the sales contract does not specify an adequate amount
of interest, a part of the proceeds will nevertheless be treated as interest and will
be taxed as ordinary income. The provision will not apply to annuities or to
patent royalties.
The revision will not have any appreciable revenue effect.
4. Gain on the Sale of a Residence by an Older Taxpayer
H.R. 8363 exempts from income subject to tax certain gains arising from the
sale or exchange of a residence by an individual who has attained the age of 65.
Aged persons could exclude completely any gain from the sale of their prinicpal
residence if the sales price of the house is less than $20,000. If the sales price
is higher than $20,000 a percentage of the gain can be excluded from the income
equal to the ratio of $20,000 to the actual sales price. The taxpayer must have
used the property as his principal residence for five out of the preceding eight
years and may not have used the provision previously.
This provision would reduce revenues by $10 million a year.
5. Iron Ore Royalties
The bill would include iron ore royalties in the class of items which, though
involving ordinary income receipts, are however to be taxed at lower capital
gains tax rates.
This provision will reduce revenues by $5 million a year,
6. Indefinite Loss Carryover
Present law permits an individual to deduct up to $1,000 of net capital loss
from ordinary income in a given year, and to carry a larger capital loss over for a
period of five years. As part of our proposed capital gains revisions, we proposed
that the $1,000 annual carryover be indefinite in duration. The House bill
accepted this proposal. Although I have indicated our objections to the capital
gains tax reduction features of this bill, I believe this indefinite loss carryover
should be retained. This benefits mainly small investors and property holders
who do not have capital gains against which they can fully offset major losses.
It would reduce revenue by $30 million a year.
VI.

AMENDMENTS TO THE REVENUE ACT OF

1962

This bill also contains several provisions designed to improve or clarify the
application of the investment credit adopted in 1962.
A. D E P R E C I A T I O N ADJUSTMENTS FOR T H E I N V E S T M E N T TAX C R E D I T

As a result of legislation approved by the Congress last year, tax liabilities of
business firms in general are reduced by an amount equal to 7 percent of their
outlays for new equipment. Annual tax savings for each firm may amount to as
much as the first $25,000 of tax liabilities plus.25 percent of the excess. However,
the business must reduce the depreciation basis of the assets acquired by the
amount of the credit. This requirement has led to a number of unforeseen accounting and administrative difficulties for both taxpayers and the Internal
Revenue Service. The effectiveness of the credit has also been substantially
reduced by the basis adjustment requirement.
H.R. 8363 eliminates the reduction in basis so that the benefits of the investment
credit would not be reduced in the future, and so that the impairment already
encountered would be recouped. The bill repeals the reduction in basis requirement for assets placed in use after June 30, 1963. It also provides that the
amounts deducted from basis before July 1, 1963, may be added back to basis as
of the beginning of the first taxable year of the taxpayer which begins after June
30, 1963.
This provision is appropriately included in this bill, which is directed at improving the performance of the economy. The investment credit stimulates
investment by reducing the net cost of acquiring depreciable assets, thereby
increasing the all-important rate of profitability on a given investment outlay.
The requirement that the basis for depreciation of assets be reduced by the amount
!743-16i0^65—*—18




256

1964 REPORT OF THE SECRETARY OF THE TREASURY

of the credit taken cuts the inducement to new investment provided by the credit
almost in half. When an investor appraises the profit potential of a new investment, he views taxes on income as a cost which reduces the net return. Whereas
the tax credit reduces this tax cost and increases profitability, the resulting
reduction in the depreciation base partially offsets the effect of the credit by
by reducing the amount of the depreciation which may be taken and thereby
increasing the taxable income from the investment.
At corporate tax rates of 48 percent, repeal of the basis reduction provision will
almost double the incentive provided by the present tax credit. By reducing
business taxes it will increase the profitability of new investment and encourage
the more rapid expansion and modernization of existing facilities. It will thereby
give an important stimulus to economic growth.
Repeal of the reduction-in-basis provision will also eliminate a number of
administrative problems and bookkeeping details which have burdened so many
taxpayers, especially small businesses. For example, in most States taxpayers
are not required to reduce their depreciation basis to reflect the investment
tax credit when computing income for State tax purposes. Consequently,
taxpayers in these States are now required to keep two different sets of accounts
in which their various assets have different bases. In addition, the basis reduction complicates the computation of earnings and profits, the pricing of
defense contracts, and the bookkeeping requirements of regulated companies.
Finally, the fact that the basis reduction immediately reduces depreciation
even in those cases where the taxpayer is not able to use the credit can result
in a net detriment to the taxpayer until he can use the credit.
It is estimated that this provision will result in decreased tax liabilities of
$145 million in calendar year 1964 and $185 million in calendar year 1965.
Estimated reductions in fiscal year receipts are $15 million in 1964 and $145
million in 1965.
B. OTHER TECHNICAL CHANGES

The bill also makes three other changes in the investment credit.
(1) It extends the credit to new escalators and elevators installed after July 1,
1963. At the same time, escalators and elevators disposed of after December
31, 1963, are made subject to the depreciation recapture provision adopted
in the Revenue Act of 1962. These provisions will reduce revenues by $10
million.
(2) It provides that a lessee from a distributor may base his investment credit
on the fair market value of the leased property rather than the lessor's cost.
A lessee from a manufacturer may use fair market value under the present law.
(3) It expresses the intent of the Congress in enacting the investment credit
as to its treatment by Federal regulatory agencies in setting rates for consumers.
CONCLUSION

In conclusion, Mr. Chairman, I wish to emphasize the urgent need for prompt
action along the lines suggested by this bill to reduce taxes and strengthen the
economy. We can no longer delay decisive action to restore the full measure
of economic vigor, both because of the seriousness of the unemployment problem at home and because of our balance-of-payments problems. Reduced
tax rates and the structural revisions adopted for equity purposes will increase
the reward for effort, enterprise, and risk taking and will thus enhance individual initiative and stimulate investment. These factors will provide the
needed spur to full employment and a faster rate of economic growth.
The revenue loss incurred in the first few years because of this bill will be
only temporary. In combination with the program of strict expenditure control announced by the President, the stimulating effects of tax reduction on
the economy should produce sufficient revenue gains in the future to enable us
to balance the budget.
It is essential to the well-being of the Nation that every effort be made to
complete action on this bill before the end of the current year. The encouraging expansion of economic aci:ivity which has occurred thus far during the
year is no doubt in part the result of favorable speculation regarding tax reduction. Failure to act on this bill might produce adverse psychological reactions throughout the country which would check the growth of our economy. The Nation has waited too long for relief from the stifling burden of
excess taxes. Although the problems placed upon Congress and this committee
are many and pressing, nothing is more important to the health of the Nation
than decisive and prompt action along the lines provided by this bill.




257

EXHIBITS

NOTE.—The exhibits omitted from this exhibit are published in Hearings
before the Senate Finance Committee, 88th Congress, 1st session, on H.R.
8363, an act to amend the Internal Revenue Code of 1954 to reduce individual
and corporate income taxes, to make certain structural changes with respect
to the income tax, and for other purposes, transmitted to the Congress October
15, 1963.
TABLE I.—Comparison of individual income tax rates under present law and under
the Revenue Bill of 1963
T a x a b l e income b r a c k e t

R e v e n u e Bill of 1963
Present
rates

Single person

M a r r i e d (joint)

1964 r a t e s

I n t h o u s a n d s of dollars
0.0-0.5
0.6-1.0
_ 1.0-1.5
1.6-2.0
. 2-4
4-6 - 6-8
8-10
10-12
12-14
14-16
16-18
18-20
20-22
22-26
26-32
32-38
38-44
4i-60
50-60
60-70
70-80
80-90
90-100
100-150
150-200
200andover

Percent

0-11-2
2-3
3-4
4-8
8-12.
12-16
16-20
20-24
24-28
28-32
32-36
36-40
40-44
44-62
52-64
64-76
7&-88
88-100
100-120
120-140...
140-160
.
160-180180-200
200-300
300^00...
400 a n d over

20
20
20
20
22
26
30
34
38
43
47
50
63
56
59
62
66
69
72
76
78
81
84
87
89
90
91

.

-

Percent
16.0
16.6
17.5
18.0
20.0
23.6
27.0
30.5
34.0
37.5
4L0
44.6
47.5
50.5
53.6
56.0
58.6
OLO
63.6
66.0
68.5
7L0
73.5
76.0
76.5
76.6
77.0

1965 r a t e s
Percent
14
15
16
17
19
22
25
28
32
36
39
42
46
48
60
63
66
68
60
62
64
66
68
69
70
70
70

TABLE IA.—Comparison of schedules under present law and under the Revenue Bill
of 1963
Present
law, r a t e

M a r r i e d (joint)

I n t h o u s a n d s of dollars
0.0-0.5
0.5-1.0
1.0-1.5
1.5-2.0
2-4
4-6 .
6-8
8-1010-12
12-14
14-16
16-18
18-20
20-22
22-26
26-32
32-38
38-44
44-50
50-60.60-70
70-80
80-90
90-100
100-160
150-200
200 a n d o v e r . . . .

-

0-1
.
1-2
2-3
3^..
4-8
8-12- . . 12-16
16-20
20-24
24-28
28-32
32-36 36-4040-44 - - . 44-52
52-64
64-76
76-88
88-100
100-120
120-140
140-160
160-180
180-200
200-300
300-400-400 a n d over




-

R e v e n u e Bill of 1963

Percent

T a x a b l e income b r a c k e t
Single person

Percent

•

•

20
20
20
20
22
26
30
34
38
43
47
60
53
56
69
62
66
69
72
76
78
81
84
87
89
90
91

Rate

P e r c e n t of
present r a t e
14
15
16
17
19
22
25
28
32
36
39
42
45
48
60
63
55
58
60
62
64
66
68
69
70
70
70

701
75U^ r
80 77.5
86)
86
86
83
83
84
84
83
84
86
86
85
86
86
84
83
83
82
81
81
79
79
78
77 •

258

19 64 REPORT OF THE SECRETARY OF THE TREASURY

TABLE II.—Revenue Bill of 1963—H.R. 8363: Estimated decrease (—) in revenue^
and increase (-f) (before feedback) on provisions 2 of bill
[In millions of dollars]
Calendar year 1964 liabilities
Individual
A. 1963 Tax Program:
Rate changes.. _ -Structural changes:
(a) Revenue raising:
1. Group term insurance
2. Bank loan insurance
.
3. Sick pay exclusion
_.4, Deduction of personal taxes—
5. Casualty loss deduction
6. Aggregation of mineral properties -.
7. Personal holding companies.
8. Repeal of dividend credit
and increase in exclusion..
9. Multiple corporation penalty
tax-_
10. Gifts of future interest
Total revenue raising
(b) Revenue reducing:
11. Medical expense deduction. _
12. Child care aUowance .
13. Moving expenses
.__ _
14. Income averaging.. __ _
16. Minimum standard deduction
__ _
16. Repeal 2-percent tax on
consolidated returns
17. Charitable deductions
-_

Calendar year 1965 habihties 3

Corporation

Total

Individual

Corporation

-6,310

-1,320

-7,630

-9,470

-2,190

+6
+5
-fllO
H-520
4-50
+16
-fl20
-f35

(*)
-h825

+5
+10
+110
+520
+50
+16

+120

-1-40

+5
+6
+110
+520
+60
+40
+15

'

+300

+35

(*)

-320
-50

(*)

+1,010

(*)

+35

(*)

-320

+76

+1,086
— 10
—6
—60
—40
—320

-50

-50

+40
+16
+300

-10
-5
-60
-40

-320

-10
-6
-60
-40

+40

(*)

+900

-11,660
+5
8+10
+110
-i-520
+50

+35

-10
-5
-60
-40

+75

Total

(*)

—60

(*)

Total revenue reducing

-435

-50

-485

-435

-50

-485

Total structural c h a n g e s -

-1-390

+25

+416

+675

+25

+600

Total rate and structural
changes, 1963 tax program
---

-5,920

-1,295

-7,215

-8,895

-2,165

-11,060

-1-130

+130

+130

-1-210

+210

+80

Capital gains revision (including
induced effects):
1. Unlocking of capital gains
from general rate reduction.
2. 50-40 percent inclusion and
21-percent maximum rate_3. Sale or exchange of real estate
4. Carryover of losses
6. Sales of residences by taxpayers aged 65 or over
6. Capital gams treatment of
iron ore royalties.
7. Stock options...
Total capital gains revisionTotal 1963 tax program
B. Revision of 1962 legislation:
1. Repeal of requirement to reduce
basis by investment credit
2. AUow investment credit for
elevators and escalators
..
Total revision of 1962 legislation
C. Total Revenue Bill of 1963

-30

(*)

-30
-10

-10
-5

(*)

+15

+80
3-1-15
—30
-10

-10
-6

-5

(*)

+130

(*)

—5

(*)

-j-300

-5

+295

+170

+10

+180

-5,620

-1,300

-6,920

- 8 , 726

-2,165

-10,880

-20

-125

-146

-26

-160

-185

-10

-10

-10

-10

-20

-135

-155

-25

-170

-5,640

-1,435

-7,076

-8,750

-2,325

-195
— 11,075

* Less than $500,000.
1 At levels of income estunated for the calendar year 1963.
2 As reported by the Ways and Means Committee.
3 Long-term effect except for capital gains. Certain provisions would be different for actual 1965. Bank
loan insurance would be +$6 miUion and sale or exchange of real estate +$5 miUion.




TABLE III.—Revenue Bill of 1963: Change in tax liability resulting from rate and structural changes for individuals ^
Structural changes
Adjusted gross income
class

Rate
change

Group
term
and
other
insurance

Sick
pay
exclusion

Limitation of
deductions

Casualty Personal
loss
holding
deduccompation
nies

In thousands of doUars
0- 3
3- 5
5-10
10-20
20-50
60 and over_..
Total

Dividend
credit
and
exclusion

Medical
care
deduction
(aged)

Child
care
allowance

Moving
expenses

Income
averaging

Minimum
standard
deduction

Total

Total

In millions of doUars
-400
-1,020
-3,905
-2,286
-1,150
-710

(*)

5
20
55
25
6

110

520

R

(*)

- 9 , 470

5
10
15

(*)

10
50
220
130
60
50

(*)

(*)

5
26
15
5

(*)

(*)
(*)
15
15

60

10
30
50
85
125

300

-6
-5

(*)
-6
(*)
(*)
(*)
(*)

-10

-5

(*)
(*)
(*)
(*)

(*)

-15
-25
-16
-5

(*)
-60

(*)

-170
-100
-50

-155
-35
+255
-1-195
-fl30
-fl85

—655
-1,055
-3,650
-2,090
—1,020
—525

-320

+675

—8,895

-11.7
-2.5
-.3

-10.7
-.9
+1.4
-1-1.5
H-l. 9
+4.4

-38.3
-26.2
-19.9
-16.4
-15.1
-12.6

-.7

+1.2

-18.8

-10
-20
-10
-40

X

a

Change as a percent of present tax
T)- 3
3- 5
5-10 - _
10-20
20-50
50 and over
Total

-27.6
-26.3
-21.3
-18.0
-17.0
-17.0

(*)

-20.0

(*)

.2

0.3
.5
.3
.2
.1

0.7
1.2
1.2
1.0
.9
1.2

.2

1.1

(*)

•

(*)

0.1
.1
.1
.1

(*)

.1

(*)
(*)
(*)
(*)
(*)

0.4

(*)

(*)
0.2
.2
.i
1.3
3.0
.6

(*)
(*)
(*)
(*)

(*)

(*)

-0.1

-0.1
-.1

(*)
(*)
(*)
(*)

-0.4
-.1
-.1
-.1

(*)

(*)

(*)

-.1

(*)

-0.1
-.3
-.2
-.1

•Less than $2.6 million or 0.06 percent.
1 Excluding capital gains.




to
CTI
CO

260

1964 REPORT OF THE SECRETARY OF THE TREASURY

TABLE IV.—Revenue Bill of 1963: Distribution by adjusted gross income class
of the full year effect of all tax changes directly affecting individuals ^

Adjusted gross income class

Number
of
taxable
returns

In thousands of dollars

Tax
hability
under
present
law

Effect of Revenue BiU of 1963

In
miUions

Rate
change

Structural
changes

Total

Total
tax under
Revenue
BiU of
1963

In milhons of doUars

9.7
10.5
22.9
6.7
LO
.2

. -

Total

1,460
4,030
18,300
12,710
6,760
4,170

-400
-1,020
-3.905
- 2 , 285
-1,150
-710

-155
-36
+255
+195
+130
+186

-555
-1,055
-3,650
-2,090
-1,020
-625

895
2,975
14,660
10, 620
6,740
3,645

5L0

0-3
3-6
5-10 . .
10-20 .
20-60
50 and over

47,420

-9,470

+676

-8,895

38, 625

Percent distribution by income class
0-3
3-5
5-10 -.10-20
20-50
50 and over
Total

19.0
20.6
44.9
13.1
2.0
.4

.
.
-

. . .

3.1
8.5
38.6
26.8
14.3
8.8

4.2
10.8
4L2
24.1
12.1
7; 5

-27.0
-6.1
44.3
33.9
22.6
32.2

100.0

100.0

100.0

100.0

6.2
n.9
4L0
23.5
1L5
6.9
100.0

2.3
7.7
38.0
27.6
14.9
9.5
100.0

Percent of tax habihty under present law
100.0
100.0
100.0
100.0
100.0
100.0

...
.

. .

Total

-27.6
-25.3
-2L3
-18.0
-17.0
-17.0

-10.7
-.9
+L4
+L5
+L9
+4.4

-38.3
-26.2
-19.9
-16.4
-15.1
-12.6

6L7
73.8
80.1
83.6
84.9
87.4

100.0

0-3 . . .
3-5
5-10 10-20
20-50
60 and over

-20.0

+L2

-18.8

8L2

1 Excluding capital gains.

TABLE V.—Revenue effect ^ of reducing corporate normal tax to 22 percent and
combined rate to 4^ percent

Number
of taxable
corporations

467,600
64,000
25,000
25, 500
4,000

Surtax net income class (doUars)

0-25,000
26,000-60,000
60,000-100,000
100,000-1,000,0001,000,000 and over.
Total

- -

-

-

-

_—

874
636
759
3,427
18,664

233
126
94
299
1,438

26.7
19.8
12.4
8.7
7.7

676,000

24,360

2,190

9.0

'At 1963 levels of income.
2 Excluding capital gains presently taxed at the alternative rate.




Normal tax to 22 percent
and combined rate to 48
percent

Computed
tax habihty,
present
rates 2
(miUions of
doUars)

Amount of
reduction
(miUions of
doUars

Percent
reduction

EXHIBITS

«

261

TABLE VI.—Effect of the House Bill 50-40-percent inclusion, 21-percent alternative
rate provision for calendar years ^ 1964, 1965, 1966, 1967, and long-run tax
liabilities
[In mUlions of dollars]

1964

D i r e c t effects of r e d u c e d inclusion percentage a n d
lower m a x i m u m r a t e

1965

1966

1967

1968
a n d long
run

-230

-230

-230

-230

—230

I n d u c e d effects:
1. U n l o c k i n g of capital gains from r e d u c e d inclusion
percentage a n d lower a l t e r n a t i v e r a t e
2. Deferral effect on gains b e t w e e n 6 m o n t h s a n d 2
years _
_
._ .

+520

+320

+196

+150

+100

-80

-10

-10

-10

—10

3. T o t a l I n d u c e d effects

-1-440

+310

+186

+140

+90

+210

+80

-45

-90

—140

T o t a l effects

1 Since the table shows tax liabilities incurred in calendar years, the numbers shown also constitute good
estimates of receipts for the foUowing fiscal years—e.g., the —$45 milhon total effect figure for calendar year
1966 equals the fiscal year 1967 revenue.

TABLE VII.—Effective rates of tax applicable to capital gains
Present law

T a x a b l e income b r a c k e t s

R e v e n u e BiU ol 1963

G a i n s onL sale of assets held:
M a r r i e d (joint)

Single person

Less t h a n 6m.onths Less t h a n 6 m o n t h s 2 years
6 m o n t h s or m o r e 6 m o n t h s
to
or m o r e 2
2 years i
Percent

I n t h o u s a n d s of doUars
0.0-0.5..
0.5-1.0
1.0-1.6
1.6-2.0
2-4 . .
4-6
6-8
8-10
10-12
12-14
14-16
16-18
18-20
20-22—
22-26
26-32
32-38
38-44
44-60
50-60
60-70
70-80
80-90
90-100
100-150
150-200
200 a n d over

.

_

0-1
1-2-..
2-3
3-4..
- 4-8
8-12
- - 12-16
16-20
20-24
24-28
28-32
32-36
36-4040-44
44-52
- .
52-64
64-76
76-88
88-100
100-120
120-140 —
- 140-160
160-180
180-200
200-300 - 300-400
400 a n d over

. .

20.0
20.0
20.0
20 0
22.0
26.0
30.0
34.0
38.0
43.0
47.0
50 0
63.0
56.0
69.0
62.0
65.0
69.0
72.0
76.0
78.0
SLO
84.0
87.0
89.0
90 0
OLO

10.0
10.0
10.0
10.0
ILO
13.0
16.0
17.0
19.0
2L6
23.5
25.0
, 25.0
25.0
25.0
25.0
25.0
25.0
26.0
25.0
25.0
25.0
25.0
25.0
26.0
25.0
25.0

14.0
15.0
16.0
17.0
19.0
22.0
26.0
28.0
32.0
36.0
39.0
42.0
45.0
48.0
50 0
53.0
56.0
68.0
60 0
62.0
64.0
66.0
68.0
69.0
70 0
70 0
70.0

7.0
7.6
8.0
'8.5
9.5

n.o
12.6
14.0
16.0
18.0
19.5
2L0
22.5
24.0
25.0
25.0
25.0
26.0
25.0
25.0
25.0
26.0
25.0
25.0
25.0
26.0
25.0

5.6
6.0
6.4
6.8
7.6
8.8
10.0
1L2
12.8
14:4
15.6
16.8
18.0
19.2
20.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0
21.0

1 50-percent inclusion. This column also reflects the effective rate on capital gains beyond a 2-year period
if the 50-percent inclusion and the maximum 26-percent tax rate of the present law is retained in lieu of the
capital gains features of the House biU.
2 40-percent inclusion.




262

1964 REPORT OF THE SECRETARY OF THE TREASURY

EXHIBIT 25.—Remarks of the President at the signing of the tax bill,
February 26, 1964
Mr. Speaker, Members of the Leadership, Members of Congress, Ladies and
Gentlemen: Today I have signed into law an $11.5 billion reduction in Federal
income taxes, the largest in the history of the United States.
It is the single most important step that we have taken to strengthen our
economy since World War II.
This legislation was inspired and proposed by our late, beloved President John
F. Kennedy and passed this week with support of both Republicans and Democrats in the Congress.
I want to congratulate Secretary Dillon and all the members of the Treasury
staff for their diligence and work on this measure through the thirteen months
that it was pending in the Congress. I especially want to congratulate Congressman Wilbur Mills from the great State of Arkansas for his leadership in the
House Ways and Means Committee in piloting the bill through the House of
Representatives. I want to especially congratulate Senator Russell Long of
Louisiana for his able leadership in the Senate. I also want to thank Senator
Harry Byrd of Virginia who though he was very much against the bill he cooperated to the fullest extent and he saw to it that the majority was allowed to
work its will and this bill got a fair hearing and a prompt hearing in his committee.
I would like to explain tonight what this tax cut means to you and why we
believe that it will strengthen our economy and why we believe it will bring a
better way of life for all of our citizens.
The tax cut will have two far-reaching effects:
First, it will immediately increase the income of millions of our citizens and most
of our businesses by reducing the amount of taxes that you must pay.
Secondly, by releasing millions of dollars into the private economy it wiU
encourage the growth and the prosperity of this land that we love.
The new act will cut personal income taxes by nearly 20 percent, or 9.2 billion
dollars a year. Nearly $8 bilhon of that will flow directly into pay envelopes
this year. This will begin immediately. The amount to be withheld from your
pay will be reduced beginning eight days from today.
If you are a family of four, here are examples of how this new tax cut will affect,
you when it is fully effective.
If you earn less than $3,000 a year, you will no longer pay Federal income taxes.
If you receive wages of $5,2()0 a year, your taxes will be reduced by $135 a
year, nearly one-third of what you are now paying. Your take-home pay will
go up around $10 a month.
If you and your wife both should be working and your combined earnings are
$10,000 a year, your taxes will be reduced by $258 a year or a 20-percent cut.
If your income is $20,000 a year, you are paying approximately $4,100 in
Federal income taxes today. Your taxes will be reduced now to about $3,400.
Business, as well as individuals, benefit by this tax cut. And small business
benefits the most. For example, if you own a small incorporated business, your
tax will drop to 27 percent. Your machine shop or your printing plant with
profits of $20,000 a year will pay $4,400 instead of the $6,000 that you would pay
under the old bill. On larger corporations the rate will drop from 52 percent to
48 percent. Companies can now pay more of their earnings to those who own
their stock and they can increase their investment, which in turn will benefit the
whole economy.
These are only a few examples. The real important point is that this bill that
we have just signed means increasing income for almost every taxpayer and business in America; and those earning the least, I am glad to say, will receive the
most.
These are the direct, immediate results of this bill. But our long-term objective is to raise the entire level of out American economy. The dollars that you
no longer pay in taxes will do this.
The first effect of the cut will be to put more than $25 million per day into the
hands of the American consumer. This money at the grocers or in the department
store, the store owners in turn will spend it for their own needs and, in this fashion,
the money will circulate through the economy raismg the demand for goods
several times the amount of the tax cut.
The same is true of the more than $2 billion which businesses will no longer pay
in taxes. They will use much of this money to buy new machinery, for new construction, for goods of all kinds and, most importantly, for the creation of new jobs.




EXHIBITS

263

This afternoon in New York a leading industrialist economist, Mr. Pierre
Renfrett, estimated that the tax reduction will materially stimulate a boom of
capital goods expenditures in the years 1964 and 1965. Mr. Renfrett predicts
that capital expenditures in 1964 alone will be 20 percent higher than last year.
And one of New York's leading corporation executives told me by phone about
four o'clock that his company that now invests about $100 million a year in new
capital investment, plan to increase their capital investments when this bill is
signed by an additional 15 percent.
One of the largest employers in America was in the White House last week
and he told me that when this bill went into effect that they would make capital
expenditures in their company that would provide 18,000 new jobs for new
employees. So this response and this responsibility is what makes the American
system work. This is a bold approach to the problems of the American economy.
We could have chosen to stimulate the economy through a higher level of Government spending. We doubted the wisdom of following that course. Instead we
chose tax reduction and at the same time we made conscientious and earnest
attempts to reduce Government expenditures and we are constantly looking at
those expenditures.
I am requesting reports from each independent agency and each Cabinet officer
each quarter of the year on how they can reduce employees under the number
provided in their budget. I am glad to say to the Congress that within the next
few days we will send supplemental estimates that will provide for a reduction,
not many jobs but 7,500 under those that we estimated we would need in January
when we sent the budget to the Congress and it will provide reduction in the
appropriations that we have requested of $30 million.
From time to time we are going to carefully study each department and agency
and try to bring those expenditures down further. We have been encouraged in
that move by the Chairman of the Ways and Means Committee and the Chairman
of the Finance Committee; they have proven their faith in us by passing this tax
bill, and we are trying to keep faith with them by cutting expenditures. By
taking this course we have made this bill an expression of faith in our system of
free enterprise.
The ability of this tax bill greatly to improve the vigor of our economy rests in
your hands as individual consumers and as businessmen. If America responds to
this new opportunity with increased investment and expansion with new production and new products, with the creation of new jobs which we anticipate, then
the tax cut will bring greater abundance to all America, then the Federal Government will not have to do for the economy what the economy should do for itself.
But abundance is only the visible evidence of the benefits of a healthy economy,
more important is what a strong United States economy means to the preservation of freedom in this world in which we live. There is no asset more precious
to freedom, there is no guarantee more vital to liberty than a robust American
economy. No one can bury us or bluff us or beat us so long as our economy
remains strong.
No economic system anywhere has ever had the success of the American
economy. By placing maximum reliance on the initiative and the creative
energies of individual businessmen and workers, we have created here in our land
the most prosperous nation in the history of the world.
With your help and the help of this legislation let us unite, let us close ranks,
and let us continue to build a nation whose strength lies in our program for prosperity and our passion for peace. This is the kind of a country, the kind of a
land, the kind of a nation that offers a better life for you and your family. And
it is the kind of a land that we want to preserve and protect.
Again to those of you who served on the tax committees, from the business
community to the members of the Congress present here tonight, I want to say
on behalf of the American people, thank you.
God bless you.
EXHIBIT 26.—Statement by Secretary of the Treasury Dillon, June 29, 1964,
before the Senate Finance Committee, on H.R. 8000, the interest equalization
tax
I am appearing before you in support of H.R. 8000, the interest equalization
tax, which passed the House of Representatives with a large majority on March 5
of this year. This tax was originally proposed by President Kennedy last July




264

1964 REPORT OF THE SECRETARY OF THE TREASURY

in his Special Message on the Balance of Payments. It has since been fuUy
supported by President Johnson. I also favor adoption of the technical amendments suggested in my letter to the Chairman of June 12, which have been
reprinted by your committee.
A year ago, our balance of payments was deteriorating sharply. That deterioration was due almost entirely to accelerating capital outflows, and particularly
to an unprecedented outflow of portfolio capital. The rate at which new issues
of foreign securities were being purchased had more than tripled in the previous
18 months, and the volume during the first six months of 1963 reached a total of
$1 bilhon.
As a result, the deficit in our international accounts—apart from all special
intergovernmental transactions—jumped from the already high 1962 level of
$3.6 billion to an annual rate of $5.3 billion in the second quarter of 1963. If
allowed to continue, that deficit would have undermined the international stability
of the dollar.
Today our balance-of-payments situation is much improved, and the dollar is
strong. Judging from data at hand, the deficit for the fiscal year ending tomorrow,
calculated on the same basis, will be well under half that of the preceding fiscal
year.
Paralleling this improvement, confidence has been restored in our ability to
achieve a balance in our payments within a reasonable time. This, in turn, has
staunched the drain on our gold stock. After declining by an average of $1.7
billion a year over the 1958-60 period, and by roughly half that rate during 1961
and 1962, our total gold stock today is virtually unchanged from ten months ago,
by far the longest period of stability during the past six years.
However, we must not succumb to any illusion that the progress of the past
year means the end of our long standing balance-of-payments problem or aUows
us in any way to relax our drive toward equilibrium. The hard fact is that after
six consecutive years of large deficits—adding up to a total of $21)^ biUion on the
basis of regular transactions—we face once again this year the unhappj^ task of
financing a sizable, even though substantially reduced, imbalance in our payments.
Roughly half of our payments improvement for the past twelve months can
be traced directly to diminished outflows of capital into foreign securities. But
the basic problems giving rise to the enormous capital outflow in 1962 and early
1963 have not yet been solved. Were we not now to proceed with enactment of
the proposed interest equalization tax, demands from abroad for portfolio capital
would once again quickly converge on our market in a volume far larger than we
could sustain. We simply cannot afford to pay the price such an event would
exact in terms of dangers for the dollar and losses of gold and confidence, thus
undercutting our whole international financial position.
The need for the tax
The need for the interest equalization tax has arisen out of a combination of
circumstances here and abroad that led to a rapid acceleration in foreign demands on our capital market. In the short space of the first six months of 1963,
purchases of new foreign issues—the overwhelming bulk from other industrialized countries—reached a seasonaUy adjusted annual rate of $1.9 billion. That
was $800 million higher than the already swollen 1962 total and three and onehalf times the 1961 level. In addition, the indications were that potential borrowers in Europe and Japan, who had already increased their demands on
our market dramatically, were scheduling still larger borrowings in this country.
This surging flow of foreign borrowings simply swamped the real progress in
other areas of our balance of payments. As a result, our overall deficit on regular
transactions rose to an annual rate of $5 billion during the first half of 1963,
sharply above the totals of $3.1 billion and $3.6 billion in 1961 and 1962, respectively. These increases, as shown by tables I and II, paralleled the swelling
outflow of portfolio capital into new foreign securities.
This rise in the outflow of portfolio capital reflected neither financing of U.S.
exports nor the more general balance-of-payments needs of the borrowing countries. On the contrary, more and more of the new flotations in our market were
designed to flnance local projects of businesses or governments in countries already
enjoying relatively strong or improving external positions. Many of the new
borrowers did not require foreign exchange, but only desired greater amounts of
fresh capital to support their own internal growth. Because their own capital
markets were both narrow and costly, those borrowers desiring funds were naturaUy attracted by our relatively low long-term interest rates and by the ease




EXHIBITS

265

with which large amounts of funds could be obtained in our well-developed
market. As a result, a large portion of the outflow of portfolio capital, by providing more dollars to those who simply wished to exchange those doUars for
their own currencies, was adding roughly equivalent amounts to our deficit.
The dollars in turn were flowing into central banks and becoming a claim on our
gold.
Appraising the same facts from a European vantage point, the most recent
Annual Report of the Bank for International Settlements reached the same
conclusion. That report, which is representative of responsible and official
European opinion, noted, in speaking of 1963, that ". . . instead of being a net
exporter of capital, which would seem the appropriate structural position, Europe
was a large net importer of capital—which in the main has been flowing into
reserves."
Purchases of foreign portfolio securities by Americans do in time lead to a
return flow of interest and dividend income. But this potential return is spread
over many future years, whUe the entire outflow of principal is immediate. For
instance, during both 1962 and 1963, years when the outflow of U.S. portfolio
capital into foreign securities averaged about $1}4 bflhon, the increase in our
income from such securities amounted to only about $50 million a year. Clearly,
calculations of earnings possibUities many years in the future cannot, in the situation we face, substitute for the urgent need to protect the dollar by bringing the
current portfolio capital outflow within the limits of our immediate capacity
to lend.
The nature of the interest equalization tax
In the light of these circumstances, prompt and effective action to reduce the
outflow of portfolio capital was essential. The proposal before this committee
is designed to achieve that result by means of an excise tax levied on the American
acquiring directly from a nonresident foreigner a foreign stock or debt issue
maturing in more than three years. While the tax is payable by the American
purchaser, the impact wUl be effectively passed on to the foreign issuer in reduced
prices for his securities.
The rate of tax is graduated so that its net effect is to increase by about one
percent the annual cost of capital to a foreigner raising money in our market,
thus bringing this cost to a level more comparable to the costs he would face
abroad. The result for foreigners would thus be similar to an increase of one
percent in our entire structure of long-term interest rates.
Finding our market more costly, many potential foreign borrowers will seek
the funds they require at home, or in other foreign markets, instead of aggravating
the strains on our own position. Similarly, American investors will find the net
yield on American securities relatively more favorable than yields provided on
outstanding foreign securities purchased from foreigners, and will tend correspondingly to reduce their purchases of such securities.
We view the proposed tax purely as a transitional measure. As our own payments come into equilibrium, as the expansion in our own economy reduces
incentives to export our capital, and as the capital markets of other advanced
countries develop the capability of more adequately meeting their internal needs,
this special tax can and should be removed. H.R. 8000 contains a termination
date of December 31, 1965, to assure that it will not be prolonged beyond the time
of need. At the same time, because of the urgency of dealing with the problem.
President Kennedy proposed that this tax become generally effective July 19,
1963, the day following its announcement in his Special Message on the Balance
of Payments. Any other course would simply have been an open invitation for
potential borrowers and lenders to accelerate their plans and crowd into our market
before the effective date of the tax. Our balance of payments most certainly could
not have borne such a strain.
On the other hand, making that proposed effective date known to the market
has permitted careful congressional consideration of this important piece of
legislation without the atmosphere of haste and urgency which would inevitably
have developed in the face of accelerating capital outflows. The House, in
approving this proposed date, recognized that any other course would only have
rewarded those few who have been willing to gamble on the possibility that a
later effective date would be enacted, at the expense of the great majority who
have already adjusted their transactions in the light of the proposed July 1963
effective date.




266

1964 REPORT OF THE SECRETARY OF THE TREASURY

Transactions in foreign securities between residents of the United States would
not be subject to tax, and Americans would, of course, be able to.sell foreign
securities free of tax to foreigners in markets both here and abroad. Thus, active
trading markets in the more than $12 billion of foreign securities already held by
Americans will be maintained, and these securities will fully maintain their value.
The passage of time since last summer has clearly proved that the provisions of
the tax regarding outstanding securities are workable, and that they contribute
substantially towards improving our payments position.
The proposed bill would exempt a variety of acquisitions from foreigners where
this is possible without undermining the effectiveness of the tax and where imposition of the tax would work at cross purposes with other objectives. The
exclusion from the tax of obligations maturing within three years assures that the
great bulk of our export financing and normal recurring international business
will not be impeded. Further to assure unimpeded export financing, longer term
export paper is specifically exempted, as are bank loans made in the ordinary
course of business.
Other important exemptions would be provided for the governments and
businesses of less-developed countries and for direct investment. In addition,
the President would be provided discretionary authority to exempt in whole or
in part new issues from a particular country in those instances in which he determines that application of the tax would imperil, or threaten to imperil, the
stabUity of the international financial system. This exemption is designed as a
kind of safety valve for use only when it can be clearly established that, as a
direct consequence of the tax, a foreign country would be forced to take such
drastic measures that international financial stability would be imperiled. Any
such showing would be dependent upon a highly unusual set of circumstances,
and in my opinion the necessary conditions are today met only by Canada.
An annex to this statement describes the provisions of the bill more fully, while
a detailed summary and a technical explanation of the bill are contained in the
Report of the Ways and Means Committee of the House.
Balance-of-payments impact
The effectiveness of the proposed tax in reducing the outflow of portfolio
capital, and the key importance of this in terms of the entire balance of payments,
is clearly revealed by the results since last July. After running at a rate of $5
billion during the six months prior to the President's Message in July 1963, the
deficit on regular transactions dropped sharply to a rate of $1.6 billion during the
second half of 1963 and to $700 million during the first quarter of 1964. The
first quarter results reflect a number of special factors which had the effect of
substantially but temporarily reducing the deficit. Among these was an unusual
and temporary short-term capital inflow during March that was fully reversed
early in April, thus adding to the deficit being incurred during the current quarter.
A number of factors, including a sizable rise in exports, have contributed to the
improvement in our balance of payments since last July. However, the single,
largest element in this improvement is the sharp decline in net purchases of
foreign securities. Comparing the nine months before the tax was proposed with
the nine months since that time for which full data are available, the outflow into
foreign securities dropped from $1,985 million to $290 million at seasonally adjusted annual rates, a reduction of $1.7 biUion in the annual rate of outflow.
To some extent, these gains were exaggerated by the initial uncertainties
regarding the precise provisions of the tax. These uncertainties could not be
expected to last, nor would this be desirable. Our market will not be closed.
Some foreigners will borrow in this country and absorb the tax; others will enter
our market in the knowledge that their issues will be exempted. There are clear
signs that activity resumed on this basis during recent months, and the outflow
into foreign securities is therefore expected to increase moderately. However,
the experience of the past nine months confirms our belief that the proposed
tax will be effective in confining this outflow to substantially lower levels than
those of late 1962 and early 1963.
During the hearings before the Ways and Means Committee last fall, the
Treasury estimated that imposition of the tax would result in an overall reduction
in the net purchase of foreign securities of $13^ billion to $1J^ billion a year. These
savings were calculated from the high levels of outflow during the six to nine
months preceding the tax. The validity of these estimates is now strongly supported by the figures at hand, a saving at an annual rate of $1.7 billion in the




EXHIBITS

267

nine months following announcement of the proposed tax as compared to the
preceding nine months.
Such estimated savings are fully consistent with purchases of new foreign
issues at a rate of perhaps $600-$800 million a year, close to, but stiU somewhat
above, the rate that would have been considered ^'normal" prior to 1962.
Furthermore, such a total would be consistent with needed progress toward
equilibrium in our balance of payments, without putting undue strain on the
international financial system.
Already a sizable number of new issues have been diverted to European markets,
where they have been absorbed by countries in a strong balance-of-payments
position. Under the stimulus of the tax, European markets have shown that they
are capable both of handling their own internal needs in more adequate fashion
and of meeting a larger portion of foreign needs.
I want to emphasize that an exemption for new Canadian issues should not
impair the effectiveness of the tax. Canadian authorities have assured us that
it is their intention that Canadian borrowing in our market will not exceed
amounts necessary to maintain reasonable equilibrium in Canada's international
reserve position. This should mean a substantial reduction in Canadian borrowing in this country from the exceptionally high levels of late 1962 and early 1963
to the more normal levels that were characteristic of earlier years. Certainly,
over the period since the tax has been proposed, the Canadian reserve position
has not deteriorated despite a sharply lower level of borrowings in our market.
We have, of course, also been closely following trends in bank lending, in view
of the possibility that foreign borrowers might seek to shift to that kind of financing. While analysis of detailed information supplied by the banks on their
commitments for the first five months of 1964 does not suggest any significant
direct substitution for market financing, the total volume of short- and long-term
loans outstanding rose sharply in 1963 and during the first quarter of 1964. The
rise started early in the spring of 1963 and became particularly noticeable during
the fourth quarter.
A good part of this increase is clearly related to the surge in American exports
over the same period. But, in addition, it is possible that, in adjusting to the
tax, borrowers in a few countries under balance-of-payments pressure, notably
Japan, have made greater use of bank loans. While some initial reactions of
this kind are not surprising, and there are now some indications of a leveling off
of the loan volume, future trends will clearly require continuing surveillance.
We will promptly recommend to the Congress appropriate changes in the bank
loan exemption should it appear that such loans are in fact being utilized to any
significant degree as substitutes for market financing.
The tax and our overall balance-of-payments program
This tax is only part, although a crucial part, of a comprehensive balance-ofpayments program. A satisfactory long-run solution for our payments problem
depends on a more vigorous and efficient domestic economy, capable of sustained
productive expansion with stable costs and prices. Major steps to support
this objective were taken in 1962 with the investment tax credit and the liberalization of depreciation allowances. They were followed this year by the $11.5
billion reduction in individual and corporate tax rates.
Together with responsible wage bargaining and pricing policies, these fiscal
measures are now strengthening our basic competitive position at home and
abroad, and our basic trade outlook is favorable. Greater prosperity at home,
with greater profitability of investment here relative to the returns available from
foreign investment, will reduce the incentive for direct investment abroad and
encourage the retention of funds at home where their investment in domestic
proiects will create more jobs for Americans.
We have also placed great emphasis upon reducing the net flow of dollars
abroad as a result of Government programs. For example, between 1960 and
mid-1963, our annual rate of net military expenditures abroad was reduced by
more than $500 million. That portion of our economic assistance provided by
AID in the form of U.S. goods and services rather than dollars has been raised
from less than one-third in 1960 to over 80 percent for current commitments.
President Kennedy last July scheduled an additional reduction of $1 billion
in the annual rate of overseas governmental expenditures by the end of this year.
President Johnson is determined to achieve that target.




268

1964 REPORT OF THE SECRETARY OF THE TREASURY

As you can see, visible gains are being made towards solving our basic payments
problem. But we must not permit them to be drained away in a renewed outflow
of portfolio capital.
Alternatives to the tax
While appreciating the need to restrain the outflow of portfolio capital, some
have suggested that there are preferable alternatives to the tax. One would
be an attempt to drive up our entire structure of long-term interest rates by about
one percent. Such a drastic tightening of credit, if possible at all, would clearly
work against all that we are trying to achieve to reduce excessive unemployment
and encourage the investment that creates jobs and promotes efficiency. The
interest equalization tax increases the cost of our money to foreigners, just as
would a sharp increase in our own rates. But it will do so without the disrupting
effects on the entire domestic economy of an attempt to artificially force our
long-term rates to unrealistically high levels.
Another suggested alternative would abandon the market system altogether
by rationing credit to foreigners through a capital issues committee. Proponents
of that approach have failed to suggest what kind of criteria could be used to
cut back the heavy foreign demands for capital, or whether any rational criteria
could be consistently applied amid the conflicting pressures from at home and
abroad that would descend upon those administering the system.
TABLE I.— U.S. balance of payments^, 1960—March 1964
[In millions of dollars]
C a l e n d a r years

SeasonaUy adjusted a n n u a l r a t e s
1963'

I960'

1961'

1964 P

1962'
Jan.-June July-Dec.

C o m m e r c i a l m e r c h a n d i s e ex17, 693
ports
- - -- 17, 546
18, 213
Commercial merchandise im- 1 4 , 723 - 1 4 , 497 - 1 6 , 1 3 4
ports
.
- -

18,098
-16,428

20,338

Total

Jan.-Mar.

19, 218

2L880

- 1 7 , 434 - 1 6 , 9 3 1

—17,388

Commercial trade balance—
Commercial
services,
remittances a n d pensions

2,822

3,196

2,079

L670

2,904

2,287

4,492

856

L583

1,739

L200

L484

L342

2,460

C o m m e r c i a l balance 2
M O i t a r y e x p e n d i t u r e (net) 3
G o v e r n m e n t g r a n t s a n d capital
dollar p a y m e n t s
G o v e r n m e n t capital receipts,
excluding p r e p a y m e n t s , borrowings, a,nd fun flings
P r i v a t e capital:
T r a n s a c t i o n s i n foreign securities
Other long-term *
__
Short-term
U n r e c o r d e d transactions
B a l a n c e on regular t r a n s a c t i o n s . .
Special G o v e r n m e n t transactions 5
Overall balance

3,678
- 2 , 712

4,779
- 2 , 560

3,818
-2,375

2,870
-2,188

4,388
-2,360

3,629
- 2 , 274

6,952
-L988

-1,010

-762

-886

388

502

446

-438
- 2 , 042
-454
-408
- 1 , 674
L430
-144

- 1 , 275
-1,913
-726
-286
-3,286
L344
- 1 , 942

«234

461

M e m o r a n d u m : Gold sales ( n o t
seasonally adjusted)

-1, no
543

-1,139
516

-1,077
601

-864
- 1 , 243
- 1 , 438
-772
- 3 , 918

-910
- 1 , 267
- 1 , 492
-998
- 3 , 071

-1,172
- 1 , 437
-762
-Llll
- 3 , 606

37
-3,881

701
- 2 , 370

L402
- 2 , 203

-2,112
- 1 , 784
-998
-164
- 4 , 998
L258
-3,740

L702

867

890

6 227

—560
640
8
- 2 , 716
—2,528
-432
-724
666
—168
846

' Revised.
p Preliminary.
1 Excludes miUtary transfers under grants.
2 Excluding exports and services financed by Government grants and capital.
8 Excludes advances on mUitary exports.
* Including direct mvestment.
8 Includes nonscheduled receipts on Government loans, advances on mUitary exports, and sales of nonmarketable medium-term securities, Including convertible securities of $502 milhon, Jan.-June 1963; and
$200 mUhon, July-Dec. 1963.
8 Not at aimual rates.
SovncE.—Survey of Current Business.




269

EXHIBITS

To be successful, a capital issues committee would have to be Government
controlled. This would mean that Government—substituting case by case
decisions by the Executive for the market effects of the proposed tax—would
have to intrude itself directly into the process of individual decision-making
in a way that this country has never found acceptable save in wartime. Moreover, selective rationing would clearly not be workable in the case of outstanding
securities. There are simply too many transactions in this area, through too many
channels, to make policing practicable on a case by case basis. Substantial
balance-of-payments savings would be sacrificed and, if equal overall savings
were to be achieved, the volume of new issues would have to be held to a considerably lower figure than is expected under the interest equalization tax.
Conclusion
The Administration has proposed this temporary tax with reluctance, but the
need for action to restrain the outflow of portfolio capital is clear. The workability and effectiveness of our approach have been demonstrated. It is far
preferable to any alternative that has been suggested.
Our international competitive position is strengthening, and other measures
to achieve lasting improvement in our payments are bearing fruit. But these
measures take time, and meanwhile our deficit remains sizable. Failure to enact
this tax would stimulate a resurgence of capital outflows with dire effects on our
balance of payments. Also, such failure could only be interpreted throughout
the world as an unwillingness on the part of the United States to face up to the
hard decisions that are required to protect the dollar, and so the financial health
of the entire free world. I, therefore, strongly urge your early approval of this
vitally important legislation.
TABLE IL—Long-term capital flows in the U.S. balance of payments, 1960—March
1964
[In mUlions of dollars]
Calendar years

Seasonally adjusted a n n u a l rates
1963'

I960'

1961'

1964 P

1962'
Jan.-June

Dhect investment:
U.S.
dhect
investment
abroad
Foreign direct i n v e s t m e n t
i n U n i t e d States
N e t direct i n v e s t m e n t
Portfolio i n v e s t m e n t :
U . S . purchases of n e w issues
of foreign securities
U . S . n e t purchases of outs t a n d i n g foreign securities.
T o t a l purchases foreign
securities.-- .
R e d e m p t i o n of U.S.-held
foreign securities
O t h e r U . S . long t e r m , n e t 1 Foreign long-term portfolio
investments in the United
States
N e t portfolio m v e s t m e n t . .
N e t long-term capital

July-Dec.

Jan.-Mar.

- 1 , 674

- 1 , 599

- 1 , 654

-2,064

- 1 , 660

- 1 , 862

141

73

132

88

-64

17

96

- 1 , 533

- 1 , 526

- 1 , 622

- 1 , 976

- 1 , 714

-L845

- 1 , 756

-555

-523

- 1 , 076

- 1 . 858

-680

- 1 , 269

-388

-309

-387

-96

-254

242

-6

396

-864

-910

-1,172

-2,112

-438

- 1 , 275

8

201
-200

148
-263

203
-258

186
-312

204
-816

195
-564

176
- 1 , 088

- 1 , 852

289

374

140

318

2«4

301

-48

-674

-651

- 1 , 087

- 1 , 920

-766

- 1 , 343

-962

-2,107

-2,177

- 2 , 609

-3,896

- 2 , 480

-3,188

- 2 , 708

' Revised.
p Preliminary.
1 Mainly long-term bank loans.
SovRCE.—Survey of Current Business and Department of Commerce.




Total

270

19 64 REPORT OF THE SECRETARY OF THE TREASURY

TABLE III.—New issues of foreign securities purchased by U.S. residents hy area,
calendar year 1960-March 1964
[In millions of doUars]

1960

1961

1963

1962

Jan.-June July-Dec.

Total

Total new issues

221
24
15
27
107
64
97

237
67
61
43
18
95
12

467
195
101
60
2102
77
84

632
219
83
17
13
35

105
63
67
23
32

737
272
140
17
36
67

556

Canada
_
Western Europe
_
Japan
Other developed '
. _ _
Latin American Republics
Other less developed
.. _
International institutions
__

623

L076

999

270

L269

1964
Jan.-Mar.

91

13
24
4
132

1 Australia, New Zealand, South Africa.
2 Includes $76 million issue by Inter-American Development Bank.
SOURCE.—Swryey of Current Business and Department of Commerce.

TABLE IV.—U.S. transactions in foreign securities nine months before and after
interest equalization tax
[In milhons of dollars]
SeasonaUy adjusted annual
rates
Improvement
Oct. 1962 to
June 1963

Total

_

.

-L863
-132

-583
H-293

H-l, 270
-1-425

-1,986

U.S. net purchases of foreign securities:
New issues
_
_
Outstandings
___

July 1963 to
Mar. 1964

-290

H-l, 695

SOURCE.—Department of Commerce.

Annex.—General description of the interest equalization tax
NATURE OP TAX

The interest equalization tax is a temporary excise tax imposed on acquisitions
by Americans of foreign securities from foreigners regardless of where the acquisition occurs. The tax applies to foreign stock and debt obligations, both new
and outstanding. It does not apply to purchases of foreign securities by Americans from other Americans.
By bringing the costs to foreigners of raising capital in the U.S. market more
closely into line with costs prevailing in foreign capital markets, the tax will
substantially reduce the incentives to foreigners to raise capital in the U.S.
market because of lower interest rates in this country. The higher cost to
foreigners resulting from the tax, however, is not intended to eliminate all outflows of portfolio capital; long-term U.S. capital will remain available to those
foreigners whose urgent need for such funds cannot be met on reasonable terms
in foreign capital markets.
Rate.—The rate of the tax in the case of foreign debt obligations is graduated
from 2.75 percent for obligations maturing in three years to 15 percent for those
maturing in 28}^ years or more. The schedule of rates is determined so as to
increase by roughly one percent the cost of borrowing to the foreigner. In the
case of foreign stocks, the rate of the tax is 15 percent, the same as for bonds of
the longest maturity.
New and outstanding securities.—The tax applies broadly to both new stocks
and debt obligations and outstanding stocks and debt obligations. Coverage
of transactions with foreigners in all of these categories is consistent with the



EXHIBITS

271

intent t h a t t h e tax operate in a manner analogous to a general rise in U.S. longt e r m interest rates, a n d assures t h a t strong incentives a n d opportunities will n o t
arise for funds to flow out t h r o u g h tax-free channels, undermining t h e effectiveness of t h e tax.
Short-term obligations.—No tax is imposed on t h e acquisition of debt obligations
if the period remaining to m a t u r i t y is less t h a n three years. This exemption will
permit t h e wide variety of short-term credit transactions related to international
t r a d e generally a n d U.S. exports in particular to continue unaffected.
Transactions in short-term instruments occur in enormous volume and t a k e a wide
variety of forms, b u t most of t h e m relate t o t r a d e financing and to normal,
reversible shifts of funds between m a r k e t s in response to t e m p o r a r y needs a n d
short-term interest r a t e differentials. Since interest rates for short-term loans
in t h e United States can more readily be influenced by m o n e t a r y policy, without
adverse effect on t h e economy in general, it has been possible to bring these
rates more closely into line with those prevailing in other i m p o r t a n t industrialized nations.
EXCLUSIONS

I n addition to t h e basic exemptions from t h e tax of acquisitions of short-term
obligations a n d acquisitions from other Americans, t h e bill provides, various
exclusions so as n o t to interfere with certain vital national objectives, such as
t h e encouragement of U.S. exports, the avoidance of t h r e a t s to t h e stability of
t h e international m o n e t a r y system, a n d t h e growth of less-developed countries.
T h e major categories of exclusions are described below.
Export financing.—One of t h e best methods of reducing t h e deficit in t h e
U.S. balance of p a y m e n t s is to increase exports from, this country. Accordingly,
t h e bill provides for a series of specific exclusions for stock a n d debt obligations
acquired in connection with various export transactions. These exclusions will
assure t h a t American business firms have t h e ability to offer credit facilities
to their foreign customers, whether for short- or long-term loans.
The acquisition of debt obligations is excluded from tax if t h e y are guaranteed
or insured by t h e E x p o r t - I m p o r t B a n k or other U.S. Government agencies or
instrumentalities. I n addition, debt obligations acquired b y Americans in
connection with t h e sale of U.S. goods (tangible or intangible) abroad are free
of t h e tax, as is t h e acquisition of stock or debt obligations in connection with a
foreign project in which American'firms participate to a substantial degree. The
bill also excludes from t h e tax debt obligations acquired by an American firm
from foreign customers when t h e proceeds are used for t h e installation or maintenance of facilities to service goods sold by the American firm which were produced,
grown, or extracted in t h e United States. A similar exclusion has also been
provided where t h e U.S. firm is engaged in selling ores or minerals in which it has
a substantial economic interest, whether or not extracted in t h e United States.
Commercial bank loans.—Commercial banks making loans in t h e ordinary
course of their commercial banking business would n o t be subject to tax. Most
of these loans would ordinarily be excluded because of their short maturities,
and m u c h of short-term b a n k financing of foreigners involves exports. T h e
exclusion, besides permitting banks to continue freely their role in financing U.S.
exports, enables t h e m to maintain their flexibility in meeting normal, recurring
needs for financing international business.
Experience u n d e r this exclusion will be closely observed. In order to provide
detailed information as to whether the exclusion for commercial bank loans
should be continued and, if not, t h e ways in which t h e exclusion should be changed,
t h e bill provides for a u t h o r i t y to require banks to furnish relevant d a t a on their
loans to foreigners.
International monetary stability.—The bill gives t h e President a u t h o r i t y t o
exempt all or a portion of new security issues of a foreign country from tax where
he determines t h a t application of tax to such securities imperils, or threatens
to imperil, t h e stability of the international monetary system. This is consistent
with our t r e a t y obligations to t h e I n t e r n a t i o n a l M o n e t a r y F u n d .
Use of this exclusion would be justified only in highly unusual circumstances.
New issues of Canadian securities are t h e only ones which, under present
circumstances, it is contemplated would be excluded under this provision.
Less-developed countries.—The t a x is not applicable to the acquisition of securities issued or guaranteed by less-developed countries nor to t h e acquisition of
securities issued by less-developed country corporations. At t h e present time, it
is expected t h a t this exclusion would apply to t h e securities of all Latin American
743-160-^65
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1964 REPORT OF THE SECRETARY OF THE TREASURY

countries, African countries with the exception of South Africa, Asian countries
except for J a p a n a n d H o n g Kong, a n d to a few other nations outside t h e SinoSoviet bloc. This exclusion is designed to help those countries with chronic
capital shortages, urgent development needs, and limited ability to borrow on
normal commercial terms. The United States has long recognized a responsibility
for assisting these nations in their struggle to achieve improved standards of living, and application of t h e t a x to issues of these countries would work against
these objectives.
Direct investments.—The t a x is not applicable to direct investments in overseas
subsidiaries and affiliates. Direct investment means t h e acquisition of stock or a
debt obligation in a foreign corporation or partnership by an American owning a t
least 10 percent voting control after the transaction is completed. The exclusion
of these transactions is based on t h e fact t h a t the decision to make such investments is usually grounded in such factors as m a r k e t position and long-range
profitability rather t h a n interest-rate differentials.
Foreign corporations controlled by Americans and traded here.—The bill treats as
domestic a foreign corporation traded on an American stock exchange, if t r a d i n g
on U.S. exchanges provides the principal market for t h e stock and if more t h a n 50
percent of the stocliholders were Americans on July 18, 1963. Close association of
these companies with t h e United States justifies their t r e a t m e n t as domestic
companies.
Insurance companies with foreign business.—The bill permits insurance companies to acquire stock, and debt obligations of foreign issuers and obligors tax free
in an a m o u n t equal to 110 percent of their reserves against foreign risks in connection with their operations in foreign countries. This exemption is based on t h e
fact t h a t U.S. insurance companies often engage in business in foreign countries
through branch operations, and in conducting this business, t h e y receive premiums in a foreign currency, invest the proceeds in t h a t currency, and are required
to pay liabilities on policies in t h a t currency. Since the absence of an exclusion
of this character would expose the insurance companies to a foreign exchange risk,
it was believed desirable to provide this exclusion.
Labor unions, etc.—The bill exempts acquisitions by labor unions a n d certain
other tax-exempt organizations which hold dues or membership fees in foreign
currency for the benefit of local members located in foreign countries. This exclusion, as with insurance companies, avoids exposing these organizations in t h e
ordinary conduct of their operations to a foreign exchange risk.
Underwriters and dealers.—To facilitate and encourage the placement of new
foreign issues abroad, American underwriters participating in the distribution of
new foreign issues would receive a credit or refund of the tax on any sales to foreigners. Similarly, dealers maintaining markets in foreign bonds will be given a
credit or refund on such securities purchased from foreigners and resold to foreigners within 90 days after their purchase. A similar provision has been proposed
to apply to arbitrage transactions by dealers in foreign stocks as long as t h e
dealer sells to a foreign person on t h e same day t h e stock is purchased. T h e
shorter time provision for stocks, as compared with bonds, is a recognition of the
fact t h a t stocks could become a tax free vehicle for speculation under any wider
exclusion.
The credit or refund provision for underwriters and dealers will provide incentives to place a maximum portion of new flotations of foreign securities in foreign
hands, a n d will assure potential foreign buyers t h a t an active secondary m a r k e t
will be available in this country for such new foreign bonds as they may purchase.
Acquisitions required by foreign law.—The bill provides an exclusion from t a x in
t h e case of securities acquired by an American firm doing business in a foreign
country t o t h e extent t h e acquisitions are reasonably necessary to satisfy minim u m requirements relating to holdings of foreign securities imposed, by t h e laws
of t h e foreign country. This exemption is provided because some foreign countries require foreign businesses engaged in business locally to invest a portion of
their assets in securities of t h a t country as a condition to doing business there.
OTHER

PROVISIONS

Liability for tax.—The t a x is imposed on t h e U.S. person acquiring a foreign
security from a foreigner. The purchaser who is liable for t h e tax must file a
quarterly interest equalization tax return listing taxable purchases a n d enclosing
payment.




EXHIBITS

273

Administrative procedure.—A simple administrative procedure has been established for determining when t h e tax is owed. If the U.S. purchaser is buying
through a U.S. broker and his purchase confirmation does not indicate t h a t his
purchase is subject to the tax, the confirmation is proof of his exemption and no
r e t u r n is required. If the purchase is not made through a U.S. broker, the purchaser should receive a certificate of American ownership from the seller if t h e
seller is a" U.S. person. T h e certificate is proof of the purchaser's exemption
Stock exchanges and over-the-counter markets have developed procedures which
readily permit the operation of these provisions.
Effective date and expiration date.—The bill generaUy is effective with respect to
acquisitions by Americans of foreign securities from foreigners made on or after
July 19, 1963. This is one day after the date Congress received t h e President's
special message on the balance of p a y m e n t s and the public announcement of t h e
principal features proposed by the Administration for this bill. A special effective
date of August 17, 1963, is provided for foreign securities traded on an exchange
so as t o permit uninterrupted t r a d i n g in foreign securities on t h e exchanges, while
t h e y were adjusting their trading rules and procedures to t h e requirements of t h e
proposed bill. T h e bill also exempts certain transactions which were in an advanced stage of negotiation on July 18, 1963, since application of t h e t a x to these
transactions might have created substantial hardships.
T h e t a x would expire December 31, 1965.
REVENUE

EFFECT

I t is estimated t h a t this bill will result in a revenue gain of up to $30 million on
an a n n u a l basis.

International Financial and Monetary Developments
E X H I B I T 2 7 . — R e m a r k s by Secretary o f t h e Treasury Dillon, September 17, 1963,
at the White H o u s e Conference on Export Expansion
I do not need t o speak t o you t o d a y about t h e importance of achieving balance
in our international accounts. You well know t h a t t h e dollar is at t h e base of t h e
free world's p a y m e n t s system, which in t u r n finances t h e flow of international
t r a d e . T h e dollar must and will stay firm, b u t this requires t h a t we balance our
international accounts in t h e near future even t h o u g h it m a y call for heroic
measures.
We have been working at this job for t h e past 2}^ years, b u t progress has been
slow and difficult. I n t h e first place, we are faced with a unique situation in which
balance-of-payments deficits exist side by side with, an underemployed economy.
T h e classic situation—for which t h e remedy is well known—is one in which inflation and over consumption create a balance-of-payments deficit. The remedy is
t o restrict domestic consumption and restrain inflation by tightening credit, t h e r e b y
diverting into t h e export m a r k e t production t h a t t h e home m a r k e t can no longer
absorb. B u t this would be exactly t h e wrong remedy in our present s t a t e of excessive unemployment, underutilized manufacturing capacity, and stable price
levels. To sharply restrict credit in these circumstances would only lead t o increased unemployment, lower profits, and less investment, when we need more of
all three. I t would produce hardship at home and would not help our balance of
payments.
So we have had to t r y and find a different solution, a solution t h a t can at one
and t h e same time bring prosperity at home and iDalance abroad. This has involved a many-sided a t t a c k which has resulted in significant improvement in m a n y
areas. B u t , n e w problems have arisen as old ones have moved t o w a r d solution,
and even greater efforts are now necessary.
Let us see first of all w h a t has been done. I n 1960, t h e overall balance-of-payments deficit was $3.9 biUion. This feU to $2.4 biUion in 1961 and $2.2 biUion last
year. I n t h e first half of 1963, however, our deficit once again increased. T h e
biggest adverse factor was t h e sharp increase in recorded outflows of U.S. capital—
outflows amounting to over $2.5 billion, as compared with $1.7 billion in t h e first
half of 1962 and $3.3 billion for all of 1962. T h e largest share of t h a t increase resulted from American purchases of new foreign securities. At $1 billion, t h e y




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

were more t h a n double t h e r a t e of t h e first half of 1962 and almost equal t o t h e
$1.1 billion recorded for aU of 1962.
Other items changed b u t little and, as a result, during t h e first half of 1963 our
deficit on an annual basis ran at a r a t e of either $3.2 or $4.2 biUion, depending on
how one prefers to account for t h e medium-term convertible bonds which, this
year, we have sold t o foreign central banks for t h e first t i m e .
We h a v e good grounds for hope t h a t , when t h e results are in for all of 1963, t h e
actual deficit will be less t h a n t h e annual r a t e indicated by t h e first half figures.
While m a n y of t h e additional measures announced in t h e President's July 18th
Balance-of-Payments Message will not be fully effective until next year, we nevertheless expect t h a t t h e exceptionaUy large private capital outflows in t h e first
half of this year will fall marliedly in t h e second half. T h e increase in short-term
interest rates resulting from t h e higher rediscount r a t e and t h e proposed interest
equahzation t a x should help to reduce these outflows.
Thus, t h e record shows t h a t , while we have made progress, we h a v e a great deal
yet t o accomplish. B u t before I consider w h a t we can do for t h e future, let me
touch very quickly upon some of t h e efforts we have already made, efforts we will
continue to augment.
We have worked vigorously to cut overseas cash dollar expenditures for defense
and aid, and as much as possible to tie t h e expenditures we do make to procurem e n t in this country. I n our foreign economic assistance, t h e Agency for International Development during t h e last fiscal year tied fully 80 percent of its
commitments to tlie export of U.S. goods and services, and t h a t percentage is
scheduled t o rise still further in this fiscal year. This means lower dollar outflows,
as expenditures begin t o reflect these new commitments. B y fiscal 1965 t h e
annual dollar outflow for t h e A I D agency will be cut in half from t h e billion dollar
level of 1960 and 1961 to not more t h a n $500 miUion.
And in our military programs, t h e Defense D e p a r t m e n t has held its gross dollar
expenditures abroad below 1960 levels, despite t h e buildup in overseas force levels
due to t h e Berlin crisis of 1961. At t h e same time, net militar}^ expenditures
abroad have been reduced by nearly $850 million between 1960 and 1962, largely
because of our success in negotiating agreements with some of our allies for sharply
increased purchases of American military equipment.
I t is, in fact, in t h e area of net U.S. defense expenditures overseas t h a t our
efforts to improve our balance-of-payments position have brought some of t h e
most encouraging results t o date. T h e D e p a r t m e n t of Defense is seeking all
possible means, to cut expenditures without impairing our capabilities to carry
out our military commitments. I t has made particularly good progress in its
efforts to expand t h e sales of U.S. military equipment abroad. We have increased our receipts from those sales from under $400 million in calendar 1961 t o
well over $1 billion in 1962, and we are striving to maintain a similarly high level
in t h e future. I t is wortli noting as well t h a t our success t h u s far in this area h a s
stemmed, in large measure, from constant and close cooperation between Governm e n t and industry.
We are going to continue this progress in t h e military area. As t h e President
announced last July, we intend to reduce t h e annual dollar outlay of our military
forces overseas by a further $300 million a year while at t h e same time reducing
our purchases of foreign strategic materials by another $200 million. Thus, by
J a n u a r y 1, 1965, reductions in defense expenditures abroad will be contributing
another $500 million a year to t h e improvement in our balance of p a y m e n t s .
Special intergovernmental arrangements—such as debt p r e p a y m e n t s and medium-term borrowings—with some of our friends overseas have also helped reduce
our gold outflow and narrow t h e gap in our p a y m e n t s . Tliese ''special t r a n s actions" a m o u n t e d to $1.4 billion in 1962—including substantial advance military
p a y m e n t s — a n d t o about $600 miUion in t h e first half of 1963.
We have acted to stem t h e outflow of short-term capital by a series of carefully
managed increases in short-term money rates, while at t h e same time we h a v e
maintained ample credit availabUity, and long-term rates and bank loan rates
have remained low or even declining due t o t h e flood of liquid savings accumulated
by t h e American people. T h e recent increase in short-term interest rates should
serve—not only to stem t h e outflow of short-term capital—but also to make it
much more attractive for foreigners to hold their assets in dollars, t h u s helping to
reduce our gold outflow.
We h a v e proposed t h e interest equalization tax as a temporary measure to
help t u r n t h e tide of foreign security sales in our markets while slower acting b u t
more basic measures are taking effect.




EXHIBITS

275

We have adopted these measures and m a n y others to keep our p a y m e n t s
imbalance and t h e resulting gold flow to a m i n i m u m and to hasten our progress
toward achieving lasting balance in our p a y m e n t s . We will continue to i m p l e m e n t
these measures. B u t helpful as they are, these measures only deal with p a r t of
t h e problem. By a n d large, they help reduce our p a y m e n t s rather t h a n increase
our receipts. We m u s t also and increasingly concentrate our efforts u p o n
expanding our international receipts. More t h a n anything else, t h a t m e a n s
expanding our exports.
I do n o t need to detail before this audience how vital exports are to our balance
of p a y m e n t s , indeed, to our entire economy. I do n o t need to describe t h e m a n y
steps we have already t a k e n to help increase our exports.
I n 1962, our commercial exports—those not financed by Government capital—
ran a t a b o u t $18 billion. If these exports had been 12 percent greater t h e y
would have offset our overall $2.2 billion p a y m e n t s deficit, and if they h a d been
20 percent greater they would have offset our $3.6 billion deficit in regular t r a n s actions (those excluding special Government transactions).
A word of explanation m a y be in order here. I a m talking a b o u t commercial
exports, t h e exports you sell on a commercial basis. These are n o t the same
thing as t h e figures for merchandise exports released on a monthly basis by t h e
D e p a r t m e n t of Commerce. These monthly figures include agricultural exports
financed under P L 480 as well as exports financed b}^ the A I D agency. These
tied exports financed by American taxpaj^ers have been growing rapidly during
t h e p a s t two years as tied aid policies have taken effect. Thus, the m o n t h l y
figures have n o t been a t r u e indication of our competitive performance.
T h e t r u e figure is t h e total of commercial exports which omits A I D and P L 480
shipments. This figure is published quarterly by t h e D e p a r t m e n t of Commerce.
T h e figures for t h e first half of 1963, which will soon be available, show t h a t our
commercial t r a d e surplus has actuall}^ declined from last year's total. This is
why we m u s t redouble our efforts to increase commercial exports a n d n o t be
satisfied with merely increasing our Government financed exports.
These comparisons should help define t h e large task ahead of us, particularly
when we consider that, since 1960, our commercial exports have been increasing
a t an annual r a t e of about one percent. Our task is to boost this r a t e dramatically
over a fairly short period of time.
This is not an easy task. B u t I a m convinced we can do it, if we set our minds
to it. T h e markets are there. For in t h e five years from 1957-62, our share of
t h e major industrial nations' exports of manufactured goods—excluding exports
to t h e United States—decreased steadUy from almost 29 percent to less t h a n 23
percent. This means we have been losing m a r k e t s t h a t we need.
If we are to regain these m a r k e t s and more, if we are to increase our exports to
t h e levels we need—if we are in fact to achieve long-range solutions to our major
economic problems—then we m u s t enact into law this year a substantial t a x
reduction program.
Tax reduction is absolutely essential if we are to a t t a i n t h e two main long-term
goals of our balance-of-payments efforts: First, to expand our trade surplus;
a n d second, to make t h e United States a more attractive place to invest long-term
capital, both foreign and domestic.
Already t h e two tax measures adopted last yesiv, t h e investment credit and
depreciation reform, have given a strong boost to t h e international competitive
position of American industry. They reduced business taxes by almost $2.5
billion a year, and, as, one recent survey showed, businessmen credit their tax
savings from these measures for 43 percent of their planned increase in capital
spending for this year. T h e proposed corporate tax reduction would provide a
comparable spur to investment and, together with t h e 1962 measures, would
increase t h e profitability of new investment by almost 30 percent.
T h e direct stimulus of these measures—and the overaU stimulus of more rapid
and sustained economic growth—would greatly intensify the incentives for
increased investment in new tools, new techniques, and for exploration and develo p m e n t of new markets a n d new products. This would sharpen t h e competitive
edge of American business, n o t only in foreign raarkets, b u t also in our own
home market.
Equally important, as our economy expands in response to the tax cut and
emplojanent and productive efficiency climb, t h e United States will become
continually more a t t r a c t i v e to investment capital, both foreign and domestic.
I t is also likely t h a t a more rapidly growing economy would soak up current
savings and bring with it a n a t u r a l increase in longer t e r m interest rates t h a t




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

would in turn help to slow the outflow of capital. For aU these reasons, the
American Bankers Association last July stated that substantial tax reduction
was a vital element in any program to achieve balance in our payments.
In no sense, however, does this mean that the tax bUl will automatically solve
our payments imbalance or allow any of us to relax our efforts. While the tax
bill will provide the climate and the extra leverage to spur us on to greater efforts
and to help make those efforts continually more productive, it will still be imperative that we step-up our drive to expand our exports and widen our access to
foreign markets, and that we maintain the kind of wage and price stability we
have enjoyed over recent years. Above all, you in private industry must work
ever harder to seek out, explore, and develop export opportunities. For the tax
bill will give us the more dynamic and growing economy in which any measures
that you adopt can have maximum impact, and in which you will have the
heightened incentives you must have if you are to mount an export drive of the
scope and intensity we need.
EXHIBIT 28.—Statement issued on October 2, 1963, by Secretary of the
Treasury Dillon, on behalf of the "Group of Ten'*
The following statement was issued today on behalf of the ''Group of 10"
members of the International Monetary Fund by Douglas Dillon, Secretary of
the Treasury of the United States:
" 1 . In the course of the annual meeting of the International Monetary .Fund,
the Ministers and Central Bank Governors of the 10 countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States) participating in the agreement of December 1961
to supplement the resources of the International Monetary Fund met in Washington, together with Mr. Pierre-Paul Schweitzer, Managing Director of the
Fund. In this meeting, they discussed the international payments situation and
reviewed tbe functioning of the international monetary system now and in the
future in the light of their common aims as reflected in the Fund's Charter.
"2. They agreed that the removal of the imbalances still existing in the external accounts of some major countries was the most important objective to be
pursued over the near future. For this reason they welcomed the recent efforts
of certain deficit countries to improve their balances of payments, as well as actions by a number of countries designed to reduce or remove surpluses, as evidence of progress toward a better basic international equilibrium. The Ministers and Governors reaffirmed the objective of reaching such balance at high levels of economic activity with a sustainable rate of economic growth and in a
climate of price stability.
" 3 . In examining the functioning of the international monetary system, the
Ministers and Governors noted that the present national reserves of member
countries, supplemented as they are by the resources of the IMF, as well as by
a network of bilateral facilities, seemed fully adequate in present circumstances
to cope with possible threats to the stability of the international payments system. In this connection, the Ministers reviewed the 'General Arrangements to
Borrow' in the International Monetary Fund and reiterated their determination
that these resources would be available for decisive and prompt action.
"4. In reviewing the longer run prospects, the Ministers and Governors
agreed that the underlying structure of the present monetary system—based on
fixed exchange rates and the established price of gold—has proven its value as
the foundation for present and future arrangements. It appeared to them, however, to be useful to undertake a thorough examination of the outlook for the
functioning of the international monetary system and of its probable future needs
for liquidity. This examination should be made with particular emphasis on the
possible magnitude and nature of the future needs for reserves and for supplementary credit facilities which may arise within the framework of national economic policies effectively aiming at the objectives mentioned in paragraph 2.
The studies should also appraise and evaluate various possibilities for covering
such needs.
"5. The Ministers and Governors have noted with approval the statement by
the Managing Director that the International Monetary Fund will develop and
intensify its studies of these long-run questions. They, for their part, have now
instructed their Deputies to examine these questions, and to report to them on




EXHiBrrs

277

t h e progress of their studies and discussions over t h e course of t h e coming year.
T h e y requested t h e Deputies in carrying out these studies to maintain close
working relations with t h e International M o n e t a r y F u n d and with other i n t e r n a tional bodies concerned with monetary m a t t e r s . Any specific suggestions r e sulting from t h e studies by t h e Deputies will be submitted to t h e Ministers a n d
Governors for consideration.
" 6 . T h e Ministers and Governors believe t h a t such an examination of t h e
international m o n e t a r y system will further strengthen international financial cooperation, which is t h e essential basis for t h e continued sucessful functioning of
the system."

E X H I B I T 2 9 . — R e m a r k s by Secretary of the Treasury Dillon, February 19, 1964,
before t h e Economic Club of Chicago, on t h e international balance of p a y m e n t s
I t is a pleasure t o be here tonight, not only because of t h e importance of t h i s
distinguished audience, b u t because it gives me t h e o p p o r t u n i t y t o acknowledge
t h e outstanding work of Chicago's representatives on tifie U.S. industrial Payroll
Savings Committee, who help our debt m a n a g e m e n t program by promoting U . S .
savings bonds sales. I a m sure t h e Committee will be calling upon m a n y of you
to support t h e 1964 campaign, which begins tomorrow. I know you will respond
in any way you can.
Tonight, I w a n t t o examine with you one of our most persistent economic
problems—the deficits in our international balance of p a y m e n t s :
Last year was critical for our balance of p a y m e n t s , a year of initial relapse,
followed by vigorous recovery. Our deficit on regular transactions reached an
annual r a t e of $4)4 billion in t h e first half of t h e year, b u t fell to little more t h a n
$1)4 billion in t h e last half, t h e best six-month record since our p a y m e n t s were
bolstered by t h e Suez crisis in 1957.
Regular transactions, as you know, include everything except special intergovernmental transactions such as advance r e p a y m e n t s of debts owed to us, advances on military purchases from us, and sales of special nonmarketable U . S .
obligations. Thus, regular transactions provide t h e best measure of t h e y e a r to-year changes in t h e basic elements t h a t shape our balance of p a y m e n t s . H o w ever, t h e overall balance—which represents t h e t o t a l change in our liquid assets
and liabilities—is t h e best measure of t h e results in a n y given year, because it
includes all transactions which affect our international liquidity position.
For all of 1963, our deficit on regular transactions amounted to $3 billion, a
$600 million improvement over 1962, just a hair better t h a n t h e 1961 record,
when imports were depressed in t h e aftermath of our last recession, b u t a s u b stantial improvement over t h e 1958-60 average of $3.9 biUion.
On an overall basis, t h e 1963 figures are comphcated by our sale to foreign
central banks for t h e first time of nonmarketable, medium-term convertible
securities. These sales, which are highly i m p o r t a n t in protecting our gold stock,
a m o u n t e d to $700 million. There is no clear consensus on how those securities
should be treated in our statistics, so t h e Commerce D e p a r t m e n t presents two
t o t a l s : one making allowances for their sale, and t h e other disregarding t h e m by
treating t h e m as fully liquid liabilities equivalent to cash. On the first basis,
our overall deficit for 1963 was just under $1.9 billion, and on t h e second, just
under $2.6 bUUon. These figures compare to $2.4 billion in 1961, $2.2 biUion in
1962, and an average of $3.7 billion in t h e 1958-60 period.
These different statistical approaches make t h e balance of p a y m e n t s more
difficult to comprehend t h a n it actually is. In addition, our statistics, since they
are derived differently, cannot be compared with those of t h e International
M o n e t a r y F u n d a n d most other countries. To remedy t h a t situation, t h e Administration appointed a committee of experts from private life to study our balanceof-payments statistics. T h a t Committee has been a t work for almost a year,
and plans to make its report some time this spring. I t s report, we hope, will
result in a simplification or standardization of our balance-of-payments statistics
t h a t will m a k e t h e m both more readUy understandable and more comparable
with t h e statistics of other countries.
One statistic t h a t , for good or for ill, is always easily understood, records our
gold stock. Last year it showed substantial improvement. Total gold outflow
was held to $461 million as compared to $890 million in 1962, $857 million in
1961, a n d an average of $1.7 bUlion in the 1958-60 period.




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

To understand w h a t happened last year, and w h a t it portends for t h e future,
we m u s t go back to 1961, when we began to forge a comprehensive p r o g r a m to
move our international accounts back into balance:
W i t h o u t vigorous and appropriate corrective measures, t h e situation a t t h e
beginning of 1961 could easily have degenerated into a major crisis of confidence
in t h e dollar, a n d t h u s for t h e entire free world p a y m e n t s system. You will
recall t h a t there were m a n y a t t h a t time who expected exactly t h a t to happen.
We had to take action p r o m p t l y and firmly, and we did.
First, we h a d to make clear—and keep clear beyond any d o u b t — o u r firm
determination to maintain the value of t h e dollar. Soon after taking office.
President Kennedy called attention to t h e very large gold and other resources a t
our disposal, and pledged that we would, if necessary, mobilize all of these resources
to maintain the value of t h e dollar.
President Johnson has emphatically
reaffirmed our unchanging determination on this score.
To support t h e position of t h e dollar in world markets, we set up a series of new
international financial arrangements to offset t h e effects of potential currency
speculation and to avoid unnecessary a n d unsettling movements of gold. These
actions included t h e revival of U.S. official activit}^ in both forward and spot
m a r k e t s for foreign exchange, informal arrangements to discourage private
s]3eculation in t h e London gold market, and development of a broad network of
bilateral agreements for m u t u a l extension of swap credits. T h e Treasury late in
1962 also began to sell to foreign central banks special Treasury securities denominated in foreign currencies.
Measures such as these continue to be vital to the defense of t h e dollar, although
they m u s t n o t be confused with measures to reduce t h e deficit itself. With t h e
r e t u r n to convertibility of all the major currencies of the free world, and the ease
with which large sums of money can now move from country to country, t h e
t y p e s of defense I have been talking about will be of substantial value even when
t h e United States has returned to p a y m e n t s equilibrium.
As for t h e actual deficit, this Administration launched a broad and continuing
program, of both general and specific measures, designed to eliminate it within
a reasonable period of time.
T h e general measures are, of course, fundamental for they affect our domestic
economic condition and climate upon which any final resolution of our p a y m e n t s
difficulty m u s t depend. T h e first and most i m p o r t a n t of those measures is, of
course, t a x incentives to encourage greater growth in our domestic economy a n d
greater i n v e s t m e n t in product improvement and plant modernization.
We took t h e first significant step in t h a t direction in 1962 with t h e depreciation
reform measures and t h e e n a c t m e n t of t h e investment credit. We will t a k e a second and far-reaching stride in t h a t direction when we a d o p t t h e tax reduction
bill which has just been agreed upon by a joint House-Senate conference committee. This bill n o t only reduces rates, b u t also almost doubles t h e effectiveness of
t h e investment credit by restoring the full benefits of t h e Administration's original
proposal, which was substantially watered down in t h e final version of t h e 1962 bill.
T h u s it should be instrumental in generating the more rapid advances in productivity
t h a t are crucial to our continued and growing competitiveness in m a r k e t s both
a t home and abroad. Equall}^ important, as our economy expands in response to
t h e tax cut, and emplo5mient and productive efficiency climb, investment in t h e
United States will become increasingly more attractive to both foreign and domestic capital.
A second general measure has been to use monetary policy to move short-term
interest rates closer to rates abroad, t h u s reducing t h e outflow of short-term capital, while a t t h e same time continuing an ample availabilit}^ of domestic credit.
T h e third, and final, overall factor has been the maintenance of price stability.
I n early 1962, t h e President's Council of Economic Advisers set up noninflationary
guideposts for wage and price decisions calling for voluntary action by both
business and labor. T h e Council pointed out in its most recent annual report
t h a t responsible a n d voluntary adherence to those guideposts has been an import a n t factor in maintaining the impressive price stability of recent years. T h e
absence of inflationary price increases in this c o u n t r y — a t a time when our competitors in Western E u r o p e and elsewhere have generally experienced a rising
price level—may well prove in t h e long run to be t h e most i m p o r t a n t single
factor favoring a gradual return to balance in t h e international accounts of t h e
United States. I t is essential t h a t price and wage decisions be m a d e with this
in mind.




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279

I t is these general policies, which affect our whole economy and its ability to
compete, t h a t are decisive over t h e long run. B u t more direct and quick-acting
measures have been required as well.
T h e Administration has spared no effort to help our private economy exploit
and expand its opportunities for increased sales to foreign countries. I n every
way possible, principally through t h e D e p a r t m e n t of Commerce, we have exhorted,
encouraged, a n d above all, helped American business to expand exports. T h e
E x p o r t - I m p o r t Bank, in cooperation with private insurers, has improved t h e
credit facilities available to American exporters to t h e point where t h e y are now
as good as any in the world.
We have also dramatically reduced t h e net impact on our p a y m e n t s of overseas
outlays by t h e Government itself. We have done so by limiting, and wherever
possible cutting, our gross expenditures abroad for military purposes, and by
offsetting as much as possible of such spending through arrangements for t h e sale
of U.S.-produced military equipment to major allied countries. We have also h a d
excellent success in making sure t h a t as much as possible of our economic assistance overseas goes to finance additional exports of U.S. goods and services, t h u s
avoiding or minimizing any adverse impact on our balance of p a y m e n t s . As a
result, by t h e end of this year we will have m a d e a one billion dollar reduction in
our 1962 r a t e of overseas Government expenditures, and, in addition, from 1961
through 1963 our receipts from sales of military equipment overseas have more
t h a n doubled, improving our p a y m e n t s position by another $500 million to
$600 million a year.
Finally, with t h e full cooperation of m a n y of t h e leading industrial countries,
we h a v e carried out a series of transactions to give us added time for our longt e r m corrective measures to t a k e effect. These include p r e p a y m e n t s by foreign
countries on debts owed t o t h e U.S. Government, advance p a y m e n t s made .by
allied governments toward purchases of U.S. military equipment and our issuance,
beginning in t h e last quarter of 1962, of special nonmarketable medium-term
U.S. Government securities to foreign m o n e t a r y authorities.
Last year we adopted other interim, short-term measures as well. I t was
imperative t h a t we do so. I n t h e first half of 1963, as we all know, a surge of
capital outflow swamped t h e improvement in other areas and swelled t h e deficit
on regular transactions to an annual r a t e of $4^2 billion. New issues of foreign
securities, in particular, soared to a n f a n n u a l r a t e of|-nearly $2 billion, nearly
twice t h e 1962 r a t e and more t h a n three times t h e average for the years 1959-61.
As a result, last July President Kennedy announced an intensified program of
action t o deal with our balance-of-payments problem. I n t e r m s of immediate
results, t h e two key steps t a k e n a t t h a t time were t h e proposal for an interest
equalization tax, and t h e half-percent increase in t h e Federal Reserve rediscount
rate.
T h e sharp recovery in our p a y m e n t s during t h e last half of 1963—with t h e
improvement in our long and short-term capital accounts amounting to $2 billion
at an annual rate—bears dramatic witness to t h e effectiveness of these measures,
particularly t h e interest equalization tax. This, then, is t h e background.
What
can it tell us a b o u t our p a y m e n t s outlook for t h e years immediately ahead?
First of all, it is clear t h a t t h e interest equalization t a x proposal has t h u s far
operated somewhat as a tourniciuet, shutting off t h e flow of American portfolio
capital into foreign securities rather completely, except for some issues t h a t h a d
been arranged prior to announcement of t h e tax. We can hardly expect this
situation to continue, nor, in t h e long run, would it be either sound or desirable.
M a r k e t activity will undoubtedly increase once t h e t a x is enacted and t h e m a r k e t
grows familiar with its workings. During t h e course of this year, therefore,
we expect a resumption of portfolio capital outflows, b u t only at about t h e level
considered normal before t h e a b r u p t increases of 1962 and early 1963.
Second, we must expect a considerable expansion in imports during 1964 t o
keep pace with t h e rising level of domestic activity. Normally, we import at
a r a t e approximating three percent of our gross national product. Because of
t h e size of our G N P , this small percentage amounts to a substantial sum in t e r m s
of our balance of p a y m e n t s . We must, therefore, intensify our efforts t o ensure
t h a t our exports of merchandise will grow at least as rapidly as our imports.
Otherwise, our foreign t r a d e could become a source of weakness in our balance of
p a y m e n t s , rather t h a n , as in t h e past, a source of strength.
Third, we can expect continuing reductions in our overseas governmental
expenditures as t h e programs announced last summer t a k e effect. T h e full




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1964 REPORT OF THE SECRETARY OF THE TREASURY

force of those programs will be felt in 1965. After that, it will become increasingly
difficult to squeeze additional reductions out of these accounts.
A very favorable portent for the future is the growing realization on the part
of responsible officials in all major countries that the large imbalances in the free
world's accounts of recent years should not, indeed, cannot, be permitted to continue. From the European point of view, surpluses aggravate what is already a
serious problem of internal inflation. And the United States has made absolutely
clear its resolute determination to eliminate its international deficit. Thus, we all
have strong incentives to join together in improving pa3^ments positions wherever
they are thrown out of kilter. There are, of course, many difficulties to be overcome, both in surplus and in deficit countries, before deeds will match the desire
for mutual improvement. But mutual understanding and determination are
growing, and international cooperation is a real and potent force for mutual
adjustment.
Much has been accomplished already. We have greatly strengthened confidence in the foreign exchange markets. Through cooperation with other monetary
authorities and the rising pattern of short-term interest rates in the United
States, we have substantially narrowed the incentives for the export of short-term
capital. Every effort must be made both here and abroad to see that this cooperation continues and intensifies. We must, and will, continue to seek a better
adjustment of long-term capital flows through the development of more effective
capital markets in other countries in order to reduce undue concentration upon
our own. The proposed interest equalization tax has already stimulated much
greater European efforts in this area.
On the whole, and barring unexpected developments, I anticipate that 1964
will see a continuation of the progress we have seen since last July. This would
mean a substantial improvement over 1963 in our deficit on regular transactions.
Be3^ond 1964, we might better speak of requirements rather than forecasts.
We must continue, difficult though it may be, to seek out ways to further reduce
direct Government spending overseas over and beyond the improvement we can
now foresee for 1965. We must remain prepared to make such use of monetary
policy as may prove necessary to prevent unacceptable outflows of short-term
funds. Most important of all, we must improve our balance on commercial
trade and service accounts, and we must do this by selling more. We will,
I believe, be assisted in this effort by the growing demands of markets in Europe
and elsewhere. To take advantage of those markets, we must continue to work
for stable costs and prices even as we seek more rapid growth in employment
opportunities and in the gross national product. I do not look for any sudden
or dramatic easing in the competitive pressure which will confront us from now
on, but our competitive position has improved slowly but steadily over recent
years. We will therefore need—and I am confident we will see—redoubled efforts
on the part of the individual businessmen, farmers, and industrialists of this
nation.
Our country has set as its aim the difficult task of eliminating its balance-ofpayments deficit without disrupting the trade of other countries and without
sacrificing American leadership in the defense of the West, the economic growth
of the less-developed countries, or the support of forward looking economic
policies. There must be no relaxation in governmental or private efforts until
that goal has been reached. I am confident there will be none.
EXHIBIT 30.—Statement by Secretary of the Treasury Dillon as Governor for
the United States, April 14, 1964, at the fifth annual meeting of the Board of
Governors of the Inter-American Development Bank, Panama City, Panama
It is particularly fitting that we are holding our Fifth Annual Meeting of the
Bank's Governors today, which is being observed in my country as Pan American
Day. There could be no more fitting place for today's meeting than this honored
and historic city, which Bolivar chose for the first Inter-American Conference,
The Congress of Panama.
This is the 140th year since Bolivar prophesied proudly and boldly that " a
hundred centuries hence, posterity, searching for the origin of our public law
and recalling the compacts that solidifi-ed its destiny, will touch with respect the
protocols of the Isthmus. In them will be found the plan of our first alhances
that will have marked the beginning of our relation with the universe."
The Bank, then could not be more at home than here in Panama, where Inter-




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281

American meetings first were launched, for the Bank in the best Inter-Ameri can
tradition is a strong and progressive force in t h e social and economic developm e n t of t h e hemisphere.
I n 1963, t h e Inter-American Development Bank completed its t h i r d full year
of operations and once again compiled an impressive record of achievement.
To support t h e economic and social development of its Latin American members,
t h e Bank last year authorized 56 new loans, for a t o t a l of $259 million. I t s
lifetime loan approvals a t t h e end of t h e year h a d reached t h e impressive figure
of $875 million, and activity under these loans is proceeding a t a sharply accelerated pace. Total disbursements at t h e end of 1963 were $206 million, more
t h a n three times larger t h a n disbursements a t t h e end of 1962.
Impressive as they are, these statistics can give us only a limited appreciation
of t h e truly remarkable work which t h e Bank's dedicated m a n a g e m e n t and staff
have accomplished in t h e p a s t three years. E a c h loan, for example, reflects
weeks a n d m o n t h s of careful scrutiny and planning. Behind each loan, moreover,
lie several additional applications for projects found wanting or not yet ready for
execution, b u t which nonetheless required, and merited, time a n d effort to review.
T h e Bank has also continued its efforts to mobilize private capital for Latin
American development in t h e highly industrialized free countries. Last year t h e
Bank was able to sell a total of $7.4 million in additional participation, without
any guarantee, in t h e United States, Canada, a n d Western Europe. As you know,
t h e Bank has just floated its third successful bond issue, t h e second in the United
States, in t h e a m o u n t of $50 million. I n addition, t h e Bank is actively negotiating
for further flotations in various Western European countries. I a m confident
t h a t these efforts will soon bear fruit. Additional external capital has also been
mobilized by t h e Bank through arrangements for t h e joint financing of projects.
As stated in t h e Annual Report, five of t h e Bank's ordinary capital loans last year
were m a d e in association with other external sources of capital.
Equally i m p o r t a n t — a l t h o u g h perhaps less immediately evident in our usual
review of t h e Bank's activities—is the fact t h a t t h e Bank's lending policies h a v e
stimulated t h e mobilization of very large a m o u n t s of domestic capital in its
member countries. T h e total cost of projects financed by t h e $875 million of t h e
B a n k ' s loans a m o u n t s to nearly $2.5 billion most of t h e additional cost, some $1.5
billion of it, represents t h e direct participation of local interests, governments,
firms, a n d individuals, a n d their provision of t h e domestic capital required.
I n directing t h e Bank's lending policies. President Herrera has increasingly
emphasized t h e encouragement of regional integration. I t seems to me all to t h e
good t h a t t h e Bank should give priority to loans having a "regional integration
component," for regional integration is essential if an adequate r a t e of economic
growth is to be achieved in Latin America. I note t h a t in the pursuit of these
policies t h e Bank has extended a $6 miUion line of credit to t h e Central American
Bank For Economic Integration and has m a d e a $3 million loan to t h e national
universities of t h e five Central American countries in order to insure technical
progress within t h e framework of t h a t area's vigorous m o v e m e n t towards regional
integration.
During t h e p a s t year, t h e Bank moved to implement t h e export credits program
which t h e Governors approved in Caracas. T h e B a n k has given specific form to
t h e general directive laid down by t h e Governors and has completed t h e detailed
regulations to govern this new activity. T h e $30 million of ordinary capital
resources allocated to this program has now been p u t to work by t h e g r a n t of
lines of credit to several member countries. I a m sure we will all watch with great
interest a n d expectation t h e i m p o r t a n t role this export financing program can
play in t h e development of capital goods production, export diversification,
reduced t r a d e barriers, and regional integration.
. T h e pace of t h e B a n k ' s activities required some time ago t h a t t h e Governors
consider an increase in. t h e B a n k ' s lendable resources. T h e process begun two
years ago in Buenos Aires has now been completed and t h e authorized ordinary
capital of t h e Bank now stands a t t h e equivalent of an imposing $2.15 billion, of
which $475 million is t h e authorized paid-in capital stock and $1,675 million is
callable capital. Our Congress in J a n u a r y authorized U.S. participation in this
increase to t h e extent of $411.8 million in callable capital, which will be subscribed
in two installments, this year and next, along with t h e subscription of t h e B a n k ' s
other members. With t h e B a n k ' s demonstrated success in raising funds in private
capital markets, t h e increased authorized capital provides ample assurance of
a d e q u a t e resources for projects on s t a n d a r d " b a n k a b l e " terms for several years
to come.




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

We have a t t h e m o m e n t no such assurance on t h e availability of Bank funds
for so-called "soft" loans, loans designed to supplement those made on ordinary
banking terms. Agreement was reached earlier this year on an increase of $73.2
million in t h e F u n d For Special Operations, of which $50 milhon will be paid in by
m y Government on April 28. This will bring t h e total capital of t h e F u n d For
Special Operations to t h e equivalent of $219.5 million, of which $150 million will
have been paid in by the United States. I n addition, our Congress last year
appropriated an additional $131 miUion to increase t h e Social Progress T r u s t
F u n d administered by the Bank. These additional funds for loans on easy
r e p a y m e n t terms will suffice for less t h a n one year of lending operations a t an
a d e q u a t e rate. I t is urgent, therefore, t h a t t h e Governors address themselves
once again to t h e future of the Bank's lending activities on soft terms and begin
action to obtain t h e requisite funds.
At our last meeting in Caracas, and again in t h e R e p o r t on this m a t t e r which is
now before you, m y Government has expressed its view t h a t t h e Bank would be
strengthened if a t this point in its life—and a t this juncture of the Alliance For
Progress—the lending windows to which t h e United States and other member
countries provide funds were reduced from the existing three to two. We have,
therefore, proposed t h a t there be no further replenishment of t h e Social Progress
T r u s t F u n d and that, instead, there be a substantial enlargement of t h e F u n d for
Special Operations.
T h e Social Progress T r u s t Fund, as you know, grew directly from t h e Act of
Bogota and the emphasis which a t t h a t time we all agreed to place on social
development in Latin America. I t was unfortunately all too t r u e t h a t social
progress in t h e hemisphere had been sadl.y neglected, and therefore it was
both essential and proper t h a t t h e Act of Bogota call attention to the priority
needs of the social sector.
T h e Act of Bogota, as we all know, was soon succeeded by t h e great milestone
of hemispheric dedication and cooperation, t h e Charter of P u n t a Del Este. T h a t
Charter gave formal recognition to t h e fact t h a t social and economic progress
are mutually-reinforcing objectives. I t also called for comprehensive planning
of the p a t h to progress, planning t h a t would m a k e it necessary to reduce or remove
any sharp distinction between economic and social projects. T h e m a r k of wellprepared plans—which, happil}'-, are now well-advanced in a n u m b e r of countries—
is t h e rational allocation of available resources between t h e economic and social
sectors, taking full account of their interdependence. We can expect, therefore,
t h a t t h e Bank, in deciding upon particular projects for financing, will increasingly
take into account both economic and social considerations and not just one or thie
other. With this approach, only two sources of financing, one hard, one soft,
seem necessary, t h e choice between t h e m to be determined, n o t necessarily just
by t h e n a t u r e of t h e project, b u t also by t h e situation of t h e borrower, or other
special circumstances.
In the context of these considerations, I hope t h a t we can agree a t this meeting
to seek the c o m m i t m e n t of our governments to a three-year program to enlarge t h e
F u n d For Special Operations by an a m o u n t equal to $300 million per a n n u m , of
which t h e United States would contribute $250 million, a n d the other members
of t h e Bank, $50 million, all in our own national currencies.
This enlargement, which, would enable the F u n d to m a k e loans on special
terms for t h e purposes currently being financed by both t h e F u n d a n d t h e Social
Progress T r u s t F u n d , can be accomplished without a n y change in t h e agreement
establishing t h e Inter-Ameri can Development Bank. This would simplify t h e
legislative problems of the member governments. This is particularly desirable
as far as t h e United States is concerned. In view of our forthcoming national
election, t h e U.S. Congress can be expected to adjourn somewhat earlier in t h e
year t h a n has recently been t h e case. Delay in reaching agreement on this
m a t t e r or t h e introduction of complexities involving basic changes in t h e Bank's
Charter would greatly increase our difficulty in obtaining congressional approval
this year, as can be a t t e s t e d by t h e members of t h e U.S. Congress who have come
here from Washington to a t t e n d this meeting as members of our Delegation.
We look for t h e Bank to continue and expand its role as the " B a n k Of T h e
Alliance." During t h e p a s t year, t h e Bank ifias assumed new duties as financial
agent in the mobilization of external resources for national development programs,
in filling a special advisory role with various entities concerned with t h e provision
of external development financing and, finally, as technical advisor t o t h e newly
established Inter-American Alliance For Progress Committee (known as C I A P ) .
I n connection especially with t h e latter body, it seems appropriate for t h e Bank




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283

to assume a more active role in the programing of development assistance and in
directing its activities t o w a r d t h e support of well-designed national and regional
programs.
Turning to the Alliance For Progress, in which the Bank plays such an i m p o r t a n t
role, I t h i n k we must, in honesty, acknowledge t h a t t h e present m o m e n t is one
characterized by skepticism a n d doubt, both in Latin America and in t h e United
States. Unquestionably, we still have a long way to go before we achieve t h e
objectives envisioned in the Charter of P u n t a Del Este. B u t while we face t h a t
fact, let it not obscure the equally i m p o r t a n t fact t h a t , by every realistic measure,
we have come a long way.
First, in the recent creation of t h e Inter-American Alliance For Progress
Committee, C I A P , we have established a sound mechanism for hemispheric
coordination and guidance within t h e framework of t h e Alliance. Our appointm e n t of Ambassador Teodoro Moscoso as U.S. representative has made clear
t h a t t h e United States wishes to play an active role in this Committee, to which
President Johnson has pledged "our full s u p p o r t . "
Second, we should not lose sight of the fact t h a t 11 of t h e 19 Latin American
member countries have been achieving the m i n i m u m 2}^ percent per capita growth
target set at P u n t a Del Este. Equally important, perhaps, is the fact t h a t
t h r o u g h o u t the hemisphere we have witnessed in t h e past 2 years the creation of
new institutions vital to the pace of future growth. T h e Bank itself has particip a t e d in t h e e s t a b h s h m e n t or reform of a variety of intermediate credit institutions, development banks, agricultural credit banks, savings and loan, and housing
finance institutions, all critical in t h e process of domestic resource mobilization.
Intense efforts are being devoted to t h e reform of tax structures, improved t a x
collection, a more equitable a n d productive distribution of land, and improved
facilities in t h e fields of health and education.
These are the very sinews of growth, and the a t t e n t i o n and activity focused in
these areas in the past 2 years has far surpassed anything ever before witnessed
in t h e hemisphere. The fruits of endeavors such as these will not miraculously
ripen overnight, on t h e contrary, progress will be difficult and even hazardous.
B u t without these efforts, progress simply will not occur. We therefore have a
clear choice before us:
—Shall we hold timorously back, afraid to move because we might stir up
waters t h a t could become troubled?
— O r shall we venture forth on new p a t h s — b u t always within a framework of
free and democratic institutions—that will offer all of our peoples a fair share in
the gradually ripening fruit of our m u t u a l endeavors?
On behalf of m y country, I urge t h a t we move without timidity a n d with
confidence.
So far as external funds are concerned, taking into full account t h e self-help
measures of t h e various countries of Latin America in connection with their
commitments under t h e Charter of P u n t a Del Este, t h e United States continues
t o be prepared to provide public assistance in t h e order of magnitude suggested
by the Charter. As our A I D Administrator, Mr. David Bell, emphasized in his
address to t h e Governors last year, the pace a t which aid can be provided m u s t
depend upon a series of p r e p a r a t o r y and correlated actions. Careful advance
planning and sound project implementation takes time, and there will be inevitable
lags between c o m m i t m e n t and disbursement of funds. I have pointed out t h e
close a t t e n t i o n the Bank has given to t h e problem of project execution and loan
disbursements during t h e past year, and wish to assure you t h a t our own financing
institutions have also m a d e every effort—consistent with t h e overriding
requirements of sound project implementation—to expedite disbursement.
Among t h e disappointments of t h e p a s t 2 years, I might note t h a t t h e
c o m m i t m e n t of external funds from Europe has t h u s far been less t h a n h a d been
hoped. Recently there has been new evidence of Eurpoean interest in Latin
America symbolized by t h e recent visits of President De Gaulle a n d President
Luebke. T h e United States wholeheartedly welcomes these renewed signs of
E u r o p e a n interest and hopes t h a t t h e interest will be clearly manifested in an
increase in the kinds of low-interest, long-term development loans so badly
needed by Latin America. In addition to liberal terms, we would hope t h a t
E u r o p e a n assistance t o Latin America would be carefully related to t h e overall
planning effort and to the system of priorities established within t h e context of
t h e Alliance For Progress. T h e proposal of t h e Governor for Argentina raises
interesting possibilities in this respect, and I can s t a t e t h a t m y delegation is in
full accord with t h e objectives underlying his propoasl.




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19 64 REPORI'

OI' T H E

SECRETARY OF THE TREASURY

I should like once again to emphasize in the strongest terms the need for t h e
Latin American countries themselves to be on guard against terms of assistance
from Siny source which would create an unacceptable burden for the future.
T h e indiscriminate and unrestrained acceptance of short- and medium-term
suppliers credits—in cases where longer term development loans are the real
need—all too often simply creates an unwieldly and unmanageable problem which
can very quickly assume crisis proportions, leading to a slowdown in the pace of
development.
The field of private investment is another area where flows of external capital
have proved disappointing. In this connection, we m u s t constantly bear in
mind the fact t h a t t h e foreign investor always has alternative possibilities for
investment of his capital. Given the high levels of current economic activity in
t h e United States and Europe, the opportunities for profitable investment at
home in both areas are relatively great. I n order t o a t t r a c t private funds from
the United States or Europe, or to induce the investment of local private capital,
a country, whether already industrialized or developing, m u s t maintain an
investment climate which offers a reasonable prospect t h a t a sound project will
yield a r e t u r n commensurate with t h e risk involved. The choice is for each
country to make. The results will depend, to a very great extent, upon t h a t
choice.
I n t h e United States over t h e past 3 years we have adopted a series of t a x
measures to increase t h e relative attractiveness of investment at home as compared
with investment in other free industrialized countries. Countries t h a t deliberately hamper t h e investment of private capital or fail to provide a hospitable
climate, should be aware of t h e fact t h a t t h e y are foregoing sources of financing
and technical knowledge of great importance t o their future growth, and t o t h e
strength of their international position, sources which cannot possibly be replaced
by public funds.
An i m p o r t a n t corollary of a favorable " i n v e s t m e n t climate" is a country's
ability t o raise capital abroad. I n this connection t h e recent experience of Mexico
comes t o mind: Mexico has been able t o float t w o highly successful bond issues in
t h e capital markets of t h e United States, one last year, and a second just 2 weeks
ago, for a t o t a l of $65 million. I t goes without saying t h a t these Mexican issues
were very welcome, and we hope t h a t other Latin American countries will be able
to follow this example in mobilizing private external funds for their development.
I should mention here t h a t t h e interest equalization t a x on foreign securities
which has been proposed to t h e U.S. Congress by my Government is not designed
t o apply to t h e securities of t h e Latin American countries.
Finally, I cannot let this occasion pass without mention of the World T r a d e and
Development Conference now under way in Geneva. I a m aware of t h e intense
interest which your governments have in this Conference, and in its purpose of
helping to ease t h e problem facing t h e developing world. T h a t endeavor is, of
course, one in which t h e United States has long t a k e n the lead, and I would simply
like t o emphasize m y country's determination t o continue its efforts, in every
feasible way, to serve t h a t purpose.
Mr. Chairman, t h e tangible evidence of t h e B a n k ' s progress placed before us
at this meeting symbolizes t h e activit}^, movement, and forward progress being
accomplished t h r o u g h o u t Latin America under t h e guidance of t h e Charter of
P u n t a Del Este. I a m confident t h a t at our meeting next year, and in t h e years
ahead, we will find ourselves increasingly able to meet t h e needs of Latin America
and of Western Hemisphere solidarity.
E X H I B I T 31.—Remarks by Secretary of the Treasury Dillon, M a y 21, 1964, at the
eleventh annual international monetary conference of the American B a n k e r s
Association, Vienna, Austria
I a m very pleased to be with you at another of your Annual International
M o n e t a r y Conferences, which offer such a unique and valuable opportunity t o
confer with one another and with our European friends.
All of us recognize t h e need to improve t h e process of balance-of-payments
adjustment among t h e free industrial nations. We have found t h a t t h e old rules
of t h e game, whatever their values in t h e past, are no longer adequate. For
instance, t h e classical presumption t h a t balance-of-payments deficits call for t h e
restriction of domestic economic activity has had little relevance t o t h e situation
facing t h e United States in recent years. Nor has t h e other side of t h e classical




EXHIBITS

285

coin—easy m o n e t a r y policies designed t o stimulate demand—been any more
appropriate as an antidote for recent European p a y m e n t s surpluses.
T h e selection of suitable international p a y m e n t s policies has also become more
difficult because domestic economic policies now encompass so m a n y more objectives t h a n t h e y once did. For example, t h e promotion of full employment has
come t o be accepted as a high priority responsibihty of governments t h r o u g h o u t
t h e free world. Price stability, t h e promotion of international trade, and t h e
stimulation of overall economic growth, all now occupy prominent places in
national policy objectives.
All of this means t h a t we h a v e h a d t o seek new techniques, and new combinations of old techniques, t o deal with p a y m e n t s deficits and surpluses. We h a v e
also learned t h a t our search for effective policies cannot proceed in isolation.
I n moving t o solve their own balance-of-payments problems, major countries
m u s t find ways t o achieve their objectives without creating serious difficulties
for others. T h e success of balance-of-payments adjustments increasingly depends
upon t h e coordination of national efforts. We have learned t h e lesson, particularly in t h e short-term capital area, t h a t close international cooperation can
contribute in very specific ways t o t h e improvement of t h e adjustment mechanism.
Although we have made substantial progress, m a n y unresolved questions
remain. Nowhere is this more evident t h a n in t h e area of long-term portfolio
capital flows. T h e importance of some of these unresolved questions was becoming a p p a r e n t at t h e time of your Conference in Rome two years ago. I spoke
t h e n of t h e dangers inherent in t h e growing pressure of foreign borrowers upon
t h e U.S. capital market. Within 6 months, those pressures began t o m o u n t
rapidly and, b y mid-1963, t h e volume of new issues in t h e New York m a r k e t was
running a t more t h a n three times its previous level. T h a t , unfortunately, left
us no recourse b u t direct governmental action. Accordingly, last July, we
launched an intensified program t o improve our balance of p a y m e n t s , in which
t h e proposed interest equalization t a x is a key element.
We look upon t h a t proposed t a x solely as a transitional measure. I t m u s t not
be allowed t o obscure t h e desirability of working out measures t h a t can p e r m a nently strengthen t h e international adjustment mechanism, nor our own need
vigorously t o pursue other elements of our balance-of-payments program, such as
t h e reduction of Government expenditures overseas and t h e pursuit of appropriate
fiscal and m o n e t a r y policies. B u t t h e necessity for t h e interest equalization t a x
highlights t h e serious problems t h a t have arisen in a t t e m p t i n g to reconcile freedom
of capital movements with t h e harsh necessities of balance-of-payments adjustment.
If long-term portfolio capital fiows are t o make their m a x i m u m contribution t o
our m u t u a l growth and welfare, t h e y should be permitted t o respond freely t o
shifting p a t t e r n s of t r a d e , to differentials in profit opportunities, and t o t h e
basic capacity of various nations t o save. B u t if t h e y are not t o undermine t h e
adjustment mechanism, long-term portfolio capital movements must also be
responsive t o t h e balance-of-payments position of borrowers and lenders alike.
T h e difficulties inherent in accomplishing both of these goals simultaneously
become clear when we consider t h e kinds of problems t h a t have recently plagued
us in t h e area of international flows of portfolio capital. Countless borrowers and
lenders are constantly making decisions to b u y or sell foreign securities on t h e
basis of price and yield differentials and availabilities of funds, as these factors are
reflected in t h e m a r k e t place. B u t we have no assurance t h a t these decisions will,
a t any given time, reflect basic differences in t h e underlying capacity of various
countries to provide capital for domestic uses, much less their capacities to t r a n s fer t h a t capital abroad. Instead, in t h e case of more t h a n one country, flows of
portfolio capital have recently shown a disturbing tendency t o seriously aggravate
imbalances in p a y m e n t s , r a t h e r t h a n t o assist in their adjustment. T h e greatest
difficulties on this score have arisen for countries which do not have controls on
their capital m a r k e t s — G e r m a n y a n d t h e United States.
I n our case, it was necessary to reduce an excessive net outflow of portfolio
capital, while t h e German problem has been t h e reverse one of discouraging an
excessive net inflow. Our approach was the proposed interest equalization t a x to
increase the effective cost of foreign borrowing in our markets. T h e German
approach, in some ways complementary, was to propose a withholding tax on
nonresident purchasers of German interest-bearing securities, thereby lowering t h e
aftertax yield to some foreign investors and t h u s tending to discourage capital
inflows. Perhaps even more significant in terms of progress toward more efficient
capital markets, the German authorities coupled this with an i m p o r t a n t structural




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

reform, in t h e proposal to remove t h e 2% percent t a x on t h e purchase of newly
issued securities, a step designed to offer encouragement to new capital issues,
b o t h foreign and domestic.
T h e fact t h a t a country as basically committed to t h e free flow of funds as is
t h e United States found it necessary to propose the interest equalization tax,
underscores t h e importance of achieving a better balance in t h e structure and
efficienc}^ of world capital m a r k e t s . Until t h a t better balance is achieved, it will
be difficult, or even impossible, to influence t h e direction a n d a m o u n t of long-term
portfolio capital flows through the normal action of m o n e t a r y policy, without the
help of special measures aimed, a t encouraging or discouraging such movements.
Consequently, progress in improving the free world's capital m a r k e t s has become
essential if the uninhibited flow of long-term international portfolio capital is not
to be a disturbing element in t h e quest for pa3^ments equilibrium.
In seeking the reasons why portfolio capital flows have become disturbing to
p a y m e n t s equilibrium, one is immediately struck by t h e current wide disparity
between European long-term interest rates and our own. Long-term interest rates in
E u r o p e have been very high throughout t h e postwar period. Although conditions
vary from country to country, Europe can generally be characterized as having
been on something close to a "6 percent basis" since World W a r I L
Certainly,
in t h e light of p a s t experience, 6 percent is an unusually high level of long-term
interest rates for Europe. T h r o u g h o u t t h e 19th century, t h e annual average of
prime long-term bond yields in continental Europe was only shghtly above 4>^
percent. I n England, it was just under 3}i percent. And, during the early
decades of this century, t h e overall averages, with t h e sole exception of Germany,
were little, if any, higher.
Because of t h e vast needs of postwar reconstruction and, more recently, of rapid
economic growth, reasons can be found to justify the current high level of E u r o pean long-term interest rates. In addition, relatively recent experience with
inflation has discouraged postwar European investors from the purchase of bonds.
B u t these transitory conditions do not suggest t h a t 6 percent is desirable as a
p e r m a n e n t level, or t h a t it is hkely to be maintained over a n y v e i y long'period
of time. History would seem clearly to indicate otherwise.
While t h e prevention of inflation remains vitally necessary, in Europe as well
as elsewhere, current inflationary threats appear to be different from those of the
immediate postwar period. There now seems to be much greater ground for the
use of income policies to restrain upward pushes on the cost-price structure, and
much less reason to place p r i m a r y reliance on high and inflexible levels of longt e r m interest rates. I do n o t suggest t h a t the necessity for interest r a t e variation
is a t all diminished. I only question whether it is desirable, as a long run proposition, t h a t European interest rates should continue to fluctuate around levels so
m u c h higher t h a n their historic averages. While the immediate and visible t h r e a t
of such high rates is to international p a y m e n t s balance, one can reasonably expect
t h a t t h e maintenance of sustained growth in Europe itself will, in time, require
appreciably lower long-term rates of interest.
E v e n with due allowance for t h e special factors t h a t I h a v e mentioned, t h e
question arises as to the extent to which institutional frictions and government
restrictions are to be held accountable both for the current high level of long-term
interest rates in Europe and for other impediments to the availability of funds.
T h r o u g h o u t history, efficient capital m a r k e t s have tended to produce lower r a t e
structures and, conversely, inadequate capital m a r k e t s have generally bred high
interest rates. European capital m a r k e t s once led the world, b u t in the postwar
period they have fallen far behind the needs of the times, particularly in t h e access
they offer to foreign borrowers. This is partlj^ because government intervention
and controls have impeded the development of broad and integrated capital
m a r k e t s in Europe, and partly because private financial institutions have sometimes been slow to a d a p t imaginatively to changing situations.
A broad and responsive capital m a r k e t helps to insure t h a t temporary influences
can be readily and rapidly absorbed within an acceptably narrow range of changes
in security prices and yields. However, where governments follow t h e practice
of pre-empting and channeling large proportions of the funds potentially available,
it becomes difficult to provide sufficient b r e a d t h in t h e private sector of t h e m a r k e t .
Unless security prices and yields are free to react to changing p a t t e r n s of supply
and demand, and to respond to broad and vigorous competition among private
financial institutions, t h e prospects for the development of truly efficient capital
m a r k e t s cannot be bright.




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287

The failure of European capital markets to keep pace with the expanding capital
requirements of the industrialized world has been a major factor in stimulating
pressures upon the New York capital market. The imbalance has been so large
that the greater availability of funds to potential borrowers in New York has
often seemed more important than interest rate corisiderations.
With such wide disparities in market capacity and accessibility, there is no use
looking to relatively minor international variations in long-term interest rates to
guide the flow of capital and to encourage balance-of-payments adjustment.
And the major variations in interest rates that would be required to bring longterm portfolio capital flows into better balance do not seem possible for either
Europe or the United States. The heavy accumulations of savings in the United
States make it doubtful that even an extremely restrictive monetary policy could
cause our long-term interest rates to approach the European level, and any such
extreme monetary policy would clearly run counter to our current domestic need
for fuller employment and higher utilization of our industrial capacity: In
Europe, on the other hand, efforts to reduce long-term interest rates cannot hope
to achieve really significant sucess until broader and more active capital market
facilities come into being.
It is encouraging that this need is now recognized on all sides. During recent
years, Europe has taken significant steps toward improving her capital markets.
The increasing economic intergration of Europe offers an opportunity for much
greater progress in the future, and it is imperative that the opportunity be seized.
Recent experimentation in achieving a broad European market for security flotations deserves to be carried further despite the difficulties that have been encountered. The increase in dollar-denominated loans under the stimulus of the
proposal for the interest equalization tax, the use of unit of account loans, and
the proposal by Dr. Hermann Abs for separate national shares in large European
security flotations, are.all developments of considerable significance.
I recognize that institutional changes of the required scope cannot be achieved
easily or quickly. However, there are promising signs of progress. The task
now is to push ahead vigorously in a concerted effort to enlarge and improve European capital markets as a necessary prerequisite to our common effort, within a
framework of free markets, to harness long-term portfolio capital flows to the
stark realities of balance-of-payments imperatives. Until this has been successfully accomplished, it must be recognized that portfolio capital calls on the New
York market from abroad will, in some fashion or another, have to be contained
within the limits set by our own overall balance-of-payments situation.
This is, for us, a new and unpleasant fact of life, but it is one with which our
European friends have long learned to live. And it is only one of many ways in
which we must accommodate our policies to the exigencies of our international
payments situation. We must continue to reduce our military expenditures
overseas, as well as the dollar cost of our foreign aid programs. We must continue
vigorously to press the sale of advanced military equipment to help offset the
cost of maintaining our forces abroad. We must continue to increase the attractiveness of direct investment in the United States. And, above all, we must continue to seek out ways of enlarging our exports while maintaining price stability
at home.
Until our payments deficit is entirely removed, and our gold losses halted, our
work will be unfinished. The past ten months have seen a dramatic improvement
in our payments situation, stemming in good part from the intensified action
program introduced last July, but also from a noticeable longer term improvement
in our underlying competitive position. The seasonally adjusted annual rate
of deficit on regular transactions during the second quarter of 1963 was swollen'
by massive foreign borrowing in our markets and exceeded $5 billion. This
rate of deficit was cut sharply to a little under $2 billion in the third quarter of
1963, and to a little over $2 billion in the fourth quarter. Preliminary data for
the first quarter of this year indicate that after seasonal adjustment our deficit
on regular transactions Jfias declined even further to an annual rate of about
$550 miUion.
But it must be recognized that these first quarter results overstate the actual
improvement. There is evidence of a substantial temporary inflow of shortterm funds from Canada during March, an inflow that was completely reversed
early in April. Even so, after taking this into account, the first quarter stiU
weighed in as our best quarter since 1957. On an overall basis and without
allowance for favorable seasonal influences, our international payments so far
,743-16'0-H&5—20




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

this year have been in approximate balance. This cannot be expected to continue
as seasonal effects will soon shift against us. But although 1964, as a whole, is
expected to record another sizeable deficit on regular transactions, there are
excellent reasons to hope that it will be sharply reduced from the levels of the past
six years. We have, therefore, every right to be encouraged.
But we must remember that a good part of our recent progress is due to the
proposal for the interest equalization tax. By the end of 1965, when this tax
is scheduled to expire, a secure payments equilibrium will require a much better
balanced international flow of long-term portfolio capital than characterized late
1962 and the early months of 1963. Specifically, this means that U.S. portfolio
capital in large amounts should not be asked to support the expansion of developed
areas with strong balance-of-payments positions. Increasingly flexible and efficient capital markets in Europe—capable of supplying funds at reasonable rates
of interest—will remove one major source of difficulty. It is then that opportunities should emerge for long-term capital movements to contribute more
actively to the process of balance-of-payments adjustment among nations.
We do not by any means have all the answers in the long-term capital area.
But as international capital markets achieve a better balance, both in terms
of interest rates and of lending capacity, it should prove possible to apply in the
long-term capital area some of the lessons we have learned in the short-term area.
A narrowing of existing differences in long-term interest rates among industrialized countries, together with wider access of borrowers and lenders to a
variety of national markets, implies a growing sensitivity of long-term portfolio
capital flows to relatively minor interest rate variations. This sensitivit}^ can
be turned to our mutual advantage, for it will provide opportunities for governments to make greater use of acceptable variations in monetary policy to
influence these flows in the interest of balance-of-payments adjustment, witifiout
violating their own domestic needs. It suggests another way in which we can
all work together to strengthen the adjustment process, while continuing our
progress toward a world of free capital movements and ever freer trade and payments.
EXHIBIT 32.—Remarks by Secretary of the Treasury Dillon as Governor for
the United States, September 8, 1964, at the annual meeting of the International Monetary Fund, Tokyo, Japan
My colleagues and I are delighted to be in this fascinating city, where tradition
and courtesy combine so charmingly with modernity and progress. This
meeting follows shortly after Japan's achievement of Article VIII status in the
Fund, another major achievement in Japan's almost incredible record of rapid
economic growth over the twelve years since she joined the International Monetary Fund.
The past year has witnessed a gratifying movement by most countries toward
the financial equilibrium for which we have been striving. Continued leadership b}^ the International Monetary Fund under the skillful guidance of its
Managing Director and effective cooperation in the foreign exchange markets
have contained the new pressures that have occurred and reinforced the strength
which has been developing.
As for my own countrj^, during fiscal year 1964, the United States set in
operation the latest elements of a new and many-sided economic program begun
in 1961, a program designed to promote internal expansion, enlarge employment
opportunities, and, at the same time, facilitate orderly and steady progress
toward balance in our external accounts. Our program places major emphasis
upon improved productivity and greater competitiveness, upon incentives,
rather than upon restrictions and controls, and, perhaps most important, upon
the healthy functioning of a dynamic system of free enterprise.
Significant—and, I believe, sustained—results are now clearly apparent.
The U.S. economy continues to expand in what is now the longest, strongest,
and best balanced advance of any peacetime period in this century. During
the past fiscal year, the rate of growth in industrial production, and in our economy as a whole, was better than 5 percent in real terms. Our gross national
product increased by more than $40 billion. Job opportunities began to overtake the rapid growth in our adult labor force and, in July of this year, unemployment dropped below 5 percent for the first time since 1957, despite the accelerating

automation pf farms and factories.




EXHIBITS

289

Meanwhile, our prices have remained virtually stable. T h e indices of wholesale prices are still at t h e levels of six years ago. Consumer price indices have
edged u p w a r d b u t very slowly, only a little more t h a n 1 percent per year. At
t h e same t i m e almost alone among t h e leading industrial countries, we are now
for t h e t h i r d straight year experiencing a decline in unit labor costs for manufacturing industries as a whole.
M o n e t a r y policy a n d debt management have struck a noninflationary balance
between supply a n d demaiid for liquidity instruments. Commercial b a n k holdings of Federal Government debt continued t o dechne over t h e past fiscal year
by more t h a n $4 billion, even t h o u g h t h e administrative budget deficit exceeded
$8 biUion. W h a t is more, less t h a n a m o n t h after t h e end of t h e fiscal year, t h e
full a m o u n t of t h a t budget deficit was, in effect, financed out of real savings as
we added nearly $9 billion to our longer t e r m Government securities.
I t was within this domestic framework t h a t t h e United States continued its
efforts t o restore balance in its international accounts. I n discussing those
efforts, it should always be borne in mind t h a t t h e United States has t h e ability
t o achieve balance in its international p a y m e n t s at any t i m e t h r o u g h t h e use of
drastic measures of a restrictive n a t u r e . But, as we have consistently pointed
out, we have neither t h e desire nor t h e intention of utilizing such measures,
since t h e y could bring harsh repercussions throughout t h e world. Instead, we
are working t o achieve balance gradually t h r o u g h normal market processes, without injury t o our friends in other nations.
I m p r o v e d productivity, in agriculture and in manufacturing alike, have made
possible substantial gains in our t r a d e position over this past fiscal year, gains
t h a t were, as we well know, in some p a r t fortuitous, b u t gains nevertheless, t h a t
we expect t o sustain, and, eventually enlarge.
We are also persisting in our efforts t o reduce dollar outlays abroad for defense
a n d development assistance, without impairing essential elements in t h e defense
of t h e free world or in our vital assistance programs. T h e balance-of-payments
costs of those programs will have shrunk by an annual rate of $1 billion b y t h e
end of this calendar year.
When we last met, it was our capital accounts t h a t posed t h e greatest t h r e a t
t o our balance of p a y m e n t s . A cascading outflow of portfolio capital had forced
us t o propose t h e interest equalization t a x in t h e summer of 1963. T h a t t a x is
now law. I t has worked out as planned and can be expected t o hold portfolio
capital outflows t o a reasonable figure while leaving our m a r k e t s open t o foreign
borrowers willing t o assume interest costs considered normal, a n d even low, in
most other industrial countries.
W i t h our t r a d e position improving. Government expenditures overseas continuing t o decline, capital outflows restrained—and w i t h our earnings on services
expanding at roughly t h e same r a t e as our rising net o u t p a y m e n t s on tourists
account—we have been moving back t o w a r d external balance..
For example, our gross deficit on regular transactions in fiscal 1964 was $1,750
biUion. This was a heartening gain over t h e results of t h e past six calendar
years, when comparable deficits ranged from $3.1 billion t o $4.2 billion. And it
was a vast improvement over t h e first half of calendar year 1963, when accelerating d e m a n d s from abroad for long-term funds led t o a dollar outflow at an annual r a t e of $5 billion, a r a t e we simply could not sustain and t h a t far surpassed
any legitimate world wide requirements for dollars. But, despite this improvement, we are only halfway back t o external balance. W e cannot relax, nor do
we intend t o .
I n seeking t o improve our p a y m e n t s position, we readily recognize t h a t we
m u s t carefully weigh—and, wherever practicable and appropriate, minimize—the
impact of our gross deficits upon t h e liquidity of t h e rest of t h e world. W i t h
t h e cooperation of other m o n e t a r y authorities we have, therefore, in large p a r t
absorbed dollar balances wherever t h e y h a v e tended t o o u t r u n requirements.
Last year, for example, t h r o u g h sales of gold, use of foreign currency balances,
drawings on t h e International M o n e t a r y F u n d , and a variety of other special
transactions, we absorbed more t h a n $1,250 billion t h a t h a d flowed t o some E u ropean countries. At t h e same time, demands by certain monetary authorities
outside Europe—and, t o some extent, t h e demands of private banks and traders
everywhere—called for more dollars t h a n could be supplied out of our deficit.
Those demands, amounting t o several hundred million dollars, were met b y t r a n s fers from European dollar m o n e t a r y reserves.
I t was within t h e environment of a shrinking U.S. p a y m e n t s deficit t h a t t h e
I n t e r n a t i o n a l M o n e t a r y F u n d conducted its s t u d y of t h e international monetary




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

system over the past year. Concurrently, another studj^ was beuig carried forward by the group of ten countries, which had, in 1961, accepted special responsibility for providing supplemental resources to the Fund in the event that unusual strains were to develop in the international monetary svstem. It is highly
significant that both studies concluded that the present svstem is functioning well
and that any changes should be designed, in the words of the Fund report, to
"supplement and improve the system where changes are indicated, rather than
to look for a replacement of the system by a totally different one."
The two studies also agreed on the advisability of expanding the resources of
the Fund through a combination of general and selective quota increases. Such
increases seem clearly appropriate in view of the conclusion in Chapter 3 of the
Fund report that the next decade is likely to see a steady rise in the demand for
international liquidity, coupled with a slower annual rate of growth in the types
of liquidity on which cliief reliance has been placed during recent years.
The United States hopes that the Governors at this meeting will request the
Executive Directors to study the need for such increases and the ways in which
they might best be carried out. It is our hope that the Executive Directors
could, as they did in 1958, complete their work and make such recommendations
as they find appropriate to the Governors ot the Fund by the end of this year,
thus allowing time for member countries to complete necessary legislative action
during 1965.
An increase in Fund quotas seems to us the right move as member countries
enter the next phase in the evolutionary development of the international monetary system, a phase in which the greater needs are likely to center, at least for
a time, on the enlargement and elaboration of credit facilities for transferring reserves among countries, rather than upon increases in the overall supply of reserves. In this regard, our thinking once again parallels the findings in the
Fund's annual report regarding the need for increases in what the report labels
"conditional liquidit3^"
Today, even in the free industrialized countries, there is no common economic
pattern, but a mix, varying from nation to nation, of productivity, prices, trade
restrictions, and capital market facilities. As a result, the bulk of the increases
in reserves have, for the past several years, flowed to a few of the industrialized
countries, and particularly to Western Europe. Further substantial increases in
reserves would, for the most part, only increase that flow, unless and until those
countries reduce their chronic surpluses through a relative rise in imports, an
increase in their capital exports, or any other acceptable combination of actions
that would overcome their propensity to absorb whatever new liquidity may be
added to the system in the form of owned reserves.
Economic disparities between countries are no doubt inevitable in a dynamic
world. In time, so long as all countries actively pursue the objectives of liberal,
multilateral trade policies, the needed adjustments will surely be accomplished.
Meanwhile, we must be as careful in developing our international financial
arrangements as we are in designing monetary measures for our domestic needs.
And we must constantly guard against the oversimplified conclusion that a
simple addition to the international money supply, or an agreed limitation upon
it, or a contraction of it, will provide an adequate solution.
As the free world's financial officials, we must be as concerned with credit as
we are with money. Liquidity consists not only of owned reserves, but of credit
facilities. And it seems to me to be as important today to shift the emphasis
toward credit as it was in the first years after World War II. Then, total reserves
were ample by any absolute standard, but most of them were in the United States.
During that period, while the processes of readjustment were getting underway,
little would have been gained by further increases in owned reserves, for those,
too, would have flowed to the United States. Instead, a redistribution was
needed. It was largely accomplished through the massive credits and grants
which the U.S. Government extended, not only bilaterally and multilaterally, but
through dollars used in the drawings which other countries requested of the
Monetary Fund.
Some seven years ago, the international monetary system entered a second
phase in which a succession of large U.S. payments deficits became the principal
source of additions to the primary reserves of other countries. And now, with
overall international reserves at an adequate level and with the United States
moving toward balance in its payments, this second phase is also coming to an
end. Once again, the need is for additional credit facihties.
That is why it has been both appropriate and necessary to set up bilateral




EXHIBITS

291

credit arrangements to handle the volatile movements of funds which now occur
among industrialized countries with convertible currencies. There is no impairment of the Fund's role when those facilities are used instead of, or sometimes in
advance of, recourse to the Fund itself. Rather, there is an economy of resources
and a minimizing of strains. The risk is that a country might drift into heavy
and continuous reliance upon such essentially short-term credit facilities, delaying
too long the necessary corrective action that should be taken to adjust its balance
of payments.
As in any banking operation, that type of risk must be averted. The way to
do it is to provide for a full, though initially largely confidential, exchange of
information among the countries directly affected, and to assure frequent opportunities for discussion among their monetary authorities. It is essential to review
and appraise together the actions each is taking to finance its deficit or to carry
its surplus, including the degree of direct impingement of one upon the other.
That is what I understand to be the meaning of the "multilateral surveillance"
which the countries in the Group of Ten have undertaken to pursue jointly, and
in close liaison with the Bank for International Settlements, the Organization of
Economic Cooperation and Development, and, of course, the International
Monetary Fund itself. It fulfills, more systematically, the objectives which the
United States has long pursued in its full reporting of its own activities. In our
view, this pattern of information and consultation, systematically extended
among industrialized countries subject to volatile flows of capital, can add an
important dimension to the prudent use of such credit facilities.
The scope for greater reliance upon purely bilateral credit facilities, under the
aegis of "multilateral surveillance," may even be wider. We support the suggestion made in the Group of Ten Report ^ that countries with large and growing
reserves should actively explore the possibility of long-term lending to other
industrialized countries in need of additional reserves, but whose prospects for
reserve growth, though promising, may only be for relatively small annual
increments stretched out over many years.
Such lending would not only be of value to the stability of the currencies of the
industrialized countries, it would also facilitate an adequate and uninterrupted
flow of development assistance from advanced nations to developing countries.
In addition, countries with large and persistent surpluses should, in their own
interests and in the interests of accelerated economic development, carefully
reexamine the possibility of increasing the level and quality of their assistance
programs.
But, aside from continuing programs of economic assistance, the credit facilities
that will be of most direct use to the nonindustrialized members of the Fund are
those of the Fund itself. That is why the United States believes that prompt
consideration should be given to a general enlargement of quotas. In addition,
special increases would seem appropriate in a num.ber of cases, particularly for
those members whose currencies have become stronger and more widely used over
the 6 years since questions of this kind were last discussed in New Delhi. We
welcome the attainment by other countries of situations where they can now
provide a greater proportion of the Fund's resources, with a corresponding reduction in our share of the Fund's responsibility. We have been hopeful that the
members of the European Economic Community, in particular, will assume a
larger share, and are gratified that some readiness to do so has been indicated.
We also believe it inevitable that a growing international monetary system
must find new waj^s to economize the supply of gold, just as individual nations
have done for so long in their internal monetary systeEis. The fixed price of gold
is, of course, the anchor of price stability for the world. But world trade and
capital movements seem certain to expand and at a faster pace than the stock of
gold, thus imposing the most careful economy in its use. That is why the United
States, as the only country which maintains the essential link with gold on which
the entire I M F system rests, welcomes the reference in the Fund Report, and in
that of the Group of Ten, to measures for so handling Fund quota subscriptions
as "to mitigate the repercussions of gold payments on the gold reserves of the
contributing members and of the reserve centers that may be affected."
While an increase in Fund quotas will meet the current requirements of the
international monetary system, we cannot rest on our oars. Both the Group of
Ten and the Fund reports recognize the possibility that new and additional
measures may become necessary. We particularly appreciate the concluding
i^See exhibit.49.




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

statement in the liquidity section of the Fund's Report indicating that the Executive Directors intend to carry forward the Fund's studies of new approaches,
including easier access to a portion of the credit tranches, the possible use of gold
certificates in place of the presently required gold subscription, and the possibility of Fund investments. Meanwhile, the Group of Ten will be carrying on
parallel studies of these and other possibilities, including the use of composite
reserves. The results of these studies should put us in a position to meet any
need for enlarged supplies of unconditional liquidity that may develop over the
coming years.
In conclusion, let me say that it is within our capacity to achieve both adequate
monetary support and continuing monetary stability. Let us do so as our proper
contribution toward the steady expansion of free and unrestricted world trade
and the steady and rapid growth of all of our national economies.

EXHIBIT 33.—Statement by Secretary of the Treasury Dillon as Governor for
the United States, September 9, 1964, at the IBRD, IFC, and IDA annual
discussion, Tokyo, Japan
We meet here in common purpose: to advance international cooperation in
speeding the economic growth of the free world's less-developed nations. The
World Bank, under the dedicated and imaginative leadership of its President,
has been lighting our way in this task.
For more than a year, the Executive Directors and the management and staff
have been engaged in a penetrating review of the policies and operations of the
Bank, the International Development Association, and the International Finance
Corporation. With the variety of tasks referred to the Bank by. the United
Nations Conference on Trade and Development, these studies will take on new
importance in the coming year.
This review has already produced results of great importance to an increased
contribution by the Bank family to our common task. Equally significant for
the future, however, is the evidence these results provide of the readiness and
ability of the Bank family to seek out new and improved techniques for meeting
the development problem. It is this spirit which enables us to rely on the Bank
for leadership in meeting the challenges that lie ahead.
One of the Bank's primary concerns is the growing debt burden of the developing nations. This arises, on the one hand, out of the necessity for developing
countries to grow more rapidly than their meager foreign exchange earnings will
permit. On the other hand, countries exporting capital goods are often reluctant
to offer credit on sufficiently easy terms to permit the borrowing country time
to develop an economy capable of financing imports on a current basis.
Too often in the past, the remedy has been periodic debt consolidation, resulting
in uncertainty, delays in development, and needless friction between creditor and
debtor. Such a remedy is actually no remedy at all.
At each annual meeting it becomes clearer that the solution to the debt burden
problem has two aspects: First is the long-recognized need for credit on very
easy repayment terms. Second, and equally important, is the less well-recognized
need for restraint by both creditor and debtor countries in financing sales on
inappropriately short terms.
As to the first, the Bank has consistently urged the need for credits on very
easy repayment terms. In my own country's assistance programs, we have long
recognized that need and we expect that other economically advanced countries
will do the same, although progress to date leaves much to be desired.
. It was to help meet the need for easy credit that IDA was created. Although
the Bank itself has, where appropriate, recently lengthened grace periods and
maturities, IDA must continue to be the principal instrument for reconciling the
capital requirements of the developing countries with the need to preserve and
expand a stable international credit structure. It was in recognition of this need
that Part I countries have agreed to increase their contributions to IDA over the
next three years.
I heartily welcome the recommendation of the Executive Directors that the
Bank contribute directly to alleviating the debt burden problem by transferring
$50 million of last year's earnings to IDA. With the action of the Executive
Directors in removing the Bank's one-percent commission, the previous practice




t:xHiBiTS

29§

of allocating these amounts to the Special Reserve wUl end. This wUl significantly
increase the earnings available for future transfers to IDA.
However, as the resolutions adopted at the United Nations Conference on Trade
and Development in Geneva emphasize, these amounts alone are not sufficient,
and there is widespread interest, among developed and developing countries alike,
in further increasing resources which can be administered by the Bank family on
IDA terms. I am hopeful that the results of the Bank's studies will provide
useful guides as to the sources and magnitude of those funds.
The second aspect of the problem lies in the recurrent buildup in many countries
of obligations on too short terms, obligations that should be on terms much more
closely related to the economic life of the project or equipment involved, as well as
to the debt-servicing capacity of the purchaser's country.
We simply must find methods of restraining the extension and acceptance of
credit on such inappropriate terms. We must push beyond traditional arrangements, usuaUy worked out on an ad hoc basis from crisis to crisis. The Bank,
working in close cooperation with the Fund, can make a major contribution in this
area.
I also look forward to further improvements in the Bank's ability to offer constructive advice to its members regarding appropriate policies for the overall
development of a member's economy. Here again, close cooperation with the
Fund will yield the best results.
To a considerable extent, the limitation on Bank activity in many developing
countries today, particularly in the newly emerging ones, is the absence of clearly
defined priority projects suitably drawn up for Bank or IDA financing. The
Bank has now moved to fill this need by inviting the technical experts of other
specialized agencies in the United Nations family to join with the Bank in searching for and developing needed information on suitable priority projects.
Turning to another area, I welcome the proposal to permit the Bank to lend to
the International Finance Corporation. In carrying out its mission of encouraging
the growth of productive private enterprise in developing member countries this
Bank affiliate has been active in a variety of ways. It has helped to mobilize
local and foreign private capital. While the full extent of the demand for further
resources cannot be forecast, the proposal would endow the IFC with the necessary flexibility to meet probable future needs.
FinaUy, there is another proposal on which we are asked to take further steps
at this meeting that could bear importantly on the growth of investment around
the world and on the pace of development. I refer to the suggestion for a Banksponsored facility for arbitration and concihation of investment disputes. Such
disputes can often poison the whole climate for foreign private investment in a
country. Worse still, neighboring countries may be the innocent victims of investor reluctance induced by a weU-publicized dispute in the same region. The
United States, therefore, supports the proposal that the Executive Directors be
requested to draft a convention establishing voluntary institutional facilities to
help cope with such situations.
Over the past year, while the Bank has been conducting careful reviews and
charting new courses, it has also compiled a record of solid lending accomphshment. The Bank, IDA, and IFC have together committed more than $1.1 billion
for new power projects, new industries, new roads, ports, and railroads, each
designed to inject fresh, productwe potential into tbe economic mainstream of
tbe borrowing country. The major part of this activity has been conducted by
the Woild Bank, which resumed its high rate of lending with a total of $810 million
in loans for 1964.
This renewed high level of activity underlines the importance of broadening
the Bank's support from private financial markets which is now greater than
ever. Funds raised by sales of the Bank's bonds and by sales from its portfolio
have been the backbone of the Bank's operations. If its lending cannot be
adequately financed in this manner, many of the new policy initiatives we are
considering are not likely to be fully effective. They would be branches without
a trunk on which to grow. The level of Bank funds available for disbursement
has been declining. The Bank will soon, as President Woods stated, have to
reenter the capital markets on a substantial scale. And the higher level of operations currently forecast for the Bank will bring still larger needs for capital.
In resuming substantial net new borrowings after a period of several years, the
Bank should, in my view, intensify its efforts to assure that another kind of
development is fostered, namely, the development of more effective facilities for




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

mobilizing private savings in the capital markets of industriahzed countries that
are accumulating international reserves. Unless such facilities are developed, the
Bank will run the risk of having to limit its operations because of excessive reliance on the markets of the United States.
In some countries, the critical barrier is the high cost of borrowing. It is important that more imagination and effort be devoted to mitigating the impact of
these high costs of money on the Bank's operations. It is essential that the Bank
find ways to make good use of available private funds even though the interest
cost of some of these funds may be somewhat higher than would otherwise be
desirable. Enlarged borrowing facilities in other markets would not only assure
the Bank and the developing countries of a broader base on which to rely for
financial support, but would be consistent with our common objective of promoting
international balance and the effective functioning of the international monetary
system, thus meshing with the efforts of the Fund.
Although our immediate concern is with actions to be taken now, our outlook
is long range, for the problems of economic development and its financing will
extend far into the future. We can take well-deserved satisfaction from the fact
that our group of institutions is today more closely knit than ever before. If we
give them the support they so richly deserve, we can be sure that the mutually
reinforcing operations of the Bank, the International Development Association,
and the International Finance Corporation wiU move us steadily toward our
common goal of a better life for all peoples in peace and freedom.

EXHIBIT 34.—Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, December 28, 1963, before the American Economic Association and
the American [Finance Association, on balance-of-payments adjustment and
international liquidity
This seems to be the time for studies of international liquidity. As one
already deep in such efforts, I have no wish to detract from their importance. But
while that useful work is in progress, it is crucially important to keep our vision
focused on other, even more basic questions, questions concerning the processes
of balance-of-payments adjustment among countries, in the world in which we
are now living, processes that any arrangements for liquidity, however designed,
may at best only be able to facilitate, but never displace.
The enduring questions, with which economists and statesmen have struggled
at least since the time of Hume, center on the causes and the correctives for deficits
or surpluses in the external accounts of major trading and reserve-holding countries. To be sure, external liquidity, readily available to a deficit country, can if
wisely used enable that country to move to restore balance between its earnings
and its expenditures abroad in an orderly manner. Without adequate resources
either in the form of liquid assets in being or credit facilities, a deficit country
might be forced harshly to disrupt its trade with other countries and gravely to
dislocate the performance of its home economy, in order to get its external books
into balance. But it is well to remind ourselves that no form nor volume of
liquidity can reheve that country from the inescapable necessity of ultimately
reaching a satisfactory balance. And the other side of the coin is that countries
cannot expect to maintain large overall surpluses, year after year, without moving
back into equilibrium.
This is why, before fastening too many hopes on the outcome of our studies
of future liquidity, we should try to think through the implications of this underlying
premise: that a stable system of international economic relations among sovereign
nations can be sustained only if tendencies and pressures exist toward equilibrium
in the external accounts of each. The final balancing item may under some
conditions appropriately be a voluntary movement of capital, evening out
for any one year, or two, or three, the deficits in other transactions of some
countries against the surpluses of others. But each country must, through all
the intermingled movements of goods and capital that follow each disturbing
cyclical or structural impulse, reassert and encourage a return toward the kind of
balance in its external accounts as a whole that can be sustained over time,
including, of course, a normal flow of capital and aid from the developed to the
developing nations.




EXHIBTTS

295

Because t h e processes of adjustment for any particular country always proceed
beneath a monetary veil, there have understandably been frequent formulations
t h a t seek t o fit all of t h e essentials of adjustment into t h e mechanics of m o n e t a r y
arrangements, or to explain all t h e deficiencies of the adjustment process in t e r m s
of existing m o n e t a r y arrangements. Three different and somewhat conflicting
approaches of this kind have been injected into recent discussions. E a c h has
some useful insights, b u t each has tended t o deflect a t t e n t i o n from other elements
of t h e adjustment process. The n a t u r a l b u t unfortunate result has been to
raise unrealistic hopes for t h e ready solution of difficult problems t h r o u g h a
simple monetary formula.
(1) One of these formulations attributes t h e contiriued imbalance in accounts
between Europe and t h e United States during recent years exclusively to t h e
presumed ease with which t h e United States could finance its deficit through a
buildup in dollar holdings abroad. This process, it has been said, has generated
excessive international liquidity, with inflationary repercussions on t h e domestic
economies of t h e surplus countries in Europe. Those offering this analysis find a
solution in abandoning t h e "gold-exchange s t a n d a r d , " b y which t h e y mean
eliminating dollars, or at least further growth in doUars, from t h e reserve balances
of other countries. Instead, t h e supposedly sterner disciplines of t h e textbook
version of a pure gold s t a n d a r d would be reimposed, forcing p r o m p t elimination
of both t h e U.S. deficit and t h e European surpluses.
(2) Another version, concentrating more directly on t h e internal position of t h e
United States, finds no necessar^^ fault with t h e so-called gold-exchange standard,
b u t asserts t h a t t h e United States has generated more liquidity internally t h a n
our economy can absorb domestically, and t h a t this excess liquidity seeping
abroad has prevented t h e United States from balancing its external accounts,
whether or not inflationary pressures are currently visible. This version finds t h e
. solution simply in a tight domestic monetary policy. I t presumably accepts t h e
internal costs of deflation in an effort to promote exports and reduce imports,
while encouraging m u c h higher interest rates in order to a t t r a c t funds from abroad
and induce American funds to remain at home.
(3) A t h i r d formulation identifying m o n e t a r y liquidity and real adjustment
moves in quite t h e opposite direction, arguing t h a t t h e liquidity provided today,
b o t h internally a n d externally, is seriously inadequate. This version holds t h a t
international liquidity and credit arrangements should be m a d e available on a
m u c h larger scale in order to finance any deficits incurred while adjustments are
t a k i n g place, a n d t h a t this additional liquidity will in fact t e n d t o encourage
orderly adjustments. At t h e same time, monetary action would be sought t o
evoke m u c h greater economic activity at home, with any repercussions of this on
t h e external position cushioned by automatic drawings on ample supplies of
liquidity from abroad.
E a c h of these formulas offers an i m p o r t a n t element of warning and caution to
those considering rearrangements in t h e international monetary system. T h e
n a t u r e of t h e facilities for generating liquidity, b o t h internationally and domestically, as well as t h e volume of liquidity actually in being, m u s t necessarily play
an i m p o r t a n t p a r t in easing or aggravating t h e real problems and processes of
adjustment. T h e regrettable element of all three approaches, however, is t h a t of
broadening considerations of some relevance and significance into a supposedly
full formulation of both t h e causes for unbalance and t h e correctives for achieving
equilibrium.
As for t h e first version, surely few would den^^ t h a t present arrangements or any
arrangements for economizing on t h e use of gold t h r o u g h provision of supplement a r y reserve assets, whether in t h e form of key currencies or otherwise, could
potentially create possibilities of abuse. There is no question t h a t a world hungry
for additional reserves, and industrial countries anxious to restore t h e freer t r a d i n g
conclitions of currency convertibility, actually needed and depended for m u c h
more t h a n a decade on t h e liquidity provided by continuing modest deficits in t h e
U.S. balance of p a y m e n t s . B u t those deficits, instead of being reduced as these
needs passed, did eventually become too large, aggravating t h e problems of
adjustment.
To concede this, however, is not to say, as some would have it, t h a t t h e added
liquidity generated b y U.S. deficits was or is t h e culpable cause of those internal




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19 64 REPORT OF THE SECRETARY OF THE TREASURY

problems which have emerged recently as serious inflationary distortions within
some European countries. Surely there is exaggeration in t h e theme, now popular
in some circles, t h a t Europe is experiencing inflation solely because t h e United
States is creating too much international liquidity; or in t h e idea t h a t reform of t h e
international monetary system, aimed at preventing this creation of additional
liquidity, will automatically stop t h e problems now plaguing Europe. This view
is appealing, to be sure, to any who might be t e m p t e d to sin-ink from t h e task of
confronting and controlling inflation at home through appropriate, b u t sometimes
unpalatable, national policies. H o w simple, how fortunate, t o find outside one's
borders a diabolus ex machina to bear t h e responsibility for domestic inflation.
How comforting to be told t h a t there are no internal problems in t h e behavior of
wage rates, prices, or demand which would not disappear if countries could only
agree on some sort of change in t h e international monetary system, a n d t h a t t h e
hard changes in taxes or public expenditures, in capital markets, in agriculture
a n d housing policies, in international trading practices, a n d in incomes policies
t h a t seem to be called for are not necessary after all.
T h e appeal of t h e second approach t h a t sees t h e problem wholly in t e r m s of
U.S. monetary policy m a y not, even to observers outside t h e United States, be
quite as attractive, for the possible unpleasant implications of a drastically tighter
m o n e t a r y policy in t h e United States are much clearer t h a n those implied by a
vague call for international m o n e t a r y reform. Of course, there are times when
more restrictive monetary policies, both for domestic and external reasons, can be
entirely appropriate, and t h e resulting check upon excessive investment or consumer spending quite necessary to assure balanced and sustainable expansion.
B u t a shrinkage of domestic liquidity when home unemployment continues
widespread, with a resulting check t o investing and spending for goods a n d services
produced not only in t h e United States, b u t also abroad, has an entirely different
meaning. If only because of t h e strategic role of t h e immense U.S. economy in
t h e markets of t h e world, an imposed deflation would under modern conditions
disrupt t h e orderly evolution of t h e world economy. Nor do those advocating
this approach of tight money always recognize t h a t it is t h e differentials in rates
and in t h e availability of funds among international markets t h a t count a n d t h a t
nothing is to be gained by a t t e m p t s to pass on our deficit t h r o u g h charges here so
extreme t h a t others would have no recourse, or m a y feel t h e y have no recourse,
b u t to respond in kind.
There is no more satisfying wisdom in veering to the other extreme of analysis,
to the version which attributes t h e problems of balance-of-payments adjustment
among the leading countries of the world to inadequate liquidity, b o t h at home
and abroad. There are indeed Americans who have, perhaps wishfully, argued
t h a t a fresh breakthrough in liquidity arrangements, giving t h e United States
a u t o m a t i c financing of its deficits, could somehow spirit away t h e disciplines
which have exerted such a commanding influence upon public policy for more
t h a n three years, t h e need to m a i n t a i n stable prices a n d spur exports; t h e needs
for tying aid and for offsetting military spending; the need to raise internationally
sensitive interest rates and increase t h e cost of foreign borrowing in our m a r k e t
in whatever practicable w a y could be found to check t h e outflow of our capital;
a n d t h e need to cut taxes in a w a y t h a t promises to cut costs and spur productivity. B u t those who would adopt this approach have too often neglected to
specify just w h a t substitute methods they have in mind for ultimately restoring
international balance before strains to t h e system, however liberally supplied
with liquidity, become unbearable. Instead, the siren song of "cheap m o n e y "
too often lures those who pursue it into the distortions of speculation and t h e
hardships of inflation.
Let me make clear, however, t h a t in stressing these defects, I a m not denying
the essential place of appropriate liquidity arrangements in the satisfactory functioning of t h e adjustment processes. M y concern is with the tendency to t r a n s form an element into the whole. While it would be p r e m a t u r e to comment now
on various possibilities for strengthening the world's arrangements for liquidity,
it is never out of place to stress the importance of m a n y other elements in t h e
process b y which the countries of the world can maintain a reasonable balance
in their external accounts while moving together toward their goal of sustained
and rapid growth.
II
In turning to look a t some of these other elements in t h e adjustment process,
I need not belabor the point t h a t m a n y of the classical models a n d prescriptions




are very nearly irrelevant today, rendered obsolete b y downward rigidities in
costs and prices, b y the new importance in the postwar world of Government
transfers for aid a n d defense, and by t h e insulation of domestic financial m a r k e t s
in varying degrees from a direct response to international flows of reserves. Nor
have t h e problems faced b y policymakers conformed to t h e classical diagnosis
of external deficits accompanied by excess internal demand, and vice versa. And
most significant of all, nearly all countries t o d a y have placed new conditions on
policies designed to bring the flows of goods and services and capital, inward a n d
outward, into balance.
M o s t countries consider it imperative to work toward processes of international adjustment which are consistent to the fullest practicable degree with their
domestic goals for t h e maximizing of employment, the minimizing of economic
fluctuations, a n d t h e encouragement of growth, within t h a t environment of price
stability which best promotes these other aims. These determined objectives of
national economic policy are paralleled b y others, almost as widely accepted, in
t h e international sphere: maximizing trade as a means of raising standards of
hving; minimizing barriers t h a t obstruct t h e movements of goods and capital t o ward their o p t i m u m allocation; and encouraging the progress of developing countries, all within t h e framework of generally stable exchange rates which best
promotes these objectives.
Tt is inevitable in t h e n a t u r e of t h e world we live in t h a t actions directed t o w a r d any one of these objectives, either t h e domestic or t h e international, will
n o t necessarily harmonize with all of the other objectives all the time. E a c h
country consequently confronts its tasks of achieving external balance—of maintaining a viable relation with t h e rest of t h e world—without a fixed or unvarying
formula. I n practice, there m u s t be a continually evolving mix of policies, some
fiscal, some monetary, some affecting m a r k e t structure, some affecting private
incentives. Some can be carried out alone, others are dependent upon consultation a n d complementary action among a number of countries. B u t there is no
escaping the need for deliberate action, a n d a t tiraes for making unwelcome
choices, if t h e main line of advance is to continue toward this full array of objectives t h a t most countries now accept for modern economic society.
I t is neither my intention, nor certainly would it be my capability, to t r y t o d a y
t o elaborate a general theory of adjustment reflecting the conditioning influence of
all the aims t h a t I have mentioned. I can, though, through a brief review of some
of our own recent developments, t r y to illustrate some of the emerging characteristics of t h e adjustment processes in t o d a y ' s world. I t should be a p p a r e n t in
these remaining remarks t h a t monetary factors, or liquidity, do indeed play a large
p a r t in a n y well-functioning system. I t r u s t it wfll be equally clear t h a t the
adjustment process necessarily consists of m a n y other elements as well, elements
t h a t could not be suitably influenced through monetary forces alone.
Ill
By 1960, it began to be widely recognized t h a t the large American balanceof-payments deficits of 1958 and 1959 were not mere aberrations; t h a t the United
States was trying t o spend more abroad t h a n its foreign earnings would allow, a n d
t h a t firm a n d sustained counter action would be needed, b o t h from the public
a n d the private sectors of the economy, to restore equilibrium. F r o m t h a t time
onward, as new programs were developed to promote domestic growth, every
major step in public economic policy has been im.portantly conditioned, if not
actually prompted, b y t h e effort to regain balance. E a c h measure has also been
shaped with full regard to t h e fact t h a t even modest improvements in one or
another of the U.S. accounts might, from t h e other side, loom calamitously large
to any particular countries on which their impact might converge.
The need for supplementing or replacing the classical prescription by reaching
out a n d utilizing effective means of international adjustment a t t u n e d to the new
facts and objectives of modern economies has been recognized on b o t h sides of
t h e Atlantic. For it was clear t h a t the deficit of t h e United States did not reflect
overfull employment or strain on our capacity a t home, and relief for the balance
of p a y m e n t s simply could not be sought a t the expense of dampening d e m a n d a n d
adding to unemployment. Indeed, within an overall deficit much too large, the
United States continued to have a surplus on goods and services second to t h a t of
no nation. B u t a t t h e same time it was also carrying responsibilities for aid a n d
defense t h a t fit into no classical theory of the adjustment process.




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1964 REPORT OF THE SECRETARY OF THE TREASURY

As recognition of these facts developed, it also became a p p a r e n t t h a t successful
adjustment policies could be achieved only in a context of consultation and
cooperation with other leading industrial countries. To this end, the United
States seized t h e o p p o r t u n i t y afforded by an incoming Administration early in
1961 to propose a new initiative within the Organization for European Economic
Cooperation (which was then about to transpose itself into the Organization for
Economic Cooperation and Development). One of the results was the creation of
a Working P a r t y on t h e Balance of P a y m e n t s which has now for nearly 3 years
proved its unique value as a clearinghouse for m u t u a l appraisal, not only of the
forces affecting balance-of-paj^ments flows among most of the world's leading
industrial countries, b u t also of the broad outlines of policy and action t h a t appear
most appropriate, taking into account the interests of all concerned.
Against this background, complemented b y consultations within t h e I n t e r n a tional M o n e t a r y F u n d a n d at the Bank for I n t e r n a t i o n a l Settlements, a n d further
supplemented b y a variety of bilateral relationships with various countries, t h e
United S.tates has evolved a complex of measures aimed a t working simultaneously
t o w a r d all of the longer range aims for both domestic and international economic
policy, while restoring external balance. I n efforts as complex and detailed a n d
interrelated as these have necessarily been, there was no room for broadside
simple answers; nor has reliance been placed on any single formula. B u t t h r o u g h
these complexities, some promising approaches for meeting the new adjustment
problems t h a t are sure to arise in the future—after equUibrium has been restored
t o our own accounts—can be discerned.
The p a t t e r n overlaying all of our effort has been t h a t of liberalism, of dependence on markets, prices, a n d incentives r a t h e r t h a n upon authoritarian direction.
I n relating specific actions to the need, there have, inescapably, h a d to be some
compromises. Nonetheless, t h e broad outline has been t h a t of a flexibly changing
mix among fiscal a n d m o n e t a r y policies, accompanied by specific measures t o
promote export credits a n d exports, t o limit Government spending of dollars
overseas, t o m a k e aid available in kind, a n d to neutralize the attractions of investm e n t abroad as against t h e United States. And beyond these measures, w^ays of
financing any remaining overall deficit have been developed t h a t would, while
retaining the necessary pressures for adjustment, buttress rather t h a n weaken t h e
dollar as a reserve currency. .Preservation of the strength of the dollar has been
vital during a transition toward balance t h a t would necessarily be of considerable
duration if massive changes were t o be accomplished without disrupting t h e
general expansion of world trade and p a y m e n t s .
T h e U.S. a d j u s t m e n t eft'ort has, throughout, placed a particularly heavy emphasis on fiscal measures t h a t would both spur the performance of t h e internal
economy and encourage balance abroad. The investment credit a n d depreciation
reform provide a stimulus to business investment t h a t in some ways substitutes
for an easier money policy t h a t would aggravate the capital outflow. These
measures were also aimed specifically a t raising productivity a n d helping to maintain stable costs a n d prices. The proposed tax reduction aims further to broaden
the incentive stimulus of larger retained income. Wage a n d price guidelines have
been in turn proposed as aids to maintaining the conditions of stability t h a t
would promote internal expansion a n d strengthen this country's competitive
position around tbe world. To the same end, the continuing Government deficits
t h a t have reflected the inadequacies of our domestic growth have been financed
in a way t h a t will minimize any potential for future inflationary pressures.
While eventually powerful, these kinds of influences work themselves out in
the gradual a d a p t a t i o n of trade a n d p a y m e n t s p a t t e r n s , necessarily exerting their
impact in a r o u n d a b o u t manner. Consequently, much reliance from the s t a r t had
also to be placed upon the early beginning of substantial savings in the spending
of dollars abroad by the Government itself. And, of course, it has been i m p o r t a n t
from the beginning, as well, to influence favorably, in ways consistent with our
philosophy a n d objectives, the flow of capital funds into a n d out of t h e United
States.
T h e variety a n d diversity of t h e specific measures taken in these areas have
mirrored the complexity of the causes for these continuing U.S. deficits. While
the overall n a t u r e of t h e problem was simple e n o u g h — t h a t of a nation whose
private citizens and Government were tr3dng to transfer more resources abroad
than the actual current account surplus p e r m i t t e d — t h e complexities became
a p p a r e n t whenever a single course of resolute action was proposed.
I t has been true, for example, t h a t a very sizeable p a r t of the balance-of-pay-




EXHIBITS

299

m e n t s problem could have been eliminated a t a n y time by drastic reductions in
overseas spending for military programs. B u t the d.em.ands of national security
a n d the commitments inherent in Western leadership made t h a t impossible. T h e
costs of some activities could be pared; the performance of some could be rearranged; b u t needed military strength could not be impaired. There could be
dollar savings on military accounts and offsetting sales of our military goods to
foreign countries, together making a major contibution toward the balance. B u t
there was no simple and conclusive answer to be found here.
In the same way, proposals have repeatedly been made to reduce drastically
or eliminate foreign aid, although total elimination of actual dollar outflows for
t h e aid programs would n o t in recent years have produced anywhere near enough
saving to balance our external accounts. I t was clear, in any event, t h a t too
m u c h of the longer range future of peaceful development around the world hinged
upon this aid effort to permit its elimination or emasculation. There could be
savings in the spending of dollars abroad through sending mainly goods produced
here, b u t these represent only a partial contribution toward external balance in
t h e U.S. accounts.
Similarly, it could be argued t h a t capital outflows accounted for t h e entire
deficit, a n d t h a t comprehensive measures to reduce these flows could restore
balance. B u t the free flow of American capital, both in producing p l a n t a n d in
portfolio form, represented the base for much of the stimulus a n d expansion upon
which hopes depended for the prosperous world which could sustain peace and
afford freedom. Influence might be exerted toward reducing these outflows while
the balance-of-payments position of the United States was so clearly overextended,
b u t the measures taken m u s t be a ctiherent p a r t of the continuing effort to widen
the areas of freedom for the m.ovem.ent of capital in response to the competitive
forces of the m a r k e t place. This eft'ort will necessarily take time, for it m u s t
encompass the development of more effective capital markets in other industrialized countries so t h a t the growing savings potential and resources of those countries
can contribute more fully to the task of meeting the financing needs generated by
their own growth. And, it m u s t also entail t h e p a t i e n t removal of impediments
a t home or abroad to foreign investment in the United States, a m a t t e r now under
intensive s t u d y by a Presidential Task Force.
I t might have been suggested t h a t the answer could be found in a sudden v a s t
enlargement of American exports, such as might be t h o u g h t possible through a
currency devaluation. T h a t course of action could not be considered by the
United States, not merely because our immense size would assure retaliatory
action t h a t would wipe out any a p p a r e n t competitive trading advantage, b u t
more eniphatically because the U.S. dollar—firmly tied to a fixed price for gold—
plays a key role in the world paym.ents system, supplementing gold as a source
a n d store of liquidity a n d as a trading currency. The fixed dollar price of gold
has been a center of stability in the world monetary system for nearly 30 years,
while the Italian lire, for exam.ple, has fallen to 2 percent of its 1934 gold value;
the French franc to 3 percent; the German m a r k to 4 percent; the Belgian franc
to 9 percent; the D u t c h guilder to 41 percent; the British p o u n d to 57 percent;
a n d t h e Swiss franc to 71 percent.
B u t given the impossibility of devaluation, othei'S could argue, the United
States should directly subsidize its exports or im.pose drastic restrictions on its
imports. Y e t the United States understandably resisted taking such action,
even to the extent perm.itted to countries with prolonged deficits under existing
international agreements, because it would in spirit seem to contradict the principles of the General Agreement on Tariffs and Trade which the United States
has done so much to help establish as a Magna Carta for trade freedom in the
developing postwar world. Moreover, to anyone n o t persuaded by adherence to
principle alone, there was the further consideration t h a t the United States would
have to face the likelihood t h a t any such action on its p a r t would invite retaliatory
oft'setting action t h a t would undermine the real progress t h a t has already been
made in encouraging greater freedom of trade among all nations.
Thus, the United States faced t h e inevitable logic of undertaking a comprehensive program of action ainied a t incremental improvement in all segments of the
balance of p a y m e n t s , n o t a t dramatic solutions through a few bold strokes. And
as I have mentioned earlier, it was • im.portant to design measures t h a t would
maintain the world's m o m e n t u m toward freer trade, payments, and capital
movements, while also reestablishing levels of employment a n d a base of economic
expansion consistent with our domestic potentials.




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1964 REPORT OF THE SECRETARY OF THE TREASURY
IV

What have been the results, thus far? Leaving aside the varieties of special
measures of a financial nature which have helped to reduce the burden of excessive
dollars on the international monetary system, the pattern of developments can
best be observed by looking at what might be called the "gross deficit" or the
"deficit on regular transactions." Using very rounded numbers to indicate
directions and relative magnitudes, without any pretense of precision, this figure
was very roughly about $4 billion a year during the 1958-60 period. Inside this
total there was an average annual surplus on commercial goods and services—that
is, after eliminating military expenditures and aid-financed shipments—of about
$2 billion. Against this surplus there was an outflow of "free dollars" averaging
about $4 billion a year for military programs and the cash outlays for economic
aid, taken together. And there were net private capital outflows exceeding $2)4
bUlion more, taking into account both foreign and U.S. capital, long and short
term.
Over the 2}^ succeeding years, to the second quarter of 1963, the program of
gradual but persistent effort had borne promising results. The combination of
export promotion and price stability had resulted in exports more than keeping
pace with the increase in imports generated by rising levels of business activity.
Services earnings advanced sharply, largely reflecting the greater earnings on
American investment overseas. The overall improvement in the commercial
balance was about $1 billion.
Economizing efforts by the defense establishment had completely offset the
impact of rapidly rising prices in most of the countries where American forces
were stationed. In addition, substantial reductions in some dollar outlays had
been achieved and first Germany and then Italy began, as part of a general program of enlarging military sales, to return to the United States in supplemental
military purchases the full amount of any dollars actually disbursed in those
countries. The overall reduction in net military outlays abroad thus approached
$1 billion. There had not yet been sizeable absolute reductions in the flow of
dollars at the end of the growing aid pipeline, but for some time the practice of
tying aid had been reducing commitments for future dollar spending. Since aid
materials were to supplement and not displace commercial transactions, it was
quite appropriate for a country undergoing sustained balance-of-payments deficits
to make its aid available in kind.
Overall, the commercial balance improvement and the decline of governmental disbursements had, by mid-1963, reduced by about half the gross annual deficit of approximately $4 biUion for 1958-60. But instead of showing a resulting
figure under $2 billion, the gross deficit for the second quarter of 1963 exceeded $5
billion, at an annual rate. All of the improvements shown through the determined efforts on these fronts had been washed away in an outpouring of American
capital, both short-term and long. Purchases of foreign bonds and shares reached
an annual rate of $2 biUion; the outflow of short-term funds $2>^ billion. The
impact of the balance-of-payments program thus far had not reached these capital flows in any satisfactory manner. Over the entire period a gradual edging
up in short-term money rates had indeed deterred potentially larger outflows of
money market funds, but more action obviously was needed.
To this end, President Kennedy, on July 18, requested Congress to enact, effective the next day, an interest equalization tax to be temporarily applicable to
all forms of portfolio investment by Americans in foreign obligations. He also
announced that the United States had made arrangements to buttress its position
over the difficult period ahead, as its balance of payments was being brought
back under control, through a standby arrangement for borrowing at the International Monetary Fund. The Federal Reserve meanwhile had announced an
increase in discount rates and the market promptly reflected this change.
While the immediate results of these measures were dramatic, they did, of
course, also embody a certain amount of capital inflow stimulated by the President's renewed indication of this country's determination to bring its external
accounts into balance. While this and other special factors will not provide continuing assistance to the balance of payments comparable to that enjoyed during
the third quarter, it is nonetheless impressive evidence of the potency of this
action that portfolio outflows in the third quarter dropped back almost to the
annual rates of the 1958-60 period, reflecting mainly commitments that had already been made before July 18, and recorded short-term capital flows reversed
themselves to show an inflow, in good part in reflection of a better alignment of




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301

s h o r t - t e r m r a t e s internationally. The gross deflcit for this q u a r t e r fell back to
a r a t e well below $2 billion a year.
Clearly, a measure such as the interest equalization tax, however necessary to
achieve p r o m p t results, can be properly viewed only as a transitional measure
until the other policies already underway succeed in encouraging more balanced
flows of capital, and until the pressing strains on our balance-of-payments position are otherwise relieved. To t h a t end, in his Message to Congress on July 18,
President Kennedy indicated t h a t the r a t e of governmental outflows of dollars
would be reduced a further billion dollars by the end of 1964. With t h a t further
improvement now on its way, the outlook for the U.S. balance of p a y m e n t s is
somewhat more reassuring, provided every p a r t of the program is carried through
with perseverance. There is no scope for relaxation, onl3^ for intensified effort.
B u t t h e implications of this experience for my theme t o d a y are not centered on
the further rationale of the American program, nor on forecasting its future results, b u t r a t h e r on the implications of this experience for an understanding of
the interrelations between balance-of-payments adjustment a n d liquidity.

To w h a t extent has our adjustment process been a function of the liquidity
mechanism, either t h a t of the international m o n e t a r y system or the domestic
m o n e t a r y arrangements inside the United States?
Clearly, one great a d v a n t a g e which the United States h a d was the accustomed
use of dollars by m a n y other countries on their own monetary reserves. This
m e a n t there was, up to very substantial amounts, ready financing of deficits incurred as the transition t o w a r d balance was taking place. But how little differr e n t would the pressures for adjustment have been, how little different could
t h e measures undertaken have been, if we could imagine a world in Avhich the
dollar were not serving as a reserve currency for others.
For while the United States was obtaining financing for its deficits through
additions of some $4>4 billion to foreign m o n e t a r y reserves over t h e p a s t six
years, it was also paying out more t h a n $7 billion of its monetary gold. Moreover, the bulk of t h e gold outflow occurred in the 1958-60 period before the United
States h a d developed a comprehensive a n d determined balance-of-payments program. Clearly this early a n d highly visible impact on t h e U.S. gold stocks was
a d o m i n a n t influence in ultimately awakening American recognition of the fund a m e n t a l n a t u r e of these balance-of-payments deficits and the fundamental
need for correction. I t would seem doubtful indeed t h a t any system of liquidity
arrangements, no m a t t e r how restrictive, would have been any more effective in
alerting everyone to the need for balance-of-payments discipline. Nor would
it seem possible t h a t balance-of-payments deficits of a size t h a t imposed such
drains could, under any system of liquidity arrangem.ents, no m a t t e r how loose,
have averted the need for corrective action.
To be sure, the U.S. position as a reserve currency gave impetus to its efforts
to negotiate other kinds of financing arrangements to minimize the strains being
created b y t h e deficits. B u t on t h e other hand, t h e very characteristics of t h e
United States t h a t make the dollar a reserve currency—notably the ability of
foreigners readily to obtain financing here—have helped to create the deficit.
The United States did in considerable p a r t replace t h e b a n k reserves t h a t
would otherwise have been consumed through the gold outflow. To have done
otherwise would have been to follow the almost incredible course of actually
contracting the supply of money and credit in an economy which was increasing
its gross national product by nearly $150 billion, or by about one-third, over
these same 6 years, and an economy t h a t is still underemployed after t h a t advance.
Over the last several years, the United States has maintained a remarkable,
indeed enviable, record of comparative stability in costs a n d prices. Surely
domestic m o n e t a r y policy, to the extent t h a t it m a y influence prices, h a d not
conspicuously erred on the side of expansion. Nor need it necessarily be the
case t h a t other countries, experiencing balance-of-payments surpluses, must allow
excessive internal m o n e t a r y expansion, or accept internal price inflation. For
flscal a n d m o n e t a r y measures, flexibly applied in combination with other influences
of government, could potentially exert a restraining influence, where reserves
were rising rapidly, comparable to the offsetting action t h a t has appropriately
been t a k e n by t h e United States. Or alternatively, if the additional reserves
themselves were not neutralized, they might be used for additional purchases
from abroad, perhaps stimulated by further action along t h e road of tariff reduc-




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19 64 REPORT OF THE SECRETARY OF TPIE TREASURY

tion. These are the kinds of measures t h a t in t o d a y ' s world can enable the surplus
countries t o discharge their own share of t h e responsibility for facilitating
international adjustments.
Whatever m a y be found appropriate for the machinery of international liquidity
in the future—whether more, or less, might be made available to a deficit
country—there is little in the record of the U.S. position over these p a s t 6 years
t o suggest t h a t the need or n a t u r e of the adjustment processes would h a v e been
materially altered by a different liquidity system. Indeed, an increase by onehalf in the commercial surplus on goods a n d services over a 2}^ year period would
seem to be good progress for a country whose t r a d e a n d p a y m e n t s bulk so large
in the transactions of other countries, particularly during a period of steadily
rising business activity a n d higher i m p o r t s . Moreover, a reduction in dollar
spending on Government account by about one-fourth over 2}^ years, with a
scheduled reduction to one-half in 4 years, might be considered impressive against
the biackground of h e a v y dependence upon these flows by so m a n y countries
over the preceding 15 years or more.
And some slowing down of additional foreign investment has clearly become as
necessary for the United States as it would be for an3^ overextended enterprise in
any economic system. But the causes of t h e unusual outflow, just as the correctives, are rooted in t h e contrasting conditions of the money and capital m a r k e t s
here a n d abroad. While most European capital m a r k e t s remain severely restricted or institutionally inhibited, cafls on t h e American m a r k e t s b y countries in
Europe and elsewhere m a y be expected to be felt whenever d e m a n d is expanding
rapidly in those other countries. T h a t wUl be true so long as American m a r k e t s
remain freely open to all, with the allocation of capital a n d credit dependent upon
price and credit risk. And we are determined to maintain t h a t freedom and to
persuade or induce others t o duplicate it, in t h e interest of t h e flourishing expansion
of Western capitalism over t h e years and decades ahead.
To the extent t h a t the dollar's function as a reserve currency has played a
causative role in our balance-of-payments problems, it has probably not been
because it has disguised the problem, b u t because it has made capital flows more
sensitive to changes in our position real or imagined. For it has been recurrent
episodes of misplaced concern over the dollar's continued ability to fulfill t h e
needs of the world for a stable reserve currency t h a t have generated much of t h e
"flight m o v e m e n t " of dollars t h a t has built up the deficit on short-term capital
account from time to time. And it has been t h e sensitivity of short-term American capital—free to move where it wUl as befits a reserve center—to differentials
in interest rates t h a t has made necessary the intricate money m a r k e t operations
which have, over the p a s t 3 years, produced a rise of about one percent in shortt e r m m a r k e t rates of interest, despite an unprecedented massive accumulation of
liquid savings which has held the general level of all other interest rates relatively
stable over this same period.
So in conclusion I come back to my opening remarks. There is a significant
element of t r u t h in the assertion t h a t too m a n y dollars, if not too m u c h liquidity,
have been created for some countries to absorb without difficulty during t h e
transitional adjustment of the U.S. deficits a n d European surpluses. The discipline of gold has served an i m p o r t a n t purpose in helping to set things right.
There is also weight in the expression of concern t h a t the United States might, if
it generated internal liquidity without regard for its balance of p a y m e n t s , b o t h
worsen its external position a n d jeopardize the orderly evolution of internal expansion. And there is little room for doubt t h a t the entire adjustment process
could disrupt rather t h a n strengthen t h e longer range performance of the international economy if there were not adequate liquidity to finance the deficits of
transition while t h e necessary disciplines were exerting their effect.
B u t it does seem to me mistaken to assert t h a t international monetary reform
is needed in order to eliminate the dollar as a reserve currency; or t h a t changes
in internal liquidity alone could correct balance-of-payments deficits on the scale
experienced by a leading industrial country, such as the United States; or t h a t
much larger a n d more a u t o m a t i c availabilities of liquidity could have significantly
modified the elements t h a t have been found essential for the American balance-ofp a y m e n t s program in the conditions of these past few years. T h e search for a n
alchemy will certainly always go on. B u t t h a t should not deter us from trying
to think through an analysis of the adjustment process among industrial nations
t h a t are dedicated to full employment, steady growth, a n d price stability, an
adjustment process t h a t fits t h e conditions of a convertible world approaching
freedom of t r a d e a n d capital movements.




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303

E X H I B I T 3 5 . — R e m a r k s by Under Secretary of the Treasury for M o n e t a r y Affairs
Roosa, April 28, 1964, at the annual meeting o f t h e U.S. Chamber of Commerce,
on foreign i n v e s t m e n t and the balance of payments
When Mr. Neilan asked me t o talk tonight I responded with an alacrity t h a t
m a y h a v e surprised him. For I found irresistible t h e o p p o r t u n i t y t o compare
views with you on at least some aspects of w h a t seems t o me to be one of t h e
most stirring challenges of our time: t h e challenge t o business and government t o
find ways of assuring t h a t our own free enterprise capitalism will provide a badl3^
needed flow of capital funds t h r o u g h o u t a developing world, while maintaining,
a t t h e same time, our own stability and solvency. I n order to meet t h a t challenge
we m u s t be able t o learn from t h e past, and yet t o recognize t h a t our own p a s t
history in international lending is short, a n d t h a t its lessons m a y not always be
applicable without modification in a rapidly changing world.
INVESTMENT E X P E R I E N C E IN THE I N T E R - W A R PERIOD

Emerging as an international creditor only at t h e close of World War I, our
national experience in net foreign lending has been relatively brief b u t it has been
intense. Much has been compressed within those years. T h e y began with a
burst of U.S. foreign lending in t h e post-Versailles decade which culminated in
default and disillusionment by t h e early 1930's. T h e excesses of t h a t period are
still within memory, and perhaps it is well t h a t t h e y are.
They should remind us t h a t private foreign investment, no less t h a n domestic,
m u s t rest ultimately upon t h e ability of t h e borrower t o employ funds productively
and t o discharge obligations responsibly. T h e y should remind us t h a t careful
investors examine closely t h e uses t o which their funds are t o be p u t , and are n o t
a t t r a c t e d b y t h e e x t r a v a g a n t claim or t h e high pressure marketing technique.
Finally, t h e y should remind us t h a t no a m o u n t of individual discretion can p r o t e c t
against t h e consequences of a collapse in international p a y m e n t s arrangements,
and t h a t private foreign investment will flourish only so long as our international
financial s y s t e m is secure.
T h e autarkic decade of t h e 1930's also stands as an object lesson we are determined not t o repeat. T h e progressive strangulation of t r a d e was accompanied
by short-term international capital movements t h a t were frequently perverse in
direction and upsetting in effect, while t h e flow of long-term foreign investment
from capital-abundant to capital-scarce regions practically disappeared. I n d e e d ,
after 1930, there was a steady net inflow of U.S. long-term private capital and
this repatriation was supplemented late in t h e decade by massive inflows of
foreign short-term capital and gold, as coming events cast their ominous shadow
over t h e continent of Europe.
T H E POSTWAR REVIVAL OF U.S.,PRIVATE

FOREIGN INVESTMENT

With t h e overexuberant foreign lending of t h e 1920's and t h e financial dislocations of t h e 1930's as a background, there was, understandably, widespread d o u b t
in t h e period immediately following World War I I as to whether there would be
any substantial revival of private long-term capital flows from this country.
T h e immediate problems of postwar reconstruction did in fact require large
outflows of public funds which substituted for a time for m a n y of t h e traditional
functions of private capital movements. Aside from direct investment b y U.S.
concerns actually operating abroad, t h e revival of U.S. private long-term capital
outflows was gradual. Direct investment reached substantial pr