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1^6' 0 Annual Report of the Secretary of the Treasury on the State of the Finances For the Fiscal Year Ended June 30, IPSO . FRASER Digitized^for LETTER OF TRANSMITTAL TREASURY DEPARTMENT, Washington, D. C , February 15,, 1951. SIRS: 1 have the honor to report to you on the finances of the Federal Government for the fiscal year ended June 30, 1950. JOHN W . SNYDER, . Secretary of the Treasury. T H E PRESIDENT OF THE SENATE. T H E SPEAKER OF THE H O U S E OF REPRESENTATIVES. m TREASURY DEPARTMENT DOCUMENT NO. 3168 Secretary UNITED STATES GOVERNMENT PRINTING O F F I C E , WASHINGTON : 1951 For sale by Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C. Price $l.7S (Paper) CONTENTS R E P O R T ON O P E R A T I O N S Page S u m m a r y of fiscal o p e r a t i o n s . . Budget receipts Budget expenditures L T r u s t accounts, etc., receipts and expenditures '.. General fund --: Public debt operations and ownership of Federal securities--_ Public debt operations Ownership of Federal securities Corporations and certain other business-type activities of the GovernmentSecurities owned by t h e Government Taxation developments International finsLncial and monetary developments Estimates of receipts E s t i m a t e s of expenditures _i 3 3 9 12 13 14 16 27 32 34 34 44 '50 56 ADMINISTRATIVE R E P O R T S Administrative management -. Comptroller of the Currency, Bureau of the Customs, Bureau of ^ ^ Engraving and Printing, Bureau of ^ Fiscal Service _-_ ^ -.^ I n t e r n a l Revenue, Bureau of International Finance, Office of . Legal Division Mint, Bureau of the -._ Narcotics, Bureau of " 1-^ Practice, Committee on Tax Advisory Staff -• Technical Staff, Office of the . United States Coast Guard United States Savings Bonds Division United States Secret Service-- - -.. 61. 65 68 77 80 102 108 109 111 115 117 118 118 120 .. 130 , 132 EXHIBITS PUBLIC DEBT OPERATIONS Treasury certificates of i n d e b t e d n e s s , Treasury notes, and Treasury bonds 1. 2. 3. 4. 5. Offering of IJ^ percent certificates of Series G-1950 139 Details of certificate issues and allotments ^-_ ,^ 140 Offering of V/s percent Treasury notes of Series A-1954 ^ 142 Details of Treasury note issues and allotments 143 Call, August 12, 1949, for redemption on December 15, 1949, of three issues of Treasury bonds -147 6. CaU, November 14, 1949, for redemption on March 15, 1950, of 2 percent Treasury bonds of 1950-52, dated October 19, 1942 148 Treasury bills 7. 8. 9. 10. Inviting tenders for Treasury bills dated July 7, 1949 '__ '. Acceptance of tenders for Treasury bihs dated July 7, 1949---Summary of Treasury bill information contained in press releases Fifth amendment, July 25, 1950, to D e p a r t m e n t Circular No. 418, relating to the issue and sale of Treasury bills • V 148 150 150 153 ' VI CONTENTS Treasury savings notes, depositary bonds, and United States savings bonds Page 11. First amendment, August 11, 1949, to Department Circular No. 833, relating to payment of accrued interest in purchasing Treasury . savings notes of Series D - - . 153 12. First amendment, November 10, 1949, to the First Supplement to Department Circular No. 660, terminating the issue of 2 percent depositary bonds. Second Series 154 13. Sixth amendment, January 4, 1950, to Department Circular No. 530, Sixth Revision, prescribing regulations governing United States savings bonds . 154 14. Fourth supplement, March 15, 1950, to Department Circular No. 653, Second Revision, discontinuing sales of the $10 denomination of Series E savings bonds 155 OBLIGATIONS GUARANTEED BY THE UNITED STATES 15. Partial redemption, before maturity, of 2% percent housing insurance fund debentures. Series D (sixth call) 16. Summary of information contained in circulars pertaining to calls for partial redemption, before maturity, of insurance fund debentures 155 157 PUBLIC DEBT MANAGEMENT 17. Statement by Secretary of the Treasury Snyder before the Subcommittee 'on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report, December 2, 1949 18. Letter of Secretary of the Treasury Snyder, October 31, 1949, to the Chairman of the Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report, replying to a questionnaire on monetary, credit, and fiscal policies 159 171 TAXATION DEVELOPMENTS 19. Message from the President, January 23, 1950, transmitting a request for a revision of the tax laws 1 20. Statement of Secretary of the Treasury Snyder before the House Ways and Means Committee, February 3, 1950, on the President's tax program . .__ 21. Statement of Secretary of the Treasury Snyder before the Senate Finance Committee, July 5, 1950, on H. R. 8920, a bill to reduce excise taxes, and for other purposes 22. Letter of the President, July 25, 1950, to the Chairman of the Senate Finance Conimittee recommending prompt enactment of an interim revenue measure 23. Statement of Secretary of the Treasury Snyder before the Senate Finance Committee, August 2, 1950, on the President's recommendation for the enactment of interim tax legislation 24. Miscellaneous revenue legislation enacted during the fiscal year 1950 25. Individual incoihe tax liabilities and effective rates under the Revenue Acts of 1913-50 26. Federal taxes of the United States, 1940-50 181 186 207 225 227 243 245 251 INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS 27. Report of activities of the National Advisory Council on International Monetary and Financial Problems, April 1 to September 30, 1949 28. Second Special Report of the National Advisory Council on the operations and policies of the International Monetary Fund and the International Bank for Reconstruction and Development covering the two-year period ended March 31, 1950:. 29. Report of activities of the National Advisory Council on International Monetary and Financial Problems, October 1, 1949, to March 31, 1950 J . 281 323 348 CONTENTS VII SELECTED STATEMENTS BY THE SECRETARY OF THE TREASURY Page 30. Address by Secretary of t h e Treasury Snyder before t h e American Life Convention, Chicago, I I I , October 6, 1949 31. Address by Secretary of t h e Treasury Snyder before t h e American Bankers Association, San Francisco, Cahf., November 1, 1949 -. 32. Address by Secretary of t h e Treasury Snyder before the U. S. Savings Bonds Conference, Washington, D. C , March 29, 1950 33. Address by Secretary of t h e Treasury Snyder before t h e American I n s t i t u t e of Banking, Minneapolis, Minn., J u n e 12, 1950 ^ 9 411 414 417 419 ORGANIZATION AND PROCEDURE 34. Treasury D e p a r t m e n t orders relating t o organization and p r o c e d u r e . . 422 MISCELLANEOUS 35. Letters of Secretary of t h e Treasury Snyder t o t h e Chairman of t h e Government Operations Subcommittee of t h e IJouse Committee on Expenditures in t h e Executive D e p a r t m e n t s concerning the rate of interest paid on p u b h c debt securities issued to t r u s t funds 36. An act to authorize t h e President to determine the form of the national budget and of d e p a r t m e n t a l estimates, to modernize and simplify governmental accounting and auditing methods and procedures, and for other purposes ' 37. Supplement 6, M a y 10, 1950, to D e p a r t m e n t Circular No. 655, prescribing regulations relating to delivery of checks and warrants t o addresses outside t h e United States, its Territories and possessions.. 38. Letter of t h e Postmaster General, to t h e Secretary of t h e Treasury certifying extraordinary expenditures contributing to the deficiencies of postal revenues for t h e fiscal year 1950 . 424 427 437 438 TABLES Explanation of bases used in tables 443 Description of accounts through which Treasury operations are effected. _ 444 FISCAL OPERATIONS 1. S u m m a r y of fiscal operations, 1932-50 a n d monthly 1950 446 RECEIPTS AND EXPENDITURES 2. Receipts and expenditures, 1789-1950 ,448 3. Budget receipts and expenditures, in detail, monthly for 1950 and totals for 1949 and 1950 454 4. T r u s t accounts, etc., receipts and expenditures, in detail, monthly for 1950 and totals for 1949 and 1950 472 5. Budget receipts and expenditures, by major classifications, 1942-50 480 6. T r u s t accounts, etc., receipts and expenditures, bv major classifications, 1942-50 1 482 7. I n t e r n a l revenue collections, by t a x sources, 1929-50 483 8. Customs collections a n d refunds, 1949 a n d 1950 . 488 9. Amounts deposited by t h e Federal Reserve Banks in t h e Treasury as miscellaneous receipts representing interest charges on Federal Reserve notes, 1948-50 -_. . 488 10. Postal receipts and expenditures, 1911-50 489 PUBLIC DEBT, GUARANTEED OBLIGATIONS, ETC. Outstanding public debt, guaranteed obligations, etc. 11. 12. 13. 14. Principal of t h e public debt, 1790-1950 Public debt and guaranteed obligations, J u n e 30, 1934-50 P u b h c debt, by security classes, J u n e 30, 1 9 4 0 - 5 0 - - . . . Guaranteed obligations held outside t h e Treasury, classified by issuing Government corporations and other business-type activities, June 30, 1940-50 - 490 492 493 495 VIII CONTENTS , , Page ,15. Contingent liabilities, J u n e 30, 1 9 4 0 - 5 0 . . . . . . 16. Summary of public debt a n d guaranteed obligations, by security classes, June 30, 1950 . . 17. Description of public debt issues outstanding J u n e 30, 1950 18. Description of guaranteed obligations held o\itside t h e Treasury, J u n e 30, 1950 . -. 19. Description of contingent liabilities outstanding J u n e 30, 1950 20. Statutory limitation on t h e public debt and guaranteed obligations, June 30, 1950 .... . Operations in the public debt, etc. 496 496 498 512 514 515 , 21. Public debt receipts a n d expenditures, by security classes, m o n t h l y for 1950 and totals for 1949 and 1950 .... 22. Changes in public debt issues, 1950 .. 23. Issues, maturities, and redemptions of interest-bearing public debt securities, excluding special issues, July 1949-June 1950 24. Pubhc debt increases and decreases, and balances in t h e general fund, 1916-50.... 1 ... 25.' Statutory debt retirements, 1918-50 26. Cumulative sinking fund, 1921-50 . 27. Transactions on account of t h e cumulative sinking fund, 1950 .. 516 524 538 555 556 .557 557 United States savings b o n d s and Treasury savings notes 28. Summary of sales a n d redemptions of savings bonds by series, 1935-50 a a d monthly 1950 .... 29. Sales and redemptions of Series E, F , and G savings bonds by series, 1941-50 and monthly 1 9 5 0 . . . . . 30. Sales of Series E, F , a n d G savings bonds by denominations, 1941-50 and monthly 1 9 5 0 . . . 31. Redemptions of Series E, F , and G savings bonds b y denominations, 1941-50 and m o n t h l y l 9 5 0 .'. 32. Sales of Series E, F , a n d G savings bonds by States, 1950 a n d cumula-> tive..... ......... 33. Percent of savings bonds sold in each year redeemed t h r o u g h each yearly period thereafter, by d e n o m i n a t i o n s . . 1.34. Sales and redemptions of Treasury notes, t a x a n d savings series, August 1941-June 1950. 558 559 561 563 564 565 569 I n t e r e s t on public debt and g u a r a n t e e d obligations 35. Amount pf interest-bearing public debt outstanding, t h e computed annual interest charge, a n d t h e computed rate of interest, J u n e 30, 1916-50, and a t end of each m o n t h during 1950 ... 36. Interest on t h e public debt becoming due a n d payable, by security classes, 1948-50 . 37. Interest paid on t h e . p u b l i c debt a n d guaranteed obligations, by t a x . status, 1934-50 , _.-' 570 571 572 Prices and yields of securities 38. Average vields of long-term Treasury bonds, b y m o n t h s , J a n u a r y 1930June 1950 .. 39. Prices and yields of-marketable public debt issues, J u n e 30, 1949 a n d 1950, and price ranges since first t r a d e d —-_ 573 574 GOLD, SILVER, AND GENERAL FUND ASSETS AND LIABILITIES 40. Assets and habilities of t h e Treasury, J u n e 30, 1949 a n d 1950 576 TRUST AND SPECIAL FUNDS FOR WHICH INVESTMENTS ARE MADE BY THE TREASURY DEPARTMENT , 41. Holdings of Federal securities by Government agencies and accounts, J u n e 30,.1940-50 42. Adjusted service certificate fund \ 578 580 CONTENTS IX Page 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. Ainsworth Library fund, Walter Reed General Hospital581 Alien property trust fund •. 582 Civil service retirement and disability fund 582 District of Columbia teachers' retirement and annuity fund—Assets held by the Treasury Department... . . 584 District of Columbia water fund—Investments held by the Treasury Department '. . ; 585 Assets held by the Treasury Department under relief and rehabilitation, Workmen's Compensation Act within the District of Colum- • bia .... . . -585 Federal old-age and survivors insurance trust f u n d . . . 586 Railroad retirement account.. . 587 Unemployment trust fund ;...... 588 Foreign service retirement and disability fund . . . ^ 591 Library of Congress trust fund ---592 Relief and rehabilitation, Longshoremen's and Harbor Workers' Cohi- .' pensation Act, as amended—Assets held by the Treasury Department . . . . . . 594 National Archives gift f u n d . . . . . 594 National Cancer Institute gift fund .. 595 National Institute of Health gift fund ...... .. .. 596 National park trust fund :... 597 National service life insurance fund : 598 Pershing HaU Memorial f u n d . . . . 599 United States Government life insurance fund—Investments.--600 United States Naval Academy general gift fund 600 CORPORATIONS AND CERTAIN OTHER BUSINESS-TYPE ACTIVITIES OF THE GOVERNMENT 63. Borrowing power and outstanding issues of Government,corporations and certain other business-type activities whose obligations are guaranteed by the United States or issued to the Secretary of the Treasury, June 30, 1 9 5 0 - . . . . 601 64. Treasury holdings of bonds and notes issued by Gdvernment corporations and other business-type activities, June 30, 1940-50 602 65. Description of Treasury holdings of bonds and notes issued by Government corporations and other business-type activities, June 30, 1950. 603 66. Transactions relating to Treasury holdings of bonds and notes issued by Government corporations and other business^type activities, 1950..: . ... -605 67. Comparative statement of the combined net investment of the United States with respect to Government corporations and certain other . assets and liabilities pertaining to business-type activities, June 30, 1941-50 . . ... 606 68. Balance sheets of Government corporations and certain other businesstype activities, June 30, 1950 . .. 608 69. Income and expense of Government corporations and certain other business-type activities, 1950.. ^ ---612 70. Source and application of funds of Government corporations and certain other business-type activities, 1950 ^.... 616 71. Restoration of capital impairment of the Commodity Credit Corporation through June 30, 1950 620 72. Reconstruction Finance Corporation notes canceled through June 30, 1950, and recoveries during 1950 . ^ .. 620 73. Securities owned by the Government (other than World War I foreign government obligations), June 30, 1950, and changes during 1950.. 621 74. Capital stock of Federal home loan banks held on June 30, 1949 and 1950, repayments on capital stock, and dividends earned by the Treasury during 1950 . .. 626 75. Securities acquired under the Transportation Act of 1920, or in exchange for securities so acquired by reason of subsequent railroad reorganizations, and held by the Treasury and the Reconstruction Finance Corporation, June 30, 1950 . ..--. '. 626 76. Dividends, interest, etc., received by the Treasury from Government corporations and other enterprises, 1950 [ .. '627 X CONTENTS STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES , ' 77. Stock of money, money in t h e Treasury, in t h e Federal Reserve Banks, and in circulation, by kinds, J u n e 30, 1950 ' ^ 78. Stock of money, money in t h e Treasury, in t h e Federal Reserve Banks, and in circulation, J u n e 30, 1913-50 79. Stock of money, by kinds, J u n e 30, 1913-50 80. Money in circulation, by kinds, J u n e 30, 1913-50 81. Paper currency issued and redeemed during 1950, a n d outstanding J u n e 30, 1950, by classes a n d denonainations Page 628 629 630 631 632 CUSTOMS STATISTICS 82. Surnmary of customs collections and expenditures, 1950 , 633 83. Customs collections and p a y m e n t s , ^by districts, 1950 . 634 84. Values of dutiable and taxable imports for consumption and estimated duties and taxes collected by tariff schedules, fiscal years 1 9 4 8 - 5 0 . . 636 85. Estimated customs duties, value of imports entered for consumption, and ratio of duties to value of imports, calendar years 1939-49 a n d monthly J a n u a r y 1948-June 1950 637, 86. Estimated customs duties, value of dutiable imports, and ratio of duties to value of imports, by tariff schedules, calendar years 1939-49 and monthl}^ J a n u a r y 1948-June 1950. •._ 638 87. Value of dutiable imports and estimated duties collected, by countries, 1948-50 .642 '88. N u m b e r of entries of merchandise, 1949 a n d 1950 644 89. Vehicles a n d persons entering t h e United States, 1949 and 1 9 5 0 . . 644 90. Airplanes and airplane passengers entering t h e . U n i t e d States, 1949 . and 1950 . 645 91. Drawback transactions, 1949 and 1950 646 '92. Principal commodities on which drawback was paid, 1949 and 1 9 5 0 . . 646 93. Seizures for violations of customs laws, 1949 a n d 1950 647 94. • Seizures for violations of customs laws, by agencies participating, 1950648 95. Investigative and patrol activities, 1949 and 1950 648 FEDERAL AID TO STATES 96." Expenditures for Federal aid to States, individuals, etc., 1920, 1930, 1940, and 1950 . 97. Expenditures m a d e by t h e Government as direct p a y m e n t s to States under cooperative arrangements and expenditures within States which provided relief and other aid, 1950 ^ 649 655 GOVERNMENT LOSSES IN SHIPMENT 98. Status J u n e 30, 1950, of the revolving fund estabhshed,under authority of the Government Losses in Shipment Act 99. Reported value of shipments made by or for t h e account of Government . departments a n d agencies under coverage of t h e Government Losses in Shipment Act, as amended, 1938-50 1 100. Estimated a m o u n t s of insurance premium savings to t h e Government on shipments m a d e by or for t h e account of Government departments a n d agencies under coverage of t h e Government Losses in Shipment Act, as amended, 1938-50 101. Agreements of indemnity issued by t h e Treasury under, a u t h o r i t y of t h e Government Losses in Shipment Act, as amended, August 10, 1939-June 30, 1950 102. Number a n d a m o u n t of claims m a d e a n d settled under a u t h o r i t y of t h e Government Losses in Shipment Act, as amended, August 15, 1937-June 30, 1950 668 668 669 669 670 INTERNATIONAL CLAIMS 103. Status of t h e Mexican claims fund, J u n e 30, 1950 104. N u m b e r and a m o u n t Of awards of t h e Mixed Claims Commission, United States and Germany, certified t o t h e Secretary of t h e Treasury by t h e Secretary of State, t h e a m o u n t paid, a n d balance due, t h r o u g h J u n e 30, 1950 671 672 CONTENTS XI MISCELLANEOUS Page 105. Treasury cash income and outgo, 1941-50 674 106. Federal fiscal operations and the Nation's financial structure, 1941-50. 678 107. Status June 30, 1950, of the special trust account-for the payment of bonds of the Philippines, its provinces, cities, and municipalities, issued prior to May 1, 1934, under authority of acts of Congress.. 680 108. Assets and liabilities of the exchange stabilization fund, June 30, 1949 and 1950. ., 681 109. Foreign currehcy transactions, 1950, and holdings by the Treasury, June 30, 1949 and 1950 . 683 110. Indebtedness of foreign governments to the United States arising from World War I, and payments thereon as of November 15, 1950. 684 111. World War I indebtedness of Germany to the United States and amounts paid and not paid, June 30, 1950 . • 686, 112. Accounts receivable under active agreements with foreign governments involving lend-lease articles and surplus property, Jurie 30, 1950 (World War I I ) . . . . ' ..687 OWNERSHIP OF GOVERNMENTAL SECURITIES 113.' Estimated ownership of all interest-bearing governmental securities outstanding, classified by type of issuer, June 30, 1937-50 114. Estimated distribution of interest-bearing governmental securities outstanding June 30, 1939-50, classified by tax status and type of issuer . 115. Summary of Treasury survey of ownership of interest-bearing public debt and guaranteed obligations, June 30, 1949 and 1950 688 690 692 BUDGET ESTIMATES 116. Budget receipts and expenditures, actual for 1950 and estimated for 1951 and 1952 . . 117. Trust accounts, etc., receipts and expenditures, actual for 1950 and estimated for 1951 and 1952 . 118. Effect of financial operations on the public debt, actual for 1950 and estimated for 1951 and 1952 . 1... 698 INDEX 701 ....: ...: 694 699 NOTE In tables where figures have been rounded to a specified unit, the components may not necessarily add to totals. Percentages are calculated on unrounded figures. SECRETARIES, UNDER SECRETARIES, AND ASSISTANT SECRETARIES OF THE TREASURY DEPARTMENT FROM MARCH 4,1933, TO NOVEMBER 15, 1950,^ AND THE PRESIDENTS UNDER WHOM THEY SERVED Served Under- Term of service Official Secretary of the Treasury President From— To- Mar. 4,1933 Jan. 1,1934 Dec. 31,1933 July 22,1945 July 23,1945 June 25,1946 June 23,1946 May 19,1933 Nov. 17,1933 May 2,1934 Nov. 16,1933 Dec. 31,1933 Feb. 15,1936 Jan. 29,1937 Nov. 1,1938 Jan. 18,1940 Sept. 15,1938 Dec. 31,1939 Dec. 31,1945 Mar. 4,1946 Jan. 23,1947 July 15,1948 Jan. 14,1947 July 14,1948 0 . Max Gardner, North Carolina.. Vinson, Snyder. A. L. M. Wiggins, South Carolina. Snyder Edward H. Foley, Jr., New York.. Snyder... Apr. June June Dec. Feb. July June Feb. Sept. Dec. Nov. Feb. Oct. Dec. Lawrence W. Robert, Jr., Georgia.. Stephen B. Gibbons, New York... Thomas Hewes, Connecticut.._ Josephine Roche, Colorado Wayne C. Taylor, Illinois.John W. Hanes, North Carolina... Herbert E. Gaston, New York Secretary of the Treasury Roosevelt. Roosevelt, Truman. Truman. Truman. William H. Woodin, New York Henry Morgenthau, Jr;, New York. Fred M. Vinson, Kentucky. John W. Snyder, Missouri.. Under Secretary Dean G. Acheson, Maryland Henry Morgenthau, Jr., New York Thomas Jefferson Coolidge, Massachusetts. Roswell Magill, New York John W. Hanes, North Carolina... Daniel W. Bell, Illinois Woodin Woodin Morgenthau. Roosevelt. Roosevelt. Roosevelt. Morgenthau ...... Morgenthau Morgenthau, Vinson. Roosevelt. Roosevelt. Roosevelt, Truman. Truman. Truman. Truman. Assistant Secretaries 18,1933 6,1933 12,1933 1,1934 19,1936 1,1938 23.1939 15,1936 30,1939 12,1933 1,1937 28,1939 31,1938 2,1945 Jan. 18,1940 Jan. 24,1945 Nov. 30,1944 May 1,1946 Apr. 15,1946 July 16,1948 Feb. 8,1949 July 14,1948 Woodin, Morgenthau. Woodin, MorgenthauWoodin... Morgenthau. _ Morgenthau ^ Morgenthau ... Morgenthau, Vinson.. John L. Sullivan, New Hampshire. Morgenthau Harry D . White, Maryland Morgenthau, Vinson.. Edward H. Foley, Jr., New York.. Vinson, Snyder... John S. Graham, North Carolina... Snyder William McChesney Martin, Jr., Snyder N ew York. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt. Roosevelt, Truman; Roosevelt. Roosevelt, Truman, Truman. Truman. Truman. Fiscal Assistant Secretary Mar. 16,1945 Edward F. Bartelt,Illinois Aug. 2,1950 William W. Parsons. California . . . Morgenthau, Snyder. Vinson, Roosevelt, Truman. Administrative Assistant Secretary Snyder.. Truman. » For officials since 1789 see annual report for 1932, pp. xvii to xxi, and corresponding table in annualreport for 1933. . XIII PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE TREASURY DEPARTMENT AS OF NOVEMBER 15, 1950 SECRETARY Edward H. Foley, Jr .. John S. Graham William McChesney Martin, Jr Edward F. Bartelt . William W. Parsons Thomas J. Lynch 1 George C. Haas . William J. Bray A. L. M. Wiggins Frank A. Southard, Jr JOHN W. SNYDER ' Under Secretary of the Treasury. Assistant Secretary of the Treasury. Assistant Secretary of the Treasury. . Fiscal Assistant Secretary ofthe Treasury. Administrative Assistant Secretary. GeneralCounsel. Director of the Technical Stafl. Assistant to the Secretary. Assistant to the Secretary. Special Assistant to the Secretary. OFFICE OF T H E UNDER SEORETARY EDWARD H. FOLEY, Jr.i Elmer T. Acken. Assistant to the Under Secretary. James J. Maloney. _ Chief Coordinator, Treasury Enforcement Agencies. OFFICE OF ASSISTANT SECRETARY JOHN S. GRAHAM i Kennedy C. Watkins.L Executive Assistant to Assistant Secretary. OFFICE OF ASSISTANT SECRETARY WILLIAM McCHESNEY MARTIN, Jr.i George H. Willis Director, Office of International Finance. OFFICE OF T H E FISCAL ASSISTANT SECRETARY EDWARD F. BARTELT i William T. Heffelfinger '. Assistant to the Fiscal Assistant Secretary. Edward D. Batchelder Technical Assistant to the Fiscal Assistant Secretary. Martin L. Moore Technical Assistant to the Fiscal Assistant Secretary. Frank F. Dietrich Technical Assistant to the Fiscal Assistant Secretary. Eldon B. Smith. _ Administrative Assistant to Fiscal Assistant Secretary. Gilbert L. Cake.. Head, Fiscal Service Operations and Methods Staff. OFFICE OF ADMINISTRATIVE ASSISTANT SECRETARY WILLIAM W. PARSONS William L. Lynch Assistant to the Administrative Assistant Secretary. Willard L. Johnson . . . . Budget Officer. George H. Jones. ..^ Assistant Budget Officer. James H. Hard I I . _ Director of Personnel. Joseph A. Jordan . Assistant Director of Personnel. Paul McDonald Director of Administrative Services. Denzil A. Right Superintendent, Division of Treasury Buildings. Edward E. Berney. Chief, Division of Treasury Space Control. Henry L. Merricks Chief, Division of Office Services. OFFICE OF T H E GENERAL COUNSEL THOMAS J. LYNCH Elting Arnold Assistant General Counsel. Philip Nichols, Jr ". Assistant General Counsel. John K. Carlock Assistant General Counsel. Vance N. Kirby. Tax Legislative Counsel. Frederick C. Lusk Assistant Tax Legislative Counsel. Raphael Sherfy. Assistant Tax Legislative Counsel. Hugo A. Ranta Assistant to the General Counsel. George Bronz. Special Assistant to the General Counsel. Lawrence Linville .... Special Assistant to tbe General Counsel. James J. Saxon Special Assistant to the General Counsel. Kenneth S. Harrison ^. . Chief*Counsel, U. S. Coast Guard. John F. Anderson Chief Counsel, Office of the Comptroller of the Currency. Robert Chambers Chief Counsel, Bureau of Customs. Charles Oliphant Chief Counsel, Bureau of Internal Revenue. Elting Arnold Chief Counsel, Office of International Finance. Alfred L. Tennyson Chief Counsel, Bureau of Narcotics. Theodore W. Cunningham Chief Counsel, Bureau ofthe Public Debt. George F. Reeves : Chief Counsel to the Fiscal Assistant Secretary. 1 See organization chart. XIV PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS O ' F F I C E O F T H E TECHNICAL STAFF George C. Haas Edmund M. Daggit Thomas F. Leahey Robert P. Mayo Sidney G. Tickton Cedric W. Kroll Anna M. Michener Wilham M. Weir Isabella S. Diamond . XV . Director of the Technical Staff. Assistant Director. Assistant Director. Assistant Director. Assistant Director. Acting Government Actuary. Assistant to the Director. Administrative Assistant to the Director. Librarian. 1 OFFICE OF INTERNATIONAL FINANCE George H. Willis Charles Dillon Glendinning: William L. Hebbard Arthur F. Blaser, Jr Morris J. Fields Donald W. Curtis Arthur W. Stuart Robert J. Schwartz John S. deBeers George A. Eddy Mary C. Hall Charlie E. Miller Dii'ector. Deputy Director and Secretary, National'Advisory Council. Assistant Director. Acting Chief, British Commonwealth and Middle East Division. Chief, Commercial Policy and United Nations Division. Acting Chief, European Division. Chief, Far Eastern Division. Acting Chief, International Statistics Division. Chief, Latin American Division. Chief, Stabilization Fund, Gold and Silver Division. Administrative Assistant to the Director. 1 Acting Budget Officer. . TAX ADVISORY STAFF OF T H E SECRETARY L. L. Ecker-Racz. F. Newell Campbell Richard E. Slitor Robert B. Bangs Joseph A. Pechman George E. Lent. : . Director. Associate Assistant Assistant Assistant . . Assistant Director. Director. Director. Director, Director. OFFICE OF THE COMPTROLLER OF THE CURRENCY Preston Delano J. L. Robertson... R. B. McCandless L. A. Jennings W. P. Folger ...'. _ Comptroller of the Currency. First Deputy Comptroller of the Currency. Second Deputy Comptroller of the Cm-rency. Third Deputy Comptroller of the Currency. . Chief National Bank Examiner. BUREAU OF CUSTOMS Frank Dow D. B. Strubinger W.R.Johnson Charles Stevenson C. A. Emerick W. H. Ziehl G. H. Griffith W. E: Higman H. E. Sweet J. F. Williams.. F. W. Gast Commissioner of Customs. Assistant Commissioner of Customs. Special Assistant to the Commissioner. ' . Deputy Commissioner of Appraisement Administration. Deputy Commissioner of Investigations. Deputy Commissioner of Management and Controls. Chief, Divisionof Drawbacks, Enforcement, and Quotas. Chief, Divisionof Classification, Entry, and Value. Chief, Division of Marine Admuiistration. Chief, Division of Laboratories. Chief, Division of Engineering and Weighing. BUREAU OF ENQRAVING,AND P R I N T I N G Alvin W. Hall Henry J. Holtzclaw. Thomas F. Slattery Director, Bureau of Engraving and Printing. Assistant Director. Assistant Director (Production). BUREAU OF ACCOUNTS (IN T H E FISCAL SERVICE) Robert W. Maxwell Gilbert L. Cake Harold R. Gearhart. Edmund C. Nussear Wallace E. Barker, Jr Stephen P. Gerardi Paul D. Banning .Julian F. Cannon Charles 0 . Bryant George E. Jones _ George Friedman. Boyd A. Evans ._ Commissioner of Accounts. Associate Commissioner. Deputy Commissioner. Assistant Deputy Commissioner. Assistant Commissioner for Administration. Executive Assistant to the Commissioner. Chief Disbursing Officer. Assistant Chief Disbursing Officer. i._ Assistant Chief Disbursing Officer. Chief Accountant. Technical Assistant to the Commissioner. Special Assistant to the Associate Commissioner. BUREAU OF T H E PUBLIC D E B T (IN T H E FISCAL SERVICE) Edwin L. Kilby.. Donald M." Merritt Ross A. Heffelfinger, Jr Charles D. Peyton Commissioner of the Public Debt. Assistant Commissioner. Deputy Commissioner in Charge, Washington Office. Deputy Commissioner in Charge, Chicago Office. XVI PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OFFICE OF T H E TREASURER OF T H E U N I T E D STATES (IN'THE FISCAL SERVICE) Georgia Neese Clark Marion G. Banister Michael E. Slindee Frederick L. Church Grover C. Emerson... . ._ .: Treasurer of the United States. Assistant Treasurer. Deputy and Acting Treasurer. Assistant Deputy Treasurer. Staff Assistant. BUREAU OF INTERNAL REVENUE George J. Schoeneman. Fred S. Martin Daniel A. Bolich T. C. Atkeson Eldon P. King E. I. McLarney A. H. Cross... .'. Victor H. Self... Charles J. Valaer Carroll E. Mealey.. Aubrey R. Marrs: William H. Woolf. Henry J. Merry. ..:.... BUREAU OF T H E M I N T Nellie Tayloe Ross. Leland Howard Director of the Mint. Assistant Director. BUREAU OF NARCOTICS Harry J. Anslinger George W. Cunningham Malachi L. Harney Commissioner of Narcotics. Deputy Commissioner. Assistant to the Commissioner.' . U N I T E D STATES COAST GUARD Vice Admiral Merlin O'Neill Rear Admiral Alfred C. Richmond Rear Admiral Kenneth K. Co wart Commandant, U. S. Coast Guard. Assistant Commandant. Engineer in Chief. U. S. SAVINGS BONDS DIVISION ' Vernon L. Clark. Leon J. Markham Bill McDonald..... National Director. Director of Sales. Executive Officer. I U N I T E D STATES SECRET SERVICE U. E. Baughman Carl Dicl^son Harry E. Neal George W. Taylor : . ..:• Chief, U.S. Secret Service. . . . Assistant Chief. Executive Aide to the Chief. Administrative Officer. STANDING DEPARTMENTAL COMMITTEES TRE.ASURY AWARDS C O M M I T T E E William L. Lynch Herbert E. Stats , John K. Carlock James H. Hard II William T. Heffelfinger Henry J. Holtzclaw Leland Howard .: Willard L. Johnson James J. Maloney ...:.... Justin F. Winkle Captain Russell E. Wood Wilbur H. Ziehl... Chairman. Vice Chairman. . . Member. Member. Member. . Member. Member. Member. Member. • Member. . Member. •. Member. ;, LOYALTY BOARD James H. Hard II Hugo A. Ranta.-._. William T. Heffelfinger Chairman. . . . . Member. Member. C O M M I T T E E ON PRACTICE John L. Graves Hessel E. Yntema Huntington Cairns : .. : Commissioner of Internal Revenue. Assistant Commissioner. Assistant Commissioner. Assistant to the Commissioner. Special Deputy Commissioner. Deputy Commissioner, Income Tax Unit. Deputy Commissioner, Accounts ahd Collections Unit. Deputy Commissioner, Employment Tax Unit. Deputy Commissioner, Miscellaneous Tax Unit. Deputy Commissioner, Alcohol Tax Unit. : . Head, Technical Staff. . . . Chief, Intelligence Unit. Chairman, Excess Profits Tax Council. Chairman. Member.. Member. \ PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS WAGE BOARD James H. Hard II : Willard L. Johnson George Billard Chairman. Member. Member. TREASURY D E P A R T M E N T M A N A G E M E N T COMMITTEE William W. Parsons T. C. Atkeson . John K. Carlock William T. Heffelfinger Henry J. Holtzclaw: Leland Howard James J. Maloney Rear Admiral Alfred C. Richmond David B. Strubinger Chairman. Member. Member. Member. Member. Member. Member. Member. Member. I N T E R D E P A R T M E N T A L SAVINGS BOND COMMITTEE Edward F . Bartelt. Chairman. FAIR E M P L O Y M E N T OFFICER James H. Hard II 907795—51- XVII DEPARTMENT OF THE TREASURY November 15,1950 THE SECRETARY OF THE TREASURY THE UNDER SECRETARY OF THE TREASURY GENERALCOUNSEL FOR THE TREASURY ASSISTANT SECRETARY ASST. TO THE SECRETARY IN CHARGE OF U.S. SAVINGS BONDS DIVISION ASSISTANT SECRETARY DIRECTOR OF THE OFFICE OF INTERNATIONAL FINANCE DIRECTOR OFTAX ADVISORY STAFF DIRECTOR OF THE TECHNICAL STAFF ASSISTANTS TOTHE SECRETARY ENFORCEMENT ^^^-^S-*^ Bureau of Engraving and Printing U. S. Sovings Bonds Division Oftice ot the Treasurer of the United States Office of the Comptroller of Ihe Currency CHART 1. R E P O R T ON OPERATIONS REPO'RT ON OPERATIONS 3 SUMMARY OF FISCAL OPERATIONS Budget expenditures"of the United States Government totaled $40.2 billion in the fiscal year 1950 compared with $40.1 billion in 1949. Net budget, receipts of $37.0 billion in 1950 compared with $38.2 billion in 1949. The excess of expenditures of $3.1 billion was $1.3 billion more than the budget deficit of $1.8 billion in 1949. The increase in the deficit was due almost entirely to the reduction of $1.2 billion in net budget receipts. T h e deficit of $3.1 billion and a rise in the general fund balance of $2.0 billion were met by an increase in the public debt of $4.6 billion and an increase in net receipts in trust accounts, e t c , of $0.6 billion. The cash balance in the general fund stood at $5.5 billion on June 30, 1950. On that date the public debt, amounted to $257.4 billion. The frame of the fiscal operations of the Government in the past two years is shown in the table following. The figures are on the basis of the daily Treasury statement. Annual data for 1932-50 and monthly for 1950 are contained in table 1 in the tables section of this report. Budget results: • Netreceipts Expenditures . .-_. Deficit Less: General fund balance, increase (—), or decrease .... . Trust accounts, net expenditures (—), or net receipts L. Equals: Public debt net increase. 1 Includes' clearing account for outstanding checks and interest coupons, and telegraphic reports from Federal Reserve Banks. BUDGET RECEIPTS ; Net budget receipts, which consist of total receipts less the appropriation to the Federal old-age and survivors insura;rice: trust"-fund and refunds of receipts, amounted to $37.0 billion in the, fiscal year 1950 and were $1.2 billion less than in 1949. In both years the receipts were below the average level in the fiscal years 1946 through 1.950, a lever exceeded only by the high receipts in the war years of 1944 and 1945. The receipts of $37.0 billion i n 1950 compared with receipts of $42.2 billion in 1948, the highest since 1945. V ., From the record of $44.8 billion in 1945, receipts declined to, $40.0 billion in 1946. This decline resulted from the part-year effect of the Revenue Act of 1945 which reduced individual and corporation income taxes and repealed the excess profits tax effective January 1, 4 1 9 5 0 REPORT OF THE' SiECRETARY OF T H E TREASURY 1946; aild also from the effects on receipts of the Tax Adjustment Act of 1945, and a decrease in taxable incomes. Ih 1947, net budget receipts remained at the same level as in 1946. The progressively greater effect of the tax reductions enacted in 1945 reduced collections from the corporation income and excess profits taxes substantially. Collections from all other major tax sources, however, increased as a result of rising income levels and greater availability of taxable goods and services. A significant increase in the nontax source "Miscellaneous receipts'' resulted from a very large rise in receipts from sales of surplus property, offset in part by a decline in receipts from renegotiation of war contracts. Sharply rising incomes accounted for the increase in net budget reiceipts to $42.2 billion in 1948; but, in 1949, receipts declined because of individual income tax reductions enacted in 1948 and because of the tapering off of surplus property sales. The decrease in receipts continued in 1950 as corporation profits declined and as miscellaneous receipts continued to decrease. As indicated by the estimates of budget receipts for 1952, page-50, net budget receipts in the fiscal year 1951 are expected to approximate the highest of the war years, while net budget receipts in 1952 will be much larger than those in any previous year. Chart 7 shows total receipts by major sources for the years 1944 through 1950. Detailed information for these and earlier years is contained in the tables section of this report. Receipts in the fiscal years 1949 and 1950, on the daily Treasury statement basis, are compared by major sources, in the following table. Increase, or decrease ( - ) 1949 1950 Source Amount In billions of dollars Tndivirlnal ineome tax i . . _ _ Corporation income and excess profits taxes 17.9 n.6 17.4 10.9 Total income and-'excess profits taxes Miscellaneous internal revenue : Employment taxes 2 Customs . - . Miscellaneous receipts '.... 29.5 8.3 2.5 .4 2.1 28.3 8.3 2.9 .4 L4 42.8 4L3 1.7 2.8 2.1 2.2 . . . Total receipts Deduct: (a) Appropriation to Federal old-age and survivors insurannp. tmst. fimd (b) Refunds of receipts Net budget receipts .. 38.2 37.0 •3 •Less than $50 million. 1 See t^ble 116, footnote 3. 2 Includes Railroad Unemployment Insurance Act receipts. -0.5 -.7 -L2 (*) (*) .4 -.6 -1.5 .4 -.7 -1.2 -2.9 -6.1 -4.1 -.5 16.3 9.9 -31.0 -3.4 24.6 -23.9 —3.1 REPORT ON OPERATIONS TOTAL RECEI PTS. CUASSI RED BY; M A J ® SOURCES CHAET 7. 6 19 5 0 REPORT OF THE: SE'CRETARY OF T H E TREASURY All major tax sources with the exception of customs and employment taxes showed decreases in 1950 as compared with 1949. Individual and corporation income and excess profits taxes remained the most important sources of revenue, accounting for $17.4 billion and $10.9 billion of receipts, respectively, and together constituted slightly more than two-thirds of total receipts. Only relatively small changes took place in other major sources of receipts. As a percentage of total receipts, miscellaneous internal revenue increased for the second successive year and employment taxes also continued to increase. All other sources declined for the third consecutive year. R E C E I P T S F R O M INCOME AND E X C E S S P R O F I T S TAXES Receipts from income and excess profits taxes amounted to $28.3 billion in the fiscal year 1950, a decrease of $1.2 billion as compared with receipts of $29.5 billion in 1949. Individual income taxes.—The details of the yield of the individual income tax are shown in the following table. Increase, or decrease (—) 1949 1950 Som-ce Amount In millions of dollars Withheld (daily Treasury statement basis) 9,842 10, 073 •232 2.4 Not withheld (collection basis) Adjustment to daily Treasury statement basis L . _ 7,996 +91 7, 264 +71 .-732 -20 —9.2 8,087 7,335 -752 —9.3 17,929 17,408 -520 —2.9 Not withheld (daily Treasury statement basis; . Total individual income taxes ^. . 1 See table 116, footnote 3. Receipts from withheld taxes iacreased slightly in the fiscal year 1950 w:hile receipts from taxes not withheld dropped substantially. The decrease in receipts from taxes not withheld reflected a drop in the profits of unincorporated businesses whose taxes are collected by means of declaration payments. Corporation income and excess profits taxes.—Receipts from this source were $10,854 million or $699 million less than the $11,554 million received in the fiscal year 1949. This decrease resulted primarily from a lower level of profits in the calendar year 1949 as compared with previous years. Another factor in the smaller receipts was the tapering off of back excess profits tax collections, which dropped from $194 million in 1949 to $87 million in 1950. REPORT ON OPERATIONS 7 R E C E I P T S FROM A L L OTHER SOURCES Miscellaneous internal revenue.—Receipts from the major groups of taxes included in this category are shown in the following table. Increase, or decrease (—) 1949 1950 Source Amount Percent I n millions of dollars 797 706 -90 -11.3 Excise taxes: L i q u o r taxes Tobacco taxes . S t a m p taxes M a n u f a c t u r e r s ' e x c i s e taxes 1 R e t a i l e r s ' excise taxes . . . Miscellaneous excise taxes (including repealed) 2 3._ 2, 211 1,322 73 1,761 449 1, 759 2, 219 1,328 85 1,827 409 1,721 9 7 12 66 -40 . -38 . .4 .5 16.2 ' 3.7 -8.9 -2.1 T o t a l excise taxes 13_ A d j u s t m e n t t o d a i l y T r e a s u r y s t a t e m e n t basis * 7,575 -23 7, 589 15 +31 .2 7,551 7, 597 45 .6 8,348 8,303 —45 —.5 E s t a t e a n d gift taxes T o t a l excise taxes * ^ . ... . . . . . _ T o t a l miscellaneous i n t e r n a l r e v e n u e ^ ^ +8 IExcludes taxes collected on firearms, shells, and cartridges which are included.in "Miscellaneous receipts." 2 See table 116, footnote 7. 3 Excludes collections of the hydraulic mining tax, which are included in "Miscellaneous receipts." .4 See table 7, "Note." Estate and gift taxes.—Estate and gift taxes amounted to $706 million in the fiscal year 1950, a decrease of $90 million from 1949. The Revenue Act of 1948 which reduced both estate and gift tax liabilities was responsible for the decline in receipts from this source. Excise taxes.—Receipts from excise taxes increased to $7,597 million in the fiscal year 1950. The increase of $45 million resulted fromincreases in liquor taxes, tobacco taxes, stamp taxes, and manufacturers' excise taxes partially offset by decreases in retailers' excise taxes and miscellaneous excise taxes. Manufacturers' excise taxes increased $66 million. Record levels of automobile production resulted in an increase of $119 million in collections from the tax on passenger automobiles, which continued their increase for the sixth successive year. T h e largest decline in this group was ia parts and accessories for automobiles, which fell $31 million. Retailers' excise taxes declined for the third straight year and were $40 million less than in 1949. Miscellaneous excise taxes decliaed by $38 million ia the fiscal year 1950. Decliaes in collections from the taxes on admissions, transportation of persons, and transportation of property were the principal sources responsible for the decrease ia collections. The most substantial increase in revenue ia this group was from the tax on local telephone service, which rose $23 million. 8 195 0 REPORT OF THE SECRETARY OF THE TREASURY Liquor taxes and tobacco taxes showed slight iacreases over collections in 1949. Stamp taxes increased 16.2 percent in the. fiscal year 1950. Collections from taxes on issues and transfers of securities and on the sale of playing cards increased in 1950. Employment taxes.—The yields of the various employment taxes, on the daily Treasury statement basis, are shown in the following table. ' Increase, or decrease (—) 1949 1950 Amount Source Percent I n millions of dollars Federal I n s u r a n c e C o n t r i b u t i o n s A c t Federal U n e m p l o y m e n t T a x A c t . . Railroad R e t i r e m e n t T a x A c t Railroad U n e m p l o y m e n t I n s u r a n c e A c t ' _ 1,690 223 564 10 2,106 226 550 9 416 3 -14 -1 T o t a l e m p l o y m e n t taxes D e d u c t : A p p r o p r i a t i o n to F e d e r a l old-age a n d survivors i n s u r a n c e t r u s t fund . . . 2,487 2,892 405 16.3 1,690 2,106 416 24.6 796 786 -11 -1.4 N e t e m p l o y m e n t taxes . . 24.6 1.6 -2.4 -6.3 1 Not classified as an employment tax under Internal Revenue Code. Total receipts from employment taxes amounted to $2,892 million in the fiscal year 1950, an increase of $405 million, or 16.3 percent, over receipts in 1949. The railroad taxes showed decreases which were offset by higher receipts from the other employment taxes. The Federal Insurance Contributions Act showed a sizable increase resulting principally from higher tax rates and a change in collection procedure. The tax rate increased from 1 percent each on employer and employee to IK percent effective January 1, 1950. Also effective January 1, 1950, collections of this tax from certain employers are payable on a monthly basis iastead of a quarterly basis. This change in the method of collection resulted ia receipts in the fiscal year 1950 of more than one year's normal receipts. Customs.—Customs receipts in the fiscal year 1950 were $423 million, or 9.9 percent, more than in 1949. Miscellaneous receipts.—Miscellaneous receipts amounted to $1,430 million ia the fiscal year 1950 and were $642 million less than in 1949. The decrease reflected the continuing decline in receipts from the sales of surplus property and certain accounting changes which reduced miscellaneous receipts but had no effect on the surplus or deficit. Refunds of receipts.—Refunds of receipts amounted to $2,160 million m. the fiscal year 1950, a decliae of $678 million from 1949. The 1950 refunds represent a normal figure as compared with the 9 REPORT ON OPERATIONS abnormal refunds in the fiscal year 1949. These abnormal refunds in. 1949 resulted from the overwithholding of individual income tax, in the first four months of calendar year 1948, caused by the passage of the Revenue Act of 1948. BUDGET EXPENDITURES The budget expenditures total of $40.2 billion in the fiscal year 1950 closely approximated the total in 1949. The 1949 and 1950 level of expenditures represented an increase from the postwar low of $34 billion in 1948 but was still considerably below the- total of over $60 billion in the demobilization year of 1946. The declines following 1946 were due mostly to curtailments in national defense expenditures, although in 1948 a part was due to decreases ia outlays for international finance and aid and for veterans. The rise which followed in 1949 and 1950 resulted primarily from growiag expenditures for special domestic programs and also from expenditures for the European Recovery Program. At the close of the fiscal year 1950, with the beginning of the action in Korea, it was apparent that tbtal expenditures would increase significantly ia 1951 and in 1952 under the impact of the expanded defense program. Estimates of expenditures for these years are shown on page 57. I n 1949 and 1950, as in the other postwar years, the combined outlays for national defense, international finance and aid, and veterans accounted by far for the greater share of the total. Although the levels of total expenditures in 1949 and 1950 were similar, in 1950 there were some substantial differences in the amounts expended for several major purposes. These are shown, on the daily Treasury statement basis, in the accompanying tabulation. Details for these and earlier years are given in chart 8 and in tables 2, 3, and 5 in the tables section of this report. National defense and related activities Year International finance and aid i Interest onthe public debt 2 Veterans' Administration Other Total» In billions of dollars 1949 1950 . . . 12.2 12.4 6.0 4.7 5.3 5.7 6.9 6.5 9.7 10.9 40.1 40.2 1 For comparison with other years, transactions in 1949, and also in 1948, relating to the Foreign Economic Cooperation trust fund, established under the Economic Cooperation Act of 1948 (62 Stat. 150), sec. 114 (f), have been consolidated with budget expenditures. 2 Beginning Nov. 1, 1949, interest on the public debt is reported as an expenditure when such interest becomes due and payable rather than on the basis of interest payments. 10 1 9 5 0 REPORT OF THE: SEiGRETARY OF T H E TREASURY EXRlNifTURlijSll^fe^ Fiscal Years 1944 Through 1950 National Defense, etc. , ^ ^ International Finance 1944 1945 1946 1947 1948 CHART 1949 8. 1950 REPO'RT ON OPERATIONS ^ 11 National defense expenditures of $12.4 billion in 1950 were only slightly above similar outlays in both 1948 and 1949, following the demobilization. I n 1950, expenditures were $3.5 billion for the Department of the Air Force, $4.1 billion for the Department of the Army, and $4.1 billion for the Department of the Navy. Stockpiliag of strategic and critical materials accounted for $439 million of expenditures in 1950. Expenditures of $4.7 billion in 1950 for international finance and aid were $1.4 billion less than ia 1949. This was the largest change from 1949 in any major group of expenditures. I t occurred raainly in outlays for government and relief in occupied areas, and for the aid provided by the Economic Cooperation Act. The decline reflected in part the recovery made in the economies of the occupied areas since the beginning of the program. Expenditures for the program of international finance and aid, which became significant for the first time in 1946 with a total of $727 million, averaged more than $4.9 billion during the next 4 years. The principal purposes in the first 3 years were the credit of $3,750 million to the United Kingdom, the provisions imder the Bretton Woods Agreements Act, and loans by the Export-Import Bank. Expenditures for government and rc^lief in occupied areas ia 1947 amounted to $514 million, rose to $1,333 million in 1949, and were $753 million ia 1950. These expenditures, which were made by the Army, were mainly for shipments of goods to prevent disease and unrest. The expenditures in 1949 were augmented by the assumption on the part of the United States of all dollar costs of imports for relief in the bizonal area of Germany. Expenditures under the Economic Cooperation Act totaled more than $4.0 billion in 1949, and more, than $3.5 billion in 1950. . I n this year the United S.tates began to provide military assistance to nations who have joiaed us in the mutual defense assistance program under the North Atlantic Treaty. Expenditures under this program amounted to $44 million. .Interest on the public, debt .of $5.7 .billion in .1950 compared with $5.3 billion inf 1.949. -.TEalf.o^^^^^ however,, was due to .a (change, in the .r%orting„ method during the year. Since November 1, 1949, interest has been reported as an expenditure when such interest. bpcomes due and payable, as distinguished from the previous practice of showing the.expenditure on the basis of interest paid by the Treasurer of. the. United States. During th^ 5 years ended with 1950 iaterest on the public debt gradually increased from $4.7. billion to $5.7.billipn. ... - . . / . : Yeterahs'' Administration expenditures. at, .|6 • 5 billion in .1950 were nearly $0.4 bniionI&^^ than in 1'949. . There was an over-all decrease. 12 19 50 REPORT OF THE: SECRETARY OF THE TREASURY of $0.7 billion which primarily represented the tapering off of the readjustment benefit programs which, grew out of World War I I . This decrease was partially offset by an increase of $0.4 billion in transfers to cover the share of the Government in the costs of the national service life iasurance fund. The figures shown here, of course, refer only to budget expenditures for veterans, and therefore exclude the payment of dividends and other benefits to veterans out of the national service life insurance fund. The remaining expenditures, classified as '^Other," represented outlays maialy for special domestic programs, and also for the running expenses of the Government. The total was $10.9 billion in 1950, which was $1.2 billion more than ia 1949. The iacrease consisted ia large part of additional aid to agriculture, public assistance, and mortgage purchases by the Federal National Mortgage Association, which, throughout the year, was an affiliate of the Reconstruction Fiaance Corporation. Total expenditures in this classification increased in each succeeding postwar year. In the earlier years of this period, as in 1950, the increase was accounted for almost entirely by expansion of the special domestic programs rather than expenditures for general government. In 1950, expenditures for aid to agriculture ainounted to $3.0 billion (including $1.7 billion net expenditures of the Commodity Credit Corporation) and constituted more than 27 percent of this total; while social security budget expenditures accounted for a total of $2.0 billion, which was more than 18 percent of these expenditures. Public works ia 1950 accoimted for about $1.6 billion, or 15 percent of the total ia this group. Other expenditures in this classification include outlays by the Atomic Energy Commission, aids to education, labor, finance, commerce, industry, housing, and transportation, as well as the expenses of the legislative, executive, and judicial departments of the Government not classified elsewhere. TRUST ACCOUNTS, ETC., RECEIPTS AND EXPENDITURES In addition to budget receipts and expenditures of the Government, certain other receipts and expenditures are classified separately in the daily Treasury.statement under the title ''Trust accounts, etc." The trust account receipts for the most part represent moneys received by the Government for the benefit of individuals or classes of individuals. Moneys held in trust as such are payable to or for the use of beneficiaries: only and therefore are not included in the budget expenditures of the: Government. Payioients from the general fund to various trust accounts, such as the Government's payment to Federal employees' retirement funds and the national service life insurance fund, are included in budget REPORT ON OPERATIONS 13 expenditures and under the various trust account receipts as transfers from the general fund. ^ The net transactions in trust accounts, etc., for the fiscal years 1932 through 1950 are summarized ^in table 1 of this report, and receipts and expenditures for the fiscal years 1942 through 1950 are shown in table 6 by major classifications. Details by months for 1950 and totals for 1949 and 1950 are shown in table 4. GENERAL FUND The general fund of the Treasury represents all moneys of the Government deposited with-and held by the Treasurer of the United States. The assets in the general fund are certain gold, silver, currency, coin, and unclassified collection items, and deposits to the credit of the Treasurer of the United States in Federal Reserve^ Banks, special depositaries, and national, foreign, and other bank depositaries. The liabihties of the general fund include outstanding Treasurer's checks, deposits of certain Government officers consisting of balances to the credit of the Post Office Department, the Board of Trustees of the Postal Savings System, and postmasters' disbursing accounts, etc., uncollected items, and exchanges. The difference between total assets and total liabilities is the general fund balance. On the basis of the daily Treasury statement, the general fund cash balance at the close of the fiscal year 1950 amounted to $5,517 million, an increase of $2,047 miUion during the year. The net change in the balance of the general fund during the fiscal year is accounted for as follows: Balance June 30, 1949 Add: Budget receipts, net Trust accounts, etc., receipts Net increase in gross public debt Deduct: Budget expenditures, including wholly owned Govern, ' . ment corporations Trust accounts, etc., expenditures Clearing account for outstand-. ing checks and interest coupons, and telegraphic reports from Federal Re" serve Banks: Excess of receipts •Balance June 30, 1950 ^__-_ $3, 470, 403, 311. 67 - 37, 044, 733, 557. 37 6, 668, 734, 224. 25 4, 586, 992, 490. 71 51,770,863,584.00 40,166,835,914.82 6, 569, 596, 863. 78 46, 736, 432, 778. 60 482, 656, 886. 25 • 46, 253, 775, 892. 35 .i____i_- 5,517,087, 691. 65 14 195 0 REPORT OF THE:. SECRETARY OF THEf TREASURY A comparative analysis of the assets and liabilities of the general fund is shown as of June 30, 1949 and 1950, in table 40. PUBLIC DEBT OPERATIONS AND OWNERSHIP OF FEDERAL SECURITIES The public debt amounted to $257.4 billion on June 30, 1950, which was $4.6 billion larger than on June 30, 1949. Most' of the net change in the public debt was accounted for by a rise of $4.7 billion in the nonmarketable interest-bearing debt, chiefly in. Treasury saviags notes, but also in United States savings bonds. Marketable interest-bearing debt increased by $162 million, the flrst net rise in any flscal year since 1946. This rise was'the result of a net increase in bills of $2.0 billion, which was offset for the most part by unexchanged portions of maturing issues. Nonbank holdings of the debt increased $3.0 billion during the year, continuing the longterm trend to reach a new high record. The computed annual interest rate on the interest-bearing debt was 2.200 percent on June 30, 1950, a slight decrease from t h e r a t e of 2.236 percent at the beginning of the year. Exchanges of maturing and called securities for new issues bearing lower average interest rates were the principal factor in the decline in the annual rate. The volume of the public debt and guaranteed obligations outstanding since 1943 is shown in chart 9. The following table shows the public debt by class of security and the guaranteed obligations outstanding at the close of the flscal years 1949 and 1950, on the basis of the daily Treasury statement. Guaranteed obligations held by the public, a very minor part of the total of the public debt and guaranteed obligations outstanding, amounted on June 30, 1950, to approximately $20 million, a decrease of nearly $8 million during the year. Historical detail on the public debt and guaranteed obligations is given in tables 12 through 20. Increase, or June 30, 1949 June 30. 1950 decrease (-) Class of debt In billions of dollars Public debt: Interest-bearingPublic issues: Marketable.- ' . . ._ Nonmarketable ._ _ Total public issues Special issues to Goverhment investment accounts.. . Total interest-bearing public debt Matured debt on which interest has ceased..... Debt bearing no interest Total public debt . Guaranteed obligations not held by Treasury Total public debt and guaranteed obligations *Less than $50 million. 155.1 •62.8 155.3 67.5 0.2 • 4.7 218.0 32.8 222.9 32.4 4.9 -.4 250.8 .2. 1.8 255.2 .3 1.9 252.8 257. 4 (*) 252.8 (*). 257, 4 4.4 (*) (*) .1 4.6 4.6 REPORT ON 15 OPERATIONS PUBLIGi SEBTiplSlilifiiiS^l^iAMBE[5;;?0BW©ATlbg§ OUTSTANDING DOLLARS Billions 1943 ' ' 1944 907795—51 1945 3 1946 1947 C H A R T 9. 1948 1949 1950 16 1 9 5 0 REPORT OF THE: SECRETARY OF T H E TREASURY Public debt operations and changes in ownership of the debt for the flscal year 1950 are given in the two sections which follow. . PUBLIC D E B T OPERATIONS MARKETABI-E ISSUES ^ The net increase of $162 million in the marketable interest-bearing debt brought the total to $155.3 billion on June 30, 1950, compared with $155.1 billion a year earlier. Net increases occurred, as is shown in the following table, in Treasury notes and in Treasury bills. J u n e 30, 194.9 J u n e 30, 1950 Increase, or decrease (—) Class of s e c u r i t y I n billions of dollars Treasury bills. Certificates of i n d e b t e d n e s s Treasury notes Treasury bonds 1 O t h e r b o n d s (postal savings, etc.) T o t a l m t e r e s t - b e a r i n g m a r k e t a b l e issues. 11.5 29.4 3.6 110.4 .2 13.5 18.4 20.4 102.8 .2 155.1 155. 3 2.0 -11.0 16.8 -7.6 (*) *Less t h a n $50 million. Bonds, notes, and certificates of indebtedness. —Treasury bonds, notes, and certiflcates of indebtedness in the amount of $40.7 billion matured or were called for redemption during the flscal year 1950. Of this total, the securities exchanged for new issues amounted to $38.8 billion, while the small remainders of the matured or called issues turned in for cash redemption rather than exchange aggregated $1.8 billion. The accompanying tables summarize the flnancing transactions during the year. Additional details are contained in exhibits 1 through 6 and in tables 22 and 23. 17 RE.PORT ON OPBRATrONS Public offerings of bonds, notes, and certificates of indebtedness, fiscal year 1950^ [In millions of dollars] Issued in Issued for exchange cash 1 for other securities' Description of security Date of issue Total issued Marketable issues 1949 July 1 Sept. 15 Oct. 1 Dec. 15 1950 Jan. 1 Feb. 1 Mar 1 Mar. 15 Apr 1 June 1 Certificates of indebtedness: * 1H% Series F-1950, due July 1,1950 I W o Series G-1950, due Sept. 15, 1950 1H% Series H-1950, due Oct. 1,1950 m % Treasury notes. Series A-1954, due M:ar. 15, 1954, 1H% certificates of indebtedness. Series A-1951, due Jan. 1, 1951. Treasur.y notes: 1H% Series A-1951, due Oct. 1, 1951 1H% Series B-1951, Sue July 1, 1951 1H% Series A-1955, due Mar. 15, 1955 1K% Series C-1951, due July 1, 1951 1K% Series D-1951, due July 1, 1951 Total Treasury notes and certificates of indebtedness. 5,601 1,197 6,248 4,675 5,601 1,197 fi, 248 4,675 5,373 5, 373 1,918 2,741 5,365 886 4,818 1, 918 2,741 5, 365 886 4,818 38,822 38,822 Nonmarketable issues Various Do .United States savings bonds: Series E.....:.. Series F and G ' Subtotal savings bonds Treasury savings notes. Series D Total savings bonds and savings notes Total all issues 2 4,887 2 1, 763 2 4,887 21^ 763 6, 650 6,150 6,650 6,150 12, 800 12, 800 i 12,800 38,822 51, 622 1 Exclusive of special series of certificates of indebtedness; adjusted service bonds; armed forces leave bonds; depositary bonds; special notes of the United States: International Monetary Fund series; United States savings stamps; and guaranteed obligations. 2 Includes accruals. . • • 18 1950 REPORT OF THE: SECRETARY OF T H E TREASURY Disposition of maturing or redeemable public issues of bonds, notes, and certificates of indebtedness, fiscal year 1950 ^ , [Dollars in millions] Dateof refunding D e s c r i p t i o n of s e c u r i t y 1949 M a r k e t a b l e issues Julyl_..- I M % certificates of i n d e b t e d n e s s . Series F-1949. d u e J u l y l , 1949. 2% T r e a s u r y b o n d s of 1949-51. \ \ ^ % certificates of i n d e b t e d ness: Series G-1949, d u e O c t . 1, 1949. Series H-1949, d u e D e c . 15, 1949. T r e a s u r y b o n d s , d u e D e c . 15, 1949: 2% of 1949-51 3 3 ^ % of 1949-52 2 \ i % o i 1949-53 S e p t . 15__ ' Oct. 1_'_.Dec. 1 5 . . . D a t e of issue Redeemed for cash or carried t o matured debt Exchanged for n e w security Total 182 5,601 5,783 96.9 96 1,197 1,292 92.6 J u l y l , 1948 M a y 15, 1942 Oct. 1, 1948 .... Percent exchanged 288 6,248 6,535 95.6 D e c . 15, 1948 35 • 484 519 93.2 J u l y 15, 1942 D e c . 15, 1934 D e c . 15, 1936 70 •24 90 2,028 467 1,696 2,098 491 1.786 96 7 95 1 94 9 219 4,675 4,894 95 5 J a n . l , 1949 322 5,373 5,695 94.3 F e b . 1, 1949 75 1,918 1,993 96.2 M a r . 1, 1949. 180 2,741 2,922 93.8 Oct. 19, 1942 102 1,861 1,963 94.8 92 3,504 3,596 97.5 S u b t o t a l , D e c . 15 1950 Jan. 1 Feb. l - . v Mar. 1.... Mar. 15... Apr. 1 . . . - Do June 1 I M % certificates of m d e b t e d ness: Series A-1950, d u e Jan. 1 , 1950. Series B-1950, d u e F e b . 1, 1950. Series C-1950, d u e M a r . 1, 1950. 2% T r e a s u r y b o n d s of 1950-52, d u e M a r . 15, 1950. 1 % % T r e a s u r y n o t e s . Series A-1950, d u e A p r . 1,1950. 1M% certificates bf m d e b t e d ness: Series D-1950, d u e A p r . 1, 1950. Series E-1950, d u e J u n e 1, 1950. Total T r e a s u r y bonds, n o t e s , a n d certificates of i n d e b t e d n e s s . S e p t . 15, 1948 A p r . 1, 1949 76 963 92.1 J u n e l , 1949 201 4,818 886. 5,019 96.0 1,832 38,822 40, 654 95.5 N o n m a r k e t a b l e issues V a r i o u s . _ U n i t e d S t a t e s savings b o n d s : Series A - D SeriesE Series F a n d G Do Do M a r c h 1935-April 1941. 1 Since M a y 1941 on / / c o n t i n u o u s sale. I S u b t o t a l savings b o n d s . . T r e a s u r y tax a n d savings Since Aug. 1, 1941.. notes. 2 \ ^ % T r e a s u r y b o n d s , i n v e s t - Oct. 1, 1947.. m e n t series, A-1965. ' Total savings b o n d s , tax a n d savings n o t e s . and bonds, investm e n t series. 1 Total 1 _ 1,081 1,081 3,521 821. 3,521 821 5,422 2 2, 549 5,422 2 2, 549 1 1 2 7, 972 2 7, 972 2.9, 804 38,822 2 48,626 1 Marketable issues in this table are exclusive of special series of certificates of indebtedness, postal savings bonds, and other debt items. Nonmarketable issues are exclusive of adjusted service bonds; armed forces leave bonds; depositary bonds; excess profits tax refund bonds; special notes of the United States: International Monetary Fund series; United States savings stamps; and guaranteed obligations.' 2 Includes tax and savings notes in the amount of $1,039 million surrendered in payment of taxes. REPO'RT ON OPERATIONS ' 19 The matured and called securities consisted of flve issues of Treasury bonds, eight issues of one-year certiflcates of indebtedness, and one issue of Treasury notes. These issues were refunded into six issues of Treasury notes and four issues of one-year certiflcates of indebtedness. The flrst note issued carried a maturity of 4}^ years; four of the notes carried maturities ranging from 13 to 20 months; and one note was for a flve-year period. The refunding of $7.6 billion of Treasury bonds into these intermediate and short-term securities resulted in the largest decrease in outstanding Treasury bonds in any one year, from $110.4 billion on June 30, 1949, to $102.8 billion on June 30, 1950. The decrease was entirely in bank-eligible bonds, bringing the total outstanding at the close of the year to $53.2 billion from $60.8 billion a year earlier. Table 13 shows the amounts outstanding at the end of the flscal years 1940-50. The flrst flnancing operation of the flscal year 1950 was anticipated by the Secretary of the Treasury with his announcement on June 16, 1949, that the Treasury would offer to holders of the $5.8 billion of one-year Iji percent certiflcates of indebtedness. Series F-1949, maturing July 1, an issue of one-year 1}^. percent certiflcates in exchange. Subscriptions accepted for the new issue. Series F-1950, totaled $5.6 billion. This refunding contiaued the interest rate of Iji percent per annum which had characterized the certiflcate issues since October 1, 1948. This short-term rate was changed, however, in the refundings of September-October 1949 which the Secretary of the Treasury announced on August 22. The announcement stated that the Treasury would offer a new one-year 1}^ percent certiflcate on August 31 to holders of the 2 percent Treasury bonds of September 15, 194951, called for redemption on September 15, 1949; a new certiflcate to refund the certiflcates maturing October 1, 1949; and a new Treasury note in exchange for the three Treasury bond issues called for redemption on December 15, 1949. Subsequently, one-year V/i percent certiflcates, Series G-1950, due September 15, 1950, and Series 11-1950, due October 1, 1950, were issued to subs^cribers in the respective amounts of $1.2 billion and $6.2 billion, An announcement by the Secretary of the Treasury on November 30, 1949, stated that the Treasury note issue to refund the three Treasury bond issues redeemable on December 15 would be offered also in exchange for the 1% percent certiflcates maturing December 15. The new notes bear an interest rate of 1% percent and a maturity of four and one-quarter years. The announcement stated also that an issue of one-year 1}^ percent certiflcates would be offered in exchange 20 195 0 REPORT OF THE; SECRETARY OF THE TREASURY for the certiflcates maturing January 1. Subscriptions accepted for the 1% percent Treasury notes, dated December 15, 1949, amounted to $4.7 billion. Exchanges of the certiflcates maturing January 1 for the new one-year 1}^ percent certificates. Series A-1951, amounted to $5.4 bilhon. . On January 13, 1950, the Secretary of the Treasury announced a new issue of 20-month 1% percent Treasury notes to refund the one-year 1% percent certiflcates maturing February 1. Exchanges amounted to $1.9 billion. Three new issues of Treasury notes were announced by the Secretary of the Treasury on February 14, 1950, to refund the four March and April maturities of certiflcates, Treasury bonds, and Treasury notes. Pursuant to the announcement the following offerings were made. An issue of 16-month Iji percent Treasury notes, Series B-1951, was exchanged for the one-year Iji percent certiflcates maturing March 1. Subscriptions accepted amounted to $2.7 billion. An issue of 5-year 1% percent notes. Series A-1955, was offered in exchange for the 2 percent Treasury bonds of 1950-52 (dated October 19, 1942). This note issue was reopened in exchange for the 18^.month lYs percent Treasury notes which matured April 1, 1950°. Subscriptions accepted for Series A-1955 totaled $5.4 billion. An issue of 15-month 1% percent notes, Series C-1951, was offered to refund the one-year Iji percent certiflcates which matured April 1, 1950. Exchanges of the new Treasury notes amounted to nearly $0.9 billion. The flnal flnancing operation of the year was announced by the Secretary of the Treasury on May 4, 1950, when he stated that the Treasury would off'er new issues of 13-month Iji percent Treasury notes dated June 1 and July 1, in exchange for the one-year Iji percent certiflcates of indebtedness maturing on those dates. Subscriptions to the flrst of these note issues. Series D-1951, dated June 1, 1950, amounted to $4.8 billion. Treasury bills.—Weekly offerings of Treasury bills were made in the flscal year 1950. The three-year record of a substantial net retirement of bills was broken in 1950 when, in contrast, there was a net increase of $2.0 billion, the flrst in any flscal year since 1945. This amount takes account of the miaor differences involved between, the maturing issues and the new securities when the maturing issues were refunded into new series of Treasury bills. The year's issues consisted of 50 carrying terms of 91 days; one, on August 25, 1949, a term' of 92 days; and one, on November 25, 1949, a term of 90 days. The 13 issues outstanding at the end of the flscal year 1949 totaled $11,536 million; the 13 issues outstanding at the end of the flscal year 1950 totaled $13,533 million. 21 REPORT ON OPERATIONS Of the total increase in bill offerings, $800 million took place in the six weeks beginning August 4. Eaich of the offerings of August 4 and 18 exceeded the maturing issue by $200 million. The other four offerings were $100 million in excess of each issue maturing. From September 15 through April 6, the offerings were for the amount of the maturities. ^ Between April 13 and June 29, however, offerings exceeded maturities by $1,200"million, with each offering exceeding the maturing issue by $100 million. ' Average rates on new Treasury bills during the year ranged from a low of 0.923 percent for the July 14, 1949, issue to a high of 1.179 percent for the June 8, 1950, is^ue. The average rate for the July 7, 1949, issue was 1.052 percent, and for the June 29, 1950, issue, 1.172 percent. There was some fluctuation in the rates in the flrst half of the flscal year which ranged from the low of 0.923 percent to 1.115 percent for December 8 and 15. From January 12 to the end of June, there was a gradual rise from 1.076 percent to 1.172 percent. Weekly rates on new bills throughout the year are shown in exhibit 9. Bids on the flxed price basis averaged about $92 million a week and amounted in the aggregate to about 9 percent of all bids accepted. Additional inforraation on Treasury bills is contained in exhibits 7 through 10, and in table 23. NONMARKETABLE ISSUES Nonmarketable public securities issued during the flscal year 1950 totaled $13.2 billion and redemptions, $8.3 billion. The increase of $4.7 billion in the nonmarketable interest-bearing securities outstanding was due mainly to the rise of $3.6 billion in Treasury savings notes and also to the rise of $1.3 billion in United States savings bonds outstanding. The table following shows the.changes in the amounts of the nonmarketable interest-bearing classes of securities outstanding at the end of 1949 and 1950. Class of security Increase, or June 30, 1949 June 30, 1950 decrease (—) In billions of dollars United States savings bonds (unmatured): Series D SeriesE . Series F and G 1.9 33.1 2L2 0.9 34.5 22.1 -1.0 1.4 .9 Total _ Treasury tax and savings notes ("unmatured) 56.3 4.9 57.5 8.5 1.3 3.6 Total savings bonds and tax and savines notes Other _ 61.1 1.7 66.0 1.5 4.9 — .2 67.5 4.7 Total interest-bearing nonmarketable issues 62.8- • 22 1 9 5 0" REPORT OF THE^ SE'CRETARY OF T H E TREASURY United States savings bonds.^Ssdes of Series E, F, and G savings bonds (including accrued discount) exceeded redemptions during the year by $2.3 billion. Sales amounted to $5.7 billion, issue price. On June 30, 1950, the $57.5 billion of unmatured bonds (Series D-1940 through Series G) outstanding (at current redemption value) were 22.3 percent of the total outstanding public debt and guaranteed obligations, the same proportion as a year earlier. Since 1935, when savings bonds were flrst sold, the volume of Series A-G bonds issued, including accrued discount, has totaled $93.7 billion, while redemptions have totaled $36.0 billion. On June 30, 1950, the redemption value of the bonds outstanding was 62 percent of the amount issued (including accruals). . Redemptions of savings bonds (Series A-G) during the year totaled $5.4 billion, an increase of $355 million over those in 1949. The increase resulted from the larger volume of matured bonds in the total, and the increasing amount of accrued discount which reflects the lengthening periods in which the bonds have been outstanding. Series A - D redemptions included $667 million of matured bonds which were redeemed ia the six months ended June 1950, the flrst period for which the data have been tabulated to show matured redemptions separately from those unmatured. Redemptions of Series A-D bonds in 1950 totaled $1,081 million compared with $703 million in 1949. On June 30, 1950, there were $895 million unmatured Series D bonds outstanding compared with $1,927 million a year earlier. By the end of April 1951 all Series D bonds will have matured. In May 1951, Series E bonds will begin to mature. Series E bonds sold in 1950 amounted to almost $4.0 billion, issue price, a decrease of $286 million from sales in 1949. Series E sales were 70 percent of all savings bonds sold in 1950. Redemptions of Series E bonds amounted to $3,521 million in 1950, as compared with $3,530 million inl949\ The amount outstanding as of June 30, 1950, was $34.5 billion, an increase of $1.4 billion during the year. Sale of the $10 denomination of Series E bonds was discontinued at the close of business on March 31, 1950, following an announcement by the Treasury Department on March 15. .Series E bonds of $10 maturity value were authorized on June 7, 1944, for issuance exclusively to members of the armed forces. Sales of Series F and Series G bonds together totaled $1,680 million, issue price, in 1950. This compared with sales of $1,737 million, issue price, in 1949, which is exclusive of sales of $1,126 million in the special offering of Series F and G bonds in July 1-15, 1948, to certain institutional investors who were allowed to purchase these bonds in excess of the $100,000 annual limitation up to $1,000,000, issue price, 23 REPORT ON OPERATIONS in the aggregate for the institutions concerned. (See table 29.) Redemptions of $199 million of Series F bonds during the year compared with" $216 million in 1949. Redemptions of Series G bonds of $621 million were $2 million more than in 1949. The redemption experience of savings bonds by yearly series is summarized in the following table. An analysis of these data by denominations is shown in table 33. Percent of savings bonds sold in each year redeemed through each yearly period thereafter ^ [On basis of Public Debt accounts, see p. 443] - R e d e e m e d b y e n d ofSeries a n d calendar year in which issued 1 year 2 4 6 3 5 7 8 9 y e a r s y e a r s y e a r s years y e a r s y e a r s years years Series A t h r o u g h E A-1935 . '..--B-1936 C-1937 C-1938 D-1939 D-1940 .. . . D-1941 a n d E-1941 _ E-1942 _ E-1943 :. _ E-1944 E-1945 E-1946 E-1947 E-1948 E-1949 ....r Average, Series A - E issued D e c . 31, 1941 - ... . through Average, Series E issued from J a n . 1, 1942... ...: 5 6 7 5 4 4 3 8 15 19 28 23 21 20 22 11 12 12 lb 9 8 7 15 24 33 38 34 30 30 16 17 17 15 13 11 10 21 34 41 45 40 37 20 21 20 18 15 13 13 29 41 47 50 45 23 24 23 19 17 15 17 35 47 52 54 26 26 25 21 18 •18 21 40 51 56. 28 28 26 22 20 20 25 44 65 29 29 27 24 23 22 28 .48 31 30 29 26 25 25 31 5 10 14 17 20 22 24 26 28 20 29 36 43 • 47 49 49 48 . Series F a n d G F-1941 a n d G-1941 . F-1942 a n d G-1942 ._ F-1943 a n d G-1943 F-1944 a n d G-1944 F-1945 a n d G-1945 F-1946 a n d G-1946 F-1947 a n d G-1947 -... F-1948 a n d G-1948 F-1949 a n d G-1949... __. Average, Series F a n d G issued from . M a y 1, 1941 1 1 2 2 2 „ 3 3 2 3 2 3 4 6 6 7 7 8 5 5 7 10 10 11 12 12 7 11 14 14 14 15 10 14 19 18 18 13 18 22 21 15 21 26 18 24 20 6 . 10 13 16 19 21 21 20 NOTE.—The percentages shown in this table are the proportions of the value of the bonds sold in any calendar year which are redeemed before July 1 of the next calendar year, and before July 1 of succeeding calendar years. Both sales and redemptions are taken at maturity value. The average percentages shown above are simple averages of the percentages for the applicable annual series. \ 1 Percentages by denominations may be found in table 33. "Detailed information on savings bonds from March 1935, when this security was flrst offered, through June 1950 is published in tables 28 through 33, 24 1 9 5 0 REPORT OF THE SIECRETARY OF T H E TREASURY Treasury notesy tax and savings series.—wSales of Treasury savings notes amounted to more than $6.1 billion (face amount) in the flscal year 1950, nearly $2.2 billion more than sales in 1949 and the largest volume sold since 1945. The increase was concentrated in the first two months of the flscal year. Redemptions, including both tax and savings notes, amounted to over $2.5 billion during the year. Of the redemptions, $1.0 billion was applied to payment of taxes and $1.5 billion was paid in cash. Unmatured savings notes on June 30, 1950, totaled $8.5 billion compared with $4.9 billion a year earlier. (See table 34.) An amendment to the initial terms (dated August 17, 1948) relating to the purchase of Treasury savings notes. Series D, was announced on August 10, 1949. Effective August 11, 1949, these notes are sold at par and accrued interest from the flrst day of the month in which purchased to the day, inclusive, on which payment is made in cash or other immediately available funds. The amo*unt of accrued interest payable by the purchaser is computed at the rate at which interest accrues on the notes ($0.80 per month per $1,000 par amount) for the actual number of days in the month in which the purchase is made. (See exhibit 11.) Previously the notes were dated as of the flrst day of the month in which payment, at par, was received and credited. Special short-term certificates of indebtedness.—Special short-term certiflcates of indebtedness were sold twice during the year to cover overdrafts on Treasury balances at the Federal Reserve Banks in anticipation of the imminent receipt of iacome taxes. The flrst instance consisted of. an issue of $108 million on March 15, 1950. The securities were retired in full on March 16. The second was on June 15, when an issue of $105 million was sold to the Federal Reserye Banlcs. These certiflcates were redeemed on the followirig day. Interest on the issues was paid to the Federal Reserve Banks at the rate of one-fourth of one percent per annum. Special issues to Government investment accounts.—Outstanding interest-bearing securities issued by the Treasury for the investment of trust and other funds deposited in the Treasury decreased $420 million during the year. The decrease compared with an increase of nearly $2.6 billion in 1949. The decline in 1950 was the net result of $1.9 billion of redemptions of special issues held by the national service life insurance fund in connection with the pa3''ment of special dividends, of a decrease of $0.7 billion in issues to the unemployment trust fund, an increase of $1.4 billion issued to the Federal old-age arid survivors insurance trust fund, and increases totaling $0.8 billion in the remaining accounts. Special issues outstanding totaled $32.4 bilhon on June 30, 1950, compared with $32.8 billion a year earlier. REPORT ON OPERATIONS CHART 25 10. NOTE.—The wholly tax-exempt Panama Canal bonds of 1961 and the bank-eligible 2i/^'s of 1967-72 have been omitted from the chart in order to avoid undue complexity. Issues for which an exchange offer has been made or which are due or callable in less than 3 months are also excluded. AU bank-restricted issues are callable and all partially tax-exempt issues are bank-eligible. 26 1950 REPORT OF THE: SE'CRETARY OF THE TREASURY INTEREST ON THE PUBLIC DEBT • Interest on the public debt during the year amounted to $5,750 million, compared with $5,339 million in 1949, daily Treasury statement basis. Nearly $225 million of the $411 million increase was a nonrecurring addition resulting from a change in reporting methods. (See table 36.) Under the new method, which was effective November 1, 1949, interest on the public debt is reported as an expenditure when the interest becomes payable rather than when actually paid. The increase in interest payments reflected also the accelerated accrual of interest on savings bonds as they approach maturity. The increase was due also to the rise in the public debt and the changes in its composition during the year. The yields on marketable Government securities as of June 30 in 1949 and 1950 are shown in chart 10. SINKING FUND Credits accruing to the cumulative sinking fund in 1950 amounted to $620 million which, added to the unexpended balance of $6,582 million brought forward from the previous year, made available $7,201 million. Of this amount, $2 million was used for the retirement of 4K percent Treasury bonds of 1947-52, which had been called October 1947. The unexpended balance of $7,199 million was carried forward to the flscal year 1950. Tables 26 and 27 show the transactions on account of this fund since its inception on July 1, 1920. STATUTORY LIMITATION OBLIGATIONS ON THE PUBLIC DEBT AND GUARANTEED Section 21 of the Second Liberty Bond Act, as amended (31. U. S. C. 757b), limits the amount of obligations issued under authority of the act to $275 billion outstanding at any one time. This liiriitation applies to the public debt and to those obligations of Government corporations and other business-type activities which are fully guaranteed by the United States (except such obligations held by the Treasury). As of June 30, 1950, the unused borrowing authorization was $18 billion. An analysis of the public debt and guarariteed obligations outstanding as affected by the debt limitation is shown in table 20, REPORT ON OPERATIONS OWNERSHIP OF F E D E R A L ' 27 SECURITIES ^ Approximately two-thirds of the $4.6 billion increase in gross Federal debt during the flscal year 1950 was accounted for by the increase of $3.0 billion in the holdings of Federal securities by nonbank investors. Because of the large volume of alternative private investments available there was no signiflcant active demand for marketable Federal securities on the part of long-term investors during the year. The increase of $3.0 billion in nonbank holdings was more than accounted for by the net purchases of savings bonds by individuals and of savings notes and short-term marketable securities by commercial, industrial, and mercantile corporations. Debt ownership by nonbank investors reached an all-time peak of $173.5 billion by June 30, 1950, or more than $10 billion above their holdings at the conclusion of the Victory Loan. In contrast to this upward trend of nonbank investment, there was a decline of almost $33 billion in the holdings of Federal securities by the banldng system— that is, commercial banks and Federal Reserve Banks—between the peak of the debt on February 28, 1946, and the end of the flscal year 1950. ' Bank holdings continued to decline after June 30, 1950, as well and during the flrst part of the flscal year 1950 they reached a poiat lower than at any other time in the last 6 years. On June 30, 1950, as was also true a year earlier, the bankiag system held only 33 percent of the total debt outstanding, as compared with 42 percent at the peak of debt and 39 percent before our entry into World War II. The flgures on bank and nonbank ownership, together with pertinent detail on the holdings of Federal securities by the various investor classes, are shown in the following table. 1 Gross pubhc debt, and guaranteed obligations of the Federal Government held outside of Treasury. 28 19 50 REPORT OF THE: SECRETARY OF THE TREASURY Ownership of Federal securities, by investor classes, for selected dates, 1941-50 ^ H o l d i n g s as of^ Class of i n v e s t o r J u n e 30. 1941 F e b . 28, 1946 2 J u n e 30, 1949 J u n e 30, 1950 Change during fiscal y e a r 1950 A m o u n t s in billions of dollars Estimated ownership by: N o n b a n k investors: Individuals 3 O t h e r n o n b a n k investors: I n s u r a n c e companies M u t u a l savings b a n k s . Corporations ^... s t a t e a n d local g o v e r n m e n t s . . . Federal G o v e r n m e n t investm e n t accounts. Miscellaneo^us investors 8. Total T o t a l n o n b a n k investors Banks: Commercial b a n k s . . . Federal Reserve B a n k s . Total banks T o t a l gross d e b t o u t s t a n d i n g 11.2 63.7 66.6 67.2 -fO.6 7.1 3.4 2.0 .6 8.5 24.7 11.1 19.9 6.7 28.0 20.8 11.6 15.1 8.0 38.3 20.1 11.6 18.3 8.2 37.8 -.7 — .1 -f3.2 .7 9.1 10.0 10.2 +.3 22.3 99.4 103.8 106.3 +2.4 33.5 163.1 170.4 173. 5 +3.0 19.7 2.2 93.8 22.9 63.0 19.3 65.6 18.3 +2.6 -1.0 +.2 -.5 21.8 11617 82.4 83.9 +1.5 55.3 279.8 252.8 257.4 +4.6 P e r c e n t of total Percent owned by: N o n b a n k investors: Iridividuals 2Other.. Total.Banks. ' T o t a l gross d e b t o u t s t a n d i n g 20 41 23 35 26 41 26 . 41 61 39 58 42 67 33 67 33 100 100 100 100 1 Gross public debt, and guaranteed obligations of Federal Government held outside of Treasury. 2 Peak of debt. 3 Includes partnerships ,and personal trust accounts. Nonprofit institutions and corporate pension trust funds arc included under "Miscellaneous investors." < Exclusive of banks and insurance companies. 5 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers and brokers, and investments of foreign balances and international accounts in this country. Individuals continued during 1950 to increase their ownership of Federal securities. During the year they added over a billion dollars to their holdings of savings bonds and by June 30, 1950, they owned savings bonds totaling approximately $50 billion, with $34K billion in Series E bonds alone. Individuals' holdings of other securities declined slightly during the year. As is noted in the table above, individuals constitute the largest single investor group in the entire Federal debt ownership structure, reflecting the widespread distribution of the debt throughout the Nation. REPORT ON OPERATIONS' 29 Holdings of Federal securities by insurance companies on June 30, 1950, amounted to about $20 billion. Three-fourths of the total was in the hands of life insurance companies, whose investments are predominantly in long-term securities. Life insurance companies reduced their holdings of Federal securities by a little over $1 billion during the year, following the trend which began 3 years ago as new private investment opportunities appeared in the form of an increased supply of mortgages and corporate securities. Liquidation of Federal securities was smaller during 1950, however, than it had been during the two preceding years. The decline in life insurance company holdings was off'set in part by continued additions to the Federal se-' curity portfolios of flre, marine, and casualty insurance companies. In total, therefore, insurance company holdings were down by only $0.7 billion during the year. Mutual savings bank holdings of Federal securities totaled $11.6 billion on June 30, 1950, with $9.4 billion invested in bank-restricted bonds. Mutual savings banks have also been actively engaged in increasing their mortgage and corporate security portfolios duringthe last few years, but their holdings of Federal seeurities on June 30, 1950, were only $0.6 billion below their all-time peak. Their holdings declined by only $0.1 billion during the flscal year 1950. Corporations, other than banks and insurance* companies, showed an increase" of over $3 billion in their holdings of Federal securities during the flscal year 1950. Their holdings of $18.3 billion in June 1950 were just about midway between their peak holdings of $22.9 billion reached 5 years ago and the low point in the postwar period of $13.5 billion on June 30, 1948. Manufacturing corporations alone accounted for over $10 billion of holdings of Federal securities as of June 30, 1950, with holdings concentrated in the hands of the producers of automobiles and other heavy industrial products. Miscellaneous investors held approximately $10 billion of Federal securities as of June 30, 1950. About one-third of this amount was accounted for by holdings of securities by various international organizations and by the investment of foreign balances in the United States. Private pension trusts accounted for approximately $2 billion of the total, with the remainder reflecting the holdings of nonproflt institutions, dealers and brokers, savings and loan associations, and certain smaller groups. There was very little change in the holdings of miscellaneous investors in the aggregate»during the year, with more than the entire increase of $0.3 billion accounted for by expanded investments of foreign balances. 30 1 9 5 0 REPORT OF T H E SE'CRETARY OF T H E TREASURY Holdings of Federal securities by State and local governments as of June 30, 1950, amounted to $8.2 billion, with very little change being reported by these investors during the year. State and local pension funds held approximately a third of the $8.2 billion, with sinking funds holding a little over $1 billion; the balance was accounted for by various 'operating and special funds. State governments alone accounted for $5.6 billion of the total, with local government funds currently holding about $2.6 billion. Federal Government investment accounts held $37.8 billion of Federal securities on June 30, 1950, of which $32.4 billion were in special issues. Total holdings of Federal Government investment accounts declined by half a billion dollars during the year, in contrast to the usual iacreases which have characterized each year prior to 1950. There was a continued increase in the investments of the old-age and survivors insurance trust fund, railroad retirement account. Government employees' retirement funds, and several other funds, but these were more than offset by the effect on trust fund investments of (1) the payment of $2.6 billion in dividends to veterans out of the national service life insurance trust fund during the last half of the flscal year, and (2) the increased payment of unemployment beneflts out of the unemployment trust fund during the year. ' Commercial banks held $65.6 billion of Federal securities at the end of the flscal year 1950. About $40 billion of this total was invested in bank-eligible bonds, over 75 percent of which were due or callable within 5 years. Commercial banks also held $22 billion of bills, certiflcates, and notes. The average length to flrst call or maturity of their total holdings of marketable debt amounted to slightly over 3 years as of June 30, 1950, reflecting the policy of maintaining the Government portion of bank portfolios in a relatively liquid position. Commercial bank holdings rose by $2.6 billion during the year, a large part of which was accounted for by the release of $1.8 billion in reserves whea reserve requirements were reduced during the early part of the period. As a matter of fact, commercial bank holdings of Federal securities actually declined by $1.2 billion from December 1949 through June 1950. Federal Reserve Bank holdings of Government securities also declined both for the entire year (a decrease of $1.0 billion) and for the last 6 months of the period (a decrease of $0.6 billion). An analysis of the estiriiated changes in bank versus nonbank ownership of Federal securities during the flscal year 1950 is shown in the following table by type of issue. R E I P O R T ON 31 OPERATIONS Estimated changes in bank versus nonbank ownership of Federal securities by type . o f issue, fiscal year 1950 ^ [In billions of dollars] Change accounted for by— Total change in Banks amount Nonbank outstandinvesing tors Commer- Federal Total cial Reserve . Class of security Marketable securities: Treasury bills Certificates of indebtedness Treasury notes Treasury bonds . . . . 2.0 -11.0 16.8 -7.6 1.5 -5.0 3.8 -1.8 0.5 -6.0 13.0 -5.8 1.0 -4.5 9.8 -3.7 —0 5 —1.5 3.1 -2.2 .2 -1.5 1.0 2.7 —1.0 1.4 3.5 -.1 .1 -.1 .1 Total marketable Nonmarketable securities, etc.: United States savings bonds . . . . Treasury savings notes Treasury bonds, investment series Armed forces leave bonds Special issues to Government investment accounts . . . Notes to International Bank and Monetary Fund Other 1.3 3.6 (*) -.1 -.4 .2 -.1 (*) -.1 -.4 .2 -.1 -.1 Total nonmarketable, etc ._. 4.4 4.5 -.1 -.1 Total change 4.6 3.0 1.5 2.6 -^ (*) —I.U *Less than $50 million. 1 Gross public debt, and guaranteed obligations of Federal Govemment held outside of Treasury, For marketable securities as a whole the total increase during the year was only $0.2 billion, consisting of an increase of $2.0 bilhon in bills outstanding and a net decline of $1.8 billion because of the unexchanged portions of maturing issues in the other three categories. Despite the fact, that nonbank investors (principally nonflnancial corporations) absorbed three-fourths of the new bill offerings during the year, their holdings of marketable securities continued to decline, reflecting in large part the liquidation of securities by life insurance companies. Long-term investors bought most of the $1}^ billion of long-term bonds which were sold in the market during the year by the Federal Reserve Banks. However, these long-term investors, had a large volume of alternative investments available in the form of new mortgages and corporate securities. As a result, their purchases of long-term bonds from the Federal Reserve Banks did not result in any net acquisition of Federal securities over the period, since they in turn sold shorter-term obligations to pay for the long-term securities. The dominant factor in the increase of $4.4 billion in nonmarketable securities during the year was the neb sale of $3.6 billion of savings notes, primarily to corporations other than banks and insurance companies. Savings bonds increased by $1.3 billion during the year, largely absorbed by individuals. 907795—51 4 . . 32 <^1950 REPORT OF THE: SECRETARY OF THE TREASURY . The decline of $22 billion in Federal debt from the February 1946 peak through June 1950 compares with an increase of over $80 billion in all of the private debt of the country combined during the same period (debt of individuals, corporations, arid State and local governments). Nevertheless, Federal securities still account for one-half of the total debt of the United States, more than double the ratio a decade ago. Furthermore, Federal securities continue to dominate the investment portfolio of the large flnancial institutional groups throughout the country and account for signiflcant portions of the liquid assets of individuals and the current assets of corporations. Nonbank investment in Federal securities of $3 billion during the flscal year accounted for about half of the total increase in liquid assets of nonbank investors during the year. Savings accounts in commercial banks increased by $0.4 bilhon during 1950, while checking accounts increased by $3.2 billion and currency holdings were unchanged. Both the Federal Government deflcit of $3.1 billion during the year and the fact that private credit extended by commercial banks increased by over $5 billion resulted in a larger net increase in liquid assets this year than in the flscal years 1948 and 1949.^ CORPORATIONS AND CERTAIN OTHER BUSINESS-TYPE ACTIVITIES OF THE GOVERNMENT In accordance with the President's recommendation in his 1948 Budget Message and certain provisions of law, the Treasury during the flscal year 1950 continued to adjust the interest rates on advances to Government corporations and certain agencies to keep such rates closely in line with the interest cost to the Treasury on its borrowings. Generally, the interest rates now charged the corporations and agencies are .based upon the average rate on outstanding marketable obligations of the United States, and in actual practice are stated in terms of the nearest one-eighth of 1 percent under such average rate. On June 30, 1950, the computed average interest rate on outstanding marketable obligations of the United States was 1.958 percent, resulting in a rate of 1% percent for the corporations and agencies involved. Where the advances by the Treasury are of a short-term character* or involve special considerations, lower rates have been established to coordinate these rates with the interest cost to the Treasury of its short-term borrowings. • During the flscal year 1950, there were several signiflcant legislative changes affecting the borrowing authority of Government corporations. Under the provisions of Public Law 579, 81st Congress, approved June 28, 1950, the borrowing authority of the Commodity 1 Table 106 presents data on the relationship between Federal fiscal operations and the Nation's financial structure for the 10-year period 1941-50. REPORT ON OPERATIONS 33 Credit Corporation was increased by $2 billion, making its total borrowing authority $6,750 million. The Federal home loan banks and the Federal Savings and Loan Insurance Corporation in accordance with Pubhc Law 576, 81st Congress, approved June 27, 1950, were authorized to borrow from the Secretary of the Treasury amounts limited by the provision that the aggregates outstanding at any one time ma^T^ not exceed $1 billion and $750 million, respectively. The National Housing Act of June 27, 1934, as amended (12 U. S. C. 1701-1748g), was further amended during 5b.e year, thereby increasing .by $4,050 million the amount of mortgages that could be insured. The increases under the various acts enacted during the year are,as follows: • Acts enacted during 81st Congress Title National Housing Act, as amended: Title T, section 8 Title II Title VI. Title VIII .. Public Law 475, approved Apr. 20, 1950.-. Public Law 171, approved July 15,1949, and letter of the President dated July 25, 1949. Public Law 278, approved Aug. 30,1949, and letter of the President dated Aug. 30, 1949, Public Law 387, approved Oct. 25,1949, and letter of the President dated Nov. 18,1949. Public Law 475, approved Apr. 20, 1950 . Public Law 387, approved Oct. 25,1949, and letter of the President dated Nov. 18, 1949. Public Law 387, approved Oct. 25,1949, and letter of the President dated Feb. 23, 1950. Public Law 475, approved Apr. 20, 1950 .. Public Law 211, approved Aug. 8, 1949 . Increase (in millions). i$100 200 500 750 21, 000 200 300 500 3 500 4.050 1 Could be increased by $150 million upon approval of the President, 2 A further increase of $1,250 milhon could be made upon approval of the President. A partial increase of $650 million was authorized by letter from the President dated July 18, 1950. 3 Could be increased by $500 million upon approval of the President. In addition, the Housing Act of 1950 (Public Law 475, 81st Congress, approved April-20, 1950) extended to July 1, 1955, theFederal Housing Admiaistration authorization (title 1) to insure lenders against losses on home modernization and repair loans. The total amount of such outstanding insured loans shall not exceed $1,250 million at any one time. The unused mortgage insurance authorizations at the end of the flscal year 1950 amounted to $317 million. The amount of borrowing power of each Government corporation and agency and the total amounts of obligations outstanding as of June 30, 1950, segregated as to Treasury holdings and securities held by others, are shown in table 63. Balance sheets received from corporations and certain business-type activities of the Government are published quarterly in the daily Treasury statement. These balance sheets show the amount "^ and classiflcation of assets, liabilities, and capital of the various corpora- 34 195 0 REPORT OF THE: SE'CRETARY OF THE TREASURY tions and activities, together with the capital owned by the United States and that privately owned. The balance sheets as of June 30, 1950, will be found in table 68 of this report. Table 67 shows the combined net investment of the United States in such corporations and other business-type activities for the flscal years 1941-50; and table 69 shows the income and expense of individual corporations and activities for the flscal year 1950. The source and application of funds for the flscal year 1950 are shown in table 70. SECURITIES OWNED BY THE UNITED STATES GOVERNMENT -On June 30, 1950, the United States owned securities consistiag of capital stock, bonds, and notes of Government corporations; securities representing loans made to railroads, farmers, home owners, foreign governments, etc.; and receipts evidencing United States subscriptions to the International Bank for Reconstruction and Development and to the International Monetary Fund. The net face value of these securities amounted to $18,321 million; and the principal amount of obligations of foreign governments arising out of World War I amounted to $12,660 million. A stateinent of the securities owned at the end of the flscal year 1950, exclusive of World War I foreign government obligations, is shown in table 73, together with an explanation of each increase or decrease during the year. TAXATION DEVELOPMENTS No major revenue legislation was enacted during the flscal year 1950. A tax revision bill (H. R. 8920) was passed by the House on June 29, 1950, but developments in Korea led to substantial changes in the bill and the Revenue Act of 1950 was not approved flnally until September 23, 1950. Section I which follows summarizes the suggestions for the 1950 tax program made to the Congress by the President and the Secretary of the Treasury and describes the major provisions of the Revenue Act of 1950. Section I I summarizes the Social Security Act Amendments of 1950 which were approved on August 28, 1950. Miscellaneous revenue legislation taking effect during the flscal year is listed in exhibit 24. I. R E V E N U E A C T OF 1950 A . THE P R E S I D E N T ' S REVENUE PROGRAMS The President's special tax message to the Congress on January 23, 1950, included two major recommendations: (1) T h a t excise taxes be reduced to the extent, and only to the extent, that the resulting loss in revenue could be replaced by closiag loopholes in the present tax REPORT ON OPERATIONS 35 laws, and (2) that additional revenues of $1 billion be provided by revising and improving the corporation income tax and the estate and gift tax. In addition, he reconamended certain revisions with respect to taxation of income derived from foreign investments which were designed to facilitate the extension of flnancial and technical assistance to underdeveloped regions of the world under, the Point Four Program; (See exhibit 19.) Secretary Snyder appeared before the House Committee on Ways and Means on February 3, 1950, to discuss the details of the President's program. He emphasized the necessity for limiting the amount of excise tax reduction and specifled as most urgently in need of reduction the excises on transportation of property and persons, long distance telephone and telegraph communications, and the retail excises. I n the interest of tax equity, he recommended that the manufacturers' excise tax on radios be extended to television. He discussed in detail the loopholes which, should be closed to provide replacement revenues for excise tax reduction. (See exhibit 20.) Recommendations regarding corporate income tax revision iacluded an iacrease in the general corporate rate from 38 to 42 percent, elimination of the '^notch rate," and extension of the period for carrying over losses tlirough provision of a flve-year carry-forward and a oneyear carry-back in place of the two-year carry-forward and two-year carry-back. With respect to revision and strengtheniag of estate and gift taxes, the Secretary suggested correction of four major weaknesses: (1) The overly favorable treatment of property placed in trust for several generations, (2) the opportunity to escape the higher estate tax rates by making gifts subject to lower tax rates, (3) the large exemptions, and (4) the iaeff ecti ven ess of the present rate schedule. On June 29, 1950, the House passed the tax revision bill, H. R. 8920, which provided excise tax reduction on a substantial list of comriiodities and services. Replacement revenues were to be obtained from closing tax loopholes and from an increase iii the corporation income tax. Provision was made also for exteirision of income tax withholding to dividends at a flat 10 percent rate and for a gradual speed-up of corporate tax payments over a flve-yeai* period. The Senate Committee on Finance began hearings on H. R. 8920 on July 5, 1950, with the understanding that action on the bill could be halted if iaternational' developments indicated it would be unwise to proceed with the legislation. The Secretary appeared before the Committee on the opening day to discuss the House bill on the basis of this understanding. (See exhibit 21.) A few days later, July 11, the Secretary recommended to the Chanman of the Committee that action on H. R. 8920 be suspended. 36 195 0 REPORT OF THE: SECRETARY OF T H E TREASURY On July 25, 1950, the President in a letter to the Chairman of the Senate Coramittee on Finance recommended that, as an interim revenue measure, action should be taken immediately to revise and enact the tax bill so as to increase tax collections substantially for the taxable year 1950. (See exhibit 22.) The President's recommendations for interim tax legislation were discussed in the Secretary's statement of August 2, 1950, before the Senate Finance Committee. (See exhibit 23.) I t was suggested that H. R. 8920 serve as the basis for the legislation with the following adjustments: (1) Eliminate the excise tax reductions and other revenue-losing sections in the bill but retain the provisions for closing loopholes, withholding of dividends, and life insurance company taxation, (2) increase the corporation income tax rates in the bill, effective for 1950 incomes by an additional four percentage points, making the top rate 45 instead of 41 percent, as provided in the bill, and (3) increase individual income taxes, effective October 1, 1950, by removing for 1950 incomes one-quarter of the reductions made by the Revenue Acts of 1945 and 1948 and by eliminating such reductions entirely, beginning with the year 1951. The Senate Finance Committee began work on the proposals in executive sessions on August 3 and reported a bill on August 22, With few major changes, this bill became the Revenue Act of 1950. B. PROVISIONS OF THE ACT The Revenue Act of 1950 increased individual and corporation income tax rates and made a number of other revisions in the income tax, estate tax, and excise tax provisions. 1. Individual income tax a. Rates.—The act increased individual income tax rates at all income levels by eliminating the percentage reductions from ^'tentative tax" which were in effect during 1948 and 1949. The combined normal and surtax rate was thus increased from 16.6 to 20 percent in the flrst taxable iacome bracket and from 82.1 to 91 percent ia the top bracket. The maximum effective rate limitation was increased from 77 to 87 percent. (See exhibit 26 for detail of rates.) The income-splitting provisions and the increase in exemptions enacted in 1948 were retained. Tax liabilities and effective rates uhder the Revenue Acts of 1948 and 1950 are compared in exhibit 25. The full increase in rates applies to incomes in 1951 and subsequent years. Approximately one-quarter of the increases were applicable to calendar year 1950 incomes. The withholding rate applicable to wages and salaries in excess of personal exemptions was iacreased from REPORT ON OPERATIONS 37- 15 to 18 percent, beginning with October 1, 1950, in order to keep collections on a current basis for those subject to withholding. The increase in tax liabilities of individuals under the act is estimated at $700 million on 1950 incomes and $2.9 billion on 1951 incomes. b. Exclusion for members of the armedforces.—The act provided special income tax treatment for members of the armed forces while serving in combat zones. All pay of enlisted men and warrant officers and the flrst $200 per month paid to commissioned officers is excluded from taxable income. The President is authorized to designate as a combat zone any area in which armed.forces of the United States engage in combat in the period from June 24, 1950, to December 31, 1951. ' 2. Corporation income tax a. Rates.—The act made an important change in the structure of corporation "income tax rates. Under prior law, a '/notch r a t e " of 53 percent was provided to bridge the gap between the lower.rates applicable to incomes under $25,000 and the general rate on incomes of $50,000 or more. Under the 1950 act, rates were increased and the ''notch r a t e " was entirely eliminated by the adoption of a simple dual rate system as follows: a normal tax of 25 percent applicable to the proflts of all corporations, and a surtax rate of 20 percent applicable to proflts in excess of an exemption of $25,000. Thus, the rates became 25 percent on incomes below $25,000 and 45 percent on amounts of income's in excess of $25,000. The combined effect of the higher rates and the elimination of the "notch" was a relatively small increase in tax for corporations with net incomes under $31,250, incidental reductions for corporations with net incomes between $31,250 and $71,400, and a general increase ranging up to 7 percentage points for larger corporations. The new rates apply in full to taxable years beginniag after June 30, 1950. A transition schedule was provided for the calendar year 1950 consistiag of a normal tax of 23 percent applicable to entire proflts and a surtax of 19 percent on incomes above $25,000. For flscal years beginning before July 1, 1950, and ending after June 30, 1950, the old rates applied to income allocated to the period prior to July 1, 1950, and the new rates to income allocated to the period after June 30, 1950. I t is estimated that the increase in rates added about $1.5 billion of revenue on an annual basis, at calendar year 1950 income levels, after taking account of the reduction in individual income taxes resulting from the estimated reduction in dividend payments. 38- 195 0 REPORT OF THE SECRETARY OF THE TREASURY b. Acceleration of tax payments of corporations.—The act also provided for acceleration of tax payments of corporations. Beginning with taxable years ending on or after December 31, 1950, corporations are to speed up payments gradually over a 5-year period until they are on a two-installment (instead of the present four-installment) basis. When the two-installment system is iullj effective, one-half the corporation iricome tax will be collected 6 months earlier than under prior law. While the speed-up of corporation tax payments does not increase corporation tax liabilities, it will increase collections of the Federal Goverriment ia the flscal years 1951-55. I t is estimated that flscal year 1951 tax receipts will be increased by $856 million; receipts in each of the four succeeding flscal years will increase by a somewhat larger amount. c. Carry-forward of business losses.—The provisions respecting carryovers and carry-backs of net operating losses were amended to provide for a system of one-year carry-back and a flve-year carry-forward instead of the former two-year carry-back and two-year carry-forward. The effect of this change is to extend the period over which business income may be averaged from 5 to 7 years. d. Life insurance company taxation.—The formula used in determining the income taxes of life insurance companies was revised for the years 1949 and 1950. This new formula, which is the same as that contained in House Joint Resolution 371, 81st Congress, second session, was designed as a stopgap to provide a tax contribution by life insurance companies pending the development of a permanent solution to this problem. (The operation and effect of this formula are explained in detail in Senate Report No. 1434, 81st Congress, second session,.accompanying House Joint Resolution 371.) * . e. Amortization of emergency facilities.—The act provides special amortization with respect to emergency facilities completed after December 31, 1949, which are certifled as essential to national defense by the certifying authority designated by the President. Taxpayers erecting new defense facilities will be allowed to write off, over a period of flve years, the portion of the cost of such facilities which is certifled as attributable to defense purposes. Gains from sale of emergency facilities will be subject to tax at ordinary rates, rather than at capital gains rates, to the extent that they represent the difference between the special amortization deductions and ordinary depreciation. f. Excess profits tax resolution.—The Joint Committee on Internal Revenue Taxation was directed to make a full and complete study of the problems involved in the taxation of excess proflts. The House REPORT ON OPERATIONS 39 Committee on Ways and Means and the Senate Committee on Finance were also directed to report out an excess proflts tax bill (retroactive either to July 1 or October 1, 1950) as soon as practicable after November 15, 1950. 3. Tax-exempt organizations and charitable trusts The act provides, under carefully specified conditions, for the imposition of income taxes on business income of educational, charitable, and certain other tax-exempt organizations, foundations, and trusts. Restrictions were placed on the accumulation or investment of income by certain exempt organizations or trusts and also on the transactions of these entities with donors or founders. As a corollary, deductions for income, estate, and gift tax purposes are denied to donors to organizations which engage in prohibited transactions. The act makes subject to income tax business income, in excess of $1,000, of certain tax-exempt organizations, largely so-called charitable and educational organizations, if the business is not substantially related to the-performance of the functions upon, which the organization's exemption is based. Certain rental income, generally that accruing from so-called purchase and leaseback transactions, is included in unrelated income. Paralleling the changes for charitable and educational organizations is the provision that the unlimited charitable deductioa allowed to trusts may no longer be taken with respect to income from^ any regularly carried on trade or business and certain rental income. The act also makes explicit that charitable and similar organizations will not be exempt if they engage in specifled flnancial transactions favoring substantial contributors or founders, their families, or corporations controlled by them. In addition, a trust engaging in the prohibited transactions is not allowed the unlimited charitable deduction but is limited to a deduction of 15 percent of net income. Denial of exemption from income tax or of the unlimited charitable deduction is also provided if accumulations of income are unreasonable in amount and duration, are used to a substantial degree for other than exempt purposes, or are invested in a manner to jeopardize the performance of the exempt function. As a corollary, when exemption is denied or the unlimited charitable deduction is not permitted, gifts or bequests will not be allowed as a charitable deduction to the donor or to the decedent's estate for income, estate, or gift tax purposes. Provision was made also for the flling of information returns showing such items as income, expenses, and charitable disbursements, in the case of foundations and certain other charitable organizations, and trusts claiming unlimited charitable deductions. The returns are to be available for public inspection. ^ 40 19 50 REPORT OF THE: SECRETARY OF T H E TREASURY 4. Capital gains and losses Several changes were made in the provisions relating to capital gains and losses, most of which were directed at loopholes which permit conversion of ordinary income into capital gains, or short-term gains into long-term gains. One amendment provided in effect that the income realized by amateur artists and authors by the sale of their work will be taxed at ordinary income tax rates instead of receiving capital gains treatment. Rules were provided as to the tax consequences of certain short sales of property. Where a sale of substantially identical property is made, and thereafter simultaneous "long" and "short" positions are maintained so as to give an actual short-term transaction the • appearance of a long-term transaction, any resulting gain will be treated for tax purposes as short-term gain. Provisions were added which were designed to close the loophole resultirig from use of tlie device of the ^'collapsible" corporation to convert ordinary income into long-term capital gain. Gains from the sale or exchange (including liquidation) of stock in ''collapsible" corporations will be taxed as ordinary income if (a) the stockholder owns 10 percent or more of the stock, (b) more than'70 percent of the gain on the stock is attributable to the property produced by the corporations, and (c) the gain is realized within three years after the prop(^rty is produced. Capital gains of nonresideat aliens not engaged in trade or busiaess in the United States will be subject to tax, at a 30 percent rate, if they are in this country temporarily. Those present in the United States for less than 90 days in the year will be taxed only on gains realized during this period. Those present for more than 90 days will be taxed on all their gains from transactions in this country during the taxable year. 5. Estate tax Transfers by gift made more than three years before death will not be subject to tax as a transfer in contemplation of death. In the case of a transfer made less than three years before death, the'burden of proof that it was not made in contemplation of death rests on the estate. • The deduction for support of a decedent's dependents during settlement of the estate was eliminated. Proceeds of insurance purchased by a decedent upon his own life with premiums paid before January 10, 1941, will not be included in his gross estate by reason of his retention of a reversionary interest after that date unless this interest arose by the express terms of the life insurance policy or other instrument, and at some time after REPORT ON OPERATIONS 41 January 10, 1941, had a value in excess of 5 percent of the value of the policy. • ^ 6. Excise taxes The act includes a number of excise tax amendments, the most important of which are provisions for extending the 10 percent manufacturers' tax on radios to television sets and the 10 percent manufacturers' tax on refrigerators to deep freeze units. The annual occupational tax on coin-operated gaming devices was increased from $100 to $150, The taxes on transportation of property and persons were extended to cover payments made outside the United States for travel which begins and ends in the United States or for tKe transportation of property from one point in the United States to another. To avoid discrimination against regular retail sales outlets, sales of fur and jewelry at auction on behalf of a person not engaged in the business of selling these articles were made subject to the retail taxes. However, an exemption was granted for the flrst $100 for fur and jewelry sold at auction at the home of a person on whose behalf the sale takes place. Articles sold at retail by the United States or by any of its instrumentalities or agencies,. such as post exchanges and,ships' service stores, were made subject to the retail taxes. 7. Miscellaneous income tax amendments The act also made a number of amendments to the income tax provisions of the Internal Revenue Code. Dealers in tax-exempt securities will be requir3d to amortize premiums paid with respect to "short-term municipal bonds" which are held more than 30 days and have a maturity or call date not more than 5 years from the date of acquisition. The privilege of amortizing a bond premium will be denied where the -premium is attributable to a conversion feature of the bond. Newspapers and periodicals will be permitted to deduct as ordinary expenses all expenditures incurred in connection with building up circulation except expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of other newspapers or periodicals. Filing and payment dates for flduciaries of estates and trusts are changed. Tax withheld at source on the income of nonresident aliens and foreign corporations will be paid on or before March 15 instead of June 15. 42 19 5 0 REPORT OF THE: SECRETARY OF THE TREASURY The act restores, with respect to certain corporate distributions made pursuant to liquidations during 1951, the provisions relating to election by stockholders as to recognition of gain. Gross income from mineral properties, which is the basis for computing percentage depletion, may include transportation expenses to plants in which ordinary treatment processes are applied, if the plants are not more than 50 miles from the mine. Transportation for a greater distance may be allowed under a determination by the Secretary of the Treasury that it is necessary to transport the mineral a greater distance to the plant. Rules are provided for the treatment as taxable dividends of certain corporate distributions by a subsidiary corporation to its stockholders in payment for stock in its parent corporation. Corporate distributions in redemption of stock included in a decedent's gross estate, if made for the purpose of paying death taxes, will not be treated as taxable dividends. Anew section is added to liberalize the tax treatment of the income realized by an individual as a result of the exercise of certain types of stock options granted by his employer corporation. A number of amendments were made with respect to the application of the income tax to citizens arid aliens resident ia Puerto Rico. Regulated investment companies will be permitted to treat as dividend distributions duruig the taxable year certain dividends declared after the close of the year. IL SOCIAL SECURITY ACT AMENDMENTS OF 1950 The Social Security Act Amendments of 1950 which were approved on August 28, 1950, had been under consideration in Congress since early in 1949. The President in his Message on the State of the Union on January 5, 1949, recommended to the Congress that the social security program be expanded both as to size of beneflts and extent of coverage. Following extensive public hearings on the Administration's social security program before the House Committee on Ways and Means, Chairman Doughton introduced H. R. 6000. The House passed the measure on October 5, 1949. The Senate Committee on Fiaance held public hearings on the bill early in 1950. An amended bill was passed by the Senate on June 20, the conference committee flled its report on August 1, and the act was flnally approved on August 28, 1950 (Pubhc Law 734, 81st Congress). The most important changes made by the law relate to the oldage and survivors insurance system and to the public assistance and child welfare provisions of the Social Security Act. Coverage under REPORT ON OPERATIONS 43 old-age and survivors insurance was extended to about 10 million additional persons. The new categories include nonfarm . self-employed, domestic workers, regularly employed farm workers, employees of nonproflt organizations (voluntary coverage), employees of State and local governments (voluntary coverage except for a small number of transit workers who would be compulsorily covered). Federal civilian employees not under a retirement system, employees outside the United States, employees in Puerto Rico and the Virgin Islands, and certain other groups, such as salesmen and industrial home workers, which were speciflcally included in the new deflnition of "employee," The new coverage provisions are effective January 1, 1951. • Beneflts were increased for those currently receiving beneflts by about 77K percent on the average. Increases ranged from about 50 percent for the highest beneflt group to about 100 percent for the low beneflt groups. * The average primary beneflt of approximately $26 per month for a retired insured worker was increased to about $46. Beneflt increases became effective September 1950.' A new beneflt formula for persons retiring in the future was adopted. Beneflts based on the new formula were to be paid flrst in May 1952. Persons coming on the rolls before that time would have their beneflts computed under the present formula, together with the increases provided for those now receiving beneflts. Average beneflt. amounts in the next decade would be about 110 percent higher than under existing law. , Eligibility requirements for insurance beneflts were revised so that many persons now 65 or over would be able to draw retirement beneflts ioimediately and the aged in the newly covered groups would be able to qualify more quickly for benefits. Major revisions were made in the flnancing provisions of old-age and survivors insurance. The maxiaium amount of annual earnings subject to tax was iacreased from $3,000 to $3,600, beginning January 1, 1951. The payroll taxes on employers and employees would remain at the present Iji percent rate on each until January 1, 1954. The rates on each thereafter would be: 1954-59, 2 percent; 1960-64, 2}^ percent; 1965-69, 3 percent; 1970 and thereafter, 3% percent. The rate for self-employed would be IK times the above rates or % of the combined employee-employer rates. A number of amendments were made to the public assistance and child welfare programs. Federal aid to the States for these programs would be increased by about $180 million to $200 million annually. The provisions for Federal loans to State unemployment insurance agencies was extended for the two years 1950 and 1951. 44 195 0 REPORT OF THE SECRETARY OF THE TREASURY I N T E R N A T I O N A L F I N A N C I A L A N D MONETARY DEVELOPMENTS In the course of the flscal year under review'many countries, particularly in Europe, made substantial progress in restoring their economies. The physical volume of production generally increased, and important steps were taken toward bringing the world economy into better balance. The devaluation of currencies taking place in September 1949 was the most conspicuous of these steps. The course of steady adjustment in the postwar world continued through most of the year, and progress was made toward greater balance in iaternational trade and payments. Shortly before the close of the flscal year the invasion of the Republic of Korea presented the countries of the free world with a new range of problems. I t made clear the necessity for more extended defense measures, which are having important repercussions on international monetary and flnancial affairs. U N I T E D STATES ECONOMIC ASSISTANCE PROGRAMS United States economic assistance, from all sources, to countries participating in the European Recovery Program in the flscal year 1950 aggregated $4.0 billion, compared with $5.0 billion utilized in 1949. As originally expected, the need for extraordinary assistance from the United States was greatest in the initial period of the program when the European economies lacked essential foodstuffs and raw materials to keep their economies in operation and to restore their standards of living. Consequently, a tapering oft' of United States assistance, contemplated from the beginning, was carried into effect in the course of the flscal year. An important change in the form of United States assistance to Europe was the increasing proportion made available in grants. In the flrst appropriation made under the Economic Cooperation Act, $4.0 billion was provided to be used as loans or grants by the Administrator in consultation with the National Advisory Council. The act also made available a sum of $1.0 billion derived from public debt transactions which could be used only for makiag loans and guaranties.-^ The laws governing operations in the flscal year 1950 provided $150 million restricted to loans. The legislation continuing the program for 1951 eliminated a mandatory requirement of loans as part of the European Recovery Program. In the flscal year 1950 assistance utilized by the participating countries under the program amounted to $3.4 billion. Of this sum, $2.7 billion was in the form of grants, about $586 million in the form of conditional aid, and $132 million in the form of loans. 1 Of this amount J300 million was made available for guaranties of exchange convertibility of income and repatriation of American private capital investments in E R P countries. REPORT ON OPERATIONS 45 In addition to assistance voted to the European countries by the Congress, appropriations were made for economic assistance to nonEuropean countries, principally in Asia. There was a special program for economic recovery in Korea administered by the Economic Cooperation Administration for which appropriations for the flscal year were $120 million. There w^ere other programs of assistance to Asiatic countries, principally Japan and the Philippines. The total assistance utilized by all Asiatic countries totaled $614 million in grants and $94 million in credits. TECHNICAL ASSISTANCE The President's Point Four Program has the objectives of extending technical assistance and encouraging capital investment in-the underdeveloped areas of the world. In June 1949 the President, in a message to the Congress, recommended enactment of legislation to authorize the program, and implementiag bills were introduced in the Congress. Extensive hearings were held during 1949, but Congress adjourned before action was taken on the proposed legislation. During 1950 the technical assistance program was considered by the Congress and included in title IV of the Foreign Economic Assistance Act of 1950 as the Act for International Development. The Congress authorized $35.0 million for the purpose of the Point Four Program. Under the technical assistance program the United States will, in some cases, provide funds to the United Nations and other international agencies, and in other cases will make cooperative agreements with particular countries. These programs will thus be, in part, an extension of activities already in effect. Certain existing technical assistance programs with special objectives, such as those under the Econoniic Cooperation Administration, will not be included under the new authority. EUROPEAN RECOVERY The countries participating in the European Recovery Program as a whole continued to raise their levels of production. By June 1950, in most instances, industrial production had exceeded prewar levels. Agricultural production also had increased considerably over the preceding years. This recovery in industrial and agricultural production was reflected, in part, by changes in the commodity composition of United States assistance to the European countries which, to an increasing degree, was directed toward supplying industrial equipment to replace worn out or obsolete capital goods and facilitating a rise in the per capita standards of living. I t also brought into clearer focus the basic problem of trade, both within Europe and between 46 1950 REPORT OF THE: SECRETARY OF THE TREASURY Europe and the United States and other parts of the world. With more production, the possibilities of economically desirable and profltable trade increased. But the expansion of trade did not keep pace with the increase in production. I t w:as for this reason that particular importance attaches to the currency readjustments and to other measures designed to increase the flow of trade. In the course of the year several of the participating countries made further progress toward internal flriancial stability as indicated by relatively stable price levels. In the second half of the year they also were able to reduce their trade deflcits with the dollar area without impairing their levels of production and standards of living. To deal with the problem of trade in Europe, the countries participating in the European Recovery Program reached an Agreement on Intra-European Payments and Compensations in October 1948. This agreement was projected to deal with the problem of intraEuropean trade under prevailing conditions of currency inconvertibility and inadequate monetary reserves. This arrangement was made at a time when the recovery; and hence the trade, of the European countries had developed at uneven rates. The mechanism established provided for the settlement of balances arising in the trade of European countries with each other by the extension of socalled "drawing rights," which the countries with a surplus would make available to countries with a deflcit on their current account transactions. The United States supported this device by making part of its assistance available to the participating countries in the form of "conditional aid," i. e., the grants to some countries were made on condition that they provide drawing rights for others. While this method did not increase the total of United States assistance, it facihtated the operation of the payments mechanism. The 1948 agreement, however, did not provide for any speciflc reduction of the trade restrictions already in existence. The European Payments Union, which came into effect in 1950, represents a more advanced attempt to deal with the problem of European trade and to fui'ther European integration. Under the new plan the countries participating agreed to undertake successive reductions in their trade barriers, while at the same time balances arising could be settled multilaterally through the payments mechanism estabhshed. The Congress, in the Foreign Economic Assistance Act of 1950, authorized the Administrator for Economic Cooperation "to transfer funds directly to any central institution . . . to be used on terms and conditions specifled by the Administrator to facilitate the development of transferability of European currencies, or to promote the liberalization of trade by participating countries with one another and with other countries." REPORT.ON OPERATIONS 47 EXCHANGE R A T E ADJUSTMENTS The rates of exchange for the currencies of the world had been set, for the most part, during the war and the period immediately following it. With changes in price levels, production, and trade, these rates, had become increasingly less satisfactory as means of bringing about equilibrium in the balances of payments of the countries of the world with each other and with the United States economy. While the International Monetary Fund provided a mechanism for the orderly adjustment of exchange rates, most countries had been reluctant to change their rates until such time as they could briag about better control of their internal flnances and until increased levels of production would enable them more easily to expand foreign trade. The pressure for exchange rate adjustment had, accordingly, increased in the postwar period and the need became greater with the slump in international commodity trade in the course of 1949. The devaluation of the pound sterling in September 1949 by 30.5 percent was followed by the devaluations of many other currencies. The extent of the adjustment varied from country to country as shown by the reports of the National Advisory Council. (See exhibit 27, infra p. 309.) The revaluation of currencies in relation to the dollar made possible the adjustment of trade with the Western Hemisphere and so contributed to the reduction in the current dollar deflcits of other countries. By the close of the flscal year trade had begun to increase again and, in some instances, countries had increased their monetary reserves. UNITED FUND AND STATES PARTICIPATION AND THE IN THE INTERNATIONAL MONETARY INTERNATIONAL BANK FOR RECONSTRUCTION DEVELOPMENT The National Advisory Council, established by the Bretton Woods Agreements Act, continued to exercise its function of coordinating the activities of the United States representatives on these international bodies with the activities of the fiaancial agencies of the United States Government. In accordance with law, the Council submitted its semiannual reports and its Second Special Report (biennial) on the Fund and the Bank (see exhibits 27, 28, and 29). The International Monetary Fund has as one of its purposes "to assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade." The Articles of Agreement provide, however, for an initial transitional period duriag which restrictions already in effect can be continued. After 1952 the Fund must be consulted on the 907795—51 5 48 '19 50 REPORT OF THE: SECRETARY OF T H E TREASURY retention of restrictions on' current account transactions. As one of the steps in carrying out its responsibilities, the Fund presented its first annual report on exchange restrictions (March 1, 1950) in accordance with the requirements of its Articles. Wliile this report regretfully notes the relatively slight progress made since the war in elinainating such restrictions, the Fund's comprehensive study of the. regulations in force is a step toward the realization of one of the Fund's basic objectives. . The International Monetary Fund has coritinued to play an important role in advising its members on international exchange and monetary problems. At the request of its members, it has sent missions to them and consulted with the governments in the adjustment of exchange rates, currency controls, and exchange practices. The exchange adjustments which took place in 1949 were made in accordance with the Fund's Articles and in agreement with the Fund, after extensive studies of the problem by the member countries, as well as the Fund. In view of the conditions which prevailed through this period', the Fund's exchange transactions were relatively small. The importance of its activities, however, should not be measured in terms of the amount of currency sold, but rather in terms of the Fund's influence on the development of a code of fair practice in the fleld of international currency and exchange arrangements. As shown iri greater detail in the reports of the National Advisory , Council, the International Bank for Reconstruction and Development expanded its loans in the course of the year, especially for economic development programs, e. g., India, Mexico, Brazil, El Salvador, and Iraq. In the course of the flscal year new loans aggregating $166.3 million (less cancellations of $7:4 million) were made by the Bank. These loans were flnanced in large part from the United States subscription. The Bank has also floated its securities on the. United States market and in January 1950 refunded an earlier issue of $100 million of its bonds and so reduced the cost of funds borrowed in our markets. In the course of the year the Banl^ further expanded its technical assistance activities in the member countries b}^ sending missions to assist them in formulating development programs and to supply technical assistance in other related flnancial matters. T H E EXPORT-IMPORT B A N K OF WASHINGTON The Export-Import|Bank bf Washington, as the agency of the United States Government established to make foreign loans, has consulted with the Council on proposed credits. During the flscal year the Export-Import Bank authorized new credits totaling approximately $405.5 million, principally loans to Latin American countries REPORT ON OPERATIONS 49 and Indonesia. The Bank also continued to administer the loans under the Foreign Assistance Act of 1948, as amended,, on behalf of the Economic Cooperation Administration. ; T H E U N I T E D STATES-MEXICAN STABILIZATION AGREEMENT In 1947 the Secretary of the Treasury made an agreement for the stabilization of the Mexican peso-dollar exchange rate whereby inter alia the Treasury undertook to purchase, on request, pesos up to the equivalent of $50 million. In 1948 Mexico ceased to support the par value of the peso. In June 1949, following the acceptance by the International Monetary Fund of a new par value of 8.65 pesos to the dollar, the Secretary entered into a Supplemental Stabilization Agreement which added $12 million to the $13 million remaining unutilized under the original agreement. Mexico did not flnd it necessary to sell pesos to the Stabilization Fund under this supplemental agreement. The experience of Mexico under the new rate has been notably successful as indicated by the substantial increase in its monetary reserves. On January 2, 1950, Mexico repurchased pesos from the United States Stabilization Fund in, an amount equivalent to $22 million, and, after the close of the flscal year, an additional sum of pesos equivalent to $15 million. Thus all of the pesos previously purchased by the Stabilization Fund have been repurchased by Mexico. The Stabilization Agreement continues in effect until July 1, 1951. GOLD POLICY AND TRANSACTIONS During the year the Treasury maintained without change its policy of standing ready to buy gold at the official price of $35 per flne troy ounce from all legal holders and also to sell gold freely, at the official price, to foreign governments and central banks for all legitimate monetary purposes. A handling charge of )^ of 1 percent is applied to both types of transactions. ^The Treasury also continued to sell gold for industrial, professional, and artistic purposes. Concrete evidence of the improvement in the international financial positions of other countries as a whole appeared during the fiscal year in the monetary gold transactions of the Treasury. Iri the fiscal years 1947, 1948, and 1949, net sales of monetary gold by foreign countries to the United States Treasury totaled $1.8 billion, $2.5 billion, and $1.0 billion, respectively. Net sales at such rates could not have been kept up for very long. In the fiscal year 1950, gross sales of gold to the United States decreased to $422.7 million, and gross purchases of gold from the United States by foreign governments and central banks increased to $706.8 miUion, leaving a net 50 195 0 REPORT OF THE: SECRETARY OF THE TREASURY movement to other countries of $284.1 milhon. The turning point from a net movement of gold to the United States to a net movement from the United States coincided with the currency devaluations in September 1949, but the change at that time was a^' continuation of trends toward increasing foreign purchases of gold from the United States and decreasing foreign sales of gold to the United States, which were already clearly in evidence. The gold and short-term dollar assets of foreign countries (exclusive of the Soviet Union and international organizations) dropped from $19.9 billion on June 30, 1945, to $14.7 billion on June 30, 1949, and then rose to $16.6 billion by June 30, 1950. Thus, in the last year there has been some reconstruction of reserves on the part of some countries, but it has not as yet progressed to the point where most countries have reestablished reserves equal to those formerly maintained. The gold stock of the United States on June 30, 1950, was $24.2 billion. ESTIMATES OF RECEIPTS (On the basis of existiag legislation) The Secretary of the Treasury is required each year to prepare and submit ia his annual report to the Congress estimates of the public revenue for the current fiscal year and for the fiscal year next ensuing (Public No. 129, 59th Congress, February 26, 1907). The estimates of receipts from taxes and customs are now made by the Treasury Department each year on the basis of legislation existiag at the time of making the estunates. The estunates of miscellaneous receipts are prepared hi general by the agency deposituig the receipts in the Treasury. The details of estimated and actual receipts are shown in table 116, which includes receipts under proposed legislation. The term "net budget receipts" as used ia this report has the same significance as the term "budget receipts" used in the Budget document. TOTAL AND N E T BUDGET R E C E I P T S Net budget receipts are estiraated to be $44,511.9 million in the fiscal year 1951 and $55,138.4 million in the fiscal year 1952. The amount estimated to be received ia 1952 represents the all-time peak in receipts and is $10,376.8 million greater than the previous record of $44,761.6 million received in 1945. The estimated iacreases in receipts in 1951 and 1952 result prunarily from the estimated large increases in receipts from the corporation iacome and excess profits taxes and the individual uicome tax. Total receipts (daily Treasury statement'^basis), before deductions for refunds and appropriation to the Federal old-age and survivors RE.PO'RT ON 51 O'PE'RATIONS insurance trust fund, are estimated in the amounts of $49,807.5 million in 1951 and $61,664.3 million in 1952. Both estimates represent substantial increases over actual total receipts of $41,310.6 million in 1950. As shown in the following table of percentage distribution, the individual income tax and corporation income and excess profits taxes continue to be by far t h e two most important sources of receipts. The corporation tax remains the lesser of the two but shows a decided gain in the fiscal year 1952. As a result of the large increases in receipts from individuals and corporations, miscellaneous internal revenue shows a decline percentagewise in both the fiscal years 1951 and 1952, although increasing in absolute amount for both years. Employment taxes show a steady increase from 1949 principally as a result of iacreases in the tax rates and coverage. Customs receipts, although uicreasuig in absolute amounts, are estimated to decluie as a percentage of total receipts in 1952. Miscellaneous receipts are expected to decline percentagewise in both 1951 and 1952. Percentage distribution of total receipts, by sources Actual, 1949 Source Individual income tax Corporation income and excess profits taxes Miscellaneous internal revenue Employment taxes i Customs Miscellaneous receipts Estimated, Estimated, 1952 1951 42,0 27.0 19.5 5,8 ,9 4,8 42.1 26.3 20.1 7.0 LO 3.5 43.3 27.2 18.0 . 7.6 L2 2.7 42.2 32,4 14.6 7.6 LO 2,2 100.0 100.0 100.0 100,0 •.. _. Totalreceipts Actual, 1950 1 Includes Railroad Unemployment Insurance Act receipts. FISCAL Y E A R 1951 Actual receipts in the fiscal year 1950 and estimated receipts in 1951 are compared by major sources in the following table. • Source Actual, 1950 Estimated, 1951 Increase, or decrease (—) I» millions of dollars Individual income tax Corporation income and excess profits taxes Miscellaneous internalrevenue Employment taxes L Customs.. Miscellaneous receipts 17.408.3 10.854.4 8.303.1 2,892.0 422.7 1.430.2 21, 599.0 13, 560.0 8,950.0 3,773.8 600.0 1,324,7 4,190.7 2, 705,6' 646.9 881.8 177.3 -105,6 Totalreceipts.. Deduct: Appropriation to Federal old-age and survivors insurance trustfund Refunds of receipts . 41,310.6 49,807.5 8,496.9 2,106.4 2,169. 5 2,960.0 2,335. 5 853,6 176.0 37,044. 7 44, 511.9 • 7,467.2 Net/budget receipts ._._.. 1 Includes Railroad Unemployment Insurance Act receipts. 52 1950 REPORT OF THE: SECRETARY OF THE TREASURY Net budget receipts in the fiscal year 1951 are estimated to amount to $44,511.9 million, an increase of $7,467.2 million over actual net budget receipts in 1950. All major tax sources of receipts contribute to the increase. The largest estimated increases are in the individual income tax and corporation income and excess profits taxes. Individual income taxes.—^^The details of the yield of the individual income tax are shown in the following table. Actual, 1950 Source Estimated, 1951 Increase In millions of dollars Withheld Not withheld. Total individual income tax . _ 10,073.2 7,335.1 13, 202.0 8,397. 0 3,128.8 1,061.9 17,408.3 21, 599. 0 4,190.7 Receipts from income tax withheld are estimated to iacrease sharply as a result of an estimated increase in salaries and wages and the iacreased withholding tax rates enacted by the Revenue Act of 1950 which were increased effective October 1, 1950. Receipts from income tax not withheld are estimated to increase as a result of expected higher levels of income and the increased tax rates effective on calendar year 1950 incomes under the Revenue Act of 1950. The Revenue Act of 1950 increased individual income tax liabilities substantially for the calendar year 1951 and increased calendar year 1950 liabilities by approximately one-quarter of this amount. Individual income tax receipts not withheld for the fiscal year 1951 represent principally calendar year 1950 liabilities and therefore do not refiect the full effect of the Revenue Act of 1950. Corporation income and excess profits taxes.—Corporation taxes in the fiscal year 1950 reflect iacomes of the calendar years 1948 and 1949, while receipts in the flscal year 1951 reflect iacomes of the calendar years 1949 and 1950. > The substantial increase of $2,705.6 million in receipts estimated for the flscal year 1951 over actual collections of $10,854.4 million in 1950 is attributable to several factors. Corporation iacomes in the .calendar year 1950 were at a very high level. In addition, several changes in the laws affecting income and excess proflts taxes on corporations will result in increased collections from this source. The Revenue Act of 1950 iacreases tax rates on incomes for the taxable year 1950 up to four percentage points. I t also provides for an acceleration in corporation tax payments, which will result ia a larger proportion of the 1950 tax liability being collected in the fiscal year 1951. A second revenue measure, the Excess Profits Tax 53 REPORT OlS^ OPERATIONS Act of 1950, approved January 3, 1951, reuistituted an excess profits tax, which will affect approximately one-half of the 1950 iacome. Miscellaneous internal revenue.—Collections from this source.by major groups are listed in the following table. ^ Actual, 1950 Estimated, •' 1951 Increase, or decrease (-) Source In millions of dollars Estate and gift taxes ^. Liquor taxes .. Tobacco taxes Stamp taxes Manufacturers' excise taxes Retailers' excise taxes ._ Miscellaneous taxes Adjustment' to daily Treasury statement basis Total miscellaneous internal revenue 706.2 2, 219. 2 1, 328. 5 84.6 1,826. 7 409.1 1, 721. 2 +7.5 710.0 2, 396.0 1,365.0 107.0 2, 088.0 455.0 1, 829.0 3.8 176.8 36.5 22.4 261.3 45.9 107.8 -7.5 8, 303.1 8, 950.0 646. 9 Estate and gift tax collections are estimated to increase slightly in the fiscal year 1951. The large increase in estimated receipts from the excise taxes in 1951 over actual receipts in 1950 refiects anticipated higher levels of income. Contributing to the increase are the war-scare purchases a t t h e outbreak of the Korean conflict, especially in the manufacturers^ excise taxes and liquor taxes. Collections from the other excise taxes reflect current consumption trends. Employment taxes.—Receipts from the various employment taxes are summarized in the following table. • Actual, 1950 Source Estimated, 1951 Increase Inmillions of dollars Federal Insurance Contributions Act Federal Unemployment Tax Act .-. Railroad Retirement Tax Act Railroad Unemployment Tnsnrancft Act i 2,106.4 226.3 550.2 9.1 2,960.0 239.0 565.0 9.8 853.6 12.7 14.8 .7 Total employment taxes.• Deduct: Appropriation to Federal old-age and survivors insurance trustfund 2, 892.0 3,773.8 881.8 2,106.4 2, 960.0 853.6 785.6 813.8 28.2 Net employment taxes.. 1 Not classified as an employment tax under the Internal Revenue Code. The estimated increase in employment tax receipts in the flscal year 1951 is attributable primarily to the increase in receipts under the Federal Insurance Contributions Act. Receipts from this tax reflect the full-year effect of the iacrease in the tax rate from 1 percent to IK percent each on employer and employee, effective January 1, 1950; and, in addition, collections in the latter part of the flscal year 1951 will be affected by two important changes effective January 1, 1951. These are an uicrease in the tax base limitation from $3,000 to $3,600 and a signiflcant extension of coverage. Receipts from all 54 1950 REPORT OF THE: SECRETARY OF THE: TREASURY employment taxes are expected to increase because of anticipated higher salaries and wages.. Customs.—Customs receipts are estimated to amount to $600.0 million in the> flscal year 1951, an increase of $177.3 iriillion over actual receipts of $422.7 million in 1950. Miscellaneous receipts.—Miscellaneous receipts are estimated to be $1,324.7 million in the flscal year 1951, a decrease of $105.5 million from 1950. Refunds of receipts.—Refunds of receipts are estimated to be $2,335.5 milhpn in the flscal year 1951 as compared with $2,159.5 million in 1950. FISCAL YEAR ' 1952 Estimated receipts in the flscal years 1951 and 1952 are compared by major sources in the following table. Estimated, Estimated, 1951 1952 Increase Source In millions of dollars Individual income tax Corporation income and excess profits taxes.. Miscellaneous internal revenue . Employment taxes i _ Customs. Miscellaneous receipts... 21, 599.0 13, 560.0 8, 950. 0 3, 773.8 600.0 1, 324. 7 26, 025.0 20, 000.0 8, 977. 0 4, 709.0 620.0 1, 333.3 4, 426.0 6, 440. 0 27.0 935.2 20.0 Totalreceipts .„ Deduct: Appropriation to Federal old-age and survivors insiirance trust fund Refimds of receipts :... 49,807. 5 61, 664. 3 11, 856. 8 2,960.0 2, 335. 5 3, 823. 0 2, 702.9 863.0 367.4 44, 511.9 55,138.4 Net budget receipts.. 10, 626. 5 1 Includes Railroad Unemployment Insurance Act receipts. Net budget receipts ia the flscal year 1952 are estimated to amount to $55,138.4 million, an iacrease of $10,626.5 million over 1951 and $10,376.8 million greater than the previous peak year of 1945. All major sources of receipts contribute to the increase, with the largest increases appearing in corporation income and excess proflts taxes and iadividual iacome taxes. Individual income taxes.—The detail of the yield of the iadividual income tax is shown ui the following table. Estimated, Estimated, 1951 1952 Source Increase In millions of dollars Individual income tax: Withheld... Not withheld Total individual income tax ..... _ _ • 13,202.0 8,397.0 16,358.0 9,667.0 3,156,0 1, 270.0 21, 599.0 26,025,0 4,426.0 55 REPORT ON OPERATIONS Receipts from income tax withheld are estimated to increase by $3,156.0 million in 1952, principally because of an estimated increase in the level of salaries and wages for 1952. In addition, the flscal year 1952 reflects a whole year of withholdings at the increased rates of the Revenue Act of 1950 which are effective for approximately three quarters of the flscal year 1951. Income tax not withheld increases as a result of the higher level of income and the higher rates imposed by the Revenue Act of 1950, which are fully effective on the incomes reflected in flscal year 1952 receipts. Corporation income and excess profits taxes.—Corporation income and excess proflts taxes are estimated to amount to $20,000.0 million in the fiscal year 1952, an increase of $6,440.0 million over 1951. The large increase in estimated receipts arises from the higher level of corporate profits and from the progressively greater effects of changes embodied in the Revenue Act of 1950 and the Excess Profits Tax Act of 1950. ' The Revenue Act of 1950 increases the combined normal and surtax rates on calendar year corporations from 42 percent of 1950 net income to 45 percent of 1951 net income. The Excess Profits Tax Act of 1950. increases the corporation surtax rate by an additional 2 percent for taxable years beginning on or after July 1, 1950. The impact of the excess profits tax wiU also become progressively greater on calendar year 1951 incomes. In the calendar year 1950 the taxis proportionate to the partof the taxable year after June 30,1950, whereas all iacome for the calendar year 1951 is taxable. Collections from both the iacome tax and the excess profits tax in the fiscal year 1952 will also be increased by the continued acceleration of instaUment payments provided in the Revenue Act of 1950. Miscellaneous internal revenue.—Collections from this source by major groups of taxes are shown in the table following. Estimated, Estimated, 1961 1952 Source Increase, or decrease (—) In millions of dollars Estate and gift taxes Liquor taxes Tobacco taxes Stamp taxes Manufacturers' excise taxes Retailers' excise taxes Miscellaneous taxes _. .._ Total miscellaneous internal revenue _. . ___ _ . 45,0 173.0 26.0 710.0 2,396,0 1,365,0 107,0 2,088.0 456.0 1,829,0 . 765.0 2,569,0 1,391,0 107.0 1, 757.0 497.0 1,901,0 -331,0 42.0 72.0 8,950.0 8,977.0 27.0 All major groups except manufacturers' excise taxes and stamp taxes contribute to the iacrease ia estimated receipts from miscellaneous iaternal revenue for the fiscal year 1952. Manufacturers' 56 1.9 5 0 REP0R:T OP T H E SECRETARY OF THE TREASURY excise taxes are estimated to decline sharply as a result of expected material shortages. Other excise tax groups iacrease generally as a result of an anticipated increase in levels of uicome. Estate and gift tax collections are estimated.to continue to increase. Employment taxes.—The yields of the various employment taxes under existing legislation are shown in the following table. Estimated, 1951 Estimated, 1952 Increase Source I n millions of dollars Federal Insurance Contributions Act Federal Unemployment Tax Act Railroad Retirement Tax Act.. Railroad Unemployment Insurance Act i .. .. .. . T o t a l e m p l o y m e n t taxes . .. .. . . . D e d u c t : A p p r o p r i a t i o n to F e d e r a l old-age a n d survivors insm-ance t r u s t fund .. .. 2,960.0 239.0 565.0 9.8 3, 823.0 263.0 613.0 10.0 863,0 24.0 48,0 .2 3, 773. 8 4, 709.0 935.2 2, 960.0 3, 823,0 863.0 813. 8 886,0 72.2 Net employment taxes... 1 Not classified as an employment tax under the Internal Revenue Code. Receipts from employment taxes in the fiscal year 1952 are estimated to increase over fiscal year 1951 receipts as a result of higher levels of salaries and wages, of the full-year effect of the iacrease ia the tax base limitation from $3,000 to $3,600, and of the extended coverage under the Federal Insurance Contributions Act effective January 1,. 1951. An additional factor is that receipts in the fiscal year 1952 will reflect for the flrst time collections from the self-einployed category of the new coverage. • Customs.—Customs receipts are estimated to be $620.0 million in the flscal year 1952, an increase of $20.0 million over 1951. - Miscellaneous receipts.—^Miscellaneous receipts are estimated at $1,333.3 million in the flscal year 1952, approximately the same as 1951. Refunds of receipts.—Refunds of receipts in the flscal year 1952 are estimated to increase to $2,702.9 milhon from $2,335.5 million in 1951 as a result of the higher level of withholding tax receipts in the calendar year 1951. ESTIMATES OF EXPENDITURES Actual expenditures for the flscal year 1950 and estimated expenditures for the flscal years 1951 and 1952 are summarized in the following table. Further details will be found ui table 116. The estimates are based upon flgures submitted to the Congress ia the Budget for 1952. 57 KEPORT ON OPE'RiATTONS Actual budget expenditures for the fiscal year 1950 and estimated expenditures for 1951 and 1952 i [In millions of dollars. On basis of 1952 Budget document] Actual, Estimated, Estimated, fiscal year fiscal year fiscal year 1950 2 1951 1952 Agriculture Department: Commodity Credit Corporation Other ....._.. Atomic Energy Commission .... Civil Service Commission Commerce Department: Maritime activities Other Defense Department: Military functions.. Civil functions... Export-Import Bank of Washington . Federal Civil Defense Administration Federal Security Agency Fuiids appropriated to the President: Economic Cooperation Administration Mutual defense assistance Mutual assistance, military and ecdnomic. Other General Services Administration: strategic and critical materials.. Other...-. 1-. Housing and Home Finance Agency 3 Interior Department. Labor Department Philippine War Damage Commission Post OflB.ce Department (generalfund) Railroad Retirement Board. .. Reconstruction Finance Corrio'ration 3 . State Department 1 Tennessee Valley Authority Treasury Department: Interest on the public debt Other -. Veterans' Administration .'. Reserve for contingencies Allother ,1 Adjustment to daily Treasury statement basis. Total budget expenditures.. 1, 674.4 1,284.4 550.2 323.4 -149. 5 1,332.3 817.6 325.6 253.4 1,375.9 1, 277.0 343.2 99.8 763.3 • 766.1 364,0 761.9 11, 889.1 1,344.7 49.2 40,000.0 856.9 105.6 265.0 1, 443. 6 20,000.0 1,064.0 100.6 10.0 1, 736. 6 3, 404. 5 39.1 2, 600. 0 1, 000.0 1, 200.0 2, 500.0 3,000.0 1, 636.8 2,164. 6 183.4 554.8 438.0 136.4 -305. 0 568.4 257.0 136.3 592.7 596.3 556.5 361.2 19.2. 900.0 216.3 305.4 704.4 217.8 89.0 631.8 605.1 -79.1 353.4 170.6 1,300.0 360.9 -568.1 609.9 220.8 5, 720.4 676.0 6, 626.1 6, 625.0 774.5 5, 820.4 45.0 484.2 5,800.0 739.7 4, 912.7 175.0 522,0 47,210.5 71, 594.3 408.7 -+-329.6 40,166.8 160,0 656.0 22.7 871.9 236.6 1 These figures are derived from the 1952 Budget document. The actual figures for thefl-scalyear 1950 are based upon the Treasury's Combined Statement of Receipts, Expenditures and Balances, and therefore differ from figures published ui the daily Treasury statement. 2 Includes $11.0 million representing net investment in Federal securities by wholly owned Government corporations and agencies; such transactions are excluded from budget expenditures in the fiscal years 1961 and 1962. 3 The Federal National Mortgage Association was transferred from the Reconstruction Finance Corporation to the Housing and Home Finance Agency, eflective Sept. 7,1950. ADMINISTRATIVE REPORTS 59 ADMINISTRATIVE MANAGEMENT The importance of improving the admiaistration of the Government was reaffirmed on July 29, 1949, when the President issued Executive Order 10072, calling for aggressive, systematic appraisal and improvement of operations. Shortly after, on August 9, the Secretary of the Treasury assigned to the Treasury Department Management Committee responsibility for advisiag and assisting him in carryiag out the directives of the Executive order and accelerating the Department management program established in 1946. Supportiag the work of this Committee are the management committees of the several offices. The Department program has been directed toward reducing costs, iaiproving efficiency, and giviag better service to the public. While many diverse, technical changes in management and operating procedures are involved, they amount Ul the aggregate to substantial savings ia terms of dollars. In many instances these saviags are recurring and cumulative. Summarized here are some of the management developments in the Treasury Department which have occurred during the year. These will iadicate the progress made duriag 1950 on the foimdation described ia the 1949 annual report on pages 35 through 58. The administrative reports of the individual organizations of the Department integrate management unprovements with their operations (pages 65 through 136). Of Government-wide scope is the contiauiag work on the program to hnprove Federal accountiag and financial reportiag. This project was announced joiatly ia January 1949 by the Secretary of the Treasury, the Comptroller General of the United States, and the Director of the Bureau of the Budget, who are directiag the undertakiag. In addition to establishiag ia all departments and agencies accountiag and reporting principles and standards suited to the Government's requirements, objectives iaclude the strengtheniag of the facilities ia the Treasury as the center for current accountiag and over-all'financial reports; makiag available for executive and legislative purposes more iaformative financial data at lower accounting costs; improviag budgetary processes; and improving audit and control. Legislation to provide a modern budget, accountiag, and audit law was iatroduced and considered by the Congress during the fiscal year. The measure did not become law, however, until September 12, 1950. This law, the Budget and Accounting Procedures Act of 1950 (see exhibit 36), was cited by the President as the most important piece of legislation ia its field since the Budget and Accountiag Act, 1921, was enacted almost t h h t y years before. The new law assigns important responsibilities to the General Accounting Office, Bureau of the Budget, Treasury Department, and every other executive department and agency in the related fields of budgeting, accounting, financial reportiag, ahd auditing. While the law makes a clear division of responsibilities and duties, it provides for their exercise in proper relationship and in harmony with the common objectives 61 62 195 0 REPORT OF THE« SECRETARY OF THE TREASURY of achieviag an iategrated system for the Government. Significant features of the legislation are the followiag: (1) Recognition is given to the joint accounting program of the General Accountiag Office, Treasury Department, and Bureau of the Budget as a permanent function, (2) a performance type of Budget is called for with considerable latitude for the President to determiue the form ui which the Budget shall be presented, (3) the prescribiag of accounting requirements, by the Comptroller General is to be largely on the basis of priaciples, standards, and related matters of fundamental importance rather than detailed procedures, (4) the responsibility for establishiag and maintaining systems of accounting and iaternal control, which will fulfill certaia specified needs, is placed dh-ectly with each executive agency, (5) responsibility is placed on the Secretary of the Treasury to furnish over-all reports on the results of the financial operations of the Government and to organize the Treasury Department's accounting and reporting in a manner to provide an operating center for that purpose, (6) authority is given the Secretary of the Treasury and Comptroller General jointly to modify procedures which iavolve the issuance and countersignature of warrants for the receipt, retention, and disbursement of public moneys and trust, funds, in the interest of simplification and economy, (7) authority is given the Comptroller General to discontinue ui the General Accountuig Office appropriation, expenditure, limitation, receipt, and personal ledger accounts, (8) authority is given the Comptroller General to make comprehensive audits at the site of operations and leave documents supportiag financial transactions with the agencies whose accounts are audited, and (9) authority is given to the heads of executive agencies to decide where the administrative examination of fiscal officers' accounts will be performed and for the Comptroller General, ia appropriate circumstances, to waive the requirement for such examinations. Within the Treasury Department, revisions of fiscal and accounting systems in accord with this program were under way in several large organizations. In the Bureau of Engraving and Printing the industrial nature of the operations makes them ideally suited to businesstype procedures and to a working-capital method of financing. Substantive legislation for this purpose was obtained by the passage of Public Law 656, Eighty-First Congress, approved August 4, 1950. Although this law does not take effect until July 1, 1951, the new system of accounting and budgeting required will be installed during the fiscal year commencing July 1, 1950. Under the new system the Bureau of Engraving and Printing will recover all its costs of operation from the agencies which it services in producing currencies, securities, stanips, and other classes of engraved work. A modern accounting system was established in the Coast Guard Headquarters on October 1, 1949, and a pilot installation was made in the 5th Coast Guard District (Norfolk) on March 1, 1950. Based on the results of this experiment, installations were scheduled in five other districts on July 1, 1950, in five more on September 1, 1950, and in the last (Honolulu) on January 1, 1951. A commer cial-type accounting system was being installed at the Coast Guard Yard at Curtis Bay, Maryland, on July 1, 1950. This system is designed to ADMINISTRATIVE REPORTS 63 -charge against work orders performed the direct costs and the proportionate share of overhead expenses including depreciation and military personnel. Completion of the new system at the Yard was expected by March 1951. The entire accounting program in the Coast Guard has been conducted with the active cooperation and assistance of representatives of the joint program for improvement of accounting in the Federal Government. Full time staff representatives have been provided by the Accounting Systems Division of the General Accounting OflHice and the Bureau of Accounts of the Treasury Department. Many innovations have been effected which required approval of the Secretary of the Treasury and the Comptroller General. Certain of these are being tested in the Coast Guard with a view to general adoption throughout the Federal Government. The 1949 annual report explained that the survey of a private management engiaeering flrm, completed in January 1948, was made the nucleus of a Customs management improvement program. For the purpose of implementing the flrm's recommendations in the accounting and auditing fleld, a complete review of the accounting system of the Bureau of Customs was made from the standpoint of the joint accounting program which is beiag carried forward under the leadership of the General Accounting Office, Treasury Department, and Bureau of the Budget. This review was completed in January 1949 and resulted in a recommendation for a somewhat revised system of accountiag and internal control with respect to the revenue collecting activities of the Bureau of Customs. The proposed new system is being carefully analyzed and considered by the Bureau of Customs from the management standpoint. In liae with the beginning made in the 1951 Budget in developing a ^'performance budget" for the entire Government, a program was undertaken in the Treasury Department to install this type of budget in its bureaus, oflGi.ces, and divisions. This budget analyzes the cost of each activity in relation to its essential purpose and its relative ioiportance. As one means of attaining such a budget, several bureaus have established a performance reporting system which makes available appropriate management data. In the Bureau of Internal Revenue the audit control program was iastituted in 1950. This program, designed to increase compliance with the revenue laws, employs a sampliag technique to determiue the over-all pattern of error ia tax returns. Duriag 1950, the program was confined to individual income tax returns for the year 1948, but Ul 1951 it will be directed to business-income and certain excise returns for 1949. The study of samples of the 1948 individual income tax returns revealed that (a) errors in tax liability, excludiag those of less than two dollars, were foimd ia 14 million out of 52 million returns; (b) 91 percent of the "errors" were against the Government; (c) understatements ia iadividual income tax aggregated $1.3 billion, overstatements $90 million; and (d) the major sources of errors iu the 14 million defective returns were iacome reported iacorrectly, 54.9 percent, personal deductions reported incorrectly, 23.4 percent, exemptions claimed improperly, 16 percent, and mathematical errors, only 5.6 percent. Continuiag from last year's activities, procedures throughout the 907795—51 6 64 1 9 5 0 REPORT OF THE SIECRETARY OF T H E TREASURY Treasury Departmeat were further improved and siaiplified during 1950 with some of them crossing bureau and agenc}^- lines. Duriag 1950, the Fiscal Service, working through the Fiscal Service Management Committee, effected management saviags totaliag more than $6 million, includiag saviags resultiag from unprovements initiated during the period 1947-49. Among the improvements adopted by the Fiscal Service were several in the Bureau of Accounts. One of these, a change in the form in which check accountuig material is prepared b37- the Division of Disbursement, has expedited the reconciliation by the General Accounting Office of checking accounts of the Chief Disbursiag Officer and Regional Disbursing Officers. The securing of lists of outstandiag checks at ah earlier date facilitates the handling of check inquiries. The more current reconciliation has reduced the niunber of requests for stopping payment, to the benefit of the Division of Disbursement, the General Accounting Office, and the Federal Reserve Banks. Earlier advice as to differences in the depositary account is now available and necessary adjustments are thereby accelerated. In the Bureau of the Public Debt the reduction of five regional oflices to three resulted ia an annual saviag of $250,000. In the Office of the Treasurer of the United States the payinent of Government checks is the operation havmg the greatest personnel requirements. Cost and production analyses of this operation resulted in reductions in the unit salary costs for processiag paper checks and card checks paid in Washington, D . C , of 3 percent and 10 percent, respectively, and 9 percent on card checks paid through the Federal Reserve Banks. Effective January 1, 1950, the depositary receipt procedure was extended by the Bm-eau.of Internal Revenue, in cooperation with the Fiscal Service, to cover employment taxes, as well as income taxes. Provision was made for payment to the Federal Reserve Banks either directly or through commercial banks. This change makes these funds available on a more current basis for investment by the Federal old-age and sm-vivors insurance trust fund. Before the new procedure was established, commercial banks were compensated for* accepting deposits and issuing receipts for withheld taxes. For the half year the new procedure was in operation, savings from elimination of compensation to the commercial banks amounted to $500,000. In addition the Bureau of Internal Revenue was able to reduce costs through the use of one combined form and one audit for the two kinds of taxes. Customs procedui:'es likewise were simplifled during the year. On an international basis, technical discussions were held of customs procedm-es and laws affecting trade am,ong 11 countries. A meeting of customs and foreign trade experts of Britain, Canada, and the 'United States was held from October 31 through November 8, 1949. Subsequently, similar discussions were held with representatives of eight additional countries. Information was exchanged on customs practices, and techniques were explored for classiflcation and valuation of merchandise, assessment of penalties, marking requirements, accounting and auditing, sample-weighing and testing, and treatment of currency exchange practices. The elimination of consular invoice requirements for a substantial portion of imports was announced by the Commissioner of Customs on March 24, 1950, and a new customs ADMINISTRATIVE REPORTS 65 duty bond to expedite clearance of merchandise was provided, to go into effect July 15, 1950. Legislation was drafted and introduced in Congress to modernize and simplify United-States customs requirements beyond the present limits of adniinistrative action. Mechanization of operations throughout the Department was continued, with a resulting saving of time and money. The use of electronic devices was expanded. Microfflming in the offices of the Collectors of Internal Revenue of 163 'million income tax index cards and S.S million tax retm'ns released for other use large numbers of flling cabinets as^well as floor space^having^a substantial annual rental value. . The modernization of the intaglio presses in the Bureau of Engraving and Printing ultimately Vill increase the output of currency by approximately 30 percent. Savings are estimated at over $1 million a year. Modern machines instaUed in the Miats have effected great savings in hand labor and in costs. Decentralization of certaia activities of the Bureau, of Internal Revenue and cerotain delegation of authority have resulted in a substantial reduction in the number of employees in Washington. In the fleld, on the other hand, by temporary centralization the clerical facilities of one office were used for a mass mailing for seven large • collection districts. This procedure is to be expanded to handle forms for 37 collection districts and 42 million taxpayers. A number of bureaus have initiated higher recruiting standards and comprehensive training programs. The Treasury Department's incentive program, designed to increase efficiency by stimulating employee participation in management, is twofold. Cash awards are paid to employees for operating improvements which result in monetary savings. This new program was established by authority of Public,Law 429, 81st Congress, approved October 28, 1949. Second, honorary recognition is granted for exceptional or meritorious service. Provisions for these awards are contained in Treasury Department Order No. 79, dated March 28, 1950. As the fiscal year closed one of the new awards was granted to a group of 54 employees in the Division of Disbursement, Bnreau of Accounts, for efficiency in the tremendous job of issuing checks for the national service life insurance dividends. An estimated savings of $158,000 were attributed to the work of this group and cash awards totaled $1,500. In addition, there were twenty individual awards during the year throughout the Department for superior accomplishment. Six employees received exceptional civilian service medals and emblems. Under the cash awards program, there were 2,939 employee suggestions during the year. Of the number acted upon, 915 merited adoption. Of those adopted, 783 were.considered eligible for cash awards totaling $16,355. Savings accruing to the Department from the suggestions adopted were estunated at $252,000. BUREAU OF THE COMPTROLLER OF THE CURRENCY i The Bureau of the Comptroller of the Currency is responsible for the execution of laws relating to the supervision of national banking associations. Duties of the office include those incident to the forma1 More detailed information concerning the Bureau of the Comptroller of the-Currency is contained in the annual report of the Comptroller. 66 1950 REPORT OP THE SIECRETARY OF THE TREASURY tion and lishment of State preferred . chartering of new national banking associations, the estabof branch banks, the-consolidation of banks, the conversion banks into national banks, the issuance and retirement of stock, and the issuance of Federal Reserve notes. CHANGES IN THE CONDITION OF ACTIVE NATIONAL BANKS The total assets of the 4,977 active national banks in the United States and possessions on June-30, 1950, amounted to $89,937 million, as compared with the total assets of 4,993 banks amounting to $85,099 million on June 30, 1949, an increase of $4,837 million during the year. The deposits of the banks in 1950 totaled $82,660 million, which was $4,208 million more than in 1949. The loans and securities totaled $68,917 million, an increase of $5,209 million during the year. Capital funds of $6,195 million were $367 million more than in the preceding year. The assets and liabilities of the active national banks are shown in the following statement. Abstract of reports of condition of active national banks on the date of each report from June 30, 1949, to June SO, 1950 [In thousands of dollars] June 30,1949 Nov. 1,1949 Dec. 31,1949 Apr. 24,1950 June 30,1950 (4,988 (4,981 (4,982 (4,993 (4,977 banks) banks) banks) banks) banks) • ASSETS Loans and discounts, including overdrafts. 22, 578,120 23, 438, 583 23, 928, 293 24,135, 464 U. S. Government securities, direct obligations 36, 595, 411 38, 332,370 38, 268, 473 37, 611, 919 Obligations guaranteed by U. S. Government _ 2, 060 2, 087 , Obligations of States and political subdivisions _ 3, 410, 267 3, 718, 789 3, 747, 200 4,188,866 Other bonds, notes, and debentures 1,959, 419 2, 027, 769 2, 023, 642 2,053, 616 Corporate stocks, including stocks of Federal Reserve Banks : 162, 609 166,486 169, 639 166, 216 Total loans and securities. 68,707,918 Cash, balances with other banks, including, reserve balances, and cash items in process of collection.. . 20,376,181 Bank premises owned, furniture and fixtures 587,617 Real estate owned other than bank premises 12,351 Inyestrnents and other assets indirectly representing bank premises or other real estate __ _. 48, 414 . Customers' liabihty on acceptances.... 75,325 Income accrued but not yet collected 150,161 Otherassets 141,488 Totalassets.- _ 86, 099, 450 24, 671,880 37, 649, 227 2,019 4, 294,138 2,127,187 172, 098 67, 682,727 68,186,048 68,159, 604 68,916,549 19,676,846 21, 044, 958 18,'876, 766 19, 962,172 601,720 599,582 611,428 613,526 12, 725 12,184 14,383 14, 593 • 50, 992 83, 416 196,139 146, 609 61,831 106, 421 166, 663 121, 507 51,856 79,169 170,393 112,369 54,442 90, 312 172,621 112, 497 88; 449, 073 90, 239,179 88,075,858 89, 936, 612 67 ADMINISTRATIVE REPORTS Abstract of reports of condition of active national banks on the date of each report from June SO, 1949, to June SO, 1950—Continued [In thousands of dollars] June 30,1949 Nov. 1,1949 Dec. 31,1949 Apr. 24,1960 June 30,1950 (4,993 (4,988 (4,981 (4,982 (4,977 banks) banks) banks) banks) banks) ' LIABILITIES Demand deposits of individuals, partnerships, and corporations Time deposits of individuals, partnerships, and corporations Deposits of U. S. Government and postal savings _ Deposits of States and political subdivisions Deposits of banks Other deposits (certified and cashiers' checks, etc) Total deposits _ 44,470,804 46,415, 997 47,362, 731 19,008,719 18, 935, 621 18, 954, 970 19,149,165 46, 787, 942 19,218,390 1, 461,478 2, 025, 538 2,030, 693 1,944,094 2, 402,109 5,398,970 6, 946,245 6,182, 966 7, 717,139 6, 423, 285 8,279, 678 5, 367, 726 7,196, 001 6, 683, 478 7,363, 254 1,175, 252 1,105, 524 1, 302, 961 1,081,308 78, 451, 468 81, 382, 786 83,344,318 80,880, 273 82, 659, 791 Demand deposits 58,367, 215 20,084,258 Time deposits.. _ Bills payable, rediscounts, and other liabilities for borrowed money 14,123 Mortgages or other liens on bank premises and other real estate _ 274 Acceptances outstanding _ 83,860 Income collected but not yet earned . 116, 661 Expenses accrued and unpaid. _ 225, 396 Otherliabilities 379, 765 Totaliiabilities 46,161, 980 1, 204, 618 61,374,688 20,008,102 63, 293,252 20, 051,066 60, 645,433 20,234,840 62,299, 629 20, 860,162 170, 075 7,662 76,171 24, 783 260 123, 927 138, 910 231, 581 458,280 249 86,450 166,813 265,192 554,153 244 98,880 165, 606 248, 282 544, 059 79, 271, 547 82, 464, 962 84, 304,838 82,019,301 83, 741, 545 260 96, 579 135, 279 272, 400 408, 684 CAPITAL ACCOUNTS Capitalstock , Surplus _. . Undivided profits Reserves and retirement account for preferred stock Total capital accounts ... 1, 907, 958 2, 606, 653 1, 084, 283 329, 009 5,827, 903 1, 913, 907 2, 621, 377 1, 213, 773 335,064 5, 984, 111 1, 916, 340 2, 639, 440 1,067, 664 310,897 6, 934,341 1, 943,108 2, 680,807 1,121,893 310, 749 6,066, 657 Total liabilities and capital accounts. 85, 099, 450 88, 449,073 90, 239,179 88, 075,858 1, 979, 941 2, 770, 630 1,133,190 311,306 6,195, 067 89,936,612 SUMMARY OF CHANGES IN N U M B E R AND CAPITAL STOCK OF NATIONAL BANKS The authorized capital stock of the 4,979 national banks ui existence on June 30, 1950 (including 2 banks that had discontiaued busiaess although not ia formal liquidation as of that date), consisted of common stock aggregating $1,964 million, an uicrease during the year of $78 million; and preferred stock aggregathig $17 million, a decrease duriag the year of $6 million. The total net iacrease of capital stock was $72 million. Duriag the year charters were issued to 15 national banks haviag an aggregate capitalof $3 million of common stock only. There was a net decrease of 15 in the number of national banks in the system by reason of voluntary liquidations and statutory consolidations. 68 1 9 5 0 REPORT OF T H E SIECRETARY OF T H E TREASURY More detailed iaformation regarding the changes in the number and capital stock of national banks in the fiscal year 1950 is given in the following table. Organisations, capital stock changes, and liquidations of national banks, fiscal year 1950 Number of banks Charters in force June 30, 1949, and authorized capital ^ stock 1 ... Increases: Charters issued.. _.: Capital stock: 130 cases by statutory sale 250 cases by statutorv stock dividend ... 33 cases by stock dividend under articles of association 10 cases by statutory consolidation .^ 2 cases by increase in par value of stock Total increases .. __ . . _ Decreases: Voluntary liquidations Statutory consolidations Capitalstock: 82 cases by retirement 2 cases by statutory reduction Total decreases.- . 4,994 15 Capitalstock Common $1, 885,616,492 .. Charters in force June 30, 1950, and authorized capital stock 1 ._ , $22, 566, 975 2,875,000 40, 014,850 " 37,032,070 1, 887, 375 1,818, 500 156, 500 616, 000 15 83,627, 795 772, 500 26 4 5, 530, 000 280, 000 82,000 Net change Preferred 6,492,282 30 5, 612, 000, 6, 772,282 -16 78, 015, 795 - 6 , 999, 782 4,979 1, 963,631,287 16, 567,193 1 These figures differ from those shown in the preceding table. June 30,1949, figures include 1 bank with common stock, that was chartered but not open for business on. that date. June 30,1950, figures include 2 banks that had discontinued business but were not in formal liquidation on that date. BUREAU OF C U S T O M S The principal functions of the Bureau of Customs are to enter and clear vessels; supervise the discharge of cargo; ascertain the quantities of imported merchandise,-appraise and classify such merchandise, and assess and collect the duties thereon; control the customs warehousing of imports; inspect international traffic by vessel, highway, railway, and air; review protests against the payment of duties; determine and certify for payment the amount of drawback due upon the exportation of articles produced from duty-paid or tax-paid imports; prevent smuggling, undervaluations, and frauds on the customs revenue; issue documents and signal letters to vessels and prepare publications and reports in connection therewith; apprehend violators of the customs and navigation laws; enforce the Antidumping and Export Control Acts; and perform certain duties under the Foreign Trade Zones Act. MANAGEMENT PROGRAM Management improvement efforts in the Bureau were again directed into the five areas covered by the program in 1948 and 1949, and the savings in 1950, both monetary and manpower, were used to cope With the continuing increase in Customs business. ADMINISTRATIVE REPORTS ^ 69 Trade agreement activities.—-The Bureau participated in the Annecy Trade Agreement conference which extended the General Agreement on Tariff's and Trade to ten new countries; and, in cooperation with the Department of State, reviewed the proclamations issued in connection with the Annecy and other trade agreements. The Bureau cooperated with the Tariff Commission also in the preparation of a schedule of all United States import duty rates in force on July 1, 1950, for publication by the Commission. Aids to trade.—Following the Tripartite economic conference, the Bureau carried on discussions of procedural problems aff'ecting trade with representatives of the United States, Great Britain, and Canada^, and subsequently with representatives of eight other foreign countries who had similar problems. These discussions pointed up the difficulties experienced by exporters to the United States, and it is believed were of great benefit to the United States and to the participating foreign governments in their efforts to facilitate world commerce. Procedure simplification.—The use of scientific control weighing and testing procedures, which were adopted in 1949 for sugar, wool, and tobacco, was extended to other products in 1950, and resulted in savings of more than twice the amount which had been estimated. The system of joint Customs-Immigration preliminary questioning of pedestrian and vehicular traffic at land border ports was extended during 1950 and now is installed on both Canadian and Mexican borders. With a single Government official performiag these duties for both the Customs and Immigration Services, substantial savings to each organization resulted, as well as better service to the traveling public. Q A modification in customs regulations relieves importers in many cases from the necessity of supplyiag certified consular invoices on several significant categories of importations. A new customs duty bond and new bonding procedures for import transactions, promulgated late in.the fiscal year 1950, will simplify the methods for payment of duties found owing to the Government after the merchandise has left Customs custody and will permit speedier release from Customs custody of packages retained for examination. In line with the over-all training program of the Bureau, indoctrination of supervisors in work simplification techniques was completed during 1950, Public educational aids.—The pamphlet. Customs Information for Exporters to the United States, was completed during 1950 and its initial distribution received widespread approval. As in the case' of Customs Hints, every effort is being made to widen its distribution. I t has already been translated into 5 foreign languages. Public response to Customs invitation to visit its local offices in order to present and discuss problems far exceeded expectations. Other management control measures.—During 1950, additional authority and responsibility were delegated to the field offices with respect to fiscal and budgetary operations and in connection with the functions directly related to the processing of imported merchandise. A scientific analysis to determine the number of bales of wool which would have to be sampled in order to accurately gauge the clean content resulted in a reduction in the required number of such bales to be sampled. 70 195 0 REPORT OF THE SECRETARY OF THE TREASURY Preparatory work was completed ''during'^, 1950 [on the legislative changes required to place ia effect many management improvement recommendations, and the Customs Simplification Act of 1950 was iatroduced ia Congress ia May 1950. As of the close of the fiscal year, no action had been taken on the bill. Proposed legislation to revise, consolidate, and codify the navigation laws administered by Customs will be submitted to Congress hi the near future. This legislation is designed to facilitate the admiaistration of these laws and to elimiuate requhements which burden shippiag interests without serving any essential official need. " R E V E N U E COLLECTIONS The total revenue coUected by Customs in the fiscal year 1950 was $560,565,350 as compared with $515,241,518 ia 1949, an increase of 9 percent. These totals include items collected for other governmental agencies such as internal revenue taxes for the Bureau of Internal Revenue and head taxes for the Immigration Service. Actual collections from duties, navigation fines, violations of the custoras laws, etc., amounted to $428,891,788, an iacrease of more than 10 percent from the .previous year's total of $388,470,747. The bulk of customs collections consists of duties paid by importers at the time of the entry of merchandise and when withdrawn from warehouse for consumption. The types of collections for the past two years are shown in table 8. The increase ia collections duriag the fiscal year 1950 reflected a generally highej level of foreign trade than prevailed duriag 1949 which more than offset the decrease in rates of duty provided by the Annecy Protocol some of which became efl-'ective January 1, 1950, with other subsequent changes in rates of duty as additional signatory nations came under the terms of the Agreeinent. These changes in rates of duty, however, were less drastic and less numerous than those resultiag from the General Agreement on Tariffs and Trade, much of which became effective January 1, 1948. Customs collections, which had decliaed almost continuously duriag the last 10 months of the fiscal year 1949, began to rise very early in the fiscal year 1950. Collections during each of the last 9 months of 1950 were larger than for each of the corresponding months of the previous fiscal year. This trend paralleled the trend ia the quantity and value of imported merchandise but was not affected by any increase in prices since the iadex of the unit cost of imported articles was slightly lower than during the previous year. The chief source of customs revenue, raw wool, yielded approximately $50 million, an increase of 30 percent over the revenue from this source duriag the fiscal year 1949. Importations of wool which yielded $150 million of revenue in 1946 declined sharply duruig the following three years. The iacreased revenue from wool imports ia 1950 as compared with the previous year marked the first change in. trend suice the end of World War I I . Imports of cane sugar, another important source of customs revenue, were almost 700 million pounds smaller hi 1950 than duriag the previous year and yielded only $3,4 million in duties as compared with ADJVIINISTRATIVE REPORTS 71 ^•$38 million in 1949. Importations of free sugar from the Philippine Islands were practically the same as during the previous year. Another important source of customs revenue, distilled liquors, showed very little increase. The volume imported increased from 13,522,000 gallons in 1949 to 13,980,000 gallons hi 1950, while the revenues mcreased from $20,050,000 t a $20,603,000. The many changes in commodity classifications and the rates of duty resulting from the General Agreement on Tariffs and Trade made it impossible until recently to compute duty collections by tariff schedules and countries for many months of the fiscal years 1948 and 1949. Therefore, tables 84 and 87, showing duty collections by tariff schedules and by countries, which were omitted ia the 1949 annual report, are published ia this report for the fiscal years 1948, 1949, and 1950. Table 86, duty collections by tariff schedules, shows the months for which computations were not available when the 1949 report was being prepared. The largest amount of revenue continued to be collected at New York City where almost $174 million, or 41 percent of the total customs collections for all districts, was turned over to the Treasury. This constitutes a small increase of $9 million over the total collected hi New York in 1949. Customs collections at the Atlantic and Pacific Coast customs districts were generally at a higher level than in 1949, only Maiae, North Caroliaa j and Oregon showing reduced collections. Collections along the land border were far from uniform. Five of the Canadian border districts reported increased revenues, while an equal number collected a smaller amount than in 1949. Two of the five Mexican border districts showed increased collections, but none of the districts on the Gulf of Mexico collected more than during tlie previous year. At Boston, where approximately three-fourths of all customs collections are the result of importations of unmanufactured wool, the iacreased importations of that commodity resulted in an increase in collections of almost 39 percent. At PhiladelpLia, another important wool importing district, there was an increase of 21 percent in collections. Customs collections by customs districts are shown in table 83. The increase in customs collections was accompanied by an increase inthe valueof dutiable imports of from '"$2,849 million in 1949 to $3,060 million in 1950. This increase in value appears to be due entirely to an increased volume of imported commodities since the unit cost was slightly lower in 1950 than iu the previous year. MOVEMENT OF PERSONS BY VESSELS, T R A I N S , AUTOMOTIVE VEHICLES AIRPLANES, AND The iacrease ia passenger travel evidenced since the end of the war continued during the fiscal year 1950. Almost 87 million persons arrived at this country's seaports and crossed the land borders during 1950, an increase of more than 3 million over the precediag year. For the first time in many years travel by aircraft was slightly lower than for the previous year. Sixteen hundred fewer planes arrived ' Revised. 72. 195 0 REPORT OF THE SECRETARY OF THE TREASURY from abroad and 3 thousand fewer passengers used this means of transportation. Almost half of the planes aud more than half of the airplane passengers arrived at the airports in New York City and Miami, Fla. The number of passengers arriving at New York, for the first time since ^ the establishment of LaGuardia and Idlewild fields, exceeded those arriviag at the Miami fields. Tables 8,9 and 90 show the volume of traffic into the United States in 1949 and 1950. During the year Annex 9 to the Convention on International Civil Aviation became effective.^ This annex contains international cus^toms, immigration, public health, and agricultural quarantine procedures applicable to air traffic. As far as customs is concerned the United States has been among the foremost in bringing its customs procedures into agreement with those adopted by the International Civil Aviation Organization. E N T R I E S OF MERCHANDISE Commercial importations as represented by consumption entries, warehouse entries, and warehouse withdrawals showed a substantial increase over the previous year. The continued increase in tourist travel was reflected in an increase of 7 percent in the number of baggage entries filed, although the amount collected on baggage entries declined as a result of the increase in the exemptions granted to returning travelers. The number of maU entries continued to decline, although collections on such entries were larger than in 1949. Informal entries remained at practically the same level as in the previous year. Table 88 shows the number of important types of entries for the fiscal years 1949 and 1950. DRAWBACK TRANSACTIONS Drawback, amounting to 99 percent of the customs duties paid at the time the goods were entered, is allowed on the export of merchandise manufactured from imported materials. The drawback allowed in 1950 was $8,442,133 as compared with $9,378,768 in 1949, a decrease of 10 percent. More than 90 percent of the drawback allowed in each year was due to the export of products manufactured from imported raw materials. The more important raw materials used ih manufacturing the exported products in 1950 were sugar, wool, tobacco, crude petroleum, and several of the metals. Tables 91 and 92 show the drawback transactions for 1949 and 1950. PROTESTS AND APPEALS There was a sharp increase in the number of protests filed by importers against the rate and amount of duty assessed and other actions by the collectors as compared with 1949. Appeals for reappraisement filed by importers who did not agree with the appraiser as to the value of merchandise were also much more numerous than during the previous year. Both increases were presumably due to the continuation of the use of dual currency in many countries with resultiag confusion as to the true value of merchandise for customs ADMINISTRATIVE 73 REPORTS purposes. The following table shows the number of protests and appeals filed and acted upon in 1949 and 1950: Protests and appeals Protests: Filed with collectors by importers Allowed by collectors . Denied by collectors and forwarded to customs court...-. Appeals for reappraisement filed with collectors _. APPRAISEMENT Percentage increase 1949 1950 10,635 579 9,563 11,114 17,759 3,104 13,029 16, 495 67,0 436.1 36.2 48,4 OF MERCHANDISE The conthiued increase in the importation of foreign merchandise, both in volume and variety pf commodities, is indicated by the examiaation of 543,772 packages at the public stores during the fiscal year 1950, as compared with 484,760 packages examined during the previous year. The imports in 1950 required the processing of 1,197,539 accompanying invoices as compared with 1,105,646 invoices m 1949. .. The handling of foreign mail at Los Angeles, Calif., has been transferred to the buUding occupied by the appraiser of merchandise. This works to the mutual advantage of the post office and customs and has released needed space to the post office. CUSTOMS INFORMATION EXCHANGE Under a system which has been hi effect for many years, appraising officers are Tequired to report to the Customs Information Excliange at New York, N . Y., a cross section of importations of merchandise received at their ports. This serves as a spot check on the classification and valuation of merchandise at the various ports, and makes possible greater uniformity of action by all appraising officers. The number of reports increased during 1950 as the result of increased importations. The following table is indicative of the work of this office. Percentage increase, or decrease (—) 1949 Activity A p p r a i s e r s ' reports of value or classification received Differences in classification reported DifCerences i n value r e p o r t e d . _' R e q u e s t s for foreign investigations 31,936 2,819 3,805 38, 615 2,940 3,357 634 20.9 4.3 -11.8 1.0 LABORATORIES The ten customs laboratories, maintained for the purpose of testing representative samples of imported merchandise to aid in the correct assessment of duties, tested 83,429 samples, an increase of 14 percent oyer the total tested in the previous year. The number of samples of ores, metals, and wool increased while those of sugar declined. Samples of ores, sugar, and wool constituted more than 50 percent of the total number analyzed. 74 195 0 REPORT OF THE SECRETARY OF THE TREASURY The operation of the laboratory at Honolulu, which was discontinued after the attack on Pearl Harbor, was resumed during 1950. /Plans for the installation of a new customs laboratory at San Juan, Puerto Rico, were initiated and considerable progress was made toward its completion. Most of the samples tested in the laboratories were taken from regular imports in 1950; however, there were^369 samples taken from export shipments and 2,032 samples from customs seizures. In cooperation with other activities the customs laboratories assisted in determining whether samples of Government stockpile purchases of strategic materials complied with contract specifications. The laboratories provided technical supervision, equipment, and space for the analysis. L A W ENFORCEMENT ACTIVITIES The law enforcement activities of the Customs Service consist of the seizm-e of merchandise which has been fraudulently declared or illegally introduced into this .country and of the investigation of viola, tions discovered after the entry of merchandise. Fewer seizures were made in 1950 than in 1949, but the value of such seizures was alraost as large as during the previous year. Practically the same number of automobiles and trucks were seized as in 1949, but the value of these seizures was considerably less than in the previous year. Five more boats were seized than in 1949 and the total value of such seizures was over a million dollars greater than in the previous year. Liquor seizures increased slightly in number, gallonage, and value, but the -nuinber of prohibited articles seized in 1950 was considerably less than the previous year. Seizures of ordinary merchandise were also less numerous and of considerably less value than in 1949. There were 210 fewer seizures of narcotics and the reported value of such seizures was less than the year before. As compared with 1,735 ounces of raw opium seized in 1949, only 645 ounces were seized during 1950.. The quantity of morphiae, lieroia, and cocaine seized also declined sharply from the preceding year. The decrease in the quantity of seizures of cocaine was the result of the breaking up of an extensive ring operating between Peru and the United States as a consequence of the joint iavestigation by customs and narcotics agents. Seizures of smoking opium, however, were made in greater quantity in 1950 than in the previous year, 1,038 ounces being seized dming 1950 and 855 ounces in 1949. Marihuana seizures continued extremely heavy, amountiag to 33,291 ouuces as compared with 38,086 ounces in 1949, most of these being made on the Mexican border. There were also numerous seizures, in small quantities, of marihuana in the form prepared in India, Turkey, Tunisia, and South Africa. A notable feature of the marUiuana seizures along the Mexican border during the past two years has been the large quantity contained in single seizures, in some cases as much as 100 pounds in a single seizure. Seizures for violations of customs laws are shown ia tables 93 and 94. ADMINISTRATIVE REPORTS 75 INVESTIGATIVE ACTIVITIES The investigative arm of the Customs Service, the Customs Agency Service, investigates all important crimiaal cases covering the violations of the customs laws and also conducts many other examiaations where expert investigative ability is needed. Probably the most important case of the use of false invoices and entries involved the importation of Swiss watches which resulted in a claim agaiast the importer for more than $6.8 mUlion. Several attempts to smuggle diamonds and jewelry were discovered during the year and in two cases the amounts involved exceeded $100 thousand each. One unusual smuggliag at°tempt at San Ysidro involved 40 live parrots, 20 of which were in a wire mesh cage underneath the seat of a truck and 20 more in cardboard cartons on top of the motor. Since the importation of live parrots is prohibited, the truck was seized, the driver jailed,'' and the parrots destroyed. I n the enforcement of the export control regulations a number of planes were seized which were apparently destined for the east European area. A number of shipments of gold, one of which was concealed in an electric refrigerator, and a private yacht, which was being used to transport merchandise for pay, were also seized. Investigations of the violation of the Neutrality Act iavolved a number of. seizures of firearms and ammunition. A steamship which was wrecked at an isolated spot on the coast of the Seattle district was looted by local residents, crews of passing fishing vessels, and Indians from a nearby reservation. Most of the fishing vessels iavolved were seized and 60 cases are pending against other looters. The cargo of lumber will probably never be salvaged completely since some of it broke loose and drifted out to sea. About one-half mUlion feet, however, were landed and seized at various ports in the Washington district. In the course of their regular duties customs personnel often discover violations of other than customs laws. During 1950, 11,670 seizures were made for other governmental agencies, 11,584 of which were for the Department of Agriculture. In addition, 50 persons were apprehended, of whom 33 were for the Immigration and Naturalization Service. Table 95 summarizes the investigative activities during the last two years. FOREIGN TRADE ZONES During the thirteenth year of its operation, Foreign Trade Zone No. 1 on Staten Island handled a somewhat smaller volume of business than duriag the preceding year, although there was an increase in duties collected on goods entering customs territory from the zone. The decline ia volume was due to the fact that the storage space in the zone was fully occupied siace a large part of the merchandise remained in the zone for longer periods than formerly. Up to the end of the year the space formerly withia zone territory had not yet been restored by the Army for zone use. In addition the number of manipulations (such as fumigating, sorting, sampling, marking, labeling, repacking, etc.) performed in zone territory increased considerably over, previous years. 76 195 0 REPORT OF THE SECRETARY OF T H E TREASURY Operations in Foreign Trade Zone No. 2 at New Orleans continued at a high level b u t involved a large volurae of goods exported after manipulation so that the dutiable merchandise entering customs territory was comparatively small. For the second full year of its operations Foreign Trade Zone No. 3 at San Francisco handled approximately the same tonnage as in 1949 but the value of the goods entering the zone was more than double that received during the first year of its operation. Foreign Trade Zone .No. 4 at Los Angeles was opened for business on September 9, 1949, and Foreign Trade Zone No. 5 at Seattle on September 1 of the same year. Both zones received a wide variety of products and appear to have made a successful start.' Foreign Trade Zone No. 6 has been authorized at San Antonio, Tex., and wUl be the first inland foreign trade zone, the first zone operated at an ahport, and the first zone operated by a private concern. The followiag is a brief summary of the foreign trade zone operations: o Trade zone New York New Orleans San Francisco Los Angeles. Seattle Number of entries 7,916 (0 4,671 (0 238 Received in zone Long tons (0 29, 223 • 10,021 6,967 2,957 Value 0) $13, 627, 729 7, 231, 346 2, 238, 350 1,623,118 Duties collected $3,679,312 174, 024 1, 069, 710 (1) 233,519 1 Not reported. L E G A L PROBLEMS AND PROCEEDINGS Considerable attention was given during the year to problems in connection with the establishnient of new foreign trade zones. Questions arising in connection with the conversion of foreign currency for which two or more rates of exchange have been certified by the Federal Reserve Bank of New York continued to rec^uire considerable time. General regulations, prepared for the conversion of all currencies for which multiple rates are" certified, have expedited the conversion of such rates and obviated the necessity for the issuance of special histructions for each such currency. , Although the bulk of the large number of overtime cases pending iu the Court of Claims has been disposed of on the basis of rulings in the cases of Myers Y. United States (320 U. S. 561; 321 U. S. 750) and O'Rourke v. United States (109 Ct. Cls. 33), a considerable amount of work contiaued throughout the year on special problems in connection with the cases not previously settled and on other questions arisiag in connection with the overtime laws. MISCELLANEOUS Changes in customs ports and stations.—The customs port at Guayanilla, Puerto Rico, and stations at Port Orchard and Bremerton, Wash., Manistee, Mich., Boquillas and Dolores, Tex., were abolished and a port established at Neah Bay, Washiagton. The name of the port of Senoyta, Ariz., was changed to LukevUle, Ariz. 77 ADMINISTRATIVE REPORTS Cost of administration.—During the fiscal year 1950 the Customs Service incurred expenses of $35,689,921 for collecting the revenue and for priating, excluding expenses of enforcing the renewed export control regulations. This was $700,236 more than during the previous year. The increase in expenditures was due to the raise in pay authorized by the Eighty-First Congress and to the automatic within-grade raises provided by the Meade-Ramspeck law. The expenses, moreover, do not include salaries paid to customs personnel for overtime and other services authorized by law for which reimbursement was made to the appropriation by parties interested. The increased collections more than offset the increase in expenditures, so that the cost of collecting $100 of revenue declined from $6.79 in 1949 to $6.37 in 1950. A summary of the collections and expenditures for 1950 will be found in table 82. ^ BUREAU OF ENGRAVING AND PRINTING The Bureau of Engraving and Printing designs, engraves, and prints currency, bonds, certificates, stamps and various other official documents and forms. Deliveries of finished work during the fiscal year 1950 totaled 729,297,594 sheets, a decrease of 16,901,967 sheets, or approximately 2.3 percent, as compared with the quantity delivered during the previous year. A comparative statement of deliveries of finished work in the fiscal years 1949 and 1950 follows: Sheets Face value, 1950 Class 1950 Currency: * United States notes Silver certificates Federal Reserve notes. Total Bonds, notes, bills, certificates, and debentures: Bonds: Panama Canal Postal savings Treasury United States savings Depositary... Consolidated Federal farm loan for the twelve Federal land b a n k s . . . Home Owners' Loan Corporation Home Owners' Loan Corporation: Obsolete en• graved stock dehvered to Destruction Committee and destroyed Insular Puerto Rican Joint stock farm loan: Obsolete engraved stock delivered to Destruction Committee and destroyed Government of the Republic of the Philippines. Notes: Treasury .... Consolidated, Federal home loan banks Special United States, International Monetary Fund series. Obsolete engraved stock dehvered to Destruction Committee and destroyed: Commodity Credit Corporation .. Federal National Mortgage Association Reconstruction Finance Corporation U. S. Housing Authority Treasury bills _..._., 3, 610,000 102, 390, 000 34, 220, 000 4, 065, 000 100, 935, 000 31, 977, 000> $206,460, 000 1, 949, 460, 000 . 4,348, 020,000 140, 220, 000 136,977, 000 6, 503,940,000 2,900 3,238 123,486 64,451, 000 20,900, 000 1, 253, 000 891,118, 000 7,145, 625, 000 66, 000 125 316, 360, 000 125,000,000 2,000 2,690 217,150 I, 714, 000 1,550 1, 076,188 808, 550 32,800 •132, 620 60,090 100, 696 504 468, 000 12,120 200 200, 000 1,019, 325 22, 200 66, 627,800,000 500, 000,000 200 200,000, 000 539, 600 76, 500,000,000 78 195 0 REPORT OF THE SECRETARY OF THE TREASURY Sheets Face value, 1950 Class 1949 Bonds, notes, bills, certificates, and debentures—Con, Certificates: Indebtedness... Cuban silver :. Military,. Philippine Treasury Philippine Treasury: Surplus stock delivered for destruction and destroyed Postalsavings .: Interim transfer, postal savings bonds Debentures: Collateral trust of the Central Bank for Cooperatives .... Consolidated collateral trust for the Federal intermediate credit banks Obsolete engraved stock delivered to Destruction Committee and destroyed: Federal ship mortgage insurance fund War housing insurance fund .' Specimens: Bonds Notes _ Certificates •_ Debentures Proof sheets, military certificates _ Total. Stamps: Customs.-.. _ Internal revenue: To offices ofissue Specimens.. : Puerto Rican revenue: To offices of issue Obsolete delivered to Destruction Committee and destroyed Virgin Islands revenue _ _ United States war savings.. 1 Postage: United States Specimens, United States.._ Canal Zone : Philippine: Obsolete delivered to Destruction Committee and destroyed Adhesive postal note. District of Columbia beverage tax-paid _ Federal migratory-bird hunting Foreign service fee... 1 Total. Miscellaneous: Checks _ 1 _ Warrants.. Commissions . Certificates Drafts.. Government requests for transportation. Other miscellaneous Specimens... Blank paper.. Military payment orders: Obsolete stock delivered to Destruction Committee and destroyed 1,170,050 885, 300 473,192 2, 599,000 >• 3, 302, 700 1,000 39, 500 2,222 1960 478, 650 $25, 275, 000, 000 678, 333 7, 414, 000 46, 046 10, 282, 000 868, 400 2, 504, 200 1,000 1, 748, 267, 000 3,940 44,000,000 78, 550 929, 250, 000 2,106 5, 000, 000 55 8 3 61 -• 80, 013, 952 71, 877, 933 179, 347, 469, 000 Number of stamps, etc., 1950 362, 500 462, 600 4,626,000 291,124, 982 684 298, 666, 758 376 21, 213, 382,100 780 1,681,400 1, 751, 763 105,198, 575 61,000 300 455, 488 550 486,315 55, 000 50, 243, 026 214, 353, 803 214 107, 850 200, 920, 496 261 31,170 20,883,126,204 13, 272 • 2, 697, 000 103, 658 735, 928 1, 041, 200 36, 976 »• 11,489 740, 363 592, 300 83,465 1,800 74, 036, 300 29, 615,000 9,348,080 180, 000 ^ 510,117,371 503, 627,117 42,372,420,33,6- 9, 528, 936 301, 548 649, 591 625,325 285, 846 r 4, 455, 782 11 1,200 9, 538, 519 9,548 50,396 1, 020, 686 38, 250 259, 514 6,462, 280 90 1,000 435, 261 2,176,306 Total ^ 15, 848, 238 16, 816, 644 59, 616, 079 Grand total.. 746,199, 561 729, 297, 594 » Revised to adjust classification. 47, 713, 265 5,674 37, 725 929, 686 . 10,500 1, 297, 570 7,444, 904 • 450 ADMINISTRATIVE REPORTS 79 Orders were received and dies were engraved for new issues of postage stamps as follows: ,, Issue Grand Army of the Republic Commemorative, Series 1949 Edgar Allen Poe Commemorative, Series 1949 75th Anniversary of the Universal Postal Union Commemorative, Air Mail, Series 1949.. 75th Anniversary of the Universal Postal Union Commemorative, Air Mail, Series 1949.. 75th Anniversary of the Universal Postal Union Commemorative, Air Mail, Series 1949.. Wright Brothers Commemorative, Air Mail, Series 1949 .: . . American Bankers Association Commemorative, Series 1950.. Samuel Gompers Commemorative, Series 1950 National Capital Sesquicentennial Commemorative, Series 1950 j Railroad Engineers of America Commemorative, Series 1950 Gateway to the West Commemorative, Series 1950 Executive, National Capital Sesquicentennial Commemorative, Series 1950 Boy Scouts of America Commemorative, Series 1950 Indiana Territory Sesquicentennial Commemorative, Series 1950 . . Judicial, National Capital Sesquicentennial Commemorative, Series 1960... Canal Zone, Series 1949 _ Denomination (cents) 3 3 10 15 25 6 3 3 3 3 3 3. 3 3 3 2 Under the management program, comprehensive modernization of the Bureau, begun during the previous fiscal year, was continued during 1950. The installation of auxiliary polishers and semi-automatic feedboards on 251 of the old style intaglio plate printing presses, used for printing currency and other engraved work, was completed during the year. As a result of this conversion the output of these presses ultimately will be increased approximately 30 percent, thereby effecting estimated annual savings of over $1 mUlion. The five modern offset presses installed during the year print revenue stamps in 800-subject sheets, thereby doubling the output of the old-type presses; and the three new typographic presses for overprinting revenue stamps and checks have a productive capacity about 25 percent greater than the obsolete presses which they replaced. An improved method of packing sheets of postage stamps for delivery was adopted during the year. In lieu of the previous practice of wrapphig the packages in kraft paper, the stamps are shipped in cardboard cartons which are sealed by a stapling machine. The new method facUitates the packing operation and affords greater protection to the stamps whUe in transit. In accordance with the general policies and objectives of the joint program for improving accounting procedures in the Federal Government, representatives of the General Accounting Office, the Bureau of the Budget, and the Bureau of Accounts of the Treasury Department have worked in close collaboration during the year with the accounting staff of this Bureau in a suryey of its fiscal activities. As stated in the report '^Administrative Management,'^ conclusions of the survey were that the industrial nature of this Bureau's operations and its relationships with other agencies make it especially adaptable to busiaess-type procedures and to a working-capital fund method of financing. An illustrative budget was prepared on this basis and was submitted to the Appropriations Committees of Congress, together with a request for legislation authorizing this Bureau to operate on a wholly reimbursable basis beginning with the fiscal year 1952. Work is progressing satisfactorUy to effect the necessary 907795—51 7 80 195 0 REPORT OF THE SECRETARY OF THE TREASURY changes required in the existing financing and accounting procedures in accordance with the plan, of action recommended by the joint committee assigned to this project: The Classification Act of 1949, Public Law 429, 81st Congress, approved October 28, 1949, exempted those Bureau employees formerly in the clerical-mechanical service and specified that the compensation of such employees shall be fixed and adjusted from time to time as nearly as is consistent with the public interest in accordance with prevailing rates. In conformity with this provision of the law, wage surveys were conducted by the Bureau and rates of pay comparable to those paid by the Government Printing Office for simUar work were recommended to the Treasury Wage Board. In April 1950 the rates of pay for these,positions were approved by the Administrative Assistant to the Secretary. The new rates, which were made effective on April 30, 1950, aff'ected approximately 4,000 employees and resulted in a salary increase for a majority of these employees. The total annual cost of these wage increases wUl be approximately °$1,115,000. I n order to develop a more effective personnel program, the functions of the industrial relations office and the activities of the 'personnel division have been consolidated arid are now administered under a newly created industrial relations division. The total personnel at the beginning of the fiscal year comprised 6,070 employees. There were 1,353 appointments and 1,176 separations, leaving a total of 6,247 employees on the rolls at the end of the year. Expenditures amounted to $25,081,019.73 which is a decrease of $1,767,392.50 or approximately 7 percent less than the total expended during the previous fiscal year. The following tabulation shows the appropriations, reimbursements, and expenditures for the fiscal years. 1949 and 1950. Appropriation: Salaries and expenses Reimbursements to appropriation from bureaus for work completed: i Salaries and expenses Total Expenditures: Salaries and expenses Unexpended balance other Increase, or decrease (—) 1949 1950 $15,660,000.00 $15, 825, 000. 00 $165, 000.00 11, 223, 848.44 9, 299, 243.81 -1,924,604.63 26, 883, 848.44 25,124, 243.81 -1,759,604,63 26,848,412.23 25, 081, 019, 73 -1,767,392,60 35, 436, 21 43, 224, 08 7, 787.87 1 Additional amounts of $1,565.65 for 1949 and $7,316.26 for 1950 were received from employees for recoveries of Government property lost or damaged, refunds of terminal leave compensation, recoveries for jury service, and collections to correct discrepancies in the paper accounts; and from firms for empty drums returned by Bureau, recoveries of excess cost over contract price, repayments of lapsed appropriations, settlement of claim for damage to property, and proceeds from sale of offset printing presses. FISCAL SERVICE—BUREAU OF ACCOUNTS . Receipts and expenditures.—The Government's central accounts for revenues, appropriations, and expenditures of departments and establishments are-maintained, under existing provisions of law, in the Bureau of Accounts. Under the act of July 31, 1894 (5 U. S. C. 264), this Bureau prepares annuaUy for the Secretary a report to the ADMINISTRATIVE REPORTS 81 Congress, classifying receipts wherever practicable by districts. States, and ports of collection, and the expenditures under each separate head of appropriation. Receipts and expenditures of the Government for the fiscal year 1950 are shown in the summary of Federal fiscal operations appearing on page 3 of this report, whUe a more detaUed statement is included as table 1. Accounting improvements.^^In the report ^^ Administrative Management,'^ beginning on page 61, reference was made to the program to improve the Government's accounting under the joint leadership of the Comptroller General of the United States, the Secretary of the Treasury, and the Director, of the Bureau of the Budget. The accounting staff of the Bureau of Accounts from the standpoint of the Treasury Department has carried on the work under this program at the joint working level with the General Accounting Office and the Bureau of the Budget. This accounting staff also during the year rendered technical advice and assistance to the various bureaus and offices of the Treasury Department, principally the United States Coast Guard, the Bureau of Engraving and Printing, and the Bureau of Customs. Substantial progress was made under the joint accounting program as set forth on page 135 of the annual report of 1949. Under the new Budget and Accounting Procedures Act of 1950 the accounting staff of the Bureau of Accounts will be actively engaged in the work of organizing the accounting and reporting activities of the Treasury Department for the purpose of implementing that act (see exhibit 36). Management improvement.—Under the improvement program in the Bureau of Accounts further changes in procedures were adopted during the year and increased mechanization of operations was effected. Certain of these developments are described in the report /^Administrative Management,'' pages 61 to 65. These included the extension of the withholding tax procedure to employment taxes; the preparation of check accounting material in a form to facUitate earlier reconcUiation and settlement of Treasury checking accounts; and the efficient preparation and delivery of the 15 mUlion dividend checks to veterans of World War I I who held national • service life insurance policies. A wide variety of other procedural improvements were instituted during the year. These are described in the following paragraphs. .A new form of Government check has been designed which will show the amount at one place on the check instead of two places. This change will not only facilitate payments of the checks but will effect saviags in the preparation of addressograph plates and in modifications of these plates. Procedure has been placed in operation to effect benefit payments in local currencies of foreign countries for the Veterans' Administration, Social Security Administration, Civil Service Commission, and Railroad Retirement Board. Payments in Poland, Czechoslovakia, and Hungary are made through the United States Disbursing Officers of the Department of State. Payments in certain foreign countries were further facilitated by a new procedure effective May 1, 1950, permittiag the drawing of checks on the Treasurer of the United States by the United States Disbursing Officers of the Department of State in lieu of makiag drafts on the 82 1 9 5 0 REPORT OF T H E SIECRETARY OF T H E TREASURY Secretary of State. This plan wUl be extended to other countries as rapidly as possible. , To facilitate the issuance of PhUippine peso checks and to provide a more economical operation, account No. 3 of the Chief Disbursing Officer was established with the Manila Branch of the National City Bank of New York. This account, operated from Washington, D. C , is to pay certain beneficiaries of the Veterans' Administration and for other purposes. To establish a better control and to simplify the accounting and disposition of PhUippine pesos reclaimed by the Treasurer of the United States on peso checks negotiated on forged endorsements, there was established special deposit account No. 4 to which amounts reclaimed in PhUippine pesos are credited and from which payments are made. The account is administered by the Division of Investments, Bureau of Accounts. Daily Statement of the United States TVeastzr?/.—Commencing November 1, 1949, interest on the public debt is reported hi the daUy Treasury statement as an expenditure when such interest becomes due and payable, as distinguished from the previous practice of showing the expenditure on the basis of interest paid by the Treasurer of the United States. During the year procedures were installed on an experimental basis whereby expenditures of the Departments of the Air Force and the Army were reported to the Treasury through the use of teletype facilities. Commencing in July 1950, the expenditures of these Departments are included in the daUy Treasury statement on the basis of teletype reports. This moves in the direction of the change commencing July 1, 1948, when the expenditures of the departments and establishments of the Government serviced by the Division of Disbursement were first reported in the daUy Treasury statement as, of the day on which checks are issu.ed in payment of Government obligations rather than the day the reports of checks paid were received by mail in Washington, D . C . Disbursement activities.—The Division of Disbursement maintains 27 regional disbursing offices in the continental United States and Territories and other disbursing facilities in foreign countries, serving all executive departments and agencies except the Post Office Department, United States Marshals, the Panama Canal, the Department of Defense, and certain Government corporations. The number of payments, collections, and savings bonds issued by the Division of Disbursement during the fiscal years 1949 and 1950 are as follows: Number Classification Fiscal year 1949 Payments (checks and cash): Social security •. Veterans' benefits Special dividend program _ Tax refunds.. . ' . _ . . Other 1 Collection items.-- . .._.._.. Savings bonds issued to Federal employees in payroll savings plan Total _ _ 38, 407,651 28, 368, 258 5, 787, 078 • 2, 402, 927 33,878, 237 80, 264,384 14, 731, 388 29,412,534 31, 450,036 5,875, 718 2,485, 644 183,926, 581 198,097, 940 28,822, 250 80,137,417 . ._ . Fiscal year 1960 ADMINISTRATIVE REPORTS 83 The improvements in disbursing practices and procedures during the year are summarized on pages 64 and 65 of this report. National service life insurance special dividend program.—Commencing in January 1950 the Division of Disbursement issued for the Veterans' Administration 14,731,388 dividend checks, totaling $2.6 billion to veterans of World War I I who held national service life insurance policies.. To accomplish this task within the shortest period of time possible, a branch of the Washington Regionah Office was established and staffed with the best qualified supervisory personnel available. The • operation was geared to produce 200,000 checks a day. I n view of the magnitude of the program, many innovations and precautionary measures were introduced to provide every safeguard and to facilitate efficient preparation and prompt delivery of the check to the veteran. The transfer posting process of preparing checks was used. This method, having proved expedient on previous tax refund programs, reduced the overall cost of the operation to a unit figure of 3)^ cents, which was considerably less than the original estimate. As a result, the Secretary of the Treasury presented cash awards to those supervisory employees of the Division of Disbursement who were instrumental in effecting the economies. The savings realized resulted from the comprehensive training of the employees assigned to responsible functions and from the adoption of the production line principle which prevented duplication of effort and minimized the possibility of error. See also the report ^^Administrative Management." Withheld foreign checks.—Regulations of the Treasury Department relating to the delivery of Government checks to payees residing in foreign countries were amended to allow delivery in all places in the world except the Russian Zone of Occupation of Germany; the Russian Sector of Occupation of Berlin, Germany; and in Albania and Bulgaria. A copy of the amendment appears as exhibit 37. Government losses in shipment.—The value of shipments reported by Government departments and agencies during the year under coverage of the Government Losses in Shipment Act, as amended (5 U. S. C. 134-134h), amounted to $418,044,811,084, as compared with $405,111,163,200 for the fiscal year 1949. Clauns totaling $105,917.65, which includes $102,890.20 on account of United States savings bonds and armed forces leave bonds redemption cases, were paid out of the revolving fund during the year, and recoveries during the year amounting to $100,094.59 were deposited to the credit of the fund, leaving a net expenditure of $5,823.06 for losses. The cumulative amount of estimated insurance premium savings to the Government from the inception of the act in 1937, based ori rates in effect at that time, totaled $31,537,726.30. Information concerning the operation of this self-insurance plan by the Government will be found in tables 98 to 102. Bonding of Government employees.—During the year the Treasury Department was requested to report on legislation introduced in the Congress to provide for the purchase of blanket position schedule bonds, from funds made "available for administrative expenses, to cover officers and employees of the Government. The Treasury was in favor of the proposed legislation to relieve employees of the personal 84 19 5 0 REPORT OF THE SECRETARY OF THE TREASURY expense of providing surety bonds and to reduce, administrative expenses of handling the individual bonds. Authorized surety ' companies.—A list of the surety companies authorized to write bonds in favor of the United States is published by the Treasury semiannually. During the year certificates of authority were issued to 13 additional companies qualifying them as sole sureties on bonds in favor of the United States.. A totai of 47,124 bonds and consent agreements were approved by the Treasury as to corporate surety during the year. Depositaries of public moneys.—The Division of Deposits handles the administrative work relating to the designation of depositaries of public moneys. Cash balances held by the various classes of depositaries are shown in the table on page 99. The Division completed arrangements with approximately 1,000 additional commercial banks during the year to furnish drafts to officers of the Farmers' Home Administration, the Public Housing Administration, and other agencies for transmitting their collections of Government funds to Federal Reserve Banks for account of the Treasury. The extension of this program facilitates .the transmittal and deposit of Government funds at certain points where volume is small. Effective * January 1, 1950, the Bureau of Internal Revenue, in cooperation with the Fiscal Service, adopted a procedure whereby tax returns covering withheld taxes and social security taxes are combined. Under this new procedure employers deposit witliheld taxes with Federal Reserve Banks either directly or through commercial banks. The commercial banks, through which deposits of withheld taxes are made, render such services as a convenience to their customers without cost to the Government. Prior to the new procedm-e commercial banks were compensated for accepting deposits and issuing receipts for withheld income taxes. Investments of trust funds.—Under various provisions of law, the Secretary of the Treasury is responsible for investing certain trust funds. A summary of the various investment accounts for which he is responsible is shown as table 41. The. revision effective January 1, 1950, in the procedure followed by the Treasury Department in collecting and accounting for deposits of social security taxes provides a basis for earlier collection of employment taxes and for appropriating on a current basis from the general fund of the Treasury to the Federal old-age and survivors insurance trust fund amounts equal to funds received. In view of this change, the practice of making investments for the fund was changed from'a quarterly to a monthly basis. Under this change, the earher use of tax collections accrues to the benefit of the trust fund. Interest payments to trust funds.—The Treasury Department and the Bureau of the Budget have been giving consideration to interest payments by the Government on securities issued to trust funds and not available to the public. In some cases Congress has provided specific guides as to the rate of interest to be paid on. public debt securities issued to trust funds, but in other cases specific guides have not been provided. The Secretary of the Treasury has taken the position that, in the absence of specific guides or directives by the Congress to the contrary, the rate of interest paid on such securities ADMINISTRATIVE REPORTS 85 should be the average interest rate paid on all interest-bearing public issues of the public debt outstanding at any one time (see exhibit 35). Transfer of Canal Zone and Alaska Railroad retirement funds to civil service retire7nent and disability fund.—Pursuant to Public Law 180, 81st Congress, approved July 21, 1949, which provided for consolidation of the accounts for the Canal Zone and Alaska Railroad retirement funds with the civil service retirement and disability fund, the Treasury transferred assets from the abolished accounts amounting to $294,123.83 in cash and $17,539,500 in. special issues of securities to the civil service retirement and disability fund. Collections under section 16 of Federal Reserve Act, as amended {12 U. S. C. 41I{.).—T)uTm.g the fiscal year 1950 there was deposited inthe Treasury as miscellaneous receipts by the Federal Reserve Banks the sum of $191,875,030.82, representing interest levied by the Board of Governors of the Federal Reserve System on basis of the amount of Federal Reserve notes in chculation. Such deposits are made quarterly and the above amount covers the last three quarters of the calendar year 1949 and the first quarter of the calendar year 1950. Comparative figures of amounts deposited by each Federal. Reserve Bank for the fiscal years 1948 through 1950 appear in table 9. Loans and capital subscriptions.—In suppl3n.ng funds required by Government corporations and agencies which are authorized to borrow money for operations, the Treasury made cash advances aggregating $7,203,723,545.91 in 1950. The Treasury received repayments of $5,631,828,343.55, resulting in net advances of $1,571,895,202.36. A statement showing obligations of Governirient corporations and other agencies held by the Treasury as of June 30, 1950, appears as table 66. Cancellations by the Treasury of obligations of Government corporations and agencies amounted to $73,202,146.01 in 1950, of which $73,000,000 applied to capital stock. The Treasury's holdings of capital stock in Government corporations decreased by $236,270,800 during the year as a result of cash pa3mients in the amount of $163,270,800 and the canceUations'of $73,000,000. Dividends, interest, and like payments received by the Treasury from Government corporations and other enterprises in which the Government has a financial interest aggregated $144,922,557.29. Certain' transactions of particular interest are described below, and a tabulation showing dividends, interest, and like payments received from Government corporations and other enterprises in which the Government has a financial interest appears as table 76. 'uLoans to Administrator for Economic Cooperation.—Pursuant to pfovisions in the act of April 19, 1949 (63 Stat. 50), and Public Law 327, 81st Congress, approved October 6, 1949, which further amended the Economic Cooperation Act of 1948 (22 U. S. C. 1501-1522), the Treasury accepted additional notes of the Administrator for Economic Cooperation in the amount of $122,300,000 for the purpose of guaranteeing investments in private enterprises undertaken in foreign countries and $150,000,000 for the purpose of loans to participating countries. As of June 30, 1950, the Treasury had accepted $150,000,000 face amount of guaranty notes and $1,122,300,000 face amount of loan notes. The agreement between the Administrator and the Secretary of the Treasury provides that the notes constitute allocations against which 86 1 9 5 0 REPORT OF T H E SIECRETARY OF T H E TREASURY the Export-Import Bank -of Washington may draw as funds are required. By June 30, 1950, the Bank had drawn $444,373.08 against the guaranty notes and $963,979,000 against the loan notes, leavhig undisbursed balances of $149,555,626.92 and $158,321,000, respectively. Of the $444,373.08 drawn against the guaranty notes, $12,389.33 was repaid to the Treasury, leaving $431,983.75 unpaid as of June 30, 1950. The Foreign Economic Assistance Act of 1950 (Public Law 535, 81st Congress, approved June 5, 1950) authorized an additional $50,000,000 for guaranty purposes. As of the end of the year the Admhiistrator had not presented any notes to the Treasury for purchase against this authorization. Loans to District of Columbia for expansion of the water system.— Public Law 533, 81st Congress, approved June 2, 1950, authorized the Commissioners of the District of Columbia to accept, and the Secretary of the Treasury to make, loans not exceeding $23,000,000 to finance the expansion and improvement of the District of Columbia water system when sufficient sums are not available from the District , of Columbia water fund. Any advances must be repaid to the Secretary of the Treasury m the period 1961-80 in such annual amounts as the Congress shall hereafter direct, and interest shall accrue as of the dates the advances are credited to the water fund. No advances under this authority were made during the fiscal year 1950. Loans to Housing and Home Finance Administrator.—Pursuant to the Housing Act of 1949, Public Law 171, 81st Congress, approved July 15, 1949, the Treasury agreed to purchase notes.of the Administrator of the Housing and Home Fhiarice Agency for the purpose of providing funds fc)r carrying out the provisions of title I of the act for. slum clearance and community development and redevelopment. As of June 30, 1950, the Treasury had purchased one note of the Administrator in the amount of $500,000. The agreement between the Administrator and the Secretary of the Treasury provides for payment of interest to the Treasury at the average rate on outstanding interest-bearing marketable public debt securities of the United States subject to a provision that the rate during each fiscal year will be adjusted to the average rate which pertains as of the close of the precediag fiscal year. In accordance with title IV of the Housing Act of 1950, Public Law 475, 81st Congress, approved April 20, 1950, the Administrator may assist educational institutions in providing housiag for their students and faculties by making loans of funds to such institutions fer the construction of such housing. To obtahi funds for loans uncfer this title, the Administrator may issue and have outstanding at ariy one time notes and obligations for purchase by the Secretary of the Treasury in an amount not to exceed $300,000,000. As of June 30, 1950, the Administrator had not issued any notes or obligations under this title. Production credit corporations.—Production credit corporations, through the Department of Agriculture, returned to the Treasury $4,000,000 durhig the fiscal year 1950, which together with $30,000,000 repaid in the fiscal year T949 reduced the capital stock owned by the Government as of June 30, 1950, to $42,235,000. Commodity Credit Corporation.—The appraised value of the liabUities •ADMINISTRATIVE REPORTS 87 and capital of the Commodity Credit Corporation as of June 30, 1949, as determined by the Secretary of the Treasury under, the act of March 8, 1938, as amended (15 U. S. C. 7 l 3 a - l ) , exceeded the value of the assets by $66,698,457.34. An amendment to the general appropriations bill, 1951 (H. R. 7786), authorized the Secretary of the Treasury to discharge this indebtedness of the Corporation by canceling notes in the amount of $66,698,457.00. A statement showing the results of annual appraisals appears in table 71. The acts of December 17, 1947 (61 Stat. 934), and December 23, 1947 (61 Stat. 941), required the Secretary of the Treasury to cancel notes of the Corporation in the amount of the losses incurred by the Corporation through the sale of commodities in connection with the foreign-aid program. No notes were canceled during 1950. Notes canceled under this provision previous to 1950 amounted to $56,239,432.11. Interest on capital stock, Commodity Credit Corporation.—Pursuant to the Commodity Credit Corporation Charter Act of June 29, 1948 (62 Stat. 1072), the Corporation paid to the Treasury $2,000,000 as interest on its capital stock. The interest rate of 2 percent was determined by the Secretary of the Treasury on the basis of the average interest rate on outstanding interest-bearing marketable pubhc debt securities of the United States on June 30, 1949. Dividends received from the Reconstruction Finance Corporation.— Under the act of M a y 25, 1948 (62 Stat. 261), which requires ari annual payment, between July 1 and December 31, of the amount, if any, by which the accumulated net income of the Reconstruction Finance Corporation exceeds $250,000,000, the Corporation paid into the Treasury on December 31, 1949, as miscellaneous receipts, a dividend of $1,345,185.29 on its capital stock. Cancellations of notes,. Reconstruction Finance Corporation.—In accordance with the act of June 30, 1948 (62 Stat. 1187), the Secretary of the Treasury in 1950 canceled notes of the Reconstruction Finance Corporation in the amount of $202,146.01, which equaled the costs incurred by the Corporation subsequent to June 30, 1947, for handling, storing, processing, and transporting critical materials to stock piles. . As also required by the act, the Corporation deposited in the Treasury as miscellaneous receipts the recoveries less related expenses, made subsequent to June 30, 1947, of national defense, war, and reconversion costs, which in 1950 amounted to $25,022,694.56. A statement showing aU cancellations and recoveries by the Treasury in connection with Reconstruction Finance Corporation notes is shown in table 72. Dividends on and repayments of capital stock of Federal home loan banks.—Dividends amountiag to $1,260,268.75 on capital stock holdiags of the Treasury in Federal home loan banks were deposited ia the Treasury as miscellaneous receipts. The banks also made repayments totalmg $27,270,800 on capital stock, of which $3,723,300 was required under section 6 (g) of the Federal Home Loan Balnk Act, as amended (12 U. S. C. 1426 (g)), and $23,547,500 was voluntary. A statement showing dividends and stock repayments by banks appears as table 74. Dividends on capital stock of the Federal Farm Mortgage Corporation.—The Federal Farm Mortgage Corporation paid to the Treasury duriag the fiscal year 1950 as dividends $17,000,000, in accordance 88 195 0 REPORT OF THE SECRETARY QF THE TREASURY with the act of June 29, 1949 (63 Stat. 347). This sum was deposited as,misceUaneous receipts. Federal intermediate credit banks.—^The Agricultural Credits Act of 1923, as amended (12 U. S. C. 1072), requires each credit bank, at the end of each fiscal year, after all necessary expenses and costs of operation for the year have been provided or paid for, to apply its remaiaing net earnings to (1) making up any losses in excess of reserves, (2) eliminatiag capital impairment, (3) creathig reserves' agaiast unforeseen losses, and (4) paying 25 percent of the amount then remaiaiag to the United States as a franchise tax. Duriag the fiscal year 1950, $260,665.80 was deposited iato the Treasury. Panama Railroad Company.—Duriag the year the Panama RaUroad Company paid to the Treasury $1,000,000 as dividends on capital stock owned by the Governnaent. Smaller War Plants Corporation.—Duriag the fiscal year the Reconstruction Finance Corporation, as liquidation agency, paid to the Treasury $10,000,000 for retirement of capital stock of the Smaller War Plants Corporation, reducing the June 30, 1950, holdiag of the stock by the Treasury to $44,400,000. ^^ Home Owners^ Loan Corporation {in liguidation).—The Treasury received durhig the year final payment on $125,000,000 face amount of Home Owners' Loan Corporation bonds and iaterest. Repayments of capital stock reduced the Treasury holdings of $200,000,000 to $74,000,000 on June 30, 1950. Federal Savings and Loan Insurance Corporation.-—The Treasury received from the Federal Savings and Loan Insurance Corporation $28,981,112.27 representing iaterest on its capital stock at 2 percent from June 27, 1934, to June 30, 1950, less dividends previously paid by the Corporation to the Home Owners' Loan Corporation. The payment was made pursuant to Public Law 576, 81st Congress, approved June 27, 1950, which also contains provisions for future payments to the Treasury of interest on its capital stock at a rate to be determined by the Secretary of the Treasury, and for the retirement of capital stock annually in amounts equal to 50 percent of net 'income for the fiscal year. Federal savings and loan associations.—During the fiscal year 1950 the Treasury received $136,600.00 which completes the repayments on $49,300,000 of shares of Federal savings and loan associations acquired under the act of Jurie 13, 1933, as amended (12 U. S. C. 1464 g-j). Dividends received duriag the year amounted to $1,670.50, which brhigs the total amount of dividends tkrough June 30, 1950, to $10,563,393.85. Federal Crop Insurance Corporation.—Pursuant to Public Law 268, 81st Congress, approved August 25, 1949, which amended the Federal Crop Insurance Act (7 U. S. C. 1501-1519), the Treasury canceled, without any payment beiag made by the Corporation, outstandiag receipts for payments of $73,000,000 of capital stock of the Federal Crop Insurance Corporation, thus redliciag the stock of the Corporation held by the Treasury to $27,000,000, ^ Obligations of foreign governments.—The iadebtedness to the United States from foreign governments arising from World War I amounted to $16,134,787,078.95 as of November 15, 1950, uicludhig $11,434,794,809.51 on account of pruicipal and $4,699,992,269.44 on ADMINISTRATIVE REPORTS 89 account of iaterest. The priacipal figure does not include the World War I indebtedness of Germany amounting to $1,225,023,750 (3,037,500,000 reichsmarks). Tables 110 and 111 show the status of the iadebtedness of foreign governments to the United States arising from World War I. The indebtedness of foreign governments arising from World War II, representing amounts receivable on Iend4ease settlement agreements, collections on which are being handled by the Treasury, surplus-property sales agreements, and other lend-lease accounts, totaled $2,394,002,510.82, details concerning which are shown in table 112. This amount hicludes $291,215,172.64 due the United States for the value of silver transferred to foreign governments under the lend-lease program which is to be repaid ia kind. Final settlement agreements have not been reached with all foreign governments. Payments by Finland on World War I indebtedness.—During the fiscal year 1950 the Treasury received $424,041.98 in payment of Finland's indebtedness under the funding agreement of May 1, 1923, and the moratorium agreements of May 1, 1941, and October 14, 1943. Public Law 265, 81st Congress, approved August 24, 1949, provides that the amounts paid by Finland after August 24, 1949, shall be placed in a special deposit account which shall be available to the Department of State to finance educational and technical instruction and training in the United States for citizens of Finland, American books and technical equipment for institutions of higher education in Finland, and participation of United States citizens in academic and scientific enterprises in Finland. In accordance with the act, the amount received was made available to the Department of State. Lend-lease and surplus-property fiscal operations.—The billing and collecting from foreign governments for reimbursable supplies and services furnished under lend-lease and reciprocal aid agreements and surplus-property sales agreements negotiated by the Department of State were continued. Collections made by the Treasury on these accounts during the fiscal year 1950 amounted to $34,484,200.82, bringing the total collections to $545,340,889.32. Articles and services furnished under agreements as authorized by the Lend-Lease Act were reported in the amount of $13,904,353.38, bringing the total defense aid provided to $50,242,673,031.59 between March 11, 1941, and June 30, 1950. The increase in the total defense aid provided was the net result of the receipt of heretofore unreported charges affecting both reimbursable and nonreimbursable accounts. Reverse lend-lease, consisting of articles and services furnished by foreign governments to the United States up to September 2, 1945, amounted to $7,819,322,790.90. Between March 11, 1941, and June 30, 1950, funds received from foreign governments amounted to $1,766,243,220.78. ^ Of this amount $1,281,178,939.71 has been covered into the United States Treasury as miscellaneous receipts, $221,517,703.91 net has been allocated to the procuring agencies under the cash reimbursement program, $171,035,317.10 has been returned to foreign governments, $88,299,000.00 was. reappropriated to the President by the act of June 30, 1944 (58 Stat. 627), $1,578,332.85 was reimbursed to other agencies, and the remainder of $2,633,927.21 is being held in the Treasury pending settlement of accounts. 90 1950 REPORT OF THE SECRETARY OF THE TREASURY Foreign currencies.—During the fiscal year the Treasury continued the operation of central facilities for receipt and utilization by the United.States of foreign currencies received under surplus property and lend-lease agreements, and excess foreign currencies acquired by sales of surplus property and lend-lease goods. Economic Cooperation Administration counterpart and guaranty funds, and other operations in foreign countries. These currencies are sold to various Government agencies as required. In accordance with provisions for educational exchange programs conducted between the United States and certain countries as authorized in section 32 (b) (2) of the Surplus Property Act of 1944, as amended (50 U. S. C. 1641 (2)), the currencies in the following statement were delivered in the fiscal year 1950 to the Department of State without receipt of the equivalent amount in United States dollars: Country Australia Belgium Burma. China Egypt France..... Great Britain.. Greece India.. Iran Italy Netherlands... New Zealand.. Norway •... Philippines Foreign currency 11,548 pounds 7,037,062.50 francs 1,616,500 rupees 68,000,000,000 gold yuan i 5,033,820 pounds.... . 279,905,000 francs 213,238 pounds : 5,004,200,000 drachmas..142,794 rupees 550,000 rials__.I 354,400,000 lire 1,513,212.60 guilders 41,039 pounds 1,091,811.60 kroner 803,000 pesos Total . Equivalent dollar value $37,280.00 160,000.00 400,000.00 29,000.00 14,500.00 810,000.00 750,000.00 350,000.00 30,000.00 13,750.00 557, 232. 70 500,000.00 115,000.00 220, 000.00 400, 000.00 4,376,762.70 1 Currency delivered during fiscal year 1949. The amounts of foreign currencies held by the Treasury on June 30, 1949, transactions during the fiscal year, and balances on June 30, 1950, in foreign currencies and approximate United States dollar values are shown in table 109. Liguidation of Institute of Inter-American Transportation.—On August 21, 1946, a certificate of dissolution of this Corporation was filed with the Secretary of the State of Delaware. Liquidation was completed under the direction of the Department of State as of August 21, 1949. Since that date various small collections have been deposited in the Treasury as miscellaneous receipts. Liquidation of other war agencies.—Public Law 446, 81st Congress, approved February 9, 1950, relieved certifying officers .of terminated war agencies in liquidation by, the Treasury Department of liability for bona fide pa3anents which had been suspended or disallowed by the General Accounting Office. These suspensions and disallowances have been removed from the accounts of the certifying officers. As of June 30, 1950, the liquidation of the residual fiscal affairs of certain war agencies was completed, except the final disposition of the remaining fiscal documents and the processing of a few miscellaneous claims that are received from time to time. The terminated war agencies include the Division of Central Administrative Services of the Office for Emergency Management, Office of CivUian Defense, War Refugee . ADMINISTRATIVE REPORTS 91 Board, Office of Censorship, Office of War Information, Committee on Fair Employment Practices, and Price Decontrol Board. Liguidation of railroad obligations.—The Treasury received $528,950.75 during the year on account of securities acquired by the United States in connection with loans which were made to railroads under sections 207 and 210 of the Transportation Act of 1920 (41 Stat. 462 and 468). Of this amount $524,550.75 was collected as interest and dividends on securities of the Seaboard Air Line Railway Company, which are administered by the Reconstruction Finance Corporation pursuant to Executive order, and $4,400.00 represents earnings on railroad securities owned by the Treasury, other than those held by the Reconstruction Fiaance Corporation. A statement concerning the liquidation of railroad obligations appears as table 75. Bonds of the Republic of the Philippines.—An additional $1,700,000 was paid by the Republic of the Philippines to the Government of the United States for deposit to the special trust account which was established in the Treasury for the purpose of paying principal and interest on pre-1934 Philippine Government bonds. The money was invested in accordance with the act of August 7, 1939 (53 Stat. 1229/). The amounts of cash and investments in the special trust account as of June 30, 1950, are shown in table 107. 'Deposits of the Republic of the Philippines.—Under authority of the act of June 11, 1934, as amended by the act of August 7, 1946 (22 U. S. C. 1333), and agreements with the Republic of the Philippines, the Treasmy maintains two interest-bearing time deposit accounts for public moneys of the Republic. The authority to maintain the accounts will expire July 1, 1951. As of June 30, 1950J the accounts consisted of deposits of $55,000,000 at 2 percent interest and $70,000,000 at 1 percent interest. Settlement of prewar Philippine depositary account.—In connection with the reconstruction of the account of the Treasurer of the United States with the Treasury of the Philippine Islands at the time of the Japanese invasion, a balance of $525,705.09 was computed from records available to the Treasury Department. Additional information, based on records of the Philippine Treasury as audited by the General Auditing Office of the PhUippine Government, indicated a balance of $422,674.11. After taking into consideration certain transactions which were known to the United States Treasury, a balance of $433,060.57 w^as determined to be due the Philippine Treasury. The Comptroller General approved a settlement with the Philippine Government on that basis. Settlement was made with the Philippine Government on December 7, 1949, by the transfer of $433,060.57 to the demand deposit account of the Central Bank of the PhUippines. A residual balance of $157,689.70 representing the net excess of unidentified credits over unidentified payments was placed in a special deposit account, of the Secretary of the Treasury, where these funds were held until such time as the General Accounting Office had completed the audit and reconciliation through December 31, 1941, of the accounts of those disbmsing officers who customarily used the Philippine Treasury as a depositary. Under date of M a y 8, 1950, the Comptroller General advised the Secretary of the Treasury that all of the checking accounts involved had been reconciled through December 31, 1941, and there appeared to be no objection to clearing 92 195 0 REPORT OF THE SECRETARY OF THE' TREASURY the special deposit account. Accordingly, the balance of $157,689.70 in the account was deposited in the general fund of the United States Treasury in June 1950. This completed all necessary action on the settlement of the account of the Treasurer of the United States with the Philippine Treasury. American-Mexican Claims Commission.—The Treas.ury received from ;the Government of the United States of Mexico $2,500,000 in November 1949 as an installment on the $40,000,000 which Mexico, in the Convention of November 19, 1941, agreed to pay in full settlement of the claims of American nationals as adjudicated by the American-Mexican Claims Commission. The amount enabled a further distribution of 6.2 percent on the unpaid principal amount of each award, making a total distribution of 65.1 percent. A statement of the Mexican claims fund appears as table 103. Mixed Claims Commission, United States and Germany.—No further funds were received by the Treasury from the Department of Justice for distribution on the awards of the Mixed Claims Commission in accordance with the Settlement of War Claims Act of 1928, as amended (50 App. U. S. C. 9). A statement showing the payments by classes and status of the accounts to date is shown as table 104. International Claims Settlement Act of 1949.—Public Law 455, 81st Congress, approved March 10, 1950, provides for the settlement of certain claims of the Government of the United States, on its own behalf and on behalf of American nationals against foreign governments, arising out of World War I I . An International Claims Commission has been established in the Department of State to receive claims, conduct hearings, and adjudicate and render final decisions with respect to such claims. Awards of the Commission will be certified to the Secretary of the Treasury for payment to awardees or their successors or assigns in accordance with the provisions of the act. FISCAL SERVICE--BUREAU OF THE .PuBLIC D E B T The Bureau of the Public Debt performs the administrative work in connection with the management of the public debt, iacluding the preparation of offering chculars and regulations, the issuance of securities and processing of transactions relating thereto, the final audit and custody of securities retired, the keeping of accounts for registered securities, and the drawing of interest checks. Two principal offices are maintained—one in Washington, D. C , for all functions relating to the issuing, servicing, and retiring of public debt securities except those relating to savhigs bonds foliowing^ their issue to the public, and the other in Chicago, 111., where the functions consist of transactions relating to savings bonds after their issue to the public. In addition to these offices, three field regional offices, located in New York, Chicago, and Cincinnati, are maintained for the purpose of decentralizing the auditing of redeemed savings bonds; Management improvement.—^The ,Bureau continued its program aimed at the reduction of the cost of all functions wherever such reductions could be effected without sacrificing any of the security controls. The improvements made during the year will produce annual saviags of nearly $500,000. In addition, savings resulting from improvements installed ia the period 1947-49 amounted to $2.5 mUlion in 1950. ADMINISTRATIVE REPORTS 93 The regional offices of the Register of the Treasury in St. Louis and Los Angeles were abolished and their functions transferred to the Chicago and Cincinnati regional offices. This action substantiail}^ reduced administrative costs without impairment of operating efficiency. The issuance of duplicate savings bonds resulting from claims cases was transferred from the Bureau of the Public Debt in Washington,^ D. C , to the Federal Reserve Bank of Chicago. There this function was consolidated with other bond issue activities of the Bank. The cost of issuing duplicate bonds was thus reduced and delivery of the bonds to their owners was expedited. A summary of public debt operations handled by the Bureau appears on pages 14 to 26 of this report, and a series of statistical tables dealing with the public debt will be found in tables 11 to 27 and 35 to 3.9. The public debt of the United States falls into two bro~ad categories: (1) public issues, and (2) special issues. The public issues are classified as to marketable obligations, consisting of Treasury bills, certificates of indebtedness. Treasury notes, and Treasury bonds; and nonmarketable obligations, consisting mainly of United States savirigs bonds and Treasury savings notes. During the fiscalyear 1950 the gross public debt increased by $4,586,992,491 and the guaranteed obligations held outside the Treasury declined by $7,772,374. Total public debt issues, including issues in exchange for other securities, amounted to $125,610,332,406 during 1950, and retirements amounted to $121,023,339,916. A summary showing the effect of Government operations on the public debt will be found on page 3 of this report. On June 30, 1950, there were 4,670 employees on the rolls of the Bureau of the Public Debt, as compared with 5,848 on June 30, .1949. The decrease of 1,178 employees was made possible through a reduced work load and improved operating procedures. United States savings bonds.—In terms of volume of work, the issue and redemption of United States savings bonds represent by far the largest administrative problem of the Bureau. Since these bonds are in registered form and in the hands of millions of American people, the task of maintaining both alphabetical and numerical records of over 1.3 billion of these bonds, the replacement of lost or stolen bonds, and the handling of erroneous redemptions by financial institutions throughout the country on forged signatures involves a major administrative task. Receipts from the sales of savings bonds during the year were $5,672,735,862 and accrued discount, charged to the interest account and credited to the savings bonds principal account, amounted to $1,045,108,870, making a total of $6,717,844,732. Expenditures for redeeming savings, bonds, including matured bonds, amounted to $5,422,086,571. The amount of savings bonds of all series outstanding on June 30, 1950, including accrued discount, was $57,628,701,716, an increase of $1,295,758,161 over the amount outstanding on June 30, 1949. Detailed information regarding savings bonds will be found in tables 28 to 33. During the fiscal year .1950 approximately 67.8 million stubs representing issued savings bonds of Series E were received for 94 195 0 REPORT OF THE SECRETARY OF THE TREASURY registration, making a total of 1,314.8 million, including reissues, received through June 30, 1950. These stubs are sorted alphabetically by name of owner and microfilmed, and then are sorted in numerical sequence of their bond serial numbers and microfilriaed, after wliich the original stubs are destroyed." The microfilms serve as permanent registration records. Of the 1,314.8 million Series E bond stubs received as of June 30, 1950, 1,254.9 million have been completely processed and 1,218.1 of the latter have been destroyed. The great backlogs in these operations which resulted from the manpower shortage during World War I I have been almost entirely eliminated, as indicated in the following table which shows the processing, at various stages, of the registration stubs of Series E savings bonds. s t u b s of issued Series E savings b o n d s i n Chicago oflBce (in millions of pieces) Period stubs received C u m u l a t i v e t h r o u g h J u n e 30, 1 9 4 6 . . . : Fiscal year: 1947 1948 1949.. 1950 ..: Total Alphabetically sorted A l p h a - Destroyed Numeribetically after . cally filmed Restricted F i n e sort filming 'filmed prior to basis filming 2 sorti 1,042.3 1,022.1 958.9 535.4 317.9 265.6 . 76.8 61.7 66.2 67.8 76. i 66.2 58.9 6.0 120. 4 72.4 58.5 91.1 37.9 323.1 290.5 88.1 120.1 318.4 382.8 115.7 152.3 196.2 447.4 156.6 1,314. 8 1,229.3 1,301. 3 1,275. 0 1,254.9 1,218.1 1 Not complete alphabetical arrangement but sorted to a degree whereby individual stubs can be located. Includes those stubs fine sorted. 2 Completely sorted. The registration records of stubs of issued savings bonds of Series F and G are maintained in Chicago. The audit of retired savings bonds is conducted • in the regional offices of the Register of the Treasury. There were 84.4 million retired savings bonds of all series received in the regional offices during the year. Retired bonds are audited and then microfilmed, after wliich the bonds may be destroyed. Destruction of bonds commenced in the fiscal year 1950 when 317.2 mUlion were destroyed. The bonds of all. series received in these offices have been audited, microfilmed, and destro^'^ed to the extent indicated in the following table. R e t i r e d savings b o n d s of all series in regional oflices (in millions of pieces) Period C u m u l a t i v e t h r o u g h J u n e 30,1946 Fiscal year: 1947 1948 1949 1950 Total Bonds received in regional olfices Audited Microfilmed Balance unaudited Balance unfilmed Destroyed 27.9 19.2 8.7 27.9 . 113.3 95.1 . 85.7 84.4 118.4 94.6 86.8 83.0 61.7 171.4 153.3 3.6 4.1 3.0 4.4 141.2 184.6 98.9 29.9 317.2 406.4 402.0 376.6 4.4 29.9 317.2 ADMINISTRATIVE 95 REPORTS After the retired bonds have been audited in the regional offices, a listing of the serial numbers is transmitted to the Chicago departmental office where the serial numbers are posted to. numerical registers, and the postings verified. The following statement shows the status of the posting of all series of retired savings bonds. Retired savings bonds of all series in the Chicago oflfice (in millions of pieces) Period Number of retired bonds reported Cumulative through June 30,1946 Fiscal year: 1947.. . . . . 1948 1949 . 1950-. Total Status of posting Posted Verifled Unposted Unverified 464.2 384.0 313.5 70.2 137.9 • 99.6 92.5 82.6 195.7 105. 2 96.8 81.2 256.5 110.8 94.9 82.2 12.4. 6.7 2.4 3.8 866.7 862.9 857.9 3.8 70.6 9.7 4.1 6.0 - 5.0 5.0 Of the 78.8 million Series A - E savings bonds redeemed prior to release of registration and received in the.regional offices during the year, 76.9 million,, or 97.6 percent, were redeemed by over 16,000 paying agents, who were reimbursed for this service, in each quarter year, at the rate of 15 cents each for the first 1,000 bonds paid' and 10 cents each for all over the first 1,000. The total amount paid to agents on this account during the year was $9,558,666, which was at an average rate of 12.44 cents per bond. The following table shows the number of issuing and payiag agents for Series A - E savings bonds, by classes. Post oflFices June 30 Banks Building andflsavings'and loan Credit unions Companies operating payroll plans All others ^Total Issuing agents 1947 1948 1949... 19501 26,420 26,179 24, 944 25,060 :. . 15,178 15,178 16,206 15, 225 1,856 1,706 1,621 1,567 719 616 565 522 2,910 3,289. 3,192 3,052 1,320 605 595 560 47,403 46, 572 46,122 46, 966 63 50 64 57 16,052 16, 508 16,624 16, 691 Paying agents 1947 1948 1949 1950 _•_ L 15,176 16, 627 15, 559 . 15,623 683 786 863 874 140 146 138 137 During the fiscal year, 8,728,509 Series G bond interest checks were issued with a value of $446,579,998. This is an increase of about 145,000 checks over the number issued during 1949. There were 37,213 applications during the year for the issue of duplicates of lost, stolen, or destroyed savings bonds, in addition to 907795—51- 96 1950 REPORT OF THE SECRETARY OF THE TREASURY 2,710 cases on hand at the beginning of the year, making a total of 39,923 cases, of which 9,179 were credit cases referred to Washington for settlement. In 8,518 cases the bonds were recovered, and in 20,142 cases the issuance of duplicate securities was authorized. On June 30, 1950, only 2,084 cases remained unsettled. Registered^ accounts for other than savings bonds.—During the year 14,000 individual accounts covering publicly held registered securities other than savings bonds were opened and 38,000 were closed, leaving a total of 358,000 such accounts open on June 30, 1950, covering registered securities in the principal amount of $14.5 bUlion. There were 715,000 interest checks issued to owners of record during the year, which was a decrease of 43,000 from 1949. Armed forces leave bonds.—Through June 30, 1950, armed forces leave bonds aggregating $2,088,672,000 in face value had been issued and $1,783,447,000 had beeri retired, leaving a balance of $305,225,000 outstanding on that date. The issues and retirements of armed forces leave bonds monthly during 1950, on the daily Treasury statement basis, are shown in table 21, and the accumulated issues and retirements of the issues outstanding on June 30, 1950, on the Public Debt accounts basis, are shown in table 17. The following statement shows the issues, retirements, and outstanding for selected periods: October 1, 1946, to April 30, 1947 May 1, 1947, to August 31, 1947 September 1, 1947 to October 31, 1947 November 1, 1947, to June 30, 1948... June 1, 1948, to June 30, 1949... June 1, 1949, to June 30, 1950 Total 1,721,045 38,151 205, 557 23,457 90,568 1 1,047,022 63, 866 408, 252 7,490 171,054 147 95, 511 2,088, 672 1, 682, 893 1,864,993 908,540 564,153 400,589 305, 225 1, 783, 447 1 Redemption on and after September 1, 1947, at owner's option, was provided in amendment to Armed Forces Leave Act, approved July 26, 1947. The total number of armed forces leave bonds issued, including reissues, through June 30, 1950, was 10,113,171 and the number retired was 8,693,772. Of the total bonds issued, 6,927,881 were issued by the Army, 2,611,757 by the Navy, 415,354 by the Marine Corps, 157,540 by the Coast Guard, and 639 by the Division of Loans and Currency. This Division is now the only agency which issues these bonds. Redeemed currency.—On July 1, 1949, the Division of Loans and Currency (Washington) had on hand 22,248 unaudited bundles (4,000 half-notes each) of United States currency that had been retired from circulation as unfit. During the year 333,634 bundles were received, an increase of 12,119 bundles over 1949; and 331,945 bundles were audited, leaving a balance of 23,937 unaudited bundles on hand on June 30, 1950. 97 ADMINISTRATIVE REPORTS The Destruction Committee supervised the incineration of redeemed canceled currency during the year as follows: Class of currency Gold certificates Silver certiflcates.. . . . . United Statesnotes T r e a s u r y notes of 1890. . F e d e r a l Reserve notes F e d e r a l Reserve B a n k notes N a t i o n a l B a n k notes Fractional currency Total . . - - Pieces Value • 86,035 1, 278, 874,012 48,531,291 119 . . . . . . . . . ^ 457, 681, 301 . . . . _ . . 1, 760, 245 402, 797 1,114 . . . . . $2,065,120 1, 867, 590,960 199,465, 521 355 . 5,629,633,865 36,066, 428 6, 219,374 212 1, 787, 336,914 7, 741, 041,835 FISCAL SERVICE—OFFICE OF T H E T R E A S U R E R O F T H E U N I T E D S T A T E S The Office of the Treasurer of the United States is essentially a banking facility of the Government. The responsibilities of the Treasurer include the receipt of all public moneys; custody, issue, and redemption of United vStates currency and coin; payment of Government checks; custody of securities deposited in the Treasury as collateral or for safekeeping; and payment of principal and interest on the public debt. The Office of the Treasurer of the United States prepares the Daily Statement of the United States Treasury, which recapitulates all transactions in the accounts of the Treasurer, and issues monthly statements of the public debt and of currency outstanding. Management improvement.—The Office of the Treasurer continued its program of improviag operations and eff'ectmg economies. The major activity of the Office from the standpoiat of personnel required is the payment of Government checks. Studies and reviews of this activity, facilitated by means of a system of cost and production reports, resulted ia reductions in the unit salary costs for processing paper checks and card checks paid ia Washuigton, 3 percent and 10 percent respectively, and 9 percent on card checks paid through the Federal Reserve Banks. Constant effort is directed toward the streamliniag of procedures, one result of which was the discontuiuance of the audit of paid interest coupons prior to their transmittal to the Register of the Treasury for final audit. This wUl result m annual saviags of approximately $80,000 in the Office of the Treasurer. Money received and disbursed by the Treasurer.—Moneys collected by Government officers are deposited with the Treasurer at Washington, D . C , and in Federal Reserve Banks and designated Government depositaries for credit of the account of the Treasurer of the United States, and all payments are charged against this account. Total receipts and payments for 1949 and 1950 are shown in the followiag table on the basis of the daUy Treasury statement. 98 195 0 REPORT OF THE SECRETARY OF THE TREASURY 1950 Receipts: B u d g e t a r y (net) 2 T r u s t accounts, etc.3 Public debt < ' ___ _ _ Subtotal Balance in general fund b e g i n n i n g of year Total Expenditures: Budgetary * T r u s t accounts, etc.3 •__ : Clearing account for o u t s t a n d i a g checks, interest coupons, a n d telegraphic reports from Federal Reserve B a n k s P u b l i c d e b t 4.. .. Subtotal B a l a n c e LQ general fund at close of year Total $38,245,667,810.11 5, 714, 426, 671.10 118, 201, 295, 620. 89 $37, 044, 733, 657. 37 6, 668, 734, 224. 26 125, 610, 332, 406. 21 162,161,390,002.10 4, 932, 021,477. 07 169,323,800,187.83 3,470,403, 311. 67 167,093,411,479.17 172, 794, 203, 499. 50 40,057,107, 857. 79 6, 209,160,036. 37 40,166,835,'914.82 6, 569, 596,863. 78 6 366, 441, 900. 21 117, 723,182,173. 55 8 482, 656,886. 26 121,023, 339, 915. 50 163, 623, 008,167. 50 3, 470, 403, 311. 67 167, 277,115,807.85 6, 517, 087, 691. 65 167,093, 411,479.17 172, 794, 203,499. 50 1 See table 1, footnote 7. 2 T o t a l b u d g e t receipts less a m o u n t s a p p r o p r i a t e d to Federal old-age a n d survivors insurance t r u s t f u n d a n d refunds of receipts. See also table 1, footnote 3. F o r details of receipts for 1950, see table 3. » F o r details for 1950, see table 4. * F o r details for 1950, see table 21. . « See table 1, footnotes 3 a n d 4. F o r details for 1950, see table 3. 6 Excess of credits ( d e d u c t ) . Assets and liabilities of Treasurer's accounts.—The assets of the Treasurer consist of gold and silver bullion, ^coin and paper currency, and deposits in Federal Reserve Banks and commercial banks designated as Government depositaries. A summary of the assets and liabilities in the Treasurer's account at the close of the fiscal years 1949 and 1950 is shown in table 40. Gold.-—Gold receipts during 1950 amounted to $484.7 million and disbursements totaled $720 million, a net decrease of $235.3 million. This decrease reduced the total gold assets to $24,230.6 million on June 30, 1950. LiabUities against these assets were $23,022.9 million of gold certificates and credits payable in gold certfficates and $156.0 million for gold reserve against currency. The balance, $1,051.6 million, was in the general fund on June 30, 1950. Credits during the year to the gold increment account, as a result of the revaluation of gold in relation to the dollar, amounted to $82,444.84. This makes a total doUar increment from 1934 through the fiscal year 1950 of $2,819,221,746.09. Silver.-—During the year 26.5 million ounces of silver bullion, which had been carried in the general fund at a cost value of $23.2 mUlion, was monetized at a monetary value of $34.3 million. This $34.3 million increase in silver assets was offset by a decrease of $6.3 mUlion in holdings of silver dollars, making a net increase of $28.0 mUlion in assets during the year. As of June 30, 1950, the sUver assets of the Treasurer (exclusive of subsidiary coin and bullion held in the general fund at cost and recoinage value) amounted to $2,342.9 million. LiabUities against silver at the end of the year amounted to $2,324.6 million for silver certificates outstanding and $1.1 million for Treasury notes of 1890 outstanding, leaviag a net balance of $17.2 million in the general fund. The sUver bullion held in the general fund at cost value (exclusive of the $17.2 million at monetary value) increased from $88.3 mUlion on ADMINISTRATIVE 99 REPORTS June 30, 1949, to $97.6 million on June 30, 1950. This increase of $9.3 million is accounted for as follows: $36.7 mUlion net purchases of silver less $23.2 million of silver monetized and less $4.2 million of silver used for coinage. Subsidiary silver and minor coins.—Shipments of subsidiary silver and minor coins from United States mints during the year for circulation usage amounted to $25,048,480.52 as compared with $47,693,386.39 the year before. The following table shows the shipments by denominations: Denomination 1949 Half dollars Quarters Dimes Nickels Cents ._ Total 1950 $5,660,021.00 13, 799, 511. 50 14, 380, 474. 50 7, 473,102.15 6, 380,277. 24 $5 110 016 00 7, 752,009. 00 6, 578, 501. 20 2,183,851.05 3,424,103. 27 47, 693,386.39 26,048,480.52 Paper currency.—Under the laws of the United States the Treasurer is the agent for the issue and redemption of United States currency and coiri. ' Table 81 shows by class and denoiriiaation.the value of paper currency issued and redeemed during 1950, and the amounts outstanding at the end of the fiscal year. A comparison of the amounts of paper currency of all classes issued, redeemed, and outstanding, follows: Fiscal y e a r 1949 Pieces O u t s t a n d i n g at begiiming of y e a r Issues d u r i n g year R e d e m p t i o n s d u r i n g year O u t s t a n d i n g a t e n d of year . Amount 2,825,197,185 $30,446,677,581 1, 724,113,091 7,246,488,000 1,748, 990, 671 7, 757, 292,946 2,800, 319, 705 29,935, 772,636 Fiscal y e a r 1950 Pieces Amoimt 1 2,800,319, 705 1, 761,917, 277 1, 799,873,896 2, 762,363,086 $29,935, 772,636 7,440,477,100 7,870,101,672 29,506,148,063 For further detaUs on stock and circulation of money in the United States, see tables 77 to 81. ' Depositaries.—The followiog table shows the number of each class of depositaries and balances at the end of the year: Class Federal Reserve Banks and branches Other banks in continental United States: General depositaries Special depositaries. Treasury tax and loan accounts. Insular and territorial depositaries .:... Foreign depositaries Total.. Deposits to the credit of the Trea'surer, U. S.,June 30, 1950 $i;093,218,624.22 245,447,846.91 3, 267,784,040. 29 24,545,466.08 33,211, 716.82 4,664,207,682.32 1 Does not include limited depositaries which have been designated for the sole purpose of receiving deposits made by Government ofBcers for credit in their oflQcial checking accounts with such depositaries and which are not authorized to accept deposits for credit of the Treasm'er of the U. S. 100 1 9 5 0 REPORT OF THE SECRETARY OF T H E TREASURY For detaUs on the administrative work relating to designation of depositaries, see page 84. Checking accounts of disbursing officers and agencies.—During the year the Treasurer maintained 4,567 checking accounts of disbursing officers and Federal agencies, including those maintained at the Federal Reserve Banks as fiscal agents of the United States. The number of disbursing officers' accounts by classes and the number of checks paid during the fiscal year were as follows: 1949 D i s b u r s i n g officers Treasury Army ._ Navy... Air Force Other N u m b e r of disbursing officers' accounts . . Total--.. . 1 . . • 1950 N u m b e r of checks paid N u m b e r of disbursing officers' accounts N u m b e r of checks paid 767 887 1,395 140 1,276 177, 886, 692 25,136, 684 25,193, 254 4,191, 637 23, 992, 604 1,295 854 1,275 270 873 191, 475, 228 25, 024, 627 22, 842,117 4, 979, 383 24, 999, 304 4,465 . 256,400,871 4, 567 269, 320, 659 Of the 269,320,659 checks paid in the fiscal year 1950, 223,366,186 were in the form of card checks. There were 204,696,414 checks paid by the Federal Reserve Banks acting as fiscal agents of the Treasurer and the remaining 64,624,245 were paid by the Treasurer in Washington. The amount to the credit of checking accounts of disbursing officers and agencies on the books of the Treasm'er of the United States on June 30, 1950, was $7,627,516,906.60 as compared with $7,135,391,447.41 on June 30, 1949. Check claims.—During the year the Treasurer of the United States issued 25,239 checks totaling $1,838,315.03 in settlement of claims for the proceeds of checks which had been paid bearing forged or unauthorized endorsements. The Chief Disbursing Officer issued 40,225 substitute checks totaling $8,570,897.75 to replace unpaid checks which, it was claimed, had not been received, or were lost, destroyed, etc. Many additional claims were received but not honored because they were not well founded. Cases involving forgeries are investigated by the United States Secret Service. For information on check forgeries see the report of the United States Secret Service, page 134. Treasurer's Cash Room.—The commercial checks, drafts, postal express money orders, etc., deposited by Government officers with the Treasurer's Cash Roorir in Washington for collection aggregated 3,501,748 items for the fiscal year 1950, as compared with 3,327,236 items for the fiscal year 1949. Treasurer's Securities Division.—The public debt securities and interest coupons examined by the Division of Securities of the Treasurer's Office are as follows: ADMINISTRATIVE 101 REPORTS Pieces 1949 Marketable securities: Principal •. Interest coupons ' Nonmarketable securities: Armed forces leave bonds 2 United States savings bonds 2. United States savings stamps 3 Other , Total.. :..... 1960 139,876 213,801 1,233,708 4, 781,324 5,986 57, 310 2,, 141, 780 320, 380 2, 409 54, 310 960, 745 186, 989 19,879,132 7, 219, 485 1 Effective Nov. 1,1949, interest coupons paid by Federal Reserve Banks are sent directly to the Register of the Treasury by the Federal Reserve Banks. 2'Arraed forces leave bonds and United States savings bonds paid by Federal Reserve Banks are sent directly to the Register of the Treasury by the Federal Reserve Banks. 3 Effective Mar. 1, 1950, United States savings stamps paid by Federal Resesve Banks are sent directly to the Register of the Treasm'y by the Federal Reserve Banks. The Treasurer issued and redeemed the following savings bonds during the fiscal years 1949 and 1950: 1949 Number Issues: ^ E F G . :... Total Redemptions: ' A-D E F. G Total 1950 Amount Number Amount 76, 544 575 2,712 $5, 464, 931. 25 506,012.00 3, 567,100.00 70,961 . 501 2,283 $4,756,387.50 602, 582. 00 3, 280, 400. 00 79, 831 9, 538, 043. 25 73, 745 8, 639, 369. 50 9,555 39, 485 2,935 5,336 3, 055,132:07 2, 345, 555. 91 2,111,251.09 5, 202, 878.19 13,316 32, 281 3,030 5, 683 3, 801, 283.00 2, 059,043. 75 2,486, 585.00 5, 366, 664.00 57, 310 12, 714,817. 26 54, 310 13, 713, 565. 75 1 For the most part Uirited States savings bonds are issued and redeemed by issuing and paying agents throughout the couritry (see p. 95). Savings bonds placed in safekeeping with the Treasurer and then withdrawn therefrom are as follows: Number • 1949 740,809 75, 507 694, 750 74, 614 .. 816,316 121, 566 769,364 95, 725 -. 694, 750 673, 639 I n safekeeping a t beginning of year P l a c e d in safekeeping W ith dra^vn from safekeeping I n safekeeping at e n d of y e a r . 1950 102 195 0 REPORT OF THE SECRETARY OF THE TREASURY Securities held in safekeeping.—The face value of securities held by the Treasurer in safekeeping on June 30, 1949, and June 30, 1950, is shown in the following table: Purpose for which" held June 30, 1949 To secure deposits of public moneys in depositary banks To secure deposits of postal savings funds . For District of Columbia: Teachers' retirement and annuity fund Waterfund Other : . United States savings bonds held for various depositors For the Board of Trustees, Postal Savings System For the Secretary of the Army .._._ For the Secretary of the Treasury: Foreign obligations (World War I) . Obligations on account of sales of surplus property Capital stock and obligations of Government corporations and agencies ..^ Other... -... For Federal Deposit Insurance Corporation ._ For Attorney General K. , Miscellaneous... Total .. June 30, 1950 $304, 462, 200 7,079,800 $311, 029, 800 9, 314, 000 14, 902,850 1, 773,000 6, 586, 670 54, 239, 280 2, 358, 542, 660 6,895, 480 16, 248, 500 1, 773, 000 740, 670 53, 089, 060 2,109, 539,160 6, 895,480 12, 071, 934, 757 46, 737,095 12, 071, 934, 757 46, 737, 096 9, 463, 984, 645 12, 218, 987 923, 000,000 21,151,134 110, 491, 352 10, 727, 700, 686 265,452, 456 1,065,000,000 21,151,134 107, 486, 277 25, 402, 999, 910 26,814, 091, 075 1 Noninterest-bearing participating certificate for funds deposited in German special deposit account. Servicing of securities for other Federal agencies.—In accordance with agreements between the Secretary of the Treasury and the several Government corporations and agencies and insular .governments, the Treasurer of the United States acts as special agent for the payment of principal of and interest on their securities. The amounts of such payments during the fiscal year 1950, on the basis of the daily Treasury statement, were as follows: Principal F e d e r a l h o m e loan b a n k s . : . . . . $416,146,000. 00 F e d e r a l farm loan b o n d s . . ' 146, 846, 800. 00 Federal F a r m Mortgage Corporation... 346, 500. 00 Federal H o u s i n g A d m i n i s t r a t i o n 2, 870,100. 00 H o m e Owners' Loan Corporation 647,000.00 Public Housing Administration 1, 000. 00 Philippine Islands . Puerto Rico-..^ 1 300, 550.00 Total 566,156, 950. 00 Interest paid incash Registered interest Coupon interest $4, 894, 082.12 2, 981. 75 1, 366.13 36,742.42 262. 50 ..-..,......- 2, 595. 00 $163, 782. 50 96, 706. 00 56,321. 62 68.75 1, 030, 757. 60 349,582.50 4, 937,029. 92 260, 487. 50 12, 412,443. 54 $10, 950 460. 96 25, 262. 21 1 Includes $50 premium. BUREAU OF INTERNAL REVENUE The Bureau of Internal Revenue is responsible for the collection of the iuternal revenue and for the enforcement of the laws relating thereto. These laws include such statutes as the Federal Alcohol Administration Act (49 Stat., 977), as amended (27 U. S. C. and Sup. 201-212); the Liquor Enforcement Act of 1936 (49 Stat., 1928, 27 U. S. C , 211-228); and the Federal Firearms Act (52 Stat., 1250, 15 U. S. C , 901-909), which are regulatory in purpose and do not impose taxes. ADMINISTRATIVE 103 REPORTS Some of the major aspects of the Bureau's operations are discussed herein. A more detailed account will be found in the Annual Report of the Commissioner of Internal Revenue for 1950. COLLECTIONS Internal revenue collections for the fiscal year 1950 totaled $38,957,125,591, a decrease of 3.7 percent ifrom the total for the preceding year. Decreases occurred principally in the collections of income and profits taxes and miscellaneous internal revenue. The principal increase was in the collection of employment taxes. Collections by tax sources for the fiscal years 1929-50 are shown in table 7 in the tables section of this report. A comparison of collections from the principal sources of tax revenue for the fiscal years 1949 and 1950 follows. Fiscal year 1949 Fiscal year 1950 Source I n t h o u s a n d s of dollars I n c o m e a n d profits taxes: I n d i v i d u a l (includinc: w i t h h e l d ) Corporation.T o t a l income a n d profits t a x e s . . . E m p l o y m e n t taxes . . . . E s t a t e a n d gift taxes '._ L i q u o r taxes L . . T o b a c c o taxes S t a m p taxes M a n u f a c t u r e r s ' e x c i s e taxes Retailers'excise taxes .: Miscellaneous taxes 2 . . . . T o t a l collections L. . . . ._ . . . . ._ _ _. Percent increase. crease (—) 18, 051, 822 11, 553, 669 17,153,308 10, 864, 351 • -6.0 -6.1 29, 605, 491 2, 476,113 796, 538 • 2,210,601 1, 321, 876 72, 828 1, 771, 533 449, 211 1, 758, 930 28, 007, 659 2, 644, 575 706, 227 2. 219,196 1, 328, 464 84, 648 1, 836; 053 409,128 1, 721,175 -5.4 6.8 -11.3 0.4 0.5 16.2 3.6 -8.9 -2.1 40, 463,119 38, 957,126 -3.7 1 Excludes collections for credit to trust accounts. 2 Includes repealed taxes. ENFORCEMENT ACTIVITIES The campaign that was started in 1946 to strengthen the Bureau's enforcement program was vigorously pursued in the fiscal year 1950. The recruitment and training during the year of additional deputy collectors, auditors, revenue agents and special agents raised the enforcement personnel strength of the Bureau to a total approaching the number on the rolls prior to the personnel reductions made at the beginning of the fiscal year 1948. However, the benefits from the recruitment and training of additional enforcement personnel are cumulative, rather than highly fruitful for the first year or two. Consequently, they are not reflected to any substantial degree in the results of the Bureau's enforcement activities during the fiscal year 1950. Additional assessments resulting from enforcement operations in 1950 totaled $1.7 bUlion, as compared with approximately $1.9 billion the preceding year. Distraint warrant collections, however, showed a 104 1 9 5 0 REPORT OF T H E .SECRETARY OF T H E TREASURY 6 percent increase, reaching a total of $368 million for the year. comparison of the 1950 totals with earlier years is as follows: Additional assessments Fiscal year Distraint warrant : collections i 1 Additional assessments Fiscal year In thousands of dollars 1942 1943 1944 1946 . 1946 -- ...i.: . 438, 441 566, 058 730, 974 922,428 1, 280, 218 A Distraint warrant collections i In thousands of dollars 62, 572 73,127 83, 339 166, 488 198, 731 1947 1948 1949 1950 1, 928, 610 1.897, 015 1, 891, 679 1, 747, 592 . 209, 466 280,184 346 509 368,386 1 Distraint warrant collections represent primarily collections of undisputed araounts which taxpayers have failed to pay when due. Occasionally, it becomes necessary to collect additional assessments by distraint warrant, but these cases represent only a small portion of the total distraint warrant collections. Audits and investigations of income and profits tax cases accounted for 89 percent of the additional assessments made in 1950. These assessments resulted primarily from errors and omissions discovered in the routine audit of returns. Not counting special fraud investigations, 3,545,169 returns of all kinds—including 2,980,534 individual income tax returns and 190,778 corporation income and profits tax returns—were examined or investigated through direct contact, either personally or by correspondence, with taxpayers. The number of returns subjected to these enforcement activities was 15.4 percent greater than in the preceding year. There remains a large backlog of returns for the tax year 1947, which require prompt examination in order that assessment of the taxes properly due may not be prevented by statutory limitations. In addition, there are the many millions of returns for the tax years 1948 and 1949, which have a high potentiality of additional revenue upon audit. In addition to the foregoing examinations, 3,120 fraud investigations were made, resulting in criminal prosecution recommendations against 1,048 individuals. Cash penalties of a civil nature were assessed in many cases which did not warrant criminal prosecution. Numerous investigations were made also under various regulatory statutes, especially the Federal Alcohol Administration Act (49 Stat., 977), as amended'(27 U. S. C. and Sup., 201-212). The effectiveness of enforcement efforts is further indicated by the increasing number of persons convicted on tax evasion charges. The record of convictions, beginning with the fiscal year 1945, is as follows: Individuals convicted Fiscal year 1946 1946 1947 1948 1949 1950 :...... -. . - . .... .... 65 149 182 315 346 385 ADMINISTRATIVE REPORTS 105 WORK-LOAD More than half of the total man-hours avaUable to the Bureau duriug the year were spent in providing necessary facilities and services for the millions of taxpayers who settle their tax accomits voluntarUy. Tax returns and dhectly related information documents aggregating. 220 mUlion were received, controlled, and filed. The taxes reported were assessed and accountuig operations were performed ia connection with the amounts paid in. In addition, the income tax liability of the more than 16 million taxpayers filuig returns on Form 1040-A was computed for them, and income tax refunds and credits were scheduled for more than 29 mUlion individuals whose prepayments exceeded their liabilities. The total number of returns of all types avaUable for enforcement action during the year was 160,383,997, consisting of 78,999,820 returns on hand at the beginning of the year and 81,384,177 returns filed or reopened during the year. The number of returns disposed of was 96,313,237, leavuig a backlog of 64,070,760 returns awaiting action at the close of the year—a decrease of 18.9 percent as compared with the number at the beginning of the year. Of the number disposed of during the year, 3,545,169 returns were subjected to audit as described in the ^^Enforcement Activities" section of this report. There were 92,768,068 returns disposed of without audit or investigation. The wide variance in the amount of attention tax returns require; the fact that expenditure of investigative resources would be uneconomical in m a n y cases; and the lack of enforcement personnel necessary for wider audit coverage are the primary reasons for disposing of such a large number of returns after only superficial examination. In addition to the processuig of an enormous quantity of returns and related information documents, the Bureau's work-load includes the disposition of many thousands of claims for adjustments based on section 722 and the various '^carry-back" provisions of the Internal Revenue Code. Under the provisions of section 722, which allows relief from excess profits tax for corporations mider certain circumstances, there had been filed as of the close of the year more than 54,482 applications for excess profits tax reductions totaling more than $6 bUlion. There were 15,302 claims totaling $4.5 bUlion stUl pending on Jmie 30, 1950. ^'Carry-back" allowances of more than $265 million were made during the year under the ''quick refund" provisions of the Tax Adjustment Act of 1945. Although mucih less numerous than the returns to be processed, the complexity and importance of these so-called "section 722 claims", and the carry-back adjustments, require the full-time attention of a large percentage of the best-qualified technicians in the Bureau'. MANAGEMENT IMPROVEMENT PROGRAM The Bureau continued in 1950 to place major einphasis upon management improvement., Notable progress was made in the utUization of time-saving operating equipment and in the development of more efficient procedures. Management savings during the year were estimated at 480 man years, exclusive of recurring savings from improvements made in prior years. 106 195 0 REPORT OF THE iSECRETARY OF THE TREASURY The use of punch card tabulating machines was extended to one more collector's office, and additional applications of the punch card technique were made in the six establishments already using such equipment. Several high-speed electronic calculators were installed in collectors' offices in seven of the largest cities, for use in the computation of the individual income tax on Form 1040-A and in the mathematical verification of individual income tax returns on Form 1040. Successful tests were made in four collectors' offices of the use of continuous-feed electric typewriters to speed up preparation of identification and account records, and also of new high-speed posting machines to make both original and subsequent postings direct to unit ledger cards, in lieu of assessment lists. The installation of metering devices for the collection of liquor taxes, in lieu of the conventional stamp, was authorized during the year, and a pilot model of such a device was constructed and demonstrated prior to testing by the Bureau of Standards. Procedural improvements in the Bureau were many and varied. A combined return form for reporting both income tax withheld and Federal Insurance Contributions Act taxes was placed in use on a Nation-wide basis effective with the quarter beginning January 1, 1950. The combination of the two tax returns into one return form cuts in half the number of such returns that must be filed by employers and handled by collectors' offices. At the same time, the depositary receipt procedure was extended to Federal Insurance Contributions Act taxes, with provision for making deposits directly with Federal Reserve Banks or through authorized local banks. A program for an excliange of income tax audit information by the Federal and State Governments was initiated. Under this program it is contemplated that one audit made by either the Federal or State Goverriment wiU serve the requirements of both Governments, thereby reducing the inconvenience to taxpayers caused by multiple audits and at the same time offering considerable possibility of operating economy. An operational cost reporting system covering all office and field i activities was introduced in twenty-seven collectors' offices as a means . of obtaining information for general management purposes and statistics for the liew performance type budget. The system will be extended to all collectors' oflices during 1951. Under the Bureau's decentralization program, material reductions were effected in the Washington office in the number of clerical and technical operations involved in specific activities. One measurable result of this program was a reduction during the year of 251 in the number of Washington office personnel. Results in the first year of the audit control program, designed to increase compliance with the revenue laws, are summarized in the report "Administrative Management." The program for testing 1949 returns, which will be dhected principally to business-income returns, has been extended to cover the returns of sinaller corporations and to include returns of certain - Federal excises. This is a long-range program, the benefits from which will be realized progressively over a period of years. ADMINISTRATIVE 107 REPORTS PERSONNEL The number of employees on Bureau rolls at the close of the year was 55,551, consisting of 4,303 employees in the departmental service and 51,248 in the field service. At the close of the preceding year, the number of persons employed totaled 52,266, comprised of 4,554 departmental employees and 47,712 field employees. Changes during the year in numbers of employees in the various branches of the internal revenue service are shown in the following table: S u m m a r y of personnel, Bureau of Internal Revenue, J u n e SO, 1949, as compared with J u n e SO, 1950 Number on payroll asof— Branch of service June 30, 1949 Departmental service. _ _ Field service: Olfices of collectors of internal revenue . . Supervisors of accounts and collections Internal revenue agents' forces: Income, profits, estate, and gift taxes. Miscellaneous and sales taxes Alcohol Tax Unit: Olfices of district supervisors .. ...... Field inspection force. ... . . . Intelligence Unit Technical Stafl... Excess Profits Tax Council Ofl5.ce of the Chief Counsel Processing Division _ :.. Total field service Grand total... . June 30, 1950 Increase, or decrease ( - ) 4,554 4,303 -251 29,908 86 32, 776 92 2,868 6 9,177 86 10, 012 85 4,083 17 1,622 628 147 430 1,356 835 —1 26 2 152 21 -2 21 ^391 47, 712 61,248 3,636 52, 266 56,651 3,285 4,058 15 1,470 607 149 4091,747 C O S T OF. ADMINISTRATION The entire cost of the Bureau's operations during the year, including all items of expense except amounts refunded to taxpayers, was $230,408,200. The amount appropriated for administrative expenses was $230,500,000; thus, there was an unexpended balance of $91,800. The cost of collecting $38,957,131,768 during the year was approxiniately 59 cents per $100 of revenue, compared with 52 cents per $100 in 1949, when collections were higher and expenditures were lower. Data on the annual cost of administration, although of interest and value for certain purposes, can not be relied upon either as a guide to the proper scale of administrative activity or as a measure of relative efficiency of operation from year to year. An annual ratio of cost to collections is determined by many factors, most of which have no relationship to these objectives, To Ulustrate, the higher the level of tax rates and the more numerous the levies that are inherently economical to collect, the lower will be the average cost ratio. The prevaUing level of salaries paid to Bureau personnel and the volume of essential services performed for taxpayers are other examples of these determinative factors. The increase in administrative costs during 1950 is due primarily to additional salary obligations 108 195 0 REPORT OF THE SECRETARY OF THE TREASURY arising from a sizable increase in Bureau personnel and from the general pay increases provided for by the Classification Act of 1949 (63^Stat. 971). REFUNDS Refunds of internal revenue taxes and the interest thereon, as required by law, are paid out of an appropriation separate from that covering the Bureau's adniinistrative expenses. The total amount of these payments for the fiscal year 1950 was $2,216,834,210, as,compared with $2,902,742,898 in the preceding year. The decrease was attributable in part to the fact that many individual income tax refunds paid during the fiscal year 1949 were 1948 refunds deferred for payment because of the exhaustion of the 1948 appropriation for tax refunds. Interest payments ouTefunds increased from $86,346,884 in 1949 to $91,563,575 m 1950. SETTLEMENT OF D I S P U T E S In a large proportion of the tax disputes arising from the Bureau's investigative operations, settlements are reached through conferences with taxpayers, thereby avoiding expensive and time-consuming litigation. Of 55,241 income, profits, estate, and gift tax returns with respect to which the examiners' findings had been protested by the taxpayers, 47,321 were settled by the Bureau and 7,920 were appealed to the Tax Court. As a result of further hearings conducted by the Bureau in cases pending before the Tax Court, settlement by stipulation was effected with respect to an additional 4,864 returns, thereby reducing substantially the number of cases to be tried. OFFICE OF INTERNATIONAL FINANCE The Office of International Finance, under the general direction of an Assistant Secretary, advises and assists the Secretary of the Treasury in the formulation and execution of policies and programs in international financial and monetary matters. The Director of the Office is assisted by advisers on financial policy and by a staff organized into divisions correspondhig to geographic areas or to the functional activities of the Office. These divisions are: National Advisory CornicU Secretariat; Stabilization Fund, Gold and SUver Division; International Statistics Division; Commercial Policy and United Nations Division; European Division; British Commonwealth and Middle E a s t Division; Latin American Division; and Far Eastern Division. The Office also maintains Treasury representatives in several foreign countries. By direction of the Secretary, the Office of International Finance is responsible for the Treasury's activities in matters of international financial and monetary policy, including international monetary and exchange problems, and gold and sUver policy; the Bretton Woods Agreements Act and the operations of the International Monetary Fund and the Intemational Bank for Reconstruction and Development; foreign lending and assistance programs; the activities of the National Advisory CouncU on Intemational Monetary and Financial Problems; the Anglo-American Financial Agreement; and the United States Exchange StabUization Fimd. ADMINISTRATIVE REPORTS , 1 0 9 The Office makes continuing studies of the flow of capital funds into and out of the United States and of the international accounts of foreign countries with speciah attention to transactions in gold and dollars. In carr3dng out its functions, the Office also studies the legislation and policy of foreign countries relating to finance, gold and sUver, exchange rates and exchange controls, and other relevant matters. The Office also provides economic analyses of the customs activities of the Department and advises the Secretary on international financial aspects of matters arising in connection with his responsibUities under the Tariff Act. The Office acts for the Treasury on the financial aspects of international treaties, agreements, and organizations in which the United States participates. It also participates in negotiations with foreign governments with regard to matters included within j t s responsibilities. The Office of International Finance represents the Treasury in the work of the National Advisory CouncU on International Monetary and Financial Problems (of which the Secretary of the Treasury is Chairman) and its subordinate organs. Professional personnel of the Office perform staff and secretariat functions of the CouncU. (See exhibits 27 and 29.) The Office of International Finance advises Treasury officials and other departments and agencies of the Government concerning exchange rates and other financial problems encountered in operations involving foreign currencies. In particular, it advises the State Department and the Department of Defense on financial matters related to their normal operations in foreign countries and the special financial problems arising from military operations and in areas occupied by United States forces. The Treasury representatives in foreign countries act 'as financial advisers to the diplomatic missions, to the occupation authorities, and to the missions of the Economic Cooperation Administration. LEGAL DIVISION The General Counsel is by statute the chief law officer of the Treasury Department. He is directly responsible to the Secretary for the work of the Legal Division and performs other legal activities whicii the Secretary assigns or which arc required by law. The Legal Division consists of the legal staff in the Office of the General Counsel, including the Tax Legislative Counsel, and the legal staffs of the Bureau of the Comptroller of the Currency, Bureau of Customs, Bureau of Internal Revenue, Office of International Finance, Bureau of Narcotics, Bureau of the Public Debt, and the United States Coast Guard. The Office of the General Counsel advises the units of the Department not having legal staffs, including the immediate Office of the Secretary, Bureau of Accounts, Office of Administrative Services, Bureau of Engraving and Printing, Bureau of the Mint, Committee on Practice, Office of the Treasurer of the United States, United States Savings Bonds Division, and United States Secret Service. The Office of the Generah Counsel coordinates the legislative work in the Department and does the related legal work. This includes appearances before congressional committees, the drafting of legisla- 110 195 0 REPORT OF THE SECRETARY OF THE. TREASURY tion, and the preparation of reports to committees of the Congress and to the Bureau of the Budget. Similar work is done in connection with Executive orders and proclamations and departmental rules and regulations. In addition to responsibilities in connection with tax legislation, the General Counsel, through the Tax Legislative Counsel, aids in the negotiation of treaties involving taxation; advises the United States delegate to the United Nations Fiscal Commission regarding international tax problems; studies proposals for amending the tax laws; reviews all proposed closing agreements with taxpayers; participates in the periodic revision of forms necessary to the administration of the revenue laws; and reviews proposed Treasury decisions amending regulations on internal revenue taxation. Special fields hi which the Office operates include gold and silver transactions and administration of the stabilization fund; Treasury participation in the activities of the National Advisory Council on International Monetary and Financial Problems, which coordinates the foreign financial and lending operations of the IJnited States Government, including the policies and operations of the United States representatives on the International Monetary Fund and the International Bank for Reconstruction and Development; payments of Mexican claims and payments to holders of awards of the Mixed Claims Commission; and compromise settlement of general claims of the United States. The Office also coordinates the Department's activities and handles the legal work in respect to a variety of other problems affecting the Treasury, such as the necessary pretrial work in litigation involving Treasury activities, the settlement of tort claims against the Treasury, the claims of Treasury employees for losses sustained in connection with assignments abroad, disclosure of official information, the patent rights of Treasury employees, the employee loyalty program under Executive Order 9835, and the licensing and disbarment of practitioners before the Department. The activities of the Legal Division include consideration of the legal problems relating to broad financial, economic, and social programs, and hiternational cooperation in the monetary and financial fields. The Division's activities also embrace all legal matters arising in connection with the duties and functions of the various bureaus, divisions, and branches of the Department. A more complete description of the scope of these activities is to be found in the separate administrative reports of these organizations. During the fiscal year 1950, the Legal Division handled a number of special problems, which are summarized in the paragraphs which follow. These included legal matters arising in connection with the National Security Resources Board and the Foreign Trade Zones Board, of which Boards the Secretary is a member. The Legal Division represented the Department on various interdepartmental committees, including one to recommend revisions in the inspectional overtime laws, and on various National Security Resources Board committees. In the.fields of international finance and aid, the Legal Division ADMINISTRATIVE REPORTS 111 dealt with legal problems arising in connection with financial, fiscal, and foreign exchange aspects of the European Recovery Program; assisted in formulating the financial and economic aspects of the programs and legislation relating to military assistance, technical cooperation, and measures to encourage American capital to be invested in foreign countries; participated in the meetings of the Contracting Parties to the General Agreement on Tariffs and Trade; and participated in the Transport and Communications Commission of the United Nations. Technical assistance was given to congressional committees in connection with the drafting of legislation to implement the President's taxation and social security programs. The Legal Division studied proposals for the modification of excise tax laws, the closing of tax loopholes, changes in the estate tax structure, tax changes to implement extension of aid to underdeveloped areas, and changes in the corporate rate structure in connection with the general tax program; other miscellaneous revenue bills were also studied. I t participated in preparing regulations under the Technical Changes Actof 1949 (PublicLaw378, 81st Congress, approved October 25,1949) pertaining to minor changes in the income, estate, and gift tax laws. Assistance was also given in the negotiation of tax conventions with the Governments of the Union of South Africa, Colombia, Venezuela, Cuba, Canada, Uruguay, Mexico, Switzerland, and Argentina; the negotiation of a treaty of friendship, commerce, and navigation with the Argentine Government; and in negotiations with the United Kingdom for the establishment of an agreement for joint government of the Canton and Enderbury Islands. During the fiscal year 1950, the Legal Division coordinated and assisted in drafting legislation to reform customs procedures, the proposed Customs Simplification Act of 1950; and aided in many other aspects of the Department's program to simplify and modernize customs procedures. I t participated in handling many special problems of importance under the statutes relating to foreign products which are dumped, subsidized, improperly marked, or produced by forced labor. I t assisted in conducting the tripartite talks with Great Britain and Canada, and in following up and implementing decisions. BUREAU OF THE MINT The principal functions of the Bureau of the Mint consist of the manufacture of domestic and foreign coins; the acquisition of gold and s-ilver, payments for which are made on the basis of mint assays; the safeguarding of the Government's holdings of the monetary metals, including coins in processing stages until finished and issued; the refining of gold and silver; the administration of regulations pertaining to gold and silver, including the issuance of licenses for the acquisition, ownership, possession, use, and exportation of gold for industrial; professional, and artistic purposes; and the production of medals and other decorations. 907795—51- 112 195 0 HEPPRT OF THE SECRETARY OF THE TREASURY The.office of^the^Director of the Mint in\Washington'administers all activities of the Bureau of the Mint. During the fiscal year. 1950 seven field institutions were in operation: Coinage mints in Philadelphia, San Francisco, and Denver; assay offices in New York City and Seattle; the gold bullion depository in Fort Knox, Ky.; and the sUver bullion depository in West Point, N. Y., w-hich operates as an adjunct of the New York Assay Office. Electrolytic refineries are maintained at the San Francisco, Denver, and New York City institutions. The Medal Department is located at the Philadelphia Mint. At the close of the fiscal year 1950 there were 943 persons employed in the departmental and field institutioris compared with 1,272 at the beginning of the year. The operations of the field institutions durmg the fiscal year 1950 and the report of this Bureau on the production and consumption of gold and silver in the United States dm-ing the calendar year 1949 are summarized herein. Further detailed information is contained in the Annual Report of the Director of the Mint, Fiscal Year Ended June SO, 1950. Management program.—A management improvement program vigorously projected in 1950 and directed toward continuing improvements in operating procedures has produced revolutionary results in the manufacturing processes of coinage during the'present fiscal year. The massive melting and rolling equipment in the Denver Mint, , which a year ago was in the experimental stage of operation, has. been brought to a high state of efficiency. In it is processed a 400-pound bronze ingot in place of the 6-pound ingot, formerly processed in small rolling mUls. I t has also eliminated the hand pouring method heretofore used. Coincident with the installation of modern annealing equipment now pending, this equipment wUl be used for nickel and sUver coinage. A new type water-cooled mold, invented by mint technicians at the PhUadelphia Mint, has resulted in a 23 percent reduction in sUver ingot melting costs during the year. Experiments are now being conducted to utilize this equipment for production of nickel and bronze ingots. Recent realignment of the melting operations and other mechanical changes at the Philadelphia Mint wUl result in important economies. With the installation of more powerful motors on the rolling mUls at the San Francisco Mint provision will be made for the processing of longer and wider ingots, and as a result an increase can be made of 100 to 300 percent in the production of coin blanks without increasing personnel. The output of 1-cent blanks wUl be doubled and dimes quadrupled; other denominations wUl come within that range. OPERATIONS OF THE M I N T S , ASSAY OFFICES, AND BULLION DEPOSITORIES Domestic coinage.—Production of United States coins during the fiscal year 1950 totaled 497,271,759 pieces with a value of $22,107,498.66. Denominations were as follows: 113 ADMINISTRATIVE REPORTS Number of pieces produced Denomination •Half dollars 1 'Quarter dollars Dimes 6-cent pieces 1-centpieces.. .. 1 Total....... ..• • Face value 16,118,222 15, 938,994 28, 582i 573 70, 976, 554 365, 656,416 $8. 059, 111. 00 3,984,748.50 2, 858, 257.30 3, 548,827. 70 3, 656,554.16 497, 271„759 22,107, 498. 66 »Includes 636,099 Booker T. Washington commemorative half dollars. Foreign coinage.—Coins produced for seven other governments during the fiscal year 1950 totaled 94,267,944 pieces, as follows: Number of pieces produced Government China . . El Salvador Ethionia Haiti Honduras . . . . . 17,640,000 2,000,000 32,000,000 16,000,000 9,000,000 Number of pieces produced Government Mexico Venez.uela : Total.:.. ... . 760,000 17, 877,944 ... 94, 267, 944 Issue of domestic coins.—United States coins issued by the mints duruig the fiscal year totaled 500,914,823 pieces with a value of $31,261,074.82. Denominations were as follows: Denomination Silver dollars.. Half dollars Quarter dollars Dimes 6-cent pieces 1-cent pieces— Total Number of pieces issued Face value 5,961,406 10,674,887 31,210,860 65, 784, 522 44,178,226 343, 214,932 $5,951,406.00 5, 287,443. 50 .7,802,712. 50 6, 578,452. 20 2,208,911.30 3,432,149.32 500,914. 823 ^1,261,074.82 Stock of coins.—The estimated stock of coins in the United States as of June 30, 1950, totaled $1,872,619,658, of which $492,582,858 were silver dollars, $1,001,573,600 were subsijiiary coins, and $378,463,200 were minor coins. Medals.—The number of service medals and other distinguishing devices delivered to the Department of Defense and other Government departments and agencies totaled 29,570 during the fiscal year 1950. In addition, there were 6,073 medals sold to the public. Bullion deposit transactions.—BuUion deposit transactions at the mints and assay offices totaled 10,589, including 16 intermint transfers during the fiscal year 1950. These transactions requhed 17,905 assay determinations, including 638 determinations for intermint transfers. Acquisitions of gold.—Deposits and purchases of gold during the fiscal year totaled $585,760,504.89, classified as follows: Value Purchases at $20.67+ per fine ounce Increment to $35 per fine ounce. Purchases at $35 per fine ounce Domestic coin transferred (melted) Intermint transfers Total value at $35 per ounce $2,412.48 " 1, 673. 45 572, 191, 745. 88 257, 993. 35 13,306, 679. 73 : _ _ _ _ _ _ . ^ _ 585, 760, 504. 89 114 195 0 REPORT OF THE SECRETARY OF THE TREASURY Acquisitions of silver:—During the fiscal year deposits and purchases of silver totaled 107,885,995 fine ounces, classified as follows: Number of fine ounces Newly mined domestic silver Silver contained in gold deposits, etc Silver received in exchange for Government-stamped bars Recoinage bullion from uncurrent subsidiary coin Recoinage bullion from uncurrent silver dollars Intermint transfers of silver Deposits of silver in trust by foreign governments Redeposits i__ Total_ 38, 228, 805 . 95, 326 380, 883 1, 860, 299 205, 400 117, 373 11, 991, 097 55,006, 812 107, 885, 995 J Consists of Treasury stock previously held by certain agencies of the Federal Government. Refinery production of gold and silver.—During the fiscal year the refineries produced 2,267,708 fine ounces of gold and 2,317,468 fine ounces of silver by the electrolytic process. In addition, 3,078,190 fine ounces of gold and silver were subj ect to fire process only. Issue bars manufactured.—The mints and assay offices manufactured 79,899 issue bars containing 18,179,815 fine ounces of gold and 1,197 issue bars containing 310,343 fine ounces of silver duririg the fiscal year. Stock of unrefined bullion.-—At the close of the fiscal year the stock of unrefined bullion at the mints and assay offices, in terms of the assayed fine metal content, amounted to 953 tons of gold and 510 tons of silver. Monetization of silver buUion.—Silver certificates in the amount of $34,275,555 were issued b}^ the Treasury during the fiscal year against 26,510,000 fine ounces o.f silver bullion, valued at $1.29+ per fine ounce, the statutory monetary value of silver. Seigniorage, representing the difference between the cost and the monetary value of silver, amounted to $11,026,197.04. Sales^ of gold and silver for industrial use.—Sales of gold bars to licensed purchasers for industrial, professional, and artistic use totaled $82,724,085.89 during the fiscal year. Under the act of July 31, 1946 (60 Stat. 750), whicii authorized sales of silver, there were no transactions during tli,e year. Stock of monetary bullion.—The United States stock of gold bullion held by the mint institutions totaled 692,304,800 fine oimces valued at $24,230,633,002 on June 30, 1950. On the same date the mint institutions held 1,151,473,202 fine ounces of sUver bullion and, in addition, 180,714,089 fine ounces of silver bullion in a special custody account for the Treasurer of the United States. The silver in this account was formerly held by the Office of Reconstruction Finance Corporation, and is being melted and cast into regular mint bars. PRODUCTION AND CONSUMPTION OF GOLD AND SILVER IN THE U N I T E D STATES During the calendar year 1949 the total production of gold and silver refined from ores mined in the several States and Alaska was as follows: Gold—1,921,949 fine ounces valued at $67,268,215; and sUver—34,944,554 fine ounces. Gold issued for use in the industrial arts,in the United States during ADMINISTRATIVE REPORTS 115 the calendar year 1949 aggregated $148,975,571, and the return from industrial use of secondary materials, including old jewelry, plate, scrap, etc., amounted to $40,133,100, giving a net consumption of gold of $108,842,471. Silver issued for use in industry and the arts in the United States during the calendar year 1949 aggregated 110,660,459 fine ounces, and the return from industrial use of secondary materials including old silverware, scrap, etc., amounted to 22,660,459 fine ounces, giving a net consumption of silver of 88,000,000 fine ounces. BUREAU OF NARCOTICS i The Bureau of Narcotics is charged with the investigation, detection, and prevention of violations of the Federal narcotic and marihuana laws and of the Opium Poppy Control Act of 1942 (56 Stat. 1045), and related statutes. The scope of its activities is gradually enlarging as additional drugs are made subject to these laws. Under'the act of March 8, 1946 (60 Stat. 38), eleven new synthetic drugs have been brought under control through findings by the Secretary of the Treasury, proclaimed by the President, that the drugs possessed addiction liabUity similar to morphine. A significant aid to the Bureau in t h e ' discharge of its duties was provided by Public Law 365, 81st Congress, approved October 20, 1949, under which moneys expended from appropriations of the Bureau for the purchase of narcotics, including marihuana, and subsequently recovered are reimbursed to the appropriation for the enforcement of the narcotics and marihuana laws current at the time of the deposit. The Bureau directs its activities toward the suppression of the illicit traffic in narcotic drugs and marihuana and the control of the legitimate manufacture and distribution of narcotics through the customary channels of trade. I t issues permits for import of the crude narcotic drugs and for export, and in-transit movements of narcotic drugs and preparations. I t supervises the manufacture and distribution of narcotic substances within the country, and has authority to issue licenses for the production of opium poppies to meet the medical needs of the country if and when such production should be found in the public interest. I t cooperates with the'Department of State in the discharge of the international obligations of the United States concerning the abuse of narcotic drugs and marihuana. Management was improved throughout the Bureau of Narcotics during the fiscal year 1950. The Bureau made every effort to improve operating methods so that funds thus saved could be used to develop investigations of major violations of the narcotic laws. Arrests for narcotic law violations were 1,048 more than during 1949. These results were achieved without any increase in personnel and with an additional appropriation of only $50,000 avaUable for this activity. The scope of enforcement activities is gradually enlarging to the point where additional money and personnel will be required to combat the increasing illicit narcotic traffic. During the year procedures were simplffied and forms were revised and consolidated or eliminated, as circumstances warranted, iri order 1 Further information concerning narcotic drugs is available in the separate annual report of the Commissioner of Narcotics. 116 1950 REPORT OF THE (SECRETARY OF THE TREASURY to relieve agents in the field of as much paper work as possible without sacrificing essential controls or lessening accounting responsibilities. During the fiscal year 1950 the total quantity of narcotic drugs seized in the internal Ulicit traffic amounted to 1,698 ounces, in comparison with 1,726 ounces seized in 1949. Seizures of marihuana amounted to 752 pounds bulk, 23 pounds seeds, 21,313 cigarettes, and 64 growing plants, as compared with 707 pounds bulk, 6 pounds seeds, 25,591 cigarettes, and 59 growing plants in 1949. The table following shows for the fiscal year 1950 the number of violations of the narcotic and marihuana laws by persons registered with collectors of internal revenue to engage in legitimate narcotic and marihuana activities and by persons who have not qualified by registration to engage in such activities, as reported by .Federal narcotic enforcement officers. Number of, violations of the narcotic and marihuana laws reported during the fiscal year 1950, with their dispositions and the penalties Narcotic laws Registered persons Federal Court Pending July 1,1949 Reported during 1950 Federal i . . . . . . Joint 1 Total to be disposed of.. Convicted: Federal Joint Acquitted: Federal Joint Dropped: Federal _ Joint Compromised: 2 Federal Joint . . . . State Court 481 2, 724 1,379 640 1,112 727 5, 410 2,233 12 7 6 2 68 . Federal Court 1,307 _ ... State Com-t' 290 18 4 1 321 15 Pending June 30,1950 Total. Federal Court . Nonregistered persoiis 419 45 5 Total disposed of. Sentences imposed: Federal , Joint Nonregistered persons State Court .. -- -- . Marihuana law 963 435 1,216 564 383 483 105 312 24 8 55 31 17 23 12 10 375 119 101 102 108 144 21 51 1 486 3,994 1,669 241 1,416 564 Yrs. Mos. 98 3 13 Yrs. Mos. 11 6 9 2 Yrs. Mos. 1,913 10 884 4 Yrs. Mos. Yrs. Mos. 1,024 4 593 11 461 3 . 646 . . Yrs. Mos. 75 3 277 1 111 20 2,798 1,485 352 3 Fines imposed: Federal. . . Joint : $26, 552 Total 26, 552 8 2 7 1,239 11 4 $3, 250 $72, 889 18, 792 $7, 092 16, 569 $11,125 5,468 $928 5,449 3,250 91,681 23,661 16, 593 6,377 1 Federal cases are made by Federal oflicers working independently while joint cases are made by Federal and State officers working in cooperation. 2 Represents 69 cases which were compromised in the sum of $12,020. The importation, manufacture, and distribution of opium and its derivatives are subjected to a system of quotas and allocations designed to secure their proper distribution for medical needs. Addi ADMINISTRATFVE REPORTS 117 tional quantities of opium were imported during the year. Coca leaf imports were sufficient for medicinal purposes, and additional supplies were available for the manufacture of nonnarcotic flavoring extracts. The quantity of narcotic drugs exported was slightly higher than in 1949, but the total exported is not significant when compared with the amount used domestically. The manufacture of opium derivatives continued high principally by reason of the high medical consumption of codeine and papaverine. Thefts of narcotics decreased during 1950, both in the number and quantity of drugs stolen. . There were approximately 400,000 registrations under the Federal narcotic and marihuana laws during the fiscal year. C O M M I T T E E O N PRACTICE The Committee on Practice receives and acts upon applications of attorneys and agents for admission to practice before the Treasury Department. I t makes inquiries, holds hearings and in general acts as the administrative and advisory agency in all matters pertaining to practice, makes recommendations to the Secretary of the Treasury, and performs other duties prescribed b y Department Circular 230,revised. The Committee also receives and acts upon applications of individuals, corporations, associations, and partnerships for customhouse brokers' licenses, issues customhouse brokers' licenses, makes recommendations to the Secretary of the Treasury, and performs other duties as prescribed by Department Circular 559, revised May 1, 1947. The following statement summarizes the work of the Conimittee for the fiscal year 1950: Attorneys and agents: Number Applications for enrollment approved ^_ 5, 550 Applications for enrollment disapproved 14 Applications withdrawn on advice of Committee 98 Applications abandoned by Committee 80 Applications withdrawn with prejudice ^ 1 Resignations in good standing__ 1 Special enrollment t o practice before t h e Bureau of I n t e r n a l Reveriue: Applications approved by reason of examination 4 Applications approved p u r s u a n t t o s t a n d a r d s a n d procedures based upon former service with t h e Treasury D e p a r t m e n t 51 Applications of former employees denied 22 Applications abandoned 180 Applications withdrawn 11 Complaints disposed of p u r s u a n t to section 5 (b) of t h e Administrative Procedure Act, as amended (5 U. S. C. 1004 (b)): Resignations submitted in order to evade proceedings in disbarment and accepted by t h e Committee. Names ordered stricken from t h e roll 11 Resignations accepted with prejudice 1 F o r m a l complaints against enrolled persons 4 Disposed of by disbarment 1 Pending J u n e 30, 1950 Customhouse brokers: Applications for licenses approved Applications withdrawn Applications abandoned Applications for licenses disapproved Licenses canceled 1 3 i .,,^i__- 84 4 25 1 18 118 195 0 REPORT OF THE -SECRETARY OF THE TREASURY Since the organization in 1921 of the Committee on Practice 92,565 applications for enrollment have been approved and 853 disapproved, 257 practitioners have been disbarred from further practice before the Treasury Department, 140 have been suspended from practice for various periods, 184 have been reprimanded, and 50 resignations have been accepted. TAX ADVISORY STAFF The Tax Advisory Staff of the Secretary has as its principal responsibility the economic analysis and preparation of material for use by the Secretary in the formulation of Treasury tax policies. In assisting the Secretary to discharge his responsibilities in the field of Federal taxation, the Staff explores the basic economic considerations involved in the form.ulation of the Administration's tax programs and in tax questions presented to the Secretary by the President, committees of the Congress, individual Members of Congress, other Government agencies, and the public. This requires broad economic surveys of tax problems, the assembly and presentation of statistical materials -and analysis of the effects of alternative programs or measures for meeting revenue requirements. Upon request, information is furnished to the House Committee on Ways and Means, the Senate Finance Committee, and the Joint Committee on Internal Revenue Taxation. These responsibilities also involve the - consideration of State and ' local taxation in relation to Federal tax problems and the relationship between United States and foreign tax systems. During the fiscal year 1950 the work of the Tax Advisory Staff was concerried primarUy with the preparation of material for an excise revision program with the resulting revenue loss to be compensated for by increases from other sources, including the closing of the most serious tax loopholes. This program was outlined to the Ways and Means Committee of the House of Representatives by the Secretary on February 3, 1950.^ In the field of international tax relations the Staff assisted in the development of proposals designed to implement the President's Point IV Program and participated in the negotiation of tax treaties with several foreign countries. I t also assisted in the Secretary's cooperative undertaking with representatives of State and local governments to arrive at a basis for an action program on some of the principal problems requiring coordination of Federal with State and local fiscal policies. OFFICE OF THE TECHNICAL STAFF The Office of the Technical Staff in the Office of the Secretary serves as a technical staff for the Secretary on matters relating to Treasury financing, public debt management,, and various general economic problems arising in connection with Treasury activities. For use in policy decisions in these fields the Technical Staff works out possible courses of action, and keeps Treasury officials informed of shifts in the basic economic and fiscal situation. Primary factors in ' The outbreak of hostilities in Korea on June 25; 1950, caused a drastic change in the proposed 1950 tax revision program while the bill was pending in the Senate. H. R. 8920, as modified, was enacted in Septem ber 1950, ADMINISTRATIVE REPORTS 119 debt management policy are the outlook for net cash flow into or out of the Treasury and the outlook for Federal budget receipts, expenditures, surplus or deficit, the debt, and the cash balance. In particular financing operations the Technical Staff draws up alternative plans, including what specific securities might be offered to tap various sources of new funds or in exchange operations. Terms for such, securities are reviewed, including rate of interest, maturit}^, call period, negotiability, eligibility as collateral, redemption privileges accorded to holders, and restrictions as to the amount of purchases or holdings by different classes of investors. The Technical Staff analyzes the relation" of these securities to the maturity schedule and interest cost of the public debt, the effect of their issuance on the market prices and ownership distribution of outstanding Government securities, and the impact of the Treasury's public debt operations on the banking system, the money suppty, and the over-all credit structure. Alternative courses of action are weighed as to the probable effect on the general economy, with particular reference to their inflationary or deflationary impact. The Technical Staff also works out analyses of the assets and the investment position of the various classes of investors, with particular reference to their problems in managing their Federal security portfolios. Itreviewstherelative desirability of cash pa37--off's to, and additional borrowing from, each.hivestor class, and the types of securities best suited to the requirements of each class. The Technical Staff work also includes discussions with consulting committees composed of leading bankers, insurance men, bond dealers, and others. The committees represent the American Bankers Association, the Investment Bankers Association, the Life Insurance Association of America and the American Life Convention, the National Association of Mutual Savings Banks, the Government Security Dealers group, and others. The groups confer with the Secretary from time to time and discuss their particular situations as well as the general aspects of public debt management. On these occasions the Secretary usually has the Technical Staff review developments and outline the problems ahead in the field of debt management. After these meetings the Technical Staff prepares reports for the Secretary to integrate the various reports and recommendations which were received. The facilities of the Technical Staff also are utilized by the Secretary for the preparation of official estimates of Government receipts for incorporation in the President's Annual Budget Message and in intervening budget revisions. ShnUarly, estimates of the revenue effects of proposed and pending legislation are prepared. Technical mathematical analyses needed in connection with financing and public debt problems are also prepared. This work is under the supervision of the Government Actuary, who is an Assistant Director of the Technical Staff. He is responsible for reports on actuarial matters involved in Treasury operations, and prepares actuarial estimates required by statute with respect to the operations of Government trust funds. The Secretary of the Treasury is charged with the duty of handling the investments and other operations for most of these funds. 120 1950 REPORT OF THE SECRETARY OF THE TREASURY UNITED STATES COAST GUARD The operations of the Coast Guard during the fiscal year ended June 30, 1950, embraced in general terms: Maritime law enforcement; saving of life and property at sea; providing navigational aids to marithne commerce and to transoceanic air commerce; promoting the efficiency and safety of the American merchant marine; and maintenance of a state of military readiness. Throughout the year the Coast Guard utilized its available personnel and facUities to the best advantage in carrying out these activities. However, lack of sufficient personnel and facilities prevented a desired expansion in the field of assistance, search, and rescue. Operations hi the field of electronic navigational aids to maritime and air commerce were restricted below a desired minimum level for the same reason. Pursuant to a directive from the Bureau of the Budget to the Secretary of the Treasury, an objective survey, conducted by a special panel of Coast Guard officers, was completed. The recommendations of the Board concerning ^^specific lifeboat stations, light stations, and light vessels which could be disestablished in the interests of economy without increasing maritime hazards" have been submitted to the President. Another special objective survey is being conducted by a panel of Coast Guard officers to re-evaluate the requirements for air stations, air detachments, and aircraft. During the year several projects in the management field were carried forward. Principal among these was the development of new internal accounting and supply systems. The new accoimting system is described in the report ''Administrative Management" and the supply system in the section which immediately follows. MANAGEMENT IMPROVEMENT The benefits derived from the study of the Coast Guard operations during the fiscal year 1948 by a private firm of management consultants have demonstrated the effectiveness of this procedure to further management improvement. Two additional contracts have been signed m t h private consultants to conduct studies of current major problems. The first of these studies wUl constitute a complete survey of the Coast Guard Yard at Curtis Bay, Maryland, the Service's principal industrial plant and shipyard. This study wUl embrace the organization and administrative practices and controls at the yard,' and its production management and industrial processes. The second study wUl be a detailed classification survey of the mUitary and civilian jobs at t h h t y selected ' ' t y p e " shore stations. This wUl serve as a basis for the future Service-wide program on job analysis, specification, evaluation, classification structure, and coding, and on the development of comprehensive information looking toward ex:pansion of the present work measurement program. I t is expected that both of these special studies will be completed during the calendar year 1950. Under the supply improvement program ifour of the ten authorized district supply depots were established durhig the fiscal year 1949 and ADMINISTRATIVE REPORTS 121 the remaining six should be in operation by the end of the calendar year 1950. Formal agreements were recently made imder which the Navy wUl supply the Coast'Guard with items of equipment and consumables common to the two Services. This procedure will eliminate the necessity for frequent open market purchases by the Coast Guard. A special survey board has been appointed to evaluate, and make, recommendations with respect to the location, disposition, utilization,. effectiveness, etc., of existing air facilities and aircraft. The objective of this study is general hnprovement in the efficiency, economy, and effectiveness of the Coast Guard aviation program. Completion of this study is scheduled for the end of the calendar year 1950. The first phase of the program to strengthen the statistical system of the Coast Guard by a further centralization of statistical services and the establishment of a strong central reports review and control has been accomplished. Increased effectiveness wUl be realized during the fiscal year 1951 with the proposed establishment of a central statistical service division at Headquarters. Durhig 1950 the central management group initiated a series of field management surveys to make systematic reviews of operations looking toward general improvement in management practices. One survey trip on the east coast and another on the west coast have been completed. The Administrative Management Division has completed a longterm revision of the Organization Manual of the Service, which, with a new Filing Manual, also recently conipleted, wiU provide more effective guidance to the several administrative levels of the Coast Guard organization. L A W ENFORCEMENT I n addition to the general enforcement of Federal laws on the high seas and territorial waters of the United States, the Coast Guard assisted those departments and agencies of the Government having primary responsibility in the enforcement of the OU Pollution Act, Anchorage Regulations, laws relating to internal revenue, customs, immigration, quarantine, and laws and regiUations for the conservation and protection of wUdlife and the fisheries. Only 39 reports of oU pollution violations were received which reflected considerable improvement over the fiscal year 1949, during which twice that number of violations were reported. Full cooperation in law enforcement matters was extended to all Federal, and to many State and municipal, law enforcement agencies. Coast Guard districts were divided into law eriforcement zones and a captain of the port, under the district commander, was designated for each zone in order to facilitate execution of the Coast Guard's Federal law enforcement function. ASSISTANCE OPERATIONS I n carrying out responsibilities with respect to search and rescue— the saving of life and property—the Service maintains an established organization of inshore and offshore surface rescue vessels, aircraft, lifeboat stations, and radio stations, together with rescue coordinatiori 122 195 0 REPORT OF THE SECRETARY OF THE TREASURY centers in each Coast Guard district. The assistance rendered by stations, vessels, and aircraft during the year is reflected in the following statistics: Number of assistance calls responded to •Number of instances of major assistance Number of instances of minor assistance Value of vessels and. air craft assisted ^ Value of cargo of vessels and aircraft assisted Lives saved or persons rescued from peril \ : 10, 440 3, 860 4, 782 ' $210, 489, 172 $22, 932, 918 :__ 7, 619 The term ''major assistance" signifies the rescue of persons from water or from drifting ice, the removal of persons from endangered vessels, the towing to safety of vessels on which personnel are endangered, and, during floods, the removal of persons to safety when danger of drowning threatens.' Wlien Coast Guard aircraft are employed,"major assistance" includes open-sea landings and take-offs under abnormally hazardous conditions. The diff'erence in the number of calls responded to and the number of instances of assistance reflects those cases in which the Coast Guard responded but assistance was given by some other source or was no longer possible. In collaboration with other Government agencies, the Red Cross, and local authorities, the Coast Guard rendered extensive assistance in evacuating citizens and salvaging property during the floods which occurred in the vaUeys of the Mississippi, the Red Riv^er of the North, the Red River of the South, and the Columbia River. Considerable assistance was rendered to marine commerce on the Great Lakes in the breaking of ice for the passage of vessels. Although the opening of the Lakes to navigation was somewhat later than usual this year, the ice breaker U. S. C. G. C. Mackinaw, with a helicopter attached, was instrumental in an earlier opening than would otherwise have been possible. INTERNATIONAL I C E PATROL The postseason activities of the International Service for Study and Observation of Ice Conditions in the North Atlantic for the 1949 season continued into the fiscal year 1950 and consisted of an oceanographic survey in Baffin Bay and Davis Strait and a census of icebergs in Baffin Bay. The oceanographic survey was carried out by the U. S. C. G. C. Evergreen during the month of July 1949 whUe the iceberg census was accomplished by two long-range aircraft and the U. S. C. G. C. Winnebago. The 1950 Ice Patrol season was inaugurated by aerial ice reconnaissance flights on February 24, 1950. Beginning March 26, because of the menace of icebergs in the United States-Europe shipping lanes, a continuous surface vessel patrol was established by the U. S. C. G. C. Acushnet and the U. S. C. G. C. Tampa. When the ice situation no longer presented hazards to the shipping lane, the surface patrol was discontinued on June 10. The service of International Ice Patrol for the 1950 season was discontinued on June 26, 1950. The scientific aspects bf the International Service of Ice Observation and Ice Patrol were carried out by the oceanographic vessel, U. S. C. G. C. Evergreen;, and, as last year, a postseason oceanographic cruise to Davis Strait and Baffin Bay is planned. ADMINISTRATIVE REPORTS / B E R I N G SEA PATROL 123 ' . The Bering Sea Patrol was continued this year. The purpose of. the patrol is the protection of life and property; protection of thes seal herds and other wUd life; law enforcement and transportation of a floating court in the administration of justice; and the furnishing of medical and dental assistance to natives and others in remote localities in the areas contiguous to the Bering Sea and Arctic. Ocean. The major part of this.patrol was accomplished by the U. S. C. G. C. Northwind. OCEAN STATIONS . During the year, the number of ocean stations niaintained by the Coast Guard in the North Atlantic was decreased from 7)^ to 5%. This was brought about by the. discontinuance of 2 stations and a charige in the agreement with Canada for joint occupation of 1 station whereby the Coast Guard became responsible for its maintenance for two thirds rather than for one half of the time. In the North Pacific, the number of stations maintained was increased from 2 to 3. While engaged in this duty. Coast Guard vessels made 56,456 weather reports, made 19,660 radio contacts with aircraft, gave assistance in 63 -cases, and cruised 668,643 miles. AIDS TO NAVIGATION On June 30, 1950, 37,702 aids to navigation were maintained in the navigable waters of the United States, its Territories, and its possessions, and at overseas mUitary bases. These aids consisted of many different devices, ranging from simple unlighted wooden spar buoys to light stations, lightships, and complex loran (electronic long-range aids to navigation) netw^orks. During the year, 2,093 new aids were established and 1,746 aids were discontinued, resulting in an increase of 347 compared with the number maintained on June 30, 1949. This increase was due principally to the establishment of aids to navigation required for the marking of completed rivers and harbors improvements. ^ In addition to 8 loran stations in the United States, 22 others, located in widely separated and isolated localities (Greenland, Labrador, Newfoundland, Alaska, the Philippines, and the islands of the Pacffic), provide navigators traversing the mUitary and civil air and sea routes of the North Atlantic and Pacific Oceans with means for accurate and quick determination of their positions at all times, regardless of weather conditions. Coast Guard cutters and aircraft were utilized in providing frequent logistic service to these isolated and distant stations. M A R I N E INSPECTION AND SAFETY MEASURES - Among the duties which the Coast Guard performed in promotirig safety in the merchant marine and on navigable waters were approval of plans for the construction, repair, and alteration of vessels; approval of materials, equipment, and appliances;, issuance of certificates of inspection; administration of leadline requirements; licensing and certfficating of officers, pilots, and seamen; investigation of marine 124 195 0 R E P O R T O F THE: SEiCRETARY OF THE TREASURY casualties; enforcement of manning requirements, citizenship requirements, and requirements for the mustering and drilling of crews; control of logbooks; shipment, discharge, protection, and welfare of merchant seamen; promulgation and enforcement of rules for lights, signals, speed, steering, saUing, passing, anchorage, movement, and towlines of vessels, and of regulations governing the transportation of explosives and other dangerous cargoes aboard vessels; numbering of undocumented vessels; prescription and enforcement of regulations for outfitting^ and operation of motorboats; licensing, of motorboat operators; and the regulation of regattas and marine parades. A digest of certain phases of the marine inspection activities follows:/ Number of vessels Annual inspections completed ^ Drydock examinations Reinspections Special surveys (passenger vessels) Special examinations by traveling inspectors on passenger vessels and ferries Miscellaneous inspections-Undocumented vessels numbered under provisions of the act of June 7, 1918, as amended (46 U. S. C. 288) (this is an increase ot 6,219 over the previous fiscal year) 6, 125 5, 090 2, 949 176 Oross tonnage of vessels 16, 847, 851. 19, 610„185 12, 146, 075 9 0 ' A.^ 12, 586 .-'^ . _: 452, 327 1 Includes 234 vessels, totaling 490,004 gross tons, which were conversions or new construction completed during the year. There were 2,731 marine casualties reported of which 2,239 were investigated, 18 of'these by formal Marine Casualty Investigation Boards. Of the 272 lives lost in 119 casualties, only five passengers lost their lives on inspected and certificated vessels and no vessels of over 1,000 gross tons were lost as a result of marine hazards. Two serious marine casualties occurred and were investigated by the Coast Guard. The first of these was the explosion of munitions while being loaded on barges at South Amboy, N. J., which caused 31 persons to lose their lives. The second was the collision between the Norwegian freight ship Ravnefjell and the Great Lakes passenger steamer City of Cleveland I I I , which resulted in the death of four passengers on the steamer. Under the provisions of the act of May 27, 1936, as amended (46 U. S. C. 369), requiring approval by the Commandant of the Coast Guard of all contract plans and specifications for building or altering passenger vessels of the United States of one hundred gross tons and over, 13,388 vessel plans were examined to determine conformance with applicable regulations. Plans covering items of equipment which require approval by the Commandant for use on merchant vessels were reviewed and 178 such items were approved. I n order to assess the fire hazard which exists with modern types of stateroom construction, a fire test, using an actual size stateroom, was conducted with the National Bureau of Standards. The stateroom was constructed of alumirium and was furnished with metal beds and metal furniture. The draperies, bedspreads, mattresses, and chair upholstery were given a fire retardant treatment, and in the room was placed actual baggage such as might be brought aboard by the passengers. The fire severity obtained during the test was ADMINISTRATIVE REPORTS 125 measured and recorded, and the results will provide a factual basis for use in the development of standards for fireproof construction to safeguard properly a vessel against fire in this type of space. The monthly periodical entitled "The Proceedings of the Merchant Marine Council," United States Coast Guard, was published to promote safety of life at sea and was distributed free to seamen, ship owners, operators, and the various Government agencies concerned with the merchant marine. This publication contained feature articles of interest to the merchant marine, lessons taken from actual casualties occurring in the merchant marine, advance notices regarding changes in regulations, and other statistics of interest to the merchant marine. MERCHANT M A R I N E PERSONNEL The licensing and certificating of merchant marine personnel covered the issuance of 75,148 documents. Of this number, 15,246 were issued to men who had not previously served in the merchant marine, and 1,264 were licenses issued to radio officers under the provisions of the act of May 12, 1948 (62 Stat. 232). In the process of regulating the orderly conversion of the merchant marine from wartime to peacetime operation, 236 individual waivers of manning requirements were issued. Shipping commissioners supervised the execution of 13,699 sets of shipment and discharge shipping articles. Merchant Marine Investigating Units in major domestic ports and Merchant Marine Details in certain foreign ports conthiued to operate in the administration of discipline in the merchant marine as required by the act of February 28, 1871, as a^mended (46 U. S. C. 239). Merchant Marine Details in London, Antwerp, Bremerhaven, Naples, Trieste, and Piraeus operated throughout the year. The detail in Antwerp was reestablished July 1, 1950, after having been closed for about two years. During the year, 6,050 investigations of cases involving negligence, incompetence, and misconduct were made. As a result of these investigations charges were preferred and hearings held on 806 cases by civilian examiners. PERSONNEL On June 30, 1950, the military„personnel strength of the Coast Guard.on active duty consisted of 2,073 commissioned officers (1,734 Regular, 206 temporary service, 133 Reserve), 406 commissioned warrant officers (350 Regular, 56 temporary service), 427 warrant officers (82 Regular, 345 temporary service), 296 cadets, and 19,988 enlisted men. The authorized force of civilian employees at Coast Guard Headquarters on June 30, 1950, was 734. In the field service there were 1,419 salaried personnel, 2,589 wage board employees, and 665 lamp^lighters. Upon the enactment of Public Law 351, 8,1st Congress, approy^dj October 12, 1949, new procedures with respect to physical disability retirements were instituted and the reevaluation of personnel retired for physical disability prior to October 1, 1949, was begun. Also pursuant to the law and prescribed regulations, warrant officers were distributed in various grades for pay purposes^ 126 .1950 REPORT OF T H E SECRETARY OF T H E TREASURY On June 2, 1950, 68 cadets graduated, after satisfactorily completing the 4-year course at the Coast Guard Academy, and were commissioned as ensigns. In the 1950 Nation-wide competitive examination for appointment as cadets, 507 candidates from among 1,351 participants received passing grades; and it is expected that 215 will be appointed as the class of 1954. The 1950 summer practice cruise for practical sea training was made aboard the cutters Campbell and Eagle, and included visits to European ports. An officer procurement program was carried on during the year. Regular officers for the Coast Guard are being obtained from the inactive Coast' Guard Reserve, by the selection of commissioned warrant and warrant officers, or enlisted men in the Coast Guard who formerly held temporary commissions, and from among qualified merchant marine officers. Of the 13,806 men who applied for enlistment in the Coast Guard, 3,227 were enlisted, 3,327 were rejected for physical reasons, 6,314 were rejected for other reasons, 595 were accepted but failed to enlist, atid 343 applications were pending on June 30, 1950. " There were 2,369 recruits received during the year at Cape May, N. J., Receiving Center, and beginning in September 1949 the recruit training period was increased to 12 weeks. Public Law 351, 81st Congress, approved October 12, 1949, provides that, in the case of any member whose total compensation on September 30, 1949, exceeded the amount of total compensation to which he would have become entitled under the act, if application is made within one year from October 1, 1949, the effective date of the act, he shall be discharged. During the period from October 1, 1949, to June 30, .1950, 961 enlisted men were discharged pursuant to this provision of law, and this loss contributed greatl}^ to the deficiency in enlisted personnel strength at the end of the year. On June 30, 1950, 17 medical officers, 28 dental officers, 10 nurse officers, 1 scientist officer, and 1 sanitary engineer officer of the Public Health Service were on detail to the Coast Guard. COAST GUARD RESERVE The revitalization of the Coast Guard Reserve and the initiation of a large scale training program were not possible during the year since no funds were appropriated for those purposes. Estimates of appropriations were again submitted by the President for the consideration of the Congress for training Reserve personnel to enable the Coast Guard when operating as a part of the Navy in time of war or national emergency to perform those duties which have been delegated to the S.ervice. Reserve Directors in the respective Coast Guard districts established volunteer training units where personnel and facilities permitted. Where circumstances did not permit Coast Guard Reserve officers to form such units, arrangements were made for them to associate with naval activities. Additional training was provided by offering Naval Reserve correspondence courses to members of the Coast Guard Reserve and approximately 1,000 such courses were ppmpleted b j Reserye officers. Through the cooperatiori pf the Naval ADMINISTRATIVE REPORTS - 127 Reserve Air Training Command, a limited number of Coast Guard Reserve aviators were permitted to participate as individuals in volunteer units of the Naval Reserve Air Training program. During the year, 116 Coast Guard Reserve volunteer training units were established, and of this number 71 were scheduling drills and meeting regularly. Some 3,200 officers were assigned to these 71 units and of this group approximately 28 percent were regularly participating in unit training activities. I t is estimated that 25 percent of the total Reserve officers (4,132) were participating in volunteer training during the year. Reappointments were offered to 1,440 Reserve officers, of which 882 accepted. At the end of the year, the Reserve numbered, 4,132 commissioned and warrant officers and 391 enlisted personnel. COAST GUARD AUXILIARY The Coast Guard Auxiliary is a nonmilitary organization sponsored by the Coast Guard to assist it in promoting safety and in effecting rescues on and over the high seas and on navigable waters; in promoting efficiency in the operation of motorboats and yachts; in fostering a wider knowledge of, and better compliance with, the laws, rules, and regulations governing the operation of motorboats and yachts; and facilitating other operations of the Coast Guard. The Auxiliary had a membership of 12,164 on June 30, 1950, with an affiliated ownership of 6,251 boats, 317 planes, and 156 radio stations. In addition to the requirements that members maintain a high standard of efficiency in engineering, safety, navigation, and operating practices, the members gave approximately 15,000 courtesy motorboat inspections and small-boat seamenship training to approximately 2,400 nonmembers, provided safety patrols for regattas and marine parades, and carried on a vigorous program of safety education and self-help under the general auspices and guidance of the Coast Guard. FACILITIES AND EQUIPMENT Floating units.—On June 30, 1950, the floating units in active commission consisted of 177 cutters of various t3rpes, .50 patrol boats, 37 lightships, 41 harbor tugs, and 10 buoy boats. During the year these vessels cruised 2,085,952 miles in carrying out Coast Guard duties. In addition to the larger floating units there were 177 motor lifeboats, 1,577 motorboats, and 2,295 nonpowered craft in operation aboard ships and at shore, installations of the Service. Shore establishments .—The 17th Coast Guard District was reestablished on July 1, 1949, with the district office located in Juneau, Alaska. This district embraces the Territory of Alaska and adjacent waters. Its reestablishment increased the number of Coast Guard districts to twelve. Authorized shore units as of June 30, 1950, included 9 air stations, 12 bases, 41 depots, 170 lifeboat stations, 429 manned light stations, 78 light attendant stations, 30 loran transmitting stations, 49 marine inspection offices, 12 primary radio stations, 1 shipyard, 2 supply ,907795—51 ip 128 1 9 5 0 REPORT OF THE: SEICRETARY OF T H E TREASURY centers, 9 supply depots, 1 academy, 1 training station, and 1 receiving center. Aircraft.—During the year the Coast Guard operated 79 fixed and rotary wing aircraft deployed from nine continental air stations and eight air detachments. One new air detachment was Established and cominissioned at San Juan, Puerto Rico. Other air detachments beyond the continental limits of the United States were located at Argentia, Newfoundland; Honolulu, T. H.; Guam, M. I.; Sangley Point, P. I.; Annette Island, Alaska; and Kodiak, Alaska. In carrying out the aviation program of the Coast Guard, the aircraft were flown approximately 11,333 sorties for a total of 31,183.7 hours. Communications.—The Coast Guard maintained and operated an extensive communications system to provide for rapid, essential communications between its units. This includes the operation of rescue control centers which provide for liaison, and coordinated communications with all rescue agencies using multiple circuits both mUitary and commercial. *Navy and other Government facilities are used where avaUable to avoid duplication. Commercial landlines, where available, are augmented by Coast Guard-owned landlines and submarine cables to connect isolated units. Strategically located, primary, secondary, base, and radio stations (aero) provide communications with cutters, patrol craft, and aircraft. These facilities are employed for handling distress traffic and for broadcasting both routine and urgent marine information. Isolated shore units having no landline facilities available are radio equipped. More important shore units are also radio equipped to provide for a casualty circuit in the event of landline failure. Excess vessels and property.—During the year, excess vessels with an acquisition value of $2,121,530.36 and other excess property with an acquisition value of $1,711,111.17 were disposed of. CONSTRUCTION AND DEVELOPMENT Maintenance, repair, and modernization of the Coast Guard's 22,000 fixed structures, and the repair and improvement of mechariical equipment continued throughout the year. Approximately 6,000 projects for construction, repair, and maintenance were undertaken. A continuing program of test and development was carried on during the year in technical fields directly related to the Coast Guard's statutory responsibUities. Emphasis was placed on those developments showing long range promise of effecting substantial economies in performing present duties. As a result of the development program new standards for shipboard and buoy painting were placed in effect, which lower material cost and give improved performance. The adoption of more eft'ective techniques of maintaining wooden boats will extend their useful life and reduce annual hull maintenance costs. Technical requirements as to construction of staterooms on passenger vessels were validated by a full scale fire test. Significant development programs which are in progress are: Fiberglass and aluniinum boat construction ^ m e d at producing longer ADMINISTRATIVE REPORTS * 129 lived boats at lower annual costs; redesign of standard buoys to better serve radar equipped vessels; improving radar beacons so as to provide a practical tool at reasonable cost; preventing deterioration of service material so as to reduce annual maintenance and replacement costs; studying practicable methods of improving iriotorboat safety and investigation of methods of making present loran service more useful to mariners. Two lightships under construction by a ^commercial shipbuilder in East Boothbay, Maine, were launched, and completion and dehvery are scheduled for the fall of 1950. Construction was begun on SL third lightship at the Coast Guard Yard! These three vessels will replace overage lightships now in service. Reconstruction of 15 loran stations in the Hawaiian, Japanese, and Marshall chains was started, including relocation of the Marianas chain. Two new lighthouses in the Aleutian Islands were completed during the year at Scotch Cap and Cape Sarichef. A chain stopper for use on buoy tenders in servicing buoys was designed and installed on several vessels for testing. This chain stopper eliminates much of the manual handling of buoy chain in the operations of removing and replacing buoys arid experience to date indicates that it speeds up the work and greatly reduces the hazard to personnel. Production was begun on a 40-foot utUity boat for replacement, as such becomes necessary, of 38-foot cabin picket boats, 30-foot rescue boats, and various miscellaneous craft. This boat is a development of a single prototype 38-foot utility boat buUt last year for testing and evaluation. Several installations of modern postwar search radar have been made at shore lifeboat stations and further operational information is being collected regarding the usefulness of this equipment for protection of life and property on our coasts. Helicopters were equipped with added safety devices designed in former years, with particular reference to emergency flotation. StabUization was further investigated with gratifying results. Helicopters were modernized and steps taken to standardize all of a type to insure greater famUiarity and safety in operation. Hydraulic controls were added for reduced pUot fatigue and greater operational efficiency. The Ship Structure Committee, through joint efforts of the Army, Navy, Coast Guard, Maritime Administration, and the American Bureau of Shipping, has made considerable progress during the year toward the solution of the problem of cracking or breaking apart of welded ships' hulls. With the advantages of welded construction clearly apparent and with fractures stUl occurring the Ship Structure Committee has attacked the problem through basic research programs in^the flelds of design, materials and fabrication, with the assistance and cooperation of the National Academy of Sciences, the National Bureau of Standards, the American Iron and Steel Institute, the Welding Research CouncU, and the British Admhalty Welding Committee. 130 ' 1 9 5 0 REPORT OF THE! iSElCRETARY OP THE TREASURY F U N D S AVAILABLE, OBLIGATIONS, AND BALANCES During the fiscal year 1950 the sum of $625,900 was expended for mustering out payments under the provisions of the act of February 3, 1944, as amended (38 U. S. C. 691). In settlement of unused leave under the Armed Forces Leave Act of 1946 (60 Stat. 963), $2,511 was paid to 15 claimants. The following table shows the amounts avaUable for the Coast Guard during 1950, and the amounts of obligations and unobligated balances: Funds available Current operating appropriation: Salaries, oflice of Conimandant Pay and allowances--. Civilian employees (field) General expenses -.- . _ _ _. . --. - $2, 515,000 82, 520,000 4, 400, 000 39,385, 000 - Subtotal Retired pay Acquisition, coiistruction, and improvements: Total appropriation, 1950 Prior year unobligated balances: Acquisition, construction, and improvements Acquisition of vessels and shore facilities Establishing and improving aids to navigation Special projects, aids to navigation Subtotal . _ Total appropriated funds .., Total working funds Grand total-.- ... 502,030 477, 401 . 368, 836 026, 854 $12 970 2,042, 599 31,164 358,146 126, 375,121 2, 444,879 13, 864, 000 13, 861, 010 2,990 10,000, 000 6,097,030 3, 902, 970 2,074, 398 2,877,963 467, 599 2,516 1, 564, 757 2,489,818 426, 981 2, 249 509, 641 388,145 40, 618 267 15, 422, 476 10, 580,835 4 841,641 158,106, 476 150, 816, 966 7 289 510 81, 324 1, 300 80,024 17, 229 17, 227/ 469, 843 31,075 • Working funds established by advances from other Government agencies: Department of Defense: Department of the Navy Department of the Army Federal Security Agency Department of Commerce Veterans' Administration $2, 80, 4, 39, Unobligated balances 128, 820,000 Miscellaneous funds: Payments, Armed Forces Leave Act of 1946 (allotment to • Treasury, Coast Guard) Proceeds of sales of Coast Guard sites, Treasm-y Department ^ Coast Guard Academy, donations for chapel. Treasury Department Fund for management improvement, Executive Office of the President (allotment to Treasury, Coast Guard) Total miscellaneous furids N e t total obhgations 2 438,768 69, 000 69, 000 637,396 118, 602 518,794 307, 777 57,175 414, 012 20, 000 1,015 267, 263 52,402 413,933 14,023 1,015 40,514 4,773 79 5,977 799, 979 748, 636 51, 343 159, 543, 851 151, 684, 204 7.859, 647 UNITED STATES SAVINGS BONDS DIVISION The principal function of the United States Savings Bonds Division of the Treasury Department is to promote and effect the sale of United States savhigs bonds. The Savings Bonds Division is headed by a National Dhector, serving without compensation, who is also an Assistant to the Secretary of the Treasmy. His chief aide is a National Director of Sales under whom function the following eight divisions: Publicity and Promotion, Payroll Savings, Banking and Investments, Education, ADMINISTRATIVE REPORTS 131 Labor Organizations, Community Activities, Agriculture, and Advertising. A Nation-wide organization of volunteers, under the direction of State and local advisory chahmen and aicied by more than 25 national advisory committees, all serving without compensation, carry forward the sales activities of the Division. The (}Ost of promoting the savings bond program is held to a minimum because of contributions of advertising by newspapers, magazines, radio and television industries, outdoor and transportation advertising businesses, and various other media, as well as by a great many national and local advertisers. These contributions by national advertisers and their agencies are made through the Advertising Council, Inc., a voluntary nonprofit organizatioii of the advertising industry for the'support of public service programs. The ^Tndependence Drive," having as its theme the encouragement of thrift and the fostering of public interest in the affairs of the Government, was the major campaign effort of the year. The Drive was conducted from May 15 througli July 4, 1950, and the national sales quota of $650 mUlion in Series E bonds was exceeded by 10 percent. The volunteer efforts of thousands of workers and the contribution of all types of promotional media contributed greatly to the success of the Drive. The symbol for the Drive was the Liberty Bell, exact reproductions of which were displayed in each of the 48 States and in Alaska, Hawaii, Puerto Rico, the Virgin Islands, and the District of Columbia. At the conclusion of the .Drive, these reproductions were presented by the Secretary of the Treasury to the geographical units in which they had been exhibited, with the intention that the bells should be kept permanently on public, noncommercial exhibition. A bronze plaque accompanied each bell memorializing the purpose of the gift. The plaque named the six American copper companies which provided funds for the purchase of the bells; the steel company which furnished supports for the bells, and the copper fabricating company which donated the plaques. Throughout the year the Savings Bonds Division, effectively supported by an Industrial Advisory Committee made up of 28 nationally known industrialists and bankers, as well as by numerous industrial and trade organizations, carried out an intensified campaign to increase participation in the payroll savings plan. This plan facUitates regular investment in savings bonds by wage and salary earners. The stimulation of payroll savings contributed materially to the extension of the plan, particularly in the steel, petroleum, glass, and railroad industries. The Interdepartmental Savings Bond Committee, allied with the Federal Payroll Savings Section to promote savings bond sales to Government employees, reported total sales during the year of $319 mUlion, a gain of $25 mUlion over the preceding year. This gain was accomplished despite a considerable reduction in the total number of Government employees. Gross sales of savings bonds of all series during the fiscal year 1950 amounted to $5,673 mUlion. DetaUs of these sales, as well as of redemptions and amounts outstanding, wUl be found on pages 22 and 23 and 558 through 568. In accord with the Treasury Department's management program, 132 1950 REPORT OF THE SECRETARY OF THE TREASURY a Committee on Materials was organized in the Savings Bonds.Division to analyze all requests for the prhiting and reproduction of promotional materials and to approve only those requests which meet essential requirements. In addition to the immediate economies effected in this program, plans are under way to transfer all excess stocks of promotional materials from the field offices to the warehouse of the Chicago MaUing Division for redistribution. Savings of materials as well as the freeing of space for essential needs wUl result. There was developed a better correlation of distribution and requirements of mats, plates, and engraved blocks to newspapers and magazines which contribute advertishig space. This close control resulted in substantial savhigs in procurement costs,' with no loss in the amount of contributed advertising space. Final plans were formulated for the establishment of an inventory control systeria whereby property in the field and departmental offices will be more readUy identifiable for management purposes. This system is currently being installed and should be infull operation by the end of the calendar year 1950. UNITED STATES SECRET SERVICE The Secret Service protects the President of the United States and members of his famUy, the President-elect, the Treasury BuUding and other buildings housing Treasury Department, activities, and the currency and other obligations and securities of the United States in production, storage, and transit. The Secret Service is also charged with the suppression of counterfeiting, forging, or alteration of obligations and securities of the United States and foreign countries, and of counterfeiting of foreign and domestic coins. The Secret Service investigates forged endorsements on, or the fraudulent negotiation of, United States Treasury checks and bonds; losses of valuables in shipments by Government agencies; violations of the Gold Reserve Act; and other offenses as specffied in 18 U. S. C. 3056. Management improvement by the Secret Service during 1950 was concentrated mainly on more effective suppression of counterfeiting and on a reorganization of the Field Force. With counterfeiting more prevalent than at any time since 1935, the Secret Service took a number of steps toward its more effective suppression. The Service established extensive, centralized files on aU •counterfeiting offenders and suspects, in order to coordinate the^ investigations by field offices; participated in the '^Counterfeit Clinics" :sponsored by several of the Federal Reserve Banks, and distributed several thousand post card-size warnings of counterfeit notes in circulation and new framed exhibits of genuine and counterfeit bills for the information of banks, merchants, civic organizations, business groups, etc.; participated in the Third International Conference of the Central Offices for the Suppression of Counterfeiting at The Hague in an effort to stamp out the foreign counterfeiting of United States money; and drafted legislation to strengthen the currency laws. This legislation was introduced in both Houses of Congress and is awaiting action. ADMINISTRATIVE REPORTS 133 During the year plans were made for a reorganization of the Field Force of the Secret Service. The 56 field offices, instead of being under the control of 14 supervising agents, wUl be independent units, each imder a special agent in charge, who will report directly to the' Chief of the United States Secret Service. Four regional-inspectors, acting under the Chief's delegated authority and with headquarters in the Chief's office, wUl make regular systematic inspections of the field offices in their respective regions, so that there wUl be direct and continuing liaison between the Chief and the special agent hi charge of each field office. Under this system, reports and correspondence wUl be sent direct to the Chief; and appraisals of personnel and field administration wUl be of assistance in the utUization of available manpower in the most efficient manner. Other management improvements included the installation of a standardized filing system in all Secret Service offices, and the preparation of a new manual prescribing the procedure for all Secret Service personnel. _,,...-.' - ' PROTECTIVE,AND SECURITY ACTIVITIES In connection with its protection of the President, the Secret Service also protected certahi distinguished visitors to the United States, including the President of Chile, the Prime Minister of Pakistan, and the President of the Philippine Republic. The Uniformed Force of the Secret Service safeguarded more than $194 billion of currency, stamps, and other obligations in transit, and $801 bUlion of securities in production and storage. ENFORCEMENT ACTIVITIES Counterfeiting continued to increase durhig the year. The force of less than 200 Secret Service agents seized $1,289,281 in counterfeit bffis and corns, $554,154 of which was captured before it could be passed on the public. Coimterfeit bills and coins seized in 1949 totaled $957,764. There were 208 new coimterfeit note issues during the year, 58 of which were of foreign origin. Agents captured 13 plants for the manufacture of 75 issues of notes, and arrested 542 persons who were charged with counterfeiting offenses. Arrests for counterfeitmg . exceeded arrests iriade m 1949 by 161.8 percent. Undercover agents, playmg hazardous roles as racketeers, disrupted several well-organized counterfeiting gangs. After one agent negotiated to buy $200,000 in counterfeit $20 bUls, the counterfeits were seized and five important distributors were arrested. All were sentenced to terms ranghig from 10 to 25 years. Continumg the investigation, a special squad of agents apprehended seven more prmcipals, including the printer and engraver who were responsible for manufacturing 34 issues of counterfeit $10 and $20 Federal Reserve notes representing $800,000, and of coimterfeit Canadian $10 notes representing $500,000. The nptes were passed in 28 States, and 62 passers were taken into custody. The gang had also printed thousands of coimterfeit Irish Sweepstakes tickets, 3-cent postage stamps, and 134 195 0 REPORT OF THE SECRETARY OF THE TREASURY lottery tickets. Their counterfeiting technique had been learned from their extensive counterfeiting of OPA ration stamps during World WarlL V In another case the Secret Service ended a 12-year-old manhunt with the arrest of a notorious 'Uone-wolf" counterfeiter in Chicago, where agents also seized his plant for the manufacture of counterfeit $5 and $10 notes. He was promptly sentenced to serve 15 years. A young couple arrested in Amsterdam, N . Y., for passing counterfeit $10 notes surrendered the equipment they had used to manufac' ture the counterfeits. Their notes had been passed in seven States. The man, 18, and his wife, 17, are now awaiting trial. In San Francisco agents arrested a perfectionist who had been striving for nine years to produce a perfect counterfeit bill. They captured an elaborate'counterfeiting plant with 16 plates, 205 film negatives, and a quantity of completed counterfeit $20 bUls. The offender even manufactured his own currency paper, but never attempted to pass any of his counterfeits during his 9-year criminal venture. He pleaded guilty and was sentenced and fined. ' ^ ^ ... , Agents m New York arrested 16 persons for the manufacture^ of6 million counterfeit 3-cent postage stamps and $400,000 in counterfeit American Express travelers' checks. A perforating machine used in preparing the stamps was recovered by a Navy diving team from the ocean off Long Beach, N . Y., where it had been thrown by the counterfeiters. In New York and Miami four members of another counterfeiting gang were arrested by Secret Service agents and charged with the sale of counterfeit $10 and $20 notes to a representative of a Cuban smuggling ring. These arrests followed the apprehension of several Cubans in Havana and the seizure of $20,000 in counterfeit notes. The four were convicted in New York and sentenced to terms ranging from 15 to 25 years each. With agents diverted to counterfeiting cases, check and bond forgery cases continued to accumulate. Agents investigated 30,059 forged Government checks worth $2,066,226 and 6,162 forged bonds, and arrested 2,336 persons charged with forgery. Convictions in forgery cases, hicluding cases pending from prior years, totaled 2,080. As of June 30, 1950, there were 14,373 forged checks and 3,019 forged bonds awaiting investigation. I n Michigan an alien, who had been in a Japanese conceritration camp in Shanghai and who later entered the United States UlegaUy, was arrested for stealing and forging nearly 200 checks, includmg 20 Government checks. After marrying an American woman he made ADMINISTRATIVE 135 REPORTS his living by stealing checks from the mails for more than a year. He pleaded guilty and was sentenced to six years. Arrests for all offenses aggregated 3,168, and there were 2,667 con,victions in cases of all types, representing 97.3 percent of convictions in the cases which went to trial. Prison sentences aggregated 3,245 years and additional sentences of 2,737 years were suspended or probated. Fines in criminal cases totaled $30,592.70. The following tables constitute a statistical summary of Secret ^ Service activities for 1950: Counterfeit money seized, fiscal years 1949 and 1950 Counterfeit a n d altered notes seized: After being circulated . _ * Before being circulated T o t a l -- - -- • Counterfeit corns seized: After being circulated Before being circulated - ._ .. Total -- G r a n d total . .Increase, or decrease (—) Percentage increase, or decrease'(-) 1949 1950 $331, 021. 00 618, 721.10 $727, 086. 33 553, 315. 00 $396, 065.33 -65,406.10 119.6 -10.6 949, 742.10 1,280,401.33 330,659.23 34.8 7, 041. 84 979.77 8, 040. 73 839.20 998.89 - 1 4 0 . 57 14.2 ^14.3 8,021.61 8, 879. 93 858. 32 10.7 957, 763. 71 1, 289,281.26 331, 517. 55 34.6 Nu7nber of investigations of criminal and noncriminal activities, fiscal years 1949 and 1950 1949 C r i m i n a l cases: M a k i n g or passing: • Counterfeit n o t e s . , . Counterfeit coins. . Altered obligations . F o r g e r y of G o v e r n m e n t checks Stolen or altered b o n d s P r o t e c t i v e research cases Other criminal cases Total. N o n c r i m i n a l cases G r a n d total ..-- --.-.. -.- . -.- 1950 Increase, or decrease ( —) Percentage increase, or decrease ( - ) 319 53 288 33,427 9,105 1,841 351 1,256 98 274 30, 059 6,162 2,610 300 937 45 -14 - 3 , 368 - 2 , 943 769 -51 293.7 84.9 —4.9 -10.1 -32.3 41.8 -14.5 45, 384 1, 735 40, 759 1,745 - 4 , 625 10 -10.2 •6 47,119 42, 504 -4,615 -9.8 136 1 9 5 0 REPORT OF T H E SECRETARY OF THEi TREASURY ' Number of arrests and cases disposed of, fiscal years 1949 and 1950 • 1949 Arrests for: Makiiig or passing: Counterfeit notes _ . Counterfeit coins_ _ . Altered obligations. Forgery of Government checks ._. Violation of Gold Reserve Act Stolen, altered, or forged bonds Protective research cases Stamp and strip stamp cases False claim cases Theft of Treasury Department property Miscellaneous _ Total :- -. ... 489 53 61 2, 336 33 112 46 15 1 . 20L9 17.8 28.6 1, 550.0 -39.1 -11.5 • 400.0 22 ' 2,346 3,168 822 35.0 105 31 73 1,676 295 49 57 2,080 6 190 18 -16 404 6 -1 -63 -11 181.0 58.1 -21.9 24.1 1 19 Cases disposed of: Convictions in connection with: Counterfeit notes Counterfeit coinsAltered obligations Forgery of Government checks. _ Violation of Gold Reserve Act Violation of Farm Loan Act.-. . _ Stolen, altered, or forged bonds Protective research cases False claim cases Theft of Treasury Department property Miscellaneous _.. Total Acquittals Dismissed, not indicted, or died before trial Total cases disposed of _ 162 45 61 1, 817 2 184 52 3 327 8 519 31 -72 -6 12 1 -1 3 , . _.. Percentage Increase, or increase, or decrease (—) decrease (—) 1950 i -100.0 15.8 -ioo.o -36. 4 —21.6 173 51 1 1 13 110 40 1 29 -1 16 -100.0 123.1 2,125 45 131 2, 667 75 197 542 30 66 25.5 66.7 50.4 2,301 2.939 638 27.7 EXHIBITS 137 PUBLIC DEBT OPERATIONS TREASURY CERTIFICATES OF INDEBTEDNESS. TREASURY NOTES. AND TREASURY BONDS Exhibit 1.—Offering of iVs percent certificates of Series G-1950 ^ [Department Circular No. 849. Public Debt] TEEASURY DEPARTMENT, Washington, August S l , 1949. I. O F F E R I N G OF CERTIFICATES 1. T h e Secretary of the Treasury, p u r s u a n t to t h e a u t h o r i t y of t h e Second Liberty Bond Act, as amended, invites subscriptions, a t par, from t h e people of t h e United States for certificates of indebtedness of t h e United States, designated lYs percent Treasury certificates of indebtedness of Series G-1950, in exchange for 2 percent Treasury bonds of 19i49-51, dated M a y 15, 1942, called for r e d e m p tion on September 15, 1949. II. D E S C R I P T I O N OF CERTIFICATES 1. T h e certificates will be dated September 15, 1949, and will bear interest from t h a t date a t t h e r a t e of IJ^ percent per a n n u m , payable with the principal a t m a t u r i t y on Septehiber 15, 1950. T h e y will not be subject to call for r e d e m p tion prior to m a t u r i t y . 2. ' T h e income derived from t h e certificates shall be subject to all taxes, now or hereafter imposed under t h e I n t e r n a l llevenue Code, or laws a m e n d a t o r y or supplementary thereto. T h e certificates shall be subject to estate, inheritance, gift or other excise taxes, whether Federal or State, b u t shall be exempt from all taxation now or hereafter imposed on t h e principal or interest thereof by a n y State, or any of t h e possessions of t h e United States, or b y any local taxing authority. 3. T h e certificates will be acceptable to secure deposits of public moneys. They will not be acceptable in p a y m e n t of taxes. 4. Bearer certificates will be issued in denominations of $1,000, $5,000, $10,000, $100,000 a n d $1,000,000. T h e certificates will not be issued in registered form. 5. T h e certificates will be subject t o t h e general regulations of*the Treasury D e p a r t m e n t , now or hereafter prescribed, governing United States certificates. III. SUBSCRIPTION AND ALLOTMENT 1. Subscriptions will be received a t t h e Federal Reserve Banks and branches a n d a t t h e Treasury D e p a r t m e n t , Washington. Banking institutions generally m a y submit subscriptions for account of customers, b u t only t h e Federal Reserve Banks and t h e Treasury D e p a r t m e n t are authorized to act as official agencies. 2. T h e Secretary of t h e Treasury reserves t h e right to reject a n y subscriptibn, in whole or in p a r t , to allot less t h a n t h e a m o u n t of certificates applied for, a n d to close t h e books as to a n y or all subscriptions a t a n y time without notice; a n d a n y action he m a y t a k e in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent out p r o m p t l y upon allotment. IV. PAYMENT 1. P a y m e n t a t p a r for certificates allotted hereunder must be made on or before September 15, 1949, or on later allotment, and m a y be made (Only in Treasury bonds of 1949-51, called for redemption on September 15, 1949, which will be accepted a t par, and should iaccompany t h e subscription. P a y m e n t of final interest due September 15 on bonds surrendered will be paid, in t h e case of coupon bonds, by p a y m e n t of September 15, 1949, coupons, which 'should be detached by holders before presentation of t h e bonds, a n d in t h e case of registered bonds, by checks drawn in accordance with t h e assignments on t h e bonds surrendered. »Details of Department Circular No. 847, dated June 20, 1949, covering certificates of Series F-1950, dated July 1, 1949, will be found in exhibit 2. the offering 139 of 140 1 9 5 0 REPO'RT OF THEI SE'CRETARY OF THEI TREASURY V. ASSIGNMENT OF R E G I S T E R E D B O N D S 1.. Treasury bonds of 1949-51 in registered form 'tendered in p a y m e n t for certificates offered hereunder should be assigned b y t h e registered payees or assignees thereof to ' ' T h e Secretary of t h e Treasury for exchange for Treasury certificates of indebtedness of Series G-1950 to be delivered to ;—," in accordance with t h e general regulations of the Treasury D e p a r t m e n t governing assignments for transfer or exchange, and thereafter should be presented a n d surrendered with t h e subscription to a Federal Reserve B a n k or branch or to t h e Treasury D e p a r t m e n t , Division of Loans a n d Currency, Washington, D . C. T h e bonds m u s t be delivered at t h e expense and risk of t h e holders. VI. GENERAL PROVISIONS 1. As fiscal agents of t h e United States, Federal Reserve Banks are authorized and requested to receive subscriptions, to make allotments on t h e basis and up to t h e a m o u n t s indicated by t h e Secretary of t h e Treasury to t h e Federal Reserve Banks of t h e respective districts, t o issue allotment notices, to receive p a y m e n t for certificates allotted, to make delivery of certificates on full-paid subscriptions allotted, and t h e y m a y issue interim receipts pending delivery of t h e definitive certificates. 2. T h e Secretary of t h e Treasury m a y a t a n y time, or from time to t i m e , prescribe supplemental or a m e n d a t o r y rules a n d regulations governing t h e offering, which will be communicated p r o m p t l y to t h e Federal Reserve Banks. J O H N W . SNYDER, Secretary of the Treasury. Exhibit 2.—Details of certificate issues and allotments Circulars pertaining t o issues of Treasury certificates of indebtedness during t h e fiscal year 1950 are similar in form t o t h e circular shown in exhibit 1, and therefore are not reproduced in this report. However, t h e essential details regarding each issue are summarized in t h e following table, and t h e final allotments of new certificates in exchange for m a t u r i n g or called securities are shown in t h e succeeding table. Summary of information contained in circulars pertaining to Treasury certificates of indebtedness issued during the fiscal year 1950 Date of circular Numberof circular 1949 June 20 847 Aug. 31 849 Sept. 21 850 Dec. 19 855 Certiflcates of indebtedness issued, and securities exchanged for new issues 1M% Series F-1950__-_ Exchanged for 1 ^ % Series F-1949 certificates maturing July 1,1949. VA% Series G-1950 Exchanged for 2% Treasury bonds of 1949-51 (dated May 15, 1942) called for redemption on Sept. 15, 1949. 1H% Series 11-1950... Exchanged for 1K% Series G-1949 certificates maturing Oct. 1,1949. VA% Series A-1951... Exchanged for 1 ^ % Series A-1950 certificates maturing Jan. 1, 1950. Date of issue Date of maturity Date subscription books closed 1949. July 1 1950 July 1 1949 June 23 1949 1 Julyl. Sept. 15 Sept. 1.5 Sept. 3 2 Sept. 15. Oct. Oct. Sept. 24 lOct. 1. 1951 Jan. 1 Dec. 22 1950 iJan. 3. 1 1950 Jan. 1 Allotment payment date on or before (or on later allotment) 1 Interest due on the certificates surrendered was paid to the subscriber following acceptance of the certificates. 2 Final hiterest due Sept. 15, 1949, on bonds surrendered was paid as follows: On coupon bonds, by payment of Sept. 15, 1949, coupons; and on registered bonds, by checks drawn in accordance with assignments, on bonds surrendered. 141 EXHIBITS Treasury certificates of indebtedness issued in exchange for matured or called securities, by Federal Reserve districts, fiscal year 1950 [In thousands of dollars] Federal R e s e r v e d i s t r i c t Boston NewYork Philadelphia Cleveland Cincirinat.i Pittsburgh Richmond <.. Baltimore - . . Charlotte Atlanta Birmingham Jacksonville Nashville NewOrleans Chicago St. L o u i s . L i t t l e Rock Louisville... Memphis M u m e a p o l i s __ Kansas City Dallas.E l Paso Houston San A n t o n i o . San Francisco _ Los Angeles Portland Salt Lake C i t y Seattle Treasury 1 M % Series F-1950 certificates exchanged for 1 H % Series F-1949 certificates maturing J u l y 1, 1949 1 K % Series G-1950 certificates exchanged for 2% Treasury b o n d s of 1949-51 (dated M a y 15. 1942) called for red e m p t i o n on S e p t . 15, 1949 1 H % Series H-1950 certificates exchanged for 1 M % Series G-1949 certificates maturing Oct. 1,1949 82,632 3,881, 256 105,130 98,348 17,617 31, 272 18,086 9, 263 28, 502 39,842 10,470 8,440 10,420 32,170 492, 737 93, 279 4,674 31, 297 14,864 103,296 . 150,558 45,842 2,710 27,921 17, 536 135,317 82,069 3,662 4,368 12,158 5,289 74,693 670,837 40, 308 24, 249 5 437 8,787 6,333 5,180 1,847 7,733 811 6, 648 3,499 2,976 158,353 15,455 133 3, 317 673 29,036 32, 803 12,070 224 4,435 4,919 34, 638 34, 570 1,885 263 2,160 2,522 155,8.34 3, 500,760 138 386 122,191 33 350 33, 934 46,725 26, 771 25,460 53,719 15, 262 19,428 21, 258 49,908 727,958 112,660 8,709 . 43,967 26,054 179, 274 243,121 70, 202 6,915 38, 275 46,079 191, 552 217,390 16,256 3,849 12, 731 60, 609 119,748 2, 873, 283 101,646 124,115 30,838 49 864 25,124 30 567 12,643 54 662 14,423 8 865 14, 213 28 529 806, 607 93 545 9,105 48,911 12, 223 167 568 168,906 53,197 5,109 57,357 31,008 179, 608 193,752 8,866 12,488 29,479 6,419 5, 601, 025 1,196, 794 6, 247, 587 5, 372, 668 181,865 95,650 287. 574 321, 928 5,782,890 1, 292, 444 6, 535,161 5,694,696 . . ... .. .,. . T o t a l a l l o t m e n t s on exchanges M a t u r i n g or called securities red e e m e d for cash or carried to matured debt T o t a l m a t u r e d or called securities.. •1H% Series A-1951 certificates exchanged for 1 M % Series A-1950 certificates . maturing Jan. 1, 1950 142 1050 REPORT OF THE! SECRETARY OF THE; TREASURY Exhibit 3.—Offering of V/s percent Treasury notes of Series A-1954 [Department Circular No. 854, Public Debt] TREASURY DEPARTMENT, . Washington, December 5, 1949. I. O F F E R I N G OF NOTES 1. T h e Secretary of t h e Treasury, p u r s u a n t to t h e authority of t h e Second Liberty Bond Act, as amended, invites subscriptions, a t par, from t h e people of the United States for notes of t h e United States, designated 1% percent Treasury notes of Series A-1954, In p a y m e n t of which any of the following listed Treasury securities, singly or in combinations aggregating $1,000 or multiples thereof, may be tendered: Treasury certificates of indebtedness: l}i percent certificates, Series H-1949, dated December 15, 1948, m a t u r i n g December 15, 1949. Treasury bonds: 2 percent bonds of 1949-51, dated July 15, 1942, due December 15, 1951, called for redemption December 15, 1949, 3}i percent bonds of 1949-52, dated December 15, 1934, due December 15, 1952, called for redemption December 15, 1949, 2y2 percent bonds of 1949-53, dated December 15, 1936, due December 15^ 1953, called for redemption December 15, 1949. II. D E S C R I P T I O N OF N O T E S 1. T h e notes will be dated December 15, 1949, and will bear interest from t h a t date a t the rate of V/i percent per a n n u m , payable on a semiannual basis on September 15, 1950, and thereafter on IVIarch 15 and September 15 in each year until t h e principal a m o u n t becomes payable. T h e y will m a t u r e IVIarch 15, 1954, and will not be subject to call for redemption prior to m a t u r i t y . 2. T h e income derived from t h e notes shall be subject to all. taxes, now or •hereafter imposed under t h e I n t e r n a l Revenue Code, or laws a m e n d a t o r y or supplementary thereto. T h e notes shall be subject to estate, inheritance, gift or other excise taxes, whether Federal or State, b u t shall be exempt from all taxation now or hereafter imposed on t h e principal or interest thereof by any State, or any of t h e possessions of t h e United States, or by any local taxing authority. 3. T h e notes will be acceptable to secure deposits of public moneys. T h e y will not be acceptable in p a y m e n t of taxes. 4. Bearer notes with interest coupons a t t a c h e d will be issued in denominations of $1,000, $5,000, $10,000, $100,000 a n d $1,000,000. T h e notes will not be issued in registered form. 5. T h e notes will be subject to the general regulations of t h e Treasury D e p a r t ment, now or hereafter prescribed, governing United States notes. III. S U B S C R I P T I O N AND ALLOTMENT 1. Subscriptions will be received a t t h e Federal Reserve Banks a n d branches and a t t h e Treasury D e p a r t m e n t , Washington. Banking institutions generally m a y submit subscriptions for account of customers, b u t only t h e Federal Reserve Banks and t h e Treasury D e p a r t m e n t are authorized to act as official agencies. 2. T h e Secretary of t h e Treasury reserves t h e right to reject any subscription, in whole or in p a r t , t o allot less t h a n t h e a m o u n t of notes applied for, a n d to close t h e books as to any or all subscriptions a t any time without notice; and any action he m a y t a k e 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. P a y m e n t a t p a r for notes allotted hereunder m u s t be made on or before December 15, 1949, or on later allotment, a n d m a y be made only in Treasury certificates of indebtedness of Series H - 1 9 4 9 , m a t u r i n g December 15, 1949, or in Treasury bonds of 1949-51, Treasury bonds of 1949-52 or Treasury bonds of EXHIBITS ^ 143 1949-53, all called for redemption December 15, 1949, which will be accepted a t par, and should accompany t h e subscription. T h e full year's interest on t h e certificates surrendered will be paid to t h e subscriber following acceptance of the certificates. Final interest due December 15 on bonds surrendered will be. paid, in t h e case of coupon bonds, by p a y m e n t of December 15, 1949 coupons, which should be detached by holders before presentation of the bonds, and in t h e case of registered bonds, iDy checks drawn in aiccordance with the assignments on t h e bonds surrendered. V. A S S I G N M E N T OF R E G I S T E R E D B O N D S 1. Treasury bonds of 1949-51, Treasury bonds of 1949-52 or Treasury bonds of 1949-53 in registered form tendered in p a y m e n t for notes offered hereunder should be assigned by t h e registered payees or assignees thereof to ''The Secretary of t h e Treasury for exchange for Treasury notes of Series A-1954 to be delivered to ", in accordance, with t h e general regulations of t h e Treasury D e p a r t m e n t governing assignments for transfer or exchange, and thereafter should be presented and surrendered with t h e subscription to a Federal Reserve Bank or branch or to t h e Treasury D e p a r t m e n t , Division of Loans a n d Currency, Washington, D . C. T h e bonds must be delivered a t t h e expense and risk of the holders. VI. GENERAL PROVISIONS 1. As fiscal agents of t h e United States, Federal Reserve Banks are authorized a n d requested to receive subscriptions, to make allotments on the basis and up to the a m o u n t s indicated by the Secretary of t h e Treasury to t h e Federal Reserve Banks of t h e respective districts, to issue allotment notices, to receive p a y m e n t for notes allotted, to make delivery of notes on full-paid subscriptions allotted, and they m a y issue interim receipts pending delivery of t h e definitive notes. 2. T h e Secretary of t h e Treasury m a y a t any time, or from time to time, prescribe supplemental or a m e n d a t o r y rules and regulations governing the offering, which wiU be communicated p r o m p t l y to t h e Federal Reserve Banks. J O H N W . SNYDER, Secretary of the Treasury. Exhibit 4.—Details of Treasury note issues and allotments Circulars pertaining to issues of Treasury notes during t h e fiscal year 1950 are similar in form to t h e circular shown in exhibit 3, and therefore are not reproduced in this report. However, t h e essential details regarding each issue are summarized in t h e following table, and t h e final allotments of new notes in exchange for m a t u r i n g or called securities are shown in the succeeding table. o 907795—51 11 144 1950 'REPORT OF THE ISEC'RETARY OF THEi TREASURY Summary of information contained in circulars pertaining to Treasury notes issued during the fiscal year 1950 Date of circular Number of. circular 1949 Dec. 5 854 1950 Jan. 20 856 Feb. 17 858 Do.... 859 Mar. 20 860 Do..-- 861 May 22 866 June f21 867 Treasury notes issued, and securities exchanged for new issues Date of issue Date of maturity Date subscription books closed 1949 1949 m % Series A-1954 Dec. 15 Mar. 15,1954 Dec. 8 Exchanged for— 1M% Series H-1949 certificates maturing Dec. 15, 1949. Treasury bonds called for redemption on Dec. 15, 1949, as follows: 2% of • 1949-51 (dated July 15, 1942). 3H% of 1949-52 (dated Dec. 15, 1934). 2M% of 1949-63 (dated Dec. 15, 1936). 1950 1950 1M% Series A-1951 . . : . Feb. 1 Oct. 1,1951 Jan. 24 Exchanged for 1H% Series B-1950 certificates maturing Feb. 1,1950 1M% Series B-1951 Mar. 1 July 1,1951 Feb. 21 Exchanged for l } i % Series C-1950 certificates maturing Mar. 1, 1960. 1M% Series A-1955 Mar. 15 Mar. 15,1955 —do Exchanged for 2% Treasury bonds of 1950-52 (dated Oct. 19, 1942) called for redemption on Mar. 16, 1960. 1M% Series C-1951 Apr. 1 July 1,1951 Mar. 23 Exchanged for 1M% Series D-1950 certificates maturing Apr. 1, 1950. 1M% Series A-1955 (additional Mar. 15 Mar. 15,1955 .-.do issue). Exchanged for 1H% Series A-1950 notes maturing Apr. 1, 1950. 1M% Series D-1951. •. June 1 July 1,1951 May 25' Exchanged for 1M% Series E-1950 certificates maturing June 1, 1950. 1M% Series E-1951 July 1 Aug. 1,1951 June 24 Exchanged for 1}4% Series F-1950 certificates maturing July 1, 1960. Allotment payment date on or before (or on later allotment) 1949 »2 Dec. 15. 1950 Feb. 1. Mar. 1. 3 Mar. 15. 4 Apr. 1. 1 Apr. 1. 1 June 1. 1 July 1. 1 Interest due on the certificates surrendered was paid to the subscriber following acceptance of the certificates. 2 Final interest due Dec. 16, 1949, on bonds surrendered was paid as follows: On coupon bonds, by payment of Dec. 15, 1949, coupons; and on registered bonds, by checks drawn in accordance with assignments on bonds surrendered. 3 Final interest due Mar. 15, 1950, on bonds surrendered was paid as follows: On coupon bonds, by payment of Mar. 16, 1950, coupons; and on registered bonds, by checks drawn in accordance with assignments on bonds surrendered. * Accrued uiterest from Mar. 16 to Apr. 1, 1960 ($0.69293 per $1,000), on notes allotted was paid by the subscriber when subscription was tendered. Ftual tuterest due Apr. 1, 1960, on notes surrendered was paid on Apr. 1, 1950, coupons. Treasury notes issued in exchange for matured or called securities, by Federal Reserve districts, fiscal year 1950 [In thousands of dollars] IH% Series A-1954 notes exchanged f o r 2% Treasury 314% Treasury bonds of 1949-51 bonds of 1949-52 i i i % Series H-1949 certifi- (dated July 16,1942) I (dated Dec. 15, called for re1934) called for cates maturing demption on redemption on Dec. 15, 1949 Dec. 15, 1949 Dec. 15, 1949 Federal Reserve district Boston J New York Philadelphia Cleveland Cinciimati Pittsburgh Richmond. Baltimore.. Charlotte Atlanta Birmingham Jacksonville Nashville New Orleans Chicago..r St. Louis Little Rock Louisville Memphis Minneapolis Kansas City Dallas El Paso... Houston San Antonio San Francisco Los Angeles Portland Salt Lake City Seattle.. Treasury ... • ".. ....... . ...s . . . ... Total allotments on exchanges ^ . Maturing or called securities redeemed for cash or carried to matured debt : Total matured or called securities 2 H % Treasury bonds of. 1949-53 (dated Dec. 16, 1936) called for redemption on Dec. 16, 1949 Total 1M% Series A-1951 notes exchanged for 1M% Series B-1950 certificates maturing Feb. 1, 1950 24, 983 261,198 8,694 20,812 628 923 772 45 62 .477 86 1,136 1,033 880 79,100 2,483 28 5,366 61 9,328 19, 611 622 41 144 35 18, 595 8; 400 557 366 . 614 269 52, 217 872, 062 63, 322 94,501 5,859 21, 584 10,017 2,883 557 6,044 348 1,210 5,040 1,867 270,346 23,019 58 2,123 1,664 27,370 41,000 13,812 1,278 6,424 2,979 96,327 67, 713 667 318 8,422 6,984 180, 631 2,303, 761 133,656 157,879 26,383 65,861 32, 452 25, 727 5,754 20,752 3,692 6,723 9,883 13,604 820, 521 72,190 1,447 25, 295 4,935 114,611 153, 679 40, 953 2,258 18,974 15, 274 264,112 124, 247 9,246 1,838 17,194 21, 638 73,047 875, 465 58,428 52, 476 12, 695 12, 632 8,168 6,811 3,691 23, 739 7,603 7,590 8,362 14, 540 258, 673 39, 797 4,129 26,. 187 5,777 65,470 80, 539 36,912 2,582 12, 468 9,349 65, 545 97,110 4,666 2,484 48,908 3,724 2,028,016 467,316 1, 695, 893 4, 675,069 1,918,367 69, 599 24, 059 90, 217 219,184 2,097,615 491, 376 1, 786,110 4,894, 263 8,424 225,477 5,448 7,918 3,007 13,841 1,484 6,027 666 2,525 261 2,517 448 1,490 135, 845 7,680 154 3,062 1,004 8,799 13,162 6,471 211 2,464 677 16,131 6,457 463 27 994 1,820 94,907 946,024 66,192 34, 649 16,889 19, 513 20,180 16, 772 4,679 12, 706 2,997 1,860 3, 362 9,377 335, 230 39,008 1, 207 14, 765 2,316 69,114 79,906 20,048 728 10,942 11, 583 123,059 42, 677 7, 558 1,127 7,164 12, 575 483,844 35, 309 519,163 74,883 1, 993, 250 § Treasury notes issued in exchange for matured or called securities, by Federal Reserve districts, fiscal year 1950—Continued [In thousands of dollars] 1 3 ^ % Series A-1966 notes exchanged f o r 1 M % Series B-1951 n o t e s exchanged for I K % Series C-1950 certificates m a t u r i n g M a r . 1, 1950 Federal Reserve district Boston New York Philadelphia Cleveland Cinciimati Pittsburgh Richmond Baltimore Charlotte Atlanta Birmingham •Jacksonville Nashville N e w Orleans Chicago. 1 S t . Louis L i t t l e Rock Louisville Memphis Minneapolis . K a n s a s Ci t y Dallas E l Paso Houston San A n t o n i o S a n Francisco Los Angeles Portland Salt L a k e C i t y Seattle Treas ury :.... .. . - -1 - . . . : .. ..... ^ T o t a l a l l o t m e n t s on exchanges M a t u r i n g or called securities r e d e e m e d for cash « or carried to m a t u r e d d e b t T o t a l i n a t u r e d or called securities 2% Treasury b o n d s of 1950-52 ( d a t e d Oct. 19, 1942) called for r e d e m p t i o n on M a r . 15, 1950 1 M % Series C-1961 n o t e s exchanged for 1 M % Series D-1950 certificates m a t u r i n g A p r . 1, 1950 m % Series A-1960 n o t e s maturing A p r . 1, 1950 1 M % Series D-1951 n o t e s exchanged'for 1 M % Series E-1960 certificates m a t u r i n g J u n e 1, 1960 1 M % Series E-1961 n o t e s exchanged for 1 M % Series F-1960 certificates m a t u r i n g J u l y 1, 1950 . 61, 488 1, 610, 227 52, 376 32,873 25, 769 27,883 24,957 13, 822 4, 574 23, 670 10,899 6,150 7,448 28,752 304, 621 52,809 2,921 28,043 6,805 81,892 87, 245 29, 674 2,023 23,710 10, 963 70,871 87, 554 4,798 3,042 5,481 17, 790 59,738 1,077, 435 66,106 31, 270 13,888 16, 903 21,162 11,812 9.409 7,058 3,688 1,787 6,387 9,142 231.834 33, 282 912 9,683 830 54,693 41, 053 13, 657 1,130 10,584 3,421 67,303 38,960 4,880 2,338 3,342 - 8,185 130,045 1, 647, 279 76,433 148,017 28,396 28,138 19, 240 23,881 3,801 22,802 4,537 9,928 5,389 19,815 601,376 82, 2676,010 39,843 6,976 96, 275 166,061 25,848 4,351 16,138 29,084 148, 690 88,173 10, 736 3,635 17,123 4,021 189, 783 2, 724, 714 142, 639 179,287 42, 284 45,041 40,402 35,693 13, 210 29,860 8,225 11,715 10, 776 28, 957 833, 210 115, 549 6,922 49,426 7,805 150,968 197,114 39, 505 5,481 26, 722 32,505 215,993 127,133 16, 616 5. 973 20, 465 12, 206 21,854 366, 050 23,896 15,042 10, 367 9,631 5,617 7,768 18,114 10, 985 3,695 2,954 6,208 8,412 124. 576 22,198 3,034 17, 643 4,300 41, 863 46, 485 11, 343 1,006 14, 864 5,292 33,191 29, 846 2,035 2, 735 2,030 13, 352 132, 413 2, 811, 778 106, 777 102, 616 29, 000 35,996 19,810 45,1.30 24, 731 40,834 10, 641 21,146 13, 47.4 23, 267 594, 651 79, 919 11.026 32, 678 17,357 80,343 158, 927 61,254 6.543 29,319 24, 288 164,633 107, 723 8,549 7,951 18, 644 6,325 88,879 , 566,801 132,880 82, 220 26, 440 34, 436 18, 065 8,522 28, 741 35, 894 10,857 9,419 8,935 25,177 557,145 78, 468 6,033 27, 933 17, 412 89, 008 154, 943 43. 661 3,531 27, 967 14, 318 169, 481 67, 545 4,998 4,783 12, 733 3, 927 2, 741,130 1,860,772 3, 504,307 5, 365, 079 886, 286 4, 817. 642 5. 351,142 180, 406 101,915 91, 690 193, 605 76, 258 201,146 2, 921, 536;' 1, 962, 687 6, 658, 684 962, 544 5, 018, 788 3, 596,997 249,883 5, 601,025 CO cn O d o Q SI o S3 > Ul JEXHIBITS 147 Exhibit 5.—Call, August 12, 1949, for redemption on D e c e m b e r 15,1949, of t h r e e issues of Treasury bonds (press release August 12, 1949) T h e Secretary.of t h e Treasury announced t o d a y t h a t the bonds of three outstanding issues which m a y be redeemed a t t h e option of the United States on December 15, 1949, are called for redemption on t h a t date. These issues are t h e 2.percent Treasury bonds of 1949-51, dated July 15, 1942, due December 15, 1951; SYs percent Treasury bonds of 1949-52, dated December 15, 1934, due December 15, 1952; a n d 2}^ percent Treasury bonds of 1949-53, dated December 15, 1936, due December 15, 1953. There are now outstanding $2,097,615,100 of t h e 2 percent bonds, $491,375,100 of the 3% percent bonds, and $1,786,110,450 of t h e 2^2 percent bonds. T h e texts of t h e formal notices of call are as follows: TWO PERCENT TREASURY BONDS OF 1949-51 (DATED JULY 15, 1942) To Holders of 2 Percent Treasury^Bonds of 1949-51 {Dated J u l y 15, 1942), a n d Others Concerned: . 1. Public notice is hereby given t h a t all outstanding 2 percent Treasury bonds of 1949-51, dated July 15, 1942, due December 15, 1951, are hereby called for redemption on December 15, 1949, on which date interest on such bonds will cease. 2. Holders of these bonds may, in advance of the redemption date, be offered the privilege of exchanging all or any p a r t of their called bonds for other interestbearing obligations of t h e United States, in which event public notice will hereafter be given a n d an official circular governing the exchange offering will be issued. 3. Full information regarding the presentation and surrender of the bonds for cash redemption under this call will be found in D e p a r t m e n t Circular No. 666, d a t e d July 21, 1941. JOHN W . SNYDER, Secretary of the Treasury. THREE A N D O N E - E I G H T H PERCENT TREASURY BONDS OF 1949-52 (DATED DECEMBER 15, 1934) To Holders of S)i Percent Treasury Bonds of 1949-52 {Dated December 15, 1934), and Others Concerned: 1. Public notice is hereby given t h a t all outstanding 3)^ percent Treasury bonds of 1949-52, dated December 15, 1934, due December 15, 1952, are hereby called for redemption on December 15, 1949, on which date interest pn such bonds will cease. , 2. Holders of these bonds may, in advance of the redemption date, be offered t h e privilege of exchanging all or any p a r t of their called bonds for other interestbearing obligations of t h e United States, in which event public notice will hereafter be given a n d an official circular governing t h e exchange offering will be issued. 3. Full information regarding t h e presentation and surrender of t h e bonds, for cash redemption under this call will be found in D e p a r t m e n t Circular No. 666, dated July 21, 1941. J O H N W . SNYDER, Secretary of the Treasury. 148 1950 REPORT OF THE SEC'EETARY OF THE! TREASiURY TWO A N D O N E - H A L F PERCENT TREASURY BONDS OF 1949-53 (DATED'DECEMBER 16, 1936) To Holders of 2yi Percent Treasury Bonds of 1949-53 {Dated December 15, 1936), and Others Concerned: 1. Public notice is hereby given t h a t all outstanding 2/2 percent Treasury bonds of 1949-53, dated December 15, 1936, due December 15, 1953, are hereby called for redemption on December 15, 1949, on which date interest on such bonds will cease. * 2. Holders of these bonds may, in advance of t h e redemption date, be offered t h e privilege of exchanging all or any p a r t of their called bonds for other interestbearing obligations of t h e United States, in which event public notice will hereafter be given a n d an official circular governing t h e exchange offering will be issued. 3. Full information regarding t h e presentation and surrender of t h e bonds for cash redemption under this call will be found in D e p a r t m e n t Circular No. 666, dated July 21, 1941. JOHN W . SNYDER, Secretary of the Treasury. Exhibit 6.—Call, November 14, 1949, for redemption on IVIarch 15, 1950, of 2 percent T r e a s u r y bonds of 1950-52, dated October 19, 1942 (press release N o v e m b e r 14, 1949) T h e Secretary of t h e Treasury announced t o d a y t h a t all outstanding 2 percent Treasury bonds of 1950-52, dated October 19, 1942, due IVLarch 15, 1952, are called for redemption on IVIarch 15, 1950. There are now outstanding $1,962,687,300 of these bonds. T h e text of t h e formal notice of call is as follows: To Holders of 2 Percent Treasury Bonds of 1950-52 {Dated October 19, 1942), and Others Concerned: 1. Public notice is hereby given t h a t all outstanding 2 percent Treasury bonds of 1950-52, dated October 19, 1942, due IVEarch 15, 1952, are hereby called for redemption on IVIarch 15, 1950, on which date interest on such bonds will cease. . 2. Holders of these bonds may, in advance of t h e redemption date, be offered the privilege of exchanging all or any p a r t of their called bonds for other interestbearing obligations of t h e United States, in which event public notice will hereafter be given a n d an official circular governing t h e exchange offering will be issued. 3. Full information regarding t h e presentation and surrender of t h e bonds for cash redemption under this call will be found in D e p a r t m e n t Circular No. 666, dated July 21, 1941. J O H N W . SNYDER, Secretary of the Treasury. TREASURY BILLS Exhibit 7.—Inviting t e n d e r s for Treasury bills dated July 7, 1949 (press release J u n e 28, 1949) T h e Secretary of t h e Treasury, by this public notice, invites tenders for $900,000,000, or thereabouts, of 91-day Treasury bills, for cash and in exchange for Treasury bills m a t u r i n g July 7, 1949, to be issued on a discount basis under competitive a n d noncompetitive bidding as hereinafter provided. T h e bills of this series will be dated July 7; 1949, and will m a t u r e October 6, 1949, when t h e EXHIBITS 149 face a m o u n t will be payable without interest. T h e y will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 ( m a t u r i t y value). Tenders will be received a t Federal Reserve Banks and branches up to t h e closing hour, two o'clock p . m.. E a s t e r n Daylight Saving time, Friday, July 1, 1949. Tenders will not be received a t t h e Treasury D e p a r t m e n t , Washington. E a c h tender m u s t be for an even multiple of $1,000, and in t h e case of competitive tenders t h e price offered must be expressed on t h e basis of 100, with not more t h a n t h r e e decimals, e. g., 99.925. Fractions m a y not be used. I t is urged t h a t tenders be made on t h e printed forms and forwarded in t h e special envelopes which will be supplied by Federal Reserve Banks or branches on application therefor. Tenders will be received without deposit from incorporated banks and t r u s t companies and from responsible and recognized dealers in investment securities. Tenders from others m u s t be accompanied by p a y m e n t of 2 percent of t h e face a m o u n t of Treasury bills applied for, unless t h e tenders are accompanied by an express g u a r a n t y of p a y m e n t by an incorporated b a n k or t r u s t Company. . Immediately after t h e closing hour, tenders will be opened a t t h e Federal Reserve Banks and branches, following which public announcement will be made by t h e Secretary of t h e Treasury of the a m o u n t and price range of accepted bids.. Those submitting tenders will be advised of t h e acceptance or rejection thereof. T h e Secretary of the Treasury expressly reserves t h e right to accept or reject any or all tenders, in whole or in p a r t , 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 a t t h e average price (in three decimals) of accepted competitive bids. Settlement for accepted tenders in accordance with t h e bids m u s t be made or completed a t t h e Federal Reserve Bank on July 7, 1949, in cash or other immediately available funds or in a like face a m o u n t of Treasury bills m a t u r i n g July 7, 1949. Cash and exchange tenders will receive equal t r e a t m e n t . Cash adjustments will be made for differences between the par value of maturing bills accepted in exchange and t h e issue price of t h e new bills. T h e income derived from Treasury bills, whether interest or gain from t h e sale or other disposition of t h e bills, shall not have any exemption, as such, a n d loss from t h e sale or other disposition of Treasury bills shall not have any special t r e a t m e n t , as such, under t h e I n t e r n a l Revenue Code, or laws a m e n d a t o r y or supplementary thereto. T h e bills shall be subject to .estate, inheritance, gift or other excise taxes, whether Federal or State, b u t shall be exempt from all taxation now or hereafter imposed on t h e principal or interest thereof by any State, or any of t h e possessions of t h e United States, or by a n y local taxing a u t h o r i t y . For purposes of taxation t h e a m o u n t of discount a t which Treasury bills are originally sold by t h e United States shall be considered to be interest. Under sections 42 and 117 (a) (1) of t h e I n t e r n a l Revenue Code, as amended by section 115 of t h e Revenue Act of 1941, t h e a m o u n t of discount a t which bills issued hereunder are sold shall not be considered to accrue until such bills shall be sold, redeemed or otherwise disposed of, and such bills are excluded from consideration as capital assets. Accordingly, t h e owner of Treasury bills (other t h a n life insurance companies) issued hereunder need include in his income t a x return only t h e differencie between t h e price paid for such bills, whether on original issue or on subsequent purchase, and t h e a m o u n t actually received either upon sale or redemption a t m a t u r i t y during t h e taxable year for which t h e r e t u r n is made, as ordinary gain or loss. Treasury Department-Circular No. 418, as amended, and this notice, prescribe t h e t e r m s of t h e Treasury bills and govern t h e conditions of their issue. Copies of t h e circular m a y be obtained from any Federal Reserve Bank or branch. 150 1950 REPORT OF THE SECRETARY OF THEi TREASURY Exhibit 8.—Acceptance of tenders for Treasury bills dated July 7, 1949 (press release July 2, 1949) The Secretary of the Treasury announced last evening that the tenders for $900,000,000, or thereabouts, of 91-day Treasury bills to be dated July 7 and to mature October 6, 1949, which were offered 'on June 28, were opened at the Federal Reserve Banks on July 1. • ^ The details of this issue are as follows: Total applied for. _ $1,696,622,000. Total accepted $900,537,000 (includes $56,520,000 entered on a noncompetitive basis and accepted in full at the average price shown below). Average price 99.734 + . Equivalent rate of discount approxiniately 1.052% per annum. Range of accepted competitive bids: High__. 99.740. Equivalent rate of discount approximately 1.029% per annum. Low 99.732, Equivalent rate of discount approximately 1.060% per annum. (78 percent of the amount bid for at the low price was accepted.) Federal Reserve district Boston New York Philadelphia.. Cleveland Richmond Atlanta Chicago St. Louis Minneapolis.. Kansas City.. Dallas San Francisco. ", Total.... Total applied for Total accepted $11, 214, 000 1, 354,209,000 29, 679,000 28, 140,000 2, 820,000 7, 683, 000 147, 536, 000 22, 893,000 4, 530,000 20, 862,000 13, 807,000 53, 249,000 $5,614,000 747, 670, 000 13, 679,000 12, 700,000 1,820,000 2,383,000 49, 712,000 .10,165,000 3, 280,000 5,462,000 4, 257, 000 43,796j 000 1, 696, 622,000 900, 637,000 Exhibit 9.—Summary of Treasury bill information contained in press releases Press releases pertaining to Treasury bill issues during the fiscal year 1950 were similar in form to exhibits 7 and 8, and are, therefore, not reproduced here. The essential details regarding each issue are summarized in the following table. Summary of inf ormation contained in press releases ^ pertaining to Treasury bills issued during thefiscal year 1950 Prices and rates A m o u n t s (in t h o u s a n d s ) Total b i d s accepted T e n d e r s accepted b a t e of issue 1949 July Date of maturity Days to maturity. Total applied for 2 C o m p e t i t i v e b i d s accepted Low High T o t a l accepted 2 On competitive basis 2 On noncompetitive basis 2 3 F o r cash I n exchange Average price p e r hundred Equivalent average r a t e < (percent) Price per hundred Equivalent r a t e ^ (perceiit) Price per hundred Equivalent r a t e * (percent) 1949 7 14 21 28 Aug. 4 11 18 25 Sept. 1 8 16 22 29 6 13 20 27 Nov. 3 10 17 25 Dec. 1 8 15 22 29 Oct. Jan. Oct. 91 91 91 91 91 91 91 92 91 91 91 91 91 $1, 696, 642 1, 799, 601 1, 626, 606 1, 428,487 • 1, 390, 980 1, 656, 368 1, 586,093 1, 625,308 1, 620,353 1, 579, 940 1, 472, 268 1, 550,059 1, 462, 344 $900, 669 900, 714 901, 722 900,467 1, 000,032 1, 001, 642 1,000, 784 1, 000, 510 1, 001, 678 1,000,238 904, 782 900, 828 901, 592 $844,019 795, 241 816, 675 834,140 923, 621 906, 925 898, 785 916, 440 921, 525 924, 676 800, 746 810,090 832, 457 $56, 540 105, 473 85, 047 66, 327 76, 511 94, 717 101, 999 84,070 80,063 75, 663 104, 036 90, 738 69,136 $608, 666 660,154 662,147 678, 207 737, 258 978, 945 982,884 984, 250 636, 342 657, 743 671, 367 482, 516 515, 926 $291,893 240, 560 239, 576 222, 260 262, 774 22, 697 17,900 16, 260 365, 236 342,495 233,415 418,312 386, 666 99. 734 99. 767 99. 766 99. 743 99. 739 99. 746 99. 743 99: 737 99. 734 99. 733 99. 732 99. 732 99.728 91 91 91 91 91 91 91 90 91 91 91 91 91 1, 699, 535 1,706,766 1, 777, 593 1, 619, 078 1, 608, 224 1, 525,190 1, 643, 090 1, 656,847 1, 587, 853 1, 505, 880 1,486. 313 1, 624, 214 1, 482, 259 900,178 900, 776 903, 256 900, 603 1,000, 827 1,001,836 1, 000, 530 1,003, 211 1,000, 772 1, 002,121 903, 483 900, 608 900, 943 • 829,155 793, 616 804, 764 816, 268 915, 505 904, 568 902,005 905,121 917, 222 916, 988 805, 411 809, 768 834. 090 71, 023 107, 260 98, 502 84, 335 85. 322 97, 278 98, 525 98, 090 83, 550 85,133 98, 072 90, 840 66,863 496, 639 638, 886 820, 794 667, 516 697, 504 686, 275 669, 659 977, 277 766,108 641, 630 601, 368 468, 608 530, 248 403, 539 261, 890 . 82,462 233,087 403, 323 315, 561 330,871 25, 934 244, 664 360,491 302,115 432,000 370, 695 99. 732 99. 736 99. 740 99. 738 99. 731 99. 728 99. 733 99. 737 99. 720 99. 718 99. 718 99. 726 99. 725 • 1.052 .923 . 927 1.017 1.032 1.007 1.017 1.031 1.054 1. 056 1.069 L061 1.076 99. 740 99. 785 99. 800 99. 775 99. 751 99. 751 5 99. 752 6 99. 760 99. 747 99. 746 99. 746 99. 746 99. 742 1.069 1.049 1.027 1.036 L063 L074 1.056 1.052 1.108 1.116 1.116 1. 087 1.087 99. 745 99. 750 99. 744 99. 746 99. 746 99. 755 99. 742 7 99. 750 99. 750 .8 99.735 9 99. 735 99. 736 99. 740 1.029 .851 .791 .890 .985 .985 .981 .978 1.001 1.005 LOOS L005 1.021 99. 732 99. 763 99. 763 99. 739 99. 736 • 99. 743 99. 740 99.734 99. 732 99. 732 99. 732 99. 730 99. 726 1.060 .938 .938 1.033 1.048 L017 1. 029 1. 041 LOOO 1.060 1.060 1.068 1.084 g 1960 6 13 20 27 Nov. 3 10 17 26 Dec. 1 8 15 22 29 5 12 19 26 Feb. 2 9 16 23 Mar. 2 9 16 23 30 • 1.009 .989 L013 1.005 1.006 .969 1.021 1.000 .989 1.048 L048 1.048 1.029 99. 731 99. 733 99. 739 99. 737 99. 729 99. 726 99. 732 99. 734 99. 717 99. 717 99. 717 .99.723 99. 724 L064 L066 L033 L040 L072 L084 1. 060 L064 1.120 1.120 1.120 L096 1. 092 Footnotes at end of table. cn S u m m a r y of information contained i n press releases ^ pertaining to Treasury bills issued during the fiscal year 1950 — C o n t i n u e d A m o u n t s (irI t h o u s a n d s ) Prices a n d rates T e n d e r s accepted D a t e of issue Date of maturity Days t o ma- . turity Total apphed for 2 Total b i d s accepted T o t a l accepted 2 F o r cash I n exchange Average price p e r hundred Equivalent average r a t e < (percent) CR C o m p e t i t i v e b i d s accepted High On noncompetitive basis 2 3 On competitive basis 2 = CO Low o Price per hundred Equivalent r a t e ^ (percent) Price per hundred Equivalent r a t e < (percent) o pd 1950 Jan. Feb. Mar. Apr. May June 1950 5 Apr. 12 19 26 2 May 9 16 23 2 June 9 16 23 30 6 July 13 20 27 4 Aug. 11 18 25 1 8 Sept. 15 22 29 6 13 20 27 4 11 18 25 1 8 16 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 $1, 782,369 $904,986 1,646,715 906, 762 1, 683,756 903,026 1, 614,132 902.846 1, 686, 669 1,002, 780 1, 637, 051 1,004, 410 1, 551, 479 1, 003, 684 1, 554, 884 1,000,930 1, 664, 390 1,000,048 1, 625, 461 1,001,102 1, 641,473 902. 542 1, 478, 007 900, 473 1, 423, 792 901, 943 1, 428, 598 901, 759 1, 368,352 1,001, 609 1, 658, 682 1,001, 640 1, 549, 288 1,000,032 1, 700,145 1,102. 229 1, 739, 542 1,102, 803 1, 784,438 1,103, 862 1, 638, 046 1,102, 992 1, 714, 684 1,103, 908 1, 603, 624 1,102, 096 1, 613,036 . 1,003,875 1,824,473 1, 002,829 1, 730, 737 1, 003, 464 $828,308 787,513 788, 229 796, 599 908,119 900,869 918,108 901, 737 912, 464 910,183 802,846 805, 950 820, 736 824, 909 895, 200 891,988 894, 466 1,003,416 985,912 1,001,893 1,007, 684 1,014, 776 1,016,451 904, 503 914,080 921,807 ' $76,677 118, 249 114,797 106, 247 94, 661 103, 561 85,476 99,193 87, 594 90, 919 99, 696 94, 523 81, 207 76,860 106,409 109, 562 105, 566 98,814 116,891 101.969 95,308 89,132 86, 645 99, 372 88,749 81, 647 $784, 783 876,006 615, 530 630,800 674, 040 784, 378 568, 229 721, 662 636,. 508 606, 785 683,152 611, 232 566,190 775,350 869,046 682, 376 666, 518 716, 721 705, 274 626. 458 . 804,916 662, 906 742, 726 753.733 606, 677 706,781 NOTE.—Amount of matured issues will be found in table 22. 1 Press release inviting-tenders for Treasury bill issue is dated 6 days before date of issue. Press release announcing acceptance of tenders is dated 2 days before date of issue. Closing date on which tenders for issue are accepted is 3 days before date of issue. 2 Figures, at maturity value, are final and differ in most cases from those shown in press releases aimouncing details of particular issue. »Noncompetitive tenders for $200,000 or less without stated price from any one bidder were accepted in full at average price of accepted competitive bids. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis $120,202 29, 766 287, 496 272,046 328, 740 220,032 436,355 279, 268 464, 640 394,317 319, 390 389, 241 336, 753 126, 409 142, 563 319,164 334, 514 386,508 397, 529 478,404 298,076 441,002 359,370 250,142 396,162 296, 673 99. 727 99. 728 99. 722 99. 721 99. 717 99. 717 99. 714 99. 714 99. 713 99. 712 99. 714 99. 712 99. 711 99. 710 99. 707 99. 706 99. 706 99. 705 99.706 99. 705 99. 705 99. 706 99. 702 99. 703 99. 703 99. 704 1.081 1.076 1.101 1.103 1.119 1.119 1.131 1.132 1.137 1.139 1.131 1.138 1.145 1.148 L160 1.162 1.166 1.166 1.166 1.165 1.167 1.168 1.179 1.176 1.174 1.172 99.733 99. 733 99. 736 99. 735 99. 736 99. 730 99. 730 99. 722 99. 720 99. 720 99. 717 99. 717 99. 716 99. 715 99. 716 99. 712 99. 713 99. 710 99. 715 99. 710 99. 709 99. 709 99. 709 99. 706 99. 709 99. 707 * Bank discount basis. « Except $1,075,000 at 99.775. 6 Except $100,000 at 99.770 and $300,000 at 99.764. 7 Except $700,000 at 99.766. 8 Except $200,000 at 99.750. 9 Except $100,000 at 99.760. 1. 056 1.056 1.048 L048 1.048 L068 1.068 1.100 L108 1.108 1.120 1.120 1.124 1.127 1.127 L139 1.135 1.147 L127 1.147 L151 1.151 1.151 1.163 1.161 1.159 99. 726 99. 726 99. 720 99.720 99. 716 99. 716 99. 713 99. 712 99. 711 99. 710 . 99. 713 99. 710 99. 709 99. 709 99. 705 99. 705 99. 704 99. 704 99. 704 99. 704 99. 704 99. 703 99. 700 99.701 99. 702 99. 703 1.084 1.084 1.108 1.108 1.124 1.124 1.135 1.139 1.143 1.147 1.135 1.147 1.151 1.151 1.167 1.167 1.171 1.171 1.171 1.171 1.171 1.175 1.187 1.183 1.179 1.176 O h9 ffi ut H: Q td fei. td O EXHIBITS 153 Exhibit 10.—Fifth a m e n d m e n t , July 25, 1950, to D e p a r t m e n t Circular No. 418, relating to the issue and sale of Treasury bills TREASURY DEPARTMENT, Washington, J u l y 25, 1950. P a r a g r a p h 8 of D e p a r t m e n t Circular N o . 418, as amended, dated F e b r u a r y 28, 1941, is hereby amended to read as follows (31 C R F 309): " S E C . 309.8. Tenders should be submitted on t h e printed forms and forwarded in t h e special envelopes which will be supplied on application t o a n y Federal Reserve Bank, or branch. If a special envelope is not available, t h e inscription ^Tender for Treasury Bills' should be placed on t h e envelope used. T h e instructions of t h e Federal Reserve Banks with respect t o t h e submission of tenders should be observed. Others t h a n banking institutions will not be permitted t o submit tenders except for their own account. Tenders from incorporated b a n k s and t r u s t companies, a n d from responsible a n d recognized dealers in investment securities will be received without deposit. Tenders from all others m u s t be accompanied by a p a y m e n t of such percent of t h e face a m o u n t of t h e Treasury bills applied for as t h e Secretary of t h e Treasury-may from time t o time prescribe; Provided, however, T h a t such deposit will not be required if t h e tender is accompanied by an express g u a r a n t y of p a y m e n t in full b y an incorporated b a n k or t r u s t company. Forfeiture of t h e prescribed p a y m e n t m a y be declared by t h e Secretary of t h e Treasury, if payraent is not completed, in t h e case of accepted tenders, on t h e prescribed d a t e . ' ' J O H N W . SNYDER, Secretary of the Treasury. TREASURY SAVINGS NOTES, DEPOSITARY BONDS, AND UNITED STATES SAVINGS BONDS Exhibit 11.—First a m e n d m e n t , August 1 1 , 1949, to D e p a r t m e n t Circular No. 833, relating to payment of accrued interest in purchasing Treasury savings notes of Series D , TREASURY DEPARTMENT, Washington, August 11, 1949. P A Y M E N T OF A C C K U E D I N T E R E S T IN P U R C H A S I N G N O T E S 1. T h e first p a r a g r a p h of section I is amended t o read as follows: " 1 . Offering of notes.—The Secretary of t h e Treasury, p u r s u a n t to t h e a u t h o r i t y of t h e Second Liberty Bond Act, as amended, offers for sale t o t h e people of t h e United States, a t p a r a n d accrued interest from t h e first d a y of t h e m o n t h in which purchased t o t h e day, inclusive, on which full p a y m e n t is made in cash or other immediately available funds, a n issue of notes of t h e United States, designated Treasury savings notes. Series D , which notes, if inscribed in t h e n a m e of a Federal taxpayer, will be receivable as hereinafter provided a t p a r a n d accrued interest in p a y m e n t of income, estate and gift taxes imposed by t h e I n t e r n a l Revenue Code, or laws a m e n d a t o r y or supplementary t h e r e t o . " 2. T h e first p a r a g r a p h of section I I is amended t o read as follows: " 1 . General:—Treasury savings notes. Series D , will in each instance be dated as of t h e first d a y of t h e m o n t h in which p a y m e n t , a t p a r a n d accrued interest, if any, is received a n d credited by an agent authorized t o issue t h e notes. They will m a t u r e three years from t h a t date, a n d m a y not be called b y t h e Secretary of t h e Treasury for redemption before m a t u r i t y . All notes issued during a n y one calendar year shall constitute a separate series indicated b y t h e letter *D' followed by year of m a t u r i t y . At t h e time of issue t h e authorized issuing agent" will inscribe on t h e face of each note t h e name a n d address of t h e owner, will enter t h e date as of which t h e note is issued and will imprint his dating s t a m p (with current d a t e ) . T h e notes will be issued in denominations of $100, $500, $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000. Exchange of authorized denominations from higher t o lower, b u t n o t from lower t o higher, m a y be arranged a t t h e office of t h e agent t h a t issued t h e n o t e . " 3. T h e second p a r a g r a p h of section I I I is amended to read as follows: " 2 . Applications and payment.—Applications-will be received b y t h e Federal Reserve Banks a n d branches, a n d b y t h e Treasurer of t h e United States, Washington, D . C. Banking institutions a n d security dealers generally m a y submit applications for account of customers, b u t only t h e Federal Reserve Banks a n d 154 19 50 REPORT OF T H E iSECRETARY OF THEI TREAiSURY their b r a n c h e s . a n d t h e Treasury D e p a r t m e n t are authorized to act as official agencies. . T h e use of an official application form is desirable b u t not necessary. Appropriate forms m a y be obtained on application to any Federal Reserve Bank or branch, or t h e Treasurer of t h e United States, Washington, D . C. Every application m u s t be accompanied by p a y m e n t in full, at p a r and accrued interest, if any. The a m o u n t of accrued interest payable by t h e purchaser will be computed a t the r a t e a t which interest accrues on t h e notes ($0.80 per m o n t h per $1,000 p a r amount) for the actual number of days in t h e m o n t h in which t h e purchase is made. One day's accrued interest in a 31-day m o n t h is $0.02581 per $1,000, in a 30-day m o n t h $0.02667, in a 29-day m o n t h $0.02759 and in a 28-day month $0.02857. Any form of exchange, including personal checks, will be accepted subject to collection, a n d should be drawn to t h e order of t h e Federal Reserve Bank or of t h e Treasurer of t h e United States, as payee, as t h e case m a y be. T h e date funds are made available on collection of exchange will govern the issue date of t h e notes. Any depositary, qualified p u r s u a n t to the provisions of Treasury D e p a r t m e n t Circular No. 92, Revised, as amended, will be permitted t o make p a y m e n t by credit for notes applied for on behalf of itself or its customers- up to any a m o u n t for which it shall be qualified in excess of existing deposits." JOHN W . SNYDER, Secretary of the Treasury. Exhibit 12.—First a m e n d m e n t , November 10, 1949, to the First Supplement to D e p a r t m e n t Circular No. 660, terminating the issue of 2 percent depositary bonds. Second Series TREASURY DEPARTMENT, Washington, November 10, 1949. T h e issue of 2 percent depositary bonds. Second Series, under t h e First Supplement, dated J u n e 29, 1943, to D e p a r t m e n t Circular No. 660, is hereby terminated as of t h e close of business J a n u a r y 1, 1950. All 2 percent depositary bonds. Second Series, outstanding on F e b r u a r y 28, 1950, will be redeemed as of t h e close of business on t h a t date. . Notice of redemption will be given to t h e holders of such bonds as provided by t h e terms thereof. JOHN W . SNYDER, Secretary of the Treasury. Exhibil 13.—Sixth a m e n d m e n t , J a n u a r y 4, 1950, to D e p a r t m e n t Circular No. 530, Sixth Revision, prescribing * regulations governing United States savings bonds TREASURY DEPARTMENT, Washington, J a n u a r y 4, 1950. To Owners of United States Savings Bonds and Others Concerned: P u r s u a n t to section 22 (a) of t h e Second Liberty Bond Act, as amended (55 Stat. 7, 31 U. S. C. 757c), section 315.9 (d) (4) and section 315.23 (c) of D e p a r t ment Circular No. 530, Sixth Revision, dated F e b r u a r y 13, 1945 (31 C F R 1945 Supp. 315), as amended, are further amended, effective J a n u a r y 1, 1950, to read as follows: ' ' S E C . 315.9 (d) (4). W i t h respect to bonds of Series E, those purchased with t h e proceeds of m a t u r e d bonds of Series A, Series C-1938, Series D-1939 and Series D-1940, where such m a t u r e d bonds are presented by an individual (natural person in his own right) owner or coowner for t h a t purpose and the Series E bonds are registered in his n a m e in any form of registration authorized for t h a t series. " S E C . 315.23 (c). Series G—Redemption at par before maturity.—A bond of Series G (but not of Series F) will be redeemed at par before m a t u r i t y , in whole or in p a r t , in a m o u n t s corresponding with authorized denominations, not less t h a n six m o n t h s from t h e issue date, (1) upon t h e d e a t h on or after J a n u a r y 1, 1950, of an owner or coowner, if a natural person, or (2) in t h e case of bonds held by a trustee or other fiduciary estate upon t h e termination of t h e t r u s t or other fiduciary estate by reason of t h e death on or after J a n u a r y 1, 1950, of any person, except t h a t if t h e t r u s t or fiduciary estate is t e r m i n a t e d only in part, redemption a t p a r will be m a d e to t h e extent of not more t h a n t h e pro r a t a portion of t h e t r u s t pr .fiduciary estate so t e r m i n a t e d . E e d e m p t i o n a t par will be made a t t h e ExtiiBits , 166 6ption of t h e person entitled to t h e bonds a n d such option m a y be shown by a signed request for p a y m e n t or by express written notice {in either case specifying that.redemption at par is desired); p a y m e n t will be made as of t h e first day of the first m o n t h following by a t least one full calendar m o n t h t h e date of receipt of t h e bonds or t h e request by t h e Treasury D e p a r t m e n t , Division of Loans and Currency, Merchandise M a r t , Chicago 54, Illinois, or a Federal Reserve Bank. If desired a n d so stated in t h e request for p a y m e n t or notice of intention, p a y m e n t m a y be postponed to t h e second interest date following t h e date of d e a t h ; otherwise, p a y m e n t will b e made in regular course. A d e a t h certificate or other competent proof of d e a t h must accompany t h e bonds or t h e notice a n d if separate notice is given t h e bonds must be surrendered to t h e same agency to which t h e notice is given, not less t h a n t w e n t y days before t h e effective redemption d a t e . I n no case of redemption at par before maturity will interest be paid beyond the second interest payment date following the date of death. I n cases in which t h e death of t h e owner, coowner, or person whose death t e r m i n a t e d a fiduciary estate, took place before J a n u a r y 1, 1950, redemption a t par will be governed by t h e regulations in force a t t h e date of d e a t h . " J O H N W . SNYDER, Secretary of the Treasury. Exhibit 14.—Fourth supplement, M a r c h 15, 1950, to Department Circular No. 653, Second Revision, discontinuing sales of the $10 denomination of Series E savings b o n d s TREASURY DEPARTMENT, Washington, March 15, 1950. T h e first supplement to D e p a r t m e n t Circular No. 653, Second Revision, which supplement is dated J u n e 7, 1944 (31 C. F . R. 316.12), is hereby withdrawn effective a t t h e close of business March 31, 1950, a n d thereafter no sales of United States savings bonds of Series E of t h e denomination of $10.will be made. • E . H. FOLEY, Jr., Acting Secretary of the Treasufy. O B L I G A T I O N S G U A R A N T E E D BY T H E U N I T E D S T A T E S Exhibit 15.—Partial redemption, before maturity, of 2 % percent housing insurance fund d e b e n t u r e s . Series D (sixth call) [Department Circular No. 851. Public Debt] TREASURY. DEPARTMENT, Washington, September 27, 1949. To Holders of 2}i Percent Housing hisurance Fund Debentures, Series D : I. N O T I C E OF S I X T H CALL FOR PARTIAL R E D E M P T I O N , B E F O R E M A T U R I T Y , OF 2^^ PERCENT HOUSING INSURANCE FUND DEBENTURES, SERIES D T h e Federal Housing Commissioner, with t h e approval of t h e Secretary of the Treasury, has issued t h e following notice of call for partial redemption a n d offer to purchase with respect to 2Jl percent housing insurance fund debentures. Series D: " P u r s u a n t t o t h e autljority conferred by t h e National Housing Act (48 Stat. 1246; U. S. C , title 12, sec. 1701 et seq.) as amended, public notice is hereby given t h a t 2Ji percent housing insurance fund debentures, Series D , of t h e denominations a n d serial numbers designated below, are hereby called for redemption, a t p a r a n d accrued interest, on Januar3^ 1, 1950, on which date interest on such debentures shall cease: • 2% percent housing insurance fund debentures, Series D . . . Denomination: $50 $100 $500 $1,000___ $5,000 $10,000 Serial numbers (all numbers inclusive) _. . 6 to 7 29 to 31 :.-- 6 to 7 28 to 29 :7 -- 1,065 to 1,113 166 1 9 5 0 REPORT OF T H E SECRETARY OF THEI TREAiSitJtlY " T h e debentures first issued as determined by t h e serial numbers were selected for redemption by t h e Commissioner, Federal Housing Administration, with t h e approval of t h e Secretary of the Treasury. " N o transfers or denominational exchanges in debentures covered by the.foregoing call will be made on t h e books maintained. by the Treasury D e p a r t m e n t on or after October 1, 1949. This does not affect t h e right of t h e holder of a debenture to sell and assign the debenture on or after October 1, 1949, and provision will be made for t h e p a y m e n t of final interest due on J a n u a r y 1, 1950, with t h e principal thereof to t h e actual owner, as shown by t h e assignments thereon. " T h e Commissioner of t h e Federal Housing Administration hereby offers t o purchase any debentures included in this call a t any time from October 1, 1949, t o December 31, 1949, inclusive, a t par and accrued interest, to date of purchase. "Instructions for t h e presentation and surrender of debentures for redemption on or after J a n u a r y 1, 1950, or for purchase prior to t h a t date will be given by t h e Secretary of t h e T r e a s u r y . " II. T R A N S A C T I O N S IN S I X T H - C A L L E D DEBENTURES 1. The debentures included in t h e foregoing notice of call for partial redemption on J a n u a r y 1, 1950, are hereby designated sixth-called 2Ji percent housing insurance fund debentures, Series D , and are hereinafter referred to as sixth-called debentures. . • 2. Transfers a n d denominational exchanges in sixth-called debentures will terminate a t t h e .close of business on September 30^ 1949. III. R E D E M P T I O N OR P U R C H A S E 1. Holders of sixth-called debentures will be entitled to have such debentures redeemed and paid a t p a r on J a n u a r y 1, 1950, with interest in full to t h a t date, a t t h e r a t e of $13.75 per $1,000. Interest on sixth-called debentures will cease on J a n u a r y 1, 1950. . 2. Holders of sixth-called debentures have t h e privilege of presenting such debentures a t any time from October 1 to December 3 1 , 1949, inclusive, for purchase a t p a r a n d accrued interest, a t t h e r a t e of $0.074728 per $1,000 per day from July 1, 1949, to date of purchase. IV. R U L E S AND R E G U L A T I O N S G O V E R N I N G R E D E M P T I O N AND PURCHASE 1. T h e United States Treasury D e p a r t m e n t is t h e agent of t h e Federal Housing Commissioner for t h e redemption and purchase of sixth-called debentures. I n accordance with regulations adopted by t h e Federal Housing Commissioner a n d approved by t h e Secretary of t h e Treasury, t h e assignment, redemption, and purchase of sixth-called debentures will be governed by t h e general regulations of t h e Treasury D e p a r t m e n t with respect to United States bonds a n d notes, so far as applicable, except as otherwise provided herein. 2. Sixth-called debentures presented for redemption on J a n u a r y 1, 1950, or for purchase from October 1 to December 3 1 , 1949, inclusive, m u s t be assigned by t h e registered payee or assignee thereof or by their duly constituted representatives in t h e form indicated in p a r a g r a p h 3 of this section, a n d should thereafter be presented a n d surrendered to any Federal Reserve Bank or to t h e Division of Loans and Currency, Treasury D e p a r t m e n t , Washington 25, D . C , accompanied by appropriate written advice. (Use ^ F o r m P D 2218.) T h e debentures m u s t be delivered a t t h e expense and risk of t h e holders. (See p a r a g r a p h 8 of this section.) I n all cases checks in p a y m e n t of principal a n d final interest will be mailed to t h e address given in t h e form of advice accompanying t h e debentures when surrendered. 3. If t h e registered payee or an assignee holding under proper assignment from t h e registered payee desires t h a t p a y m e n t be made to him, t h e debentures should be assigned by such payee or assignee or by a duly constituted representative to " T h e Federal Housing Commissioner for r e d e m p t i o n " or to " T h e Federal Housing Commissioner for p u r c h a s e , " according t o whether t h e debentures are t o be presented for redemption on J a n u a r y 1, 1950, or for purchase prior to t h a t date. If it is desired for any reason t h a t p a y m e n t be made to some other person without intermediate assignment, t h e debentures should be assigned to " T h e Federal Housing Commissioner for redemption (or purchase) for t h e account of , " inserting t h e n a m e a n d address of t h e person t o whom p a y m e n t is to be made. EXHIBITS 157 4. An assignment in blank or other assignment having similar effect will be recognized, b u t in t h a t event p a y m e n t will be made to t h e person surrendering t h e debenture for redemption or purchase since, under such an assignment, t h e debenture becomes in effect payable to bearer. Assignments in blank or assignments having similar effect should be avoided, if possible, in order not to lose t h e protection afforded by registration. 5. Final interest on a n y sixth-called debentures, whether purchased prior to or redeemed on or after J a n u a r y 1, 1950, will be paid with t h e principal in accordance with t h e assignments on t h e debentures surrendered. 6. All assignments m u s t be made on t h e debentures themselves unless otherwise directed by t h e Treasury D e p a r t m e n t . Detached assignments will be recognized and accepted in any particular case in which t h e use of detached assignments is specifically authorized by t h e Treasury D e p a r t m e n t . Any assignment not made upon t h e debenture is considered a detached assignment. 7. A sixth-called debenture registered in t h e n a m e of, or assigned to, a corporation, will be paid to such corporation on or after J a n u a r y 1, 1950, upon an appropriate assignment for t h a t purpose executed on behalf of t h e corporation b y a duly authorized officer thereof. An assignment so executed and duly a t t e s t e d in accordance with Treasury D e p a r t m e n t regulations will ordinarily be accepted without proof of t h e officer's authority. I n all cases coming under this provision p a y m e n t will be made only by check drawn to t h e order of t h e corporation. Proof of t h e a u t h o r i t y of t h e officer assigning on behalf of a corporation will be required, in accordance with t h e general regulations of t h e Treasury D e p a r t m e n t , in t h e case of assignments for purchase prior to J a n u a r y 1, 1950, and in case of assignments for redemption on or after J a n u a r y 1, 1950, for t h e account of any person other t h a n t h e corporation. 8. Debentures presented for redemption or purchase under this circular must be delivered to a Federal Reserve Bank or to t h e Division of Loans and Currency, Treasury D e p a r t m e n t , Washington 25, D . C , a t t h e expense and risk of t h e holder. Debentures bearing restricted assignments m a y be forwarded by registered mail, b u t debentures bearing unrestricted assignments should be forwarded by registered mail insured or by express prepaid. 9. I n order to facilitate t h e redemption of sixth-called debentures on J a n u a r y 1, 1950, any such debenture m a y be presented and surrendered in the manner herein prescribed in advance of t h a t date b u t not before December 1, 1949. Such early presentation by holders will insure p r o m p t p a y m e n t of principal and interest when due. V. GENERAL PROVISIONS 1. Any further information which m a y be desired regarding t h e redemption of sixth-called debentures under this circular m a y be obtained from any Federal Reserve Bank or from t h e Division of Loans and Currency, Treasury D e p a r t m e n t , Washington 25, D . C , where copies of t h e Treasury D e p a r t m e n t ' s regulations governing assignments m a y be obtained. 2. As fiscal agents of t h e United States, Federal Reserve Banks are authorized a n d requested to perform any necessary acts under this circular. T h e Secretary of t h e Treasury m a y a t any time or from time to time prescribe supplemental a n d a m e n d a t o r y rules and regulations governing t h e m a t t e r s covered by^ this circular, which will be communicated p r o m p t l y to t h e registered owners of sixthcalled debentures. JOHN W . SNYDER, Secretary of the' Treasury. Exhibit 16.—Summary of information contained in circulars pertaining to calls for partial redemption, before maturity, of insurance fund d e b e n t u r e s During t h e fiscal year 1950 there were five calls for partial redemption, before m a t u r i t y , of insurance fund debentures. T h e essential details contained in t h e circulars covering these calls are summarized in t h e following table. T h e first circular, covering t h e sixth call for partial redemption of Series D housing insurance fund debentures, is shown as exhibit 15. T h e other four circulars have been omitted, b u t t h e general rules and regulations contained in t h e omitted circulars are, with t h e exception of t h e applicable dates, t h e sanae as those shown \i\ exhibit 15. Summary of information contained in circulars pertaining to insurance fund debentures called for redemption during the fiscal year 1950 2 H % war housing i n s u r a n c e fund d e b e n t u r e s 2 % % housing i n s u r a n c e fund d e b e n t u r e s . Series D Series H Series J, first call Sixth call D e p a r t m e n t circular covering call Redemption date Serial n u m b e r s called, b y d e n o m i n a t i o n s : $50 -- -$100 • : $500 $1,000 : . $6,000 $10 000 ; Final d a t e for transfers or denominational exchanges ( b u t n o t for sale or assignment). R e d e m p t i o n on call d a t e , a m o u n t paid a t par w i t h i n t e r e s t in full, a t r a t e of. T r e s e n t a t i o n for p u r c h a s e prior to call date: PeriodA m o u n t paid a t p a r a n d accrued uit e r e s t a t r a t e of. N o . 851, S e p t . 27, 1949. Jan. 1, 1950 6-7 29-31 6-7.. 28-29 7 1,065-1,113 S e p t . 30. 1949 S e v e n t h call N o . 862, A p r . 1960. J u l y 1, 1960 1,114-1 159 M a r . 31, 1950... Sixth call 5, S e v e n t h call N o . 852, S e p t . 27, 1949. Jan. 1, 1950 3,033-3,075 8,102-8,253 4 , 0 3 6 ^ , 076 9,130-9,272 1,024-1,072 6,102-5, 254 Sept. 30, 1949 2 H % mutual mortgage i n s u r a n c e fund d e b e n t u r e s . Series E , fifth caU No. 864, A p r . 1950. J u l y 1, 1950 3,076-3,139 8,264-8,545 4,076-4,147 . . . 9,273-9,536 1,073-1,174 6 256-5,529 M a r . 31, 1950 td 5, N o . 864, A p r . 5, 1960. J u l y 1, 1960 . . . . 1. . . . . &-11 2 4-6 No. ^'863, A p r 1950. J u l y 1, 1950. 5, 48-141 M a r . 31, 1950. 2,002-2,023. ^ 2,002-2,081. 28-2, 525. 6,001-6,091. 1, 202-1, 214. 301. M a r . 31, 1950. $12.50 per $1,000 $12.50 per $1,000 $13.75 per $1,000. Apr. 1-June 30, 1960. $0.069061 p e r $1,000 per day from Jan. 1, 1950, to d a t e of p u r c h a s e . 1-June 30, Apr. 1-June ' 30, A p r . 1950. 1960. $0.069061 p e r $1,000 -$0.075967 per $1,000 per' day from per day from Jan. 1, 1950, to Jan. 1, 1950, to d a t e of p u r c h a s e . d a t e of p u r c h a s e . . o n o m $13.75 p e r $ 1 , 0 0 0 . . . . . $13.75 per $1,000 Oct. 1-Dec. 31, 1949. $0.074728 p e r $1,000 per day from J u l y 1, 1949, to d a t e of p u r c h a s e . $12.50 per $1,000 Apr. 1-June 30, Oct. 1-Dec. 31, 1950. . 1949. $0.075967 per $1,000 $0.067935 per $1,000 per day from per day from Jan. 1, 1960, to J u l y 1, 1949, to d a t e of p u r c h a s e . d a t e of p u r c h a s e . I s td o td > EXHIBITS 159 PUBLIC DEBT M A N A G E M E N T Exhibit 17.—Statement by Secretary of the Treasury Snyder before the Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report, D e c e m b e r 2, 1949 Mr. Chairman and Members of the Subcommittee of the Joint Committee on the Economic R e p o r t : I am pleased to have t h e opportunity of appearing before you t o d a y to discuss questions on t h e monetary, credit, and fiscal policies of t h e United States Government. I should like a t this time to take a few minutes to talk a b o u t some of t h e current factors in the outlook for Treasury financing a n d d e b t m a n a g e m e n t policies in the light of the budget estimates t h a t have been released since I sent m y answers to your questionnaire to the Committee. In discussing some of the figures, I shall refer occasionally to a booklet of charts which we have prepared. The budget position is a m a t t e r of first importance. The new budget estimates show a deficit of $5.5 billion for the present fiscal year. Expenditures are estirnated a t $43.5 bilhon a n d receipts a t $38 bilhon, as is shown in chart A in the booklet. I t seems to me, however, t h a t in times as prosperous as these we should have a balanced budget. National income t o d a y is close to t h e highest level i n our history; and, by every s t a n d a r d of sound government finance, the t i m e ' t o have a balanced budget is now. This is t h e position I have t a k e n consistently since I became Secretary of the Treasury in June 1946. In t h e s t a t e m e n t which I made a t t h a t time, I said:ff* * * I t is the responsibility of the Government to reduce its expenditures in every possible way, to maintain a d e q u a t e tax rates during this transition period, a n d to achieve a balanced budget—or better—for 1947." I t was, therefore, a source of great satisfaction to me to be'able—as Secretary of t h e T r e a s u r y — t o announce a t t h e end of the fiscal year 1947 t h a t t h e Federal Government h a d operated with a budget surplus. In t h e following fiscal year, which ended on June 30, 1948, we again had a budget surplus—-it amounted to $8.4 billion and was, in fact, the largest budget surplus in t h e history of t h e United States Government. I n t h e past three years, I have restated t h e urgent need for an excess of receipts over expenditures on m a n y occasions—notably when the Congress was considering tax reduction measures in 1947 and 1948. Furthermore, President T r u m a n has repeatedly urged the necessity of reducing the pubhc debt under t h e circumstances which have existed since the end of the war. I n his message to the Congress on April 2, 1948, in which he returned, without approval, t h e tax reduction bill, H . R. 4790, he s t a t e d : "* * * I repeat w h a t I have so often said before—if "we do not reduce the public debt b y substantial a m o u n t s during a prosperous period such as the present, there is little prospect t h a t it will ever be materially reduced." You will recall t h a t it was this tax reduction measure which the Congress passed over t h e President's veto, and which resulted in a loss of revenues to t h e Federal Government amounting to approximately $5 billion annually. I t is largely as a result of t h e enactment of this legislation t h a t we had a budget deficit of $1.8 billion in t h e fiscal year which ended last J u n e 30, and t h a t we have a prospective budget deficit, of $5.5 billion in the current fiscal year. About $3 billipn of t h e deficit for t h e fiscal year 1950 has already occurred. I t has been financed principally by increases in t h e weekly Treasury bill offerings and by increased sales of Treasury savings notes. T h e t o t a l a m o u n t of Treasury bills outstanding rose approximately $800 million between August 4 and September 8,as a result of six successive offerings in excess of the a m o u n t s maturing. The . a m o u n t of Treasury savings notes outstanding has increased by over $2>2 bilhon since the end of June. T h e Treasury cash balance is currently running between $4 billion and $5 billion. W i t h o u t any further new financing, the balance should remain near this level for the next four months, as shown in chart B . If everything works out exactly as calculated in present estimates, t h e balance would run down to approximately $3 billion by next April 30. . There are always, however, a n u m b e r of variables which could have an i m p o r t a n t influence on the picture. There is the possibility t h a t revenues might vary from the a m o u n t shown in t h e budget estimates. We knew, for exaniple, at the time the revenue estimates were made, t h a t it was very difficult to gauge t h e full effect of strikes on incomes and corporate profits. I t still is not possible to do so. There ^07795—51 rl2 160 1 9 5 0 REPORT OF T H E SECRETARY OF THEI TREASiURY is bound to be considerable range in expenditure estimates for such programs as farm price supports, R F C mortgage purchases, and various types of p a y m e n t s to veterans. These considerations are i m p o r t a n t in our estimate of cash balance levels. T h e picture of how t h e various Government operations affect the cash balance is one t h a t I have before me daily as I consider debt m a n a g e m e n t decisions and plolicies. We revise our appraisals constantly as new information comes in. I t looks a t this time as though we will have to do some additional new-money financing later in this fiscal year. There are three main sources which we might t a p for new borrowing. These are nonbank institutional investors, such as insurance companies, m u t u a l savings banks,' and savings a n d loan associations; other private nonbank investors, including individuals and pension funds; and t h e commercial banks of the country. We keep close watch a t all times on the position of the various investor classes which comprise t h e m a r k e t for Government securities. I n addition to t h e problem of new borrowing, the Treasury will find itself faced next year—as it has been in each of t h e postwar years—with a large refunding task. Approximately $1 billion of Treasury bills m a t u r e each week; there will be a number of issues of certificates of indebtedness and notes maturing, totaling a b o u t $33 billion; and there will be four Treasury bonds amounting to about $11 billion which m a t u r e or are callable next year. This is shown in chart C. T h e budget deficit makes it clear t h a t there will not be a n y reduction during the fiscal year 1950 on these maturities, except for tail-ends of maturing securities not t u r n e d in for refunding. There will not be any official budget estimates for the fiscal year 1951, of course, until t h e President's Budget Message is released in J a n u a r y . T h e total of m a t u r i n g or callable marketable securities in the calendar year 1950 is approximately $56 billion; and, on net balance, it appears t h a t nearly t h e entire aniount w i l l b e refunded into securities m a t u r i n g in t h e future. Two-thirds of the securities which m a t u r e in 1950 are held by the commercial banking system. A significant portion of t h e remainder is held by industrial, commercial, and mercantile corporations. T h e ownership of maturing^ issues, as well as t h e ownership of t h e remainder of t h e public debt, is, of course," one of t h e considerations which we m u s t take into account in making our debt managem e n t decisions. T h e debt is broadly distributed, and we w a n t to keep it t h a t way. The present widespread ownership is, to a large extent, the result of t h e Treasury's policy of fitting its security offerings to t h e needs of various investor classes. This first became of special importance during the war period when one of the major objectives was to sell as great a portion as possible of t h e large wartime offerings to nonbank investors. I t has had increasing importance in the postwar period, when we wished to maintain a large nonbank holding of Government securities, especially among individuals, under varying circumstances of business reconversion and then expansion. A central consideration in fitting Government securities to t h e needs of different classes of investors has been setting the appropriate maturities for each class. Industrial, commercial, and mercantile corporations, for example, have been sold short-term securities primarily, since their purchases are generally made with reserves which they m a y w a n t to have readily convertible. T h e same t y p e of consideration was kept in mind in fitting Government security offerings to the needs of other classes of investors. The net results of this policy can be observed by an analysis of t h e portfolios of t h e leading investor classes. Information on this account appears in chart D which shows changes in the estimated average n u m b e r of years to m a t u r i t y of t h e Government security portfolios of three i m p o r t a n t investor groups—life insurance companies, m u t u a l savings banks, and commercial banks. Life insurance companies a n d m u t u a l savings b a n k s are, of course, generally longer-term investors. During t h e war, insurance companies acquired a large volume of Governments; and it was the Treasury's policy to sell t h e m longer-term securities. T h e results are evident. T h e average length of Government securities held by life insurance companies increased from a b o u t 10 years in 1941 to a b o u t 16 years in 1945. Since then, there has been a gradual decline; and, a t t h e present time, t h e figure is 14 years. T h e picture with respect to m u t u a l savings banks differs somewhat from t h a t of t h e hfe insurance companies. The average length of t h e Government security holdings of these banks increased during the war finance period from 9 years to 14 years; and has declined subsequently to 12 years. Savings banks also were EXHIBITS . 161 sold longer-term securities, but their investment needs resulted in the acquisition of more medium-term securities than were acquired by life insurance companies.' Because there have been no new offerings of long-term marketable securities since the end of 1945, the average length of the outstanding marketable Federal debt has been automatically shortened during this period. Investors who are primarily bondholders have this reflected in their investment portfolios to a greater degree, of course, than do investors who hold primarily short-term debt. The average length of the holdings of life insurance companies and of mutual savings banks would have declined more sharply since 1945, therefore, if these institutions had not bought long-term issues in the market and sold, shorter-term issues. They offset thereby, to some extent, the automatic shortening of their portfolios. Commercial banks have been offered principally short-term securities throughout the war finance period and as a part of our postwar program. This has been a major factor in keeping their portfolios short on the average. The average length to first call or maturity date of the Government security holdings of commercial banks has declined from 7 years in June 1941 to about 3 years at the present time. There is considerable variation among banks throughout the country in the maturities of the Governments which they hold. Estimates of the average number of years to maturity of Governments held by commercial banks, by Federal^ Reserve Districts, are shown in chart E. Longer-term securities are generally held in the eastern areas—with the exception of New York City—than in the western areas. There are three districts in which the average length of Govern-. ments held is less than 2}^ years; and, as you can see from the chart, these areas are in the western part of the country. The shortest average length, 2 years, is found in the Kansas City Federal Reserve District; while the longest average length, 4% years, is in the New York District, excluding New York City. In this connection, it is interesting to note that as we go farther west, commercial banks also have more loans in proportion to their capital. I have gone into these matters at some length to indicate how the present maturity distribution of the public debt developed. Our objective has been a smoothly functioning economy, and securities have been issued to the various investor classes to suit their needs and the requirements of the economy. In handling the new-money and refunding operations that are in prospect for next year, the interest cost of the debt to taxpayers must also be one of the considerations in our debt management program. The interest cost of the debt comprises over 13 percent of the Federal budget for the fiscal year 1950. The total annual cost is likely to grow, even without any increase in the debt, because the rate of interest on savings bonds increases as they approach maturity, and because an increasingly large proportion of the debt represents the accumulation of trust funds invested at an average interest rate which is higher than the present average rate on the total debt. Even a relatively small increase in the average interest rate on the debt would add a substantial amount to the total annual interest cost. It is estimated that the interest on the debt will amount to $5.7 billion in the calendar year 1949. About $1K billion would be added to this amount, if the average interest rate were }^ of 1 percent higher. The annual interest cost wpuld be more than $5 billion larger, if the average interest rate were equal to the average borrowing cost of World War I—which was approximately 4>i percent. The annual saving in the taxpayers' money as a result of the present level of interest rates is an important factor in the budget picture of the Federal Government. The distribution throughout the economy of the interest on the public debt is, of course, determined by the ownership of the debt. The next chart, which is chart F, shows interest on the Federal debt, by class of recipient, from 1946 through 1949. It seems to me that the outstanding fact in this connection is the increase during this period in the interest on the Federal debt going to individuals. Their share during the current calendar year is one-third of the estimated $5.7 billion total. It rose from $1.4 billion in 1946 to an estimated $1.9 billion in the current year. The share received by Government investment accounts also rose during this period, while interest payments to other nonbank" investors declined slightly. The share received by commercial banks also declined. This was largely due to the Treasury's policy of concentrating debt reduction in the holdings of commercial banks. 162 19 50 REPORT 6F. T l i B SEC^'RETARY OF THEI TMASitrHY Another way of looking a t t h e interest cost of t h e debt is to consider t h e burden which it represents when compared with t h e gross national product of t h e country, from which it m u s t b e p a i d . The public debt is nearly 10 times as large as it was a t t h e World War I peak in August 1919, as is shown in chart G. But, because we were able to finance the Second World War a t a borrowing cost about one-half as great as the average borrowing cost of World War I, t h e interest cost of t h e public debt t o d a y is only 5 times, rather t h a n 10 times, as large as it was in 1919. This does not, however, mean an interest burden 5 times as great. For, in the meantime, our gross national product has risen from less t h a n $80 billion in 1919 to. an estimated annual r a t e above $250 billion a t t h e present time. We have a tremendously increased product out of which to p a y the interest on the debt, and the present interest cost is only 2.3 percent of gross national product. This compares with 1.4 percent in 1919. One of the, i m p o r t a n t refunding m a t t e r s which will come before t h e Treasury in 1950—and in greater volume in 1951, 1952, and subsequent years—will involve the Government security holdings of individuals. These holdings amounted to $69>^ bilhon on October 31, 1949, up from $65 bihion on December 31, 1945, and from $10>4 billion before t h e war, as shown in chart H . Ownership of Government securities by millions of individuals is good for the country .as well as for those individuals. I t gives t h e people of the country an increased interest in t h e affairs of their Government and causes t h e m to participate more actively in those affairs. We have continued to promote the saie of savings bonds in order to encourage thrift. Thrift has played a vital p a r t in the building of our Nation, and, today, it is as i m p o r t a n t to our well-being as it has ever been in the past. At t h e end of October, $48>^ billion of savings bonds of aU series were held by individuals. Savings bonds comprised 70 percent of their total holdings of Goverhment securities. . Holdings of E bonds alone—the bond which is designed to meet t h e needs of small investbrs—amounted to $33)^ billion. T h e savings bonds held by individuals a t the present tinie are distributed broadly t h r o u g h o u t t h e country. In chart I, t h e United States is divided into geographical areas to show t h a t t h e $48J^ billion of savings bonds outstanding in t h e h a n d s of individuals are distributed approximately as follows: $16)^ billion held in t h e northeastern area of t h e country; $10 billion held in t h e States of Michigan, Illinois, Indiana, and Ohio; $6 billion held in the southern p a r t of t h e United States; $6 billion held in t h e seven States which are t h e farthest west; a n d $10 billion held in t h e large block of central States which is bounded roughly by the Mississippi on t h e east, the Rocky Mountains on the west, and stretches from C a n a d a t o Mexico. These savings bonds comprise a tremendous a m o u n t of assets in t h e hands of individuals. The $48}^ billion t o t a l seems particularl}^ significant, if we recall t h a t a t t h e b o t t o m of t h e depression.—in 1933—national income in the country was only $ 3 9 ^ billion. Across t h e Nation, people now have a cushion of reserves to fail back upon t h a t is greater t h a n the total income in t h e Nation in t h a t year. You m a y remember t h a t during t h e latter years of the war there was considerable speculation as to- t h e probable redemption experience with Series E bondsas soon as the war had ended. The opinion was freely expressed t h a t t h e large quantities of bonds which were being sold under the pressure of patriotism and intensive wartime selling methods would be redeemed speedil}^ as soon as t h e war was ended. Instead, as I have noted, we have continued to sell savings bonds and to increase the t o t a l a m o u n t outstanding. Redemption experience with Series E bonds is, in fact, more favorable t h a n t h e postwar rate of turnover in other forms of savings. Chart J shows t h e annual rate of savings account withdrawals and savings bond redemptions, from 1943 to date, expressed as a percentage of t o t a l a m o u n t s outstanding. The r a t e of redemption of Series E bonds has been substantially lower t h a n t h e rate of withdrawals from savings accounts. Furthermore, since the end of the war, savings bond redemptions as a percentage of t h e a m o u n t outstanding have followed a downward trend, while the r a t e of t u r n o v e r of other forms of savings has followed an u p w a r d trend. We have not, however, encouraged t h e sale of savings bonds a t t h e expense of other types of savings. From December 31, 1945, through October 31, 1949, t h e increases in practically all other forms of individuals' savings were substantially greater relatively t h a n t h e increase in savings bond holdings. I have been talking a b o u t some of the technical m a t t e r s t h a t will have to. be 'considered in connection with Treasury borrowing and refunding. Uppermost in our minds in making all of our policy decisions is t h e fact t h a t t h e foremost responsibility of t h e Secretary of the Treasury is to maintain confidence in t h e credit EXHIBITS 163 of the United States. One hundred and fifty years ago, t h e main financial problem of our newly born Nation was to establish t h a t credit. Confidence in our Government's financial soundness was successfully established; a n d it has been t h e responsibility of Secretaries of t h e Treasury for a century and a half to maintain it. B u t never before has this responsibility been so great as since t h e end of World War I I . T h e public debt increased more t h a n fivefold during t h e war. I t represents more t h a n half of all of t h e debt of t h e country, public and p r i v a t e . I t comprises a substantial proportion of t h e assets of t h e leading investor classes; and t h e decisions which are m a d e with respect to it are of immediate and vital significance to each and every one of us. T h e primary concern of t h e Secretary of t h e Treasury in formulating debt m a n a g e m e n t policies is to promote sound economic conditions in t h e eountYy. Because t h e debt is so great, because it is such a large proportion of t h e t o t a l d e b t of t h e country, a n d because it is interwoven in t h e financial structure of t h e country, t h e policies and decisions made in t h e Treasury D e p a r t m e n t are of tremendous importance and significance to t h e economic and financial welfare of t h e Nation. Figures on t h e total debt of t h e country—public a n d private—are shown in chart K. At t h e end of 1939, t h e debt of t h e Federal Government a m o u n t e d t o $47J^ billion and accounted for 23 percent of t h e t o t a l debt of t h e entire country. At t h e present time, t h e pubhc debt a m o u n t s to $257 billion and comprises 51 percent of all debt. T h e estimated distribution of the ownership of t h e debt oh October 31 of this year is shown in chart L. N o n b a n k investors held $172 billion of Government securities—two-thirds of t h e $257 billion of Federal debt outstanding on t h a t date. I t is particularly significant t h a t t h e holdings of individuals are so large. T h e y totaled $69% billion, as I mentioned earlier. Insurance companies held $203^ billion of Government securities. M u t u a l savings bank holdings totaled $11}^ billion. Government investment accounts, principally Government t r u s t funds which are required by law to be invested in Government securities, held $39J4 billion of t h e public debt. T h e holdings of " o t h e r " nonbank investors— which include State and local governments, corporations, pension funds, and charitable institutions—were $31 billion. One-third of t h e debt—$85 billion—was held by t h e commercial banking system. Commercial banks held $67J^ billion; and the remainder, $17}^ billion, was held by t h e twelve Federal Reserve Banks. These figures are large, in dollar t e r m s ; a n d t h e y are also a substantial proportion of t h e assets of t h e various investor classes, as shown in chart M. In t h e case of commercial banks, for example, holdings of Governments are equal to 56 percent of earning assets—a large percentage, but a sharp decline from F e b r u a r y 28, 1946, when Government securities comprised over 70 percent of the earning assets of these institutions. N o n b a n k investors—both financial and nonfinancial—also have a large share of their assets invested in Goverriment securities. On October 31, mutual savings b a n k holdings of Governments represented 54 percent of their total assets; life insurance companies had 27 percent of total assets invested in Government securities; and other insurance companies—fire, marine, and casualty—^had 47 percent. Nonfinancial corporations had 13 percerit of their current assets in this form. And, when we t u r n to individuals, we find t h a t Government securities accounted for 34 percent of their liquid assets—that is, their combined holdings of Government securities, savings and checking accounts, and currency—which approximated $200 billion on October 31. These figures are unmistakable evidence t h a t the decisions which are made with respect to t h e public debt affect every segment of our economy. They indicate t h e compelling necessity for considering not only the effect of our- decisions upon t h e financial structure of t h e Government itself, b u t their effect on the financial a n d economic structure of the whole country. I t is for this reason t h a t Treasury and Federal Reserve authorities have cooperated to keep the m a r k e t for Government securities stable during the postwar period. Under the circumstances which existed, stability in the Government bond m a r k e t has been of tremendous importance to the country. I t contributed to the underlying strength of the country's financial system and eased reconversion, not only for the Government, b u t also for industrial, and business enterprises. This is in marked contrast to t h e situation after World W a r I, when prices of Government securities were permitted to decline sharply—with disastrous 164 1 9 5 0 REPO'RT OF THEi SECRETARY OF THEI TREASiURY results. Investors suffered serious financial losses. And t h e decline contributed i m p o r t a n t l y to the business collapse t h a t occurred in the early post-World War I period. These things happened a t a time when the public debt was a much less powerful element in t h e economy t h a n it is a t the present time. I t seemed obvious to. us t h a t widely fluctuating Government bond prices would have even more serious repercussions after World War I I . I t is now four years since Victory Loan 2>^'s were issued. C h a r t N shows t h e price history of t h e Victory Loan 2}^'s after World War I I , as compared with t h e price history of the F o u r t h Liberty Loan 4>^'s during t h e corresponding period after World War I. At the end of t h e fourth year. Victory Loan 2}^'s are above p a r ; a t the end of a similar period. F o u r t h Liberty Loan 4J4's were in the vicinity of par. But the price movements within the two periods differed radically. Victory •Loan 2y2S have always been, above par. The F o u r t h Liberty Loan 4>i's dropped substantially below par, reaching a low of about 82J^^. F r o m this point, t h e y had a long climb back before reaching par. I n the short-term area of t h e Government security market, we also had to consider the possible effect of our actions on t h e financial markets. When interest rates on short-term Government securities were raised, beginning in mid-1947, they were raised gradually in order not to disrupt these markets. When they were reduced, the change was small for the same reason. I n the four years since VJ-day, the United States has achieved a record level of prosperity. There can be no doubt t h a t world-wide confidence in the financial soundness of the Government of the United States played a prominent role in achieving this prosperity. I have gone into some of t h e current matters of public debt management with you in some detail in order to round out t h e entire picture for your Committee. M a n y of the answers to t h e questions submitted by your Committee to me an d t o other Government officials and agencies touched on some of the points t h a t I have mentioned; b u t I felt t h a t it would make for better understanding of t h e problems a n d considerations involved, if I summarized the current situation as it looks from my position as Secretary of the Treasury. CHART" A 1945 47 49 '50 1945 47 FISCAL 49 '50 YEARS- 1945 47 49 '50 J 165 EXHIBITS CHART B $Bil. •4 Estimated " ^ ^ \ J F M A M J J A 1949 S O ' CHART C 5NlTltiiMi^iii<EliiBi;iii $Bil. 10 - 8 Bills^^^ 6 - 4 Certificafes andNotes 2 » Callable bonds in months of earliest call dates. N D J F M A M 1950 J 166 19 50 REPORT OF T H E SECRETARY OF THEI TREAS'I|RY CHART D AVERAGE NUMBER OR^EftRSlW^ : : • FEDERAL:SEGURltYiH(5li^lil6S^;£l#^ ; Life Insurance Companies Mutual Savings Banks Commercial Bonks 15 10 fi wm iio| June 30. Dec. 31. Oct. 31. 1941 45 49 June 30. Dec. 31, 1941 45 Oct. 31, 49 m il June 30. Dec.31, 1941 ' 1 Callable bonds to earliest call date. CHART E GOMMERC(Ali^BANl(^HOll0INGt# E i B l « SEGU :;Ci|AVERAGE NUMBER QEYEARS;TCi By Federal Reserve Districts. Oct. 31,1949 YEARS V^ Wk ^ • I Under Z'/g 2'/2 to 3'/4 J ^ to 4 4 or over » Callable bonds to earliest call date. 45 2^ Oct.31, 49 167 EXHIBITS CHART F jNTElEST^QNifflE-FEbERAL^PEBr?^ ^ •: •|%:;!e|diS'-of:;PpiRiiitt;,:i^|f^ $Bli. 5.0 ;;;l.9;;; 'Individuals ;;?i4^;;^------------ 2.5 '"'^^ Other Nonbank Investors ^^^^Federal Reserve Banks '^-'^ Commercial Banks 1946 ^ 1947 1948 Calendar Years 1949^ ^ ' Estimated. CHART G ifBURDEPdFlHftiE&ERA$iEBSa^ tompgrisbn of world ;W6riDebtiqnd:Pr«^ Debt Interest Cost as % Interest Cost^ of Gross Notional Product^ 10 times as high.... 5times as high.... About ii^g times as high.. m :$257BII S5.7Bil.i i fxXVN 779777777J J$27Bil/ mesa— Aug. Oct. Aug. Oct. Aug. Oct. 1919 1949 1919 1949 1919 1949 1 Annual rates. 168 1950 REPORT OF T H E SECRETARY OF THEI TREASiURY CHART H :OWNERSH(B)FJ^EDiiWi[iB|M^ $Bil. 69^2 Mar/cetabies and Other 60 i ;;l3^2;;j 40 Savings Bonds 48^2 20 E 10/2 A-D / iMMi Dec.31. 1939 Dec. 31. 1945 Oct. 31, 1949 CHART I 5:6BD6RiiPH(G;DlSliliiil6i'til^MlNGS^ IfSiKliWEDliiNiVfpUA^ 169 EXHIBITS CHART J CHART K tchAlMRAi® $Bil. 400- ' Private Debt 200 Fed Gov't Debt Dec.31, 1939 45 Feb. 28. 1946 Oct. 31. 1949 ' Includes State and local and nonguaranteed Federal agency debt. Figures based on Department of Commerce estimates. Oct. 31,1949, is Treasury estimate. 170 1950 REPORT OF TliEl SECRETARY OF THE! TREASiURY CHART L OWNERSHIP OFTHE FEDERAL DEB^ 0Ct3l,J949 Nonbank Investors Total Bqnks $Bil. $85 Bil. §172 Bil. 17^2 257 |67!'2 200 ^ \ Federal Reserve "^Commercial Others Government ^ Investment Accts ''Z^' 39l'2; 100 Mut'iSav. Bant(s V ^ 11^2 L \ ^^•'m'Individuals m\ 20/2; i '^^Insurance Cos. CHART M ptlMPORlANGE'OFFEDERAeSEGURITlES^:^ • TO3ELEGtED^iNVES1^vGLASSESi?0Ct FINANCIAL INSTITUTIONS OTHER yoOf: Current Liquid Assets Assets % o f Total Assets^ 100 75 Other ^ Assets 50 wm 25 ;Com'l Banks Life Other L Insurance Cos. J 1 Earning assets of commercial banks. Mutual Sav. Bks. Federal ^ Securities Nonfin. Individuals Corps. 171 EXHIBITS CHART N TREASURY BdND^PRIGES; AFTER WORLD M R r ^ 1945 N Dollars' 1946 J M M J 1947 S N J 1948 M M J I ' ' I S ' ' N J M M J 1949 S N J M M J 3 N I I Victory Loan 21^2 s i ' '••'•.... •-•, IOO 90 80 N J 1918 M M J S 1919 N J M M J S 1920 N J M M J S 1921 N J M M J S 1922 N Exhibit 18.—Letter of Secretary of t h e Treasury Snyder, October 3 1 , 1949, to the Chairman of the Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on t h e Economic Report, replying to a questionnaire on monetary, credit, and fiscal policies TREASURY DEPARTMENT, Washington, October S l , 1949. M Y D E A R M R . CHAIRMAN: This is in reply to your letter dated August 22, 1949, in which you enclosed a questionnaire which you asked me t o answer in connection with a comprehensive s t u d y relating t o t h e effectiveness a n d coordination of monetary, credit, a n d fiscal policies, which has been undertaken by t h e Joint Committee on t h e Economic Report, b y direction of Congress. T h e subject m a t t e r of t h e questions falls into several main categories. All of t h e questions are answered; b u t , since m u c h of t h e material would be repetitive if each question were answered separately, I have taken t h e liberty of answering t h e questions b y groups r a t h e r t h a n question-by-question. T h e first eight questions relate t o t h e monetary a n d debt management policies of t h e Treasury a n d their coordination with t h e policies of t h e Federal Reserve System. T h e questions are as follows: • 1. W h a t are t h e principal guides a n d objectives of t h e Treasury in formulating its monetary a n d debt m a n a g e m e n t policies? W h a t a t t e n t i o n is paid to t h e interest costs on t h e Federal debt? T o t h e prices of outstanding Governm e n t obligations? To t h e state of employment a n d production? T o t h e behavior of price levels in general? T o other factors? 2. T o w h a t extent a n d by w h a t means are t h e m o n e t a r y a n d debt m a n a g e m e n t policies of t h e Treasury coordinated with those of t h e Federal Reserve? Describe in detail t h e procedures followed for these purposes. 3. W h a t were t h e principal reasons for t h e particular structure of interest rates maintained during t h e war a n d t h e early postwar period? 4. T o w h a t extent, if a t all, would a monetary a n d debt management policy which would have produced higher interest rates during t h e perigd from J a n u a r y 1946 t o late 1948 have lessened inflationary pressures? 172 1 9 5 0 REPORT OF T H E SEGRETARY OF THEI TREASiURY 5. When there are differences of opinion between t h e Secretary of t h e Treasury a n d t h e Federal Reserve authorities as to desirable support prices a n d yields on Government securities, whose judgment generally prevails? 6. What, if anything, should be done to increase t h e degree of coordination of Federal Reserve and Treasury policies in t h e field of money, credit, a n d debt management? T. W h a t would be the advantages and disadvantages of providing t h a t the Secretary of the Treasury should be a member of the Federal Reserve Board? On balance, would you favor such a provision? • 8. W h a t are the advantages a n d disadvantages.of offering for continuous sale savings bonds of t h e E, F, and G Series with their present yields, maturities, and hmitations on t h e annual a m o u n t to be purchased by each buyer? Does this policy lessen the supply of private savings for equity capital and riskier private loans? W h a t are the advantages and disadvantages of promoting the sale of these securities duririg periods of recession? Should the terms of these securities and the a m o u n t t h a t each buyer m a y purchase be varied with changes in economic conditions? T h e primary concern of t h e Treasury in formulating its monetary a n d debt management policies is to promote sound economic conditions in the country. When I took office as Secretary of the Treasury, the country had only started the tremendous task of converting the economy from a wartime to a peacetime basis. Federal expenditures, which h a d raised the o u t p u t of the United States to the highest levels on record during t h e war j^.ears, h a d been cut back sharply as soon as t h e war ended. I n t h e fiscal year 1945, Federal expenditures h a d been just under $100 billion, and had accounted for nearly one-half of t h e gross national product; in t h e fiscal year ending J u n e 30, 1946, they dropped to a little over $60 billion. This p r o m p t cut in Federal expenditures after t h e close of the war was necessary a n d desirable; b u t it left the Nation facing the problem bf replacing t h e production which had gone for war purposes with civilian production as rapidly as possible. There were m a n y who felt t h a t the reconversion could be achieved only after t h e country had experienced serious unemployment and severe economic dislocation. Government and business, farmers, and labor were all worried a b o u t m a n y factors on the economic scene. N o t t h e least of t h e economic factors which were causing concern was t h e size of t h e public debt—-which h a d increased more t h a n fivefold during t h e war years. I t was difficult a t t h e time t o forecast how so large a debt might be handled. The size was unprecedented, b o t h in terms of t h e dollar a m o u n t involved and of t h e debt's relation t o t h e economy of t h e country. On F e b r u a r y 28, 1946, a t its postwar peak, t h e Federal public debt stood at. nearly $280 billion. I t consti-. t u t e d over 60 percent of all outstanding debt, public a n d private. At t h e end of 1939, before t h e United States started its defense and war finance program, t h e t o t a l public debt h a d stood a t $48 billion—this was only 23 percent of t h e entire debt of t h e country. At t h e end of t h e war, t h e public debt was widely held. This b r o a d ownership m a d e it possible for t h e debt to play its p a r t in t h e flexible fiscal policy which was necessary t o promote economic stability in t h e postwar period. T h e particular composition of t h e debt was t h e result of conscious planning by t h e Treasury as a. p a r t of its policy of fitting Government securities t o t h e needs of various t y p e s of investors. Practically all of t h e securities sold to commercial banks, for example, have been short-term, in order t h a t t h e portfolios of banks would be k e p t highly liquid. This was essential if banks were to be in a position to finance reconversion needs. Business corporations likewise have been provided with short-term securities for t h e t e m p o r a r y investment of their reserve funds. Insurance companies and savings banks, on t h e other hand, have held longer-term securities—largely with maturities over ten years. Savings bonds have been, of course, t h e principal t y p e of Government security held by individuals. At t h e same time, However, t h a t broad ownership of t h e debt contributed to easing t h e problems of postwar debt management, it m a d e good debt m a n a g e m e n t particularly vital, since every segment of t h e economy was affected. When I became Secretary of t h e Treasury, t o t a l Government security holdingsof individuals, including marketable as well as nonmarketable issues, a m o u n t e d to $64 billion—a significant change from t h e situation prior t o t h e war, when they owned only about $10 billion of Government securities. Over $43 billion of t h e Government securities held by individuals were savings bonds. Other n o n b a n k investors also held large a m o u n t s of Government securities. Financial institutions h a d a substantial proportion of their assets invested in t h e public EXHIBITS 173 debt issues of the Federal Government. For mutual savings banks, it amounted to $ i m billion—about 64 percent of their total assets. All insurance companies— life, fire, casualty, and marine—held $25)^ billion of Government securities. Life insurance companies alone had holdings of $22 billion—over 46 percent of their total assets. Federal agencies and trust funds, which are by law required to invest their accumulated funds in Government securities, held $29 billion. Other noribank investors, which include business corporations. State and local governments, and other small groups of investors, held $32 billion. The commercial banking system held $108 billion of Government securities. Commercial banks held $84H billion of the total. This comprised 71 "percent of their earning assets. The balance, $23H billion, was held by the Federal Reserve Banks. It was obvious that the decisions which had to be made with respect to a public debt which was so large, and which was interwoven in the financial structure of the entire economy, would significantly affect the economic and financial welfare of the country. It was essential, under these circumstances, that debt management be directed toward promoting and maintaining a stable and smoothly functioning economy. In the nature of things, the Federal Government must exercise firm control of debt management as long as the debt remains so large and so important. In the course of forraulating debt management policies, I have consulted with advisory committees representing a cross-section of American business, for an exchange of views and information. These consultations have been helpful in determining the soundest possible debt management policies;-but, in the final analysis, the responsibility for these policies belongs.to the Secretary, of the Treasury and under the law cannot be delegated. As I have said, the overriding consideration in debt management policy is the economic welfare of the country. The Secretary of the Treasury has many responsibilities; but his primary one is that of maintaining confidence in the credit of the United States Government. In addition, in prosperous years such as we have enjoyed since the end of the war, it is important to reduce the total amount of the public debt and to reduce bank ownership of Federal securities and widen the distribution of the debt. Accordingly, these have been the principal objectives of the Treasury's debt management program during the postwar period. 1. To maintain confidence in the credit of the United States Governrrient.— It is for this reason that stability in the Government bond market has been a continuing policy during the postwar period. Stability in the Government bond , market during the transition period has been of tremendous importance to the country. It contributed to the underlying strength of the country's financial system and eased reconversion, not only for the Government, but also for industrial and business enterprises. This is in marked contrast to the situation after the First World War, when the severe decline in the prices of Government securities contributed to the business collapse that occurred within two years after the war's end. • ^ The particular structure of interest rates maintained during World War II was, with only minor variations, the one which existed at the time we began our defense and war finance program. It was apparent almost from the beginning of this program that it would require a large increase in the public debt; and an important consideration was the cost of the borrowed funds. It was especially fortunate, therefore, that interest rates were at a relatively low level. It made it possible to finance the war cheaply without disrupting the financial structure of, the country. Stabihty in the Government bond market since the end of the war has.been achieved through the cooperative efforts of the Federal Reserve System and "the Treasury Department. Some of the stabilizing measures—notably, of course, the operations of the Federal Operi Market Committee—have been primarily the responsibility of the Federal Reserve System. Others have been primarily the responsibility of the Treasury Department. In naaintaining stability in the Government bond market," flexibility in adapting policies to changing economic conditions has been essential. It has been necessary at times to take steps to prevent too sharp a rise in Government security prices; and, at other times, declining prices have been halted. o Beginning in the spring of 1947, the Federal Reserve and the Treasury took action to control an incipient boom in the Government bond market. Long-term borids were sold from some of the Government investment accounts, the Investment Series of bonds was offered to institutional investors, and interest rates on 174 1950 REPO'RT OF THE SECRETARY OF THE TREASURY short-term Government securities . were increased. All of these operations combined to t a k e upward pressure off t h e market. When conditions changed, and a downward pressure on bond prices developed, t h e m a r k e t was stabilized through purchases of long-term bonds. Short-term interest rates—which had been permitted to rise beginning in mid-1947—were held steady from t h e fah of 1948 until this summer. Then, in mid-September of this year, they were reduced. All of these actions have been t a k e n with a view toward promoting confidence in t h e Nation's business and financial structure and t h e a t t a i n m e n t of a high level of employment a n d production in t h e economy. 2. To reduce the amount of the debt.—In t h e s t a t e m e n t which I made when I took office as Secretary of t h e Treasury in June 1946, I said: ''* * * I t is t h e responsibility of t h e Government to reduce its expenditures ' in every possible way, t o maintain adequate t a x rates during this transition period, and to achieve a balanced budget—or better—for 1947.'' During t h e first two fiscal years after I took office, t h e Federal Government operated with a budget surplus. I n t h e fiscal year 1948, t h e surplus was, in fact, t h e largest in t h e history of t h e country. Starting in March 1946, t h e large cash balances t h a t h a d remained at t h e end of t h e Victory Loan were applied to t h e reduction of t h e public debt. These balances were largely expended during t h e calendar year 1946, and subsequent debt reduction was effected through pay-offs from t h e budget surpluses of t h e fiscal years 1947 and 1948. At its postwar peak on February 28, 1946, t h e p u b h c debt stood a t $279.8 bilhon; on J u n e 27 of this year, it reached a postwar low of $251.3 billion. There is no longer a budget surplus, however, largely because of t h e t a x reductions enacted by Congress in 1948, over t h e President's veto. As a result, t h e debt has been rising steadily in recent m o n t h s ; a n d a t t h e end of September it stood a t $256.7 billion. Both President T r u m a n and I have stressed t h e importance of continuing debt reduction in years of prosperity such as we have enjoyed since t h e end of t h e war. This was one of t h e reasons why t h e President on three occasions vetoed measures reducing taxes a t a time when t h e economic condition of t h e country permitted continued retirement of t h e debt. . 3. To reduce bank ownership of Federal securities and widen the distribution of the debi.—Strong inflationary pressures existed during most of t h e postwar period. I n order t h a t debt reduction would have t h e greatest possible antiinflationary effect, under these circumstances, it was concentrated on debt held by t h e commercial banking system. T h e concentration of debt reduction in bank holdings was facilitated by t h e Treasury's policy Of fitting t h e debt to the.needs of investors, which had placed a large volume of short-term debt in t h e hands of t h e banking system. T h e reduction in t h e public debt held b y t h e commercial banking system has been actuallj^ greater t h a n t h e reduction in t h e total d e b t . • T h e total public debt was reduced $28.5 billion from its postwar peak of $279.8 billion to t h e postwar low of $251.3 billion. During t h e same period, bank-rield debt was reduced by approximately $34 billion. This came a b o u t because t h e Treasury was able t o increase t h e Government security holdings of nonbank investors. F u n d s from t h e sale of savings bonds a n d other nonmarketable issues to n o n b a n k investors were available for t h e retirement of maturing issues of b a n k held debt, in addition t o t h e budget surpluses of t h e fiscal years 1947 a n d 1948. There has been an increase of $5.4 billion in t h e debt, however, since t h e low point was reached in J u n e of this year; a n d a t t h e end of September, t h e total a m o u n t of debt outstanding was $256.7 billion. Bank holdings have increased approximately $2 billion since t h e end of June, so t h a t t h e n e t reduction in these holdings from F e b r u a r y 1946 t o t h e end of September totals $32 billion. Because of t h e social a n d economic benefits of broad ownership of public debt securities, t h e maintenance of t h e widespread distribution of t h e debt h a s been an essential p a r t of t h e Treasury's postwar debt m a n a g e m e n t policies. I t has been one of t h e principal objectives in t h e continued promotion of savings bond sales. Broad ownership of t h e public debt is good for t h e purchasers of Governm e n t securities a n d it is good for t h e country. I t gives to t h e people a greater sense of economic security a n d an enhanced feeling of personal dignity. I t causes t h e m to t a k e an increased interest in national issues. I t gives t h e m a direct stake in t h e finances of t h e United States. Another postwar objective of savings bond.sales was to combat inflationary pressures. T h e sale of savings bonds was a two-edged weapon against inflation. I t took purchasing power directly out of t h e h a n d s of consumers; a n d t h e funds obtained from t h e sale of savings bonds were.available for t h e retirement of bankheld debt, thereby reducing t h e money supply to t h a t extent. EXHIBITS' 175 We have continued actively to promote the sale of savings bonds to encourage thrift on the part of Americans. Thrift is a vital factor in our present-day life. The total amount of savings bonds, oustanding at the end of September was over $56y2 billion, an increase of nearly $8% billion since the end of 1945. The success of the postwar savings bond program is especially notable since it was generally expected that a flood of savings bond redemptions would be one of the major debt management problems as soon as the war ended. ^ Actually, the savings bond redemption experience has been better than the turnover rate on other comparable forms of savings. For example, during 1949, average monthly redemptions of Series E bonds have amounted to 0.91 percent of the total of Series E bonds outstanding. For other forms of savings the ratios of withdrawals to total deposits have been as follows: Postal Savings accounts, 3.57 percent; savings banks (in New York State), 2.32 percent; insured savings and loan associations, 2.30 percent; savings accounts in commercial banks, 4.86 percent (1948 figure). Moreover, the trend of savings bond redemptions when related to the total amount outstanding has been downward since the end of the war, whereas the percentage trend of withdrawals in most other forms of savings has been upward. The sale of savings bonds has not, however, been at the expense of other types of savings. During the period in which we were using the savings bond program as an anti-inflationary weapon, the whole tone of our advertising was to encourage personal savings in any practical form^rruot just to encourage the sale of savings bonds. Individuals have increased their holdings of savings bonds by 13 percent since the end of 1945. But, in this same period, individuals increased their shareholdings in savings and loan associations by over 60 percent; their life insurance by 30 percent; their deposits in mutual savings banks by 25 percent; their savings accounts in commercial banks by 15 percent; their checking accounts by about 10 percent; and their Postal Savings accounts by about 10 percent. Of the various forms of liquid savings, only currency holdings in the hands of individuals declined. The reasons for offering Series E savings bonds are, of course, not the same as those for offering Series F and G bonds. A ''small" savings bond program was instituted in 1935 for the purpose of providing a risk-free investment for small investors. When it was decided early in the war to sell as large a portion as possible of the wartime security offerings of the Federal Government to nonbank investors, and especially to individuals. Series E savings bonds became the keystone of that policy. This was done in order to prevent a repetition of the postWorld War I experience. After the war, the prices of Government bonds dropped precipitously—one of the Liberty Bond issues sold below 82—and small investors, inexperienced in the operations of security markets, were the greatest losers. Series F and G bonds, which are intended for larger investors, than those reached by the Series E bonds, were introduced early in 1941 as a part of the Treasury policy of shaping offerings of Government securities to meet the needs of various investor classes. The savings bond program, like other parts of the debt management policies of the Treasury Department, has been adapted to changing conditions in the economy. You asked whether the terms of savings bonds and limitations on purchases should be varied with economic conditions. We have done this to the extent that seemed necessary. On March 18, 1948, the limitation ori holdings of Series E savings bonds purchased in any one calendar year was raised from $5,000 .^(maturity value) for each individual to $10,000 (maturity value), effective be' ginning in the calendar year 1948. In the fall of 1947, the Treasury offered the Investment Series bond—a savings bond type of issue—to certain institutional investors. Again in order to meet the needs of these investors, we raised the limitation on purchases of Series F and G bonds, for the period from July 1, 1948, through July 15, 1948. Achievement of the debt management objectives of the Treasury Department requires day-to-day attention to debt operations. Decisions are made continuously. There is, for example, the matter of refunding maturing issues. This is one of the constantly recurring duties of the Department. There is a Treasury .bill maturity each week. There are frequent maturities of certificates of indebtedness; and, in the postwar years, there have been several note and bond maturities each year. In addition, there are savings bond and savings note maturities—, and redemptions of these issues before maturity. The volume of refunding carried thrpugh each year has amounted to approximately $50 billion—in itself a 907795—51 13 176 195 0 REPORT OF THEi^ SECRETARY OF THEI TREASURY task of considerable magnitude. It exceeds the total of all security' refunding engaged in by all other borro.wei-s in the country during the past twenty-five years. The interest cost of the debt to taxpayers is another of the many considerations which must be taken into account in debt management policies. It is estimated that the interest charge on the public debt during the fiscal year 1950 will be $5,450 million. This item represents pver 13-percent of the Federal budget for the year. The interest cost is likely to grow over a period of time—in the absence of substantial debt reduction^—because the rate of interest on savings bonds increases as the bonds are held to maturity, and because an increasingly large proportion of the debt represents the accuniulatiori of trust funds-invested at rates set forth in the law which are higher'than the present average interest rate on the debt.. A general rise in interest rates would bring about a further rise iri the budget charge for interest payments. An increase of as little as >^ of 1 percent in the average interest paid on the debt would add about $1}^ billion to this charge. The Treasury was able to finance the last war at an average borrowing cost of less than one-half the borrowing cost of World War I. If this had not been done, the interest charge at the present time would be more than $10 billion a year instead of $5 billion a year. It is clearly evident that this $5 billion annual saving in the taxpayers' money i^ a highly important factor in the budget picture of the Federal Government. It has been argued that if the Goverhment had permitted higher interest rates on its long-term securities at the.end of the war—that is, had permitted Governnient bond, prices to drop below par^nflationary pressures would have been lessened. Fiscal-monetary weapons haye only limited effectiveness in combating inflationary pressures. They operate against inflation in an over-all fashion. They can be used to cut down the total spending power of the economy and so are effective—and, in fact, indispensable—in periods of general price rise. Any curtailment of general spending power drastic enough, however, to bring special price situations into line might set' off a severe deflationary spiral. , High prices in special areas are most effectively dealt with by sp'ecific measures applied directly to those areas; and it was with this in niind that President Truman repeatedly asked Congress to enact appropriate legislation to deal with special areas of inflationary pressures. The Government's fiscal policy from January 1946 to late 1948 did, however, have a direct counterinfiationary effect. Federal Government expenditures were cut rapidly and sharply from their wartime peak, while revenues were maintained at high levels. I have mentioned that President Truman on three occasions vetoed tax measures designed to cut revenues because he recognized the urgency of reducing the debt during this period. Debt reduction by the use of a surplus of receipts over expenditures was, in fact, the most potent anti-inflationary fiscal measure available to the Government.^ A surplus of Federal receipts over expenditures takes purchasing power directly out of the hands of consumers; and by using this surplus to reduce bank-held debt, the Treasury to a large extent offset the increase in the money supply due to other factors. I have already noted also the promotion of savings bond sales as an anti-inflationary measure; and that short-term interest rates were permitted to rise, starting in the summer of 1947. The policy of stabilizing the Government bond market in itself made a subr stantial contribution to economic stability. I do not agree with those who believe that if the support prices of Government securities had been lowered below par, sales of these securities to the Federal Reserve would have been stopped and inflationary pressures would have been lessened. It seemed to me that under the circumstances which existed, we would have taken the risk of impairing confidence in the Government's credit if. the prices of Government bonds had been permitted to go below par; and that as a result the Federal Reserve.might have had to purchase more bonds below par than at a par-support level. This, of course, would have increased bank reserves and to that extent would have been inflationary, rather than anti-inflationary. During the postwar period, the country has enjoyed a level of prosperity never before achieved in peacetime. Personal income has reached the highest level on record, and has remained near that level. Civilian employment likewise EXHIBITS 177 attained the highest peak in our history, and today there are nearly 60 million persons employed. There is nO doubt that the successful management of the public debt and the maintenance of a continued period of stability in the Government bond market have contributed niaterially to the economic well-being of the country during this period. In the execution of its monetary and debt management policies, the Treasury consults with the Federal Reserve. , The chairman of the Board of Governors of the Federal Reserve System and I discuss policy matters thoroughly and arrive at decisions which are mutually satisfactory. It does not seem to me that statutory directives to increase the degree of coordination of Federal Reserve and Treasury policies are needed. In my opinion, such policies can best be coordinated as they are at the present time, by discussions between the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System. Neither would there be any particular advantage in. providing that the Secretary of the Treasury should be a member of the Federal Reserve Board. The Secretary of the Treasury did servie as a member of the Federal Reserve Board from its inception until February .1, 1936. There is no evidence that the coordination of Federal Reserve and Treasury policies was carried out any more effectively during that period than it has been.subsequently.. The Secretary of the Treasury is the chief fiscal officer of the Government, It seems tp me that any proposal to make him a member of the Board of Governors of the Federal Reserve System for the express purpose of bringing about better coordination of Federal Reserve and Treasury policies would appear to subordinate the responsibility of the Treasury Department in fiscal-monetary matters. In the final analysis, the principahresponsibility in the fiscal-monetary area must rest with the President and his fiscal officers, who are accountable to the electorate for their actions. Questions 9, 10, and 11 are. concerned with the monetary system of the United States. The questions are as follows: 9. What would be the principal advantages and disadvantages of reestablishing a gold-coin standard in this country? Do you believe that such a standard should be re-established? 10. Under what conditions and for what purposes, if any, should the price of gold be altered? What consideration should be given to the volume of gold production and the profits of gold mining? What effects would an increase in the price of gold have on the effectiveness of general monetary 'and credit policies? On the division of power over monetary and credit conditions between the Federal Reserve and the Treasury? 11. What changes, if any, should be made in our monetary policy rela' tive to silver? What would be the advantages of any such changes? I do not think that conditions require an alteration in the.monetary system. As the Committee undoubtedly knows, I am. on record as being opposed to any change in the price of gold; and the Treasury Department is firmly of the view that a gold-coin standard should not be re-established in the United States. The Department has considered the latter proposal in connection with a number of bills which have been introduced in the Congress. For example, in the last session of Congress, we submitted a report to the Senate Banking and Currency Committee on bills S. 13 and S. 286. A copy of our report on those bills is attached. 1 The present monetary policy of the United States relative to silver is laid down in three acts of Congress; namely, the Silver Purchase Act of 1934, section 4 of the act of July 6, 1939, and the act of July 31, 1946, which has largely superseded the 1939 act. Under the third act, domestic silver mined since July 1, 1946, may be delivered, at the owner's option, to United States mints for a return of . 90.5 cents per ounce. The Treasury has no discretion under this legislative provision. Since this price is considerably higher than the open market price (now between 73 cents and 74 cents.per ounce), the effect of this act is to divert to the United States Treasury at the 90.5 cent price substantially all of the current production of silver in the United States. On previous occasions, the Treasuryhas stated that it would interpose no objection if Congress wished to repeal ail the provisions relating to acquisitions of silver in the above-named act. 1 Omitted here." This was published in the 1949 annual report, p. 305. 178 19 50 REPORT OF THE SECRETARY OF THEI TREASiURY Question 12 relates to the coordination of the lending and loan insuring and guaranteeing policies of the various Governmerit agencies. The, question is as follows: 12. To what extent and by what methods does the Treasury coordinate the activities of the various Government agencies that lend and insure loans to private borrowers? In what ways, if at all, should the Treasury's powers in this field be altered? f^ The Treasury does not, of course, have statutory authority to coordinate the activities of the various Government agencies that lend and insure loans to private borrowers. The Department has been instrumental, however, in furthering consultations between the heads of these agencies, with a view to coordinating lending, insuring, and guaranteeing policies. In the final analysis, it seems to me that this voluntary type of corisultation is perhaps the best metht)d of coordinating these policies. The heads of the lending, insuring, and guaranteeing agencies are responsible to the President; and the decisions which they make must be made in accordance with his policies. Furthermore, the policies and operations of these agencies are subject to annual review by the Congress in connection with their annual, budgets. Such limited authority as the Treasury has with respect to the lending, insuring, and guaranteeing policies of Government agencies is restricted almost entirely to the methods employed by the agencies in borrowing funds which they, in turn, are authorized to lend to private borrowers. For example, under the Government Corporation Control Act, ''All bonds, notes, debentures, and other similar obligations which are . . . . issued by any wholly owned or mixed-ownership Government corporation and offered to the public shall be in such forms and denoininations, shall have such maturities, shall bear such rates of interest, shall be subject to such terms and conditions, shall be issued in such manner and at such times and sold at such prices as have been or as may be approved by the Secretary of the Treasury" except that any mixed-ownership Government corporation from which Government capital has been entirely withdrawn is exempt from this provision during the period it remains without Gbvernment capital. In addition, the Federal intermediate credit banks, the production credit corporations, the Central Bank for Cooperatives, the regional banks for cooperatives, and the Federal land banks are specifically exempted from this provision, but are required to consult with the Secretary of the Treasury prior to issuing securities; and, in the event an agreement is not reached on the terms of the securities, the Secretary of the Treasury may make a report in writing to the corporation involved, to the President, and to the Congress stating the grounds for his disagreement. There are only a few cases in which the Treasury has any direct control over lending operations of Government agencies.. Reconstruction Finance Corporation loans on the nonassessable preferred stock of insurance companies can be. made only upon certification by the Secretary of the Treasury of the necessity for such loans to increase the capital funds of the companies concerned. Also, under section 103 of Public Law 901, 80th Congress, the Administrator of Veterans Affairs has the authority, with the approval of the Secretary of the Treasury, to raise the permissible rate of interest on loans guaranteed or. insured under title III of the Servicemen's Readjustment Act of 1944 from the rate specified in the law, namely 4 percent, to a maximum of 4}^ percent. In addition, the Secretary of the Treasury, or an officer of the Treasury designated by him, is a member of the Board of Directors of the Federal Farm Mortgage Corporation. In the field of foreign loans, there is in existence a coordinating and policy determining agency. The Secretary of the Treasury is Chairman of the National Advisory Council on International Monetary and Financial Problems, established by the Congress in the Bretton Woods Agreements Act, approved July 31, 1945. Among other things, the statute directs the Council to coordinate the policies and operations of the representatives of the. United States on the International Monetary Fund and the International Bank for Reconstruction and Development, the Export-Import Bank of Washington, and all other agencies of the Government "to the extent that they make or participate in the making of foreign loans or engage in foreign financial, exchange or monetary transactions." Question 13 asks my opinion on the Hoover Commission proposal that supervision of the Federal Deposit Insurance Corporation be vested in the Secretary of the Treasury. The question is as follows: 13. What would be the advantages and disadvantages of adopting the Hoover Commission proposal that supervision of the operations of the F. D. I. C. EXHIBITS 179 I be vested in the Secretary of the Treasury? ' On balance, do you favor this proposal? The recommendation that the supervision of the operations of the F. D. I. C. be vested in the Secretary of the Treasury has been carefully considered. There is much to be said for the independent status which this agency now enjoys. Its policies are, in many cases, governmental policies which have been set after consultation with the President and other Cabinet members; and the agency can, therefore, function independently. However, it could also function as a part of the Treasury. , Question 14 asks my' opinion with respect to the establishment of a National Monetary and Credit Council of the type proposed by the Hoover Commission. The- question is as follows: 14. What would be the advantages and disadvantages of establishing a National Monetary and Credit Council of the type proposed by the Hoover Commission? On balance, do you favor the establishment of such a body? If such a council were established, what provisions relative to its composition, powers, and procedures would make it function most satisfactorily? I am not opposed to the establishment pf a National Monetary and Credit Council of the type proposed by the Hoover Commission. The establishment of such a council would not of itself, however, solve any fundamental problem. But, if such a council were established, the Trea,sury Department would be happy to contribute the accumulated knowledge and earnest efforts of its various staff groups. ° . Questions 15 and 16 relate to Federal budget policy. The questions are as follows: 15. What, in your opinion, should be the guiding principles in determining, for any given period, whether the Federal budget should be balanced, should show a surplus, or should show a deficit? What principles should guide in determining the size of any surplus or deficit? ^ 16. Do you believe it is possible and desirable to formulate automatic guides for the Government's over-all taxing-spending policy? If so, what types of guides would you recommend? What are the principal obstacles to the successful formulation and use of such guides? The general economic welfare of the country should be the guiding principle in determining for any given period whether the Federal budget should be balanced, should show a surplus, or should show a deficit; §,nd in determining the size of any surplus or deficit. Since I took office as Secretary of the Treasury in June 1946, I have continuously urged a Federal budget that would permit debt retirement. Both President Truman and I have stated on a number of occasions that it is essential to reduce the public debt in years of prosperity, such as we have enjoyed since the end of the war. This was one of the reasons why the President on three occasions vetoed tax reduction measures. This has also been a major reason why the President has constantly limited budget expenditures to the minimum amount necessary to carry out the defense program and other essential domestic and international programs. I do not believe that it is feasible to attempt to formulate automatic guides for the Government's over-all taxing-spending policy. The economic and social variants which should determine the policy in any given period are so numerous and for different periods are present in such different combinations that taxingspending policy can be determined only after the most careful consideration of the situation existing at any given time. Budget receipts and expenditures for each fiscal period must be examined item by item with due regard to their relative' need and public service. This is a responsibility which can be discharged properly only by Congress. (3ne of the most frequently mentioned possibilities along these lines is that automatic guides can be established based on levels of riational income. It obviously is not possible to say that under all circumstances the budget should be balanced when the national income is at any particular level; and it is not possible to provide by statute exemptions to cover all the cases when exemptions would be necessary. In my opinion, policy formulation and action must, of necessity, be left to the responsible authorities to be made in accordance with their best judgment in view of economic developments as they occur. 180 1950 REPORT OF T H E SECRETARY OF THEI TREASURY '• Questions'^ 17, 18, a n d 19 are concerned with t h e commercial bankirig system. T h e questions are as follows: 17. W h a t were t h e aggregate a m o u n t s of interest p a y m e n t s by t h e Treasury t o t h e commercial banking system during each year since 1940? 18. W h a t changes, if any, should be made in t h e ownership of t h e Federal Reserve Banks? I n t h e dividend rates on t h e stocks of t h e Federal Reserve Banks? 19. W h a t changes, if any, should be made in t h e laws relating t o t h e disposal of Federal Reserve profits in excess of their dividend requirements? The following table shows t h e estimated distribution of interest p a y m e n t s on t h e public debt, by class of recipient, for t h e calendar years 1940 t h r o u g h 1948: Nonbank investors Banks Calendar year Total interest' Total Individuals U.S. Government investment accounts. .1 .1 0.8 .8 1.0 1.4 1.9 0.3 .3 .4 .5 .7 0.2 .S .3 .3 .4 0.3 .3 .3 .6 .1 .1 .2 13 2.7 3.5 3.6 3.9 1.1 1.4 1.5 1.6 .5 .7 .7 1.0 1.1 1.5 1.4 1.4 Commer- Federal cial Reserve bariks Banks Total Other . investors Billions of dollars 1940. 1941. 1942. 1943. 1944. 1.1 1.1 1.5 2.2 3.0 1945. 1946. 1947. 1948. 4.1 5.0 5.0 5.4 0.3 .3 .4 -.7 1.0 0.3 .3 .5 • . 8 1.1 1.4 1.5 1.4 1.4 1.3 1.4 '-\1.2 (*) (*)0.1 . *Less than $50 million. 1 Actual payments on the basis of daily Treasury statements. I n t e r e s t payinents to commercial b a n k s a m o u n t e d t o approximately 27 percent of t h e total interest paid on t h e debt in 1940, b u t a m o u n t e d to only 20 percent in 1948. P a y m e n t s to t h e ^entire commercial banking system, t h a t is, to commercial b a n k s a n d Federal Reserve Banks—which a m o u n t e d to a b o u t $350 million in 1940 and $1,450 million in 1948—similarly showed a decline as a percentage of total interest p a y m e n t s during this period. Interest earnings on Federal-Reserve Bank holdings of Government securities increased from $42 million in 1940 t o $299 million in 1948, as a result of t h e wartime credit and currency needs of t h e country. T h e Board of Governors of t h e Federal Reserve System took t h e initiative in t u r n i n g over a p a r t of t h e Reserve B a n k s ' relatively high earnings t o t h e Federal Government, by invoking its a u t h o r i t y to levy an interest charge on Federal Reserve notes issued by t h e Banks. I n its announcement on April 24, 1947, t h e Board stated t h a t t h e purpose of t h e charge was t o p a y into t h e Treasury approximately 90 percent of the net earnings of t h e Federal Reserve Banks in excess of theif dividend requirements. P a y m e n t s t o t h e T r e a s u r y as a result of this action a m o u n t e d t o $75 million in 1947 a n d $167 million in.1948. If Congress wishes, it can, of course, set forth specific s t a t u t o r y directives for t h e disposal of Federal Reserve B a n k profits in excess of their dividend requirements. With respect to t h e m a t t e r ' of stock ownership of t h e Federal Reserve Banks a n d t h e dividend r a t e on this stock, I do not believe t h a t there is any urgent need t o deal with these questions a t this tirrie. < Very truly yours, J O H N W . SNYDER, Secretary of the Treasury. H O N O R A B L E P A U L H . DOUGLAS, Chairman, Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report, United States Senate, Room 109, Senate Office Building, Washington 25, D. C. EXHIBITS 181 TAXATION DEVELOPMENTS Exhibit 19.—Message from the President, January 23, 1950, transmitting a request for a revision of the. tax laws [House Doc. No. 461. 81st Cong., 2d sess.] To the Congress of the United States: The tax policy of the United States Government is of major significance to the national welfare. Taxes are the means by which our people pay for the activities of the Government which are necessary to our survival and progress as a Nation. Decisions about Federal tax policy should be made in full recognition of the economic and budgetary situation, and should contribute to our national objectives of economic growth and broader opportunity for all our citizens. At the present time, I believe we should make some revisions in our tax laws to improve the fairness of the tax system, to bring in some additional revenue, and to strengthen our economy. Our general objective should be a tax system which will yield sufficient revenue in times of high employment, production, and national income to meet the necessary expenditures of the Government and leave some surplus for debt reduction. In the budget message I estimated that receipts in the fiscal year 1951 will fall short of meeting expenditures by 5.1 billion dollars. This defic t will be due largely to the short-sighted tax reduction enacted by the Eightiieth Congress, and to the present necessity for large expenditures for national security and world peace. Moreover, owing to the time lag between corporation earnings and tax payments, the 1949 decline in corporation profits will be reflected in lower tax receipts in the fiscal year 1951. The policies I am recommending to the Congress are designed to reduce the deficit and bring about a budgetary balance as rapidly as we can safely do so. These policies are threefold: First, to hold expenditures to the lowest level consistent with the national interest; second, to.encourage and stimulate business expansion which will result in more revenue; and third, to make a number of changes in the tax laws which will bring in some net additional revenue and at the same time improve the equity of our tax system. First, as to Government expenditures: I have recently transmitted to the Congress a budget containing reconimendations for :appropriations and estimates of expenditures for the fiscal year 1951. This budget was carefuUy prepared with a view toward holding expenditures to the lowest possible levels consistent with the requirements of national security, world peace, economic growth, and the well-being of our people. The decisions Of the Congress, as well as unpredictable changes in circumstances over the next 18 months, may alter in many particulars the character and amount of the expenditures contemplated in.this budget. Nevertheless, I believe the estimates contained in the budget represent the most realistic appraisal that it is possible to make at this tiriie of the -necessary expenditures in 1951. I believe the Congress will generally concur in this view after it has had an opportunity to consider these estimates carefully. The expenditures estimated in the 1951 .budget have been reduced by about $900,000,000 below the level estimated for the present fiscal year. The policies recommended in the budget will permit further reductions in subsequent years as the costs of some of the extraordinary postwar programs continue to decline. To achieve these reductions we must continue to practice rigid economy. At the same time it would be self-defeating to cripple activities which are essential to our national strength. It will require wisdom and courage to find and hold fast to the course of wise economy without straying into the field of foolish budget slashes. Second, as tb the strength and growth of our national economy: We cannot achieve and maintain a balanced budget without a strong and prosperous economy. A recession in economic activity would call for increased Government expenditures at the same time that revenues were reduced, thus creating greater budget deficits. At the present time the economy of the United States is growing, and we have every reason to expect it to continue to expand if we follow the right policies. It is largely the task of private business to achieve this growth. The Government, however, can and should contribute to it. Through such cooperation, national employment and income will grow. This will result, in time, in increasing Government revenues. 182 1950 REPORT OF THE iSECRETARY OF THE TREASURY Just as the condition of our national economy has an overriding effect upon our efforts tp balance the budget, so do our policies fof managing the Federal budget have a decisive effect upon the national economy. Drastic reductions in Federal expenditures in the wrong places and at the wrong time could have serious disruptive effects throughout our econoniy. Government revenue policies are as important in our economy as Government expenditure policies. Events of the last few years have proved that our economy can grow and prosper, and that employment, production, and incomes can increase, at the same time that individuals and businesses are paying taxes which are high by prewar standards. However, taxes can and do have an important effect upon business conditions and economic activity. It should be our constant objective to improve our tax system so that the required revenues can be obtained without impairing the private initiative and enterprise essential to continued economic growth. We should always keep in fnind that the maintenance of a sound fiscal position on the part of the Government is a long-range matter. Nothing could be more foolhardy than to attempt to bring about a balanced budget in 1951 by measures that would make it. impossible to maintain a balanced budget in the following years. Third, as to changes in the tax laws: If, over the next few years, we hold expenditures to the minimum necessary levels and at the same time follow policies which contribute to stable economic growth, we can look forward to steady progress toward a balanced budget. Nevertheless, we should not rely only upon budgetary economy and upon economic expansion to produce a balanced budget. We should accelerate the attainment of this objective by changes in the tax laws. Drastic increases in tax rates, just as in the case of drastic cuts in essential expenditures, might prove to be self-defeating. Our primary objective should be to improve and strengthen our revenue system forthe long run. Under these circumstances, I am now recommending a number of important revisions in our present tax system, to reduce present inequities, to stimulate business activity, and to yield about $1,000,000,000 in net additional revenue. In making changes in the tax laws, we should be sure they move toward, and not away from, the major principles of a good tax system. ^ Our tax structure should recognize differences in abihty to pay; it should provide incentives to new undertakings and the expansion of existing businesses; it should support the objective of increasing opportunities for all our citizens to obtain a better standard of living; and it should rigidly exclude unfairness or favoritism. Over the yea-rs we have made important progress in building a good tax system. However, much remains to be done. There is need further to improve the distribution of the tax load to make it conform better with taxpaying ability. There is need to reduce taxes which burden consumption and handicap particular businesses. Moreover, we should eliminate tax loopholes which enable some few to escape their share of the cost of government at the expense of the rest of the American people. Many of the important and desirable tax revisions which should be made must be postponed until the budget situation improves. Nevertheless, a number of those steps can and should be taken now. First, I recommend that excise taxes be reduced to the extent, and only to the extent, that the resulting loss in revenue is replaced by revenue obtained from closing loopholes in the present tax laws. The excise taxes are still at substantially their wartime levels. Some are depressing certain lines of business. Some burden consumption and fall with particular weight on low-income groups. Still others add to the cost of living by increasing business costs. Since we are limited in the amount of reduction we can now afford, we should choose for reduction those taxes which have the most undesirable effects. I believe that reductions are most urgently needed in the excise taxes On transportation of property, transportation of persons, long-distance telephone and telegraph communications, and the entire group of retail excises, including such items as toilet preparations, luggage, and handbags. If these revisions are made, we will have reduced the most serious inequities of our present excise taxes. We should go further just as quickly as budgetary conditions permit. At present, however, we should reduce excises only to the extent that the loss in revenue can be recouped by eliminating the tax loopholes which now permit some groups to escape their fair share of taxation. EXHIBITS 183 The continued escape of privileged groups from taxation violates the fundamental democratic principle of fair treatment for all, and undermines pubhc confidence in the tax system. While few of these loopholes by themselves involve major revenue losses, collectively they result in the loss of many hundreds of millions of dollars every year. I wish to call the attention of the Congress to the more important of these loopholes. While some of them are of long-standing, their injustice has been aggravated as the taxes assessed against the rest of the population have been increased. A tax concession to a favored few is always unfair, but it becomes a gross injustice against the rest of the population when tax rates are high. The case for the elimination of these inequities would be strong even if there were no need for replacement revenue. It is compelling when excise relief depends on it. I know of no loophole in the tax laws so inequitable as the excessive depletion exemptions now enjoyed by oil and mining interests. Under these exemptions, large percentages of the income from, oil and mining properties escape taxation, year after year. Owners of mines and oil wells are permitted, after deducting all costs of doing business, to exclude from taxation on account of depletion as much as half of their net income. In the case of ordinary businesses, investment in physical assets is recovered tax-free through depreciation deductions. When the original investment has been recovered, a depreciation deduction is no longer allowed under the tax laws. In the case of oil and mining businesses, however, the depletion exemption goes on and on, year after year, even though the original investment in the property has already been recovered tax-free, not once but many times over. Originally introduced as a moderate measure to stimulate essential production in the First World War, this special treatment, has been extended during later years. At the present time these exemptions, together with another preferential provision which permits oil-well investment costs to be immediately deducted from income regardless of source, are allowing individuals to build up vast fortunes, with little more than token contributions to tax revenues. For example, during the 5 years 1943-47, during which it was necessary to collect an income tax from people earning less than $20 a week, one oil operator was able, because of these loopholes, to develop properties yielding nearly $5,000,000 in a single year without payment of any income tax. In addition to escaping the payment of tax on his large income from oil operations, he was also able through the use of his oil-tax exemptions to escape payment of tax on most of his income from other sources. For the 5 years his income taxes totaled less than $100,000, although his income from nonoil sources alone averaged almost $1,000,000 each year. This is. a shocking example of how present tax loopholes perriiit a few to gain enormous wealth without paying their fair share of taxes. I am well aware that these tax privileges are sometimes defended on the grounds that they encourage the production of strategic minerals. It is true that we wish to encourage such production. But the tax bounties distributed under present law bear only a haphazard relationship to our real need for proper inceSatiyes to encourage the exploration, development, and conservation of our mineral resources. A forward-looking resources program does not require that we give hundreds of millions of dollars annually in tax exemptions to a favored few at the expense of the many. Some tax loopholes have also been developed through the abuse of the tax exemption accorded educational and charitable organizations. It has properly been the policy of the Federal Government since the beginning of the income tax to encourage the development of these organizations. That policy should not be changed. But the few glaring abuses of the tax-exemption privilege should be stopped. Responsible educational leaders share in the concern about the fact that an exemption intended to protect educational activities has been misused in a few instances to gain competitive advantage over private enterprise through the conduct of business and industrial operations entirely unrelated to educational activities. There are also instances where the exemption accorded charitable trust funds has been used as a cloak for speculative business ventures, and the funds intended for charitable purposes, buttressed by tax exemption, have been used to acquire or retain control over a wide variety of industrial enterprises. 184 1950 REPORT OF THE SECRETARY OF THEi TREA'SURY • These and other unintended advantages can and should be removed without jeopardizing the basic purposes of those organizations which should rightly be aided by tax exemption. A problem exists also with respect to life insurance companies. The tax laws have always accorded'favorable treatrnent to the income received by individuals from life insurance policies and have made special provision for the taxation of life insurance companies. As a result of a quirk in the present law, however, life insurance companies have unintentionally been relieved of income taxes since 1946. This anomalous situation has meant that neither the companies nor their pohcyholders have paid taxes on more than 1.5 billion dollars of investment income per year, derived from productive assets worth about 60 billion dollars. I understand that the Committee on Ways and Means of the House of Representatives has already undertaken to correct this situation for the past years. I urge that steps also be taken to develop a permanent system for the taxation of life' irisurance companies which will remove the inequities of undertaxation in this field without impairirig the ability of individuals to acquire life insurance protectiori. • In addition to the tax loopholes I have described, there are .a number of others which also represent inequities, and should be closed. Most of these permit individuals, by one device or another, to take unfair advantage of the difference between the tax rates on ordinary income and the lower tax rates on capital gains. As one exaniple, under present law producers of motion pictures, and their star players, have attempted to avoid taxes by creating temporary corporations which are dissolved after making one film. By this device, their income from making the film, which ought to be taxed at the individual income tax rates, would be taxed only at the capital gains rate. Thus, they might escape as much as twothirds of the tax they should pay! .All these loopholes have been under joint study by the Treasury Department and the staff of the Congressional Joint Committee on Internal Reveriue Taxa.tion. A practical program which would go far toward closing these loopholes can be enacted during the present .session of the Congress. This would be a substantial step toward increasing .the fairness of our tax system, and should add several hundred mihion dollars to its yield—^sufficient revenue to permit substantial excise tax reduction where it is most urgently needed. I wish to make it very clear that I could not approve excise tax reductions unless they were accompanied by provision for replacement of the revenue lost, because I am convinced that sound fiscal policy will not permit a weakening of our tax system at this time. Under present conditions we cannot afford to reduce excise taxes first, in the hope that action will be taken later to make up for the loss in revenue. Second, I recommend.that the Congress enact legislation to provide $1,000,000,000 in additional revenue, by revising and improving the estate and gift tax and the corporation tax laws. I believe that, under present economic conditions, this amount of additional revenue represents a proper balance between the objective of balancing the budget as soon as possible and the objective of coordinating tax adjustments with the requirements of continued prosperity. A substantial part of the additional revenue should be obtained from revision of the estate and gift tax laws. The Revenue Act of 1948 reduced the yield of the estate and gift taxes by onethird, or nearly $300,000,000. Even before that act, estate and gift tax yields were out of line with other revenues, and that act made the situation worse. In originally enacting the estate tax in 1916, the Congress pointed out that "our revenue system should be more evenly and equitably balanced" and that a "larger portion of our necessary revenues" should be collected from the "inheritances of those deriving most protection from the Government." Our estate and gift tax laws at present fall far short of this objective. They now produce less than 2 percent of internal revenues, compared with 7 percent 10 years ago. To the extent that these taxes remain too low, the remainder of our tax structure must bear a disproportionate load. The low yield from the estate and gift taxes is due to serious weaknesses in the present law. These ">veaknesses include excessive exemptions, unduly low effective rates on most estates, and the fact that the law as written favors large estates over smaller ones, and leaves substantial amounts of wealth completely beyond the reach of the tax laws. Large fortunes may be transmitted from one generation to another EXHIBITS "185 free of estate or gift tax through the use of life estates. By this means, vast accumulations of wealth may completely escape tax over several generations. Furthermore, the present law affords excessive opportunities for tax reduction by splitting between the gift and estate taxes the total amount of wealth transferred by an individual. This makes the tax liability depend not upon the amount of wealth which an individual leaves to his family but upon the manner in which he arranges the disposition of his wealth. If a man leaves his estate of $300,000 at death, one-half to his wife and one-half to his three children, an estate tax of $17,500 must be paid. If his equally well-to-do neighbor gives away $180,000 to his wife and three children over a 5-year period and leaves them the other $120,000 at death, no estate or gift tax whatever is paid. This difference in tax, whether it depends upon fortuitous circumstances or the caliber of legal counsel, is obviously unwarranted. To strengthen the estate and gift tax laws, several steps are necessary. The laws concerning.the taxation of transfers by gift and by bequest, by outright disposition and through life estates, need to be coordinated to provide uniform treatment and a base for more effective taxation. In addition, the present exemptions should be reduced and the rates should be revised. These changes will not only bring in more revenue, but they will also improve the fairness of the ' estate and gift tax laws and bring these taxes nearer to their proper long-term place in our tax system. The rest of the additional revenue should be obtained from adjustmentsan-the corporation income tax. At the same time, certain improvements should be • made in this tax. I recommend a moderate, increase in the tax rate applicable to that part of a corporation's income which is in excess of $50,000. At the same time, I recommend that the tax rate on corporate income between $25,000 and $50,000, which is now taxed at the excessively high "notch" rate of 53 percent, be reduced to the same rate that applies above $50,000. These changes in the tax rate structure would go far toward removing the handicaps which the present law places upon the expansion of small corporations. The removal of the excessive "notch" rate would reduce the taxes paid by mediumsized corporations whose continued growth is so essential to the dynamic expansion of our economy. The existing favorable tax rates for small corporations with incomes below $25,000 would be retained. .The tax increase would be confined to less than one-tenth of all corporations. Furthermore, I recommend that the loss carry-forward provision be extended from 2 to 5 years to provide more scope for offsetting losses of bad years against profits of subsequent years. This extension will give increased incentive to business investment affected by uncertain profit expectations. It will be particularly helpful to new businesses which, under the present provision permitting losses to be carried forward only 2 years, may be required to pay taxes over a period of several years during which they actually suffer a net loss. At the same time that we make these changes in the tax laws to stimulate investment at home, we should make certain changes in the tax laws concerning income derived from foreign investments and personal services abroad. This would provide significant support to our efforts to extend financial and technical assistance to underdeveloped regions of the world. Among the steps which should be taken at this time are to postpone the tax on corporate income earned abroad until it is brought home, to extend and generalize the present credit for taxes paid abroad, and to liberalize the foreign-residence requirement for exemption of income earned abroad. These changes, together with the safeguards for our investors which we are in the process of negotiating, with foreign governments, will provide real stimulation for the' expansion of United States investment abroad. The tax program I am recommending is designed to strengthen our ta,x system so that it will yield revenues sufficient to balance expenditures as they are further reduced over the next several years, and to provide some surplus for debt reduction. Because of the time lag in collecting taxes after their enactment, these recommendations will not result in any substantial increase in receipts in the fiscal year 1951, but they will result in larger revenues in subsequent years and, at the same time, substantially improve the structure of our tax system for the long run. A sharp increase in taxes under present economic conditions would be unwise. However, in line with the policy of gearing changes in revenue laws to the needs of our economy, I would not hesitate, if strong inflationary or deflationary forces should appear, to support the use of all measures necessary to meet the situation, 186 19 50 REPORT OF THE SECRETARY OF THE TREASURY including more pronounced adjustment of tax rates upward or downward, as the case might be. We have come through the war and a difficult transition period with the financial strength of our Government maintained and an economy producing far above prewar levels. We should continuously seek to sustain and improve these indispensable foundations for progress. The tax program I am recommending is an important and necessary means to that end. HARRY S. TRUMAN. T H E WHITE HOUSE, January 23, 1950. Exhibit 20.—Statement of Secretary of the Treasury Snyder before the House Ways and Means Committee, February 3, 1950, on the President's tax program I am pleased to have the opportunity of appearing before the mem'bcrs of this committee to discuss the President's tax program. As Secretary of the Treasury, I am charged with the responsibihty for managing the Nation's finances in such a way as to maintain the soundness of the Government's fiscal position and, in so doing, to promote the financial health of the economy. A part of that responsibility, in my view, involves giving the members of this committee the most informative picture of which I am capable concerning the current state of the Nation's finances and the measures which, in my opinion, should be taken to assure continued soundness of Government fiscal operations in the years ahead. I am going to endeavor to give you that picture today. At the outset, I should like to make one point clear beyond the possibility of doubt. As chief fiscal ofiicer of the Nation, I do not look lightly on Federal deficits. During my.period of ofiice as Secretary of the Treasury, I have taken every opportunity to express to the members of this committee and other congressional committees—as well as to individual citizens and groups of citizens throughout the country— my conviction that in prosperous periods such as the present, the Government should be able to pay for current expenditures out of current income; and that our revenue, in addition, should be suflficient to yield a surplus which could be applied to the reduction of the Federal debt. As the President stated in his tax message of January 23, 1950, ''Our general objective should be a tax system which will yield sufficient revenue in times of high employment, production, and national income to meet the necessary expenditures of the Government and leave some surplus for debt reduction.'' As you know, we are now enjoying a period of high employment, high production, and high national income. The number of persons employed in 1949 held near the 60-million level; and average employment during the year was only 1 percent below 1948. Total production of all goods and services in 1949 was $259,000,000,000. This was only about Di percent below the all-time record reached in 1948. Personal income in 1949 was virtually unchanged from the high level reached in 1948; and the volume of retail sales, when adjusted for price changes, was actually greater in 1949 than in the preceding year. The business statistics are unmistakable evidence of the basically strong economic situation which is being maintained throughout the country. During the past year, the country met and safely passed a EXHISIT^ 187 period of inventory readjustment which completed the shift to normal competitive markets. Yet—-as the figures which I have just cited demonstrate—this period of readjustment resulted an very little disturbance in the rate of activity and trade in the Nation as a whole. Moreover, the accumulated demand for certain important goods and services which was the result of shortages during the war and postwar years has not yet been fully satisfied. Housing is an instance in point. Since the beginning of the Second World War in 1939, 20,000,000 people have been added to our population. That is equal to all the people in the Pacific Coast States at the beginning of the war, plus those in the eight Mountain States and in practically all of Texas. Moreover, the notable shift of population during and since the war— particularly the heavy movement westward—has greatly enlarged needs for new housing, and for new schools, churches, hospitals, and other community facilities. These are generally recognized needs which we can all see as we look around us; but it is important to remember also that our great industrial development has been built on a continuing progression of new products which have given successful support to business activity. Today, we have the advantage of the unprecedented technical developments of the war and postwar years, which are rapidly being applied in bringing out new types of consumer goods, improving older products, and reducing production costs. Many of them, like the multitude of new plastic products, may be of small importance individually, but very important as a group. In other instances, single products or developments, such as television, give indications of occupying a major position in our national economy before long. We stand, in fact, at the beginning of an era in which technical achievements based on the new discoveries in electronics, in synthetic and plastic materials, in' metallurgy, and in many other, areas of scientific research, will play a substantial part in our industrial progress. Under the exceptionally favorable economic conditions which prevail today and the prospects for continued economic progress in the future, a sound budgetary policy demands that Government receipts and expenditures be balanced. It was with this objective in mind that the Treasury opposed tax reduction legislation in 1947 and 1948. The President recently has submitted tax recommendations to the Congress which, if enacted into legislation, will lay the groundwork for achieving a balanced budget without endangering the continuance of our programs for the maintenance of a • strong domestic economy or the continuance of needed measures in this country and elsewhere for defense against aggression. In his tax message to the Congress on January 23, 1950, the President outlined a fiscal program designed to reduce the deficit and bring about budgetary balance as rapidly as possible. The policies embraced in this program were threefold, having to do with (1) reduced expenditures on the part of the Government, (2) measures aimed at encouraging and stimulating business expansion—which, of course, would result in enlarging our revenuebase^ and (3) changes in the tax laws which would serve the double purpose of bringing in some net additional revenue and improving the equity of our tax system. 188 1950 REPORT OF THE SECRETARY OF THE' TREASURY I might add here, parenthetically, that our estimates of revenue receipts for the fiscal year 1951 are based on the assumption of a continued high rate of business activity. The President made this clear in the budget message when he said: • The estimates of receipts assume economic activity at approximately the same level as at the present time. The decrease of $457,000,000 in^estimated receipts for the fiscal year 1951, as compared with the current fiscal year, is largely accounted for by an expected decrease in collections from corporation income taxes. This decrease reflects the fact that lower corporate profits in the calendar year 1949, as compared with the calendar year 1948, will not have their full eflFect on tax receipts until the fiscal year 1951. The tliree policies outlined in the fiscal program of the President— namely, reduced Government expenditures, stimulation to business, and an enlarged and improved revenue system—are, as you will note, intermeshed. The success of each one is bound up with the success of the other two. I should like to discuss, first, the expenditure side of the picture, and second, the fiscal measures designed to increase our revenue and to distribute the tax burden more equitably among the individual citizens and business concerns of the Nation. I shall approach both of these questions from the point of view of their relationship to the current Federal financial picture and to the health and soundness of the national economy. REnUCED GOVERNMENT EXPENDITURES There is, first, the important matter of Government expenditures. Contrary to a belief which we often hear expressed, the people in Government are profoundly interested in improving the efficiency of the Government, in increasing the service' which it renders to the public, and in reducing the cost of these services to the public. This is not an unsupported statement, and it is not based on wishful thinking. Since the end of the war outstanding achievements have been realized in improving the organization and operating methods of the executive branch of the Government. The Congress recognized the importance of these measures last year in authorizing a special fund for use in extending management improvement throughout the Government. These programs, however—as the members of this committee are well aware—do not make the headlines. They do not contain single biUion-dollar items; and they relate, for the most part, to technical changes in management and operating procedures which can only be appreciated to their full extent by the members of the departments' and bureaus concerned. In the aggregate, however, they not only add up to important savings in terms of dollars; they reflect, to my mind, a trend which is probably unique today among the governments of the world and which provides one of the strongest assurances of the continued, success of democracy. We in this country are not endeavoring to retain unneeded services, and we are not content with performing essential services on the basis of costly or outmoded methods of operation. Rather, we are engaged in an active campaign to improve efficiency, increase service, and lower costs. I n the three and a half years since I took office as Secretary of the Treasury, I have seen the EXHIBITS 189 results of this campaign demonstrated in action; and I am convinced that it is one of the most important programs being carried on in the Government at the present time and one which is receiving far too little attention. I am most familiar, of course, with the improvements in management and operation which have been instituted in the Treasury Department. At various times, I have reviewed these improvements before' committees of the Congress. The most recent occasion was the statement which I made last month before House and Senate committees in connection with the Treasury's requests for appropriations for the fiscal year 1951. My time today does not permit a detailed account of the things which we have been doing in the Treasury. Withm a few days, however, I shall submit to the Congress— as a part of the Annual Report of the Secretary of the Treasury qn the State of the Finances—a summary of important policies and programs which the Treasury has pursued during the past 3K years, including the programs for management improvement and greater efficiency of operations. You may be' interested at this time, however, in an example of the concrete results which have been achieved in the Treasury Department in connection with one of the most important of our management improvement programs—that of the Bureau of Internal Revenue. In this Bureau alone, our recent appropriation request shows that improved procedures adopted during the past year or two have made it possible for us to decrease the number of employees on nonenforcement work by 657, representing an annual saving of 1,400,000 manhours equivalent to a dollar saving of $2,800,000. These savings have made it possible to concentrate an increasing part of the Bureau's energies and resources on the work which is at the heart of its activities and of our revenue system—enforcement of Federal tax legislation. I need hardly emphasize to the members of this committee the importance of enforcement work in protecting and maintaining the great voluntary system of self-assessment and collection which is the fundamental source of our financial strength as a democratic government. The example which I have just cited is particularly pertinent to the matters which are under consideration by the members of this committee. But, throughout the Government, similar improvements have been taking place; and, while I cannot take more of your time to discuss them, I should like to add that a share of the credit for these improvements should go to members of congressional committees such as your comniittee who have given their time and effort to making certain that the people of this country get value received for every tax dollar. The improvements in methods of operation and management which have taken place in the Government and which are planned for the near future are refiected in the budget estimates for the fiscal year 1951 submitted to the Congress by the President last month. But there is no way that I know of to spotlight in these estimates the savings which they represent, as compared with the costs of comparable services rendered the public in former years. I believe, however, that most fair-minded citizens who study the budget estimates for 1951 will agree with the President that they represent the 190 1 9 5 0 REPORT OF THE) SECRETARY OF THEi TREASURY most vigorous application of a policy of holding the numerous activities of Government agencies in all fields to essential levels. As 4he President has explained, many requests for additional funds for highly meritorious purposes had to be denied in order to reverse the trend toward higher governmental expenditures. Under present conditions, however,, reductions in costs as a result of improved efficiency in carrying on the ordinary activities of the Government can have only a limited effect on the Federal budget. Proponents of sharp reductions in Federal expenditures generally base their recommendations on the thesis that the present high level of Federal expenditures is not consistent with a return to normal peacetime Government operations. But, although we are not now engaged in a war, we cannot consider the present period a normal peacetime period. In each of the postwar years, by far the largest proportion of Government expenditures has been required to pay for the costs of past wars, to keep the Nation's defenses strong, and to further the cause of world peace. I n the budget for the fiscal year 1951, such expenditures account for 71 percent of the total budget. I t seems to me that there is a general unawareness of the details of the expenditures projected in the Federal budget. Accordingly, I should like at this time to take a few minutes to go over some of the more important budget figures to show why it would be difficult to reduce the expenditures of the Federal Government below the estimates which President Truman sent to the Congress. In this connection, I will present some charts which I believe will make the discussion somewhat clearer. As all of you know, of course, the President's budget message estimates that receipts in the fiscal year 1Q51 will total 37.3 billion dollars under existing tax legislation, and that expenditures will amount to 42.4 billion dollars which gives the projected budget deficit for the year of 5.1 billion dollars.- These figures are shown on " chart 1*; which also shows the budget picture for each of the fiscal years beginning with 1945. The budget deficit in 1945, the last full fiscal year of the war, was 53.9 billion dollars. Expenditures were reduced sharply in the following fiscal year, with the result that the budget deficit was reduced to slightly more than $20,000,000,000 during that year. In the next two fiscal years, the Federal Government operated with a budget surplus. In 1947, it amounted to about 800 million dollars; and in 1948, it reached the unprecedentedly large sum of 8.4 billion dollars, primarily because of the continued sharp decline in expenditures in that fiscal year. Due to our increased domestic and international obligations, however, expenditures started upward again in the fiscal year 1949; but, in the meantime. Congress had enacted a tax reduction bill in April 1948, which cost us about $5,000,000,000 of revenue annually. As a result, the Federal Government had a budget deficit of 1.8 billion dollars in the fiscal year 1949 and has operated with a deficit since then. The estimated expenditures of 42.4 billion dollars in the fiscal year 1951 represent a decrease of $858,000,000 from the fiscal year 1950, but an increase of 8.6 billion dollars over the postwar low of the fiscal year 1948. I t is important, therefore, for us to examine the projected*0mitted in this exhibit. EXHIBITS 191 expenditures, so that we may note just why this is so. Chart 2* shows the-break-down of expenditures for the fiscal year 1951 by program. As I have already mentioned, the bulk of Federal expenditures is required to pay the costs of past wars and to promote world peace. These cosis can be summed up in four categories—national defense expenditures, veterans' expenditures, interest on the public debt, and expenditures for international programs. National defense expenditures continue to be the largest item in the Federal budget—rnearly one-third of the total. In the fiscal year 1951, they will amount to an estimated 13.5 billion dollars. At the present time, nearly the whole world is in a state, of cold war. Under these circumstances, the United States is making a vital contribution toward the goal of world peace by keeping its defenses strong and by maintaining a position of relative military readiness. With that goal so vitally important, it would be very easy to permit expenditures for national defense to get out of hand. I t is, therefore, particularly commendable that vigorous actions have been taken to keep these expenditures within reasonable limits—and at levels which are within the capacity of the economy to sustain. Defense expenditures comprise a wide variety of programs. These expenditures are analyzed by type of program, and by agency, in chart 3.* Over one-third of the estimated expenditures for 1951 is for inilitary pay and support, although the figure is shghtly less than for the current fiscal year. The other principal items of national defense expenditures—so far as cost is concerned-—are operation and maintenance of equipment and facilities, and major procurement activities. There are two lesser items—^so far as cost is concerned—whose significance, it seems to me, must be apparent to everyone. These are the proposed expenditures for the "stock piling of strategic and critical materials, amounting to $650,000,000, and research and development amounting to $606,000,000. I might mention that the research and development programs classified under national defense do not include the atoraic energy development program wliich, in itself, requires expenditures of $817,000,000. The remainder of national defense expenditures is for organized reserves, adininistration, and other related minor items. The second largest of the war and peace programs is that for veterans' services and benefits. Expenditures for the various veterans' programs are estimated at 6.1 billion dollars for the fiscal year 1951— one-seventh of all budget expenditures for the year. When we add these expenditures to those for national defense, we have already accounted for 46 percent of the budget. The size of the requirements for veterans' services and benefits reflects the flvefold increase since 1939 in the number of veterans, and the new readjustment benefits provided for World War I I veterans, as well as increases in services and benefits to veterans generally. Most of the expenditures for veterans' services and benefits depend upon how many veterans or their dependents apply and qualify for aid. There are some 300 laws under which payments may be made. Expenditures for veterans' .programs are shown in chart 4.* They are expected to be $825,000,000 lower in the fiscal year 1951 than in *Omitted in this exhibit. 907795—51 14 192 1-95 0 REPORT OF THE) SECRETARY OF THE TREASURY the current fiscal year. This decline in trend should continue in the next few years as the temporary readjustment benefits under" the GI bill taper off or expire under existing legislation. The next item in the war and peace group is one which cannot be cut at all. I refer to the interest on the public debt. The amount involved represents the contractual obligation of the Government to pay interest at stipulated rates on public debt securities—predominantly issued to finance the last war. This is something, of course, which is of direct concern to me, as Secretary of the Treasury. I t is a large item—5.6 billion dollars—and comprises 13 percent of the budget. You might note that 59 percent of the total budget is now accounted for. The Treasury Department has been criticized as being too concerned with keeping the cost of servicing the debt low, without regard for other considerations of debt management. I have tried to make it clear that keeping the cost of the debt low is only one of many con' siderations involved in debt management decisions. The overriding consideration is to promote sound economic conditions in the country. The importance of maintaining confidence in the credit of the United States Government—the core of our economic system—I feel cannot be overemphasized. The last program which we classify in the war and peace category is the program for international affairs and finance. Estimated expenditures in the fiscal year 1951 will amount to 4.7 billion dollars, which is 21 percent below the estimate for 1950. These expenditures are shown in chart 5*. By far the largest portion of these expenditures is for the European Recovery Program. These four war and peace programs comprise, as I have said, 71 percent of the budget. There remains only 29 percent of the budget— 12.5 billion dollars—to finance the rest of the Government's operations. Not all of these expenditures by any means, however, are what we might call the running expenses of the Government. Expenditures in this group finance the Government's programs in many broad areas such as housing, education, social welfare, aids to agriculture, research, transportation, and natural resources. They include specifically such expenditures as those of the Atomic Energy Commission and the postal deficit. They include expenditures for flood control, for soil conservation, for reclamation, and for a score of other activities which the Government must perform in order to conserve our natural resources. More importantly, these expenditures finance functions which the Government must perform in order to conserve our human resources. These include expenditures for education, for private and public housing, for social security—for all the Government programs which contribute to the vitality of the American people. In my appearance before your committee today, I have necessarily had to restrict myself to a brief summary of the budget expenditures proposed by the President. A detailed analysis of these items, however, will bear out the President's statement that the budget was carefully prepared with a view toward, holding expenditures to the lowest possible levels consistent with maintaining a strong domestic economy and fostering national security and world peace. *0mitted in this exhibit. EXHIBITS PROPOSED CHANGES IN THE TAX LAWS 193 ' The analysis of budget expenditures makes it clear that our best hope of reducing the deficit and working toward a balanced budget at this time is the adoption of measures which will increase Federal revenues. President Truman in his special tax message to Congress recommended a program which would result in increased tax revenues. I turn now to a detailed discussion of these recommendations. The President has made clear the necessity for integrating taxation with our broad national economic objectives. Tax revision can contribute to the maintenance of national prosperity, continued economic opportunity, and world peace. The immense task of increasing tax revenues during the war overshadowed the equity considerations which in normal times could not be disregarded. In meeting the unavoidable obligatioris imposed by our postwar problems we have been compelled to postpone necessary adjustments in the tax system. Most of the tax revision which must ultiriiately be made will involve a sacrffice of revenue that is now urgently needed to meet our greatly enlarged responsibilities. Some revisions, however, should no longer be postponed. They have become essential to strengthening the economy and removing the most serious inequities from the tax system, The. tax program submitted by the President represents a careful balance between revenues and expenditures in the light of present arid prospective econoniic conditions. I t stresses those things which should come first. As the committee is aware, the Treasury has been giving continuous study to the problems of postwar tax revision. Various aspects of the tax system have been considered in terms of the requirements of an expanding economy. As a part of this work, a number of technical studies have been prepared to assist your committee.. Work has been conducted on a cooperative basis with the staff of the Joint Committee on Internal Revenue Taxation, and similar conclusions have beeri reached on many problems of tax revision. M y views on the objectives of tax revision were outlined before this committee nearly 3 years ^ago. At that time I set forth these goals: The Federal tax system must produce adequate revenue, treat taxpayers equitably, minimize interference with incentives to work and invest, contribute to the maintenance of stable high-level production and employment, promote improved living standards, and facilitate tax administration and compliance. At that time substaritial future revenue leeway was anticipated for constructive tax revision, and I presented in some detail the major problems requiring attention. The large tax reduction which followed a year later dissipated the revenue surplus and, m t h it, opportunity to make desirable and necessary tax improvements. The recommendations of the President to the Congress are designed to place tax revision in proper perspective. If the right course is pursued, most of the fundamental tax problems I listed for attention 3 years ago can be dealt with. I t is important that a beginning be made now. I t is equaUy important that we exercise forbearance and undertake no more than can be afforded. • , 194 195 0 REPORT OF THEI SECRETARY OF THEi TREAisURY To this end, the President has made two broad recommendations. The first is that excise taxes be reduced to the extent that the resulting loss in revenue is replaced by closing loopholes in the present tax laws. This means that excise tax reduction must be limited to about $600,000,000. The second recommendation of the President is that additional revenue of $1,000,000,000 be provided by revising and improving the estate and gift taxes and the corporation income tax. I turn now to a detailed discussion of these recommendations. EXCISE TAX REDUCTION Since only a limited amount of revenue may be lost at this time, we should select for reduction those excise taxes wliich are most harmful. The most urgently needed reductions, as the President indicated, are in the excise taxes on transportation of property, on transportation of persons, on long-distance telephone and telegraph communications, and in the retail excises. I should like to state briefly why these taxes have been considered to have the most compelling claim for attention. In our studies of excise tax problems we have had the benefit of discussions with numerous taxpayers and their representatives, business and labor organizations, and civic and governmental groups. We have carefully considered the facts and viewpoints presented in determining which taxes are most burdensome to the industries affected, which create most serious competitive problems, which fall with undue weight on low-income groups, and which impose barriers to investment and consumption. The committee has had the benefit of our technical studies on these taxes, and I shall be glad to supplement them with additional information at the desire of the committee. Summary tables showing the changes in excise tax rates since 1939 and the estimated revenues for the fiscal year 1951 are attached to my statement (exhibit 1*). The taxes on transportation of property, on transportation of persons, and on long-distance telephone ^and telegraph communications have some defects in common. They all fall on regulated public services, which are used widely and predominantly by business. The tax on transportation of property is almost entirely a cost of doing business. Excise taxes on business costs tend to be pyramided through successive mark-ups by those handling goods in the various stages of production and distribution. The cost of living of all consumers is increased out of proportion to the tax imposed. In addition, the taxes thus added to the prices of goods and services generally are the most burdensome on lower-income groups. The Members of the Congress through their own experience with the 15 percent tax on passenger fares can readily appreciate the discrimination which businessmen face in paying for the transportation of their salesmen, shipping their goods, and maintaining telegraph or telephone contact with their markets. The benefits from reduction of these taxes would be widely distributed among business and consumers. The reductions would be •Omitted in this exhibit. 195 EXHIBITS promptly refiected in the costs of those using the services. The increased use of transportation and communication facilities would involve little additional cost where excess capacity now exists and, therefore, would improve the position of the businesses affected. The retail excises were raised to their present 20 percent rate during the war when the sales of the taxed articles were increasing under the stimulus of excess consumer purchasing power. Under the competitive conditions prevailing today, this high rate of tax is working hardship on many businesses and their employees. Small businesses, often of a family type, are penalized. .. A reduction in these taxes would stimulate employment and production. . Although only a limited revenue loss can be afforded at this time, the President's program permits excise tax reduction which will relieve the most serious inequities and should produce the most significant benefits. Specifically, the program permits the elimination of the freight tax, reduction of the 15 percent tax on transportation of persons to 10 percent, reduction of the 25 percent tax on long-distance telephone and telegraph communications to 15 percent, and reduction of all the 20 percent retail excises to 10 percent. The net cost of these revisions, after allowing for the extension of the tax on radios to television, which is required in the interest of tax equity, would amount to over $600,000,000. The details of this program are presented in the following table. Tax Transportation of property Transportation of persons Long-distance telephone and telegraph.. Retail excises: Furs -• Luggage _ Jewelry.. Toilet preparations ^ Present rate Reduced rate Percent Perceiit Total ..--Increase from including televisions in present manufacturers' excise tax on radios . _ Estimated revenue loss on an annual basis Millions • $310 75 120 25 35 80 50 695 40 655 Total revenue loss. 1 Estimated revenue loss allows for the exemption of baby oils, powders, and lotions. . In suggesting these reductions I do not mean to imply that there are no other competing demands for excise tax reduction or that some of these taxes, particularly those on communications and transportation of persons, should not be further reduced when conditions permit. However, in view of our budgetary situation we must defer a while longer revisions in such areas as the manufacturers' excise taxes. CLOSING OF LOOPHOLES The President has called attention to the more important loopholes which should be closed to provide replacement revenue for excise tax reductions. I should like to emphasize the importance of this action by indicating its bearing on our work in administering the tax laws. One of 196 1 9 5 0 REPORT OF T H E SECRETARY OF THEi TREAISURY my foremost objectives since I became Secretary of the Treasury has been constantly to improve our relations with taxpayers. We have taken great pains to mform taxpayers of their rights as well as their duties in complying with the law. We are using the most advanced management methods to facilitate the filing of returns and the swift disbursement of refunds. Continuous efforts are being made to achieve adequate detection and correction of underpayment and overpayment of taxes. We all know that the workability of our tax system and especially of the income tax depends on the high regard our people have for the fairness of our tax laws and their administration. We will strengthen taxpayer confidence by closing loopholes which bestow unjustffied benefits. By arrangement with your committee, our staff has been working with the staff of the Joint Committee on Internal Revenue Taxation since last summer on developing legislative suggestions for eliminating loopholes. The recommendations in this area represent the product of this joint effort. Other loopholes are still under study and will'be brought to the attention of your committee at some future time. I should like to refer first to the special allowances for depletion. SPECIAL DEPLETION ALLOWANCES Depletion in ordinary accounting usage is intended to permit taxpayers to recover the cost of mineral properties over the producing life of the properties. Depletion is the counterpart of depreciation which is intended to permit recovery of the cost of other assets over the period of their useful life. When the original investment has been recovered, no further depreciation is allowed for tax purposes. Howr ever, in the case of depletion, special provisions which allow recovery of more than the cost of mineral properties have been in the law since 1918. Under present law, special allowances are granted on the basis of specified percentages of gross income for different types of minerals. The percentage of gross income allowed is 27)^ percent for oil and gas, 23 percent for sulfur, 15 percent for metals and a large number of nonmetallic minerals, and 5 percerit for coal. Percentage depletion continues for the life of the property and generally results in the tax-free recovery of many times the cost. I t is granted to those purchasing properties as well as to those operating properties they have developed. The allowances have become more valuable as tax rates have been increased. Furthermore, the benefits from percentage depletion are increased by provisions which permit development costs to be deducted as an expense in the year incurred instead of being treated as a capital cost to be recovered later through depletion deductions. This is equivalent to a double deduction for the same costs, once when they are incurred and again under percentage depletion. In the oil industry during 1946 and 1947, for every $3,000,000. allowed as percentage depletion; another $2,000,000 was deducted as development costs. The combination of percentage depletion and the expensing of development costs provides a mechanism for pyramiding extensive holdings in oil assets with pajmient of little or no income tax. EXHIBITS 197 As the President has indicated,.miUions of dollars are made annually from operating oil properties on which little or no income tax is, paid. The President mentioned one outstanding example. You will find others in the attached material (exhibit 2*). In the examples cited, annual incomes, on the average, of over $1,000,000 were obtained on which an average tax df only 22}^ percent was paid. This is the rate now paid by persons with incomes of less than $25,000. These illustrations suggest how much additional revenue theGovernment would gain by limiting some of these special allowances. You will find from an examination of the materials I am submitting to assist the committee in considering revision of these provisions that: First, the estimated-revenue loss is between 400 and 500 million dollars annually. This is as much as the yield of all the retail excises. Second, the allowance is especially excessive in the case of oil and gas and exempts a higher proportion of the earning of this industry which may expense more of its development costs than the other mineral industries. Third, the provision has been found to be of little benefit to small prospectors on whose behalf it is so frequently supported. Fourth, these deductions enable high-income individuals to reduce to negligible proportions taxes on income from sources totally unrelated to these industries. There are a number of ways in which the necessary revision of present allowances can be accomplished. I n general, these involve either the limitation of percentage depletion or the termination of the option to expense development costs. The benefits of expensing development costs are confined to the finding of new properties. Percentage depletion on the other hand may be obtained on established as well as new properties, and regardless of whether the recipient contributed to the development of the property. The reduction of percentage depletion would tend to reduce windfalls while protecting incentives for exploration. A reasonable way to reduce the excessive benefits would be to Hmit the percentage of gross income which might be deducted as depletion. A reduction in the present net income limitation would leave the more excessive allowances untouched while reducing the benefits on the small, less profitable properties. Specifically it is proposed that percentage depletion for oil, gas, and sulfur be reduced to 15 percent of gross income and that percentage depletion for nonmetallic minerals be reduced to 5 percent. The existing 15 percent rate for depletion aUowed to the metals would be left unchanged. It is further proposed that oil and gas operators who elect to expense intangible drilling and development costs be required to reduce income from the property by the amount of such expensed costs in computing their depletion allowance. This requirement will reduce the extent of the double deduction now enjoyed by oil and gas enterprises with respect to certain of their capital costs. ' : Together these proposals would remove the more obvious inequities of the present system without interfering significantly with production incentives. » •Omitted in this exhibit. • 198 1 9 5 0 REPORT OF T H E SECRETARY OF T H E TREASURY BUSINESS OPERATIONS OF CHARITABLE AND EDUCATIONAL ORGANIZATIONS I suggest the consideration of legislatidn to eliminate the abuse of tax exemption by charitable and educational organizations. These exemptions reflect a long-standing Federal Government policy to encourage the activities of such organizations. The law has been interpreted by some courts to attach the exemption to the destination of the income rather than its source. Some colleges and other institutions are engaging in a wide variety of business undertakings, including the production of such, items as automobile parts, chinaware, and food products, and the operation of theaters, oil wells, and cotton gins. Advantage is also being taken of the exemption by the purchase of rental properties with borrowed fimds. In this type of operation the nonprofit organization enjoys advantages over privately owned business which is measured by the amount of the tax privately owned enterprise is required to pay. This advantage permits these institutions to apply a larger portion of rental receipts to repayment of borrowed funds than is possible for a privately owned business paying income tax. The exemption should be limited to income received from ordinary investments which involves no abuse. The correction of present abuses, which shift additional burdens to the rest of the population, becomes essential for reasons of equity. This calls for a solution which will eliminate the abuse but will not interfere with the basic activities of these organizations. To meet this problem, it is recommended that the income derived by these institutions from the operation of businesses which are clearly unrelated to their primary functions be taxed at regular corporation income tax rates. Another closely related abuse of tax exemption involves the establishment of so-called charitable foundations or trusts which serve as a cloak for controlling businesses. The present law permits the transfer of business investments to tax-exempt trusts and foundations for these purposes without payment of estate or gift taxes. The income subsequently received from the business by the trust or foundation is exempt from income tax. The abuse to which this type of device lends itself is the retention and reinvestment of a major share of the trust income in a maimer which will benefit the grantor. One method to eliminate this abuse would be to require that such trusts or foundations pay out substantially all net income within a specified period after the close of every taxable year. A further requirement should be a prohibition against dealings between the trust and its creator or businesses under his control and against the use of the trust for the personal advantage of the grantor. LIFE INSURANCE COMPANIES The President has urged legislation to terminate the undertaxation of life insurance companies without impairing the abUity of individuals to acquire life insurance protection. The action you have recently taken in the House of Representatives will correct the provision which unintentionally relieved this industry EXHIBITS 199 of tax for 1947, 1948, and 1949. The spirit in which this was accomplished is highly gratifying. However, as you know, legislation is also required to provide an equitable basis for the taxation of life insurance companies in the future. As the committee is aware, the staffs of the Treasury and Joint Committee have devoted a great deal of attention to this matter. I believe that the thorough consideration already given this probleni has developed the information you wUl require in devising a satisfactory solution. I n considering this matter I have been continuaUy impressed with the magnitude of the stream of life insurance income amounting to more than 1.5 billion dollars a year from investment income alone. The $60,000,000,000 assets of this industry constitute an important fraction of our total wealth. I do not believe that favored taxation is in the best interest of this industry in the long run. Nor do I believe t h a t it would be supported by the policyholders, who are a majority of the population. Since 1921 life insurance companies have been taxed on only one source of income, namely, income from investments. I t is difficult to develop an eqtiitable method for computing a deduction for obligations to policyholders when this income alone is taken into consideration. I consider the industry-wide average which has been used since 1942 a most inequitable basis for permanent taxation. The present system which is in effect a flat tax on gross income disregards the wide variations in profitability of operations between different companies, and is at variance with the accepted principles of taxing each corporation on its own net income. Since insurance company operations generally are based on profits from writing life insurance as well as investment income, a more inclusive tax base would recognize underwriting profits as well, in other words, total income. This method would permit more comprehensive treatment of the differences in forms of income and the reserve policies of the iridividual companies. Several approaches to the taxation of life insurance income are discussed iri material attached to this statement (exhibit 3*). OTHER TAX LOOPHOLES Additional revenues should be raised by. closing a number of less important loopholes which taken together constitute a substantial barrier to effective and equitable taxation. A number of tax loopholes together with proposed remedies are described in a memorandum attached to this statement (exhibit 4*). This list was developed jointly by the staffs of the Treasury Department and the Joint Committee on Internal Revenue Taxation. A number of these loopholes arise out of defects in the capital gains tax structure, which provides a maximum effective rate of 25 percent on gains from capital assets held for more than 6 months. The President, in his recent tax message to the Congress, gave an example of one of these loopholes, the ^'collapsible" corporation, through which individuals, engaged iri the business of producing certain types *0mitted in this exhibit. 200 1950 REPORT OF THEi SE'CRETARY OF THE TREASURY of property, have attempted to convert ordinary business and earned income into long-term capital gains. Another important loophole provides a ^'one-way street" for taxpayers selling property which they have used in their trade or business.^ At the present time, such taxpayers are allowed capital gains treat-' ment when the sales result in a net gain, while net losses from such transactions are allowed in full as offsets against ordinary income. In addition, there is the loophole through which investors in securities and commodities, for some years now, and without any appreciable risk, have been able to corivert short-term gains into the rnore favorably treated long-term gains, and to create largely fictitious shortterm losses, by means of short sales. The tax laws also contain some, loopholes and tax havens through which taxpayers are able to avoid tax completely. Domestic corporations, for example, are frequently able to avoid income tax on income from operations abroad tlirough the formation and subsequent liquidation of foreign subsidiaries. Another loophole has in the past enabled many corporations desiring to sell property to avoid income tax upon such t];ansaction by first distributing the property in kind to a parent company. Also, the exemption provided in section 251 of the Internal Revenue Code virtually relieves all Government employees working in posses-, sions of the United States from income tax upon their salaries, and enables many other American citizens to obtain exemption for all of their foreign income from businesses and other sources. I t is of course not possible to estimate with any degree of accuracy the revenue consequences of an extensive loophole-closing program of the type proposed by the President. This program will have direct revenue effects by closing loopholes which now permit leakages throughout the tax system. In addition, it will indirectly increase revenues, since it wUl remove competitive disadvantages which now retard taxable private enterprise. We belieye that in the long run the closing of these loopholes, including the proposals on percentage depletion and life insurance taxation, has a revenue poteritial of upwards of $500,000,000 a year assuming present economic levels. The immediate revenue gain will be appreciably less. The $500,000,000 is exclusive of the approximately $90,000,000 which will be produced by the committee's stopgap life insurance legislation. ADDITIONAL REVENUE The President has recommended that $1,000,000,000 in additional revenue be obtained by revising and improving the estate and gift taxes and the corporation income tax. This additional reveriue is essential to the objective of balancing the budget as rapidly as requirements of national economic policy permit. As the members of this Committee well know, I consider the protection of the financial position of our Government the major responsibility of my office. In the fiscal years 1947 and 1948 there was a substantial surplus for debt reduction. The deficit which subsequently developed has given me serious concern and I have earn- EXHIBITS 201 estly considered the ways in which a favorable budget position might be restored. As I pointed out earlier, the President has stressed the fact that present expenditures are necessarUy at a high rate because of obligations undertaken at an earlier date, and that he expects reductions in expenditures in subsequent years as the cost of some of the extraordinary postwar programs tapers off. I believe that we would be ill-advised at this time to raise the general level of taxation sufficiently to cover the cost of all of the extraordinary expenditures embraced in the postwar adjustment programs. The tax revisions recommended by the President provide a basis for achieving the revenue goals necessary to maintain our Government on a sound basis. The amount of net revenue immediately involved in the President's program is not a full measure of what we can expect from his recommendations. In the long run the removal of inequities will make for a more vital economy, and this in turn will refiect itself in higher tax yields. REVISION OF ESTATE AND GIFT TAXES The President has recommended that a substantial part of the additional revenue be obtained by revising and strengthening the estate and gift taxes in a manner which would bring these taxes nearer to their proper long-term place in our tax system. As the President said: To the extent that these taxes remain too low, the remainder of our tax structure must bear a disproportionate load. The disparity in present tax burdens becomes striking when the trends of the estate and gift taxes and the individual income tax are compared. This comparison is shown in charts* appended to this statement. They show that the estate and gift taxes have not kept pace with the income tax. The total yield from the estate and gift taxes has barely doubled since 1939 while total internal revenue is 8 times as large and the individual income tax is 18 times as great. This is shown in chart 6*. Because of the relatively greater expansion in other tax revenues, the estate and gift taxes produced only 2 percent of internal revenue in 1949 compared with 7 percent ten years earlier. Chart 7* compares the current exemptions under the estate tax and individual income tax with those in effect 10 years ago. You wUl note that individual income tax exemptions have been reduced sub^ stantially during this period. By contrast, the estate tax exemption, especially for married persons, has increased. The estate tax reaches only a little more than 1 percent of adult decedents, virtually the same proportion as 10 years ago. On the other hand the individual incoine tax is paid by more than 40 percent of all persons over 14 years of age, 10 times the proportion taxed in 1939. This comparison appears in chart 8*. The effective rates of tax on incomes at all levels have increased substantially. Those on estates, on the other hand, have actually been reduced for married persons. This is illustrated by chart 9*. •Omitted in this exhibit. 202 195 0 REPORT OF THE' SECRETARY OF THEi TREASURY For example, the tax on an income of $10,000 has risen from 4 percent to 16 percent. Tax on an estate of $250,000 has fallen from 11 percent to 4 percent. The weakness of the present estate and gift taxes results from: (1) the overly favorable treatment of property placed in trust for several generations, (2) the opportunity to escape the higher estate tax rates by making gifts subject to lower tax rates, (3) the large exemptions, and (4) the ineffectiveness of the present rate schedule. The last two weaknesses were greatly magnified by the estate and gift splitting provisions introduced by the 1948 act. 1. Life estates: If property is left outright to a child, it may become taxable in the estate of the child. This may be avoided by placing the property in trust for the child's life since the termination of the child's interest in the trust is not considered a taxable event under the present law. A study accompanying this statement reveals that individuals with large estates are placing a substantial part of their property in trust for more than one generation (exhibit 5*). An examination" of several hundred large estate tax returns showed that about 45 percent of the property available for distribution was placed in trust. The trusts were frequently created to endure, not only for the lives of the children, but also for the lives of more remote descendants. This widespread practice seriously depletes the base of the estate and gift taxes and penalizes those less motivated by tax considerations or lacking the opportunity or counsel to take advantage of it. Substantial additional revenue could be obtained by revising the present treatment. The Treasury staff is prepared to present a proposal clealing with this problem at the convenience of the committee. 2. Dual transfer tax system: The imposition of separate, unrelated taxes upon property disposed of during life and at death defeats the objective of estate taxation. The property given away during life is removed from the highest bracket of the estate, it is taxed at only three-fourths the rate of the tax on an estate of equal amount, and the gift tax unlike the estate tax is not included in the tax base. An individual with $10,000,000 can, by giving away $2,000,000 of this amount during life instead of at death, reduce his total taxes by about $1,000,000. As is indicated in the attached study on property transfers (exhibit 5*), the discrimination against transfers made at death favors the larger estates and prevents equal treatment of transfers of the same amount distributed in different ways. The discrepancies in present treatment would be removed by integrating the separate gift and estate taxes into a single transfer tax. The same exemptions and tax rates would then apply to all property whether transferred during life or at death. Under an integrated estate-gift tax structure, it would be possible to provide incentives for property distributions during life, in the event such encouragement is deemed to be desirable. A report based on a comprehensive study by an advisory committee of the Treasury, consisting of prominent tax practitioners, which I transmitted to your committee 3 years ago deals with this entire prob^ •Omitted in this exhibit. 203 EXHIBITS Iem. The Department has since given further study to this matter and is prepared to present proposals to the committee. 3. Exemptions and exclusions: The present estate tax exemption is $60,000 and the gift tax exemption is $30,000. In addition, annual exclusions of $3,000 for each of an unlimited number of donees are accorded under the gift tax. By taking advantage of the 1948 amendments a man with a wife and three chUdren, who has $300,000 of property, may give them $24,000 a year, plus an additional lump sum of $60,000, without paying any gift tax. Upon his death, he has another $60,000 exemption. If he leaves at least half of his estate to his widow, then the $120,000 remaining at his death is totally exempt, half as a result of the marital deduction and the other half as a result of the exemption. Thus, during a 5-year period the family would have received the entire $300,000 free of any tax. The integrated transfer tax would require only a single exemption of $45,000, all of which would be available to the estates of persons making no gifts; $15,000 of the $45,000 exemption would be avaUable for transfers during life. The excessiveness of the $3,000 gift tax exclusion for each recipient of gifts could be overcome by limiting tax-free gifts made by any one individual each year to $3,000. An additional allowance of perhaps $500 for each donee might be adopted to avoid the need to account for small gifts. 4. Rates: There are two principal weaknesses in the present rate schedule. First, the estate tax begins at the low rate of 3 percent and the gift tax at 2% percent. Second, the higher rates in the present schedule are reached only in the case of unusuaUy large estates. I t would be necessary for a married person splitting his property under the 1948 amendments to have an estate in excess of $20,000,000 before any part would be taxable at the top bracket rate. . A rate schedule which would overcome these objections and raise substantial revenue is attached. The schedule would start at 10 percent, and reach the present top rate of 77-percent at $3,000,000 instead of $10,000,000. Comparison of alternative estate tax rate schedule with present law T a x a b l e n e t estate (in t h o u s a n d s ) Oto$10.—. $10 to $20-$20 to $30-. $30 to $40-$40 to $60... $60 to $100.$100 to $150. $150 to $200. $200 to $250. $250 to $300. $300 to $400. $400 to $500. $500 to $600. $600 to $700. $700 to $850. Present Alterlaw native Percent 3-7 11 14 18 22-25 28 30 30 30 32 32 32 35 35 35-37 Percent 10 13 16 19 22 26 30 33 36 .39 42 45 48 51 54 T a x a b l e n e t estate (in t h o u s a n d s ) $850 to $1,000.... $1,000 to $1,200.. $1,200 t o $1,400.. $1,400 to $1,700.. $1,700 to $2,000.. $2,000 to $2,500.. $2,500 to $3,000.. $3,000 to $3,500.. $3,500 to $4,000.. $4,000 to $5,000.. $5,000 to $6,000.. $6,000 to $7,000.. $7,000 to $8,000.. $8,000 to $10,000. $10,000 a n d over. P r e s e n t Alterlaw native Percent 37 39 39-42 42-45 45 49 53 56 59 63 67 70 73 76 77 Percent 57 60 63 66^ 69 72 75 77 77 77 77 77 77 77 77 204 1 9 5 0 REPORT OF THErSECRETARY OF THE; TREAISURY Comparison of amounts and effective rates of Federal estate taxes under 1942 and 1948 laws and under proposed revision ... Single person N e t estate before specific exemption 1942 a n d 1948 laws M a r r i e d person 2 Proposed revision i 1942 l a w 1948 l a w Proposed revision 1 A m o u n t of tax $50,000 $100,000...-. $150,000.... $200,000..... $250,000..-.. $300,000-.-. $400,000—.. $500,000 $750,000—.. $1,000,000... $2,000,000... $5,000,000... $7,500,000--. $10,000,000- 17, 31, 45, 59, 87, 116, 191, 270, 626, 2,038, 3, 454, 4, 975, $500 9,100 21, 700 36, 050 51, 500 68, 450 105, 900 146, 350 257, 900 383, 250 962, 450 2, 941,850 4, 553, 250 6,115,850 $4,800 17, 500 31, 500 45, 300 59,100 87, 700 116, 500 191, 800 270, 300 626, 600 2,038,800 3, 454, 200 4, 975, 000 $1, 050 4,800 10, 700 17, 500 31, 500 45, 300 80, 500 116, 500 270, 300 830, 000 400, 900 038, 800 $500 3,900 9,100 15. 200 21, 700 36, 050 51, 500 96, 200 146, 350 383, 250 1, 281,900 2,116,550 2,941,850 0.7 2.4 4.3 5.8 7.9 9.1 10.7 11.7 13.5 16.6 18.7 20.4 0.5 2.6 4.6 6.1 7.2 9.0 10.3 12.8 14.6 19.2 25.6 28.2 29.4 Effective r a t e (percent) $50,000$100,000 $150,000 $200,000..... $250,000 $300,000 $400,000 $500,000 $750,000 $1,000,000... $2.000,000... $5,000,000... $7,500,000... $10,000,000.. 1.0 9.1 14.5 18.0 20.6 22.8 26.5 29.3 34.4 38.3 48.1 58.8 60.7 61.2 4.8 11.7 15.8 18.1 19.7 21.9 23.3 25.6 27.0 31.3 40.8 46.1 49.8 1 A s s u m i n g t a x p a y e r s m a k e n o gifts d u r i n g life a n d reserve, full $45,000 e x e m p t i o n u n t i l d e a t h . 2 A s s u m i n g full use of m a r i t a l d e d u c t i o n . These adjustments in rates and exemptions will do little more than restore the yield of the estate and gift taxes to their strength prior to the introduction of estate splitting between husband and wife by the 1948 Revenue Act. If this provisiori were eliminated, the President's revenue objective could be obtained by relatively minor changes in rates and exemptions. In estate and gift tax revision, it would also be desirable to make certain minor improvements in these taxes. These include repeal of the deduction for support of dependents and the substitution of a tax credit for the present deduction for prior taxed property. I have stated in some detail the present deficiencies in these taxes ih order to emphasize the urgent need for revisions. Only by taking such action now can the full potentialities of these taxes be realized in future years. The changes I have outlined would increase the yield of estates and gift taxes on an annual basis by about $400,000,000. No other method of raising this additional revenue would have less serious effects on the economy. The amount of tax on the estate involving a business which might properly be considered small would not materially affect the normal developmerit of such a business. In the infrequent instances in which liquidity is a problem, the extension of tax payments permitted by present law up to a maximum of 10 205 EXHIBITS years protects estates from having to make forced sales of property at a serious financial loss. REVISION OF THE CORPORATION INCOME TAX The President has recommended revisions in the corporation income tax to improve the present rate structure and provide additional revenue. During most of its history the corporation income tax law has accorded preferential tax treatment to small business. To preserve such treatment when the wartime rates were imposed, an excessively high rate of 53 percent was applied to corporations with incomes between $25,000 and $50,000. This so-caUed ''notch" rate provided the transition from the low rates on small corporations to the generally applicable higher rates. The elimination of this high ''notch" rate would remove an obstacle to the expansion of small business. This objective could be attained by applying the general corporation tax rate above $25,000 and to aUow all corporations the reduced rates below $25,000. This would substantiaUy reduce the tax on corporations in the present "notch" area and also accord some reduction to corporations with incomes above $50,000. The general corporation income tax rate should be increased to recover the revenue loss associated wih the suggested "notch" rate adjustment and also to contribute to the reduction of the budget deficit. I suggest that the present 38 percent general corporate rate be raised to 42 percent. This would produce an estimated $675,000,000 additional revenue annuaUy, after aUowing for the revision in treatment of smaller corporations as suggested by the President. Although the great majority of corporations are relatively small, the large bulk of corporation income is concentrated among the very large corporations. This is apparent from chart 10* which shows that one-eighth of all corporations receive 90 percent of total income. Under the revised program only those corporations with net income above approximately $120,000 or less than 10 percent of all corporations would have increased tax liabUities. The taxes on corporations with incomes between $25,000 and approximately $120,000 would be reduced, the reduction reaching a maximum of almost 15 percent of the present tax at $50,000. They represent about 15 percent of all corporations. The relative changes in tax for corporations of different size are shown iri chart 11* and in more detail in the following table: T a x liability Net income $5,000 $10,000 $25,000 $30,000 $50,000 $60,000 $75,000....$100,000.... $118,750.-. $250,000..$1,000,000.. $10,000,000. $100,000,000 •Omitted in this exhibit. Present law $1,050 2,200 5, 750 8,400 19, 000 22, 800 28,500 38, 000 45,125 95, 000 380,000 3, 800,000 38,000, 000 . Proposal ' $1,050 2,200 5, 750 7,850 16,250 20,450 26,750 37,250 45,125 100,250 415,250 .4,195,250 41,995,250 Percent change 0 0 0 -6.55 -14.47 -10.31 -6.14 -1.97 .0 +5.53 +9.28 +10.40 +10. 51 206 195 0 REPORT OF THE) SECRETARY OF THEi TREASURY Corporate profits and dividends have increased substantiaUy since the present rates were adopted in 1945. The proportion of profits retained, and thus not subjected to tax in the hands of stockholders, is considerably in excess pf the normal prewar proportions. In view of the relatively strong position of large corporations at the present time, I believe that the small tax increase proposed wUl have no important adverse effects on the economy. I n addition to the revision of the corporate tax rates, I also recommend the extension of the period for offsetting losses against profits of subsequent years. The need for giving business greater leeway to recover losses has been widely recognized in discussions of postwar tax revision. Taxing profits without adequate recognition of losses creates inequities and restrains risk-taking. A dynamic economy requires a continued stream of new ventures, which often result in losses for a series of years before they become profitably established. A longer period for carrying over loss wUl be especially beneficial to small and new businesses. I recommend a 5-year carry-over with a 1-year carry-back: This would provide a total period of 7 years in which losses might be offset against profits. This provision would involve no immediate loss in reveriue. The President also referred to tax revisions which would facUitate the extension of financial and technical assistance to underdeveloped regions of the world. These recommendations are designed to implement in part the Point IV Program, and I should like to review them briefiy. As you laiow, the earnings of a foreign subsidiary of a domestic corporation are not taxed until such earnings are transferred to the parent corporation in the United States as dividends. An American business which prefers to conduct its foreign operations as a branch of a United States corporation does not have this advantage. I t must include in the taxable income each year the current earnings of its foreign branch. Foreign branch operations should be placed on an equal footing with foreign subsidiaries by allowing postponement of tax on their income untU it is returned to the United States. This is not only a matter of equity, but would also encourage new investment abroad and the reinvestment of foreign earnings. The credit for taxes imposed by other countries helps to eliminate international double taxation, but it needs to be adapted to our policy of encouraging private investment abroad. A United States corporation may now claim credit for the taxes paid by a foreign corporation with respect to the dividends received from the foreign corporation only when it owns *a majority of the voting stock. One of the consequences of this requirement may be illustrated by the case of two domestic corporations which pool their resources to form a foreign subsidiary. If each owns 50 percent, neither one obtains a foreign tax credit. Where the ownership is divided unequally, only the one having majority control is allowed a credit. To facUitate joint ventures abroad and to meet the requirements or desires of foreign countries for local participation in these ventures, we should reduce the present ownership requirement for foreign tax credit. Foreign investment wiould also be encouraged by the liberalization EXHIBITS 207 of the foreign tax credit in the cases where losses in one foreign country offset profits in another. Service abroad by American experts is essential to the Point IV Program, both in the provision of technical assistance in the strict sense and in the functioning of private investment. We should remove discouragement to Americans participating in those activities by making the present exemption of their earnings applicable to the entire period they reside abroad once they have established a bona fide foreign residence. The foreign tax credit has worked successfully iri the income tax field, and it can be extended with equally satisfactory results to the estate tax. By so doing, we shall remove another of the barriers which sometimes keep able technicians and businessmen from undertaking assignments abroad, and I urge the committee to take such action. These changes in tax provisions are discussed more fully in an attached statement (exhibit 6*). They should not be viewed as the only necessary incentives for the participation of private capital in foreign economic development. Their potential effects will be realized only if foreign countries take positive steps to create conditions under which private capital cari operate satisfactorily. This can be accomplished to an iinportant degree by the negotiation of investment and tax treaties, which the administration is endeavoring to secure. [The charts * and exhibits omitted in this exhibit are published in Revenue Revision of 1950—Hearings before the Committee on Ways and Means, House of Representatives, 81st Congress, 2d session, volume 1.] Exhibit 21.—statement of Secretary of the Treasury Snyder before the Senate Finance Committee, July 5, 1950, on H. R. 8920, a bill to reduce excise taxes, and for other purposes I am pleased to have an opportunity to appear before the members of this committee as you begin consideration of the tax revision bUl, H. R. 8920, which the House of Representatives passed on June 29. I read with great interest, Mr. Chairman, your statement that the committee decided to proceed with tax legislation in the full knowledge that present plans may need to be altered by developments in Korea. I am glad that the committee has decided to prepare a bill for action with the understanding that it could be halted if conditions later indicate that it would be unwise to go through with the legislation. I am in accord with this view of the committee and will present my testimony on the basis of this understanding. In strengthening our resources for possible eventualities, improvement in the Government's fiscal position is a basic requisite of national preparedness. At the outset I should hke to make it clear that the position which I have taken on other occasions with respect to our revenue system has not changed. I t is my conviction that our general objective must be a tax system which yields sufficient revenue during prosperous times to meet the necessary expenditures of the Goverriment and to leave some surplus for debt reduction. This was thQ goal expressed •Omitted in this exhibit. 907795—51 15. ... _... 208 1950 REPORT OF THEI SECRETARY OF THE. TREASURY by the President in his tax message to the Congress last January. I t is the position I have taken on many occasions in appearances before committees of the Congress. I t is the pnly position consistent with my responsibility to the American people. I n the 5 months since I appeared before the Committee on Ways and Means of the House of Representatives in support of the President's tax program, it has become increasingly apparent that 1950 will be one of the most productive business years in our history, in terms of the actual output of goods and services. During recent months there has been growing recognition that the strong upturn in business this year is something more than a temporary, inventory replenishment, as some had characterized it earlier. I t is more than a mere rebound from the lower production levels of 1949. There is no longer reason to question that the business improvements this spring and summer represent an important forward movement in our national economy. The strength of this movement, in fact, has been so widely recognized in recent weeks that I shall not take your time on this occasion to go into the detaUs of the business situation. I should like to stress, however, that personal and business incomes—the most important elements in our revenue potential—^have continued during 1950 at a very high level. Excluding the special insurance dividend to veterans, personal incomes this year are well above the correspondirig period a year ago, and not far from the record figures of 1948. The earnings of business concerns, likewise, have contmued to be exceptionally favorable. Corporate profits before taxes have been advancing steadily throughout the past 12 months, and are estimated for the first half of 1950 at an annual rate of a little under $33,000,000,000—almost $5,000,000,000 higher than a year ago, and not far from the record annual total of approximately $35,000,000,000 in 1948. You may be interested to-note, in addition, that the present level of corporation profits, on an annual basis, is more than three times as high as the prewar record level of $10,000,000,000 in 1929. Under these conditions of exceptional prosperity for both individuals and business concerns, we cannot justify less than a maximum effort to meet current expenditures and to further the program for reducing our outstanding debt. This principle is the foundation of our financial strength. With relations between nations in a troubled state, we cannot afford a short-range approach to the vital matter of the financial soundness of the United States Government. The Federal deficit for the fiscal year 1950 amounted to 3.1 billion dollars and is estimated in the President's budget message of January at 5.1 billion dollars for the fiscal year 1951. If we do not take active measures to reduce deficits during periods of high business activity, we cannot hope to find our economic defenses at full strength to meet emergencies—either in the domestic field, or on the international front. The financial strength of our Government, as you know, depends in part on its income. I t depends on income derived from a revenue system which is fair and equitable as between taxpayers, adequate to meet governmental requirements, and of sufficient size during prosperous times to make some repayment on debts incurred in the past. Because of the size and importance of the Federal debt and of EXHIBITS 209 Federal financial operations, it is important also to make certain that our Federal revenue system does not hamper business and trade, but as far as possible acts to stimulate it. The revenue proposals embodied in the bill before you make progress toward these goals, which were outlined in the President's tax message. But the House bill does not go the whole way. The bill in its present form has the merit of making improvements in the equity of our tax system. I t provides stimulation to business in certain areas in the form of lowered excise taxes on various products and services still taxed at wartime rates. It also provides lower taxes for smaller corporations, together with various measures which will be of direct assistance to business operations—for example, more liberal provisions permitting the business losses of one year to be deducted from the taxable income of other years. The proposals which you are considering do not provide, liowever, for increased revenue, although the need for keeping the finances of the Federal Government in a sound condition is even greater now than it was at the beginning of the year when the President made his tax recommendations. I urge the members of this committee, therefore, to review fully the proposals for improving our revenue system outlined in the President's program, which I submitted in detail to the Committee on Vf^ays and Means of the House of Representatives on February 3, 1950. I turn now to the discussion of the House bUl, first, in the light of the President's program and, second, with respect to its detailed provisions. T H E PRESIDENT'S PROGRAM The President's program has a threefold purpose: (1) to improve the fairness of the tax system, (2) to bring in some additional revenue, and (3) to strengthen the economy. In submitting this program to the Congress, the President recognized that in certain limited areas tax reduction was desirable. He proposed a conservative excise reduction program which balanced the most urgent needs for relief against the constraints imposed by an unbalanced budget during prosperity. The excise taxes are still at substantially their wartime levels and their revision to better conform with present-day competitive business . conditions is overdue. Judicious reductions in these taxes can make an important contribution to an improved revenue system. Not only wiir the tax system be made more equitable for consumers but the changes will aid employment and sales in the industries affected. Over the long run we should aim to reduce the role of excises in the tax system. I n view of our budgetary situation, however, the President recommended the closing of an accumulation of tax loopholes as a source of replacement revenue for the excise tax reductions. In addition, the President recommended that a moderate amount of new revenue be obtained partly from the corporation income tax and partly from the estate and gift taxes, which now are not making a proportionate contribution to the Government's revenues. Recent events have underscored the importance of the objectives of the President's program. Improvement in the equity and effec- 210 1950 REPORT OF THE' SECRETARY OF THEi TREAISURY tiveness of the tax structure is especially necessary at a time when taxes must remain high. Taxpayers bearing disproportionate and discriminatory burdens must be relieved. Favored groups must not be provided with unwarranted opportunity to escape taxes intended to apply generally. The Committee on Ways and M.eans devoted more than 4 months to an intensive study of the President's program and gave most careful consideration to the separate proposals. I t also explored other potential revisions in the tax system and developed a revenue bill which goes a long way toward meeting the objectives set by the President. When important tax revisions are undertaken, it is to be expected that the shape of complex legislation covering a wide variety of problems will not accord precisely with any single conception of the desired objectives. Compromise is characteristic of the democratic legislative process. The House bill provides for excise tax reduction on a substantial list of commodities and services of mass consumption and relieves a number of industries that are in a relatively unfavorable position. By closing serious loopholes in the present law, the bill would improve both the equity and administration of our tax system and also produce substantial revenue offsets to the excise tax reductions. The revision.of the corporation income tax contained in the bill would recoup most of the remaining revenue lost from excise tax reduction at the same time that it reduces taxes and eliminates the inequitable ^^riotch" provision for the benefit of smaller corporations. The principal deficiency of the House bill is its failure to add as much strength to the revenue system as the President recommended. I t does not reduce the present excessive depletion allowances granted oil and mineral producers under the income tax but rather extends these allowances to new areas. Moreover, it fails to revise and strengthen the structure of the estate and gift taxes. In addition, the bill contains some provisions which would create new inequities. I will call your attention to these in my discussion of the detailed provisions of the bill, to which I now turn. DETAILED PROVISIONS OF THE B I L L EXCISE TAX REDUCTION The President indicated that reductions are most urgently needed in the excises on transportation of property, transportation of persons, long-distance telephone and telegraph communications, and the four retail excises. The plan for implementing the President's recommendations which I outlined to the Committee on Ways and Means would involve a net revenue loss of $655,000,000. The excise tax reductions made in the House bill amount to $1,010,000,000 and cover some groups not encompassed by the Presiderit's proposals. The reductions in the retail excises on jewelry, fur, luggage, and toUet preparations from 20 percent to 10 percent would amount to $240,000,000, including the elimination of the tax on handbags and a number of miscellaneous items, such as baby oils, powders, and lotions. These reductions have a high priority because in recent EXHIBITS 211 3^ears the 20 percent rate has depressed sales and employment in the taxed industries. The transportation tax reductions amount to about $230,000,000. The bill would reduce the tax on transportation of persons from 15 percent to 10 percent and the tax on the transportation of property from 3 percent to IK percent. The President had recommended that the 3 percent tax be entirely eliminated, because it increases the cost of production and hence the prices of practically every commodity sold iri this country. The transportation taxes discriminate against those geographical areas farthest removed from markets or sources of supply. A reduction of these taxes wUl benefit businessmen and consumers generally. The reductions in the communications taxes provided in the biU would aggregate about $125,000,000. This is approximately the amount of the reductions proposed to the Ways and Mearis Committee. However, the House bill spreads the reduction over both local and long-distance telephone use whereas the President recommended that it be confined to long-distance communications because these taxes enter into business costs and create competitive inequities. The tax on telephone-toll messages would be decreased from 25 percent to 20 percent, and the tax on domestic telegraph messages cut from 25 percent to 10 percent, while the tax on local residential use would be reduced from 15 percent to 10 percent. I t will be noted that while the House bill includes all of the items in the President's program it also includes a number of others. These consist principally of a reduction in the admissions tax which would lose a little over $200,000,000 and cuts in a number of manufacturers' excises which in total would lose another $200,000,000. Moreover, some of the changes contained in the House bill raise the question of whether the rates adopted in all cases result in the proper alinement of related taxes. The Treasury staff will be prepared to present to the committee at your convenience materials bearing on this question and related matters. REPLACEMENT REVENUE FOR EXCISE REDUCTIONS The excise reductions would be approximately offset by replacement revenues obtained from closing tax loopholes and other administrative improvements together with the increase in the corporation income tax. The internal improvements in the tax structure achieved in the House bill cover a large number of changes. These embrace essential reforms referred to in the President's tax message and other changes as well, which on the whole are desirable. Business operations of charitable and educational organizations Our tax laws have long recognized the principle that organizations operated for worthy public purposes should be encouraged by tax exemption. I am thoroughly in sympathy with this policy and fear that it is in danger of being discredited because a minority has abused it. The President called this general problem to the attention of the Congress, and the Treasury Department presented to the Committee on Ways and Meaas recommendations for handling it. • 212 1 9 5 0 REPORT OF THE) SECRETARY OF THEi TREA'SURY The House bUl incorporated the remedies developed cooperatively by the Department and the staff.of the Joint Committee on Internal Revenue Taxation. These provisions preserve .the tax-free status of the legitimate activities of educational and charitable organizations and, at the same time, correct the abuses which properly have received so much general condemnation. Business "operations of charitable and educational institutions clearly unrelated to their exempt furictions generally would be subjected to the regular corporation income tax. This would apply to organizations now engaging in such unrelated business activities as the manufacture of food products, leather goods, vegetable oUs, and the distribution of petroleum products. The bill would not tax their income from related activities, such as the operation of bookstores, dining halls, dormitories, or experimental farms, customarily carried on by educational and charitable organizations. Income from investments, such as interest, dividends, most rents, and royalties, would also continue to be exempt. The bill would prevent these organizations from trading on their tax exemption where they acquire with borrowed funds properties subsequently leased to business concerns. The members of this committee are doubtless familiar with such arrangements. The transaction. is profitable to exempt organizations since, in effect, it enables them to capitalize their tax exemption. I t is also profitable to the lessee corporation because it enables it to share indirectly the nonprofit organization's tax exemption. The House bill corrects this discrimination against other inyestors, while safeguarding the existing exemption of educational and charitable organizations on investment income derived entirely from their own funds. The House bill also contains provisions for preventing private exploitation of charitable trusts and foundations for tax avoidance purposes. The institutions affected are privately, controlled and do not obtain financial support from the general public. Some of them were established with a view to securing unintended tax benefits for the founders and members of their families by enabling them to retain control over business activities. The provisions of the bill can be expected to reduce the use of nominally charitable and educational organizations for the purpose of bestowing tax exemption on private interests. Increased extension of the tax-exemption privilege by nonprofit organizations and charitable trusts and foundations threatens to make substantial inroads on the revenue. While the present revenue loss is not large, it will increase unless preventive measures are promptly adopted. The prospective annual loss, in the absence of effective remedies, would be in the neighborhood of $100,000,000. Lije insurance companies As you know, the President requested, the Congress to correct the present inadequate taxation of life insurance companies on a permanent basis which would afford equitable treatment and at the same time safeguard the interests of policyholders. He endorsed steps that had been taken by the Ways and Means Committee to correct the situation for a number of recent years. I t should be our minimum goal to assess for those years in which no EXHIBITS 213 tax was paid the amount called for by the House bill. The industry has the required resources and has been prepared to pay the amount in question. In 1948, for example, the increase in surplus was about, 10 times the tax liability which would be imposed under the House bill for that year. For the smaller companies the ratio is even more favorable. There is evidence that at least some of the insurance' companies have set up special tax reserves to cover the tax liabilities under this legislation which has been under discussion since 1947. The investment income of life insurance companies now exceeds 1.7 billion dollars annually. Their investment assets, now aggregating more than $60,000,000,000, comprise an important part of the total national wealth. Continued inadequate taxation of the life insurance industry would be detrimental to our economy and to the long-run interest of the industry itself. In view of the shortness of time for considering methods of permanent revision of the life insurance tax provisions this year, I recognize the need for extending the House-proposed stopgap formula to 1950. Such extension is included in the House bUl. *This would yield $55,000,000. However, I believe that the Congress should make clear that this is intended only as a temporary solution. I urge active consideration of permanent revision. The Department is prepared to cooperate with the congressional committees in developing a solution to this problerii. Miscellaneous loopholes The bUl also contains technical provisions restricting the opportunities for tax avoidance. The most important of these in terms of the revenue to be gained is the correction of the present advantage permitted in the case of sales of business property. When such sales result in profit, the profit is taxed at the reduced rates allowed longterm capital gains; when the sales are unprofitable, the loss is allowed in full as an offset against ordinary income. This inconsistency and tlie resulting prejudice to the revenue can be eliminated either by treating both gains and losses as ordinary income and loss or by treating them both as capital transactions. The Ways and Means Committee adopted the latter solution but faUed to act upon a related recommendation as to the tax treatment of sales of livestock. Present court decisions have held livestock regularly culled from a dairy or breeding herd to be depreciable property used in trade or business and, thus, any gain resulting from their sale to be capital gain. In light of the regularity with which such livestock is sold, and since cattlemen or dairymen are permitted to deduct the cost of raising the livestock currently from ordinary income, it seems appropriate to treat the profits therefrom as ordinary income. The Treasury •Department is continuing its litigation of this important question. However, I believe that legislation specifically classifying these profits as ordinary income is desirable, regardless of which solution your committee adopts as to business property generally. Other devices, such as the collapsible corporation and short sales of security or commodity futures, allow taxpayers unintended access to the more favorable rates of tax levied on long-term gains by permitting conversion of short-term gains or ordinary income into longterm gains. These devices have been curtaUed by the bill. 214 1950 REPORT OF THEI SECRETARY OF THEi TREASURY There are a. number of other loophole-closing provisions in the House bill dealing with specific situations resulting from court interpretations, unforeseen business practices, or the development of tax avoidance techniques. In most cases the loophole-closing provisions of H. R. 8920 will cope effectively with the tax avoidance against which they are directed and will raise about $125,000,000. Additional loophole-closing provisions will be recommended at the appropriate tiihe. The closing of technical gaps in the law is necessarUy a continuing process, required to preserve the fundamental equities of taxation and especially important when tax rates have to be kept high. We cannot expect to preserve the confidence of taxpayers in our revenue system without continued vigilance and aggressive action to overcome technical defects in the law as they develop. Withholding on dividends The House adopted a provision which woiUd extend income tax withholding to dividends at a fiat 10 percent rate. While this provision was not specifically recommended by the President, it is a reform which the Department has carefully studied for some time with a view to determining the advantages it would afford. The available evidence indicates that there is considerable underreporting of dividends on individual income tax returns. A large part of this unreported dividend income is received irregularly, in small amounts, and probably is not reported by stocldiolders through inadvertence or careless bookkeeping. Noncompliance cannot be as readily uncovered by the Bureau of Internal Revenue under the present information return system as through a withholding system. Withholding provides an economical method of securing substantially improved compliance in this area, as it has in the case of wages and salaries. Under the system proposed by the House bill, the corporation would withhold 10 percent from each dividend check. Stockholders would receive from the corporation either at the end of the year or after each dividend payment a statement, iri any form convenient to the paying corporation, showing the amount of the dividends and the tax withheld. The stocldiolder would report his total dividends, including amounts withheld, on his tax returns and would claim credit against his total tax liability for the amount withheld on dividends. In those instances where the total tax withheld and other prepayments are larger than the total tax liability, the excess would be refunded. The dividend withholding system adopted by the House differs in one important respect from the system now employed for wages and salaries. For the convenience of the corporatioji, the bill provides that information on the amount of dividends and tax withheld may be made ayailable to stockholders either on a separate statement, on a check voucher, or as part of the information on the check itself. Although stockholders would be required to itemize on their returns the dividends they receive from each corporation and the amount of tax withheld, they may not be able to attach documentary proof of their claim for taxes withheld. This method will be less effective than the one used for tax withholding on wages and salaries. Names and addresses on.income tax 215 EXHIBITS returns will not necessarily be identical with those of record on the corporations' books. Since the matching of information forms fUed by corporations with the lists attached to indiyidual income tax returns would be costly and imperfect, I believe it would be desirable to provide for a stockholder's receipt—either once a year or with eaph. individual payment—similar in form to the wage withholding receipt. Most taxpayers are already familiar with the operation of the withholding system as it applies to wages and the extension of this system would cause no confusion for the average dividend recipient. The existence of such receipts would permit the Government to make prompt refunds with more assurance that they were due. I t is estimated that the adoption of the withholding provision of the biU would raise $160,000,000 in a fuU year. CORPORATION INCOME TAX H. R. 8920 incorporates the first major change in the structure of corporation income tax rates since 1938, when the, present limited form of graduation was adopted as a basis for providing reduced rates to small corporations. This method results in the present high ^'notch r a t e " of 53 percent required to bridge the gap between the lower rates applicable to incomes under $25,000 and the general rate on corporations with income of $50,000 or more. The present rate schedule is shown in table I. T A B L E I.—Details of present corporate income tax rate structure Normal tax. Net income 0 to $5,000 $5,000 to $20,000$20,000 to $25,000 $25,000 to $50,000--$50,000 and over- .. - -- Percent 15 17 19 31 -..24 Surtax Percent 6 6 6 22 14 • Combined normal tax and surtax Percent 21 23 25 53 2 38 Cumulative tax to top of bracket Amount $1.050 i 500 5,750 39,000 Percent 21 22.5 23 138 1 The bracket rates on the first $50,000 average 38 percent, as follows: Percent (a) Effective rate on first $25,000 ...: 23 (b) Effective rate on next $25,000 (the "notch")---53 (c) TotaL .76 (d) Dividing by 2, gives.an average rate of ....1 38 J Instead of applying the bracket rates, corporations with incomes above $50,000 are taxed at the rate of 38 percent on their entire income. The President urged the elimination of this method in order" to reduce this discriminatory rate and encourage the expansion of smaller corporations. The "House bill replaces the present complicated and repressive provision with a simple rate schedule. The proposed normal'tax rate of 21 percent would be applicable to the profits of all corporations. In addition, a surtax rate of 20 percent would be levied on profits in excess of an exemption of $25,000, making a combined normal tax and surtax of 41 percent on the amount of profits above $25,000, The changes in rates under the House bill would reduce the taxes of all corporations with net incomes between $5,000 and about $167,000 216 1950 REPORT OF T H E SECRETARY OF THEi TREASURY ^nd would increase, the taxes of corporations with net incomes of more than this amount. Over 170,000, or almost half of the taxable corporatioris, would have their taxes reduced. This should provide substantial encouragement to an important segment of our busiriess population. Less than 19,000 large corporations, constituting only 5 percent of all taxable corporations, would be subject to higher taxes.' The tax liabilities for corporations of different size under the proposed, rates and present law are compared in table I I and in chart 1*. The maximum tax reduction would occur at the top of the present ''notch" area on net incomes of $50,000 and would amount to $3,500. The maximum tax increase would amount to three percentage points for the largest corporations. T A B L E II.—Comparison of corporation income tax liabilities under present law and under House bill, H. R. 8920 Tax liabilities Effective rates Net income Present law House bill Present law House bill $6,000. $10,000 $25,000 $30,000-—.. $50,000 $60,000 $75,000 $100,000 $166,667 $250,000 $1,000,000... $10,000,000.. $100,000,000. $1,050 ' $1,050 2,200 2,100 5,750 5,250 8,400 7,300 19,000 15, 500 22, 800 19, 600 28,500 25, 750 38, 000 36,000 63,333 63,333 95, 000 97, 500 380, 000 405, 000 3, 800, 000 4, 095, 000 38, 000, 000 40,995,000 Percent 2L00 22.00 23.00 28.00 38:00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 Percent 21.00 2L00 21.00 24.33 . 31. 00 32.67 34.33 36.00 38.00 39.00 40.50 40.95 4L00 Increase (+) or decrease (—) Percent 0 -1.00 -2.00 -3.67 -7.00 -5.33 -3.67 -2.00 0 +1.00 +2.50 +2.95 +3.00 The revised rate schedule, including the increased rate on larger corporations, would raise an estimated $410,000,000 additional revenue. This is after allowance for the reduction in taxes amounting to about $135,000,000, which would go largely to corporations with incomes of less than $100,000. As I indicated earlier in my statement, corporate profits are not far from 1948 record levels. This high level of profits has permitted corporations to pay dividends at a record rate and still retain about $10,000,000,000 of earnings, or four times the amount of profits retained in 1929. The bulk of corporation income is concentrated in the very large corporations. As shown in chart 2*, 5 percent of all corporations receive 81 percent of total corporation income. Recent profit trends for corporations of different size reveal an unmistakable improvement in the relative position of the largest corporations' These trends are shown in chart A. •Omitted in this exhibit. EXHIBITS 217 CHART A i^^'t^^MxTi}^^^^^^^ Un<l0r,2$O . <" 250-1,000 : : . , l,000r5.000 . S.OOO/'iOO.OOO, / ; 100.0(X) owliwef. The strength of corporate business is also shown by the trend in its working capital position. At the end of 1949, th^ net working capital of all nonfinancial corporations amounted to nearly three times the 1939 figure. During this period liquid assets increased from less than one-half to three-fourths of their current liabilities. At the end of 1949, corporations held more than $40,000,000,000 in cash and United States Government securities. . The President's recommendation forTcvision of the treatment of business losses is also carried out in the bill. Present law permits taxpayers to offset their losses in any given year against profits in the two prior years and to carry forward any remaining loss to be offset against income in the two succeeding years. The proposed revision would increase the carry-forward from 2 to 5 years and would reduce the carry-backs to 1 year. This would provide a total period of 7 years in which losses might be offset against profits as compared with the present 5-year period and thus reduce the tax advantage now enjoyed by stable as compared with unstable businesses. More liberal loss offsets would be of particular benefit to new and small business and would promote their expansion. New concerns often experience losses or irregular earnings in their early history, since the development of a new business generally involves large initial costs which cannot be recovered immediately. Small business in general encounters great difficulties in withstanding the financial strain of hard times. Large firms on the other hand have a greater opportunity to average their own incomes because they are more likely to have diversified products and markets. Losses sustained 218 1950 REPORT OF THE) SECRETARY OF T H E TREASURY from one activity or locality can often be offset in the same year against income from other sources. The relief provided for small business by the revisions in the corporate rate structure and in the loss offsets accords with our objective to foster the development of this segment of the economy. SUMMARY OF REVENUE INCREASES The revenue-raising provisions of the bill would yield $890,000,000 in a full year of operation and about $525,000,000 in the fiscal year 1951, as follows: Full year Corporation tax increase .; Life insurance companies. Charitable and educational institutions'-. Miscellaneous loopholes Withholding on dividends Reduction in interest rate on tax refunds Total.- -...- Fiscal year 1951 $410,000, 000 55, 000, 000 100, 000, 000 125, 000, 000 160, 000, 000 40, 000, 000 $160, 000, 000 125, 000, 000 890, 000, 000 526,000, 000 109, 000, 000 127, 000, 000 5, 000, 000 This total falls short of matching the excise reductions by $120,000,000 on a full-year basis. You will note that the total includes $40,000,000 resulting from the reduction in the interest rate on tax refunds. I n my view this cannot be construed as an improvement in the tax structure or an administrative reform, and is an inequitable method of meeting our revenue requirements. The figures I have given indicate the revenue that would be raised before allowing for certain provisions in the biU involving the loss of approximately $50,000,000. I shall return to these undesirable provisions later in my statement. Exclusive of increased fiscal year collections which would result from the system of speeding up corporation income tax payments adopted by the House, the'bill as it stands involves an estimated revenue loss of about $170,000,000. SPEED-UP OF CORPORATION TAX COLLECTIONS The provision of the bill changing the system for installment payment of corporation income tax liabilities would substantially increase collections over a 5-year period beginning with the fiscal year 1951. This change does not alter the tax liabUities of corporations b u t merely the timing of the tax payments. > • The objective of the provision is to reduce the lag in corporate tax payments. At present, two-thirds of all taxable corporations, accounting for 97 percent of total corporation income tax liability, pay their taxes in quarterly installments during the year following the close of the taxable year. On the average, the corporation income tax is now collected 7 months after the close of the taxable year. When this provision becomes fully effective 5 years hence, this lag will be reduced to an average of 4 months. Operation of the plan is shown in table I I I and chart B. I t would gradually replace the present four-quarter payment privilege by a 219 EXHIBITS system providing for payment of the full tax liabUity in the first two quarters following the end of the taxable year. However, this would be accomplished over a 5-year period during which each year the tax paid iri the third and fourth quarters would be reduced and the tax •paid in the first and second quarters correspondingly increased. Wlien the two-installment system is fully effective, one-half the corporation income tax wUl be collected 6 months earlier than at present. TABLE III.—Corporation tax payments under present law and under House bill, H.R., [Assuming a constant liability of $100 in calendar years 1949-54] Date of payment Present law House bill • 1950—Mar. 15-1 June 15 Sept. 15 Dec. 15-..1951—Mar. 15-... June 15- .-- . Sept. 15 : Dec. 15 -. 1952—Mar. 15 JunelS Sept. 15 Dec. 15- $25 25 25 25 25 25 25 25 25 25 25 26 $25 25 25 25 30 30 20 20 35 35 15 15 -.- _-.- Present law Date of payment 1953—Mar. 15 Jn-ne 15 Sept. 15 Dec. 15 1954—Mar. 15. . June 15 Sept. 15Dec. 15 1955—Mar. 15 June 15. Sept. 15 Dec. 15-- ... $25 25 25 25 25 25 2525 25 25 25 25 House bill - $40 40 10 10 45 45 5 5 50 50 CHART B "P.'^-.T'?: :?''^v'-f -p'/'f T ' " ^ ^i^' -"-i^/xr-rr;^ _jtmrtmu%m^w^^mm\ "TT:"TTn''"^/"^''-''" '^l^^'^W.^'X^"^'^""^^"^ , .„.„ 'f(M0^ji5:0^^ The gradual transition to the more current system provided for in the'bill is desirable to prevent impairment of the working capital position of corporations that have not set aside funds to meet their accrued tax liabilities. Larger corporations generally fund their tax liabUity 220 195 0 REPORT OF THE! SECRETARY OP THE TREASURY currently by buying tax anticipation notes or marketable securities as profits are earned. Accelerated tax payment wUl not affect the operations of these corporations except to deprive them of part of the small interest income from their tax funds. The 5-year transition should be sufficient to permit smaller corporations to adjust their payments without hardship. Moreover, the Commissioner of Internal Revenue can make extensions of time if it should become necessary. At the present level of corporate profits and under the rates of the House bill, this speed-up in collection will increase fiscal year 1951 tax receipts by nearly $800,000,000 and receipts in each of the four succeeding fiscal years by a somewhat larger amount. This provision, in my opinion, is a desirable tax reform. I t will bring corporations closer to the current payment basis which applies to business income of individuals, and wUl make corporation income tax revenue more promptly responsive to changes in tax rates or economic conditions. However, I should like to emphasize that the speed-up in corporate tax pajnnents is not a revenue-raising measure and therefore cannot be regarded as an offset to the revenue lost from excise tax reductions. ° REVISIONS IN THE BILL Some provisions of the bill conflict with sound taxation, andT urge you to consider their modification or deletion. These include the further expansion of already excessive percentage depletion allowances and revisions affecting the estate tax. Percentage depletion The most objectionable provision of the Hous^.bill is the extension of percentage depletion to some 20 types of nonmetallic minerals not covered by present law and the increase in the rate of percentage depletion for coal from 5 to 10 percent of gross income. This action represents a continuation of the movement for expanding depletion allowances which gathered momentum under the guise of wartime necessity. In 1942, when percentage depletion was first granted to b a l l a n d sagger clay, producers of other clays complained of discrimination and inequitable taxation. So in later years percentage depletion was extended to bentonite and china clay. The House bUl now proposes further extension to refractory clays, fuller's earth, fire clays, and brick and tile clays. Such extension would give rise to further claims of discrimination by producers of miscellaneous clays and in turn by producers of synthetic and reworked materials competitive with clay. The basis for these allowances is so vague that it can be readily applied to practically every situation. Each industry, for example, can argue that it is essential to national defense. The last war showed conclusively that practicaUy every industry is essential to an economy devoted to war. After one mineral has been given favorable treatment, no end is in sight to the list of minerals that can plead for inclusion on the ground of competitive inequity. The special conc.essions now in the law create serious competitive discriminations because of unreasonable disparities in the percentage depletion rates. There is even greater discrimination betweeri the groups favored with " EXHIBITS 221 concessions and other industries and classes of taxpayers not so favored. In consequence, persistent pressure may be expected to obtain equality by raising the lower rates to the higher level and by extending benefits to other industry areas. The bill as passed by the House of Representatives goes^so far as to concede special tax relief to those who strip hUlsides of gravel. This could be justified because similar treatment is to be given to those who scoop sand off the seashore. Because each group feels that special tax exemption can be equally justified in its case as a means of fostering the growth of that particular industry, the result is the developnient of a system of concessions which is not only incongruous in a sound and equitable tax system but which is also Ul-suited for a sound national policy of mineral development and conservation. Taxpayers in the favored industries, and particularly a few large corporations, benefit at the expense of the rest of the business community. The advantage is defended on the grounds of special risks in the oU industry which, incidentally, is regarded as a favored investment by conservative investment trusts. A businessman desiring to invest in a new product might incur greater risk but is limited in determining his taxes to the recovery of his actual investment costs over the life of the property. The allowance for tax purposes of deductions many times the investment that may be made in oil properties means that many other types of businesses are now paying more taxes than they should in order to enable the Government to recoup the tax leakage from percentage depletion. Improvement of the equity and strength of the tax system requires that we definitely reject the undesirable extensions made in this bill and move toward elimination of these special privileges. The high level of revenue requirements which necessitates even the retention of some onerous excise taxes makes this improvement the more urgent. Consequently, I wish to urge upon your committee the changes which were proposed to the Ways and Means Committee which would carry out the recommendation of the President that the more excessive special depletion allowances permitted urider present law be reduced. This would reduce the revenue loss from these provisions by over. $200,000,000. The staff is prepared to present to the committee the results of the Department's study of this subject, covering the amount of the benefits and their effect on the economy. Estate and gift taxes Another conspicuous weakness of the House bill is the omission of the long overdue estate and gift tax revisions. The need for strengthening these taxes in the revenue system is widely recognized. Such a program has been repeatedly urged by the administration, most recently by the President in 1948 and 1949 and again this year. The revisions proposed in these taxes would make an important contribution to additional revenue. The present weakness of the estate tax and the failure of this levy to keep pace with the income tax are clearly illustrated in charts C to F. The estate and gift taxes are now weak because (1) the imposition of separate, unrelated taxes upon property disposed of during life and at death permits undue escape from taxation, (2) property left in 222 1 9 5 0 REPORT OF T H E SECRETART OF THEi TREASURY trust is accorded extensive advantages over property left outright, and (3) changes made in 1948 result in,excessive exemptions and unreasonably low effective rates for married persons. The program which was outlined to the Ways and Means Committee would correct most of these defects and would restore the revenue from these taxes to a level somewhat above that reached prior to the 1948 act. The House bill makes no provision for a general overhauling of the estate and gift tax structure. Moreover, it contains two provisions which are undesirable. One of these would weaken the estate tax law by excluding certain gifts made in contemplation of death from the estate tax base. As I pointed out to the Ways and Means Committee, the best over-all solution, of the contemplation of death problem would be to integrate the estate and gift taxes into a single transfer tax>. Pending a review by your committee of the proposal for an integrated tax, I urge that the House amendment to the contemplation of death provision not be adopted. Another objectionable provision in the bUl would exempt from income tax, in cases where a closely held corporation is the principal asset in the estate, the dividends paid by the corporation to the estate up to the amount of liability for death taxes. While this is intended to meet a special problem, the solution proposed would invite extensive tax avoidance. I t would be preferable to deal with this problem on a more limited basis or defer it untU the broader question of estate tax revision is considered. CHART C .,.^^rt:.3y)Y^^| teMfeMiiZlJN'FEI^^Ij.lRE^iNliJEFIDEIjllVEDJ FROMlv Dollar A m o u n t s (billions) Percent o f Total 40.5-.- 8 times prewar IOO '"'•/'/' '^Individual Income.. ' ^ 18 times prewar '/.'/..'/.', '/.'/.'/.'r •/.•/.•/.; yEstate and Gift.. >-^ 2 times prewar IOO:.. Total InternalRevenue / / / // W%L ^^•"-2 /././.; y Individual Income.... fT 2'/4 times prewar M45ffl d •nHHL ^Estate and Gift^ /T ^3 of prewar 223 EXHIBITS CHART D mi^sf^^ III jgv;: g^1%jrE^-1^ISx^^ ^NB •94a:: Estate Tax Exemptions Individual Income Tax Exemptions $120,000 . Change, l939tol949: Married,down52% Single,(Jown.-40% Change, I939t0l949: Married, up, 200% Single, up-...507o «2,500 $60,000 1949 $1,000 $1,200 J $600 t9J9- Singte Married: ;;; Singler::;;, -^-^ M j n ^ IC CHART ' \ ,•- E l6^ffiiiFMfelfflici)H®iffl -' -' ^ '!" > -f' i ' y -; ^l>Ct. Individual Income Tax Percent of popuiatlor)(l4and over) with taxable Incomes Estate Tax Percenfof dctult decedents with taxable estates. 4i%..J0 times prewar im i« 4% m. i.1% 1.2%—Same as prewar MS^^ij :;;[9*r ^ J j^ fli? J;:!: i; l^]Kf ^m:;;;:i If 45!^ 807795—51--—la 224 1950 REPORT OF THE) SECRETARY OF THE. TREASURY CHART F M5iiiiMl;V'INDBieOAtlNGOMEHit^NiESTATEvT^^^ t£ff^JI>ii«EfrrovrES,^l939^3ANp-^ISi*9-?l«f Pet. Married Person Estate Tax' Individual Income Tax Individual income tax rose at.all-levels, but estate'tax fell.. W.I 10.5 7.3 / / x/ / // // // // // // /^// / / T /. 7 i 1 /'.//// //// f/ / / / /' // // // // ///// /y // // // // / / y/ / / y/ / / / y/ / //// Fomi^ I V tax proposals The House bill contains no legislation carrying out those parts of the President's tax recommendations which derived their impetus from the Point IV Program. These recommendations relate to the tax treatment of income derived abroad and are designed to remove tax deterrents to the movement of private investment and technicians to foreign countries. One of these recommendations would treat the income of foreign branches established by domestic corporations as the tax laws now treat simUar income obtained through foreign subsidiaries. The tax would be postponed until the foreign earnings are brought home. Such a provision would eliminate tax differentials as a factor in determining the organizational form of a foreign business operation and would afford greater flexibility to those contemplating investments abroad. I t would also permit reinvestment of foreign earnings abroad without current tax consequences. A corporation receiving dividends from a foreign subsidiary is now permitted a credit for the income taxes paid abroad by the subsidiary. This provision helps to eliminate international double taxation. However, it applies only to a domestic fixm which owns a majority of the voting stock of the foreign corporation. Consequently, when two or more U. S. firms undertake to share the risk of a foreign enterprise, only one of them, at most, can be safeguarded against double taxation. One of the Department's proposals in this field would lower the majority control requirements so that ownership of any substantial interest in a foreign corporation would qualify a U. S. firm for the foreign EXHIBITS 225 tax credit. This would encourage joint ventures abroad, and would facUitate the participation of local capital in such enterprises. There is need also for liberalizing the foreign tax credit proyisions as they apply to firms that derive income in one foreign country but incur an offsetting loss in another and for extending it to the estate tax. The scope of the exemption how accorded individuals on income earned abroad requires adjustment. The present exemption begins to apply only with the first full taxable year of bona fide foreign residence. There is no sound reason why the earnings of the first 11 months, say, of an individual's foreign residence should be taxed when it is clear that it is part of long-term employment abroad. Accordingly, the Department has proposed that, once an individual qualifies for exemption as a foreign resident foi* a taxable year, the exemption should apply retroactively to his earnings throughout the entire period of his stay abroad. In presenting my comments on the House bill I have undertaken also to provide your committee with the background of the program which the President asked the Congress to consider. The House bUl makes an important contribution toward meeting the objectives of the President's program presented in January. However, it does not go far enough and should be improved. I earnestly urge you to consider the changes which would bring the bill more in accord with our present requirements. I want to say once more that I am sure that the future course of world events is very much in your minds, as it is in mine. Increased disturbance to world peace would involve increased demands upon us which would require additional fiscal measures. The effect of recent international developments on our expenditures wUl become clearer as events unfold. Therefore, if during the course of your consideration of this legislation it appears that we are confronted with a substantial increase in defense expenditures and strains on the economy, I shall not hesitate to so advise you. As the President indicated in his tax message, we must be ready to gear changes in the revenue laws to the needs of our economy. These are times when our political and economic institutions are. challenged and we should not hesitate to protect and perfect them. A healthy economy, a sound fiscal and tax policy, fair and adequate taxation are all parts of our pattern for national strength and world leadership. .. Exhibit 22.—Letter of the President^ July 25, 1950, to the Chairman of the Senate Finance Committee recommending prompt enactment of an interim revenue measure MY DEAR M R . CHAIRMAN : The. increased military appropriation requests transmitted to the Congress on July 24, 1950, together with other requests I shall transmit at a later date, will entail sharply increased Federal expenditures. We embark on .these enlarged expenditures at' a time when the Federal budget; is already out of balance. ^This makes it imperative that we increase tax revenues promptly lest a growing deficit create new inflationary forces detrimental to our defense effort. We must make every effort to finance the greatest possible amount of needed expenditures by taxatibn, arid we must design taxatiori methods which prevent profiteering, and distribute the tax burden fairly among the different groups of our people. 226 195 0 REPORT OF THE] SECRETARY OF THE TREASURY I appreciate t h a t t h e development of a comprehensive revenue program adeq u a t e for our present needs will require careful congressional consideration. Our wartime experience will need to be reviewed and alternative approaches explored. Under the. most auspicious circumstances, such a comprehensive t a x program could not be completed for some time. I n the present situation, however, speed is of the essence and delay would be costly. I recommend t h a t , as an'^ interim Ve venue measure, action should be t a k e n immediately to revise and enact t h e t a x bill now pending before your Committee, so as to increase tax collections substantially for t h e taxable year 1950. Specifically, I suggest t h a t t h e revenue-raising provisions of t h e pending bill be retained a n d supplemented by increases in t h e corporate a n d individual income tax rates. This could be done without interfering in any way with t h e development of a more comprehensive revenue program as soon as practicable. Three adjustments would be required in t h e pending bill: First, to eliminate t h e excise tax reductions and other revenue-losing provisions, b u t retain the loophole-closing, dividend withholding, and life insurance company provisions. Second, to adjust t h e revised corporate r a t e structure contained in t h e pending bill by increasing t h e normal corporate r a t e from 21 to 25 percent. Taking into account t h e 20 percent surtax contained in t h e present bill, a n d t h e $25,000 exemption from surtax, this would result in a 25 percent tax on t h e first $25,000 of a corporation's income, and a 45 percent t a x on t h e balance. Third, to increase individual income tax rates to the ' ' t e n t a t i v e " levels adopted in 1945, by removing t h e reductions froni those levels m a d e in 1945 a n d 1948. This would leave unchanged t h e income-splitting provisions of present law, a n d t h e present personal exemptions of $600. per .person. These r a t e schedules are familiar to t h e Congress, since they were involved in t h e consideration of t h e tax reductions adopted in 1945 and 1948. T h e increased corporate income t a x rates should be m a d e applicable beginning with 1950 corporation incomes, as t h e pending bill would do. W i t h respect to individual income taxes, t h e increased rates should be applicable beginning with one-quarter of each taxpayer's 1950 income. This would require an increase i n t h e withholding r a t e from t h e present 15 percent t o 18 percent, beginning with t h e last quarter of 1950. These adjustments in t h e pending t a x bill would increase t h e Government's revenue, on a full-year basis, by about $5 billion a t present income levels. Clearly, this will not meet our long-run revenue requirements. As an interim step, however, it will h a v e a timely effect on t a x revenues and our financial preparedness. I t will serve to restrain inflationary forces generated by increased defense expenditures. W i t h o u t this action, we would face very substantial deficits before any additional taxes could begin to be collected. I n addition to increasing revenues, e n a c t m e n t of t h e revenue legislation I a m recommending would improve t h e soundness of our t a x system. T h e loopholeclosing provisions of t h e pending bill will strengthen t h e t a x structure and m a k e it more equitable. This is particularly desirable in view of t h e higher t a x rates in prospect, which would surely increase t h e incentive to exploit present t a x loopholes. Moreover, t h e corporate income tax structure will be substantially improved by eliminating t h e present " n o t c h " rate, which, bears heavily on smaller corporations. This will moderate t h e effect of increased rates on business incentives. I believe t h a t p r o m p t interim legislation along these lines will provide tangible evidence of our determination to conduct our national finances in a sound manner, consistent with t h e national effort we are required tb make. I t will also be a major step t o w a r d preventing inflation during t h e time necessary to develop a carefully balanced t a x program suited t o our longer-range requirements. I expect t o t r a n s m i t further recommendations to t h e Congress concerning a more comprehensive t a x program when we have additional information on t h e extent of our needs. I a m grateful for your cooperation in working out arrangements for t h e p r o m p t consideration of these interim proposals. I earnestly hope t h a t t h e y will be favorably acted upon by t h e Congress a t an early date. I a m sending a copy of this letter to t h e Chairman of t h e Ways a n d Means Committee of t h e House of Representatives, who, as you know, participated in working out t h e procedure for p r o m p t action recommended in this letter. Very sincerely yours, HARRY S. TRUMAN. EXHIBITS , 227 Exhibit 23.—Statement of Secretary of the Treasury Snyder before the Senate Finance Committee, August 2, 1950, on the President's recommendation for the enactment of interim tax legislation I am glad to have this opportunity to discuss with you the President's recommendation for the prompt enactment of interim tax legislation. In the four weeks since I appeared before your Committee in connection with your consideration of H. R. 8920 the events in Korea and the messages of the President have demonstrated to every citizen in the Nation that both our expenditures and our revenues will have to be very much greater in the period ahead than we had formerly anticipated. Since July 11, when I recommended to your Chairman that action on the tax bill be suspended, the President has transmitted a series of messages to the Congress outlining our defense requirements for the immediate future and the measures which are urgently needed in relation tq them.. In these messages, the President has asked for over $15 billion of additional appropriations to be available now for purposes of defense. Concurrently, he has recommended interim revenue legislation which will immediately increase Federal tax receipts by $5 billion on an annual basis. As the President has emphasized, the additional revenue asked for at this time is only a first step in the necessary adjustment of our revenue system to bring it more closely in line with current and prospective outlays needed for defense against unprovoked and unlawful attack upon the rights and territories of peaceful people. This must be followed as soon as possible by a more comprehensive program to increase very substantially the productiveness of our revenue system and to adjust the added tax burden on a basis which will be fair and equitable to all of our citizens. With respect to the President's program, I should like to make it clear that the revenue measures which are urged for immediate enactment represent the minimum requirements of financial preparedness at this time. As you know, the finances of the Government were not balanced at the beginning of the Korean crisis. Our deficit fof the fiscal year 1950 amounted to over $3 billion aind a deficit of approximately $5 billion was in prospect for; the fiscal year 1951. In times like the present it is not only desirable, it is vital to the entire defense effort that the finances of the Government be placed in the strongest possible position for meeting the demands which wilL be made on them for defense against unscrupulous destroyers of peace. This program is an essential first step—though it is a first step only—toward utilizing our reyenue system to strengthen the ecoriomic defenses of the Nation. Besides improving the fiscal position of the Government, the increase in our revenues at this time will serve another important purpose. As the President has pointed out, it will aid.in restraining inflationary forces generated by increased defense expenditures. Every person in the Nation is aware of the primary importance of these objectives. Now is the time to take action toward maintaining an environment which will discourage, rather than encourage, the growth of inflationary pressures. Larger tax paynients from current incomes—both business and personal—are an essential feature of an effective anti-inflationary program. I share the confidence of the President that every citizen stands ready to make this necessary contribution to our national security. As I emphasized in. my appearance before your Committee on July 5, both corporations and individuals are in an exceptionally favorable financial position at the present time. Personal incomes this year, excluding the insurance dividends to veterans, have already risen to a level close to the peak reached in the last part of 1948. Corporate profits are also running near the 1948 record totals. Industrial production in June surpassed the previous peacetime high of November 1948 and civilian employment passed 61. million in June, a record high for the nionth. The whole economy, in fact, appears to be surging forward at an accelerated pace and the need for increased output for military purposes will intensify this trend. Under these circumstances and in view of the increasing evidence during recent weeks that inflationary pressures are already having a strong impact on the price structure, we cannot fail to make an earnest effort to pay for a larger proportion of current governmental expenditures out of current incomes. In order to do this it is essential that legislation increasing taxes be passed promptly.. A major tax program would consume a substantial period of time and could not result in an immediate increase in tax payments. Present inflationary developments could not be curbed by the enactment of taxes after the crucial transition period has passed, regardless of how high they might later be raised. 228 1950 REPORT OF THEI SEiCRETARY OF THE TREASURY The development of a tax program fully adequate to meet the demands of a continued mobilization effort will require consideration of many basic problems. Our present effort should preserve freedom of action with respect to these problems. The Congress will later wish to re-examine our wartime experience with a view to devising the most appropriate methods for dealing with the complex problems of excessive profits, measures to stimulate defense production, and the interrelationships between taxation and direct economic controls. These problems raise some of the most difficult issues in the field of taxation. It will be necessary to have a fuller understanding of the future course of our mobilization plans in order to resolve them in a manner which will make the maximum contribution to the effectiveness of economic programs. The interim tax measure recommended by the President and developed in cooperation with the congressional leadership is based upon a careful evaluation of all of these elements in the present situation. The President has recommended 'that H. R. 8920 serve as a basis for the desired legislation, with the following adjustments: •• First, that the excise tax reductions and other revenue-losing sections in the bill now pending before your Committee be eliminated, but that the provisions for closing loopholes, for instituting a withholding tax on dividends, and for adjusting the taxation of life insurance companies be retained, Second, that the corporation income tax rates in the pending bill be raised by an additional four percentage points^ effective for 1950 incomes, and , Third, that the pending bill be amended to include increases in individual income taxes by removing one-quarter of the reductions from ''tentative" tax for 1950 incomes, and by eliminating such reductions entirely beginning in 1951. As the-President has stated, these measures together would raise approximately $5 billion of revenue on a full-year basis. It is fortunate that when the need for additional revenue became apparent your Committee and the Committee on Ways and Means of the House of Representatives had already laid the groundwork for-the program now recommended by the President. The careful consideration which the pending tax bill has already received has prepared the way for the measures which must now be taken to adjust" our revenue system to the new requirements of national defense. The changes in the pending bill to incorporate these revisions could be made with a minimum of drafting problems for the Committee to consider. • • . The details of the three major proposals of the President with respect to revenue measures which are recommended for immediate enactment follow. • 1. THE ELIMINATION OF REVENUE-LOSING PROVISIONS AND CLOSING OF LOOPHOLES The need for revenue at this time requires the retention of all present revenue sources. This means that the excise taxes now in existence should be continued. In urging the Committee to eliminate the excise reductions provided in the bill, I should not like to leave the impression that these taxes in their present form are a desirable and necessary permanent feature of our revenue system. When the Congress undertakes a comprehensive tax program to meet increased defense needs, consideration can be given to the proper composition of excise taxes. For the purpose of immediate legislation, however, two extensions of existing excises should be, considered in the interest of competitive equality. One is the extension of the present tax on household refrigerators to deep-freeze units,, a provision already incorporated in the pending bill. The second is the extension of the 10 percent radio tax to television sets, as I previously recommended. Television now is a strong competitor with alternative forms of entertainment, such as the radio, motion pictures, and professional sporting events, all of which are subject to Federal excise tax. In my statement to your.Committee on July '5, I called attention to certain other revenue-losing provisioris of the bill which are highly objectionable on equity grounds. Present circumstances strengthen the case for removing these provisions from the bill. As the President pointed out, the loophole-closing,- dividend withholding, and life insurance proyisions of the bill should be retained. The retention of the loophole-closing provisions of the bill is particularly desirable in view of the higher tax rates which are certain to increase the exploitation of tax loopholes. We should not encourage the opportunities for tax avoidance that have been brought tO' the attention of. your Conimittee. Necessary technical changes in these pro- 229 EXHIBITS visions to meet the problems that have been raised will be presented by the. Treasury staff. The provisions of the bill for the taxation of the life insurance industry become increasingly more important as other segments of the economy are required to pay higher taxes. Withholding on dividends will be particularly helpful since it will assure more effective tax compliance at a time when the rising level of taxation necessitates more intensive enforcement efforts. . , *. ,The significance of these measures extends beyond their imriiediate revenue effect. If imperfections are permitted to survive in our tax laws, increasingly larger amounts of revenue will be lost. Inequities under present circumstances would tend to reduce taxpayer morale. The full-year revenue effect of the loophole provisions of the pending bill, and the excise adjustments, is estimated at more than $500 million. 2. CORPORATION INCOME TAX The second element in the President's interim revenue program is an increase in -the corporation income tax of 4 percentage points above the rates contained in the pending tax bill. The corporate normal tax included in the House bill would be increased from 21 percent to 25. percent which, with the 20 percent surtax provided in the bill, would result in a combined top rate of 45 percent (table I). It is proposed that these increased rates apply to the 1950 incomes of corporations as the present bill provides. TABLE I.—Corporate income tax rates under present law and the House bill {H. R. 8920) compared with the proposed rates Present law Net income Oto $5,000$5,000 to $20,000.. $20,000 to $25,000. $25,000 to $50,000. $50,000 and over. Normal tax Surtax Combined rates Proposed rates House bill Normal tax Surtax Combiaed rates Normal tax Surtax Combined rates Percent Percent] Percent Percent Percent] Percent Percent Percent Percent 15 21 6 17 23 6 21 25 21 25 19 25 6 31 22 , • 53 45 20 24 . 1 4 »38 1 Instead of applying the bracket rates, corporations with incomes above $50,000 are taxed at the rate of 38 percent on their entire income. The recommended increase in corporation tax rates would add, on an annual basis at calendar year 1950 income levels, about $1 billion of revenue to the* amount provided under the pending bill, representing a total increase in corporate tax yield over present law of $1.5 billion. < The tax increases as compared with present law would vary at different income levels as a result of the" desirable substantive changes made in the corporate rate structure by the House bill. - The bill eliminates the "notch" provision which, as the Committee knows, has existed since 1938 for the purpose of making the transition from the reduced rates provided for small corporations to the fiat rate applicable to the total income of all other corporations.. The 53 percent "notch" rate in the present law has long been recognized to be an obstacle in the path of small, growing corporations. If this method of transition were left unchanged, the corporate rate increase in the bill with the Jadditional increase recommended by the President would require raising the "notch" rate to a highly inequitable level. The elimination of the "notch" under the bill .provides in effect a flat corporate income tax rate w:ith a $25,000 exemption from surtax, which continues to accord incentive tax treatment to small corporations.; The combined effect of the higher rates and the elimination of the "notch" is a relatively small increase in tax for small corporatioris,; incidental reductions for corporations in and immediately above the."notch" area, and a general increase 230 1950 REPORT O F THEI SEiCRETARY OF THEI TREASURY of 7 p e r c e n t a g e p o i n t s for larger c o r p o r a t i o n s . As s h o w n in c h a r t A a n d t a b l e I I , t h e effective r a t e s of c o r p o r a t i o n income t a x liabilities u n d e r t h e P r e s i d e n t ' s r e c o m m e n d a t i o n would be 4 p e r c e n t a g e p o i n t s higher a t all levels t h a n u n d e r t h e p e n d i n g bill. CHART A 6 10 20 40 60 IOO 200 400 600 1.000 2.000 Taxable Net Income (Thousands of Dollars) T A B L E I I . — C o m p a r i s o n of corporation income tax liabilities under present law, the House bill (H. R. 8920), and proposed rates Tax liabilities Effective r a t e s N e t income $5,000 $10,000 $25,000 $30,000 , $50,000 $60,000 $71,429 $75.000 $100,000_„. $125,000 $166,667 $250,000.— $1,000,000... $10,000,000-. $100,000,000. Present law House bill $1,050 2,200 5,750 8,400 19,000 22,800 27,143 28, 500 38,000 47, 500 63,333 95,000 380,000 3,800,000 38,000,000 $1,050 2,100 5,250 7,300 15,500 19,600 •24,286 25,750 36,000 46,250 63,333 97,500 405,000 4,095,000 40,995,000 Proposed rates Present law House bill Proposed rates Percent Percent Percent 21.00 21.00 25.00 $1, 250 22.00 21.00 25.00 2, 500 23.00 21.00 25.00 6,250 28.00 24.33 28.33 8,500 38.00 31.00 35.00 17, 500 38.00 32.67 36.67 22,000 38.00 34.00 38.00 27,143 38.00 34.33 38.33 28, 750 38.00 36.00 40.00 40,000 37.00 41.00 51, 250 • 38.00 38.00 42.00 70,000 38.00 39.00 43.00 107, 500 38.00 40.50 44.50 445,000 38.00 40.95 44.95 4,495,000 38.00 41.00 45.00 44,995,000 38.00 Increase ( + ) or decrease (—) i n effective r a t e s as compared w i t h p r e s e n t law House bill Pro- " posed rates Percent Percent +4.00 0 +3.00 -1.00 +2.00 -2.00 -3.67 +.33 -7.00 -3.00 -5.33 -1.33 -4.00 0 -3.67 +.33 -2.00 +2.00 -1.00 +3.00 +4.00 0 +5.00 +1.00 +6.50 +2.50 +6.95 +2.95 +7.00 +3.00 231 EXHIBITS T h e major increases would be paid by 41,000 large corporations. These corporations, as shown in chart B, account for 88 percent of taxable corporate net income, although t h e y represent 11 percent of all taxable corporations. As shown in chart C, those with net incomes above $71,400 would pay, on t h e average, 16 percent more t a x t h a n under present law. Smaller increases would be paid by t h e 296,000 corporations with incomes under $31,250. T h e maximum increase for this group of smaller corporations would be $500, payable by corporations with net incomes between $20,000 and $25,000. T h e increase for a corporation with $5,000 net income would be $200. .Because of elimination of t h e " n o t c h , " a b o u t 33,000 corporations with incomes between $31,250 and $71,400 would have a net reduction in tax. T h e m a x i m u m reduction would a m o u n t to $1,500 and would occur at the top of the present " n o t c h " area on net incomes of $50,000. CHART B Distribufibh of Gorpibratibn^ ahd^fThir^^ Pet. 75 H%ol0H«or$>or«tlQna h t v i m 8 0 % 0fcorpordt@i^icorrMi 50 % o f Number ^ o f Corporations \////// 25 '/////A ;34% :437o; \/////, ^X'A IVo Under 5 % o f Taxable Income 4%_ 3% 2% 5-25 25-50 50-71.4 - Taxable Net Income (Thousands of Dollars) - '^Estimated 71.4 and over : /- 232 1950 REPORT OF THEI SECRETARY OF THEI TREAS'URY CHART C Amount of CorpOrOtelhodm^lTbx^^ PresemtLm and Proposed. tyf^Siz^ of inepi^ $Bil. 12.8 — 1 5 % Incr." 10Net Income Classes I 16% Incr* $71429andover 5- $31,25071,429 4 % Deer* Under $ 3 I , 2 5 0 < ^ 11% Incr* Present Law Proposed * Computed from unrounded figures. It will be recalled that the President recommended in January 1950 an increase in the corporate rate to 42 percent. The Ways and Means Committee began hearings on February 3, 1950, and the pending bill, as passed by the House of Representatives, adopted a corporate rate of 41 percent. Therefore, businessmen have had reason to anticipate an increase in the tax on corporate profits effective as of January 1, 1950. When the House bill was passed, corporate profits were estimated at an annual rate of $31 billion and the indications were that the full-year rate would be somewhat higher. Profits at this level would, have permitted corporations, after the increased taxes under the House bill, to pay record dividends and to retain larger profits than last year. Moreover, current prospects for corporate profits in 1950 are steadily improving. In connection with the application of the proposed corporation tax increases to 1950 incomes, the Committee will be interested in the record of past changes in the corporation income tax (tablie III). Beginning with the corporation tax in 1909, the Congress has generally made corporate rate changes applicable to the income of the calendar year in which the legislation was enacted, even in those years in which legislative consideration of the corporate tax increase was not completed until the closing months of the year. In two instances (the Revenue Act of 1918, enacted February 24, 1919, and the Revenue Act of 1926, enacted February 26, 1926) the tax increases were made effective as of January 1 of the preceding year. 233 EXHIBITS TABLE III.—Date of enactment and effective date of chahges in corporation income taxes under Federal tax laws, 1909 to date Type of change Federal tax law Act of— Aug. 5, 1909 Oct. 3, 1913 Revenue Act of— 1916 . . 1917 1918 -•1921 • 1926 Initial tax __-- Eliminated specific credit --.- 1...'. 1928 — Joint Resolution No. 133— 1929 Revenue Act of— , 1932 . 1936 ..—__ 1938 1940 —. 1940 (2d) 1941 1942 1945 - -- . - - Increased rate. do Increased rate for 1918; reduced rate for 1919. Increased rate _ --. Increased rate for 1925; further increase for 1926. Reduced rate..^ _ do..._ Increased rate... . . . . Increased normal tax rate and adopted surtax on undistributed profits. — - Increased rates .....do do --do . . do ^_.—.- Reduced r a t e s . . Date of enactment Effective date of change^ Aug. 5,1909 Oct. 3,1913 Jan 1 1909 Mar. 1,1913 Sept. 8,1916 Oct. 3,1917 Feb. 24,1919 Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. 1,1916 1,1917 1,1918 1,1919 1,1922 1,1925 1,1926 1,1928 Nov. 23,1921 Feb. 26,1926 May 29,1928 Dec. 16,1929 iJan. 1,1929 June 6,1932 June 22,1936 Jan. Jan. 1,1932 1,1936 May 28,1938 June 25,1940 Oct. 8,1940 Sept. 20,1941 Oct. 21,1942 Nov. 8,1945 Jan. Jan. Jan. Jan. Jan. Jan. 1,1938 1,1940 1,1940 1,1941 1,1942 1,1946 1 Applicable to taxable year 1929 only. The present schedule for payment of accrued corporation taxes makes it esseur tial that the proposed increases apply to 1950 incomes. Taxes on 1951 incomes will not be payable until 1952 and will be fully collected only by December 15/ 1952—almost 2% years hence... Further changes in the corporate tax area can be made with respect to 1951 incomes after full consideration of the various alternatives and in the light of subsequent developments in the economic situation and expenditure riequirements. 3. INDIVIDUAL INCOME TAX The third element in the President's interim revenue program is an increase in the rates of the individual income tax. The President recommended that this be accomplished by removing the present percentage reductions from "tentative" tax provided for 1948 and 1949, but that only one-fourth of these reductions be removed in computing tax liabilities for the current year 1950. The increase in tax on 1950 incomes would be coordinated with an increase in withholding, effective October 1 of this year. You will recall that in 1945 this Committee developed an income tax schedule which was 3 percentage points lower in all brackets than the wartime rate scheduleenacted in 1944. In addition, your Committee provided for a flat 5 percent reduction from these rates in determining the final liability. When income taxes were again reduced in 1948, the general 5 percent reduction was replaced by a series of reductions amounting to 17 percent on the first $400 of tentative tax; 12 percent between $400 and $100,000; and 9.75 percent for tax in excess of $100,000. The net effect of this complex schedule is to produce rates rising from 16.6 percent in the first bracket to 82.1275 percent in the highest (table IV). 234 1950 REPORT OF THE! iSEiCRETARY OF THEi TREASiURY TABLE IV.—Individual income tax rate schedules PROPOSED RATES FOR 1950 AND 1951 COMPARED WITH THE R E V E N U E ACTS OF 1944, 1945, AND 1948 Surtax net income Oto $2,000..-$2,000 to $4,000. $4,000 to $6,000 $6,000 to $8,000__ $8,000 to $10,000 $10,000 to $12,000 $12,000 to $14,000 $14,000 to $16,000 $16,000 to $18,000 $18,000 to $20,000 $20,000 to $22,000 $22,000 to $26,000 $26,000 to $32,000 $32,000 to $38,000 $38,000 to $44,000 $44,000 to $50,000 $50,000 to $60,000 $60,000 to $70,000 $70,000 to $80,000-..$80,000 to $90,000 $90,000 to $100,000 $100,000 to $136,719.10. $136,719.10 to $150,000. $150,000 to $200,000... $200,000 and over 2.... 1944 act (highest wartime rates) 1945 act 1 Percent Percent 23 25 29 33 37 41 46 50 53 56 59 62 65 68 72 75 78 81 84 87 90 19.00 20.90 24.70 28.50 32.30 36.10 40.85 44.65 47.50 50.35 53.20 56.05 58.90 61.75 65.55 68.40 71.25 74.10 76.95 79.80 82.65 92 93 94 84.55 85. 50 86.45 1948 act 1 (present law) Percent 16.60 19., 36 22.88 26.40 29.92 33.44 37.84 41.36 44.00 46.64 49.28 61.92 54.56 57.20 60.72 63.36 66. 00 68.64 71.28 73.92 76. 56 78.32 80. 3225 81. 2250 82.1275 Proposed rates 1950 1 Percent 17.40 20.02 23.66 27.30 30.94 34.58 39.13 42.77 45.50 48.23 50.96 , 53. 69 56.42 59.15 62.79 65.52 68.25 70.98 73.71 76.44 79.17 80.99 82.77 . 83.70 84. 63 1951 20 22 26 30 34 38 43 47 50 53 56 59 62 65 69 72 75 78 81 90 91 NOTE.—The rates under the proposed change for 1950 have been computed by rounding the one-fourth reduction from tentative tax. Reductions from tentative tax of exactly one-fourth would result in the following changes: The 17 percent reduction would be reduced to 12.75. 12 percent to 9, and 9.75 percent to 7.3125. These reductions were rounded to 13 percent, 9 percent, and 7 percent, respectively, in computing the 1950 bracket rates in table IV and the effective rates in.table V. The maximum difference in tax due to rounding would be relatively small. 1 After reductions from tentative tax. * Subject to the followmg maximum rate limitations: Revenue Act of 1944, 90 percent; Revenue Act of 1945, 85.5 percent; Revenue Act of 1948, 77 percent; proposed rates for 1950, 80 percent; proposed rates for 1951, 90 percent. Under the President's proposal, the percentage reductions would be eliminated for 1951 and the ''tentative" rates would become the actual rates. In terms of effective rates, the Increases over present law would be 3.4 percentage points at the top of the lowest tax bracket and about 9 percentage points in the highest bracket (table V). T A B L E V.—Comparison of individual income tax liability under present law and under proposed rates for 1950 and 1951 SINGLE PERSON—NO N e t income before exemption Proposed r a t e s Proposed rates 1950 1951 . $35 70 157 244 428 84S 1,604 2,201 4,032 6,301 8,898 23, 997 •60,770 397, 209 2 800,000 $40 80 180 280 488 944 1,780 2,436 4,448 6,942 9,796 26,388 66, 798 429, 274 884,274 Percent $600 $800 $1,000 $1,500 $2,000 $3,000..... $5,000 $8,000 $10,000 $15,000.... $20,000.-.. $25,000.--. $50,000 $100,000.-$500,000--$1,000,000- 770, 1950 Present law Present law 4.2 6.6 10.0 11.6 13.6 16.2 19.3 21.2 26.0 30.4 34.4 46.4 58.8 177.0 1 77.0 1950 increase as a percentage of— Increase u n d e r proposed r a t e s . Effective r a t e s A m o u n t of tax DEPENDENTS 1950 1951 Percent Percent 4.4 7.0 10.4 12.2 14.3 16.9 20.0 22.0 26.9 31.5 35.6 48.0 60.8 79.4 2 80.0 5.0 8.0 12.0 14.0 16.3 18.9 22.3 24.4 29.7 34.7 39.2 52.8 66.8 85.9 88.4 Amount Effective rate Amount Percent $2 3 7 11 19 32 57 77 137 212 . 298 796 2,008 12, 209 30, 000 0.2 .3 .5 .6 .6 .6 .7 1.1 1.2 1.6 2.0 2.4 3.0 $7 14 31 48 79 133 234 312 554 853 1,196 3,187 8,036 44, 274 114, 274 1951 increase as a percentage of— Tax under present law Net income after tax under present law Tax under present law Net income after tax under present Percent Percent Percent Percent Percent 0.9 1.4 2.0 2.4 2.6 2.7 2.9 3.1 3.7 4.3 4.8 6.4 8.0 8.9 11.4 4.8 4.8 4.8 4.8 4.6 4.0 3.7 3.6 3.5 3.5 3.5 3.4 3.4 3.2 3.9 Effective rate 1.0 1.2 1.5 1.8 3.0 4.9 10.6 13.0 20.5 20.5 20.5 20.5 19.2 16.4 15.1 14.7 14.2 14.0 13.9 13.7 13.7 11.5 14.8 0.9 1.5 2.3 2.7 3.0 3.2 3.6 4.0 5.0 6.1 7.3 11.9 19.5 38.5 49.7 w i-i bd F o o t n o t e s a t e n d of table. fcO CO Cn T A B L E V.—Comparison of individual income tax liability under present law and under proposed rates for 1950 and 1951—Continued to M A R R I E D PERSON—NO D E P E N D E N T S 00 A m o u n t of tax 1950 increase as a percentage of— Increase i m d e r proposed r a t e s Effective r a t e s 1961 increase a s a percentage of— CO 01 o N e t income before exemption Proposed r a t e s Proposed rates Present law Present law 1950 1951 Percent $1,200 $1,500-. $2,000-. $3,000-..$6.000 $8,000 $10,000 $16,000 $20,000 $25,000 $50,000 $100,000 - - $500,000 $1,000,000--- 1950 1951 Percent Percent 3.6 7.0 10.4 13.2 15.7 16.9 19.6 22.0 24.3 35.6 48.0 74.3 79.4 4.0 8.0 12.0 15.2 17.7 18.9 21.7 24.4 26.9 39.2 52.8 80.7 86.9 Amount Tax under present law Net income after tax under present law Tax under present law Net income after tax under present law Percent Percent Percent Percent Percent 0.7 1.4 2.0 2.6 2.6 2.7 2.9 3.1 3.4 4.8 6.4 8.8 8.9 4.8 4.8 4.8 4.8 4.2 4.0 3.7 3.6 3.6 3.5 3.4 3.2 3.2 1951 1950 Effective rate Amount Percent Effective rate i Q — $52 $50 139 133. . 313 299 661 631 1,257 1,206 1,621 1,686 2,829 2,-935 4,402 4,247 6,087 5,877 17,797 17,201 46,403 - 47,994 359,662 371,268 794,418 1 770,000 $60 160 360 760 1,416 1,888 3,260 4,872 6,724 19, 592 62, 776 403,548 858, 548 3.3 6.6 10.0 12.6 15.1 . 16.2 18.9 2L2 23.5 34.446.4 71.9 177.0 $2 6 14 30 50 66 106 164 210 696 1,591 11,606 24,418 0.2 .3 .5 .6 .6 .6 .7 .8 .8 L2 L6 2.3 2.4 $10 27 61 129 210 267 431 625 847 2,391 6,373 43,886 88, 648 0.2 .3 .5 .7 .7 .8 .9 1.0 Ll L8 3.0 8.3 10.6 20.6 • 20.5 20.5 20.5 17.4 16.4 15.2 14.7 14.4 13.9 13.7 12.2 1L6 0.7 L6 2.3 3.0 3.1 3.2 3.5 4.0^ 4.4 7.3 1L9 31.3 38.6 Q -o M A R R I E D PERSON—TWO D E P E N D E N T S $2,400 $3,000 $5,000 $8,000 $10,000 $15,000 $20,000 $25.000 $50,000 $100,000.-. $600,000—. $1,000,000-. $100 432 974 1,361 2,612 3,888 5,476 16, 578 46, 643 358,677 769,314 $104 452 1,016 1,417 2,607 4,030 6,672 17,152 47, 208 370, 252 793,402 NOTE.—See note to table I V . 1 Taking into account maximum effective http://fraser.stlouisfed.org/ 2 Taking into account maximum effective Federal Reserve Bank of St. Louis $120 520 1,152 1,692 2,900 4,464 6,268 18, 884 51, 912 402, 456 857,456 3.3 8.6 12.2 13.6 16.7 19.4 21.9 33.2 45.6 71.7 76.9 rate limitation of 77 percent. rate limitation of 80 percent. 3.5 9.0 12.7 14.2 17.4 20.2 22.7 34.3 47.2 74.1 79.3 4.0 10.4 . 14.4 15.9 19.3 22.3 25.1 37.8 51.9 80.6 85.7 $6 21 43 66 95 142 196 575 1,565 11, 576 24,088 0.2 .4 .5 .6 .6 .7 .8 Ll 1.6 2.3 2.4 $20 88 178 231 388 576 792 2,306 6,269 43, 779 88,142 0.7 1.8 2.2 2.3 2.6 2.9 3.2 4.6 6.3 8.8 8.8 4.8 4.8 4.4 4.1 3.8. 3.6 .3.6 3.5 3.4 3.2 3.1 0.2 .5 .6 .6 .8 .9 LO 1.7 2.9 8.2 10.4 20.6 20.6 18.3 17.0 15.4 14.8 14.5 13.9 13.7 12.2 1L5 0.7 1.9 2.5 2.7 3.1 3.6 4.1 6.9 n.5 31.0 38.2 > 237 EXIDBITS The proposed tax liabilities applicable to 1951 incomes are shown in charts D and E, compared with those in effect since 1944 when the highest wartime rates were enacted. Under the President's recommendation, the split-income provisions and the increase in exemptions enacted in 1948 would be retained. Thus married persons filing joint returns will continue to benefit from having twice as much income taxable at the lower rates as they did prior to the 1948 act. Chart D shows the tax liabilities for single persons with different incomes. For a single person with a net income of $5,000, the tax would be increased from 16.2 percent under present law to 18.9 percent under the proposal. This compares with the tax under the 1944 act of 22.1 percent. At the $25,000 level, the present effective rate of 34.4 percent would be raised to 39.2 percent under the proposal, which compares with 42.4 percent under the 1944 act. Chart E shows that for married persons the proposed rates would be substantially below those in effect at the end of the war. On a net income of $5,000, a married person with two dependents now pays a tax of about 8.6 percent. Under the President's proposal, this would be increased to 10.4 percent for 1951 or about two-thirds of the tax under the 1944 act. At $25,000, where incomesplitting gives about the largest relative advantage, the effective rate would be increased from 21.9 percent to 25.1 percent. The proposed tax would then be 13.7 percentage points lower than the highest wartime tax of 38.8 percent at this level. Under the President's recommendations, less than 5 percent of taxpayers, mostly single persons, would actually pay higher taxes than they did under the 1945 act. The proposal would increase tax liabilities of individuals by about $700 million on 1950 incomes and by $2.9 billion on 1951 incomes. About 55 percent of this additional revenue would come from taxpayers with net,incomes under $5,000. As shown in chart F and table VI, this group now accounts for 91 percent of all taxpayers and for 69 percent of net income of taxable individuals before exemptions. The remaining 45 percent of the revenue would come from those with incomes above $5,000, who represent 9 percent of all taxpayers and receive 31 percent of the net income of taxable individuals. CHABT D JFirbpbsal ^ r ^ 5 10 20 50 e 100 Net Income (Thousands of Dollars) 200 500 238 1 9 5 0 REPORT OF T H E SEiCRETARY OF T H E TREASURY CHART E Pr6pq$qlfdifl95lM^^ 5 10 20 50 IOO Net Income (Thousands of Dollars) 200 CHART F j?fn^htaoe pistrlNtlioh 6f ^^1^ For Calendar Year 1950 Inconies Under $ 5 , 0 0 0 " ^ Number of Taxpayers (Single Persons and Married Couples).. Net Income (Before Personal Exemptions)... Present Tax Liability-. Note: Estimated. Incomes Over S S . O O O " ^ 500 TABLE VI.- -Estimated number of taxable returns, net income before exemptions, and total tax under present law and under the ^proposea rates, distributed by net income classes at calendar year 1950 income levels [ N u m b e r of r e t u r n s in t h o u s a n d s ; m o n e y a m o u n t s in millions] T o t a l tax i N e t income classes U n d e r $1,000... $1,000 t o $2,000$2,000 to $3,000$3,000 t o $4,000$4,000 t o $5,000U n d e r $5,000. $5,000 t o $ 1 0 , 0 0 0 - - • . $10,000 t o $ 2 5 , 0 0 0 . . - - . $25,00Oto $ 5 0 , 0 0 0 . - - $60,000 t o $100,000 $100,000 to $250,000--. $250,000 t o $500,000--. $600,000 to.$1,000,000$1,000,000 and. o v e r - . . .$5,000 a n d o v e r . TotaL------ N u m b e r of taxable returns N e t income before exemptions Under present law" Under • proposed rates Increase 3, 201.1 10,781. 6 12,374. 7 8, 517.1 4,046. 9 $2, 634. 7 17,172. 6 30, 713. 9 29, 293.0 •17, 983.1 $106. 4 1, 265. 7 2,483. 7 2, 417. 6 1, 676. 2 $127.0 1, 524. 9 2, 990. 2 2,901. 0 2,013. 5 38,921.6 97, 697. 3 7,948. 6 9,566. 6 1,608.0 2, 916.1 884.8 194.4 37.4 10.0 - . .7 .2 .1 19, 046. 7 12, 950. 7 6, 605. 6 2,546.0 1, 428. 7 248.0 148.4 148.0 2,334. 7 2,387.0 1,887. 9 1,052. 6 766.6 155.4 IOL 8 103.8 2, 768.8 2, 750. 5 2,162.3 1,187. 5 848.3 171. 5 111.6 112. 6 434.1 363.5 264. 4. 134.9 92.7 16.1 9.8 4,043. 7 43,122.0 8,778. 7 10,103. 2 42, 966. 2 • 140,819.3 16, 727. 3 19,659.8 $21. 6269.2 606.-6 483.6 337.3 C/3 2,932.-5 N O T E . — F i g u r e s are r o u n d e d a n d will n o t necessarily a d d t o t o t a l s . 1 I n c l u d e s s u r t a x , n o r m a l tax, a n d a l t e r n a t i v e tax. ro: 00- T A B L E VII.—Cumulative number of taxpayers, their surtax net income, and combined surtax a n d normal tax, distributed by surtax net income classes at calendar year 1950 levels of income o- (Number of taxpayers in thousands; money amounts in millions] Cumulative humber of taxpayers i Surtax net income class Total Under $2,000 $2,000 to $4,000$4,000 to $6,000 $6,000 to $8,000-----. $8,000 to $10,000 $10,000 to $12,000--.. $12,000 to $14,000.-.. $14,000 to $16,000.--. $16,000 to $18,000—. $18,000 to $20,000—. $20,000 to $22,000.... $22,000 to $26,000.... $26,000 to $32,000..-. $32,000 to $38,000-... $38,000 to $44,000-.-. $44,000 to $50,000-... $50,000 to $60,000—. $60,000 to $70,000-.. $70,000 to $80,000-$80,000 to $90,000--. $90,000 to $100,000.. $100,000 to $150,000.. $150,000 to $200,000. Over $200,000..---.. 67, 152.9 576.3 483.9 379.9 904.3 627.8 474.3 363.8 269.8 193.3 180.9 137.4 87.4 60.7 38.6 3L1 22.6 15.0 8.6 6.8 5.1 3.4 1.2 .7 Married persons Single persons, estates, and trusts 48,375. 4 5, 266. 6 2,027. 8 1,164.9 764.1 626.0 395.3 300.3 216.2 148.2 142.2 103.9 6L8 43.0 25.5 20.4 14.1 9.1 4.4 3.7 2.4 1.5 .4 .2 TotalNOTE.—Figures are rounded and will not necessarily add to totals. 1 Married couples are counted as two taxpayers whether or not both spouses have income. 18, 777. 5 3,309. 7 456.1 215.0 140.2 IOL 8 79.0 63.5 ' 63.5 46.1 38. 7 33.6 25.6 17.7 13.0 10.7 8.5 6.0 4.2 3.2 2.6 L9 .8 .4 Combined surtax and normal tax (present law) Surtax net income Total $60, 582 8,395 3,664 2,234 L503 1,094 833 658 617 378 296 418 443 304 211 164 184. . 126 80 64 40 101 48 160 82, 461 Married persons $40, 596 6,111 3,031 1,867 1,254 909 687 639 416 292 222 299 310 208 138 97 113 76 44 25 19 39 18 56 Single persons, estates, and trusts $19, 986 2,283 633 367 250 185 146 119 101 86 . 73 119 132 96 73 67 70 49 36 29 21 63 30 95 25,097 Total $10,057 1,625 838. 590 450 366 316 272 227 176 146 217 241 174 128 97 121 86 57 40 30 80 39 124 Married persons $6,739 1,183 694 493 375 304 260 223 183 136 110 166 169 119 84 61 75 52 31 18 14 30 14 46 11, 569 Single , persons, estates, and trusts o O $3,318 O 442 146 97 75 62 55 49 - 44 40 36 62 72 65 44 36 46 o 34 26 21 16 • 49 25 78 4.926 > EXHIBITS 241 As a result of the large concentration of income below the $5,000 level, a sub' stantial part of income tax revenue must of necessity be obtained from this group* Moreover, a relatively small increase in the rate in the lowest brackets contributes more revenue than a larger increase at the higher income levels. For, example, a 1 percentage point increase in the first bracket rate is equivalent in revenue to a 3 percentage pbint increase for all other brackets together (table Vir). The method of increasing individual income taxes proposed by the President has been selected with regard for simplicity in the face of the need for prompt action. It will provide substantial revenue on an equitable basis. The rate schedule is contained in the present law. The Congress is familiar with the schedule and with the development of the reductions from tentative tax provided in the 1945 and 1948 acts. The President's recommendation provides simply for eliminating one-quarter of these reductions for 1950 incomes and the entire reductions for 1951. . , ' . The proposed revision in individual income taxes will involve no complex additional computations. In contrast, a fiat percentage increase in tax liabilities combined with the existing three separate tentative reductions would make the present computations even more complex. The introduction of a new rate schedule would require consideration of issues which can best be deferred until a more comprehensive program is considered. The adoption of the President's proposal will permit the adjustment of the withholding rate applicable to wages and salaries in excess of personal exemptions from 15 percent to 18 percent beginning with October 1 of this year. The new withholding rate, after allowing for the standard deduction, would roughly account for the full increase in tax proposed for the calendar year 1950 for those subject to withholding. Prompt enactment of legislation is necessary for the Bureau of Internal Revenue to institute withholding at the higher rate. New instructions and withholding tables will have to be printed and distributed to over 3 million employers in time to be used by October 1. Taxpayers who pay tax in four quarterly installments will also have to be provided with new forms to adjust their final quarterly payments. 4. SUMMARY OP REVENUE FROM PRESIDENT'S PROGRAM The following summary indicates the revenues to be obtained under the President's recommendations on a full-year basis and for the fiscal year 1951. The combined effect of the three-point program is to increase.liabilities over present law by nearly $5 billion on an annual basis. About $2.9 billion of this increase would be from the increase in individual income taxes, $1.5 billion from the increase in corporation rates, and over $500 million from the loophole-closing provisions and excise tax adjustments. 242 195 0 REPORT OF THE SIECRETARY OF THE TREASURY 'TABLE YITl;—^Summary of the estimated revenue effect of the proposed interim tax ' • '' . . . ' 'legislation ': • • [In millions of dollars . Estimated increase in revenue over present law Full-year effect 1 Increase corporation income tax r a t e s - - . - — . - - - : . . . . ..:'. j ^.. Remove tentative tax reductions under the indiyidual.income tax.-i..^-^.. Life insurance companies 1 ..l.-"-. Charitable and educational institutions and charitable estates and trustsMiscellaneous loophole-closing provisions-..• .•..:_._.--...._.'......'. Withholding on.dividends.----.--...'..^.. .-.......----j .-• Tax television sets and deep-freeze units --... '. ^.... Total:.---.-ILL-J:--"- -. '. —- -— - 1,455.0 '2,932.5 63.1 < 100. 0 150.9 • 175.0 48.6 4,925.1 Fiscal year 1951 2 . 572.1 1,725. 0 129.2 124.5 110.0 3L7 2, 692;.5 • Estimates affecting income .taxes are. based on levels" of income estimated for the calendar year 1960 and take into account interrelated effects of changes in corporation :and individual income tax liabilities. Estimates affecting estate and gift taxes, and. excise taxes are based ou levels of incbme for the fiscal year 1951. .. • 2. Provisions ofthe revenue bill of 1950 (as passed by the' House of-Representatives June 29. 1950) are assumed tO'' have an effective date as provided • by the bill. It • is also assumed that the increase in tax on- television- sets and .deep-freeze units will be effective September 1, 1950, and that the increase in corporation income tax rates will be effective with taxable years ending on or after December .31, 1950. The higher individual income- tax withholding rate is assumed to take effect October 1,1950. : . . . . . . 3 The individual income itax provisions affecting, calendar year 1950 are estimated to yield $703miUion. • . , . . 4 Does not represient, for the; m.ost part, aii' increase over present revenues. The estimate represents the long-run revenue loss estimated to occur if provisions are not adopted. The fact that this is an interim program should be emphasized. The relationship between -the • proposed increases iii liabilities can be" reconsidered when a mor^ comprehensive program is developed with appropriate attention to other sources of, reyenue. The enactment of H! R. 8920 revised as recommended will adjust bur reve.nue structure i n t h e direction necessary to discharge-the responsibilities we have undertaken to meet. In doing this, an immediate,substantial, contributiori will be made to current revenue needs, and the possibilities of inflationary spending from 1950 incomes will be reduced. . I should like to leave one concluding thought with you. The three-point tax program placed before you by the-President to meet our immediate requirements was developed in the conviction that our people are prepared for the sacrifices and responsibilities which the defense of our Nation and of our institutions demands. I feel sure that they want to begin now to prepare for meeting the expenditures that lie ahead. I know that you will consider the President's program in this spirit. EXHIBITS 243 Exhibit 24.—Miscellaneous revenue legislation enacted during the fiscal year 1950 EIGHTY-FIRST CONGRESS, FIRST SESSION . . . . . . Public Law 240, August 17, 1949, by adding a new. section 3182, exempted certain volatile fruit flavor concentrates, from t h e .tax oh liquors imposed .under subchapter E of Chapter 26 of.the Internal Revenue: Code. . Public Law 241, August 17, .1949, by amending"se.ctibri 2 of t h e a c t of December 5, 1942, extended t o J u l y 1,, 1951, .the existing privilege of^ free importation pf bona fide gifts from members of the. armed forces of, t h e United States o n i d u t y abroad. .. . , . . ' . . . ' / Public Law 261, August 23, 1949, amended sections .3150, 3.152, 3157, 31.58, and 3159 of the I n t e r n a l Revenue Code to permit.fhe,use of stamp, or. m e t m machines as an alternative means.of paying t h e t a x ' o n fermehted rnalt liquor, to authorize t h e bottling of malt, liquors on brewery, premises and to provide for t a x p a y m e n t on its removal. , . / . , . . : . . . , , . . .. , Public Law 271, August 27, 1949, (1) accorded privileges of free importation to members of t h e arnied.forces of other nations or their families, provided such natibns g r a n t reciprocal t r e a t m e n t ; (2) amended Public Law 828 .(80th Congress, 2nd session), to extend to December 3 1 , 1950, the, time for claiming refunds with respect to war losses; (3) amended sections 22 (b) (9) a n d (10) .of t h e I n t e r n a l Revenue Code to extend, to December 3 1 , 1950,.the time during, which a m o u n t s a t t r i b u t a b l e to discharge of indebtedness m a y be excluded from grpss income; (4) added to C h a p t e r 38 of t h e I n t e r n a l Revenue Code section 3809, whiqh prescribes criminal penalties for falsei returns .wlie.re made under penalties of perjury, and repealed I n t e r n a l Revenue Code sections 51 (d), 145. (c), and-1630 relating to t h e same subject m a t t e r ; (5) repealed I n t e r n a l Reyenue Code section 148 (f) relating to reports and public listing of compensation bf corporate officers a n d employees in excess of $75,000; (6) repealed I n t e r n a l Revenue Code sectibn 1626 (c) a n d amended section 1631 to prescribe t h e p e n a l t y f o r the failure of an' employer to file a return or pay over-withheld t a x ; (7) amended Internal Revenue Code section 3310 to g r a n t to t h e Commissioner authority.to prescribe regulations with regard to returns a n d . p a y m e n t of .certain excise taxes a n d to authorize t h e use of Government depositaries for receiving any internal revenue tax;:section 8 of t h e Second Liberty Bond Act (31 U. S. C , sec. 771), was also,amended to allpw t h e Treasury .to leave t h e proceeds of any internal revenue tax on deposit in commercial b a n k s ; (8) amended I n t e r n a l Revenue Code Chapter 35 to a d d . t h e r e t o section 3647, authorizing t h e Commissioner to delegate, t h e power pf assessment to field officers; (9) amended I n t e r n a l Revenue Code sectibn 3770.(a) (4) t o permit t h e Commissioner to credit overpayment of one class of,tax against another class .of tax due, added a n.ew p a r a g r a p h (5) to authorize him to delegate, to collectors a u t h o r i t y to m a k e refunds not in excess of $10,000 and amended Internal Revenue Code section 3772 by adding subsection (e) to allow.a credit f or, overpay nient ;of any tax against a . t a x liability to be t r e a t e d as a p a y m e n t of such satisfied tax liability in a suit for a refund; (10) repealed I n t e r n a l Revenue Code section 377.6 requiring reports t o Congress of refunds in excess of-$500, and amended I n t e r n a l Revenue Code section 3777 to require.reports by .the .Commissioner.of-estate, gift, and income t a x refunds a n d credits t o t h e Joint ;Committee on Internal Revenue Taxation only if t h e y are in excess of $200,000; (11).amended I n t e r n a l Revenue Code section 3944 (b) t o eliminate t h e $7,500 limitation on t h e salaries of collectors; and (12) aniended I n t e r n a l Revenue C)ode.section 3792. to eliminate approval by t h e Secretary of each informer's, award. . • Public Law 351, October 12, 1949, relating to p a y and allowances for members of t h e armed forces, provided in section 402 (h) a rule for .computing.that, p a r t of disability retirement p a y which would not be tax-exempt for the, purposes of section 22 (b) (5) of t h e I n t e r h a l Revenue Code. , .. : . , Public Law 378, October 25, 1949, (1) amended I n t e r n a l R e v e n u e Code section 60 (a), to provide t h a t farmers m a y file income tax returns for, a.taxable year pn or.before J a n u a r y 31 of t h e succeeding taxable year in: lieu of declarations of estimated tax due on or before January. 15 of such succeeding. taxable :year,; (2) amended I n t e r n a l Revenue Code section 131. (c) to provide t h a t in a redetermination of United States t a x because of a refund of tax paid to a foreign country, such redetermination shall t a k e into account only t h e net a m p u n t of t h e refund received by t h e t a x p a y e r and to impose no interest on .any .deficiency, resulting from such redetermination except to t h e extent interest thereon has been paid by t h e foreign country for such period; (3) amended I n t e r n a l Revenue Code section 244 1950 REPORT OF THE SECRETARY OF THE TREASURY 23 (q) to provide an election for corporations on an accrual basis to include in their charitable contributions for any taxable year after 1942 amounts contributed and paid within 2}^ months following the close of.the taxable year in which such gifts were authorized; (4) amended Internal Revenue Code section 1802 (b) to exempt from stamp taxes transfers of stock between a corporation and its registered nominee; (5) added subsection (d) to Internal Revenue Code section 165 to provide that contributions by employers to certain employee annuity trusts established prior to 1942 shall be included in the taxable income of the employee only in the year in which the annuity payments are received by the employee; (6) amended Internal Revenue Code section 1000 and other relevant provisioris of law to exempt from gift and estate taxes the relinquishment on or before December 31, 19,50, of powers over certain reciprocal trusts created prior to January 1, 1940; (7) amended Internal Revenue Code section 811 (c) to provide that a transfer of property made prior to "March 4, 1931, shall not be subjected to estate tax by reason of the retention of a life estate or power over income if the transferor either dies before 1950 or divests himself of the life estate or power before 1951; (8) added to section 811 (c) of the InternaL Revenue Code paragraph (2), providing that a transfer of property made before October 8, 1949, shall not be subjected to estate tax by reason of the retention of a remote reversionary interest, and paragraph (3), providing that a transfer of property made after October 7, 1949, which is intended to take effect in possession or enjoyment at or after the transferor's death shall be subjected to estate tax whether or not he retained any interest; (9) amended paragraph 1798 of the Tariff Act of 1930 by raising to $200 the exemption from import duty for articles brought in by returning tourists; (10) added to the Internal Revenue Code a new section 939, to provide an exemption from the additional estate tax for the estates, of members of the armed forces dying between December 7, 1941, and January 1, 1947, as a result of war services. EIGHTY-FIRST CONGRESS, SECOND SESSION Public Law 442, February 7, 1950, amended section 5 of the Federal Firearms Act (52 Stat. 1252) to make subject to seizure and forfeiture, and to the provisions of the Internal Revenue Code relating thereto, firearms or ammunition involved in any violation of the act. Public Law 448, February 21, 1950, (1) amended Internal Revenue Code section 2800 (a) (1) to provide for the use of additional means, including stamp machines, for the payment of tax on domestically produced distilled spirits and for criminal penalties with respect thereto;'(2) amended Internal Revenue Code section 2877 (a) to broaden the requirements for storekeeper-gaugers' records; (3) amended Internal Revenue Code section 2901 to revise the provisions relating to loss allowances; (4) amended Internal Revenue Code section 2903 (a) to eliminate the provisions for bottling distilled spirits in bond after tax payment: (5) made various technical amendments to Internal Revenue Code sections 2802, 2844 (a), 2861 (a), 2882 (a), 2884 (a), 2886 (a), 2887, and 2915 (a); (6) repealed Internal Revenue Code sections 2906 and 3302; (7) amended Internal Revenue Code section 3112 (b) to extend so far as applicable the provisions of section 2800 (a) (1) (A) and (B) to alcohol produced in the United States or imported for industrial purposes under section 3125; (8) amended Internal Revenue Code section 2883 to provide legislation of a permanent nature to supersede existing provisions of that section which included a number of temporary war emergency provisioris. Public Law 459, March 16, 1950, repealed, effective July 1, 1950, Internal Revenue Code sections 2301 (relating to the tax on oleomargarine) and 3200-3202, inclusive (relating to the occupational tax on manufacturers, wholesalers, and retailers of oleomargarine). Public Law 566, June 17, 1950, amended section 3 of the act of June 18, 1934 (48 Stat. 998), relating to the establishment of foreign trade zones, to provide liberalizing provisions in determining taxes to be imposed on importation of foreign products, and to permit transfers of domestic articles to the zone to be considered exportation for drawback and refund purposes. Public Law 578, June 27, 1950, amended sections 403 (d) (3) and 452 (c) of the Revenue Act of 1942 to extend through June 30, 1951, the period within which the release, or the possession at death without exercise, of a power of appointment created on or before October 21, 1942, will nbt be subject to estate or gift tax. 245 EXHIBITS Exhibit 25.—Individual income tax liabilities and effective rates under, the Revenue Acts of 1913-50 TABLE I.—Individual income i ax liabilities-—Singl e person with no ^dependents Selected a m o u n t of n e t income Revenue act Income year $525 19131916 1917 1918 3/1/13-12/31/15 1916 1917 1918 1919-20 1921 1921 1922 1923 1924..-_ 1924 1926 1925-27 1928 1928,1930-31 1929 1932. „ 1932-33 19341934-35 1936,19381936-39 19401940 1 1941..1941 1942 2 1942 1943 2 3 1944 4 1944-45 194.5 1946-47 1948-49 1948..1950 1950 1951 $600 $800 $900 $1, 000 $2, 000 $3,000 $5, 000 $6, 000 $20 40 120 240 160 160 160 120 60 40 40 13 160 140 140 172 483 920 1,105 1,105 922 811 843 944 $30 60 170 370 250 250 240 180 90 66 66 22 240 216 216 255 649 1,174 L401 1,395 L169 1,040 1,080 1,204 ^ $6 5 $15 17 23 19 $3 52 62 69 57 33 35 40 71 85 92 76 50 52 60 $4 21 89 107 115 95 66 70 80 $20 60 40 40 40 30 15 6 6 2 40 32 32 44 117 273 333 345 285 232 244 280 $40 120 80 80 80 60 30 17 17 6 80 68 68 84 221 472 574 585 485 409 428 488 $8, 000 • $50 100 275 650 450 450 420 315 150 101 101 62 420 378 378 449 1,031 1,742 2,052 2,035 1, 720" 1, 546 1,604, 1,780 $10, 000 $70 140 395 950 670 670 600 450 225 154 154 90 600 660 560 686 1,493 2,390 2,783 2,755 2,347 2,124 2,201 2,436 Selected a m o u n t of n e t incorae Eevenue act Income year 3/1/13-12/31/15 1916 1917 1918 1919-20 1921 1921 1922 1923 1924— 1924 1926 1925-27 1928 1928,1930-31 1929 1932 1932-33 1934 1934-35 1936,1938. 1936-39 1940 19401 1941— 1941 1942 1942 2 1943 2 3 1944 <—_ 1944-45 1945 1946-47 1948 1948-49 1950 1950 1951 1913 1916 1917 1918 $15,000 $20,000 $25,000 $50,000 $120 240 770 1,790 1,310 1,310 1,140 855 585 386 386 285 1,140 1,104 1,104 1,476 2,994 4,366 4,968 4,930 4,270 3,894 4,032 4,448 $170 340 1,220 2,750 2,070 2,070 1,800 1,350 1,045 694 694 555. 1,800 1,834 1,834 2,666 4,929 6,816 7,626 7,580 6,645 6,089 6. 301 6, 942 $270 490 1,820 3,840 2,960 2,960 2,640 1,980 1, 635 L234 1,099 922 2,640 2,804 2,804 4,253 7,224 9,626 10,644 10,590 9,362 8,600 8,898 9,796 $770 $1, 520 1,340 2,490 5,220 . 9,970 11,150 21,590 9,270 18, 710 9, 270 18, 710 8,720 17,910 6,540 13, 433 6,165 13, 215 4,954 10,184 4,664 9,894 . 4, 250 9,230 8,720 17, 910 9,334 18,884 9,334 19, 484 14, 709 28, 481 20,882 36,487 25,811 44, 366 28, 058 48,001 27, 945 48,000 25,137 43, 477 23, 201 40,182 23,997 41,556 26.388 45, 684 Footnotes at end of table VI. $75,000 $100, 000 $500,000 $1,000,000 $5,000,000 $2, 520 3,940 16, 220 35,150 31, 270 31,270 30, 220 22,665 22,645 16,134 15,844 14, 930 30, 220 31, 404 33, 354 44, 268 53, 214 64, 641 69,665 69,870 63, 541 68, 762 6 0 770 66, 798' $25, 020 42, 940 192, 720 323,150 303, 270 303, 270 260, 720 195, 640 199, 646 . 116,134 115,844 110,930 263, 720 264, 844 305, 224 330,933 345, 654 414,616 441,863 444, 350 407,897 5 385,000 396, 221 429, 274 $60, 020 $340, 020 102,940 687,940 475, 220 3,140, 220 703,150 3, 783,150 663, 270 3, 583, 270 663, 270 3, 583, 270 550, 720 2,870, 720 413, 040 2,163, 040 429,645 2, 269, 645 241,134 1,,241,134 240, 844 1,240,844 230,930 1,190,930 671, 220 3,091, 220 572, 324 3, 092, 314 680,184 3, 790,164 718, 404 3,917, 390 733,139 3,923,124 854,616 4,374,616 5 899,500' 5 4,499,500 «900, 000 5 4,500.000 840,147 «4, 275.000 5 770,000 5 3,850,000 5 800.000 5 4,000,000 5870, 000 5 4,350,000 2.46 1 9 5 0 REPORT OF T H E , SECRETARY OF T H E TREASURY TABLE.'II.-—-Indiviciual income tax liabiliiies:—'Married [person' with no, dependents ;. Revenue act Selected a m o u n t of n e t income • , • •tncdiiie •• year $600 1913..„_._ 3/1/13-12/31/16 ' 1916 1916 • 1917 1 9 1 7 . — .-1918 . 1918 1919-^20 i 1921' 1921 . 1922 . 1923 • 1924 , 1924 1925-27 1926 1928, 1930-31 1928 1929 1932..___1932-33 1934 193i4-35 1936,19381936-39 1940 • 1940 1 1941 L 1941 1942 1942 2 1943 2 3 . • $1 ;944 * : _ „ ,3 1944-46 1945 i946-47' 1948:.._.i 1948-49. 1950 1950 . 1951 $800 $1,000 $2,000 $2,600 $3,000 $10 30 20 • $8 9 $15 16 $42 140 . 188 245 190 133 139 160 11 90 232 297 360 285, 216 226 260 $5,000 $8,000 $20 • $40 $10 40 ^20 80 80 130 235 180 250 , 530 120 : ' 1 7 0 ". 370 170 100 370 100 160 340 120 255 75 38 53 105 17 56 28 17 28 56 6 10 22 140 100 300 80 116 248 116 • 248 80 110 150 317 621 . 873 376 746 992 1,532 1,780 894 1,173 1,885 975 1,265 1,577 798 1,045 1,206 819 : 631 1,257 856 661 1,416 760 976 $20 • 60 40 20 20 15 . 8 20 8 8 31 138 324 405 475 380 299 313 360 $6,000 $10,000 $60 120 - 355 830 690 690 520 390 165 101 101 52 480 415 415 528 1,305 2,152 2,467 2,585 2,185 1,621 1,686 1,888 Selected a m o u n t of n e t i n c o m e Revenue act Income year $15,000 1913 19161917 1918 1921— 1924-___. 1926-:.: 1928-.__: 1932:._1934-_v. 1936,1938. 1940:.„_ 1941— 1942— 1944<...1945.-.: 1948.-.-.. 1950:--- $20,00.0 $25,000 $50,000 $75,000 $100,000 $500,000 $1,000,000 $5,000,000 $260 $760 $1, 510 3/1/13-12/31/15 $110 - $160 1916 220 320 470 1,320 2,470 1917 730 1,180 ' 1,780 5,180 9,930 1918 1,670 2,630 3,720 11,030 21, 470 1919-20 1,230 1,990 2,880. 9,190 18, 630 1921 1,230 1,990 2,880. 9,190 18, 630 1922 1,060 1,7202,660 8,640 17,830 1923 796 1, 290 1,920 6,480 13,373 1924 • 615 976 1, 666 6,096 13,145 1925-27 311 619 1,159 4,879 10,109 1928, 1930-31 311 619 1,024. 4,589 • 9,819 1929 . 225. 495 862 4,190 9,170 1932-33 1,020 1,680 2,520 .8,600 17, 790 , 1934-35 924 1,689 2,489 8,869 18, 239 1936-39 924 1, 589 ' • 2,489 8,869 18,779 1940 1 ' . 1,258 2, 336 3,843 14,128 27, 768 1941 ; 2, 739 4,614 6,864 20. 439 35, 999 1942 2 4,052 • 6,452 9,220 •25,328 43,820 1943 2 8 4,533 7,100. 10, 035 • -27,075 46, 955 • 1944^46 . 4,695. 7,316 10, 295 27, 585 47, 595 ; 1946-47 4,047 6.394 9,082 24, 795 43, 092 ' 1948-49 2.829. 4, 247 6,877 17,201 31,015 1960 2,935 4; 402 6,087 17, 797 32,082 1951 . •3,260 4,872. • 6,724 19,592 36,290 Footnotes at end of table VI. $2, 610 3,920 16,180 36,030 31,190 31,190 30,140 22, 605 22, 675 16,069. 16, 769 14,870 30,100 30, 694 32,469 43,476 52, 704 64,060 68,684 69, 435 63,128 46,403 47,994 62,776. $25,010 $60,010 $340, 010 42, 920 102, 920 687, 920 192, 680 475,180 3,140,180 323,030 703,030 3, 783,030 303,190 663,190 3, 583,190 303,190 663.190 3,583,190 260, 640 560; 640 2,870, 640 196,480 412, 980 2,152,980 199, 575 429, 576 2, 269, 575 116,059 241,059 1, 241, 069 115, 769 240, 769 1, 240, 769 110,870 230,870 1,190,870 263,600 571,100 3,091,100 263, 944 571,394 3,091, 369 304,144 679,044 3, 788, 994 330,156 717, 584 3, 916, 648 345, 084 732, 554 3, 922,624 414,000 854,000 4,374,000 440, 747 5-899,000 5 4, 499, COO 443,895 5900,000 8 4,500,000 407, 465 839, 715 8 4, 275,000 369, 662 8770; 000 8 3,850.000 370, 657 792, 442 8-4,000,000 403,548 868,548 8 4,350,000 ..^•^ :. r- ' . E X H I B I T S •*••'= • • ; . . • . - : • • • • . • : : a •."••• 247^ T A B L E 111.—Individual income tax liabilities^^Married person with"tibb 'dependents S e l e c t e d a m o u n t o f n e t income Revenue act Income year - • $600 $800 $1,000 .$2,000^ ^$2,500 $3,000 $2 6 4 $12 36 24 1913 1916.. 1917 1918. 3/1/13-12/31/15 1916 1917 1918 • .' 1919-20 1921.. 1921 . 1922 1923 1924 1924 1926 . 1925-27 1928 1928,1930-31 • 1929 1932 • 1932-33 1934 .• 1934-35 1936,1938. . 1936-39 19401940 !• 1941 194L . 1942 2 1942 . . . _ 1943 2 3, 1944<.... 1944-46 < 1946-47 1945 1948 1948-49 1950. 1950 1951 $5,000 ! $6,000 • .f .) , . —-.- $7' 9 $1 .3 ^14 15- $13 58 45 • 12 99 L59 L60 95 17 17 20 58 191 267 276 • ]L90 ; LOO . 1 04 L20- m 20 64 ]L56 ]L04 68 68 51 26 8 8 3 68 48 48 75 271 592 r30 r55 589 132 t52 520 i ; • • • ' $8,000, $10,000 $20 $40' 40 . 80 114 219 : 226 '482 154 • 338 138 ' 306 128, •i 276 96 • • 207 41 81 19 42 19 42 6 14 108 • ; 236 84' 184 84 • 184 114 246 397: 717 810 1,322 1, 553 979 1,005 1, 585 798 ' 1, 292 5^8 974 626 • 1, 016 1,152 720 $60 120. 339 '782: 568: '626' 456: 342 14i: 83 83 •40' 416. 3431 343 • 440. 1,117' 1,-914' 2,208' 2, 2451,862'> 1,361 1, 4171,'692' Selected a m o u n t of n e t income " Revenue act Income year $15,000 . $20,000' $25,000. $50,000 $76,000 $100, 000 $500,000 $1,000,000 h)^, 000, 000 1913.___. 3/1/13-12/31/15 . 1916 1916 1917 1917 1918 1918 . . 1919-20 1921 1921 ; 1922 1923 1924.... 1924 1926 1926-27 1928 1928, 1930-31 1929 1932 1932-33 1934 1934-35 1936-39 1936,19381940 1940 I 1941 . 1941 1942 1942 2 . • . 1943 2 3 1944*.-__ 1944-45 . 1945..___ 1946-47 . • 1948-:___ 1948-49 • 1950-____ 1950 1951 . $760 $260 $110 $160470 1,320 .220 320 1,764 6,164 714 1,164 3.672 , 10,982 1,622 2,582 9.158 1,958 : 2,848 1,1.98 9,126 1,166 1,886 ' 2.816 2,496 • 8.576 996 1,656 6,432 747 1, 242 , . 1,872 476 935 • 1,526 . 6,056 1,129 4,849 281 689 994 4, 559 281 689 201 471 . 838, . 4,166 8,536 956 1,616 • 2,456 8,621 831 1,469 , 2,327 831 1, 469 ,. 2,327 , 8,621 1,118 .•2,143 ; 3,671 13, 741 2,475 4, 287 •.• 6, 480 19, 967 3,758 6,088 • 8,814 24,845 9,574 26. 392 6, 693 4, 207 9,705 26,865 4.265 6. 785 8,522 24.111 3,639 ; 5, 890 2,512 3.888 •5,476 16, 578 2.607 4,030 • 5,672 17.152 6 268 •18 884 2,90 4,^164 Footnotes at end of table VI. ) $1,610 $2,510 2.470 3,920 9,914 16,164 21, 422 34, 982 18, 598 31.158 18, 566 31,126 17, 766 30, 076 13,325 22, 557 13.105 22, 535 10, 079 , 16, 029 9,789 15,739 • 9,146 14, 846 . 17, 726 30, 036 •17,895 . 30,162 : 18, 403 3L997 27, 293 •42,948 35, 479 • 52,160 43,274 63, 479 46, 209 67.803 • 46. 785 68. 565 42.323 • 62. 301' 30. 329 45.643 • 31, 372- 47, 20834 510 . 61 912 $25,010 42,920 192, 664 322,982 303,158 303,126 260, 576 195, 432 199. 535 116,029 115,739 110,846 263,536 263,464 303,568 329,637 344, :476 413,384 439.931 442.985 406.600 358.677' 369. 645 402,456 $60,010 102, 920 475,164 702.982 663.158 663,126 550,576 412,932 429, 535 .241-, 029 240,739 230,846 571,036 570,898 678,436 717, 036 : 731,930 •853,384 8 898,800 8 900.000 838.850 769. 314 791; 430 .857; 456 : $340, 010 687, 920 3.140,164 3. 782,982' 3,583,158' 3, 583.126 2,870,5.76> 2,152,932 2, 269, 535' 1, 241,029 X, 240, 739 1,190,846. 3, 091,036: 3, 090,865 3, 788, 370 3,915,986' 3,921,884 4, 373, 384 « 4, 498,800 « 4,500, 000= « 4,275,000 « 3,850. 000 « 4,000,000' « 4,350, 000^ 248 1 9 5 0 REPORT OF T H E SECRETARY OF T H E TREASURY TABLE IV.—Effective rates of individual income tax—Single person with no dependents [In p e r c e n t ^•Selected a m o u n t of n e t income Revenue act I n c o m e year $525 1913 1916 1917 1918 1 1 1621 1924 1926 1928.-— 1932 1934 .1936,1938. ]940. 1941 1942 1944<.... 1945 : 1948 1950 3/1/13-12/31/15 1916 1917 1918 1919-20 1921 1922 1923 1924 1926-27 1928, 1930-31 1929 1932-33 1934-35 1936-39 1940 1 1941 1942 2 1943 2 3 1944-45 1946-47 1948-49 1960 1951 ""i."i' .9 $600 $800 2.5 2.8 3.8 3.2 $900 $1,000 $2,000 $3,000 $5,000 $6,000 $8,000 $10,000 0.4 .8 2.4 4.8 3.2 3.2 3.2 2.4 1.2 .8 .8 .3 3.2 2.8 2.8 3.4 9.7 18.4 22. r 22:1 18.4 16.2 16.9 18.9 0.6 LO 2.8 6.2 4.2 4.2 4.0 3.0 L5 .9 .9 .4 4.0 3.6 3.6 4.3 10.8 19.6 23.4 23.3 19.5 17.3 18.0 20.1 0.6 1.3 3.4 8.1 5.6 5.6 6.3 3.9 L9 L3 L3 .7 5.3 4.7 4.7 6.6 12.9 21.8 25.7 25.4 2L5 19.3 20.0 22.3 0.7 1.4 4.0 9.5 6.7 6.7 6.0 4.5 2.3 1.5 1.5 .9 6.0 6.6 5.6 6.9 14.9 23.9 27.8 27.6 23.6 2L2 22.0 24.4 0.04 0.4 1.2 6.5 7.9 7.8 9.4 8.6 10.2 7.1 8.4 4.2 6.5 4.4 5.8 6.0 6.7 0.4 2.1 8.9 10.7 11.5 9.5 6.6 7.0 8.0 LO 3.0 2.0 2.0 2.0 1.5 .8 .3 .3 .1 2.0 L6 1.6 2.2 5.9 13.7 16.7 17.3 14.3 1L6 12.2 14.0 L3 4.0 2.7 2.7 2.7 2.0. LO .6 .6 .2 2.7 2.3 2.3 2.8 7.4 15.7 19.1 19.6 16.2 13.6 14.3 16.3 Selected a m o u n t of n e t income Revenue act Income year 3/1/13-12/31/15 1916 1917 1918 1919-20 1921 1921 1922 1923 1924 1924 1926-27 1926 1 9 2 8 — - 1928, 1930-31 1929 1932 1932-33 1934 1934-35 1936-39 1936,19381940 » 1940-.1941 1941 1942 2 1942 1943 2 8 1944-45 1944 < — 1946-47 1946 1948-49 1948 1950 1950 1951 1913 1916 1917 1918 $15,000 $20,000 $25,000 $50,000 0.8 L6 5.1 11.9 8.7 8.7 7.6 5.7 3.9 2.6 2.6 L9 7.6 7.4 7i4 9.8 20.0 29.1 33.1 32.9 28.5 26.0 26.9 29.7 0.9 1.7 6.1 13.8 10.4 10.4 9.0 6.8 5.2 3.5 3.5 2.8 9.0 9.2 9.2 13.3 24.6 34.1 38.1 37.9 33.2 30.4 3L5 34.7 Ll 2.0 7.3 16.4 1L8 1L8 • 10.6 7.9 6.5 4.9 4.4 3.7 10.6 1L2 11.2 17.0 28.9 38.5 42.6 42.4 37.5 34.4 35.6 39.2 L6 2.7 10.4 22.3 18.5 18.6 17.4 13.1 12.3 9.9 9.3 8.5 17.4 18.7 18.7 29.4 4L8 51.6 56.1 65.9 50.3 46.4 48.0 62.8 Footnotes at end of table VI. $75,000 $100,000 $500,000 $1,000,000 $5,000,000 2.0 3.3 13.3 28.8 24.9 24.9 23.9 17.9 17.6 13.6 13.2 12.3 23.9 25.2 26.0 38.0 48.6 59.2 64.0 64.0 58.0 63.6 55.4 60.9 2.5 3.9 16.2 36.2 31.3 3L3 30.2 22.7 22.7 16.1 15.8 14.9 30.2 3L4 33.4 44.3 53.2 64.6 69.7 69.9 63.6 58.8 , 60.8 66.8 5.0 8.6 38.6 64.6 60.7 60.7 52.1 39.1 39.9 23.2 23.2 22.2 52.7 53.0 6L0 66.2 69.1 82.9 88.4 88.9 8L6 8 77.0 79.2 85.9 6.0 10.0 47.6 70.3 66.3 66.3 55.1 4L3 43.0 24.1 24.1 23.1 67.1 67.2 68.0 7L8 73.3 85.6 8 90.0 8 90.0 84.0 8 77.0 8 80.0 8 87.0 . 6.8 13.8 62.8 75.7 7L7 7L7 57.4 43.1 45.4 24.8 24.8 23.8 61.8 6L9 75.8 78.3 78.5 87.5 5'90.0 5 90.0 5 85.5 8 77.0 8 80.0 8 87.0 249 EXHIBITS T A B L E V.—Effective rates of individual income tax—Married person with no dependents [In percent] Selected a m o u n t of n e t income Revenue act I n c o m e year $600 $800 $1,000 $2,000 $2,500 $3,000 0.4 1.2 .8 0.7 2.0 1913 1916 1917 1918 3/1/13-12/31/15 . 1916 1917 1918 1919-20 1921 . 1921 1922 1923 1924 1924 1925-27 1926 1928,1930-31 1928 1929 1932... 1932-33 1934-35 1934 1936-39 1936,1938 1940.---. 19401 1941 1941 1942--. 1942 2 . 1943 2 3 . 1944 < 1944-45 1946-47 1945 1948-49 1948- . 1950 1950 1961 $5,000 0.2 0.3 .4 • . 7 L6 2.2 4.2 3.6 2.4 2.8 2.0 2.8 .2.0 2.7 1.5 2.0 .8 .9 .3 .5. .3 .6 .1 .2 2.0 2.3 1.6 L91.6 L9 2.2 2.5 7.6 • 8.7 14.9 16.6 17.9 19.6 19.5 21.1 16.0 17.4 12.6 • 13.6 13.2 14.3 15.2 16.3 ^:? .7 .5 .3 0.2 .5 LO 1.1 1.5 1.6 2.1 7.0 9.4 12.3 9.5 6.6 7.0 8.0 .4 3.6 9.3 11.9 14.4 . 11.4 8.6 9.0 10.4 . $6,000 .7 .3 .3 1.0 4.6 10.8 13.5 15.8 12.7 10.0 10.4 12.0 $8,000 0.5 LO 2.9 6.6 4.6 4.6 4.3 3.2 L3 .7 .7 .3 3.8 3.1 3.1 4.0 10.9 19.2 22.3 23.6 19.7 15.1 15.7 17.7 $10,000 0 6 1.2 3.6 8.3 5.9 *5 9 6.2 3.9 1.7 1.0 1.0 .5 4.8 4.2 4.2 5.3 13.1 21.5 .24.7 26.9 21.9 16.2 16.9 18.9 Selected a m o u n t of n e t income Revenue act I n c o m e year 1913 3/1/13-12/31/15 1916 1916 1917 1917..-. 1918 1918 1919-20 1921 1921 1922 1923 1924 1924 1925-27 1926 1928,1930-31 1928 1929 1932--.. 1932-33 1934 1934-35 1936,19381936-39 1940 ' 1940 1941 1941 , 1942 2 1942 1943 2 3 1944 < — 1944-46 1946-47 1945 1948-49 1948 1960 1950 1961 $15,000 $20,000 0.7 1.5 4.9 ILl 8.2 8.2 7.1 5.3 3.4 2.1 2.1 1.6 6.8 6.2 6.2 8.4 18.3 27.0 30.2 31.3 27.0 18.9 19.6 21.7 0.8 L6 5.9 13.2 10.0 10.0 8.6 6.5 4.9 3.1 3.1 2.5 8.4 7.9 7.9 1L7 23.1 32.3 35.5 36.6 32.0 21.2 22.0 24.4 Footnotes at end of table VI $25,000 $60,000 LO L9 7.1 14.9 1L5 11.6 10.2 7.7 6.3 4.6 . 4.1 3.6 10.1 10.0 10.0 15.4 27.6 36.9 40.1 .4L2 36.3 23.5 24.3 26.9 1.5 2.6 10.4 22.1 18.4 18.4 17.3 13.0. 12.2 9.8 9.2 . 8.4 17.2 17.7 17.7 28.3 40.9 60.7 64.2 65.2 49.6 34.4 35.6 39.2 $75,000 $100,000 $500,000 $1,000,000 $5,000,000 2.0 3.3 13.2 28.6 24.8 24.8 23.8 17.8 17.5 13.5 13.1 12.2 23.7 24.3 25.0 37.0 48.0 68.4 62.6 63.5 •67.5 41.4 42.8 47.1 2.5 3.9 16.2 35.0 3L2 31.2 30.1 22.6 22.6 16.1 16.8 14.9 30.1 30.6 32.5 •43.5 62.7 64.1 68.6 69.4 63.1 46.4 48.0 52.8 5.0 8.6 38.5 64.6 60.6 60.6 62.1 39.1 39.9 23.2 23.2 22.2 52.7 52.8 eo.8 66.0 69.0 82.8 88.1 88.8 81.6 71.9 74.1 80.7 6.0 10.347.5 70.3 66.3 66.3 65.1 4L3 43.0 24.1 24.1 23.1 57.1 57.1 67.9 7L8 73.3 85.4 8 89.9 8 90.0 84.0 8 77.0 79.2 85.9 6.8 13.8 62.8 75.7 7L7 7L7 57.4 43.1 45.4 24.8 24.8 23.8 61.8 61.8 75.8 78.3 78.5 87.5 8 90.0 8 90.0 8 85. 6 8 77. 0 8 80.0 »87.0 250.: 195 0 REPORT OF THE SECRETARY OF THE TREASURY TABIJ'E Yl.r:^Effectipe rates of iridividual income tax—Married person-with two dependents [In percent; .., , • Selected a m o u n t of n e t income Income year Revenue act • • ' $600^ $800 3/1/13-12/31/16 . ,' 1916:' .. . 1917' . 1918: . 1919-1920 ;• 1921. 1921 : 1922- . • ." 1923, . , 1924,' • 1924 • 1925-27 1926 1928, 1930-31 1928 .. 1929 1932-33 1932— .1934-35'. 1934 1936-39 • 1936.1938 1940 1. 1940. 1941 1941 19422 1942 . 1943 2 3 , 1944 * . . . . 1944-45 .' 1945. 1946-47 . 1948-49 . 1948 1950 1950 1951. 1913 1916 1917.. 1918 $1,000, $2,000 $3, 000 01 .2. .2 0.4 1.2 .8 . 0.2 .5 , 0.7 .' 1.4; . 2.9 1.1 ., L 6 ' .': 2.3 6.9 • " ,; 5 1.9 40 6.4 8. 9. R.-4. R.4. ". 9.2 ^ 8 6.3 .73.3 .7 3.5 .8 4.0 $5,000: $6, 000 $8,000 0.3 0.5 •; 71.0 1.9 2.7 3.8 6.0 4.2 2.6 2.3 3.8 2 . L . 3.6 1.6 2. 6 .7 LO .3 .5 . .3 .5 " .1 .2 L8' •..3.0' 1.'4 .'2.3 .1.4 •2.3 1.9 3.1 6.6 9.0 13.5^ 16.5 16.3 • 19.4 16.8 19.8 16.2 13.3 10.0 • 12.2 12. 7 10.'4 14. 4 12.0 0.2 .4* 1.3 3.1 2.1 1.4 1.4 LO .6 .2 .2 .1 1.4 LO LO 1.5 5.4 11.8 , 14.6 16.1 11.8 • 8.6 9.010.4 '' : $10, 000 0.6 1:2 3.4 7:8 5.6 5.3 4.6 3.4 1.4 .8 .8 .4 4.2 3.4 3:4 4.4 11.'2 19.1 22.1 22.5 18:6 13.6 14.2 15.9 Selected a m o u n t of n e t income Income year Revenue - act $2,600 .$15,00.0 $20,000 $25,000 $50, 000 $75. 000 $100, 000 $600, OOO ' $1,000,000 $5,000,000 - ' • . • . ' • • • • 3/1/13-12/31/15 1913 1916— . . . 1916 1917 • 1,917. , • 1918-— • 1918 : • 19.19-201 ' 1921:._._ 1921 1922 i -. 1923 ' 1924— : • .1924 ; • 1926: — : 1925-27' • 1928 19?8, 1930-31 i ' 1929 ' 1932 . ;1932-33 • 1934 . •; 1934-35 • 1936,1938- •'• 1936-39 ' ' • 1940: : • 1940 1 1941:„_• 1941 • • •' 1 9 4 ' 2 : — . . 1942 2 •• • 1943 2 3 1944''».... • • 1944-45 • 1945—... "1946-47 1 9 4 8 — . • 1948,-49 1960-*-.;1950 • .1951 0.7 0..8 1.5 :•• L: 6 4.8 -. 5:8 10.^8 12.9 8.0 • 9.87.89:6 6.16 8.3 5.0' 6.23J2' • 4.7 1.9 2; 9 L9' 2.9 1:3 • 2! 4' 6.4 8.1 6. 5' " 7.36.5 ' 7.3 7.5' , 10.7 16.5 " 21.4 25. V ' ' 30.4 28.0 33.5 28. 4 33.9 24.3 ,.' 29:5' 16.7 '• 19.4 17.4 20 2 22.3 19.3 1.0 1.5 L9 2.6' ' 7.1 10.3 • 14. 7 22.0 • 1 L 4 • 18.3 ; • 11.3 • 18; 3 • ;• 10.0 17:2 •' 7. 6 • 12:9 6.1 12.1• 4.6 • 9.7 4. 0 9:1 3. 4 8. 3 ' 17.1 ' 9.8 '••: 9 : 3 • 17.2. •: 9.3' •• 17.2 14.3 • 27.5' " • 25.9 39:9 35.3' • 49:7 •• 38.352:8 • " 3818 • 53.7 34:1 • 48.2 : '21:9 ' 33.2 • 22.7 34.3 • 25.1 : 37:8 • 2.0 3,3' 13.2 28.6 24.8 24.8 23.7' 17.8 17. 5 13.4 13. V 12.2 23:6 23:9 24.5 36:4 47.3 67.7 6L6 62.4 56:4: 40. 4 4L8 46. 0 2i5 3.9 16.2 35.0 31. 2 31.1 30 1 22. 6 • 22.6 16. 0 15:7 • 14.8' 3O1O 30. 2 32.0 42.9 • 52:2 63.5 67.8' 68.6 •• 62.3. • 45.6 • '•'• 47.2 51.9 : 6.0 5.0 8.6 . ' 10. 3 -47.5 38.5 64. 6. 70 3 60 6 -66.3 60 6 • . ' 6 6 : 3 62.1 '-55.1 39.1 • 41.3 39.9 43. 0 23.1 • '24.1 23.1 •: 24:1 22.2 • .23. r : 57.1 52.7 62.7 57.1 60. 7 . '67; 8 65.9 . .71:7 68.9 73:2 82.7 85.3 . 8 89.9, 88.0 8 90.0 88.6 83; 9 81. 3 76.9 71.7 .79.1 73.9 • 85.7 80 5 6.8 13:8' 62;8-. 76.7: 71; 7' 71.7 57.4 43.1 45.4 .24.824. 8. . 23.8: 61.8 •6L8 75.8: 78.3 78.4. 87:5 8 90.0 8 90.0 5-85. 5 8 77. 0. 8 80. 0 8 87. 0' NOTE.—Maximum earned net income assumed, In the case of married persoris it is also assumed that only one spouse has income. *Less than 50 cents. 1 Includes defense tax. 2 Tax liabilities for the years 1942 and 1943 are uaadjusted for transition to currerit payment basis. 3 Includes net Victory tax. Computed by assuming that deductions are 10 percent of Victory tax net income; i. e., that Victory tax net iiicome is ten-ninths of selected net income. 4 Individual Income Tax Act of 1944. 8 Taking into account the following maximum effective rate limitations: For 1943-45, 90 percent; 1946-47, 85.5 percent; 1948-49, 77 percent; 1950, 80 percent; 1951, 87 percent. Exhibit 26.—Federal taxes of the United States, 1940 through 1950 RATES, E X E M P T I O N S , AND C R E D I T S R e v e n u e A c t of— T i t l e of t a x -• • • T a x e s in effect D e c . 31,1940 . 1942 • 1941 INCOME . 1943 1945 19441 . - 1948 . . 1950 TAX On individuals: 2 3 Personal exemptions: M a r r i e d o r h e a d of family.* Single C r e d i t for d e p e n d e n t s A d d i t i o n a l exernptions: If, F o r persons 65 years of age or over. For the blind n N o r m a l t a x rate—Applies to n e t income in excess of cevr tain credits. Surtax: M i n i m u m rate Maximiim rate " $2,000- -..- — ---, 800 400 Footnotes on pp. 271 to 275"^ • • . ' - - 760 Nochange ' $ 1 , 2 0 . 0 - . - — — , — . N o change 5.. _ _ _ _ _$1,000 6 N o change 5 Nochange 5 — 500 350 500 6 600 6 9 $1,000 7 . . . . . ^ . . ^ $1,2008. 500 7 600 7 4% 12: 4%i2. .•75%i2—:i — 4%- 6%, — 1 .77%,' ' •• • • ' N o change 5 . . 6% - . - N o change 8. -•:. .0^$2,00()--•---. N o c h a n g e . . N o change 5. N o chainge.. • - - \ N o change. No change.. 600 N o change. N o change. 3%.i3 20%, Tentative rate—17%. Tentative rate—88%.i4 0-$2,000... — . N o c h a n g e Nochange 17%. 13 9 1 % , 14 N o change i*.. 88%. 1314 Nochange N o change. O v e r $200,000.. N o c h a n g e Nochange N o change. 3% N o change 5 13% 82% . 600. 600 600 N o change . M i n i m u m r a t e applies to $4,000-$6,000 p o r t i o n of s u r t a x n e t income. M a x i m u m r a t e applies to Over $6,000,000.: p o r t i o n of s u r t a x n e t income. R e d u c t i o n s from c o m b i n e d tentative normal tax and surtax: F i r s t .$400 N e x t $99 600 Over $ 1 0 0 , 0 0 0 . . . . . - . - - . Victory tax " ' Dividends . E a r n e d - i n c o m e credit i^ ' •,$1,500...----- Tentative rate—3%. a CO N o change Subject t o n o r m a l t a x . N o change 10%,o,f a m o u n t of earn- N o c h a n g e . ed n e t income, b u t • n o f i i i excess of 10% of a m o u n t of n e t incorae to be credited. against n e t income for.normal tax, - - ' , - . Over $200,000-J-.- N o change 8.. '5%'of V i c t b r y ' t a x n e t income i n excess of $624, less c e r t a i n ^ ..-credits. 15 . No change. Nochange 3 ^ of V i c t o r y t a x n e t income in excessof $624,5 Nochange Repealed. Repealed. . . . . Nochange 5% 5% 5%-.-:— 9.75%....:.-.. Nochange Nochange 17%.--•--"--'!'. 12% ' • • (.13). (13). (»?)..-• - • > N o change. to Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued to bO Revenue Act of— Taxes in effect Dec. 31, 1940 Title of tax '' 1941 1942 1943 1945 1950 INCOME TAX—Con. On corporations: i7 Normal tax Normal tax net income, Normal tax net income, Normal tax net income, in total amount: in total amount: is in total amount: $25,000 or less: $26,000 or less: $25,000 or less: First $5,000—14.85%. First $6,000—16%. 1 Next $15,000—16.5%. Next $15,000—17%. > No change. Next $5,000—18.7%. Next $5,000—19%. Over $25,000 and not Over $25,000 and not Over $26,000 and not over $31,964.30: IB over $38,461.54: is over $50,000: i" First $25,000— First $26,000— First $25,000— 14.85%. $4,250. $4,250. Next $6,964.30— Next $13,461.54— Next $25,000— 38.3%. 37%. 31%. Over $31,964.30 and not Over $38,461.54— Over $50,000— over $38,665.89:19 24% of entire nor24% of entire normal First $5,000—15.4%. mal tax net income. tax net income. Next $15,000— 16.9%. Next $5,000—18.9%. Next .$13,565.8936.9%. Over $38,565.89— 24% of entire normal tax net income. Dividend exemption 86% 21 No change 86% 22 (dividend received credit). No change Base for X±\JX nonnal J-'Cl'OVy XV/i I.M.A.CIX tax l/CX'A _ No change No change 25% of entire normal tax net income for taxable years beginning after June 30, 1950; 23%, for calendar, year 1950.20 o o 1 . "Normal tax net income" consists of "net income" (after deduction of the declaredvalue excess profits tax), minus the credit for interest received on certain obligations of the United States, less "Normal tax net income" consists of "net income" (after deduction of the declaredvalue excess profits tax and the excess profits tax), minus the credit for interest received on certain obli- "Normal tax net income" consists of "net income" (after deduction of the declaredvalue excess profits tax), minus the credit for interest received on certain obligations of the United States, less ia SI > o No change No change 85% (59% in the case of dividends received on certain preferred stock of public utilities). 23 "Normal tax net in- "Normal . tax net income" consists of. come" consists of "net "net income," minus income," minus the the credit for intercredit for interest reest received on cerceived on certain oblitain obligations of gations of the United the United States, States, the credit less the "dividends for dividends received received credit." from domestic corpora- W 1-3 > d Hi the "dividends received credit." No deduction allo"w^ed for excess profits tax. Surtax. None. First $25,000—6%-. Over $25,000—7%-. Same as for normal tax, except that no credit is allowed for interest received on certain obligations of the United States. Base for surtax. Loss carry-overs and carry-backs. gations of the United States, less the "dividends received credit.'' Net operating losses sustained in a taxable year beginning on or after Jan. 1,1939, may be, carried forward against net income of the following 2 taxable years. No change- income subject to excess profits tax (adjusted excess profits net income), less the "dividends received credit." Surtax net income, in total amount: Not over $50,000: First $25,000—10%. Next $25,000—22%. Over $50,000—16% of entire surtax net income. No change Net. operating losses may be (1) carried back against net income of the 2 preceding taxable years (but not to any taxable year beginning before Jan. 1, 1941), and (2) to the extent not absorbed b y t h i s carry-back, they may be carried forward against net income of the following 2 taxable years. No change- No change. No change. tions, the credit for dividends paid by a public utility on certain preferred stock, and the credit provided for Westem Hemisphere trade corporations. 24 20% of surtax net income in excess of $25,000 for taxable years beginning after June 30,1950; 19%, for calendar year 1950. Surtax net income, in total amount: Not over $50,000: First $25,000—6% Next $25,000—22% Over $50,000—14% of entire surtax net income. No change .-. "Surtax net income" consists of "net income '' minus the credit for dividends received from domestic corporations, the'^credit for dividends paid by a public utility on certain preferred stock, and the credit provided for Westem Hemisphere trade corporations.24 Net operating losses susNo change• tained in a taxable year beginning after Dec. 31, 1949, may be (1) carried back against net income of the preceding • taxable year, and (2) to the extent not absorbed by this carry-back, they may be carriied forward agairist net income of the following 5 taxable years. . ra y^ ^ ^ g (^ Ui Footnotes on pp. 271 to 275. Cl CO bO Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued Revenue Act of— Taxes in effect Dec. 31, 1940 Title of tax 1941 1942 1943 1945 1950 EXCESS PROFITS T A X ON CORPORATIONS 25 t?3 Specific exemption $5,000 per return No change NpiiChange. ^ •:. J: ..^.,. --^ - $10,000 per return Credit (average income credit or invested capital credit, whichever is the higher). Average income base: 95% of average base period. (1936-39) net income plus 8% of net capital:, addition or less 6% of net capital reduction. 28 Invested capital base: . 8% of invested capital. No change No 'chahge 27. _:_.". -.J'.. J -. No change '•"•• • ' ' - ' - ' - - ' - • ^ • Invested capital base: First $5,000,000 of invested capital—8%. Over $5,000,000—7%. Treatment of income tax for purposes of determining excess profits tax base. Carry-overs and carrybacks of unused excess profits credits. Normal tax deductible.- No deduction of normal tax or surtax. " .';. Repealed 1946.26 Repealed 1946.28 Jan. 1, Jan. 1, Repealed 1946.26 Jan. o • ' ' , . Np change.!-..^-. ' . • • ^ o V Invested '.capital ,base: :First |5,000;000 of-ini • vested capital—8%. Invested capital base: First $5^000,000 of invested capital— 8%. Next $5,000,000^7%. Next $5,000,000—6%. Next $190,000,000— Over $10,000,000— 6%. 6%. Over $200,000,000—5%. No change No change 1, 0 • ."V The unused portion of the excess profits credit may be-(l) carried back against excess profits net income of the 2 preceding taxable years (but not to any taxable, year beginning before-Jan, 1, 1941),. and (2).to the extent not absorbed by this carry-back, they may be carried forward against excess profits net income of the following 2 taxable years. No change - ••; . '.''" ... .- m - . .;.•••.... . :• <;.-".•.;- a .H3 Repealed 1946.26 Jan. > 1, ' The unused portion of the excess profits credit of-any taxable year may be carried forward against excess profits net income of the following 2 taxable years. " .-- The 2-year carry-back of unused excess profits credit was continued, for 1 year after the date of repeal of the excess profits tax.. . • • ' '• . • o. Ul d Excess profits tax rates (in terms of adjusted excess profits- net income). "Postwar refund bf excess profits tax. Tax credit for debt repayment. Fu-st Next Next Next Next Over Limitation upon excess profits tax. $20,000—25% $30,000—30% $50,000—36% -. $150,000—40% : $250,000—45% $500,000—50%—- First Next Next Next Next Over $20,000—35% 90% flat rate$30,000-40% $50,000—45% i $150,000—60% $260,000—66% $500,000—60%—-10%.of excess profits tax p^d. 40% of the amount of debt retired in taxable year, but not more, than the amount of postwar credit • other• wise allowable (from which this credit is deducted) and not more than 40% of the excess of (1) the amount of debt outstanding on Sept. 1,1942, or (2) the smallest aniount of; debt outstanding at the end of a taxable year beginning after Sept. 1, 1942, whichever is the lesser, over the amount of debt as • of the close of the taxable year...' The sum of hornial tax, ^ -surtax, and (gro3s) excess profits tax may not exceed 80% of sur-'. tax net income (before deduction of income subject to excess profits tax). The excess profits tax will be reduced to the extent necessary to conform with this limitation. 95% flat rate- Repealed 1946.28 Jan. No change- RepealedJan. 1,1946.26 No change other than retroactive technical a m e n d m e n t reflected in preceding coluinn. . RepealedJan. 1,1946.26. No change^.. RepealedJan. 1,1946.26 w I—( CO Footnotes'on pp. 271 to 275. bO Cn Cn Exhibit 26.—Federal taxes ofthe United States, 1940 through 1950—Continued Revenue Act of— Taxes in effect Dec. 31, 1940 Title of tax bO Ol 1941 . 1942 1943 1945 1950 RECAPTURE OF EXCESS PROFITS •Recapture of excess profits on certain Govemment contracts.29 CONSOLIDATED RETURNS All profits exceeding 8% No change . of contract price for vessels and aircraft for Army or Navy 30 (suspended by title IV of the Second Revenue Actof 1940). No change . . No change Suspension terminated by repeal of excess profits tax, effective as to taxable years beginning after Dec. 31, 1945.31 No change. Nochange No change. • o O . Consolidated returns. .- Allowed only for rail- Nochange roads, etc., wholly owned foreign railroad operating subsidiaries" organized to comply with the laws of Canada or Mexico, and Pan-American trade corporations for income tax. Permitted for substantially all corporations with respect to excess profits • tax. No additional tax. Allowed for income and excess profits tax (both or none) for substantially all corporations. Additional 2% surtax imposed for privilege. No change- o O CAPITAL STOCET T A X Per $1,000 of adjusted declared value. $1.1018 . No change $1.25 - Repealed July 1,1945. -. No change > CQ DECLARED-VALUE EXCESS PROFITS TAX d J • On net income in excess of 10% and not in excess of 16% of adjusted declared value. 6.6% 18 6.6% - No change --_ No change Repealed July 1,1946. On net income in excess of 16% of adjusted declared-value. 13.2% Nochange Nochange Repealed July 1, 1946. 27\(i%^K. 27 H%-. No change- N o change- N o change. N o change. 38H%i8. 38^^%-. No change- N o change. N o change. N o change. 7U^%18. 711^%., 76%.. N o change. N o change. N o change. 821/^% 18. 82^%-, 85%.. N o change. N o change N o change. 13.2% 18 - SURTAX ON CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS First $100,000 of undistributed sec. 102 income. Over $100,000 of undistributed sec. 102 income. SURTAX ON PERSONAL HOLDING COMPANIES • First $2,000 of undistributed Subchapter A net income. Over $2,000 of undistributed Subchapter A net income. Footnotes on pp. 271 to 275. W W CQ bO Or Exhibit 26.—Federal taxes ofthe United States, 1940 through 1950—Continued bO at 00 Revenue Act of— Taxes in effect Dec. 31,1940 Title of tax 1941 1943 1945 1948 1950 ESTATE T A X 32 33 . Specific exemption 34 Rate of tax: 36 Minimum rate -. Maximum rate Minimum rate applies to portion of net estate not exceeding. Maximum rate applies to portion of net estate. Credit for State death taxes paid—credit not to exceed. $40,000 No change.. 2 % 37. 70% 37 3%—77% --. $5,000 $10,000. $60,000 3 5 . - No change No change No change No change. No changeNo change No change. No change No change No change No change No change No change No change No change No change No change. No change. No change. Over $60,000,000 Over $10,000,000... No change- No change No change.... No change No change. 80% of Federal tax under Revenue Act of 1926. No change. No change. No change No change No change No change. $40,000 $4,000 39 No change No change $30,000. $3,000 40. No change. No change- No change... No change... No change. No change. - No change No change - No change Noc No change. No change. No No No No No No change... No change... No change. ^. No change. No change. No change. No change... No change No change... No change. GIFT T A X 32 Speciflc exemption 38_ Annual exclusion .Rate of tax: . Minimum rate Maximum rate. Minimum rate applies to portion of net gifts not exceeding. Maximum rate applies to portion of net gifts. o t ^ o m —- -- 1H%<» 62}.^% 41 $10,000 Over $50,000,000. . 2M% 57M%. $5,000 Over $10,000,000... No change change change change change change—.. § o R e v e n u e A c t of— T a x e s i n effect D e c . 31, •• • 1940 T i t l e of t a x Excise T a x A c t of 1947 1943 T O B A C C O T A X E S 42 Cigarettes: W e i g h i n g n o t riiore t h a n 3 lbs. per M . . ' W e i g h i n g m o r e t h a n 3 lbs. per M , a n d • • •" n o t m o r e ' t h a n Q^^ inches in l e n g t h : ' •'Weighing m o r e t h a n 3 lbs.'per M , a n d m o r e t h a n 6M inches in length.46 Cigarette papers: • • P a b k a g e of '26-50'sheets -"- • P e r a d d i t i o n a l 50 sheets or. fraction • • thereof. C i g a r e t t e t u b e s , p e r 50 or fraction thereof.Cigars: W e i g h i n g n o t m o r e t h a n 3 lbs. per M . . W e i g h i n g m o r e t h a n 3 lbs. per M , retailing a t : 47 N o t m o r e t h a n 2}4^ e a c h . More than 2H^ and not more t h a n M o r e t h a n 40 a n d n o t m o r e t h a n 50. M o r e thari 60 a n d riot m o r e t h a n 60. M o r e t h a n 60 a n d n o t m o r e t h a n 80. M o r e t h a n 80 a n d n o t m o r e t h a n .150;' . M o r e t h a n 150 a n d n o t m o r e t h a n 200.' - ... • • Mbi-e t h a n 200 e a c h . :.._ Leaf tobacco, p e n a l t y tax on leaf tobacco sold, r e m o v e d , or s h i p p e d b y dealers in leaf tobacco in violation of l a w . Tbbaicco a n d s n u f f . . . Floor stocks tax.on c i g a r e t t e s - . T.-T--:T Floor stocks tax on c i g a r s - . . - $3.25 per M 43. $7.80 p e r M 43. N o charige 44. N o c h a n g e 44. $3.60 per M $8.40 per M N o change 45. N o change 45. N o change. N o change. $3.25 per M'43. N o change 44. $3.50 per M ' N o change 4.5. N o change. M0-. H0:. No change. N o changei No change. No change. N o change.'.". No change... N o change. N o change. 10—:—. N o changei" N o charige L No change.i. N o change. 750 per M . . No change. No change. N o change 45. N o change. $2'per M : $2 per M J No changeNo change. $2.50 per M $3per M . - - N o change 45. N o change 45. N o change. N o change. $2 per $3per $3 per $5per No No Nb No change:' charige. charige. change- $4 per M . _ $4 per M . $7 per M . - i $10 per M . . No No No No No No No No $10.50per M - No change.. $16 per M . . N o change 45. N o change. $13.50 per M." 180 per. lb Nb change: No change. $20 per M . _ No change. N o change 451 No change... N o change. N o change. 180 per l b . N o ' c h a n g e . . . . - —.- No change...._._ 250.pei^..M sriiall; 600 per ' • M large. R a t e s e q u a l to tax r a t e increases. No charige'«. N o change. M. M. Ml M- change change change change 45. 45. 45. 45. charige. charige. change. change. X W M W >-{ Ul F o o t n o t e s on p p . 271 to 2 7 5 . ' bO CD bO Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued O Title of tax Revenue Act of— Taxes in effect Dec. 31, 1940 Excise Tax Act of 1947 1943 LIQUOR TAXES 48 Distilled spirits, except brandy 49. Brandy 49 Nonbeverage distilled spirits, not denatured (after payment of drawback). Fermented malt liquors containing M of 1% or more of alcohol by volume. Still wine containing following percentages of absolute alcohol by volume: Not more than 14% More than 14 but not more than 21%.. More than 21 but not more than 24%.. More than 24% $6 per proof gal. or wine $9 per proof gal. or wine gal. if below proof.5" si gal. if below proof. $6 per proof g.al. or wine $9 per proof gal. or wine gal. if below proof.50 5i gal, if below proof. $2.25 per proof gal.53....... $3 perproof gal.so 5i $6 per bbl." No change 44 $7 per bbl $8per.bbl.50 5 i . . . . . . No change-S? 34 80 per wine gal . 300 per wine g a l . . . 650 per wine gal $4 per proof gal. or wine gal. if below prooL 100 per wine gal 400 per wine gal... $1 per wine gal $6 per proof gal. or wine gal. if below prooL 150 per wine gal.5o 5i 600 per wine gal.so 5i_._.__ $2 per wine gal.so '-i $9 per proof gal. or wine gal. if below proof.5° si No No No No 60 per wine gal.43.... 180 per wine gal.43.... 300 per wine gal.43 $3 per proof gal. or wine gal. if below proof, if containing distilled spirits other than brandy; or $2.76 per proof gal. or wine gal. if below proof if brandy only is contained therein.43 1H0 per half pint 43., Artificially carbonated wine Liqueurs, cordials, or similar compounds. . 1H0 per half pint 43 Champagne or sparkling wine .-. 30 per half pint 48.:.— Rectification tax, distilled spirits and wines. 300 per proof gal. in addition to tax on distilled spirits or wines.. Bay rum or any article containing alcohol $3 per proof gal. or wine imported from Puerto Rico for consumpgal. if below proof.43 tion. . Perfume, imported, containing distilled $3 per wine gal.43 spirits. Special (occupational) taxes: Distilled spirits or wine: $110 per year 43 ...... Wholesale dealers Retail dealers 55 $27.50 per year 43 _. Fermented malt liquors: Brewers according to production, $56-$110 per year 43 per brewery. No change.52 $3 per proof gal. or wine $4 per proof gal. or wine gal. if below proof. gal. if below proof.43 $2.75 per proof gal. or wine $4 per proof gal. or wine gal. if below proof.43 gal. if below proof. $3 per proof gal.43 - _ . $4 per proof gal No change.52 o No change.52 change.52 change.52 change.52 change.52 O S i o > 3H0 per half pint 33^0 per half pint 70perhalf pint—. Nochange 50 per half pint.. 60 per half pint.. 100 per half pint Nochange 106 per half pint so si 100 per half pint so 51 150 per half pint so n Nochange No No No No $4 per proof gal. or wine gal. if below proof. $6 per proof gal. or wine gal. if below proof. $9 per proof gaL or wine gal. if below proof.so si No change.52 $4 per wine gal $6 per wine gal No change 44 No change 44 No change 44 No change No change No change , .. $9 per wine gal.so 51 .--. No change No change No change.-- change.52 change.52 change.52 change. No change.52 No change. No change. . No change. fel fel > d Wholesalers Retailers " Rectifiers, according to production Manufacturers of stills Stills or worms manufactured for distilling spirits. Stamp taxes ori distilled spirits: Container stamps, distilled spirits in containers upon which all internal revenue taxes have been paid. Export stamps, distilled spirits intended for export. Floor stocks taxes: Distilled spirits, except brandy 49 Brandy 49 Fermented malt liquors Still wine containing the following percentages of absolute alcohol by volume: Not more than 14% . More than 14 but not more than 21%. More than 21 but not more than 24%. Artificially carbonated wine Liqueurs, cordials, or similar compounds. Champagne or sparkling wine $56 per year 43... $22 per year 43 —. $110-$220 per year 43 $55 per year 43 $22 per still or worm 43_. No No No No No change 44. change 44. change 44. change 44. change 44. Per container of less than K pint, M0; H pint or more, 10, 100 per package No change. No change No change No change. No change. No change No change. No change. $1 per proof gal $l,25per proof gal. $2 per proof gal... $2per proof gal... $1 per bbl $3 per proof gal. $3 per proof gal. $1 per bbl. 20 per wine gal._ 120 per wine gal. 20per winegal... 100 per wine,gal.. 50 per wine gal. 200 per wine gal. 350per wine gal. 350 per wine gal.. $1 per wine gal. 20 per half pint.. 20 per half pint.. 1H0 per half pint. 1H0 per half pint. 50 per half pint. 50 per half pint. 40 per half pint.. 30per half pint... 60 per half pint. No change 44 ss.. No change. No change No change. No change 44 No change. No change No change. No change No charige. No change 44 se. 10 per dollar or fraction of premium, 10 per dollar or fraction of premium. No change No change 44 se No change. No change No change Nochange No change No change . No No No No No change change change change change. No No No No No change. change. change. change. change. STAMP TAXES Documentary: Conveyances (deed, instrument, or writing conveying realty). Foreign insurance policies: Insurance policies other than life and indemnity, fidelity or surety bonds, etc. Life, sickness, and accident policies, annuity contracts. Reinsurance policies..-.-Issues of bonds, debentures, certificates of indebtedness, etc. Issues of capital stock-.-^..... Footnotes on pp, 271 to 275. Value: $100.01-$600, 550; each additional $500 or fraction, 660.43 40 per dollar or fraction of premium.43 110 per $100 face value or fraction thereof,43 110 per $100 par or face value or if without par or face value; <a) if actual value is less than $100, 30 on each $20 or fraction; (b) if actual value is over $100,110 on each $100 or fraction.43 No change No change. No change No change. No change No change. bO Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued bO bO' Taxes in effect Dec. 31, 1940 ' Title of tax Revenue Act of— 1941 1942 1943 Excise Tax Act of 1947 STAMP TAXES—Continued fel Documentary—Continued Transfers of bonds Transfers of capital stock 60 per $100 face value 43 60 per $100 par or face value or fraction; or if withp.ut par or face value 50 pefshare. However, if selling price is $20 or. .over, .whether with or: without par or • face value rate is 60.43 Other: Passage tickets over $10 sold for pas- : Costing: $10.01-$30,$l.l0; : $30.01-$60, $3.30; over sage by vessel to a foreign.port. S7 $60, $5.50.43 110 per package of not Playing cards more than 64.43 50% of amount by which Silver bullion sales or trarisfers selling price exceeds cost plus allowed expenses. No change 44 56 No change 44 se Nochange Nochange . .... Nochange . No change No change. No change.. o fel. No change 44 Nochange 130 per package of not more than 54. . Nochange.' _ . No change . No change S8 No change . - . i Nochange . No change Repealed Apr. 1,1947. • No change. fei- o •=1 .•' Admissions sold by pi-oprietor in excess .of established price.. Leases of boxes or seats .:. Roof gardens, cabarets, etc 10 for every 100 or fraction thereof if 210 or more.59. 50% of excess 11% of amount for which similar accommodations are sold,43 20 per each 100 or fraction thereof of amount taxable.43 63 . Ticket broker sales at prices in excess of regular or established price. Adulterated arid process butter: Adulterated butter: •; Adulterated butter.-----l-;. i: No change. MISCELLANEOUS TAXES Admissions: Admissions, general o 11% of excess 43 10 for each 100 or fraction thcreof.oo No change No change 44 No change 01 5% of amounts paid for admission, refreshment, service, and merchandise. No change 44 Nochange No change No change No change .1 10 for each 50 or major No change,s2 02 fraction thereof, so ' No change. Nb change 20% of amount for which No change.s2 similar accommodations are sold.so -- 30% of amounts paid for No change, s2 admission, refreshment, service, and. merchandise.so64 20% of excess so _ No change.»2 • 1C0 per pbiind-1 . . . . ' . . No change._'_.—'. . : . . No chari^ge-- No change • No charike. fel > CQ d Manufacturers.. Retailers Wholesalers...-. Process butter: Process butter... Manufacturers.. Alaskan railroads Automobiles, etc.: Automobile bodies.. No No No No 140 per pound No $50 per year 1% of gross annual income. No $600 per year. $48 per year.. $480 per year.. 3M% sale 3M% sale 2H% sale 2H% sale . Automobile chassis.. Automobile truck bodies.. Automobile truck.chassis. Automobiles, use of ^9.. Motorcycles, j _1 Parts and accessories. —.. Tires and tubes: . Inner tubes.. Rubber tires • Floor stocks tax. on tires... Floor stocks tax on tubes. Tractors 7o of manufacturer's price.43 of manufacturer's price.43 of manufacturer's price.43 of manufacturer's price.43 3M%. of manufactm-er's sale price.43 2H% of manufacturer's sale price.43 4H0perlb.43_ 2M0 per lb.43. 2M% of manufacturerls sale price.43 . . . Bank circulation, etc, taxes: Circulation of Federal Reserve Bank H b f l % : - 1 — - : - ^ — - - - - , . .notes. ' Circulation of pational bank notes: Notes secured by 2% bonds—------ ^ofl% ., . Other notes. l%• Circulation other t h a n of national banks: 71 . On' average circulation outstand.ing: '. change. change. changechange.. change.. change- No change.. No change.. No change.. No change.. No change.. No change.. No change. No .change. No change. No change.. No change.. No change.. No change.. No charige.. No change.. No change. No change. No change. No change.. No change oo. No change-. No change.. No change oo. No change. No change.. No change 08.. No change. No change.. No change oo.. No change. No change.. Np .change.. No change os. No change 00.. No change. No change. No change..- No change. No change. No change. No change 06. No .change 60. No change. No change. 7% of manufacturer's sale price.os 7% of manufacturer's sale price.os 5% of manufacturer's sale price,65 07 5% of manufacturer's sale price,65 67 $5 per year 1. 7% of rrianufacturer's sale price.65 5% of manufacturer's sale price.65 90perlb.65 60 perlb.65 . 21^0 per lb : 4H0 per lb , 5% of manufacturer's sale price,65 No change- No change. No change 0 No change. No change. No change- No change. No change.'. No change.. No change. No change- No changei No change- No change:' No change. No charige. No 'changei No charigeNo change. No charigeNo chainge. No change. No change. No change. No change. No change. No change. No changeNo change. No change. No change. fel X W H 3 QQ . " . ' • • ' Entire: circulation:...: Circulatiph exceeding 90% of capital. Circulation paid b u t . . . Earnings of Federal intermediate cre.dit '"banks. .....<. M2 of 1% each month yi of 1% each month (additional tax). 10% . 25% of net earnings fe- • maining after provision - for expenses,- losses,-and . reserve requirements for the fiscal year. i: Footnotes on pp. 271 to 275. bO Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued to Gi- Title of tax Revenue Act of- Taxes in effect Dec. 31, 1940 ' Excise Tax Act of 1947 MISCELLANEOUS TAXES—Continued Boats, use of 69—over-all length: 16 feet but not over 28 feet Over 28 feet but not over 50 feet Over 50 feet but not over 100 feet-.. Over 100 feet but not over 160 feet.. Over 150 feet but not over 200 feetOver 200 feet..... -Business and store machines Bowling alleys, billiardfand pool tables. Canal Zone.taxes.. Ad valorem taxes (not to exceed 1% of value of property), excise and franchise taxes (not to exceed 2% of gross eamings). Coin-operated machines: Amusement devices 74... Gambling devices Cotton futures, contracts of sale of cotton 20 per lb. for future delivery, which do not conform with regulations of Secretary of Agriculture. 11% of amount paid 43 77 Dues and initiation fees Electrical energy for domestic or commer- 31^% of sale price 43 cial consumption. Electric, gas, and oil appliances : Electric light bulbs and tubes.. Electric signs.. Filled cheese: Domestic. Imported. Manufacturers, per factory. Retail dealers.. Wholesale dealers Firearms, shells, cartridges so... 10 per pound... ..*.... 80 per pound in addition to import duties. $400 per year.. $12 per year $250 per year 11% of manufacturer's sale price.43 $5 per year $10 per year $40 per year $100 per year. $150 per year $200 per year 10% of manufacturer's sale price. $10 per year per unit No change No change.. Nochange.. No change.. No change.. Nochange.. No change.. No change 72. No change. 68 No change. 68. No change, 08 No change, os No change, os Np change. 68 Nochange oo.. No change. Nochange.. No change.. $20 per year per unit so 73.. No change No change,52 No change. O S3 O fel fel o No change 75 $10 per year per machine $50 per year per machine.. $100 per year per machine No change. No change Nochange. No change No change No change 44 78 No change 44 56_ 20% of amount paid so..... No change.52 No change oe No change. No change. . . . No change.70 No change. o No change No change 10% of manufacturer's sale price. 6% of manufacturer's sale price. 10% of manufacturer's sale price. No No No No No No change : change change.-... change change change 44 . 1 : No change. 1 No change No change 00 79 No change. 20% of manufacturer's sale price.so" oo No change.52 fel Repealed Nov, 1,1942. CQ No Np No No No No change change.. change change change change No change No change. No change. No change. No No No No No No .No No change. change. change. change change. change, change. change. d Firearms (machine guns and shortbarrelled firearms) :Si Dealers Im porters or manu facturers Pawnbrokers Transfer of firearms Fur articles''(of which fur is component of chief value). Gasoline and other motor fuels Immigration head tax Imports of: Coal, coke, etc^s Copper and copper concentrates: Articles containing 4% or more of copper by weight. Articles in which copper is component material of chief value. Copper-bearing ores and concentrates and articles specified in Tariff Act of 1930. Crude petroleum, fuel oil, gas oil, and liquid derivatives (except gasoline and lubricating oils). Gasoline and other motor fuel Hempseed . Lubricating oils..i Lumber 90 -. . Oils: 92 Sunflower, rapeseed, sesame, kapok, hempseed and perilla oils, etc.,«3 Whale oil (except sperm oil), fish oil (except cod oil, cod liver oil, and halibut liver oil), marine animal oil or any combination of the foregoing, etc. «4 - Paraffin and other petroleum wax products. Perilla seed Rapeseed, kapok seed Sesame seed Jewelry.. .--. Leases of safe deposit boxes.. Lubricating oils, domestic... Luggage Footnotes on pp. 271 to 275. No No No No No No change.. No change.. No change.-No change No change No change 82 20 % of r e t a i 1 s a l price.50 oe 83 No change 6o No change S7 No change so. No change.. No change No change. 3% ad valorem or ^ 0 per No change so pound, whichever is lower, 30 per pound -. No change 56 No change.. No change No change.89 No change.. No c h a n g e . . . . . . . No change,S9 $200 per $500 per $300 per $200 per year year year firearm. No change No change No change. No change... 10% of retail sale price No change.. No change.. No change.. No change.. Nochange.. 11/^0 per gal 43 $8 per person, 16 years or over. No change 44 se No change 100 per 100 pounds _ ^. 1..... change. change. change. change. change.52« No change. No change. No change.89 40 per pound of copper therein, No change so No change.. No change H0 per gal No change,5o No change.. No change.. 2M0pergal 1.240 per lb. 40 per gal.. $3 per M feet "i.. 4H0per lb-. No No No No No 30 per lb.. No change 10 per lb No change so No change.. No change No change. 1.380 per lb.. 20per Ib---.1.180 per Ib.- No change... No change.. No change 10% of retail sale price 95 No change.. No change.. No change.. No change 9o. No change. No change. No change, Nochange.s2 85 11% of amount collected.4 4H0 per gal.43i.... 20% of ampunt collected ... No change.. 60 per gal.... No change 44 se 10% of manufacturer's sale No change.. price. No change. No change No change 20% of r e t a i l s a l price.so ee 97 No change.. No change oo 20% of- r e t a i l , s a l price.so oe gg No No No . . . No change so. change change so.. change so.. change :'. change.change.. change.. change.. No change.. ^.. No change.. No No No No No No change. fel No change. No change. No change. No change. change change change change change. No change CQ No change. ^ No change. No change. No change. . No change.52'8 to Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued Title of tax Revenue Act of— Taxes in effect Dec. 31, • .. 1940 bO'. Excise Tax Act of : ; 1947 1941 MISCELLANEOUS TAXES—Continued Matches: Matches, in general White phosphorous ....... -. Wood,:fancy-ij-. 1 Floor stocks tax on matches (except fancy wooderi matches) held and. intended for .sale together with other articles.99 .. • Mixed flour ioo....'. Mixed flour, ihanufacturers, packers, or repackers. Musical instruments Narcotics: Marihuana: Importers, m.anufacturers, and compounders., Persons.-engaged in laboratory research. Persons, other than practitioners, who deal in, dispense, or give away. Practitioners Producers...--Transfers of: To any person, who has paid the special tax as indicated above. To any person who has not paid the special tax as indi? cated above. Opium: Importers, manufacturers, and compounders. • Opium, coca leaves, etc .., • Opium manufactured for smoking purposes. fel 20 per 100 5M0per M43.. 20 per M . - NP change No change 44 20 per M. -. No change No change. No change i.. Nb change'oe. No change... No change oo. No charige. No change,. No change. ^ . o o 40 per bbl $12 per year.. No change No change-.. Repealed Nov. 1,1942. Repealed Nov. 1,1942, 10% of manufacturer's sale price. No change... w No change oo. No change, loi $24 per year. No change No' change... No change.. No change. $1 per year... No change No change No change.. No change. $3 per year.. No change No change No change.. No change. $1 per year. $1. per. year.. No change No change.. No change No change No change No change No change.. No change.. No change. No change. $1 per pz. or fraction thereof on each transfer. •_... fel_ w No change.. No change. $100 p.er. oz. or fraction there'of on each transfer. No change No change No change.. No. change. $24 per. year- No change., No change. No change.. No change. 10 per ounce.. $300 per Ib^-. No change. No'change...... No change.. No change No change.. Np change.. No change. No change. m' o io fel -fel > d " P e r s o n s engaged in l a b o r a t o r y research. P e r s o n s n o t otherwise taxed, dispensing p r e p a r a t i o n s of l i m i t e d narcp tic c o n t e n t . Practitioners R e t a i l dealers . i. Wholesale d e a l e r s . . . : . . , .... Oils, flrst d o m e s t i c processing: C o c o n u t 102 Palm" 100 P a l m kernel 1 : Oleomargarine: Colored ..: Uncolored Imported.. . Manufacturers Retailers of colored oleomargarine Retailers of uncolored oleomargarine^.. Wholesalers of colored o l e o m a r g a r i n e . - . Wholesalers of uncolored oleomargarine. Optical equipment No change. No change. N o change. N o change No change. No change. N o change. $1 per y e a r . $3 per y e a r . $12 per y e a r - N o change No change. No change. No change. No change. No change. No change. No change. No change. N o change. N o change. N o change. 30 per l b . 103.. 30 per lb 30 per lb ' N o change io4 N o change N o change N o change los.. N o change i07.. No change.... N o change 102 los.. N o change No change... N o change. 105 N o change. N o change. 100 per l b - _ 340 per lb 150 per l b . in a d d i t i o n to import duties. $600 per year $48 per year $6 p e r y e a r . - i - • :--.:. $480 per y e a r . -----. $200per yfear.--- N o charige No change. N o change No change. No change. No change. No change. No change. No change. N o change,108 N o change, 108 N o change. No No No No No No No No. No No No No No No No No No No No No $1 per y e a r . N o change $1 per y e a r . P h o n o g r a p h s a n d p h o n o g r a p h records Photographic apparatus P h o t o g r a p h i c film a n d plates, unexposedPistols a n d revolvers .-.--.-.- R a d i o s a n d r a d i o accessories Refrigerating e q u i p m e n t : Refrigeratbrs, mechanical household type. Comriiercial refrigerating e q u i p m e n t - - . Air coiiditioning u n i t s , self-contained--. R u b b e r articles, w h e r e r u b b e r is chief compprierit b y •weight,ii3 .Sporting goods—..-,-... .... .... 1 1 % of m a n u f a c t u r e r ' s sale • price,43 • 5>^% of m a n u f a c t u r e r ' s saleprice,43 5>^% of m a n u f a c t u r e r ' s sale price,43 i . . change change change.. change. change change. change. change. change. change. 10% of m a n u f a c t u r e r ' s sale R e p e a l e d N o v . 1,1942. pric6. 10% of m a n u f a c t u r e r ' s sale N o change price. . 10% pf m a n u f a c t u r e r ' s sale 25% of m a n u f a c t u r e r ' s sale price, 109 price, • ... 10% of m a n u f a c t u r e r ' s sale .16% of m a n u f a c t u r e r ' s sale price. • price, ' ' \r ' N o change 44. ;. . i . . N o change 10% of m a n u f a c t u r e r ' s sale price.so no 10% of inanufacturer's sale price.so 10% of riianufacturer's sale price. 10% of m a n u f a c t u r e r ' s sale price. 10% of m a n u f a c t u r e r ' s sale price. iO%.of m a n u f act.ur.er.'s..sale. price. N o change .., N o change change. change. change. change. change. change,108 change, 108 change, 108 change, 10s change.108 fel N p change.60.. 'No change-60 ....1. N o change .00 N o change. ...: N o c h a n g e 60 .. , N o change. N o change. Xfl N o change. N o change .00. N o change.Ill N o change 60. N o change. 112 N o change 60. N o change. N o change 60. Nochange,- . Repealed N o v . 1,1942. N o change R e p e a l e d N o v . 1,1942. N o change F o o t n o t e s on p p , 271 to 276. bO <5 Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued bO (X) Revenue Act of— Taxes in effect Dec, 31, 1940 Title of tax Excise Tax Act of 1947 1943 Ox MISCELLANEOUS TAXES—Continued Telephone, telegraph, radio etc.: 114 Cable and radio messages: Domestic.In ternational Leased wires -Local telephone serviceTelegraph messages: • Domestic-.International Telephone toll service... o messages, : : . . . . 100 per message100 per message 6% of amount charged.. 6% of amount charged 6% of amount charged 100 if charge is 500-990; 150 if charge is $1-$1.99; 200 if charge is $2 or more. 5% of amount charged^ Wire and equipment service. 11% of manufacturer's sale Toilet preparations price. Tonnage tax, entry of vessel from foreign 20 to $2 as provided by law. poft.iio Transfers to avoid income tax "7. '.. 27}'^% of the excess of (1) the value ofthe stock or securities transferred over; (2) its adjusted basis in the hands of the transferor as determined under sec, 113 of the Revenue Act of 1932,43 Transportation: Oil by pipe line i 43-^% of amount paid for transportation.43 Persons by rail, motor vehicle, water, or air. Property by rail, motor vehicle, water, or air. Seating or sleeping accommodations.... Washing machines of commercial type used in laundries. 10% of amount charged so. 15% of'amount charged 25% of amount charged so 00.. No change.s2 10% of amount charged so. 10% of amount charged so. 6% of amount charged No change 15% of amount charged 10% of amount charged No change 60 No change. 26% of amount charged so oe. No change.52 16% of amount charged so oe. No change.52 10% of amount charged so.. 10% of amount charged so.. 50 for each 600 or fraction thereof if charge is more than 240,56 No change so 10% of retail sale price 15% of amount charged No change 20% if charge is more than 240. 25% of amount charged so oe.. No change ^6 25% if charge is more than 240.50 ee 8% of amount charged so ee. 20% of retail sale price «o ee. No change.52 No change. No change.52 No change. No change. No change No change 44. No change... No change us No change No change. . . - No change,52 No change.52 so No change.- No change. No change. fel O S3 ^ O • ^ W fel i ^. fei Kj fel No change 44 se.... No change n' No change 5% of amount paid 120. 10% of amount paid 121 15% of amount paid so oe.. No change,s2122123 fel No change oo No change. Ul No change.52123 d. 3% of ambunt paid (coal 40 per short ton) ."•24 5% of amount paid 1.. 10% of amount paid 10% of manufacturer's sale Repealed Nov. 1, 1942. price. . 15% of amount paid so oe . Bituminous coal: Excise tax on sale of bituminous coal 10 per ton of 2,000 lbs _produced within the United States, Additional excise tax on.sale of bitu- Applicable to producers not members of Bituminous coal produced within the minous Coal Code: (a) United States. 19J^% of sale price at mine, if sold at mine, (b) 191/6% of fair niarket value at time of sale, if not sold at mine or through an arm's length transaction, 120 Sugar:' Sugar taxes: Excise tax on manufacture of sugar in the United States: Testing 92 sugar degrees and 0.4660 per lb., 0.008760 per lb., additional, and fracfor each additional sugar tions of a degree in prodegree. portion, Testing less than 92 sugar 0.51440 per lb, of total sugars therein. Import compensating tax: All manufactured sugar testing 92 0,4650 per lb., 0.008750 per lb. additional, and fracsugar degrees and for each additions of a degree in protional sugar degree. portion. All manufactured sugar testing less 0.51440 per lb. of total sugars therein. than 92 sugar degrees. All articles composed in chief value 0.51440 per lb. of total sugars therein. of manufactured sugar. Nochange. No change. (125) Nochange. No change. (125) No change N o change. N o change i27. No change,128 No change, N o change N o change i27. No change,i2s No change N o change N o change i27. No change.128 No change N o change N o change 127. No change.128 No change N o change N o change 127, No change.128 fet QO Footnotes on pp. 271 to 276. bO CD Exhibit 26.—Federal taxes of the United States 1940 through 1950—Continued bO o R e v e n u e A c t ofT a x e s in effect Dec, 31, 1940 T i t l e of tax 1942 1943 1944 1945 1946 1947-1948 o SOCIAL S E C U R I T Y A C T O F 1935, AS A M E N D E D T a x e s w i t h respect to employment b y others t h a n carriers: I n c o m e tax o n employees based on wages received. 129 iso Excise t a x ori e m - ' ploy e r s based on wages paid-.izs iso T a x ori e m p l o y e r s of £ or m o r e based on wages paid.129 ise T a x on self-'em'ploym e n t income.i37 CARRIERS TAXING fel O C a l e n d a r years: C a l e n d a r y e a r s : ' 1939-42, 1%; 1939-43, 1%; 1943-45, 2%; 1944-45, 2%; 1946-48, 2 H % ; 1946-48, 2 H % ; 1949 a n d there; 1949 a n d thereafter, 3 % . after, 3 % . C a l e n d a r years: C a l e n d a r years: 1939-42, 1%; 1939-43, 1%; ' 1943-45, 2%; 1944-46, 2%; •1946^48, 2 H % ; 1946-48, 2 H % ; 1949 a n d there- • 1949 a n d t h e r e after, 3 % , after, 3 % . 3 % . . . - . . . . . . . . . No change..' C a l e n d a r years: C a l e n d a r years: 1939-46, 1%; 1939-44, 1%; 1946-48, 2 H % ; 1945, 2%; 1949 a n d there1946-48, 2 H % ; after, 3%.i32 1949 a n d there. after, 3%.i3i C a l e n d a r years: C a l e n d a r years: 1939-45, 1%; • 1939-44,1%; 1946r48,.2M%; 1945, 2%; 1949 a n d there1946-48, 2 H % ; after, 3%.i32 • 1949:and thereafter, 3%.i3i • .No c h a n g e . . . . _ - N o change Calendar years: 1939-47, 1%; 1948, 2 H % ; 1949 a n d thereafter, 3%.i33 C a l e n d a r years: 1939-49, 1%; 1960-51, 1M%; thereafter, 2%.i34 C a l e n d a r years: C a l e n d a r y e a r s : '1939-46, 1%; 1939-47,1%; 1947-48, 2 H % ; . 1948, 2 H % ; . - . . 1949 a n d there1949 a n d thereafter, 3 % . ISS after, 3 % . Calendar years: 1939-49, 1%; 1950-61, 1 H % ; thereafter, 2%.i34 C a l e n d a r years: 1939-46, 1%; " 1947-48, 214%; 1949 a n d thereafter, 3 % . N o change N o change No change. C a l e n d a r years: 1950-53, 1 H % ; 1954-59, 2%; 196064, 2 H % ; 1965-69, " 3 % ; thereafter, 3>i%.i35 C a l e n d a r years: 1960^53, 1 ^ % ; 1954-59, 2%; 1960' 64, 2 H % ; 1965-69, 3 % ; thereafter, 3K%.i35 N o change. T a x a b l e years: 196163, 23^%; l'954-59, 3 % ; 1960-64, 3 ^ % ; 1965-69, 4 H % ; thereafter, 474%.i3s 6 m S3. 'W o fel ACT, 1937 t ^ T a x e s w i t h respect to emp l o y m e n t b y carriers: I n c o m e tax on employees based on c o m p e n s a t i o n received.iss C a l e n d a r years: 1937-39, 2 H % ; 1940-42, 3 % ; 1943-45, 3 J i % ; 1946-48, 3M%; 1949 a n d thereafter, 3 ^ % . No change. No change. No change. No change. C a l e n d a r years: 1947-48, 5 ^ % ; 1949-51, 6%; thereafter, - 6M%.'39 No change. N o change. fel t> J/2 d K4 Income tax on representatives of employees based on compensation re. ceived.iss Excise tax on employers based on compensation paid.138 Calendar years 1937-39, 5H%; 1940-42, 6%; 1943-45, 6H%; 1946-'48, 7%; 1949 and there^ after, 73^%. Calendar years 1937-39, 2 ^ % ; 1940-42, 3%; 1943-45, 3 ^ % ; 1946-48, 31^%; 1949 and thereafter, 31^%. No change.. No change No change No change Calendar years 1947-48,11H%; 1949-51, 12%; thereafter, No change No change. No change. 121^%.1S9 No change.. No change No change No charige Calendar years 1947-48, 5^%; 1949-61, 6%; thereafter, 6M%.i3« No change No change.. No change No change No change. Nb change. Effective Jan. 1, No change. 1948: 0.5%3.0%, depending on the size of the railroad unemployment insurance ac- ^ • count.140 RAILROAD UNEMPLOYMENT INSURANCE ACT, 1938 Excise tax on employers (carriers) based on compensation paid.iss 3% « fel X n w NOTE,—This exhibit does not include (1) customs duties. (2) miscellaneous fines and fees, (3) the tax with respect to certain hydraulic mining (act of Mar. 1,1893, as amended by the act of June 19, 1934), and (4) various taxes levied in the District of Columbia for expenses of tbe District of Columbia, For Federal taxes in the period 1913-39, see 1940 annual report, pp, 466-534, and for 1939-44, see 1944 annual report, pp. 468-486. 1 Individual Income Tax Act of 1944, 2 In addition to the Revenue Act of 1943, the Congress enacted the Current Tax Payment Act of 1943, which revised, the system of individual income tax payment but made no change in the rates, exemptions, and credits. The act provided for current collection of tax liability by collection at source, and by filing of-declarations of estimated tax and the current payment of such tax by taxpayers not made substantially current in their payments through withholding. To provide for transition to current payments, the act in gerieral canceled 75% of either the 1942 or 1943 tax, whichever was the lesser, 3 For rates arid exeniptions with respect to nonresident alien individuals, see Supplement A, p, 276. For tax treatment of capita] gains and losses, see Supplement B, p. 277. • .4 Subsequent to the act.of Oct. 22,1914; and prior to the Individual Income Tax Act.of 1944, the personal exemption allowed to married persons was also allowed to heads of families. : .• . . • s The cllanges in individual income tax exemptions and rates made by the Revenue Act.of 1943, intended.to be applicable to the taxable year 1944, were superseded by the provisions of the Individual Incomie Tax Act of 1944 before they became effective. 0 Surtax exemptions. For surtax, each taxpayer was allowed an exemption of $500, plus $500 for his spouse and $500 for each dependent. The normal tax exemption was $500, However, if husband and wife combined their income in a joint return, the normal tax exemption was $600 plus the amount of the smaller of the two incomes, but not more than $17000 for both, 7 For 1946 and subsequent years, the exemptions are allowed for both normal tax and surtax. 8 Beginning with the taxable year 1948 married couples filing joint returns were allowed to .divide their combined incomes equally in corriputing their income taxes. 9 The Individual Income Tax Act of 1944 eliminated the former requirement that a "dependent" must be und^r 18 years old or incapable of self-support. Under the 1944 act the taxpayer may claim as a dependent any close relative whose income is less than $500 and who received more than half of his support from the taxpayer, provided the relative is a resident of the United States, Canada, or Mexico. . 10 Allowed to taxpayers arid their spouses, but not allowed for dependents. 11 The additional exemption of $600 for the blind replaced the special $500 deduction for the blind provided by the Revenue Act of 1943, applicable to taxable years 1944-47. g hH bsS -SI FOOTNOTES FOR E X H I B I T 26—Continued 12 For taxable years beginnmg after Dec. 31, 1939, and before Jan. 1, 1941, the sum of the normal tax and surtax computed under the above rates was increased by a defense tax of 10% of the amount of the tax, limited, however, to 10% of the excess of the net income over the sum of the normal tax and surtax. 13 The percentage reductions from tentative tax "were eliminated for calendar year 1951 and other taxable years beginning after Sept, 30,1950, For calendar year 1950 the percentage reductions.from tentative tax were reduced to the following: 13% on the first $400 of tentative tax; 9% on the next $99,600; and 7,3% on the amount in excess of $100,000. 14 The combined normal tax and surtax (before deduction of. credits for foreign ta;xes, taxes withheld at source, and taxes withheld on wages) is subject to the following maximum effective rate limitations: Reveriue Act of 1944, 90%; Revenue Act of 1945, 85,5%; Revenue Act of 1948, 77%; Revenue Act of 1950, for calendar year 1950, 80%, for calendar year 1951 and other taxable years beginning after Sept. 30, 1950, 87%. 15 Applicable to taxable year 1943 only, f h e exemption of $624 applied to every individual regardless of marital status. However, in the case of a husband and wife filing a joint return, if the Victory tax net income of one spouse was less than $624, the total exemption was limited to $624 plus the Victory tax net income of such spouse. The following credits were allowed against the tax: 25% of the tax if single or 40% if married, plus in either case 2% for each dependent. The amount of the credits were limited, however, to $500 if single, $1,000 if married^ plus $100 for each dependent. The credits as provided bythe Revenue Act of 1942 were to be postwar credits, allowable currently only under specified conditions, but they were converted into automatic current credits by Public Law 178,78th Congress, approved Oct. 28,1943. The amount of Victory tax (before tax credits) was limited to the excess of 90% of net income over the regular income tax liability. 10 The amount of net income accounted as earned for purposes of the earned-income credit was all net income up to $3,000, whether earned or not, and up to $14,000 if earned. In the case of a taxpayer engaged in a trade or business in which both personal services and capital were material income-producing factors, a maximum of 20% of his share of the net profits of such trade or business was includible within the earned-income category. 17 For tax treatment of capital gains and losses, see Supplement B, p. 277. For taxeson special classes of corporations, see Supplenient C, p. 279. IS Including defense tax. 19 Notch provision, 20 For taxable years beginning before Julyl, 1950, and ending after June 30,1950 (except calendar year 1950 returns), the tax is computed under prior law rates on income allocated to the period prior to July 1,1950, and under the rates applicable to taxable years beginning after June30,1950, on income allocated to the period after June 30,1950, Provision is also made for an earlier schedule of installment payments of the corporation income tax which will ultimately achieve payment of the full tax liability in the first two quarters following the end of the taxable year, A 5-year transition period, begirming with taxable years ending on or after Dec. 31,1950, is provided, during which the tax payable in the third and fourth quarters is gradually reduced and the tax payable in the first and second quarters is correspondingly increased. 21 But not in excess of 85% of adjusted net income. 22 But not in excess of 85% of adjusted net income after deduction of income subject to excess profits tax, 23 The total credit allowed for dividends received is limited to an amount equal to 85% of net income, minus the credit for interest received on certain obligations of the United States, computed without regard to the net operating loss deduction. In the case of dividends received in property other than money, the credit is limited to an amount not greater t h a n 85% of the adjusted basis of the property in the hands of the distributing corporation. For the calendar year 1950, the credit in the case of dividends received on certain preferred stock of public utilities is 57%. ' 24 The credit for dividends paid by a public utility on certain preferred stock, in the case of a taxable year beginning after June 30,1950, is ari amount equal to 31% of such dividends, but not in excess of 31% of the net income, minus the credit for interest received on certain obligations of the United States and the credit for dividends received. For the calendar year 1960, the applicable credit is 33% of such amounts. The credit for Western Hemisphere trade corporations is shown in Supplement C. 25 See "Recapture of excess profits on certain Government contracts," below. 20 The Tax Adjustment Act of 1945, approved July 31,1945, increased the specific exemption from $10,000 to $25,000, effective Jan, 1, 1946, allowed the 10% excess profits postwar refund credit to be taken currently with respect to tax liabilities of 1944 and subsequent years, and advanced the maturity date of outstanding refund bonds to Feb, 1, 1946. Owing to the repeal of the excess profits tax by the Revenue Act of 1945, the increased specific exemption of $25,000 was riot applicable. For taxable years beginning in 1945 and ending in 1946, the excess profits tax was retained for the 1945 portion of the year. 27 The deficit rule was repealed and it was provided that the base period net income in the lowest year of the base period shall not be less than 75% of the average base period net income of the other three base period years. 28 The Secorid Reveriue Act of 1940 established the rule.that the largest deficit of any base period year shall be disregarded in computing average base period net income. Excess Profits Tax Amendments of 1941, applicable to taxable years beginning after Dec. 31,1939, permitted taxpayers with higher average income in the second half of the base period than in the first half to use the so-called "growth formula." 29 This tax was imposed by sec. 3 of the act of Mar. 27, 1934 (Vinson Act) (48 Stat. 503, 505), as amended by the act of June 25,1936 (49 Stat. 1926), the act of April 3,1939 (63 Stat. 655, 550), and the act of June 28, 1940 (Public Law 671, 76th Congress). so Any profits in excess of 8.7% of the cost of performing such contracts except prime contracts made on a cost-plus-a-fixed-fee basis completed within the income taxable year shall be considered profits in excess of 8% of the contract price. In a contract entered into on a cost-plus-a-fixed-fee basis, the fee shall not exceed 7% of the estiniated cost of the contract (exclusive of the fee as determined by the Secretary of the Navy or the Secretary of War, as the case may be). 31 Sec. 622 (b) of the National Military Establishment Appropriation Act, 1950 (63 Stat. 987, 1021), approved Oct. 29, 1949, provides that "the profit limitation provisions of the act of Mar. 27, 1934 (48 Stat. 503, 605), as amended and supplemented, shall not apply to any contract or subcontract which is subject to the Renegotiation Act of 1948." 32 In community-property States prior to 1942. at the death of a spouse, only one-half of the community property was subject to estate tax irrespective of whether such property was accumulated by that spouse. In the case of gifts of community property, one-half of the gift was taxable to the husband and the other half was taxable to the wife. In noncommunity-property States, the entire amount of property accumulated by the spouse was taxable under the estate and gift tax. The Revenue Act of 1942 provided that, even in the case of community property, transfers were fully taxable to the decedent or donor to the extent that the property was attributable to his personal services. The Revenue Act of 1948 repealed the 1942 provision with the result that transfers of community property are now generally taxable under the pre-1942 law. In addition, the 1948 act provides that transfers of noncommunity property may be split for purposes of the estate and gift taxes. bO bO CO Ot o fel O O fel fel o fel Sl fel >. Ul d Sl liquor is not otherwise engaged in business as a dealer in wine or malt liquors. Under 33 Estates of decedents dying after June 6, 1932, are subject to two estate taxes—the the Revenue Act of 1940, the rate was increased to $2.20 per month. basic tax under the provisions of the Revenue Act of 1926 plus an additional tax under - 56 Tax made permanent by eliminating expiration date of July 1, 1945, the Revenue Act of 1932 or 1932 as amended. The rates and exemptions shown in this 57 Except for passage to Canada, Mexico, Cuba, or Puerto Rico. table are for determining the additional estate tax. The total tax is the araount deter58 Effective Jan. 1,1942, and until the termination of hostilities (Dec, 31,1946) exports to mined under the basic rate plus the difference between the basic and the additional tax. a possession of the United States, or to a Territory of the United States if for use of members 34 This exemption and the exemption of $100,000 under the basic tax are allowed only of the armed forces, exempt, to resident decedents and citizens. The Revenue Act of 1942 provided for an exemption 59 Persoris admitted free or at reduced rates (except employees, municipal officers on of $2,000 in the case of estates of nonresidents not citizens under the additional tax. 36 The $60,000 exemption replaces the former $40,000 exemption and $40,000 life insurance official business, and children under 12 years of age) subject to tax based on the admission charge made to other persons for similar accommodations. The tax on tickets to any exclusion. Under the 1942 act, the exclusion for life insurance was eliminated. 30 Rates shown are those for determining the additional tax; the minimum and maxi- spoken play sold at the ticket olfice of theaters at reduced rates is based upon the price for which sold, mum rates for determining the basic tax are 1% and 20%, respectively, 00 Admissions to affairs for the benefit of religious, educational, and charitable organ37 In the case of a decedent dying after the enactment of the Revenue Act of 1940 (June 25, 1940) and prior to the effective date of the Revenue Act of 1941 (Sept, 21, 1941), there . izations and all other nonprofit organizations made taxable. Members of the armed forces of the United States or Civilian Conservation Corps when in uniform subject to was added to the net tax (after deductions of the credits for gift taxes and State death tax based on actual admission charge if admitted at reduced rate (see footnote 59). No taxes) computed at the aboye rates, 10% of the amount of such net tax, as a defense tax. tax.payable on admission charges for children under 12 years of age if the amount paid 38 Allowed but once and may be taken all in 1 year or over a period of years at the option is less than 10c. Provision for exemption of admissions of $3 or less, to have been effective of the donor. July 1, 1945, repealed. 39 Except gifts of future interests and gifts in trust, 01 Admission charges to activities operated on military areas by the Departments of 40 Except gifts of future interests. Applicable to gifts made after the end of the calendar the Army and Navy, exempt effective Oct. 1, 1941, by Public Law 676, 77th Congress, year 1942. approved July 23, 1942. The same law also provided that members of the armed forces 41 A defense tax of 10% of the gift tax computed at the above rates was applicable to of the United Nations when in uniform should be subject to tax on the basis of the actual gifts made in the calendar year 1940 (determined by proration), and to gifts made in the admission charge if admitted at reduced rate (see footnotes 69 and 60). calendar year 1941. 02 Effective after Dec. 31, 1947, Public Law 384, 80th Congress, approved Aug: 8, 1947, 42 With the exception of the penalty tax on leaf tobacco, and the taxes on dealers and required that free or reduced rates of admission of members of the armed forces of the manufacturers, the tobacco taxes apply to products manufactured or imported into the United States, the United Nations, or the Civilian Conservation Corps be taxed on the United States and sold or removed for consumption or sale. basis of the regular charges for comparable admissions. Effective Aug, 1, 1948, Public 43 Defense tax for 5 years, effective July 1,1940, through June 30,1945, in lieu of tax under Law 706, 80th Congress, approved June 19, 1948, exempted from tax free admissions of a prior law. hospitalized member of the arnied forces of the United States or of a person hospitalized 44 Defense tax rate made permanent. as a veteran by the Federal Government in a Federal, State, municipal, or private hos45 Exports to Territories of the United States for use of members of the armed forces • pital or institution. exempted until the termination of hostilities (Dec. 31,1946)'by Public Law 14, 78th Con03 Amount taxable is the amount of admission charge, which is deemed to be 20% of Ul ' gress, approved Mar. 23, 1943. the total paid- for refreshments, services and merchandise. Where amount paid for 40 (Counting each 2% inches (or fraction thereof) of the length of each as one cigarette. admission is 50^ or less no tax shall be paid. 47 The retail price classes were changed by the Revenue Act of 1942. 04 Effective July 1, 1944, rate was lowered to 20% by Public Law 333, 78th Congress, 48 With the exception of the taxes on rectification of distilled spirits and wines, and approved June 9, 1944. fermented malt liquors prior to Aug. 1, 1948, the liquor excise taxes apply to products 05 Tax on automobiles and trucks, parts and accessories, tires and inner tubes made imported into the United States as well as to domestic products. permanent by eliminating expiration date of July 31, 1946. 49 Brandy taxed at samjd rate as other distilled spirits by the Revenue Act of 1941 and 00 Exemption of sales to the Fede.ral Government repealed as of June 1, 1944, with resubsequent revenue acts. ^ spect to the manufacturers' (Chapter 29, Internal Revenue Code) and retailers' excises 50 War tax rate^in lieu of tax urider prior law, applicable until the first day of the first (Chapter 19, Internal Revenue Code), and the excises on pistols and revolviers, firearms, month whicji begins 6 months or more after the termination of hostilities. 51 The Revenue Act of 1945 provided refunds in coimection with reductions in taxes on shells and cartridges, electrical energy, communications services, and transportation of persons and property. In the case of sales of pistols and revolvers, firearms, shells and caralcoholic beverages and electric light bulbs which under the Revenue Act of 1943 were tridges, and radios, phonographs, phonograph records and musical instruments, the exempto have taken place 6 months after the termination of hostilities. tion is repealed, effective July 1,1947, six months after the termination of hostilities. The 52 Increases in excise tax rates imposed under the 1943 Revenue Act made permanent. Secretary of the Treasury may authorize exemption of sale to the Federal Government 53 Nonbeverage distilled spirits taxed when withdra'vvn at same rate as distilled spirits. from any of the above-mentioned taxes if he determines that the imposition will cause Drawback of part of tax permitted beginning Nov. 1, 1942, if spirits used for certain pursubstantial burden or expense which can be avoided by granting tax exemption and that poses and manufacturer pays an armual tax of $25 for withdrawals of not more than 25 the full benefit of such exemption will accrue to the United States. The discretionary proof gallons, $50 for withdrawals of not more than 50 proof gallons, $100 for withdrawals power of the Secretary shall not be applicable to any contract entered into on or after July of more than 50 proof gallons. 1. 1947, six months or more after the termination of hostilities. The Revenue Act of 1946 84 Effective Aug. 1, 1948, tax extended to imported fermented liquors by Public Law repealed the time limitation on the discretionary powers of the Secretary. 857, 80th Congress, approved June 30, 1948. 07 Automobile busses taxed at same rate as trucks. Previously taxed at the higher bO 55 Retailers of wines or malt liquors, to members, guests,.or patrons at fairs, dances, picnics, etc., shall pay a tax for each calendar month in which such sales are made in lieu . rate applicable to passenger automobiles. 00 08 Repealed, effective after June 30, 1946, by the Revenue Act of 1945. of the regular tax, provided that the person or organization retailing the wine or mialt FOOTNOTES FOR E X H I B I T 26—Contmued 09.lf in any year the first use of the motor vehicle or boat is after July^31, the tax is reckBried prbporticiiately from the first day of the month in which such use occurs to and including the 30th day of June following. 70-'Tax applies only to tractors of the kind used chiefly for highway transportation in •combination with a trailer or semi-trailer. " - '71'Outstanding circulation exempt from taxation (1) whenever such circulation of any barik,-association, corporation, company or person is reduced to not over 5% of the chartei-ed or declared capital existing at the time the same was issued; (2) whenever any bank which has ceased to issue notes for circulation deposits in the Treasury of the United •States in lawful money the amount of its outstanding circulation to be redeemed at par and (3)"whenever any bank is insolvent or bankrupt. 72 Cash registers of the type used in over-the-counter retail sales exempt. • 78'Billiard tables or pool tables in a hospital, if no charge is made for use of such table, exempt'-from tax beginning July 1, 1944. • - 74 Includes "pin ball" and similar amusement devices. 7s Includes any coin-operated amusement or riiusic machine and vending machines operated by a 1^'.coin with provision for merchandise prizes of not more than 5{i retail •valueV70 Effective Nov. 1,1950, rate increased to $150 permachine by the Revenue Act of 1950. 77 In the case of (1) dues, if the dues of active resident annual members exceed $25 per year,- (2) initiation fees, if such fees exceed $10 per year, or if the dues of active resident annual rnembers exceed $25 per year, not including initiation fees. 78 In the case of (1) dues, if the dues of active resident annual members exceed $10 per year, (2) initiation fees, if such fees exceed $10, or if the dues of active resident aimual . members exceed $10 per year, not including initiation fee's. 79 Household type electric vacuum cleaners exempt. so Excludes pistols and revolvers and certain firearms on which a tax has.been paid under sec. 2720 of the Internal Revenue Code (see footnote 81). 81 Firearms are defined to include shotguns and rifles with barrels of less than 18 inches in length, other guns capable of being concealed (except pistols and revolvers), machine guns, and muflaers and sflencers. The law provides that: In the case of manufacturers and dealers in guns with two attached barrels from which only a single discharge can be made from either barrel without manual reloading, the tax shall be $25 per year for manufacturers .and $1 per year for dealers; and the transfer tax on such guns, the barrels ofwhich are 12 inches.or more in length, shall be at the rate of $1. 82 Effective July 1, 1945, nonautomatic single barreled guns, 12 inches or more in length, designed to- be held in one hand when fired were placed in the $1 transfer tax class by Public Law 177, 79th Congress, approved Aug. 11, 1945. • ' 83 Pur articles made from pelts furnished by a customer, when the article is for use of and not for resale by such a customer, taxable upon the fah' retail market value as determined by the Commissioner. 84 Articles made of fur on the hide or pelt taxable only if the value of the fur is more than three times the value of the next most valuable component-material. 85 Retail auction sales of jewelry and furs on behalf of persons not engaged in the business of selling like articles, made taxable as retail sales under Revenue Act of 1950, except that the first $100. of sales exempted where the auction sale takes place at the home of the person whose "articles are being sold. - so Articles sold at retail by any agency or instrumentality of the United States made taxable under Revenue Act of 1950, unless specifically exempted by statute. bO 87 Natural born residents of North, South, and Central America, and adjacent islands were exempted from tax from Apr.' 29, 1943, to -Dec; "31, 1947, by Public Law 45, 78th Congress, approved .Apr. 29, 1943, Public Law 229, 78th Congress, approved Feb. 14, 1944, and Public Laiw 40, 80th Congress, approved Apr. 28, 1947. • -s Applies only on imports if imports from a country during the preceding calendar year CO exceeded exports to it. Or 39 Suspended, except for copper sulphate and other specified types of copper, from Apr. O 30, 1947, to June 30, 1950, by Public Law 42, 80th Congress, approved Apr. 29, 1947, and Pubhc Law 33, 81st Congress, approved Mar. 31, 1949. Public Law 869, 81st Congress, pi approved Sept. 30,1950, extended the suspension with regardto scrapuntil June 30,1951, fel 90 Flooring of maple, birch, and beech, and Northern white pine, Norway pine, and Western white spruce is exempt, O 91 The rate was reduced by various trade agreements. S3 • 92 Tax does not apply to any article, merchandise, or combination if any coconut oil or derivative thereof produced in Guam or American Samoa is contained therein. O 83 Tax does not apply to rapeseed' oil imported for use in the manufacture of rubber fel substitutes or lubricating oil, «4 No whale oil (except sperm oil), fish oil, or marine animal oil of any kind may enter tax-free unless such oil was produced on vessels of the United States or in the United States or its possessions, from whale, fish, or marine animals or parts thereof taken and fel. captured by vessels of the United States, 85 Tax does not apply to any article used for religious purposes, to surgical instruments, or to frames or mountings for spectacles or eyeglasses, or to a fountain pen if the only parts of the pen which consist of precious metals are essential parts not used for ornamental o purposes, 80 Additional exemptions: Watches designed especially for use by the blind, smokers' pipes if the only parts which consist of precious metals are essential parts not used for S3 ornamental purposes, and buttons, insignia, cap devices, chinstraps, and other-devices > prescribed for use in connection with the uniforms of the arriied forces of the UnitedStates. 87 Silver-plated flatware exempt. Watches retailing for not more than $65 and alarm clocks retailing for not more than $5 taxed at 10%, eflective Sept. 1, 1945, mechanical pencils having precious metals as essential parts exempted from tax by Public Law 180, o 79th Congress, approved Aug. 11, 1945. 8s Tax extended to cover purses, handbags, wallets, billfolds, and similar articles; fel 89 Tax does not apply to retail stocks held at the place where intended to be sold, nor to matches held for sale by the manufacturer or importer thereof. 100 A barrel contains more than 98 pounds but not more than 196 pounds. The tax on fel smaller amounts of mixed flour is as follows: 20 per half barrel containing more than 49 pounds but not more than 98 pounds; 10 per quarter barrel containing more than 24)^ pounds but not more than 49 pounds; H^ per one-eighth barrel containing 24>^ pounds fel or less. 101 Effective July 4, 1948, musical instruments sold for the.use of religious or nonprofit > educational institutions exclusively for religious or educational purposes exempted from Ul c\ tax by Public Law 899, 80th Congress, approved July 3, 1948. 102 Effective July 4; 1946, Pubhc Law 371, 79th Congress, approved Apr. 30, 1946, re- SJ pealed the provision requiring that tax collected on processing of coconut oil from the Philippines be paid into the Philippine treasury. 103 Additional tax of 20 per pound if coconut oil is not from the Philippines or other possession of the United States, " . a to uniformed members of the arraed forces of the United States or the United Nations 104 Taxes collected with respect to coconut oil wholly of the production of Guam or ^ American Samoa or produced from materials wholly of the growth or production of Guam was terminated effective Dec. 31, 1947, by Public Law 384, 80th Congress, approved Aug. 8, 1947. or American Samoa, held as separate funds and paid to the treasury of Guam or American 123 Effective Nov. 1, 1950, the Revenue Act of 1950 requires the collection of tax where Samoa, respectively. . ' payment is made without the United States for travel which begins or ends in the United 105 Additional tax of 20 per pound suspended for the period Sept, 17, 1942, to Aug. 26, States, or for the transportation of property from one point in the United States to another. 1949, b y Pubhc Law 711, 77th Congress, approved Sept. 16, 1942; Pubhc Law 390, 78th 124 The tax on transportation of property does not apply to the transportation of coal Congress, approved June 30, 1944; and Presidential proclamation of June 27, 1946, Suswith respect to which there has been a previous taxable transportation, pension terminated, effective Aug, 27, 1949, by Presidential proclamation of July 27, 1949. (See footnote 103.) 125 Expired Aug. 23, 1943. 120 The Commissioner of Internal Revenue shall determine the fair market value thereof. 100 Tax does not apply to palm oil used in the manufacture of tin plate, terne plate, or Such fair market value shall equal the current market price at the mine of coal of a coraany subsequent use of palm oil residue resulting from the manufacture of tin plate or parable kind, quality, and size produced for market in the locality where the coal so terne plate. disposed of is produced, 107 Palm oil used in the manufacture of iron or steel products exempt. 127 Effective date extended from June 30,1945, to June 30,1947, by Pubhc Law 345, 78th 108 Repealed effective July 1, 1950, by Pubhc Law 459, 81st Congress, approved Mar. Congress, approved June 20, 1944, and from .June 30, 1947, to June 30, 1948, by Public 16, 1950. Law 558, 79th Congress, approved July 27,. 1946, 109 Cameras weighing more than 4 pounds exclusive of lens and accessories exempt. '110 Basis of tax changed from value of specified component parts of radios to value of 128 Effective date exiended from June 30,1948, to June 30,1963, by Public Law 388, 80th Congi-ess, approved Aug. 8, 1947, . complete rMio. Ill Eflective Nov. 1, 1950, tax extended to television sets by Revenue Act of 1950. 129 For the period through 1950, "wages" do not include remuneration to an individual •112 Effective Nov, 1, 1950, tax extended to household units for the quick freezing or in excess of $3,000 in a calendar year; thereafter remuneration in excess of $3,600 in a calfrozen storage of foods by Revenue Act of 1950. endar year is excluded. J30 The tax is imposed by the Federal Insurance Contributions Act (embodied in '• 113 Tax not applicable to footwear, articles designed especially for hospital or surgical Social Security Act Araendraents of 1939) which superseded title VIII of the Social use, or articles taxable under other provisions of Chapter 29 of the Internal Revenue Code, Security Act of 1935. fel. 114 No- tax is imposed upon any payment received from any person for services utilized in collection of news for public press or radio broadcasting, or in the dissemination of • 131 Changes were enacted in Public Law. 211, 78th Congress, Dec. 22,1943, and in Revenews through the public press or by means of radio broadcasting if the charge for such nue Act of 1943. services is billed to such person. 132 Changes were enacted in Public Law 495, 78th Congress, Dec. 16,1944. 133 Changes were enacted in Public.Law 719,"79th Congress, Aug. 10,1946 (Social Security . lis Sales to beauty and barber shops of preparations for resale not considered a sale at Act Araendraents of 1946). retail. 134 Changes were enacted in Public Law 379, 80th Congress, Aug. 6, 1947 (Social Se- Ul 11,0 Certain vessels are specifically exempt from the tax, (See 46 U. S, C , sees. 122-126, curity Act Araendraents of 1947). 130.) 135 Changes were enacted in Pubhc Law 734, 81st Congress, Aug. 28, 1950 (Social Se117 The tax is imposed upon the transfer of-stock or securities by a citizen or resident of curity Act Amendments of 1950). the United States, or by a domestic corporation, partnership, or trust to a foreign corporation as paid-in surplus or as a contribution to capital, or to a foreign partnership or trust. ISO The tax is iraposed by the Federal Uneraployraent Tax Act (embodied in Social 118 If no charge is made, or charge is less than "fair charge," the tax is on the fair charge Security Act Amendments of 1939) which superseded title IX of the Social Security Act of 1935. A credit up to 90% of the tax is allowed for contributions paid into an for transportation. 119 Transportation of oil through lines of pipe within a refinery, bulk plant, terminal, or unemoloyraent fund under a State law. a gasoline plant, if not a continuation of taxable transportatiori, is not included within the 137 Tax does not apply to net eamings from self-employment when such earnings fpr term transportation. the taxable year are less than $400, nor does it apply to that part of self-employment income which exceeds (a) $3,600 minus (b) the amount of wages subject to social security 120 No tax is imposed on amounts paid for: transportation for which the charge does not tax. . . . exceed 350, commutation or season ticket for single trips of less than 30 miles, commutation tickets for one month or less. Payraents for round-trip tickets at tariffs of not more than 138 "Corapensation" does not include remuneration to an individual in excess of $300 1)40 per mile by members of the armed forces of the United States in uniform and traveling in a calendar month. Prior to 1947, the incorae tax on eraployees and employee representat their own expense when on official leave are exempt. atives was based on compensation earned, and the excise tax on employers (under the 121 jjjxemption for special rate furlough tickets extended to merabers of the armed forces . Railroad Uneraployment Insurance Aet) was based on compensation payable. • 139 (Changes were enacted in Public Law 5';^, 79th Congress, July 31,1946. of any of the United Nations. (See footnote 120.) 140 If the balance to the credit of the account on Sept. 30 of any year is less than .$250 122 The Excise Tax Act of 1947 exempted from tax transportation, any part of which is million, the tfix rate for the following year is 3%; if the balance is between $250 arid"$300 outside the northern portion of the Westem Hemisphere, except with respect to any part million, the rate is 2H%;.if the balance is between $300 and $360 million, the rate is 2%; of such transportation which is from any port or station within the United States, Canada or Mexico to any other port or.station within the United States, Canada'.or Mexico.. if the balance is between $350 and.$400 million, the rate is 13^%; ifi the balance is between $400 and $450 million, the rate is 1%; if the balance is $450 million br over, the rate is 3^%. bO For purposes of this exemption. Public Law 35,'81st Congress, approved Marl 31, 1949, Public Law 744, 80th Congress, June 23,1948, provided that effective Apr. 1, 1949, a port or station within Newfoundland shall not be considered as being within Canada. The exeniption from tax on tfarisjportatiori grainted . Or S Exhibit 26.—Federal taxes of the United States, 1940 through 1950—Continued bO S U P P L E M E N T A,—PERSONAL E X E M P T I O N S , TAX BASE, AND RATES APPLICABLE TO N O N R E S I D E N T ALIEN INDIVIDUALS Federal tax law Intemal Revenue Code as amended by Revenue Act of: 1940 Income Personal year exemption 1 1940 1941 1941 .. 1942,1943, Individual Income Tax Act of 1944 and Revenue Act of 1945. 1942-47 19481948 and 1950 . . . . NOTE.—Nonresident aliens engaged in trade or business within the United States are taxed at the same rates as residents of the United States. Nonresident aliens not engaged in trade or business within the United States, who derive not more than $21,600 in 1939, $24,000 in 1940,'$23,000 in 1941, and $15,400 in 1942 and subsequent years from fixed and determinable annual or periodical gains, profits, and income frora sources within the United States are subject to the rates shown in the table, withheld at source on the gross amount of such income without personal exemption or credit for dependents. By treaty agreement with a contiguous country (Canada or' Mexico) for 1939 through 1940, and with any country in North, Central, or South Araerica, the West Indies, or Newfoundland for 1941 and subsequent years, these rates may be reduced to not less than 5%. Under treaty agreements the rates applicable to residents of Canada are 5% for 1940, and 15% for 1941 and subsequent years. Salary or other corapensation for personal services of a resident of Canada or Mexico who enters and leaves the United States at frequent intervals is not subject to the withholding rates shown in the table, but for 1943 such incorae was subject to Victory tax withholding and thereafter to withholding at rates applicable to residents of the United States. Nonresident aliens with no United States business (other than those affected by a treaty) who report raore than the above specified araounts of gross income are liable to normal tax aind surtax on such incorae after deductions applicable thereto and the personal exemption shown in the table. The total tax, however, shall in no case be less than the withholding rate shown in the table. In addition, such nonresident aliens were subject to the 10% defen.se tax applicable to the taxable year 1940, and $800 Tax basei Fixed or determinable annual or periodical gains, profits, and income from sources within the United States, do 750 . . . 500 . . . . do 600 do Withholding rate (percent) 2 16^^ 27^ 3 30 4 30 the Victory tax applicable to the taxable year 1943. For tax treatment of capital gains of nonresident aliens not engaged in trade or business in the United States, see Supplement B, page 278 (footnote 1), 1 Whether nonresident alien is single, married or head of a family, except that for 1942 and subsequent years residents of Canada or Mexico are allowed the sarae exeraption as a citizen of the United States. Credit for dependents allowed only to residents of Canada or Mexico, 2 Includes 10% defense tax. 3 As provided by the Revenue Act of 1943, on or after Mar, 6,1944, the rate of withholding on the compensation for services performed by a nonresident alien individual, or by a citizen of a possession of the United States not otherwise a citizen of the United States, brought into the United States under authority of the War Manpower Comraission for teraporary employraent essential to the war effort shall be at the reduced rate of 10% on the gross amount of compensation derived from labor or personal services by such an individual, 4 For taxable years beginning after Dec, 31, 1950, citizens of Puerto Rico deriving income from sources within the United States will be taxable on such income to the sarae extent and in the sarae raaimer as United States citizens, and the 30 per cent withholding tax will be inapplicable to them. o S3 1^ o fel ^ fel s o SI fei > o fej SJ > Ul SI -1 S U P P L E M E N T B.—TAX T R E A T M E N T OF GAINS AND LOSSES FROM SALE OR E X C H A N G E OF CAPITAL ASSETS PART I. UNDER INDIVIDUAL INCOME T A X i o Provisions with respect to— Federal tax law Income year Assets by period held Revenue Act of 1938 and Internal Revenue Code. 1938 through 1941.. Short-term: Not than 18 months. more Long-term: More than 18 months but not more than 24 months. More than 24 months.: Internal Revenue Code'as amended by Revenue Act of 1942. . 1942— Short-term: Not than 6 months. more Long-term: 2 More than 6 months. Percent of gainorloss taken into account in computing net income 1.00 Tax on net gain taken into account Loss offsets, hraitations, and carry-overs Net short-term gain fully taxable at normal and smtax rates. In 1940 defense tax also apphed, Short-term loss allowed only to the extent of short-terra gain. Loss disallowed in one year (to an araount not in excess of net income) carried forward and applied against net short-term gain of the succeeding year. 6624 ] Net long-term gain either included Long-term loss allowed against long-term gain. Net long-term loss either deducted from other wath other income subject to normal income (including net short-term gain) or 30% 1 and surtax rates or segregated and of net loss credited against tax on other in60 f taxed at 30%, whichever method come, whichever method results in the results in the lesser tax. In 1940 greater tax. No long-term loss carry-over. J defense tax also applied. Net short-term gain (reduced by net\ Short-term loss combined with long-term loss 100 taken into account alio wed.to the extent of long-term loss taken into account) (1) short-term gain, (2) long-term gain taken fully taxable at norraal and surtax into account, and (3) other income up to rates. $1,000. Balance of combined short-, and longNet long-terra gain (reduced by netl 50 term net loss carried forward for 5 years as short-term loss) either included with / short-term loss. The amount of the net capother income subject to normal and ital loss carry-over may not be included in surtax rates or segregated and taxed computing a new capital loss of a taxable year at 50%, whichever method results in which can be carried forward to the next 6 the lesser tax. / succeeding taxable years. fel X i w I—l Ul Footnotes on p, 278. bO Exhibit 26.—Federal taxes o the United States, 1940 through 1950—Continued bO S U P P L E M E N T B.—TAX T R E A T M E N T OF GAINS AND LOSSES FROM SALE OR EXCHANGE OF CAPITAL ASSETS—Continued (X) PART II, UNDER CORPORATION INCOME AND EXCESS PROFITS TAXES S Provisions with respect to— Federal tax law Income year Assets by period held 0 Percent of gain or loss taken into account in computing net income S3 fel Tax on net gain taken into account Loss offsets, limitations, and carry-overs O SI o Intemal Revenue Code as amended by Revenue Acts of: 1939 and 1940 fel 1940 and 1941 Short-term: Not than 18 months. more Long-term: More than 18 months. 1942 1942— Short-term: Not than 6 months. more Long-term:2 More than 6 months. 100 100 100 100 1 For taxable years beginning after Dec. 31, 1949, capital gains of nonresident aliens, not engaged in trade or business in the United States but temporarily present here, are subject to tax. In the case of those present iri the United States for less than 90 days, the tax applies only to gains realized from transactions effected during their presence. In the case of those present in the United States for 90 days or more, the tax applies to all their gains from transactions in this country during the taxable year whether or not they were present when the gain was realized. 2 For treatment of property used in trade or business and certain involuntary conver sions, see sees. 117 (j) and 117 (k) of Internal Revenue Code, as amended.by Revenue Acts of 1942 and 1943. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Net short-term gain included with other income and fully subject to both income and excess profits tax. Net long-term gain included with other income subject to income tax only .4 Net short-term gain (reduced by net long-term loss) subject to income tax. Net short-terra gain (without such reduction) subject to excess profits tax.3 Net long-term gain (reduced by net short-term loss) taxable at maximum rate of 25% under income tax. Net long-term gain not subject to excess profits tax,3 Short-term loss allowed only to the extent of short-term gain, under both income and excess profits tax,- Loss disallowed in one year (to an amount not in excess of net income) carried forward and applied against net short-term' gain of the succeeding year. Long-term loss allowed against long-term gain and all other income (including net shortterm gain) under income tax. Not aUowed under excess p'rofits tax. No long-term loss carry-over. For income tax, short-term loss combined with long-term loss allowed only to the extent of short-term gain. Net capital loss may be carried over as a short-term capital loss for 5 years. The amount of the net capital loss carry-over may not be included in computing a new capital loss of a taxable year which can be carried forward to the next 6 succeeding taxable years. For excess profits tax,3 shortterm loss allowed only to the extent of shortterm gain and long-term loss not allowed. fel i Sl fel > o fel fel fel > Ul 3 The excess profits tax is not applicable to taxable years beginning after Dec, 31,1946. 4 Net gain from sale or exchange of depreciable property held more than 18 months, as well as net long-term capital gain, was excluded in 1940 and 1941 from excess profits tax net income by a special provision which was discontinued with the enactment in 1942 of sec. 117 (j) which had in general the same effect on long-term holdings. Under the Revenue Act of 1942 (sec. 208) involuntary conversions of such property were also excluded retroactively from excess profits net income for 1940 and 1941. d S U P P L E M E N T C — F E D E R A L TAX RATES ON SPECIAL CLASSES OF CORPORATIONS U N D E R T H E R E V E N U E ACTS OF 1940 THROUGH 1950 Revenue Act of— Regulated investment companies: 1 On Supplement Q net income. 24% 2 24%, On Supplement Q surtax net income. - - Surtax Exempt 3 Excess profits tax Resident foreign corporations: 4 24%2 Norraal tax . . Surtax . _ . Sarae as other corporations. 1945 1943 - No change - --- First $25,000, 6%,; balance, 7%, On undistributed capital gains (excess of net longterra capital gain over the sura of net short-term capital loss and capital gaiins dividends paid). Status under the excess Exempt . . . . profits tax. Western Hemisphere trade corporations: Normal tax ... Same as other corporations. Excess profits tax 1942 1941 1940 (second) No change No change 14% 16% No change.., 25%. Nochange No change 1950 . ^ 25% for taxable years beginning after June 30, 1950; 23% for taxable years beginning after Dec. 31, 1949, and before July 1, 1950 20% of surtax net income in excess of $25,000 for taxable years begiiming after June 30, 1950; 19% for taxable years begiiming after Dec. 31, 1949, and before July 1, 1950. No change. fel No change No change No change I No change. Ul No change. . . . . Nochange. No change No change No change ' Sarae as other corporations. No change Exempt . No change No change Repealed. 7 24% . . . . . . . Sarae as other corporations. No change Nochange No change No change Nochange No change No change Nochange No change Repealed. 7 . . Nochange \ Same as other corporations except that for taxable years beginning after June 30,1950, a credit of 31% 1 of normal tax net income, com\ puted without regard to this 1 credit, is allowed in coraputing normal tax and surtax net income. For calendar year 1950 j the credit is 33%,s Same as other corporations.o No change. y Footnotes on p, 280. bO CO Exhibit 26.r-Federal taxes of the United States, 1940 through 1950—Continued bO (X) S U P P L E M E N T C — F E D E R A L TAX RATES ON SPECIAL CLASSES OF CORPORATIONS UNDER T H E R E V E N U E ACTS OF 1940 THROUG.H 1950—Con. o Revenue Action 1940 (second) Nonresident foreign tions: 4 Norraal tax Surtax Excess profits tax 1941 1942 1943 1950 1945 SJ fel hi corpora16)^% 2 E xempt 27^^%, Exempt No change - 30% No change.' Nochange 1 The provisions of Supplement Q prior to the enactment of the Revenue Act of 1942 were applicable to mutual investment companies. 2 Including defense tax. 3 Under the general provisions of sec. 727 (g), Internal Revenue Code. 4 Taxation of foreign corporations may be subject to treaty provisions. 6 For taxable years beginning before July 1,1950, and ending after June 30,1950 (except . calendar year 1950 returns), the exemption frora surtax is continued and the normal tax is computed under prior law rates on income allocated to the period prior to July 1,1950, No change.. Nochange Nochange No charige No change Repealed, 7 No change. No change. o I .o and under the rate applicable to taxable years beginning after June 30, 1950, for income allocated to the period after June 30, 1950, For taxable years begiiming after June 30, fel 1950, the net effective rates after the credit are 17.25%'imder the normal tax and 13.80% under the surtax applicable to surtax net income in excess of $25,000. For calendar year •fel 1950 effective rates after the credit are 15.41% on normal tax net income and 12,73% on surtax net income in excess of $26,000, 6 Effective for taxable years beginning after June 30, 1950 and for calendar year 1950, o 7 Not apphcable to taxable years beginning after Dec. 31, 1945. i. Sl > Sl •o fe} fel S) fel Ul d Sl ' EXHIBITS 281 INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS Exhibit 27.—Report of activities of the National Advisory Council on International Monetary and Financial Problems, April 1 to September 30, 1949 [House Document No. 450, 81st Congress, 2d session] LETTER OF TRANSMITTAL To the Congress oj ihe United States: Attached hereto is a report of the National Advisory Council on International Monetary and Financial Problems covering its operations from April 1, 1949, to September 30, 1949, and describing, in accordance with section 4 (b) (5) of the Bretton Woods Agreements Act, the participation of the United States in the International Monetary Fund and the International Bank for Reconstruction and Development for the above, period. Previous reports of the National Advisory Council were transmitted to the Congress on March 1, 1946, March 8, 1946, January 13, 1947, June 26, 1947, January 19, 1948, May 17, 1948, August 3, 1948, March 14, 1949, and July 5, 1949, respectively. In.addition to the First Special Report on the Operations and Policies of the International Monetary Fund and the International Bank for Reconstruction and Development, submitted on May 17, 1948, previous reports on the participation of the United States in the Interriational Monetary Fund and the International Bank were included in the reports of January 13, 1947, June 26, 1947, January 19, 1948, August 3, 1948, March 14, 1949, and July 5, 1949, respectively. HARRY S. TRUMAN. T H E W H I T E HOJJS-E^, January 20,. 1950. REPORT OF ACTIVITIES OF THE NATIONAL ADVISORY COUNCIL ON INTERNATIONAL MONETARY AND FINANCIAL PROBLEMS, APRIL 1, 1949, TO SEPTEMBER 30, 1949 I. ORGANIZATION OF THE COUNCIL STATUTORY BASIS The National Advisory Council on Interriational Monetary and Financial Problems was established by the Congress in the Bretton Woods Agreements Act (59 Stat. 512, 22 U. S. C. 286b), approved July 31, 1945. The statute directed the Council to coordinate the policies and operations of the representatives of the United States on the International Monetary Fund and the International Bank for Reconstruction and Development, the Export-Import Bank of Washington, and all other agencies of the Government ''to the extent that . they make or participate in the making of foreign loans or engage in foreign financial, exchange, or monetary transactions.'' The Council was also directed to advise and consult with the President and' the United States representatives on the Fund and the Bank on riiajor 282 195 0 REPORT OF THE SECRETARY OF THE TREASURY problems arising in the administration of the Fund and the Bank; and to recommend to the President general policy directives for the guidance of. the representatives of the United States on the Fund and Bank. The Bretton Woods Agreements Act was amended by section 106 of the Foreign Assistance Act of 1948.(62 Stat. Ch. 169, 22 U. S. C. 286b (a)), approved April 3, 1948, to include the Administrator for Economic Cooperation as a member of the Council for the duration of this office. The Council was also given certain additionaLduties,^with regard to the econoiriic assistance program. In June 1949, the Bretton Woods Agreements Act and the Natipnal Bank Act were amended (Public Law 142, Ch. 276, 81st Cong., ist.sess.), to permit wider dealing in and underwriting of International Bank securities and to exempt such securities from the Securities Acts. The legislation also authorized the Securities and Exchange Commission, acting in consultation with the Council, to suspend the exemption of International Bank securities from the Securities Acts. The relevant portions of the Bretton Woods Agreements Act, the Foreign Assistance Act of 1948*, and amendments to the National Bank Act and the Bretton Woods Agreements Act are presented in appendix A. REPORTS Since its first meeting on August 21, 1945, the Council has submitted nine formal reports.^ The present report covers the activities of the Council from April 1 to September 30, 1949. MEMBERSHIP The members of the Council, according to law, during the period under review, were the following: The Secretary of the Treasury, John W. Snyder, Chairman. The Secretary of State, Dean Acheson. The Secretary of Commerce, Charles Sawyer. The Chairman of the Board of Governors of the Federal Reserve System, Thomas B. McCabe. The Chairman of the Board of Directors of the Export-Import Bank, Herbert E. Gaston. The Administrator for Economic Cooperation, Paul G. Hoffman. By agreement, the following served as alternates: William McChesney Martin, Jr., Assistant Secretary of the Treasury. Willard L. Thorp, Assistant Secretary of State for Economic Affairs. Thomas C. Blaisdell, Jr., Assistant Secretary of Commerce. M. S. Szymczak, Member of the Board of Governors of the Federal Reserve System. *Omitted in this exhibit; see note at end of exhibit. 1 These reports were transmitted by the President to the Congress on March 1,1946 (H. Doc. No, 489, 79th Cong., 2d sess,, subsequently included as appendix B to H, Doc. No. 497, 79th Cong., 2d sess.); March 8, 1946 (H. Doc. No. 497, 79th Cong., 2d sess.); January 13,1947 (H, Doc. No. 53, 80th Cong., 1st sess.^; June 26, 1947 (H, Doc. No. 365, 80th Cong,, 1st sess.); Janiiary 19,1948 (H. Doc. No. 501, 80th Cong,, 2d sess.); May 17, 1948 (H. Doc, No. 656, 80th Cong., 2d sess.); August 3,1948 (H. Doc, No, 737, 80th Cong,, 2d sess,); March 14, 1949 (H. Doc, No, 120. 81st Cong., 1st sess,); and July 5, 1949 (H. Doc. No. 260, 81st Cong,, 1st sess.). EXHIIBITS ' 283 Hawthorne Arey, Vice Chairman of the Board of Directors of the Export-Import Bank. Wayne C. Taylor, Assistant to the Administrator, Economic Cooperation Administration. C. Dillon Glendinning is the Secretary of the Council. The United States Executive Directors of the International Monetary Fund, Frank A. Southard, Jr., and of. the International Bank for Reconstruction and Development, Eugene R. Black, or their alternates, Henry J. Tasca and John S. Hooker, respectively, regularly attended the meetings of the Council. On M a y 18, 1949, Mr. Black was elected President of the International Bank, and assumed his new duties on July 1, 1949. II. U N I T E D STATES POSTWAR F O R E I G N ASSISTANCE ^ As in previous reports of the Council, this chapter outlines the magnitude and scope of assistance extended by the United States to nations throughout the world. I n its consideration of the foreign financial policies of this country, the Council has taken into account, in addition to the objectives of the programs, the interrelationship of the various factors affecting the extent and direction of foreign aid. THE MAGNITUDE AND GEOGRAPHICAL DISTRIBUTION OF POSTWAR FOREIGN AID In the four-year period, July 1945 through June 1949, the United States exported approxim.ately 67 billion dollars in goods and services to foreign countries and imported 35 billion dollars worth. During this period. United States Government foreign assistance utilized amounted to 23 billion dollars, or over one-third of the value of all imports of foreign countries from the United States. Foreign countries liquidated gold and dollar assets of about 6.6 billion dollars,^ and additional dollars were made available from disbursements by the International Monetary Fund and the International Bank, United States private financing, and other capital movements. During the postwar period, through June 30, 1949, a somewhat larger share of United States Government foreign aid was rendered in the form of grants, including (for statistical purposes) assistance for which terms of repayment are subject to future determination, as compared with loans and other credits which call for the repayment of principal and interest to the United States. As of June 30, 1949, the outstanding indebtedness of foreign countries to the United States Government, excluding that arising from World War I debts, amounted to 9.8 billion dollars. During the postwar period, repayments on principal were in excess of 1 billion dollars. Annual foreign debt service to the United States Government, including interest and amortization of principal, will increase between 1949 and 1952, reaching a peak of about one-half billion dollars in the latter year. 2 A detailed break-down of tlie statistical information referred to ih this section appears in appendixes B and C. [Omitted in this exhibit: see note at end of exhibit.] 3 The net difference between the'6.6 billion dollars mentioned above and the 6,0-binion-dollar reduction in foreign gold and dollar balances shown in table III is largely accounted for by sales of gold to the United States out of currisnt foreign gold production. 284 1 9 5 0 REPORT OF T H E SiECRETARY OF T H E TREASURY CHART A UfltEDSmriiSlOTEiNlVIENT^^ro Total utilized, July 1.1945 to June 30,1949 July-Dec, • Jan.-June 1945 Credits—0.6 Grants—2,0 I July-Dec. 1946 -J I 1.3 2.0 1,3 1,0 Jon.-June July-Dec. 1947 2,4 1,2 Grants and Credits BY RECIPIENT (In Billions of Dollars) Jan.-June »' 1,8 0.9 July-Dec. I948--—J 1,0 0.6 1,7 2.3 Jan.-June 1949 0.5 2.8 285 EXHIBITS TABLE I.^-U". S . Government foreign grants and credits, utilized July 1, 1945, to June 30, 1949, and unutilized as of June 30, 1949, by major geogra.phic area [In millions of dollars] Utilized Unuiilized Area T o t a l , All Areas E R P Participants Other E u r o p e . Asia... L a t i n AmericaMiscellaneous . U n c o m m i t t e d lending a u t h o r i t y Total Grants Credits $23,310 $13,230 $10,080 8,089 1,116 8,345 462 4,156 359 3, 406 31 750 329 784 689 195 16,434 L 1,677 Total 1 1 Grants . Credits $S,855 $2,163' 2,014 1,766 248 13 513 138 371 2 142 137 . 1 0 3 ' 1,074 25 78 1,074 13 $1, 692 NOTE,—(a) Components will not necessarily add to totals because of rounding, (b) U. S. Government to the International Bank and the International Monetary Fund are not included in this tabuf )ayments ation, (c) A detailed break-down of all data appearing in this table, as well as a definition of terms, may be found in appendix C. [Omitted in this exhibit, see note at end of exhibit.] Source: Clearing Office for Foreign Transactions, Office of Business Economics, Department of Commerce. Of the 23.3 billion dollars of United States Government assistance utilized by countries throughout the world in the postwar period, approximately 16.4 billion dollars, or 70 percent, went to nations presently participating in the European Recovery Program. Although aid received by the European Recovery Program participants, as a group, was almost equally divided between grants and credits, the £dlocation to individual countries varied considerably. Grant assistance has been the more widely dispersed, with 70 percent of the total, utilized going to four countries^the United Kingdom, Western Germany, France, and Italy—as contrasted with 80 percent of total credit assistance going to two countries, the United Kingdom and France. Asiatic nations (primarily Japan and China) were the recipients of over 4 billion dollars in postwar United States Government aid, almost five-sixths in the form of grants. On the other hand, postwar assistance to Latin America—which amounted to over $350,000,000—was largely in the form of loans and credits. . Of the 3.9 billion dollars available for foreign aid but unutilized on June 30, 1949, approximately one-half consisted of ECA funds allocated and obligated by country but not disbursed as of that date. A G E N C I E S A N D P R O G R A M S OF F O R E I G N A I D The first year after the end of the war witnessed a larger proportion of aid in the form of grants than in loans, due primarily to relief assistance extended through U N R R A and post-VJ-day lend-lease grants. For the fiscal year 1947, large drawings from the 3.75 billion dollar line of credit extended to the United Kingdom swung the balance toward a preponderance of credit assistance. In the fiscal year 1948, grants increased and credits declined, resulting in an equal division of aid between grants and credits. Since mid-1948, after the advent of the European Recovery Program, the major part of United States foreign assistance has been in the form of grants. During this four-year period, the average rate of aid rendered has amounted to 5.8 billion dollars per year. 286 1 9 5 0 REPORT OF T H E SiECRETARY OF T H E TREASURY CHART B liiiiiliM&i^l^iiili UTILIZED. BY PROGRAM Fiscal Years 1946-47 0 1 2 Fiscal Years 1948-49 BILLIONS OF DOLLARS 3 0 I 2 3 PROGRAM UNRRAl. Lend Lease. United Kingdom Loan. Export-Inriport Bank- J'1948 /'I949 Civilian Supplies (GARIOAjetc.) Surplus Property Credits Miscellaneous iCHTi European Recovery Program. 3 0 I BILLIONS OF DOLLARS * United Nations Relief and Re/tatilitation Adniinistration. ^ Government and Relief in Occupied Areas. 287 EXHIBITS TABLE II.— U. S. Government foreign assistance utilized, total of grants and credits, by program, fiscal years 1946 through 1949 [In millions of dollarsj Postwar j Total Programs All Programs $23,310 European Recovery United Kingdom loan ___..._ Civilian supplies (GARIOA, etc)... UNRRA Lend-lease .. Export-Import Bank . . Surplus-property credits Miscellaneous ... . _._ ._ ...J Fiscal years 1946 1947 $5,462 $6,184 1948 . 1949 $5,387 $6,277 204 1, 700 1,181 •4,062 4,2fiG 3,750 3,660 744 2,050 667 2,577 2,552 2,455 1,184 2, 312 558 1,377 191 1,085 16 46 598 4 214 1,341 2,708 474 191 530 284 290 1. 352 47 882 . 1,068 NOTE.—(a) Coraponents will not necessarily add to totals because of rounding, (b) U, S. Government payments to the International Bank and the International Monetary Fund are not included.in this tabulation, (c) A more detailed analysis of foreign assistance prograras of the United States Governmerit in the postwar period will be found in table 11 of appendix C. [Omitted in this exhibit; see note at end of exhibit.] Source: Clearing Office for Foreign Transactions, Office of Business Economics, Department of Commerce. The chief agencies through which foreign financial and economic assistance was extended by. the United States immediately after the war were the Export-Import Bank, the lend-lease organization, and UNRRA (see table I I and chart B). In addition, surplus property was available for sale in various foreign countries, a large part of which could be used for peacetime as well as military purposes. The Congress had, furthermore, provided funds to be administered by the Department of the Army for government and relief in occupied areas, principally Germany and Japan. By the end of the fiscal year 1947, practically all of the aid rendered through post-VJ-day lend-lease and .through UNRRA had been utilized. In addition, all of the loan to Britain had been utilized by the end of the fiscal year 1948. Finally, the bulk of surplus property located overseas had also been sold by mid-1948. Completion of several early postwar programs left the United States, at the end of 1947, with three major avenues of foreign assistance: (1) the Export-Import Bank, whose lending authority had been increased in 1945 from $700,000,000 to 3.5 billion dollars; (2) the initiation of the Interim Aid Program, which anticipated the longrange European Recovery Program; and (3) government and relief in occupied areas (GARIOA), as a responsibility of the Department of the Army. The European Recovery Program got under way in the spring of 1948. Introduction of this program resulted in a realignment.of the agencies designated to carry out programs of foreign assistance. The Congress also integrated into the Foreign Assistance Act of 1948 provision for assistance covering other major aid programs. " In the two fiscal years of 1948 and 1949, the total amount of foreign assistance utilized amounted to 11,664 million dollars, almost identical with the 11,646 million dollars extended during the first two postwar years. A principal source of United States assistance in. this second 907795—51 20 288 1 9 5 0 REPORT OF T H E SiECRETARY OF T H E TREASURY 2-year period has been the European Recovery Program, which accounted for about 65 percent of all aid during the fiscal year 1949. The Mutual Defense Assistance-Program, for which the Congress authorized 1.3 billion dollars in October 1949, was developed with attention to the primary need for economic recovery in Europe. This program embodied parts of several earlier programs for which the Congress provided funds. ' In addition to military assistance, proposed legislation bearing upon foreign aid considered during 1949 was that resulting from promulgation of the Point IV Program. As indicated in chapter I I I of this report, no authorization was made by the Congress for that program during 1949. F O R E I G N GOLD A N D DOLLAR R E S E R V E S The gold and short-term dollar reserves which foreign nations had on hand at the end of the war were available for two main purposes: for currency reserves, and as working balances for international transactions. As shown in table I I I , these reserves declined by over 5 billion dollars during the postwar period from June 30, 1945, to June 30, 1949. The decline would have been greater were it not for the fact that during this period foreign gold production, exclusive of the U. S. S. R., amounted to about $700,000,000 per year. TABLE 111.—Estimated foreign gold and official and private short-term dollar balances, as of June 30, 1945, 1948, and 1949 ^ . [In millions of dollars] J u n e 30— Geographic area 1949 Total, All Areas . : E R P countries a n d dependencies Other E u r o p e 2-. . Asia a n d Oceania L a t i n America All o t h e r - . . . . . _ . ^.. 1948 1945 $14, 647 $14,631 $19, 684 7,496 737 7, 322 988 10, 473 1,029 2,121 2,801 1,492 2,004 2, 876 1,441 1,980 3,625 2,577 J Exclusive of international organizations and the gold holdings of the U. S. S. R. »Includes gold held by Tripartite Commission for the Restitution of Monetary Gold. Prior to the start of the Recovery Program, E R P countries had lost, in the aggregate, slightly over 3 billion dollars, or 30 percent of their monetary reserves. The decline continued for the first few months after the Recovery Program started in April, but from June 30, 1948, to June 30, 1949, there was a small increase from 7.3 billion dollars to 7.5 billion dollars in the gold and dollar reserves of the participating countries. Among the major countries, Italy and Belgium were able to increase their reserves, while those of the United Kingdom showed a considerable decline. 289 EKHIBITS CHART C GOLD TRANSACTIONS OlTHEtJNITED STATES GOVERNMENT SEMIANNUALLY, 1945-1949 1 1947 1 1948 | 1949 1946 1 1945 TOTAL NET PURCHASES OF GOLD BY THE U.S. GOVERNMENT (Jan. 1,1945 through Sept. 30,1949, in Millions of Dollars) EUROPE OTHER AREAS^ South Africa $1,024 United Kingdom $1,587- 'Canada $689 France $559 Latin America $518 Sweden $ 3 2 / Belgium $ 2 9 4 J M o t h e r Europe $133'' '^"Other Area" countries not shown, had net sales o f $143 million. ^'Includes countries with net sales, and represents purchases of $ 5 9 0 million and sales of $ 4 5 7 million. 290 195 0 REPORT OF THE SECRETARY OF THE TREASURY Outside of Europe, net declines over the postwar period have more than offset isolated increases. The Latin American countries lost over $800,000,000 in reserves, or more than one-fifth of the amount they had on hand at the end of the war. Other nations which have experienced heavy gold and dollar losses include Canada and the Union of South Africa, despite the fact that both of these countries are leading gold producers. With respect to gold movements alone, chart C shows that in the early postwar period, there was a heavy net flow of gold from foreign countries to the United States, reaching a peak of 2.9 billion dollars in 1947. The inception and continuation of the European Recovery Program enabled the participating .countries as a whole to avoid further large liquidation of remaining reserves during 1949, though the United Kingdom experienced a critical drain during part of the year. C H A N G I N G P A T T E R N S OF U N I T E D STATES F O R E I G N T R A D E The repercussions of war greatly shifted the prewar pattern of world trade. Germany and Japan witnessed reductions in their external trade to the point where exports became negligible and imports consisted chiefly of aid from the United States. Other countries, both belligerent and nonbelligerent, affected in varying degrees by the war, also experienced wide changes in their trade. Postwar exports of the United States, expressed both in quantitative units and in terms of value, have been considerably greater-than imports. The United States, which had supplied 14 percent of world exports in 1938, had become the source of supply of 33 percent of all exported goods in 1947, 23 percent in 1948, and approximately 20 percent in the first nine months of 1949. As indicated in table IV, there has been a considerable shift in the geographical pattern of United States foreign trade. The share of Asia and Oceania in both the imports and exports of the United States has declined, and the prewar export surplus of this area with the United States has shifted to an import surplus. United States postwar imports from both Latin America and Canada substantially increased, whereas the dollar value of imports from Europe has only slightly increased above the prewar level. The dollar value of exports to Latin America and Canada showed a fivefold increase in the postwar period as compared with prewar, while exports to Europe, including those financed through the European Recovery Program, showed less than a fourfold increase. During the first 9 months of 1949, the dollar value of United States imports showed a moderate increase over the 1946-48 level, while exports registered a slight decline. Compared with the year 1948, however, both imports and exports decreased to a small extent. In the first 9 months of 1949, countries participating in the European Recovery Program imported approximately $5 of goods and services from the United States for every $1 of exports to this country. This represented some improvement, as compared with the period 1946-48, in the trade deficit of these countries with the United States. 291 EXHIBITS T A B L E TV .^—Foreign trade of the Uhited States, by geographic' area, prewar and postwar VALUE [In millions of dollars] U n i t e d States t r a d e w i t h Imports All Areas __ Western Hemisphere . . Canada _ . L a t i n Araerica Other Western Hemisphere , Europe E R P countries Other E u r o p e Asia a n d O c e a n i a ' ' Postwar (1946-48 average) . . . Africa a n d N e a r E a s t Prewar (1936-38 average) Exports Imports. Exports $5.904 $12, .564 $2,489 $2, 967 3, 398 5,058 925 1,007 1.177 2,080 141 1,810 3,040 208 345 .542 38 454 485 68 963 4,764 725 1,254 776 187 4,253 511 606 119 1.129 125 1,102 • 1,854 757 442 890 81 557 ' 149 PERCENTAGE DISTRIBUTION Postwar (1946-48 average) U n i t e d States t r a d e w i t h Imports 100. 0% All A r e a s . . . . . Western Hemisphere . Canada L a t i n America . . Other W e s t e r n H e m i s p h e r e Europe . . . ...1 . . E R P countries Other E u r o p e Asia a n d Oceania . . . Africa a n d N e a r E a s t . . . Exports P r e war (1936-38 average) Imports 100. 0% 100. 0% Exports 100.0% 57,4 40.0 37.2 33. 9 19.7 35.4 2.3 •14.5 23.9 . L6 13. 9 21.8 1.5 15.3 16:3 2.3 16,4 38.3 29,1 42: 3 13.1 3.3 33.8 4.5 24.3 4.8 • 38. i; - 4.2 18.6 14,7 30,4 18.8 7,6 7.0 3.3 5,0* NOTE,—Components will not necessarily add to totals because of rounding. Source: Department of Commerce. OTHER ASPECTS OF F O R E I G N ASSISTANCE , United States Government foreign aid during the postwar period amounted to 2.5 percent of the gross national product. Although the dollar.value of such assistance in the fiscal years 1948 and 1949 was approximately equal to that in the two immediate postwar fiscal years 1946 and 1947, the gross national product of the United States. showed almost a 20 percent increase. As a consequence, foreign aid declined from 2.7 percent of the Nation's gross national product in the first two fiscal postwar years to less than 2.3 percent in the fiscal years 1948 and 1949. With the exception of the fiscal year 1946, which included extraordinary wartime! expenditures, total expenditures of the United States 292 1 9 5 0 REPORT OF THE SECRETARY OF T H E TREASURY Government showed slight variation during the postwar period. Thus foreign aid as a percentage of total federal expenditures remained relatively constant, ranging between 14.7 and 17.0 percent in the three most recent postwar years. T A B L E Y . — United States gross national product. Government postwar foreign aid, • ' and fiscal operations [In billions of dollarsj U. S. Government Fiscal year Total Postwar Gross national product Total expenditures Foreign aid Foreign aid as a percentage of Gross "national product Total 'expenditures $944,9 $172.3 $23,3 2.5% 13,5% 1949. 1948 265.0 248, 5 137,1 136.8 6,3 5.4 2,4 2.2 17,0 14,7 1947 1946 226,7 204,7 2 37,9 2 60,5 6,2 5,5 2,7 2,7 16,4 9,1 • » Figuresfor the fiscal year 1948 include a 3-billion-dollar transfer in June to Foreign Economic Cooperation trust fund; figures for fiscal year 1949 exclude expenditures from this fund. 2 Data exclude payments to the International Bank and the International Monetary Fund. Sources: Department of Commerce for data on gross national product and foreign aid. Treasury Department for total expenditures of the U. S. Government. In addition to United States Government aid, a significant amount of Uriited States private capital and gifts has gone abroad in the postwar period. The net amount of these funds totaled 4.9 billion dollars in the four years from July 1945 to June 1949. Private postwar investments were largely concentrated in petroleum development in a relatively few countries. Total funds authorized and appropriated by the 81st Congress, 1st session, for foreign assistance, amounted to 6.6 billion dollars. European Recovery Program funds of 3.9 billion dollars account for threefifths of this total. Under the Mutual Defense Assistance Program, $1,211,370,000 was authorized for the North Atlantic Treaty countries and for Greece and Turkey, as well as $102,640,000 for Middle Eastern and Asiatic countries. An additional amount of $45,000,000 for assistance to Greece and Turkey under the act of May 22, 1947 (61 Stat. 103), was appropriated under the Foreign Aid Appropriations Act of 1949 (Public Law 327, 81st Cong., 1st sess.). Appropriations under GARIOA of $912,500,000 for the fiscal year 1950 compared with $1,300,000,000 appropriated for the fiscal year 1949. This decline reflects, in part, transfer of the administration of funds for certain countries—such as Korea—from the Department of the Army to the Economic Cooperation Administration and the Mutual Defense Assistance Program. The Korean aid program was presented by the Administration as a three-year program with an appropriation request for $150,000,000 during the first year, fiscal 1950. Appropriations amounting to $60,000,000 were effective through February 15, 1950. 293 EiXHIBITS FOREIGN AID FUNDS FOR FISCAL 1950 The following table shows foreign aid funds made available by the Congress during 1949: T A B L E VI.—Foreign aid appropriations and authorizations {81st Cong., 1st sess.) ^ P r o g r a m and country TotaL Amount __^____ $6, 575, 168, 092 E u r o p e a n Recovery P r o g r a m 3, 900, 680, 000 Period Apr. 3 t o J u n e 30, 1949 __ Fiscal year, 1949-50 E C A loan authorizations _ _ E C A guaranties _ _ Department of the A r m y : GARIOA (Government. and Areas) _ _ _ _ _ _ Relief _ _^__ in. Occupied _ _ M u t u a l Defense Assistance Program.__ N o r t h Atlantic T r e a t y c o u n t r i e s . Greece and T u r k e y I r a n , Korea, and Philippines China . Assistance to: Greece a n d T u r k e y _ Korea.. _ __ China Philippines. i n t e r n a t i o n a l Refugee Organization Loan t o t h e United N a t i o n s _ _ Relief of Palestine refugees __ I n s t i t u t e of I n t e r - A m e r i c a n Affairs _ _ Liquidation of lend-lease . _ 2(1, 074, _ 3, 628, 150, 3 122, 000, 380, 000, 300, 000) 000 000 000 912, 500, 000 4 1,314,010,000 . . _ _. _ _ . 1, 000, 211, 27, 75, 000, 370, 640, 000, 000 000 000 000 45, 000, 5 60, 000, 8 4, 000, 202, 092, 000 000 000 398 70 500, 029 7 53, 534, 065 8 8, 000, 000 0 4,751,600 100, 000 1 Under specific appropriations and authorizations, funds were made available beyond the fiscal year, 1950, for such items as ECA guaranties, certain phases of the Mutual Defense Assistance Program, Philippi le rehabilitation, and construction of the United Nations building, 2 This amount is not included in the total since these funds technically were considered to have been available for allotments or other use prior to June 30,1949, 3 Public Law 47, 81st Cong,, 1st sess., authorized ECA to borrow $150,000,000 from the Treasury for the purpose of extending guaranties, less any amount allocated for that purpose prior to April 3,1949. $27,700,000 had been so allocated prior to April 3,1949, but only approximately $3,600,000 of guaranties had actually been made. Therefore ECA was authorized to make up to approximately $146,400,000 in new guaranties after April 3, 1949, This amount is not limited for use within the fiscal year, * For expenditures necessary to enable the President to carry out the Mutual Defense Assistance Act of 1949 (Public Law 329, 81st Cong., 1st sess,) for the period through June 30, 1950; $814,010,000. In addition, the President is authorized to enter into contracts for carrying out the provisions of title I (North Atlantic Treaty countries), of this act not in excess of $500,000,000 during the period ending June 30,, 1950, « From July 1 to October 15, 1949, $30,000,000 of assistance to Korea was provided at the same rate of expenditure as in the fiscal year 1949, pending the enactment of legislation by the Congress outlining the terms and conditions under which further assistance3'is to be rendered in 1950. From October 15, 1949, to February 15,1950, $30,000,000 of assistance may|be expended at the same rate and under the same terms and conditions as in the fiscal year 1949, Appropriations were made for the period through February 15, 1950, pending enactment of legislation authorizing aid to Korea, 6 Out of the unexpended balances from the 1948 appropriations to China (Public Law 793, 80th Cong.), the Congress made available $4,000,000 under Public Law 327, 81st Cong., 1st sess., out of any unobligated balanceof the amount made available under Public Law 47, 81st Cong,, to be used for educa.tional purposes for CliiTiPSP oitizf^ns 7 Authorized under Public Law 903, 80th Cong,, 2d sess., approved August 11,1948. Of the $65,000,000 authorized, $11,465,935 had been disbursed by June 30,1949. 8 Of a total appropriation of $16,000,000, $8,000,000 had been expended by June 30, 1949, The legislation provided for a sum of $16,000,000 to be available until June 30,1950, of which $8,000,000 was to be used to repay without interest the RFC for advances made pursuant to section 1 of Public Law 25, 81st Cong,, 1st sess,' 9 Public Law 283, 81st Cong., 1st sess., extends the life of the Institute of Inter-American Aflairs to June 30, 1955, and authorizes total appropriations of $35,000,000. 294 195 0 REPORT OF THE SECRETARY OF THE TREASURY I I I . ACTIVITIES OF THE COUNCIL FROM APRIL 1, 1949, TO SEPTEMBER 30, 1949 (OTHER T H A N T H O S E RELATING TO THE INTERNATIONAL MONETARY F U N D AND THE INTERNATIONAL BANK) EUROPEAN RECOVERY IPROGRAM ECA appropriations and authorizations, 19^9-50 The European Recovery Program was predicated from its inception on the assumption that progress in recovery would be accompanied by a reduction in the amoimt of aid extended. I t was contemplated that the United States would provide dollar assistance to stimulate recovery and that the European countries would complement American aid with their own efforts of mutual assistance and self-help. In accordance with these principles, the Administration requested appropriations for the second year of the European Recovery Program which were approximately 20 percent below those which had been provided for the first year. On April 19, 1949, the Congress authorized a total of $5,580,000,000 for European recovery (Public Law 47, Ch. 77, 81st Cong., 1st sess.), to provide funds for the April-June quarter of 1949, and for the fiscal year 1949-50. The appropriation bill for foreign aid, however, passed on October 6, 1949 (Public Law 327, Ch. 621, 81st Cong., 1st sess.), provided a smaller amount, as indicated in table VI of chapter I I . , Operations for a portion of the interim period were covered by the authorization in section 114 (g) of the ECA Act of 1948, as amended by Public Law 47, which made available 1.0 billion dollars through the Reconstruction Finance Corporation. In order to finance, interim ECA expenditures after these funds had been exhausted, the Congress made temporary appropriations for the fiscal year 1950.* Appropriations for the European Recovery Program, as well as for other foreign aid purposes, have been summarized in table VI of chapter I I of this report. Nature of aid to, participating countries The Economic Cooperation Act of 1948 provided for consultation by the Administrator for Economic Cooperation with the National Advisory Council on the types of assistance to be extended and the terms applicable thereto. Under that act 1 billion dollars was specifically authorized to finance loans and guaranties. Of this amount $972,300,000 was allocated to participating countries in the form of loans, and the remainder was allocated for guaranties. Other assistance took the form of direct grants, and, to a lesser extent, conditional aid, i. e., funds made available to participating countries to the extent that they granted equivalent ^amounts in their own currencies (called drawing rights) to other participating countries. In testifying on the second-year program, Secretary Snyder, as Chairman of the Council, recommended to the Congress that the Administrator be authorized, with the advice of the Council, to determine, as to the total amount of aid made available, whether aid should be on a loan basis and in what amount. I t was pointed out that, to the extent that participating countries emerged from the < Public Law 154, Ch. 290, 81st Cong.. 1st sess.; Public Law 196, Ch. 378. 81st Cong., 1st sess.; Public Law 246, Ch. 473, 81st Cong., 1st sess.; Public Law 305, Ch. 576, 81st Cong.. 1st sess. 295 ErXHIBITS Recovery Program with a burden of fixed charges on existing dollar indebtedness, their ability to attract private capital would be reduced, and that many of these countries had already contracted substantial dollar debts in connection with earlier reconstruction expenditures. If these countries had to obligate themselves for too large amounts of additional loans under the program, the longer-term objectives of that program would be endangered. I t was recognized, however, that some of the countries would be in a better position to repay than others. A prudent use of the discretionary power requested by the Administrator and the Council would keep the field open for longrange investment projects to be financed by the private capital market, the Export-Import Bank, and the International Bank. Accordingly, in the authorizing legislation, Congress did not set aside, as it had done in 1948, any specific amounts available only for loans, but an ainount was set aside in the Appropriation Act for that purpose. Under Public Law 327, Eighty-first Congress, the Administrator was authorized to issue notes during the fiscal year 1950 for purchase by the Secretary of the Treasury in an amount not exceeding in the aggregate $150,000,000 for the purpose of extending assistance on credit terms to E R P countries. The form in which assistance provided from appropriated funds would be extended was left to the determination of the Administrator in consultation with the Council. The following table summarizes ECA allotments by country and type of aid extended for the period April 1948 through September 1949: T A B L E V I I . — E C A allotments to participating countries, April 1948-September 1949, by type of aid [In millions of dollars] J u l y 1, 1949Total Sept. 30, 1949, allottotal allotments, m e n t s 1— April loans, grants, 1948a n d condiSept. 1949 tional a i d Country All E R P C o u n t r i e s . . United Kingdom France. Italy Germany: Bizone 2 F r e n c h Zone Netherlands Belgium-Luxembourg Austria Greece - . D e n m a r k...'.__. _ ._ Norway Ireland Turkey ._ Sweden _ Trieste Iceland } J... . •. . __ _ ... 7,085.7 1 1,132. 7 1,911.9 1, 527.3 79L6 .. 292. 2 213.9 - 123.6 721.7 653.1 360, 7 / 108. 2 1 82.0 99.3 April 1948-June 1949, b y t y p e of a i d Total Loans Grants ^ Conditional aid 5,953.0 1 972.3 4, 209.3 771.4 1,619.7 1, 313. 4 668.0 322. 7 172.0 67.0 963. 0 1,131.7 653. 7 334.0 9.7 47.3 496.9 116.6 571.1 261.4 146. 7 50.9 414.3 101.8 413.1 3.0 • 82,6 14,8 11.3 207.5 276.9 191.7 90.1 3.1 49,6 16,5 332.9 241.4 153.8 52. 9 49.7 27.6 280.0 191.7 126. 2 1 31.0 129.7 100.5 67,7 1 28. 6 14.2 18- 7 lOLl 86.3 49.0 35.0 86.3 38.0 60.7 1 22.2 10.5 15.3 4.3 2.2 45.4 17.9 8.3 1 11.0 20.4 .2-3 5.1 25.0 17,9 2.5 3.5 1 This is the first allotment out of fiscal year 1949-50 appropriated funds. 2 ECA allotments.exclude GARIOA funds. NOTE.—See appendix C, table 12, for data on intra-European aid and net aid received by or provided to participating counteies, [Omitted in this exhibit; see note at end of exhibit.] Source: Economic Cooperation Administration. 296 1950 REPORT OF THE SECRETARY OF THE TREASURY E C A guaranty program The Foreign Assistance Act of 1948 (Pubhc Law 472, 80th Cong., 2d sess.) had authorized ECA to extend assistance on credit terms and make guaranties out of public debt funds, not exceeding an aggregate (jf 1 billion dollars. The guaranties were to cover private Uriited States investments in industries and distribution of informational media in the participating countries, made in connection with projects approved by the Administrator and the foreign government concerned. The total amount of guaranties made under this act was not to exceed $300,000,000. During the first year of ECA operations, $27,700,000 was set aside for guaranties, although actual guaranties authorized amounted only to approximately $3,600,000. These guaranties assured United States companies investing abroad that they would be able to convert local currency receipts from their investments into dollars up to 100 percent of their original investment, if such conversion were not possible through normal channels. Public Law 47, signed by the President on April 19, 1949, authorized ECA to make guaranties not exceeding $150,000,000, of which not to exceed $10,000,000 in any fiscal year may be made for enterprises producing and distributing informational media, funds therefor to be obtained by issuing notes to the Treasury to the amount of $150,000,000, less the $27,700,000 allocated to guaranties under the Foreign Assistance Act of 1948. Since $3,600,000 of guaranties were made prior to April 2, 1949, ECA was in effect authorized to make up to $146,400,000 in new guaranties. The act was also amended to broaden the definition of ''investment'' to include ''the furnishing of capital goods items and related services, for use in connection with projects approved by the Administrator, pursuant to a contract providing for payment in whole or in part after June 30, 1 9 5 0 . . . . ' ' Public Law 47, Eighty-first Congress, further amended the provisions of the 1948 Act (Public Law 472, 80th Cong., 2d sess.), relating to guaranties, to read in part that " T h e guaranty to any person shall. not exceed the amount of dollars invested in the project by such person with the approval of the Administrator plus actual earnings or profits on said project to the extent provided by such guaranty.'' Under this authorization, and after consultation with the Council, ECA announced that the aggregate amount to be covered under guaranties would not exceed 175 percent of the priricipal sum actually invested. Investors would be limited as to the amount of receipts they could convert in the first five years. Beginning in the sixth year, however, investors would be permitted to convert up to an aggregate of 175 percent of the principal sum invested. Within these limits, conversion may be made at any time during the period of the guaranty, regardless of whether the foreign currency was received as principal, capital gains, or income. The 175 percent limitation does not apply to the guaranties issued to cover the furnishing of capital goods items and related services under section 111 (b) (3) (iv) of the Foreign Assistance Act of 1948, as amended, nor to guaranties as to informational media. Guaranties may be written so as to be effective until A p r i l s , 1962. EIXHIBITS 297 As of September 30, 1949, total guaranties thus far issued by ECA amounted to approximately $4,700,000. Although the amount of interest in the guaranty provision, evidenced by the number of applications and inquiries received, has shown a steady increase during recent months, the number of guaranty contracts signed to date in relation to such applications and inquiries has not reached the volume anticipated. Experience has shown that this is partly due to the length of time which it takes investors to complete the necessary contractual and business arrangements preliminary actually to making an investment. All guaranties issued and ^applications for guaranties filed with regard to industrial projects related to investments in the metropolitan areas of European countries—primarily in the United Kingdom, France, and Italy. Such guaranties issued and the majority of the applications on file cover investments for the purpose of the establishment of industrial enterprises in these countries or the expansion, modernization, or development of existing enterprises. The bulk of the guaranties issued for informational media relate to western Germany. Intra-European trade and payments During the 6 months under review, the first year's Intra-European Payments Agreement was revised and a new agreement was signed by the participating countries on September 7, 1949. The effective date of the new agreement was made retroactive to July 1, 1949. The new agreement continued most of the basic features of the previous one. Intra-European balances were estimated bilaterally for the fiscal year and drawing rights made available by the creditors in their own currencies to finance uncovered deficits. These drawing rights in turn would be matched by conditional dollar aid granted to the creditors as part of their total ECA dollar allotment. Two significant new features were included in the agreement. The debtor countries were to be allowed to use freely in any of the participating countries ^ 25 percent of their total estimated drawing rights for the fiscal year 1950. To insure the necessary incentives under the plan, conditional dollar aid matching these so-called multilateral drawing rights would likewise be flexible and would be allotted to the country in which multilateral drawing rights were actually used. The second significant modification was designed to take account of the special position of Belgium in intra-European payments. Since Belgium was expected to be a heavy creditor in European trade and her estimated surplus with European countries exceeded her Western Hemisphere deficit, the new agreemerit limited the total amount of multilateral drawing rights and conditional aid which could be transferred to Belgium. Furthermore, Belgium agreed to finance part of the difference between her estimated deficit with the Western Hemisphere and her surplus with the participating countries by extending long-term credits to her main debtors; namely, the United Kingdom, France, and the Netherlands. The revaluation of European currencies which took place in September 1949 was expected to have a significant effect on the pattern . « Subject to the qualification with respect to Belgium indicated in the next paragraph. 298 195 0 REPORT OF THE SECRETARY OF THE TREASURY and volume of intra-European trade. However, until a clearer picture of the impact of devaluation upon the payments pattern could be obtained, it was not possible to judge the direction or amount of change in drawing rights which might be desirable. Local currency accounts Assistance extended ori a grant basis by the United States under the European Recovery Program has been accompanied by deposits of commensurate amounts of local currency in special accounts by participating countries. In accordance with the Economic Cooperation Act of 1948, these local currency funds, except for the 5 percent set aside for use by the United States, are, to the extent consistent with internal financial stability, available for the stiriiulation of productive activity and the exploration for and development of new sources of wealth, and for other purposes conducive to attaining the purposes of the act. The policies involved in the use of these funds have been formulated by the ECA in consultation with the Council. The status of (counterpart funds under the Foreign Assistance Act of 1948 as of September 30, 1949, is shown in the following table: T A B L E VIII.—Status of European local currency counterpart accounts under the Foreign Assistance Act of 1948, as of Sept. 30, 1949 [Dollar equivalents of the local currency, in millions of dollars] F o r use b y recipient c o u n t r y (95 percent) Total currency deposited C o u n t r i e s receiving grants All C o u n t r i e s . France * . United Kingdom Western Germany ^ Italy Austria Netherlands Greece.-—. Denmark Norway ' .._ Trieste.: Belgium .-..- Withdrawals Balances on deposit 3, 892. 8 2, 639. 2 2, 447. 0 1, 251. 3 194.5 1, 213.1 847.9 48L3 1,132. 6 742.3 152. 0 1,132. 6 • 739.6 152.0 19.9 65.9 305.3 60.6 42.4 24.0 388.4 290.7 272.0 186. 4 109.4 90.5 24.0 106.8 90.5 345.0 169.4 167.9 19. 4 14.5 13.6 83.4 '81.0 7.1 10.6 4.3 '4.2 3.6 2.8 ,7 ,2 212.2 85.3 84.8 -.._ Approved for w i t h drawal F o r use b y United states • (5 percent) (cumulative) 14.1 3.0 139.6 (2) 118.2 (2) 73.5 12.9 73.5 9.8- • • 1 Data for France and western Germany revised from those published earlier in the ECA Local Currency . Counterpart Funds Report for September 30,1949. 2 Less than $50,000 equivalent. • , . NOTE,—" Dollar equivalents" are computed at the actual rates which were used by the respective governments in agreement with the Administrator in making commensurate deposits of local currency. At September 30,1949, these were all predevaluation rates, Som-ce: Economic Cooperation Administration. Pursuant to section 115 (b) (6) of the Economic Cooperation Act of 1948, the Council, during the 6 months ending September 30, 1949, was consulted by the Economic Cooperation Administration on proposed programs of counterpart releases for Austria, France, Italy, the Netherlands, and the French Zone of Germany.^ 6 In October 1949 the Council also approved a broad program for the use of counterpart funds in the United States-United Kingdom Zone of occupation of western Germany. EiXHIBITS 299 FINANCIAL DEVELOPMENTS RELATING TO THE UNITED KINGDOM Earlier reports of the Council have reviewed postwar developments as they affected the financial position of the United Kingdom. The changes which took place' in the postwar foreign trade of Britain with the dollar area and in gold and dollar reserves are reflected in chart D. Here it may be observed that while total dollar imports and exports increased in 1947 over 1946, the disparity in British trade remained. In 1948, British exports continued to increase while her imports decreased substantially, thus somewhat narrowing the gap. Nevertheless, the adverse trade situation with the dollar area continued i n t o ' 1949. The difference between British exports and imports was financed largely by the use of gold and dollar reserves and by the extension of direct assistance from the United States in the form of loans and grants. Gold and dollar reserves, for example, were reduced from a high of 2.6 billion dollars on December 31, 1946, to 1.6 billion dollars on June 30, 1949. The financing of the dollar deficits of other parts of the sterling area contributed substantially to this reduction in reserves. As a result of the deterioration in the British dollar position, the United Kingdom on July 14, 1949, announced a new austerity program which would reduce plans for spending.in the United States and Canada by $400,000,000 during the current fiscal year. This decision to slash dollar imports by 25 percent was stated to be necessary to safeguard the sterling area's gold and dollar reserves. At the same time. Commonwealth Governments indicated that they would take steps to make similar cuts in their dollar imports. During the course of a trip to Europe in the summer of 1949, the Chairman of the Council, at the request of the British Government, participated with the Canadiari Minister of Finance in conversations with the British Chancellor of the Exchequer. At this meeting, the United States and Canadian representatives were advised of the general character of the import cuts which would have to be.made by the United Kingdom and the sterling area countries. I t was agreed at the meeting to hold further conversations early in September 1949. The ensuing discussions with the United Kingdom and Canada were held in Washington under the chairmanship of Secretary Snyder. These talks reviewed the steps that both debtor and creditor nations should take to progress toward a self-balancing relationship between the dollar area and the sterling area. The results of the meeting were summarized in a joint communique which was released at the close of the meetings on September 12, 1949, and which is reproduced as appendix D to this report. On September 18, 1949, after consultation with the International Monetary Fund, the British Government announced a decision to devalue the pound sterling from $4.03 to $2.80, or by 30.5 percent. Gold and dollar reserves, which had reached a low of 1,330 million dollars on the date of devaluation, increased to 1,415 miUion dollars by September 30, 1949. The devaluation of sterling was followed by adjustments in most of the other principal currencies of the world. The subject of changes in par values is discussed in detail in chapter IV. 300 195 0 REPORT OF THE SECRETARY OF THE TREASURY CHART D KINGDOM TRADE WITH tHjEUNITJEDS-fiail-ES B A N K " ^ t D AI^D DOLtiR^^^ UNI1"ED UNITED KINGDOM TRADE WITH THE UNITED STATES 1946 iiili 1947 llllilM^ 1949 GOLD AND DOLLAR RESERVES" (Annually. As of June 30) $Bil.^- 2.382 2.0 • y f Level af ^"i^o <Oeva/uaf/on \jSepf. 18.1949) lllliBiIiiiiiiiiiiii Iiiiiiii nil iiiiiiii^iiiiiiiiiii illt,^ ^'As reported by the Government o f the U.K. Data exclude private holdings. "^Includes Canadian dollars. EKHUBITS 301 POINT IV PROGRAM Since first introduced in his inaugural address, January 20, 1949, the Council has given continuing attention to the financial aspects of the President's Point IV Program, which is designed to facilitate economic development, particularly in underdeveloped areas. In the original, statement, the methods whereby this objective could be achieved were outlined in broad terms rather than in specific measures. The Council gave particular attention to suggested methods of implementing the program, including proposals for guaranties of private investments, the content of investment treaties, and specific measures relative to tax deterrents to international investment. In connection with the program, emphasis was placed upon the concept that private capital should contribute a major part of the funds required. The history of United States private investments abroad indicates there was a comparatively low level of financing during the 1930's following defaults on foreign government obligations which had resulted from the depression. During World War II, withdrawals of capital from such investments exceeded new capital put in and it was not until 1945 that new direct investments again became important. Since the end of the war, foreign investments have increased rapidly, reaching an annual level of about $800,000,000 in 1948, but these new investments have been concentrated in a very limited number of fields and in a few countries. In order to achieve an expansion in the amount and fields of investment, it was realized that new incentives were required. A prerequisite for stimulating foreign investment is the creation of a more favorable climate for investment abroad, including a cooperative attitude on the part of the foreign countries concerned. One step toward the improvement of such a climate would be the negotiation of treaties of friendship, commerce, and economic development between foreign countries and the United States.^ The principal purpose of such treaties would be to provide an understanding between the governments on the basis of which potential investors would be assured of the security of their property and, in the case of expropriation, of prompt, adequate, and effective compensation. The investor also would be given reasonable opportunity to remit earnings and to withdraw his capital, and would enjoy security in the protection of his person, and nondiscriminatory treatment in the conduct of his business affairs. . , In addition it was considered that the United States might encourage private investment abroad by providing guaranties against risks peculiar to foreign investment. The Council therefore recommended, as a coordinated part of the Point IV Program, that the ExportImport Bank seek authority from the Congress to offer guaranties, in consultation with the Council, to United States private capital newly invested in enterprises contributing to economic development in foreign countries. The Export-Import Bank was considered the best medium for carrying out the guaranty program since it had previous experience in the extension of developnient loans to foreign countries, both for productive purposes and to increase international trade. I t was believed that the program should be experimental in nature since 302 195 0 REPORT OF THE SECRETARY OF THE TREASURY it was difficult to anticipate the types of risks which should be covered or the effectiveness of guaranties to stimulate investments. The Council also recommended that the Secretary of the Treasury propose legislation to remove tax deterrents to private foreign investment. Such legislation would liberalize present limitations dn the foreign tax credits allowed to American business so that increased tax relief would be accorded where foreign operations result in profits in some countries and losses in others. The present laws pertaining to taxation of corporations having foreign subsidiaries would be liberalized so that a majority stock ownership would no longer be required to be eligible for the tax credit for foreign taxes paid by the foreign subsidiaries. Furthermore, it was proposed that the law be liberalized so that an American citizen abroad may receive the exemption from the United States tax on his foreign-earned income retroactively, to the time he first becomes a bona fide resident of a foreign country. I t was recommended that estate taxes imposed by foreign governments be allowed as a credit against United States estate taxes similar to the credit under the income tax. Finally, it was proposed that, if practicable, taxes on the profits of foreign branches of domestic corporations should be postponed until the profits are remitted to the United States, similar to the present treatment of foreign subsidiaries. In July 1949, the guaranty program was presented to the Congress as an experimental program which would give the Export-Import Bank broad and flexible authority to issue guaranties against risks peculiar to foreign investment. In testifying before the Senate Banking Committee, Secretary of the Treasury Snyder, as Chairman of the Council, pointed out that outside capital could help speed the development of underdeveloped areas but that sound and lasting development could be attained only if these areas used their own resources to the fullest extent. He stressed that foreign investment should be undertaken through private channels insofar as possible, particularly because investment by private enterprise is characteristically accompanied by technical assistance in the form of industrial know-how. Secretary Snyder also pointed out that the obstacles to investment of private capital abroad spring from several sources, such as exchange restrictions, state control and ownership of industry in foreign countries, and political instability. The United States Government could contribute to the removal of these obstacles through the negotiation of treaties of the type previously discussed, and could supplement the assurances to investors through guaranties of private United States investments abroad. The Banking and Currency Committees of both Houses of Congress reported favorably on the bills permitting the extension of foreign investment guaranties, but no further action was taken on them during the first session of the Eighty-first Congress. In addition to the introduction of bills advocating foreign investment guaranties by the Export-Import Bank, a companion bill relating to the Point IV Program dealt with international technical cooperation. It was the objective of the proposed legislation to enable the United States to participate in programs, in cooperation with other interested governments, for the interchange of technical knowledge and skills which would, contribute to the balanced and integrated EpCHIBlTS . 303 development of the economic resources and productive capacities of economically underdeveloped areas. The House Committee on Foreign Affairs conducted hearings on this bill but postponed action until the second session of the Eighty-first Congress. EXPORT-IMPORT BANK CREDITS During the period under review, the Council continued to work closely with the Export-Import Bank to facilitate coordination of the Bank's operations with those of other agencies concerned with foreign financial and monetary matters. New credits authorized by the Bank during this period totaled $49,758,058. Chile During the 6-month period, the Council approved consideration by the Export-Import Bank of a credit to Chile not to exceed $25,000,000, with a maturity of not more than nine years, to assist in the financing of its import program for the remainder of 1949.^ The Bank also approved an increase of $1,350,000 in an existing line ol credit of $5,350,000 which was extended by the Bank in favor of the Corporacion de Fomento de la Produccion, Chile, in February 1947. This increase was granted to finance expenditures in the United States for hydroelectric power facilities. The additional credit is guaranteed by the Republic of Chile. Yugoslavia Before the war, Yugoslavia was a leading producer of nonferrous metals such as bauxite, mercury, copper, lead, and zinc. Damage to the mines and their equipment occurred during the war. There was also a considerable amount of depreciation and obsolescence. In order to assist in rehabilitation, chiefly of the Yugoslav mining industry, application was made to the Export-Import Bank for credits for the purchase in the United States of essential materials and equipment. The Council approved consideration by the Export-Import Bank of the extension to Yugoslavia of credits up to $20,000,000 for purchases in the United States of the necessary materials, equipment, and services. On September 9, 1949, the Bank announced an authorization to Yugoslavia of $20,000,000 in credits, which would be available until December 31, 1950. O t h e r credits In August 1949, the Bank announced authorization of credits in the total amount of $17,900,000 (representing specific allocation of funds from an original commitment of $50,000,000 made in April 1947), for the rehabilitation and development of Mexican railroads. These funds are designed to further a general program of transportatiori development for which the Bank had previously lent $62,000,000, under this and other credits, of which $22,000,000 had been repaid. The Bank authorized a credit of $4,000,000 to the Liberia Mining Co. to assist in financing the development of high-grade iron-ore deposits and the construction of a railroad and ore-handling and 7 The authorization of a credit of $25,000,000 was announced by the Board of Directors of the Export-Import Bank on Oct, 7, 1949, with $15,000,000 to be made available immediately and additional advances of up to $10,000,000 to be made on demonstration that they are necessary to pay for 1949 imports agreed to be essential. JFunds advanced under the credit wiU be repayable in semiannual installments beginning Apr, 30,1952, and ending Oct. 31,1959, and will bear interest at the rate of 3H percent per annum. 907795—51 21 304 195 0 REOPORT OF THE SECRETARY OF THE TREASURY storage facilities. This loan represented about one-half of the projected financing costs of the project. As previously reported by the Council, as of April 1, 1949, credits of $51,000,000 had been authorized out of the Bank's earmark of $100,000,000 in favor of the State of Israel. On September 8, 1949, the Bank announced an allocation from the $49,000,000 still available of $2,350,000 for United States goods and services to be used in connection with the improvement and expansion of the existing ports of Israel. The Export-Import Bank also acted as administering agency for the supplementary loan agreements with participating E R P countries signed during'the period under review. The terms and conditions of these loans, agreed upon by ECA after consultation with the Council, include an interest rate of 2K percent per annum payable semiannually from 1952, and principal payments beginning in 1956. The loans mature in 1983. As of September 30, 1949, the resources of the Export-Import Bank were distributed as follows: ' [In millions of dollars] Total Lending Authority.. $3,500. 0 Loans outstanding Undisbursed commitments Uncommitted lending authority . . ..^ ^ 2,160, 7 383, 2 956. 1 The following table shows the distribution of net credits authorized by country and object of financing. Data on actual utilization of Export-Import Bank credits by country, through June 30, 1949, may be found in table 8, appendix C * TABLE IX,—Net credits authorized bythe Export-Import Bank^ July 1, 1945, to September 30, 1949 [In millions of dollars] Total Area a n d c o u n t r y Total, All A r e a s . . Total, Europe • France Netherlands iBelgium Reconstruction Denmark Germany Greece . Austria Sweden Yugoslavia . . U n a l l o t t e d cotton credits Other 767.1 655. 0 183.8 27.3 2, 030. 4 971.9 280.9 655.0 105.0 17,6 1, 200. 0 205.3 132.0 650.0 3 152. 2 45.0 3.1 3 32.0 550.0 50.0 55.0 101.9 73.2 20.0 4.6 14.7 25.0 17,0, 449 'UO.O 0 2 20.0 *2.0 50.0 ' 40.0 35,5 20. 0 64.6 14.7 13.5 2.2 20.0 38.4 See footnotes at end of table. * Omitted in this exhibit; see note at end of exhibit. Cotton 2 purchases 1, 008.6 40.0 35.5 22.0 Poland Tm-key Czechoslovakia . Lend-lease requisitions 2, 641. 8 131.8 100.2 50.2 Italy Finland Norwav Development • 13.0 2.2 20.0 .5 38.4 305 EKHKBITS TABLE IX.—A^e^ credits authorized by the Export-Import Bank,^ July 1, 1945, to September SO, 1949—Continued [In millions of dollars] Total, Latin America Brazil Mexico Chile 224.1 . _.. . Reconstruction Total Area and country _ . Development 65.2 57.0 64,7 20.1 4.0 3.8] 20.1 4.0 3.8 _ . 3.3 3.0 2.0 3.3 3.0 2.0 Argentina Uruguay Other Latin America..... •2 ,2 ,1 ,7 Bolivia ...: Venezuela... Panama ._ Total, Asia and Africa 232. 6 Israel China Japan 100.0 66.7 45.8 Canada 36.7 33.7 10.0 1 Saudi Arabia. Egypt Ethiopia 7.1 3.0 . . . 145.0 Other Other 224.1 65. 2. 57.0 64.7 Colombia Haiti Ecuador.. Lend-lease Cotton^ requisipurchases tions 3.6 117.1 100.0 78.8 33.0 3 6 45.8 • 10.0 7.1 145.0 • 9.7 9.7 1 Cancellations and expirations deducted. Numerous small exporter-importer loans extended by the Bank, July 1, 1945, through Sept, 30, 1949, are excluded. Also excluded are Mexican authorizations of $30,000,000 and a Peruvian authorization of $400,000 approved prior to Juhe 30, 1945, recorded on ExportImport Bahk books subsequent to June 30, 1945, » Credits extended by Export-Import Bank under general approval of the Council.' Hungarian credit of $7,000,000 canceled Apr. 2, 1947. 3 Excludes participation by private banks. * For financing tobacco purchases. « For financing food purchases. * Revolving credits. OTHER FINANCIAL PROBLEMS Financial terms qf military assistance to Iran and the Philippines When the financial aspects of the Mutual Defense Assistance Program were originally referred to the Council, the Council was of the view that such assistance should be provided on a grant basis to countries receiving ECA assistance and that separate determinations should be made for countries outside of the ECA program. Iran and the Philippines were not included in the original program under which the Atlantic Pact countries were to receive military aid. When it was later determined that these two countries would participate iri the Mutual Defense Assistance Program, the Council expressed the opinion that military assistance to them should be provided on a grant basis. ; Additional stabilization assistance to Mexico On June 17, 1949, Secretary of the Treasury Snyder, after consultation with the Council, announced the signing of an agreement supplementing the United States-Mexican Stabilization Agreement entered 306 1 9 5 0 REPORT OF THE SEiCRETARY OF T H E TREASURY into in May 1947. Mexico had previously utilized $37,000,000 of the $50,000,000 available under the existing Stabilization Agreement. The new agreement increased to $25,000,000 the balance available from the United States Stabilization Fund for the purchase of Mexican pesos to stabilize the United States dollar-Mexican peso rate of exchange. The agreement was signed following acceptance by the International Monetary Fund of a new par value of 8.65 Mexican pesos per dollar. (See ch. IV.) Secretary Snyder stated that any operations under the agreement with Mexico would be closely coordinated with the activities of the International Monetary Fund in order to contribute to the efforts of the Fund to stabilize the exchange rate structure of its members. Withdrawal of Commodity Credit Corporation agreement unth the Netherlands Indies Government In June 1948, the Council reviewed the proposed extension of a $20,000,000 credit by the Commodity Credit Corporation to Indonesia for the purchase of incentive goods (textiles, food, household articles, etc.), to be used to stimulate the production and procurement of copra and palm oil for export. A year later the Secretary of Agriculture advised the Council that no funds had been advanced under the proposal and that the Board of Directors of the Commodity Credit Corporation had resolved to withdraw the offer to enter into the agreement. During the period, changes in the world fats and oils supply situation obviated the n e e d i e r the proposed agreement. United States-Brazil economic discussions • Following submission of the report of the Joint Brazil-United States Technical Commission, the Governments of each country considered plans to foster the economic development of Brazil. During the spring of 1949, President Dutra returned the visit made by President Truman to Brazil in August 1947. The two Presidents discussed at length the desirability of fostering economic development and social progress through the mutually beneficial interchange of technological data and trained specialists of all types, as well as through financial and economic cooperation. President Dutra mentioned the need of foreign private investment in Brazil. The two Presidents recognized the important role of private investment in economic development and social progress and accordingly instructed technical experts of their respective Governments to commence immediately the negotiation of an appropriate treaty that would stimulate the mutually beneficial flow of private investirient. I t was also fully agreed that a comprehensive joint study of the tax relations between the two countries would be helpful. The two Presidents recognized the possibility of financing through public lending agencies appropriate development projects not suited to private financing, of the types which have been accepted for financing by the International Bank for Reconstruction and Development and the Export-Import Bank. EIXHIBITS 307 IV. ACTIVITIES OJ' THE COUNCIL FROM APRIL 1, 1949, TO SEPTEMBER 30, 1949, RELATING TO THE INTERNATIONAL MONETARY F U N D AND THE I N T E R N A T I O N A L B A N K F O R R E C O N S T R U C T I O N AND D E V E L O P MENT The National Advisory Council, in accordance with statutory authority, continued to coordinate the activities of the United States representatives of the Fund and the Bank with those of other agencies of the Government, by consulting and advising with them on major problenis arising in administration of the Fund and the Bank. The United States Executive Directors of these institutions, or their Alternates, have attended the Council's raeetings regularly, and have participated continuously in the work of its Staff Committee. FOURTH A N N U A L MEETINGS OF THE FUND AND THE BANK The Boards of Governors of the Fund and the Bank held their fourth annual meetings in Washington, D . C , September 12 to 16, 1949. The Secretary of the Treasury, John W. Snyder, as United States Governor of both institutions, attended. Willard L. Thorp, William McChesney Martin, Jr., and Frank A. Southard, Jr., were appointed temporary United States Alternate Governors for the purpose of these meetings. The United States Alternate Executive. Directors also participated in these meetings, as did representatives of the constituent agencies of the Council. The principal matters considered by the Boards of Governors were as follows: (1) The Boards of Governors discussed and accepted the annual reports, the financial statements and reports on audit, and the 1949 administrative budgets, and elected officers and a joint procedures committee for 1949-1950. (2) The application of the Republic of Haiti for membership in the two institutions was approved, providing for a quota in the Fund of $2,000,000, with a like amount as a subscription to the Bank. Membership is open to Haiti until March 31, 1950, with the Executive Directors empowered to extend this period until September 30, 1950, if they deem such action warranted. (3) The Boards of Governors also extended until March 31, 1950, the period in which the Republic of Liberia may accept membership, and empowered the Executive Directors further to extend the period, but not beyond October 1, 1950. (4) At the Fund meetings, the Governors adopted a resolution referring to the Executive Directors for further study the proposal by South Africa concerning gold sales at premium prices. They also discussed questions of exchange and monetary policy, exchange restrictions, and monetary reserves. , (5) A report on relations with the International Trade Organization and the Contracting Parties to the General Agreement on Tariffs and Trade was submitted to the Board of Governors of the Fund for information. (6) The Governors of the Bank reviewed the report of the Ad Hoc Committee (appointed at the third annual meeting to consider pro^ visions relating to duties and remuneration of the Executive Directors), and referred the matter back to the Committee for further study. ^ 308 195 0 REPORT OF THE SECRETARY OF THE TREASURY (7) The Governors of the Bank approved the report of the Executive Directors postponing the election of a new Advisory Council. (8) The Governors of the Ba^nk also approved the report of the Executive Directors on the allocation of the Bank's net income for the fiscal year ending June 30, 1949. At the closing session, the Governor of India was elected Chairman for the coming year, and the Governors of China, France, United Kingdom, and the United States were elected Vice Chairmen. I t was decided to hold the fifth annual meetings in Paris in the month of September 1950. MEMBERSHIP CHANGES IN THE FUND AND THE BANK During the period under review, one new country, Thailand, was admitted to membership in the Fund and the Bank. At the third annual meetings in Washington in September 1948, the Boards of Governors accepted the request of Thailand for membership, providing for a quota in the Fund of $12,500,000, with a like amount as a subscription to the Bank. Thailand formally became a member of the two organizations on May 3, 1949. Favorable action by the United States representatives with respect to this application was taken with the approval of the Council. On September 30, 1949, 48 countries were members of the Fund and the Bank. The members, with their quotas and capital subscriptions as of September 30, 1949, are listed in appendix E.* ORGANIZATIONAL CHANGES On May 18, 1949, Mr. Eugene R. Black, then United States Ex.ecutive Director, was elected President of the Bank, succeeding Mr. John J. McCloy, who resigned to accept the post of United States High Commissioner for Germany. Mr. Black assumed his new duties on July 1, 1949. THE FUND During the period under review, the Fund continued to provide a number of its member countries with technical assistance, as well as, in appropriate instances, necessary foreign currency to meet balanceof-payments deficits on current account. As will be noted in the following section dealing with ^'par values," the Fund participated actively in the extensive realignment of currencies that occurred in the latter half of September 1949. P a r values On May 24, 1949, the Fund announced the establishment of an initial par value for the Yugoslav dinar at 50 dinars per United States dollar, the rate proposed by the Government of Yugoslavia. On June 17, 1949, the Fund also announced that it had concurred in the request of the Government of Mexico for the establishment of a new par value for the peso. The new par value of 8.65 pesos per United States dollar replaced the initial par value of 4.855 pesos per United States dollar, established on December 18, 1946, by agreement between Mexico and the Fund.. Transactions at this initial parity *bmitted in this exhibit; see note at end of exhibit. EIXHIBITS 309 had been suspended by the Bank of Mexico on July 22, 1948. The United States Executive Director, acting with the approval of thfe Council, concurred in the Fund action on the proposals of both Yugoslavia and Mexico. Currency readjustments: Septemher 1949 In December 1946, the International Monetary Fund and member governments agreed on the establishment of initial par values for their currencies based on existing exchange rates, even though, as the Executive Directors of the Fund recognized in their first Annual Report ^^ . . iri some cases the taitial par values that are established may later be found incompatible with the maintenance of a balanced international payments position at a high level of domestic economic activity." There were cogent reasons for this decision. I t would have been premature to attempt a general revisipn of exchange rates at that time, in view of the drastic changes in the structure of world trade and the disruption of the internal economies of many member countries wrought by the war. As economic advances were made as a result of the internal efforts of the countries concerned as well as of the United States foreignassistance program,- the desirability of an eventual revaluation of currencies gradually became more apparent. In its Semiannual Report for the period October 1, 1948-March 31, 1949, the National Advisory Council stated that '^. . . in 1948 a general revaluation of the European exchange rates was inadvisable in view of the possible internal repercussions of devaluation on the participating countries in a period when their economies still exhibited serious infiationary tendencies, while their levels of production were not adequate to maintain an expanded volume of international trade. I n many of the participating countries these conditions no longer obtain, since substantial progress has been made toward recovery in their levels of production . . . . I t is the Council's opinion that in some cases the revaluation of currencies may constitute an important means of bringing about the desired expansion of exports to the dollar area which, -along with other appropriate measures, will contribute to more normal methods of financing after 1952." Sittiilarly, in their Annual Report for the year ending April 30, 1949, the Executive Directors of the International Monetary Fund declared that ^^Where a price reduction . . . is necessary to expand exports, it would in many cases seem possible only through an adjustment in the exchange rate." « In the period under review, it was becoming widely accepted that a general revision of European exchange rates was an essential step in the direction of creating freer intra-European and world trade and restoring equilibrium in European balances of payments at a reasonable level. European export prices in terms of dollars had become less competitive than United States prices for the same types of goods, and in the absence of depreciation it was becoming increasingly difficult for European countries to maintain, much less expand, their exports to the dollar area and to compete with dollar-area goods in their domestic and third markets. There was serious danger that 8 Similar views had been expressed by other international bodies such as the Organization for European EtgoAOmic Cooperation, and the Economic Commission for Europe. 310 1 9 5 0 REPORT OF T H E SE.CRETARY OF T H E TREASURY unless such action was taken, the marked disparities in cost-price structures existing between the soft-currency-area countries and the dollar-area couritries on the one hand, and among the soft-currencyarea countries themselves on the other, would tend to become set, the strains of altered creditor-debtor relationships increasingly burdensome, and the distortions of international trade and the disequilibria in European balances of payments increasingly intractable. The decline in the exports of European countries to the dollar area and the depletion of the United Kingdom's gold and dollar reserves during 1949 underlined the need to adopt remedial action. In less than six months, from March 31 to September 18, 1949, the United Kingdom's gold and dollar reserves fell by more than $500,000,000. On September 18, the International Monetary Fund announced that the United Kingdom had proposed and the Fund had concurred in a change in the par value of the pound sterling from the previous rate of one pound sterling to $4.03, to one pound sterling to $2.80. Twenty-five other countries had announced adjustments in their exchange rates by September 30, with the extent of devaluation varying from 9.1 percent in the case of Canada, to 30,5 percent by most countries within the sterling area (see table X ) . The Fund was consulted on, and approved, the adjustments proposed by member countries, and the United States Executive Director, acting in accordance with policy directives previously formulated by the Council, concurred in the action of the Fund. The Council recognizes that this readjustment of exchange rates does not constitute a cure-all for the difficult and complex problems currently faced in international payments. But it helps to clear the way by removing some of the obstacles to the effective functioning of a world price system. I t may contribute to a reduction in the European dollar deficit by an expansion of exports from the European countries to the Western Hemisphere and facilitate the relaxation of barriers to multilateral trade. TABLE X . --Changes Country in currency values, as of Sept. 30, 1949 Currency value: United states cents per unit of currency Monetary unit Old Sterling Area: United Kingdom » . Iceland _ Ireland Iraq,-Australia New Zealand. 280.000 10. 705 280.000 . 30.5 30.5 30.5 30. 225 30, 225 30. 225 21,000 21.000 21.000 30.5 30.5 30,5 Dinar Pound Pound 403.000 322. 400 403. 000 280. 000 224. 000 280.000 30.5 30.5 30 5 Pound 403.000 280. 000 30 5 Dollar Pound 100. 000 413.300 90. 909 287,156 9,1 30,5 Rupee _ Rupee Rupee '. ._ South Africa ._ Canada Egypt ^..: New Reduction in value (percent) 403.000 15.411 403. 000 Pound . Krona Pound Burma. Ceylon India - .__ _ 1 All ofthe British territorial currencies (except that of British Honduras) were likewise devalued by 30.5 percent. EKHIBITS 311 TABLE X.—Changes in currency values, as of Sepi. 30, 1949—Continued Country Currency value: United States cents per unit of currency Monetary unit Old Israel: Imports' Exports _ _ _ _ _ _ Jordan Thailand_-_ . _ _ Europe: Belgium-Luxembourg' Denmark __ _ Finland* __^ France ^ Germany (western). Greece' Italy 7 Netherlands 8 Norway .___. __ ' Portugal * Sweden i".. Pound Pound _-i___ Pound . _._ Baht Franc_ __ ____ _ . Krone Markka Franc ._ Deutsche Mark Drachma Lira Guilder Krone___ _ Escudo Kjona——.- ... New Reduction in value (percent) 302.000 403.000 } 280.000 \f 7,3 30.5 403.000 10.075 .280,000 8,000 30.5 20,6 2, 282 20. 838 0,625 2,000 14.478 0,4348 12,3 30,6 30.4 0,3669 30.000 0.01 0.2857 23,810 0,0067 22,1 20,6 33.3 0,1739 37:695 20,150 0.1572 26.316 14.000 9,6 30.2 30.5 4.000 27.816 3,478 19,33 13,0 30:5 2-Free market rate for imports, 3 The Belgian Congo franc remains at par with the Belgian franc, < The Finnish change shown here followed closely an earlier devaluation (from 0.735 to 0,625 cents per markka), on July 4, 1949, and thus represents a total devaluation of 41 percent during recent months, 8 Rates shown are those for trade transactions. • Under the official free market system used in France, the rates referred to here are technically flexible, though they may be held steady for relatively long periods. All local currencies of French dependencies are pegged to the French franc, except (1) the rupee of French possessions in India, which is maintained at par with the Indian rupee; and (2) the Djibouti franc, which retains its old dollar parity of 0,47 cents. 8 Under the exchange certificate system used in Greece, the rates referred to here are technically flexible, but for over a year prior to the current devaluation, fluctuations in the old rate had been held to less than 1 percent in either direction. 7 Under the official free market system used in Italy, the rates referred to here are technically flexible, though they may be held steady for relatively long periods. 8 The Indonesian guilder remains at par with the Netherlands guilder, but the Surinam guilder retains the old dollar parity of 63 cents, 9 The change shown here followed closely a minor adjustment (from 4.0124 to 4.0 cents per escudo), on August 8, 1949, Portugal is not a member of the International Mpnetary Fund and has no par value. Rates shown are mid rates between the official buying and selling rates, 10 Sweden is not a member of the Fund and has no par value. Rates shown are average rates between the ofl[icial buying and selling rates. Exchange, restrictions On May 27, 1949, the Fund reported results of consultations with the Government of Ecuador on Ecuador's exchange system, and related subjects of credit and monetary policy. As a result of similar consultations with the Fund in June 1947, Ecuador had made certain modifications in her exchange control system. In the May consultations it was understood that Ecuador would continue to maintain ior another year her present exchange controls but that during this period Ecuador would consult with the Fund regarding modifications which might properly be made at the end of that time. Price of gold The Secretary of the Treasury, at the fourth annual meeting of the International Monetary Fund, in connection with consideration of the resolution proposed by South Africa concerning gold sales at premium prices, reiterated the established position of the United States Government with respect to the maintenance of the dollar price of gold. In his capacity as United States Governor, the Secretary stated, during 312 1 9 5 0 REPORT OF THE SiECRETARY OF T H E TREASURY the course of the discussion ^^I have said on many occasions and I must say again that I do not perceive any considerations of monetary policy which would justify me in proposing to my Government a change in the dollar price of gold." ® Repurchase of Fund drawings Article V, section 7 of the Fund's Articiles of Agreement provides fdr the compulsory repurchase, of Fund holdings of a member's currency under specified conditions. During May 1949, Costa Rica became the first country to repurchase some of its own currency from the Fund. This transaction involved Costa Rican colones equivalent to 874,000 dollars, and was effected through a Costa Rican payment to the Fund of 855,000 dollars, and gold to the value of 19,000 dollars. In August 1949, Belgium repurchased from the Fund Belgian francs equivalent to 946,500 dollars, with a payment of 35,000 dollars, and gold to the value of 911,500 dollars. During September 1949, Nicaragua repurchased for 500,000 dollars the total amount of cordobas which it had sold to the Fund in 1948. As a result of this transaction, the Furid's holdings of cordobas reverted to the level in existence prior to the original Nicaraguan drawing. Exchange transactions During the 6 months, April 1, 1949, through September 30, 1949, the Fund sold $21,000,000 to three of its member countries. These transactions increased total currency sales of the Fund to date to the equivalent of $734,600,000. ,Fund sales of United States dollars for member currencies have been almost entirely to non-ERP countries since the start of the European Recovery Program in April 1948. The following table presents a detailed break^down of currency sales through September 30, 1949: T'ABLE XI.—Currency sales ofthe Tnternational Monetary F u n d from Apr. 1, 1947, < , to S e p t : 30, 1949 [In millions of United States dollars] Total to Sept. 30, 1949 Country Total, All Countries _. _ 734. 6 Total, E R P Participants . 564.2 United Kingdom France __ Netherlands Belgium Norway.Denmark Turkey ._ _. Six-Month Periods e n d i n g Sept, 30, ;i949. 21,0 Mar, 31, 1949 Mar. 31, , • Sept. 30, . 1948 ' ' 1947 73.8 39.7 391,1 209 0 6.1 17,3 356.8 184 0 16.8 240.0 25.0 44.5 33.0 60,0 100 0 2 24,0 300.0 125.0 75.3 33,0 15,7 10,2 5.0 Sept, 30, 1948 3 6.1 < 7.1 3,4 2,5 6,8 5.0 ^1 Sale of Belgian francs, 2 Includes $6,000,000 of pounds sterling, J United States dollars sold for an equivalent in gold. -. < Includes $4,600,000 of Belgian francs. 9 The position of the United States on this matter was further explained in a memorandum to the press of October 6, 1949 (see appendix F), and reaffirmed by President Truman on November 10, 1949, 313 EiXHIBITS TABLE XI.—Currency sales of the International 'Monetary Fund from Apr. 1, 1947^ to Sept. 30, 1949—Contmued . [In millions of United States dollars] ';. Total t o Sept.30, 1949 Country ' ' Total, o t h e r Countries Sept. 30, 1949 170,4 India Mexico Brazil. U n i o n of S o u t h Africa 8.8 6.0 3.0 3.0 . •• . • 1 . 3 M a r . 31,' .1949 21.0 100.0 22.5 15.0 10.0 Chile Czechoslovakia Egypt Yugoslavia.. CostaRica Nicaragua Ethiopia Six-Month Periods e n d i n g Sept. 30, 1948. M a r . 31, 1948 67,7 22.4 34,3 55.9 16,1 28.0 Sept. 30, 1947 . 25,0 • 22,5 i5;0 10.0 • 6.3 2, 6 6.0 .' 3,0 • 3.0 • •• •.5 .3 1.3 .5 .3 NOTE.—Except where otherwise indicated, all sales were of United States dollars in exchange for the currency of the purchasing country. • . Source: International Monetary Fund. , THE BANK During the 6 months under review, the International Bank made. $76,500,000 in new loan commitments to four of its member countries. The United States Executive Director or his Alternate consulted with the Council with respect to each of these loan applications. As a further .aid to member countries, the International Bank announced an expanded program of technical assistance for economic development. The Bank indicated that it would be prepared tp help member countries in making comprehensive surveys of their resources and in working out appropriate long-term investment programs; to, work closely with potential borrowers in the analysis and planning of specific projects for Bank financing; and to assist in formulating and putting into effect practical measures to strengthen the financial institutions and practices of its member countries and to encourage productive investment from other sources. The Bank, however, emphasized the importance of action on the part of the less-developed countries to create a sdund foundation for economic development. Loans and disbursements ;, On July 29, 1949, the Bank granted a loan of $15,000,000 to the Finance Corporation for National Recionstructiori (Herstelb.ank),. of. the Netherlands. This loan was specifically riiade to finance iriiports;; of equipment for the reconstruction or modernization, of plants iri; various industries. The loan, guaranteed by the Kingdom of the Netherlands, extends for a period of 15 years, and carries an interest rate of 3 percent, plus the usual 1 percent commission for the Bank's special reserve. Amortization payments, calculated to retire the loan by maturity, will start in the fourth year. The Bank announced that 314 1950 REPORT OF THE SECRETARY OF THE TREASURY this loan was made in accordance with one of its main purposes—to aid in the reconstruction of economies of member nations and to encourage the development of their productive facilities and resources. The Bank also stated that by assisting in financing projects which involve permanent additions to Europe's productive capacity, the loan followed the Bank's policy of supplementing the European Recovery Program. On August 1, 1949, the Bank announced a loan of $12,500,000 to the Bank of Finland to finance imports of equipment and materials required for the reconstruction and modernization of Finland's woodworking industries, for an electric power development program, and for expanding production of limestone powder for agriculture. The terms of this loan, which was guaranteed by the Government of Finland, were similar to those applicable to the Herstelbank. On August 18, 1949, the Bank granted a loan of $34,000,000 to India for the reconstruction and development of the railways owned and operated by the State. Proceeds of this loan will be used to finance part, of the purchase price of locomotives, boilers, and spare parts. This loan—^^the first to be granted by the Bank to a member country in Asia—carried terms similar to those in the two preceding instances, except that amortization payments will start on August 15, 1950. On September 29, 1949, the Bank announced an additional loan of $10,000,000 to India, to finance part of the cost of agricultural machinery needed for land clearance and reclamation and thereby to increase the production of grain in India. This loan was for a term of seven years and carried an interest rate of 2K percent, plus the usual 1 percent commission. ' Amortization payments, calculated to retire the loan by maturity, will start on June 1, 1952. On August 19, 1949, the Bank granted a loan of $5,000,000 to the Caja de Credito Agrario, Industrial y Minero of Colombia to finance the purchase of agricultural machinery. This loan, guaranteed by the Republic of Colombia, is for a term of seven years, and carries an interest rate of 2K percent, plus the customary 1 percent commission. Semiannual amortization payments, beginning M a y 15, 1952, are designed to retire the loan by maturity on November 15, 1956. The agricultural equipment to be purchased with the proceeds of this loan should enable Colombia to increase farm production and thus meet an expanding domestic consumption, while reducing imports of foodstuffs and staples with a consequent saving of hard currency. From M a y 9, 1947, when the Bank announced its first loan, through September 30, 1949, total loan commitments of the International Bank aggregated somewhat more than $726,000,000, of which $678,000,000 had become effective. As shown in the following tabulation, four-fifths of this latter amount had been disbursed by September 30, 1949: EXHIBITS 315 TABLE XII.—Status of International Bank loans as of Sept. 30^ 1949 Loan Commitment Borrower Total, All Lcfans _ _. _ Credit National (France) _ _ _ Kingdom of the Netherlands Brazilian Traction, Light & Power Co,, Ltd. i Dominion of India 2 __. Kingdom of Denmark__.___i Financiera and Comjsion (Mexico) 3 ^ . ^,, Kingdom of Belgium. . . . _ .. Corporacion de Fomento (Republic of Chile) Herstelbank (Netherlands) * Bank of Finland»__ Grand Duchy of Luxembourg _ __ _ _ Netherlands shipping companies * Caja de Credito (Colombia) 2 $726, 600,000 250,000,000 1 195,000,000 76,000,000 44,000,000 40,000,000 34,100,000 1 balance Disbursement Unused of commitment $541,440,917 250,000,000 195,000,000 21,948,244 40,000,600 5,296,139 16,000,000 16,000,000 15,000,000 4,029,608 2,946,100 12, 500,000 12,000,000 12,000,000 5,000,000 10,221,826 12,000,000 $185,159,083 63,051,756 44,000,000 28,803,861 11,970,392 13,054,900 15,000,000 12, 500,000 1,778,174 6,000,000 1 Loan guaranteed by the United States of Brazil. 2 Agreements become effective after the Bank has received certain certificates and documents, and has notified the borrower and guarantor of its acceptance of such evidence, 3 Loans guaranteed by the Government of Mexico. Nacional Financiera and Comision Federal de Electricidad are joint borrowers. < Loans guaranteed by the Kingdom of the Netherlands, fi Loan guaranteed by the Government of Finland. Source: International Bank for Reconstruction and Development. Legislation In June 1949, the United States Congress enacted, and on the 29th day of that month the President approved, legislation amending provisions of the National Bank Act and the Bretton Woods Agreements Act applicable to securities of the International Bank (Public Law 142, Ch. 276, 81st Cong., 1st sess.). This legislation was designed to remove certain requirements which might interfere with the Bank's financing operations and thereby limit its effectiveness in carrying out the purposes for which itowas established. The National Bank Act was amended to permit national banks and State member banks of the Federal Reserve System to deal in and underwrite International Bank securities subject to certain prescribed limitations as to amount. The Bretton Woods Agreements Act was amended to provide that any securities issued by the International Bank arid any securities guaranteed by the Bank as to both principal and interest shall be deemed exempted securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. Public Law 142 also authorized the Securities and Exchange Commission to require the Bank to file annual and other reports with it and, in consultation with the Council, to suspend these exemptions. Fiscal operations For the fiscal year ending June 30, 1949, the International Bank had a net income of about $10,600,000, exclusive of special reserve commissions of $5,000,000. For the three months ending September 30, 1949, the Bank had an income of nearly $3,200,000, exclusive of over $1,300,000 paid into its special reserve. As of September 30, 1949, the Bank had an earned surplus of over $16,800,000, plus about $9,400,000 in its special reserve. 316 1 9 5 0 REPORT OF T H E SEiORETARY OF ;THE TREASURY Future lending On September 30, 1949, the Bank had uncommitted loanable dollar fiiricis amounting to approximately $320,000,000, and was engaged in the investigation of nuriierous requests for loans throughout the world. After having completed the immediate postwar phase of its activities, the Bank has entered upon a program of developmental loans to assist nations to obtain the fullest utilization of their own resources. JOHN W . SNYDER, ; Secretary of the Treasury^ Chairman of the National Advisory Council on International Monetary and Financial Problems. D E A N ACHESON, ' ' Secretary of State. CHARLES SAWYER, ' " Secretary of Commerce, ! THOMAS B . MCCABE, Chairman of the Board of Governors of the Federal Reserve System. H E R B E R T E. GASTON, Chairman ofthe Board of Directors of the Export-Import Bank of Washington. PAUL G . HOFFMAN, Administrator for Economic Cooperation. APPENDIX A A M E N D M E N T S OF THE NATIONAL B A N K A C T AND THE BKETTON W O O D S A G R E E M E N T S ACT (Public Law 142, Ch. 276, 81st Cong., 1st sess.) Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. T h a t paragraph seventh of section 8 of t h e National Bank Act, as amended (U. S. C , title 12, sec. 24), is amended by adding to t h e end thereof t h e following new sentence: " T h e limitations and restrictions herein contained as to dealing in and underwriting investment securities shall not apply t o obligations issued by t h e International B a n k for Reconstruction and Development which are a t t h e time eligible for purchase by a national bank for its ow:n SiCGOMni: Provided, T h a t nd association shall hold obligatipns issued by said b a n k as a result of underwriting, dealing, or purchasing for its own account (and for this purpose obligations as to which it is urider .commitment shall be deemed t o be held by it) in a total a m o u n t exceeding a t any one time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund." S E C . 2. T h e Bretton Woods Agreements Act, as amended (U. S. C , title 22, sees. 286-286k), is amended by adding a t t h e end thereof a new section to be numbered section 15 and to read as follows: ' ' S E C . 15. (a) Any securities issued b y International B a n k for Reconstruction and Development (including any g u a r a n t y by t h e bank, whether or not limited in scope), and any securities guaranteed by t h e bank as to both principal and interest, shall be deemed t o be exempted securities within t h e meaning of paragraph, (a) (2) of section 3 of t h e Act of M a y 27, 1933, as amended (U. S . C , title 15, sec. 77c),' and p a r a g r a p h (a) (12) of section 3 of t h e Act of J u n e 6, 1934, as amended (U. S. ,C.., title 15, sec. 78c). T h e bank shall file with t h e Securities and Exchange Commission such annual and other reports with regard to such securities as t h e Commission shall determine to be appropriate in view of t h e special character of t h e bank and its operations and necessary in t h e public interest or fbr t h e protection of investors. "(b) T h e reports of t h e National Advisory Council provided for in section 4 (a) (6) of t h e Bretton Woods Agreements Act shall also cover and include the. EKHATBITS 317 effectiveness of t h e provisions of section 15 (a) of this Act and t h e exemption for securities issued by t h e bank provided by section 8 of t h e National Bank Act in facilitating t h e operations of t h e b a n k a;nd t h e extent to which t h e operations of t h e | b a n k m a y assist in financing European recovery and t h e reconstruction and development of t h e economic resources of member countries of t h e b a n k and t h e recommendations of t h e Council as to any modifications it m a y deem desirable in the provisions of this Act. •' S E C . 3. T h e Securities.and Exchange Commission acting in consultation with the National Advisory Council on International M o n e t a r y and Finaricial P r o b lems is authorized to suspend, t h e provisions of section 15 (a) of t h e Bretton Woods Agreements' Act at any time as to any or all securities issued or guaranteed b y t h e bank during t h e period of such suspension. T h e Commission shall include in i t s annual reports to Corigress such information as it shall deem advisable with regard to t h e operations and effect of this Act and in.corinection therewith shall include any views submitted for such purpose by any association of dealers registered with t h e Commission. Approved J u n e 29, 1949. APPENDIX D JOINT COMMUNIQUE OF . U N I T E D STATES, U N I T E D S E P T E M B E R 12, 1949 KINGDOM, AND CANADA— 1. Representatives of t h e United States, t h e United Kingdom, and Canada have met during t h e past week to .examine t h e t r a d e and financial relationships between t h e sterling area and t h e dollar area. T h e pound and the dollar are t h e two principal world trading currencies. While t h e development of a satisfactory balance of p a y m e n t s between t h e two areas is a m a t t e r of fundamental concern to t h e democratic world; it involves m a n y problems which concern in t h e first instance the: governments which" are t h e centers of these two currency systems. T h e present discussions were held to examine these problems. I t was recognized t h a t t h e task of working out conditions under which world t r a d e can develop steadily and in increasing freedom will require a strenuous and sustained effort, not only on t h e p a r t of t h e United States, t h e United Kingdom, and Canada, b u t also by all other countries desiring t h e same objectives. 2. I t was agreed t h a t t h e conimon aim is to work toward an ultimate solution which will maintain employment and establish equilibrium of international, t r a d e on a mutually profitable basis a t high levels. These objectives and general course of action have already been set forth in t h e United Nations Charter, t h e Bretton Woods Agreements, and t h e H a v a n a Charter for an International Trade Organization. I t was t h e broad purpose of t h e present meetings to explore, within this general framework, various specific measures which t h e three Governments might take to prevent a serious break-down in t h e dollar-sterling relationships • which would have led to a crippling limitation of dollar imports into t h e sterling area and to hasten t h e achievemient of those objectives. " . 3. These conversations have carried forward t h e consultations iriitiated in London during. July 8-10. T h e y have resulted in a clear understanding of t h e character of t h e difficulties to be faced and an. increasing realization t h a t a fully satisfactory solution will necessitate continuing efforts in m a n y directions. I n t h e course of these conversations it has become possible to discuss with complete frankness specific problems and t h e types of measures which will have to b e t a k e n . if t h e three countries are to achieve their .common purpose. 4. I n t h e early stages of t h e discussion, attention was given to t h e immediate problem confronting t h e United Kingdom and t h e rest of t h e sterling area as a result of t h e rapid decline of gold and dollar reserves. Note was t a k e n by t h e three Governments of t h e emergency action w:hich sterling countries have decided t o t a k e to meet t h i s situation. These measures are not pleasant ones; they will cause difficulties and sacrifices for everyone concerned. Nevertheless, t h e y are a temporary necessity, and are recognized as such by all three Governments. 5. T h e Ministers were in complete agreement t h a t no p e r m a n e n t solution t o : t h e problem could be found in tlie ernergency steps cojntemplated. A^ more.frinda,71 318 1950 REPORT OF THE SECRETARY OF THE TREASURY miental attempt would have to be made by all concerned to expand the dollar earnings of the sterling area and to increase the flow of investment from the North American Continent to the rest of the world, including the sterling area. 6. This more fundamental attempt would involve both separate actions of the three countries operating individually, and joint action by the three acting in copperation with each other. In approaching these possibilities of individual and joint action on the sterling-dollar problem, there was common agreement that this action should be based on the assumption that extraordinary aid from the North American Continent would have come to an end by the middle of 1952. This would require that the sterling area increase its dollar earnings so as to pay its way by 1952. This would require in the sterling area the creation of appropriate incentives to exporters to the dollar area and a vigorous attack upon costs of production to enhance the competitive position of sterling-area products. Maximum efforts would be made to direct exports to the dollar area and build up earnings from tourism and other services. As a part of this export campaign by the sterling-area countries, it was recognized that an essential element was the creation of a feeling of confidence on the part of sterling-area exporters. They must feel that they will be afforded the opportunity to remain in the markets of the United States and Canada in which they will have gained a place, and that the minirdum of difficulties will be placed in'their way in entering those markets. On their part the creditor countries undertook to facilitate, to the greatest extent feasible, an expansion of dollar earnings by debtor countries, including the sterling area. It was agreed that the United States and Canada should reduce obstacles to the entry of goods and services from debtor countries, in order to provide as wide an opportunity as possible for those countries to earn dollars through the export of goods and the provision of services, including tourism. It was recognized that such a policy would be in the interest of producers in the United States and Canada, for only in this way can the future level of trade provide adequately for those sectors of the American and Canadian economies which depend in considerable part upon foreign markets. 7. The discussion of possible individual and joint actions, both long-run and short-run, ranged over a wide field. In addition to the question of dollar earnings of the United Kingdom and the rest of the sterling area, mentioned above, the Ministers gave special attention to,the following subjects: 1. Overseas investment. 2.. Commodity arrangements and stock-piling. 3. Limitations on items which may be financed under present ECA procedures. 4. Customs procedures. 5. Tariff policy. 6. Liberalization of intra-European trade and payments. 7. Sterling balances. 8. Petroleum. 9. Shipping. 10. Provisions for continuing consultation. 8. A working group on overseas investment reviewed both recent experience and future prospects for the flow of productive investment, both private and public, from North America to overseas areas, especially underdeveloped countries. It was agreed that a high level of such investment could make an important contribution toward reducing the sterling-dollar disequilibrium"^and that every aspect of this problem should be explored on a continuing basis. . In order to initiate this work, the President's Committee for Financing Foreign Trade will be asked immediately to explore possible lines of action in cooperatiori with corresponding groups of British and Canadian financial and business representatives. While dealing with all aspects of private and public investment, the Committee will be expected to address itself especially to the problem of incentives and of providing a suitable environment for a high level of private investment. 9. A working group on commodity arrangements and stock-piling gave special attention to rubber and tin. The Canadian representatives, stated that the Canadian Government was prepared to take steps to increase reserve stocks of tin and rubber in Canada. The United States representatives reported that the United States Government was prepared to open to natural rubber a substantial additional ^rea of competition, including a modification of the Government order EXHIBITS 319 relating to the consumption of synthetic rubber. The United States would review its stock-piling program, with particular reference to rubber and tin. 10. Special attention was given by another group to the practical difficulty being experienced by the United Kingdom in making fully effective use of its ECA aid to cover its dollar deficit. This difficulty arises out of the fact that, although the United Kingdom needs dollars to pay for goods in the United States, to make settlements with other countries, to pay for services, and for other purposes, the types of transactions which may be financed by EGA dollars have been definitely limited. It has been agreed that, in order to carry out the basic purposes of the Economic Cooperation Act, it will be necessary for tlie United Kingdom to finance with its share of EGA funds a wider range of dollar expenditures than has hitherto been eligible, both within and outside of the United States. After careful examination of the dollar expenditures proposed tp be made or authorized by the United Kingdom, it appears that eligibility requirements can be broadened to the extent required within the limits set by the Economic Cooperation Act. 'T?his would broaden the use but not increase the amount of EGA funds allocated to the United Kingdom. 11. In the consideration of measures which creditor countries might take to reduce barriers to trade, it was recognized that customs procedures may create obstacles, psychological as well as actual. Technical discussions of this subject disclosed that the United States, through administrative action and proposed legislation, was already contemplating constructive steps in this field. Canadian representatives stated that the Canadian Government would undertake a further review of the administrative operation of its Customs Act in the light of these discussions. As to tariff rates, it was noted that high tariffs were clearly inconsistent with the position of creditor countries. There had already been significant and substantial reductions in U. S. tariffs during the last fifteen years. The policy of the United States Government was to seek further negotiation of trade agreements through which additional reductions might be made, witliin the framework of the Reciprocal Trade Agreements Act. 12. There was agreement that one of the ways in which the competitive position of United Kingdom products might be improved was by a widening of the area in which such products competed freely with those of other countries. In this connection as an initial step toward a more general liberalization the United Kingdom delegation outlined its proposals fpr liberalizing trade with countries with which it did not have balance-of-payments difficulties, and raised the question whether the provisions of section 9 of the Anglo-American Financial Agreement, and article 5 of the Anglo-Canadian Finaricial Agreement presented an obstacle to such a plan. It was the view of the United States and Canadian delegations that such liberalization of United Kingdom import regulations should be considered since the United Kingdom shortage of dollars should not in itself force the United Kingdom to reduce its purchases from areas with which it does not have a shortage of means of payment. It was agreed that any United Kingdom import regulations as they affect United States and Canadian products would be the subject of continuing review by representatives of the three Governments through continuing facilities for consultation. 13. (a) A further subject which was discussed was the United Kingdom liability represented by the sterling balances of other countries. A large number of countries have been accustomed to hold either all or a part of their foreign-exchange reserves in the form of sterling. The existence and availability of such holdings are an integral feature of the widespread multilateral use of sterling for the purpose of financing international trade. One of the problems of the postwar > period has been the existence of exceptionally large accumulations of sterling which were built up, mainly during .the war, as the result of payments by the United Kingdom for goods and services purchased overseas in furtherance of the common war effort. In June 1945 these balances amounted to $13V^ billion. Since then there have been considerable fluctuations both in the total and in the holdings of individual countries, though the amount outstanding at the end of 1948 was approximately the same as at June 1945. (b) In principle the whole of these balances represents a charge on United Kingdom production of goods and services. In practice, however, a substantial proportion will continue to be held as reserves by the countries concerned. To the extent that the balances are liquidated, some proportion of United Kingdom 907795—51 22 320 1 9 5 0 REPORT OF T H E 'SiECRETARY OF T H E TREASURY production of goods and services is used to discharge this liability instead of to pay for current imports bf goods and services. (c) This whole problem in its various aspects, including t h e necessity to provide capital goods for development, was discussed in a preliminary way on t h e basis of prior technical examination by t h e experts of t h e three Governments. I t was agreed t h a t this was one of t h e subjects which concerned other countries and would require further study. 14, Investigation of t h e ways in which t h e sterling area could move toward a position in which it could earn its own way led to t h e discussion of other special problems, including petroleum and shippings—two i m p o r t a n t elements in t h e sterling area balance-of-payments picture. T h e United Kingdom representatives set forth the facts of t h e very large dollar deficit which t h e sterling area presently incurs because of oil transactions, and their desire to reduce this deficit to t h e minimum possible level. I t was mutually recognized t h a t t h e question, of oil production and refining, and geographical distribution raised problems of extreme complexity involving t h e protection of legitimate interests of t h e rriajor producing countries and companies. T h e Ministers recognized t h a t these two questions of petroleum and shipping could not be resolved in t h e short time available to t h e m , and t h a t further s t u d y would be required. I n t h e case of petroleum they agreed' to appoint representatives to analyze t h e facts and to provide t h e basis for s u b sequent discussions. ' 15. There has been agreement on t h e objective t o w a r d which policies should b e . directed and agreement on certain immediate steps which wiir be t a k e n to bring t h a t objective nearer. There are, however, as has been emphasized, a number of questions requiring closer examination t h a n this short conference has allowed. I t is proposed, therefore, to continue t h e examinations, initiated during t h e conference, of questions on which it is hoped t h a t useful understanding can be reached " under t h e direction of t h e present Ministerial group. These arrangements for continuing consultation—supplementing t h e usual channels of communication between governments—will be used to keep under review t h e effectiveness of actions already agreed upon and t o prepare, for governmental consideration, measures which could carry further those adjustments which are considered to be necessary. I n establishing these arrangements for continuing consultation, t h e three Governments wish t o emphasize t h a t these arrangements underline rather than diminish their interest in t h e development of economic cooperation within the eritire community of western nations. T h e tripartite arrangements will not in any way encroach upon, or detract from, t h e area of competence of t h e O E E C and other existing organs of international economic collaboration. On t h e contrary, those arrangements for continuing consultation, by contributing materially to the solution of problems which t o d a y adversely affect t h e working^of t h e entire O E E C group and yet are not susceptible of solution within t h a t group, will facilit a t e t h e progress of economic collaboration in t h e wider field. 16, I n s u m m a r y t h e Ministers of t h e three countries concerned are satisfied t h a t a real contribution to t h e solution of t h e sterling-dollar difficulties has been" made by t h e conclusions recorded above. T h e y are confident t h a t , with sustained efforts on all sides and with t h e seizure of every opportunity by sterling-area exporters to enter into and remain in dollar markets which are open to them, there is t h e prospect of reaching a satisfactory equilibrium between t h e sterling and dollar areas by the time exceptional dollar aid comes to an end. lEt^oaiBiTs 'APPENDIX THE 321 F GOLD C O N T E N T OF THE DOLLAR AND THE P R I C E OF GOLD MEMORANDUM FOR THE P R E S S T h e following sta,tement was issued in response t o inquiries a t Secretary Snyder's press coriference of Wednesday, October 5, 1949, concerning t h e legal a u t h o r i t y to change t h e gold content of t h e dollar arid t h e Treasury's price for gold.. T h e Secretary again stated t h a t he had no intention of proposing a change in t h e dollar price of gold. H e reiterated w h a t he had said on m a n y occasions t h a t he does not perceive any considerations which would justify such an action. (a) The gold content [of the dollar Only an act of Congress can now alter t h e s t a t u t o r y gold content of t h e dollar. T h e gold content of t h e dollar, and hence t h e s t a t u t o r y monetary value of gold in terms of t h e United States dollar, was defined by t h e Presidential Proclamation of J a n u a r y 3 1 , 1934, issued under a u t h o r i t y of title I I I , section 43, of the" act approved M a y 12, 1933, as amended. T h e weight of t h e gold dollar was fixed by this Proclamation a t 15^^i grains of gold 9/lOths fine, t h a t is, 1/35 of a t r o y ounce of pure gold (technically referred to as gold 1,000 p a r t s fine). The m o n e t a r y or s t a t u t o r y value of gold in t h e United States is therefore $35 per fine t r o y ounce. After several extensions t h e a u t h o r i t y of the" President by proclamation further to change t h e gold content of t h e dollar expired on J u n e 30, 1943. (6) The price of gold T h e Secretary of t h e Treasury has a u t h o r i t y under sections 8 and 9 of t h e Gold Reserve Act of 1934, as amended, with t h e approval of t h e President, to purchase and sell gold a t such rates and upon such terms and conditions as he m a y deem most advantageous to t h e public interest. T h e a u t h o r i t y of t h e Secretary of t h e Treasury in this respect, however, is limited by a number of factors. First is t h e obligation undertaken by t h e United States as a member of 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 . Article IV, section 2 of t h e Articles of Agreement of t h e International Monetary F u n d provides: ' ' T h e ' F u n d shall prescribe a margin above and below par value for t r a n s actions in gold by members, and no member shall buy gold a t a price above par value plus t h e prescribed margin or sell gold a t a price below par value minus t h e prescribed margin." T h e F u n d has prescribed a margin of }^ of 1 % above and below t h e p a r value for purchases and sales of gold. Accordingly, t h e United States has an obligation to t h e International Monetary F u n d not to purchase gold at more or sell gold a t less t k a n $35 plus or minus t h e prescribed margin so long as t h e par value of the dollar declared to the F u n d remains unchanged. T h e par value of t h e dollar can be changed only p u r s u a n t to t h e provisions of t h e Articles of Agreement and the Bretton Woods Agreements Act, which requires the approval of Congress for any such change. Section 5 of t h a t act provides t h a t neither t h e President nor any person or agency shall propose to t h e International Monetary F u n d any change in t h e par value of t h e United States dollar or approve any general change in par values unless Congress by law authorizes such action. E v e n without t h e legal obligation to t h e International M o n e t a r y F u n d there are i m p o r t a n t considerations of policy which, in effect, circumscribe t h e discretion of t h e Secretary of t h e Treasury to change the price of gold. T h e gold policy of the United States has been directed primarily to maintaining a stable relation between gold and t h e dollar. .322 1950 REPORT OF THE SECRETARY OF THE TREASURY Since 1934 the United States has firmly adhered to the requirements of an international gold bullion standard. We have done so by buying and selling gold freely at a fixed price, $35 an ounce, in transactions with foreign governments and central banks for all legitimate monetary purposes. The importance which the United States attributes to the maintenance of a stable dollar price for gold is demonstrated by other legislative provisions. The gold parity statutes contained in the Gold Standard Act of 1900 and the act of May 12, 1933, provide that the gold dollar ''shall be the standard unit of value and all forms of money issued or coined by the United States shall be maintained at a parity with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity." [Omitted from this exhibit is part of appendix A, which includes sections of the Bretton Woods Agreements Act and of the Foreign Assistance Act of 1948 relating to the National Advisory Council, which sections were printed in the Annual Reports of the Secretary ofthe Treasury for 1945 and 1948, respectively. Omitted also are appendixes B, C, and E, which include tables on estimated gold and short-term dollar resources of foreign countries as of June 30, 1949, gold transactions between the United States and foreign countries, January 1, 1945, through September 30, 1949, United States Government assistance to foreign countries, July 1, 1945, through June 30, 1949, and membership and quotas in the International Monetary Fund and membership and subscriptions in the International Bank for Reconstruction and Development, September 30, 1949. Corresponding tables containing data through December 31, 1949, and membership information as of March 31, 1950, are published in the appendixes, of the National Advisory Council report covering operations from October 1, 1949, through March 31, 1950, which is printed as exhibit 29. The appendixes in exhibit 29 are published in full except the sections of the legislation referred to above.] EIXHIBITS . 323 Exhibit 28.—Second Special Report of the National Advisory Council on the operations and policies ofthe International Monetary Fund and the International Bank for Reconstruction and Development covering the two-year period ended March 31, 1950 [House Document No. 611, 81st Congress, 2d session] LETTER OF TRANSMITTAL To the Congress of the United States: In accordance with section 4 (b) (6) of the Bretton Woods Agreements Act, there is transmitted herewith the Second Special Report on the operations and pohcies of the International Monetary Fund and the International Bank for Reconstruction and Development. HARRY S . TRUMAN. T H E W H I T E H O U S E , May 31, 1950. LETTER OF SUBMITTAL T H E SECRETARY OF THE TREASURY, Washington, May 12,1950, The PRESIDENT, The White House, Section 4 (b) (6) of the Bretton Woods Agreements Act directs the National Advisory Council to submit every 2 years a special report on the operations and policies of the International Monetary Fund and the International Bank for Reconstruction and Development. The first such report was submitted in May 1948. As in the case of the First Special Report, the present report discusses the specific'questions raised by this provision of the law, particularly the extent to which the Fund and Bank have achieved the purposes for which they were established and the degree to which these institutions have served the interests of the United States and the world in promoting sound international economic cooperation and ' furthering world security. In accordance with section 4 (b) (5) of the Bretton Woods Agreements Act, the Council will submit a separate report, along the lines of previous 6 months' reports, on the activities of the Fund and Bank during the period October 1, 1949, to March 31, 1950. Faithfully yours, M Y D E A R M R . PRESIDENT: JOHN W . SNYDER, Chairman, National Advisory Council on International Monetary and Financial Problems. 324 195 0 REPORT OF THE SiECRETARY OF THE TREASURY SECOND SPECIAL REPORT OF THE NATIONAL ADVISORY COUNCIL ON THE OPERATIONS AND POLICIES OF THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT COVERING THE TWO-YEAR PERIOD ENDED MARCH 31, 1950 CHAPTER I. INTRODUCTION The National Advisory Council is directed by section 4 (b) (6) of the Bretton Woods Agreements Act biennially to submit a special report to the President and the Congress on the operations and policies of the International Monetary Fund and the International Bank for Reconstruction and Development. These reports are to cover ^Hhe exigent to which the Fund and the Bank have achieved the purposes for which they were established; the extent to which the operations and policies of the Fund and the Bank have adhered to, or departed from, the general policy directives formulated by the Council, and the Councirs recommendations in connection therewith; the extent to which the operations and policies of the Fund and the Bank have been coordinated, and the Councirs recommendations in connection therewith; recommendations on whether the resources of the Fund and the Bank should be increased or decreased; recommendations as to how the Fund and the Bank may be made more effective; recommendations on any other necessary or desirable changes in the Articles of Agreement of the Fund and of the Bank or in this act; and an over-all appraisal of the extent to which the operations and policies of the Fund and the Bank have served, and in the future may be expected to serve, the interests of the United States and the world. in promoting sound international economic cooperation and furthering world security.'[^ In the period intervening since the submission of its First Special Report, the Council has submitted to the President and to the Congress, in accordance with section 4 (b) (5) of the act, four semiannual reports on its activities. In each of these reports there has been* included a discussion of the principal matters of interest in relation to the Fund and the Bank. These matters will not be covered again, except insofar as they are directly related to the broader questions of policy discussed in the present report.^ In its First Special Report the Council noted the extensive economic difficulties of the world consequent upon the war. At that time the economies of many countries, particularly in Europe, were suffering from shortages of raw materials and fuels, attrition of capital equipment,, and disorganization of production and of trade both within countries and among countries. The report noted various ways in which the world had been attempting to cope with the problems of production, trade, and employment, and also summarized very briefly the United States contributions to the process of reconstruction. The First Special Report was presented after the Congress had passed the 1 Public Law 142, 81st Cong., which amended portions of the National Bank Act and the Bretton Woods Agreements Act, as amended, requires this report to include additional matters regarding the International . Bank. These questions are treated on page 329. » This report covers the 2-year period ending March 31,1950. EXHIBITS 325 enabling legislation for the European Recovery Program, but before appropriations for the Program had been made. Partly as the result of reconstruction programs sponsored by the United States, the economic situation of the world at the present time appears far more satisfactory than when the previous report was submitted. In Europe particularly great strides have been made in the recovery of production. With the recovery of production there has also been a recovery in world trade, though the recovery of trade has probably not. reached the point of expansion that had been expected by the Bretton Woods Conference. The Articles of Agreement of the International Monetary Fund were predicated on the expectation that within a period of a few years following the end of hostilities, world trade would be restored to a multilateral basis, with the ehmination by the member countries of restrictions on international payments for current account. It was expected that the currencies of the world would again become convertible fpr mternational transactions on current account. These expectations have not been realized. On the contrary, a large and persistent disequihbrium in the dollar accounts of most countries in the world required them to draw heavily on their gold and dollar'reserves. This not only gave rise to the need for special aid, such as the E R P , but greatly retarded the rate of progress which countries found it possible to make in eliminating exchange and trade restrictions and restoring effective currency convertibihty. Consequisntly, the Fund and the Bank have continued to operate in a world of restrictions and thus have been unable fully to realize their objectives and to carry out their activities in the way that was contemplated. In brief, the transitional period contemplated by the Articles of Agreement has continued to the present time and may be prolonged until a substantial part of the members of the Fund can undertake the obligations of article V I I I of the Fund Agreement. This situation has been reflected in the pohcies and activities of these institutions.. It was recognized by the Bretton Woods Conference that the elimination of exchange restrictions of itself would prove inadequate tb the attainment of the Fund's purposes of expanding world traide and nondiscriminatory currency practices unless barriers to trade in the form of quantitative restrictions, import and export controls, and similar devices, which easily could negate freedom of exchange transactions, also were drastically reduced. The Conference in its Resolution VII inter alia called upon the nations to deal internationally with the problem of reducing trade regulations and restrictions and other nonfinancial barriers to world trade, and section 14 of the.Bretton Woods Agreements Act declared that it was the policy of the United States to bring about further international economic cooperation to attain these ends. After a succession of conferences a Charter for the International Trade Organization has been formulated and submitted to the Congress and the legislatures of other nations. The code of international trade practices embodied in the ITO Charter will form a valuable adjunct to the provisions of the Fund Articles regarding international currency and exchange practices. Under the proposed ITO Charter the Fund is given certain responsibilities with regard to balance-pfpayments questions arising under the Charter. Special exchange 326 1950 REPORT OF THE SECRETARY"^ OF THE TREASURY agreements with the ITO are to be required in the case of countries not members of the Fund so that they assume obligations in exchange matters comparable to those of Fund members. The ITO Charter provides for consultation and cooperation between the ITO and the Fund in other matters of common interest. The combined activities of these organizations should eventually bring closer to reahzation their common ideal of expanding multilateral trade intended to raise levels of production and real income throughout the world and should contribute to the stability of the flow of income among the nations. Pending the entry into effect of the ITO Charter, 26 countries have entered into a General Agreement on Tariffs and Trade, and additional countries are in process of adhering to this Agreement. The countries making this General Agreement have agreed to certain international trade practices as immediate steps looking forward to the entry into force of the more permanent provisions of the ITO Charter and have agreed upon mutual reductions in tariffs and elimination of certain quantitative restrictions on the movement of international trade. There are also provisions for consultation with the Fund in trade matters related to the balance of payments of the signatories and for special exchang.e agreements with countries not in the Fund. TABLE I.—Member countries of the International Monetary Fund and the International Bank for Reconstruction and Development, as of Mar. 31, 1950 Australia Austria Belgium Bolivia Brazil Canada Chile China Colombia Costa Rica Cuba Czechoslovakia Denmark Dominican Republic Ecuador Egypt El Salvador Ethiopia Finland France Greece Guatemala Honduras Iceland India Iran Iraq Italy Lebanon Luxembourg Mexico Netherlands Nicaragua Norway Panama Paraguay Peru Philippines Syria Thailand Turkey Union of South Africa United Kingdom United States Uruguay Venezuela Yugoslavia In the last 2 years two additional members have joined the International Bank and the International Monetary Fund, and one, Poland, has withdrawn, so that tbey have a present membership of 47 countries. Of the original signatories only Haiti, Liberia, New Zealand, and the Soviet Union have not become members, while Austria, Finland, Italy, Pakistan, Thailand, and Turkey, which did not participate in the Bretton Woods Conference, have been admitted to membership.^ . CHAPTER II. T H E INTERNATIONAL BANK FOR RECONSTRUCTION DEVELOPMENT AND The International Bank was established to make and guarantee loans for postwiar economic reconstruction and the economic development of its member nations as a means of realizing the liiore general 3 Haiti, Liberia, and Pakistan have been admitted to membership but have not as yet assumed the obligations of members by signing the Articles of Agreement and paying their subscriptions. EXHIBITS 327 objectives of international economic cooperation, the growth of international trade, the maintenance of equilibrium in the balances of payments of members, and raising the standards of living of the member countries. 1, CAPITALIZATION AND FINANCING OF THE B A N K ' S OPERATIONS The Articles of Agreement of the Bank authorize a c&pital of 10 billion dollars. The original signatories were to subscribe 9.1 billion dollars of this amount, with the balance available for such new members as might eventually be admitted. The present subscribed capital of the Bank is $8,348,500,000. The capital of the Bank consists of three portions: (1) 2 percent of each member's subscription paid in gold or dollars, except that those countries formerly occupied by the enemy may defer part of their payment; (2) 18 percent of the capital paid iri the member's own currency; and (3) 80 percent of the capital subject to call only to meet obligations of the Bank and payable in the currency required by the Bank to meet its obligations. On the 2 percent payment, the total received has been $162,055,000 and $4,915,000 has been deferred. Of the total paid in capital, equivalent to $1,664,785,000, the United States has paid in $635,000,000. Gold and dollar payments by other countries have provided the Bank with $98,555,000 which can be used without restriction for lending operations. The 18 percent payment may be used only with the consent of the member country. The United States Government, acting through the National Advisory Council, has given its consent to the use of the subscription of the United States. The Governments of Belgium, Canada, Denmark, arid the United Kingdom have also authorized the use of part of their capital subscription for lending purposes in amounts aggregating the equivalent of about $13,300,000.* While the Bank has been anxious to secure permission from the member governments to use their capital subscriptions for lending purposes, governments other than those specified have not as yet seen fit to grant such permission. In accordance with section 7 (c) of the Bretton Woods Agreements Act and article V, section 12, of the Bank Agreement, the United States substituted noninterest-bearing notes for that part of the United States subscription not currently needed in the Bank's operations. In consequence of the Bank's use of the United States subscription for making loans, the entire amount of the United States subscription has now been converted into cash so that no notes of this issue are outstanding at this time. The Bank may make direct loans from the portion of the capital subscribed and paid in by the members, or from borrowed funds. The Bank has issued securities on the market in the United States and in Switzerland, a nonmember country. As noted in previous reports of the Council, the United States has given the Bank permission, in accordance with the Articles, to float securities in the United States market. On July 15, 1947, the Bank issued $100,000,000 par value of 10-year 2% percent bonds due July 15, 1957, and $150,000,000 of 25-year 3 percent bonds due July 15, 1972. On January 25, 1950, the Bank, after permission had been granted by the Council, sold an issue * In addition to this amount the United Kingdom has'agreed, in principle, to the release of an equivalent ofi$2,800,000, subject to speciflc approval in individual cases as they arise. 328 195 0 REPORT OF THE SECRETARY OF THE TREASURY of $100,000,000 of 2 percent serial bonds which will mature at an annual rate of $10,000,000 between 1953 and 1962. These bonds were issued to retire the outstanding 10-year 2!^ percent bonds. While the first issues of the Bank's securities were sold directly to investors, the ,1950 issue was sold by competitive bidding to a syndicate of banking houses, including commercial banks. Since the coupon rate was reduced by Vi percent and the new bonds were sold to the syndicate at a premium of $559,000, the cost of money to the Bank has been reduced more than $1,250,000 annually. At the same time the maturities of the bond issues will correspond more closely to the serial repayments of loans to the Bank. The Bank has also issued two series of bonds denoihinated in Swiss francs. In 1948 the Bank sold an issue of 2]^, percent bonds in the amount bf 17,000,000 Swiss francs (equivalent to approximately $4,000,000) to the Bank for International Settlements, and in 1950 an issue of bonds with the same coupon rate in the aggregate amount of 28,500,000 Swiss francs (approximately $6,600,000), was sold to a group of Swiss banks. Both of these issues were purchased by the banking institutions for investment purposes and were not offered to the public. The bond issues were floated to obtain Swiss francs to enable the Bank to provide funds for certain purchases of Swiss materials and equipment and to extend the market for the Bank's securities. : ' : The loans made by the Bank up to the present time have been derived from the capital subscription of the United States and, to a very small extent, from the capital funds provided by other countries. The total loans made by the Bank to March 31, 1950, less cancellations, have amourited to $737,700,000, of which $595,000,000 has been disbursed, while the amount available from members' subscriptions for loan purposes has aggregated $746,900,000. The bulk of the funds obtained by the sale of securities has not as yet been loaned, and the Bank has invested the proceeds along with other surplus cash in United States Government obligations to a total amount of $433,600,000, as of March 31, 1950. These investment securities have earned over $4,000,000 per annum for the Bank. The accumulated interest from these investments and other earnings of the Bank are available for additional loans by the Bank, since the Board of Governors at the annual meetings has voted not to distribute the Bank's current earnings, thus providing additional security for Bank obligations. The Articles of Agreement of the Bank also authorize the Bank to guarantee loans made through private investment channels, as well as to guarantee securities in which it has invested, in order to facilitate resale to private investors. The original expectation that a considerable part of the Bank's business would take the form of guaranties of privately floated loans has not been realized in practice, under the conditions prevailing iri the world. In two instances, however, the Bank has resold to private investors with its guaranty, securi ties received under its loan agreements. In 1948 the Bank made a series of loans to four Netherlands steamship companies in an aggregate amount of $12,000,000. The securities arising from these loans were subsequently sold to a group of American commercial and savings banks. Similarly, the bgnds arising from a iQan of $16^Q0O,,OQQ madQ. EXHIBITS 329 directly.to the Kingdom of Belgium were resold at private sale to a group ojE New York savings banks and a life insurance company. The National Advisory Council, on behalf of the United States Government, approved of these sales of securities in the markets of the United States. Section 15 (b) of the Bretton Woods Agreements Act, as amended by Pubhc Law 142, Eighty-first Congress, requires that the biennial special reports of the Council shall cover the effectiveness of the provisions of section 15 (a) of the act and the exemption for securities issued by the Bank, provided for by section 8 of the National Bank Act, in facilitating the operations of the Bank, and the recommenda-, tions of the Council as to any modifications it may deem desirable in the. provisions of the act. Section 15 (a) of the amended act exempted the securities of the Bank from certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 on condition of .filing reports with the Securities and Exchange Commission. This amendment was supported by the Council in order to facilitate the wider distribution in the United States of securities issued or guaranteed by the International Bank. Since enactment of the amendment in June 1949, the Bank has distributed only one issue of its securities, the $100,000,000 of bonds maturing serially from 1953 to 1962 mentioned above, which was sold in January 1950 at competitive bidding to a syndicate consisting of 99 investment bankers and 37 commercial banks. The participation of the commercial banks was made possible by the amendment to the National Bank Act. In view of the short time that has elapsed and the fact that there has been only one issue of the Bank's bonds since the adoption of the amendment, the Council does not believe it possible as yet to judge the effectiveness of section 15 (a) in securing a wider distribution of the Bank's securities and, accordingly, does not at this time recommend any change. 2. THE B A N K ' S LOANS As of March 31, 1950, the Bank had made loan commitments (less cancellations) of $737,700,000 including a loan of $12,500,000 which, however, has not as yet become effective. The Bank retained in its portfolio $697,100,000 in securities arising from these loan transactions. During the first 2 years of its operations the Bank's loans were predominantly reconstruction loans made to the governments of European countries, or their agencies, i. e., France, the Netherlands, Denmark, and Luxembourg. In the case of France, the Netherlands, and Denmark, the loans made in 1947 were general purpose reconstruction loans which assisted these countries in carrying on their reconstruction programs, and enabled them to secure needed supplies of materials and equipment in the United States. The loan to Luxembourg (1947) was to finance construction work for a steel mill and to provide rolling stock for railways. The Council, through the United States Executive Director, favored these loans, which made a valuable contribution to European recovery. I t became clear, however, that the magnitude of the European recovery problem was far greater than had originally been anticipated and that the needed program could not be financed entirely or predominantly on a 330 1950 REPORT OF THE SEORETARY OF THE TREASURY loan basis under the conditions set in the Bank's Articles of Agreement. For this reason, among others, the Council favored the European recovery proposals which were submitted to the Congress and enacted into law in 1948. The International Bahk loans proved of great value in that they financed some of the most pressing reconstruction needs in the earlier period. Since the beginning of the operations of the Economic Cooperation Administration program of grants and loans, the International Bank has made only a few special purpose loans to European countries. These were loans to the Netherlands steamship companies for the purchase of ships, and to Belgium for steel mills and power plants. /^The Bank has also made loans to the Repubhc of Finland and the Bank of Finland (guaranteed by the Republic) for timber equipment, the modernization of the woodworking industry, electric power, and limestone production. J n 1949 it also made a loan to Yugoslavia for timber equipment. The loans to Finland and Yugoslavia are part of a project for relatively short-period financing of the purchase of timber equipment which would enable these, countries to produce and export to western Europe timber needed in the process of European economic reconstruction. These loans should be of benefit to both the borrowing countries and the countries cooperating in the European Recovery Program. In the last 2 years the Bank has directed its major attention to development loans, particularly in Latin America. Thus, loans were made to Chile for hydroelectric and irrigation installations and the procurement of agricultural machinery. The loan to the Brazilian Traction, Light & Power Co., Ltd., guaranteed by Brazil, was for power and telephone installations, and the loan to Mexico was for power plants and power distribution. The Bank has also approved a loan to El Salvador for a hydroelectric plant and power-distribution equipment, thou^'h this loan has not as yet become effective. The loan to Colombia was for agricultural machinery. The Bank has also made a loan to India for railway rehabilitation and land-reclamation machinery, which will contribute to the badly needed agricultural development of the country. These loans mark an important step in the development of the Bank's lending policy. They were made tq underdeveloped countries for carefully planned projects intended to increase their economic productivity over a period of time. The Council, in concurring in the granting of these loans, has looked with favor on the extension of the Bank's activities to the underdeveloped countries in the behef that the raising of the productivity of their economies will contribute to world economic prosperity and stability. In addition to the loans which have been made, the Bank has a variety of applications before it from other countries for various projects. As a general practice, the Bank considers that it is desirable in the interest both of the borrower and of the Bank to have proposed projects carefuhy examined on the spot by groups of te°chnicians designated by the Bank. These studies have frequently resulted in a reformulation of the project so that some of the projects have been improved or their cost reduced. Many members without specific loan projects in view have asked the Bank for technical assistance in the survey and study of their economies and their prospects for development. EXHIBITS 331 TABLE II.—Status of International Bank loans, as of Mar. 31, 1950 Borrower Totai, All L o a n s . . . . . . _ Credit National (France)...... Kmgdom of The Netherlands... .' Brazilian Traction, Light & Power Co., Ltd.. Republic of India... Kingdom of Denmark... ^ Financiera and Comision (Mexico)»... Kingdom of Belgium._.__._.. Corporacion de Fomento (Republic of Chile) Herstelbank (Netherlands) . Rio Lempa Hydroelectric Commission (El Salvador) Bank of Finland .-...J.. Netherlands shipping companies.._ Grand Duchy of Luxembourg.... Cajade Credito (Colombia)._._.. Yugoslavia__ 1.^ Republic of Finland Loan commitments Disbursements $737,706,983 $594,986,266 250, 000,000 195, 000, 000 75, 000, 000 44, 000,000 "40,000,000 34, 100, 000 16, 000, 000 16, 000, 000 2 8,800, 000 12, 545,000 12, 500,000 12, 000, 000 < 11.761,983 5,000, 000 2, 700,000 2,300,000 250, 000,000 195,000,000 31,338,474 26, 710,118 40, 000, 000 10,185, 330 8, 739, 524 4, 891. 304 565, 616 1, 327, 599 12,000,000 11. 761, 983 866, 909 1. 584, 548 14. 861 Unused balance of commitments $142,720,717 43, 661. 526 17, 289, 882 23, 914. 670 7. 260,476 11,108.696 8, 2.34, 384 12,545,000 11,172, 401 4,133, 091 ' 1.115,452 2. 285,139 ' Nacional Financiera and Comision Federal de Electricidad are joint borrowers. 2 After cancellation of $6, 200,000, effective Mar. 17, 1950. * Agreement becomes effective after the Bank has received certain certificates and documents, and has notified the borrower and guarantor of its acceptance of such evidence. < After cancellation of $238,017, effective Dec. 19, 1949. NOTE.—in all instances, loans have been made to or guaranteed by the respective governments. Source: Intemational Bank for Reconstruction and Development. The National Advisory Council is of the opinion that the Bank; has contributed to the economic development of underdeveloped countries both through its loans and through its technical advice and assistance. The Council believes that the Bank should play an increasingly important role in this pattern of development and that it can be especially valuable in assisting the member countries to direct their economic development in ways which will effectively contribute to raising standards of hving and improving levels of production. Properly conceived development projects will also, by increasing productivity, help these countries in financing their foreign exchange needs. The President of the United States has emphasized the importance of technical assistance to the underdeveloped countries in the Point IV Program, which is under consideration by the Congress. The Bank's activities in this field are a valuable contribution to economic development, fully consonant with the United States international program. The Bank, by using technicians from various countries, can give programs of technical assistance the benefit of wider experience than would be available from the United States alone." In this connection it is significant that the Bank has entered into cooperative arrangements with the International Monetary Fund and with the United Nations for the provision of technical advice to member countries and for undertaking technical studies directed toward economic development. I t is expected that the Technical Assistance Program will help to overcome'some of the barriers to sound development loans to underdeveloped countries, and will provide considerable assistance to countries in the presentation of projects which will rneet the loan criteria of the Bank. In this way it is hoped that the Point IV Program will niake possible a more, rapid rate of expansion of loans by the Intemational Bank. 332 1 9 5 0 REPORT OF T H E SECRETARY OF T H E TREASURY 3. BANK ADMINISTRATIVE MATTERS The organization of the Bank was provided for in the Articles of Agreement. Its Board of Governors meets annually and the conduct of affairs between meetings of the Governors is in the hands of the Executive Directors, to whom the Governors have delegated all of their powers except those which have been reserved exclusively to the Governors by the Articles of Agreement. The five countries with the largest subscriptions have the privilege of naming Executive Directors to represent them, while the remainder of the Board is elected by the countries with smaller subscriptions. Thus, the elected Directors represent several countries, with the number varying from 2 to 10. Each Director in turn appoints an Alternate Executive Director who nfeed not be a national of the same country as the Executive-Director. In some instances the Executive Director and his Alternate have been nationals of different countries thus giving greater representation to the group of members electing the Director. The Bank's Articles provide that the Executive Directors shall '^function in continuous session at the principal office of the Bank and shall meet as often as the business of the Banlc may recjuire" (art. V, sec. 4 (e)). The experience of the 4-year period has indicated that the business of the Bank is not such as to require frequent sessions of the Executive Directors. The active negotiation of loans or the study of loan projects is carried out by the staff of the Bank, under the President's direction, so that the main function of the Executive Board is to give general guidance to the President and to determine the terms of loans after a considerable period of study and negotiation. This business can be transacted by a Board meeting at less frequent intervals than the Fund Board whose problems and methods of operation are rather different. Some of the member countries accordingly have felt that it was undesirable to keep both an Executive Director and an Alternate on a full-time basis in Washington. Other countries have believed, however, that their interests in the Bank could be best served by the retention of full-time Executive Directors and Alternates. At the annual meeting of the Board of Governors in 1948, a Committee of Governors was established to study this question and to submit its findings to the 1949 meeting. After discussion at the 1949 meeting, the Committee was enlarged in membership and directed to submit a second report to the Governors. This Ad Hoc Committee in the early part of 1950 reported a plan whereby either the Executive Director, or the Alternate, but ordinarily not both, representing a country or group of countries, would be continuously available at the. seat of the Bank. They would ordinarily be paid on the basis of the portion of their time actually devoted to the Bank, and might perform other functions for their countries. Where, however, special circumstances existed, an Executive Director might arrange with the Bank's president for simultaneous full or part-time service of both himself and his Alternate. In this way there would be the maximum of flexibility in the arrangements of the various members. Under the revision of the bylaws of the Bank, approved by the vote of the Governors on March 30, 1950, this system will go into effect at the meieting of the Governors in September 1950. In line with the objective of the new bylaws, the United States EXHIBITS 333 Government has appointed as its Executive Director of the Bank an Assistant' Secretary of the Treasury, who receives no compensation from the Bank, but carries on the duties of Executive Director in addition to his normal duties in the United States Government. He is assisted by an Alternate Executive Director who divides his time between the Fund and the Bank. Somewhat similar arrangements have been made by a number of other countries, which have designated part-time Directors or Alternates. The Bank's Articles provide for an Advisory Council of seven or more persons elected for a 2-year term by the Board of Governors. This Advisory Council has included representatives of banking, commercial, industrial, labor, and agricultural interests, as distinct from ordinary national interests as represented in the Board of Executive Directors. The members have been designated after consultation with the international organizations in these fields. The Advisory Council selected in 1948 held sessions in 1948 and 1949, at which it discussed various problems in connection with the Bank's operations but found that it was unable to agree upon any recommendations and, in fact, at" its last session made no formal report to the Bank. It was the opinion of the Chairman of the Bank's Advisory Council, as well as a majority of the meinbers that, as presently constituted, the Bank's Advisory Council served little useful purpose. Accordingly', at the 1949 meeting of the Board of Governors, a new set of councilors was not elected, and the Executive Directors have been instructed to study methods whereby the intention of the Articles could be more satisfactorily accomplished by a reconstitution of the Council through a different selection of members, or otherwise. The National Advisory Council concurs substantially in the conclusion that the Bank's Advisory Council in its present organization and with its present terms of reference has not made a valuable contribution to the work of the Bank, 4. FISCAL RESULTS The International Bank was established as a cooperative venture in financing reconstruction and development. As such, it was not a primary objective that the Bank should earn a large profit but merely that its operations should be conducted with a prudent regard to the interests of all of the member nations, the soundness of its loans, and the safety of the securities sold by it to the public. During the first period of its operations, before interest on loans accrued to the Bank in large amount, the Bank operated at a loss, amounting in the fiscal year ending June 30, 1947, to $938,600. Since that period, however, the Bank's income has increased, so that in the fiscal year ending June 30, 1948, there was an excess of income over expenses of $4,100,000; in thefiscal year 1949 of $10,600,000; and in°the 9-month period ending March 31, 1950, $9,900,000. Thus, though it was not intended as a profit-making institution, the Bank has been able to add to its surplus which, on March'31, 1950, stood at $23,500,000. In addition, the special reserve held against the Bank's habilities amounted to $12,200,000. For the 9 months ending March 31, 1950, the lending operations of the Bank (interest, commissions, commitment, and other incidental charges) produced gross revenue of $19,200,000. Of this amount $4,200,000, equal to the commissions, 334 . 1 9 5 0 EEPORT OF THE^ SECRETARY OF THE TREASURY was added, in accordance with the Articles, to the special reserve a2:ainst the Bank's liabilities. The funds derived from the sale of its securities and other funds not immediately needed in the Bank's operations, as well as the special reserve fund, have been invested in United States securities which, in the 9-month period, yielded an income to the Bank of $3,800,000. Expenses for this period aggre-^ gated $8,900,000. At their annual meetings, the Board of Governors has voted not to distribute the net income of the Bank but to add this income to the Bank's operating funds. If a dividend were to be declared, the Bank's Articles of Agreement provide for a preferred dividend of up to 2 percent of the amount of a member's subscription used in loans. Since the bulk of the loans has been made in United States dollars, the bulk of any dividend would thus accrue to the United States Government. In the opinion of the National Advisory Council it has been preferable to keep the Bank's earnings available to the Bank to add to its available capital and surplus as an additional guaranty . of. the Bank's obligations which have been issued on the market, and to provide additional funds against the contingency of possible default, 5. C O N C L U S I O N S A N D RECOMMENDATIONS The National Advisory Council believes that the Bank has made considerable progress in carrying out the functions entrusted to it by the Articles of Agreement. The loans made by the Bank in the initial period of postwar reconstruction have been of value in assisting the recovery of the European countries. From the vantage of the present time, it is apparent that the total requirements of the European countries for goods needed to restore their economies to approximately prewar levels have involved funds far in excess of the amount which could be supplied by the Bank under the terms of its Articles and the conditions of financial markets. The foreign economic assistance programs of the United States since 1945 have amounted to several times the total authorized capital of the International Bank. Moreover, it is also clear that it would have been practically impossible to finance the European Recovery Program on a loan basis without greatly impairing the future balance-of-payments position of the participating countries and creating international financial difficulties in future years, in view of the problem of prospective world balances of payments. The Bank, however, may be expected in the future to make loans to European governments or to enterprises whose • loans win be guaranteed by governments. ,The Bank is niaking an increasing contribution to the economic development of underdeveloped member countries. It has made loans for hydroelectric and other power projects which should increase the productive capacity of the borrowing countries. It has made loans for agricultural development programs which should add to the ability of the borrowing countries to feed their populations and to provide commodities for export. The Bank has also, through its missions and technical advice, rendered an important, though perhaps less tangible, service to the member countries. The Council heartily supports these activities