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Annual Report
of the

Secretary of the Treasury
on the

State of the Finances
For the Fiscal Year Ended June 30, 1962

TREASURY DEPARTMENT
DOCUMENT NO. 3226
Secretary

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON : 1963
For sale by the Superintendent of Documents, U.S. Government Pnnting Office'
Washington 25, D.C. - Price 32.75 (paper cover)

'Bd

CONTENTS
Page

Statement by the Secretary of the Treasury

REVIEW OF FISCAL OPERATIONS
Summary of financial operations
21
Administrative budget receipts and expenditures
22
Administrative budget receipts in 1962_
22
Estimates of administrative budget receipts for 1963 and 1964
24
Administrative budget expenditures in 1962 and estimates for 1963
and 1964
s
. 26
Trust receipts and expenditures
..
28
Trust receipts in 1962 and estimates for 1963 and 1964
..
28Trust expenditures in 1962 and estimates for 1963 and 1964
30
Receipts from and payments to the public
31
Investments of Government agencies in public debt securities (net)
32
Sales and redemptions of Government agencies in the market (net)
33
Corporations and certain other business-type activities of the Government.
33
Account of the Treasurer of the United States
^
37
Public debt operations and the ownership of Federal securities
._38
Pubhc debt operations
45
Ownership of Federal securities
55
Taxation developments
60
International financial affairs
78
ADMINISTRATIVE REPORTS
Management improvement program
ComptroUer of the Currency, Bureau of the
Customs, Bureau of
Defense Lending, Office of
Domestic Gold and Silver Operations, Office of
Engraving and Printing, Bureau of
Fiscal Service
Internal Revenue Service
International Finance, Office of
Mint, Bureau of the
,
Narcotics, Bureau ofUnited States Coast Guard
United States Savings Bonds Division
United States Secret Service
i

---._

.
-__

101
104
108
123
124
124
128
157
171
173
180
185
195
197

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

Treasury Certificates of Indebtedness, Treasury Notes, and Treasury Bonds
Offered and Allotted
1. Treasury certificates of indebtedness
2. Treasury notes
3. Treasury bonds

205
210
219

Treasury Bills Offered and Accepted
4. Treasury bills

-._
in

240

CONTENTS
Guaranteed Obligations Called
Page

5. Calls for partial redemption, before maturity, of insurance fund
debentures
.
-

252

Regulations
6. Second amendment, November 17, 1961, to Department Circular No.
418, Revised,, regulations governing Treasury bihs
7. Third amendment, August 2, 1961, to Department Circular No. 530,
Eighth Revision, regulations governing United States savings
bonds- -'
^
8. Fourth amendment, Novernber 17, 1961, to Department Circular No.
530, Eighth Revision, regulations governing United States savings
bonds
•
9. First amendment, August 2, 1961, to Department Circular No. 905,
Second Revision,. regulations governing Series H savings bonds
10. Second amendment, November 17, 1961, to Department Circular No.
905, Second Revision, regulations governing Series H savings bonds.

257
257
258
258
270

Legislation
11. An act to increase temporarily the public debt limit set forth in section
21 of the Second Liberty Bond Act (March 13, 1962)
12. An act to increase for a one-year period the public debt set ^oith in
section 21 of the Second Liberty Bond Act (July 1, 1962^ •
FINANCIAL POLICY

270
270

i^ x

13. Statement by Secretary of the Treasury Dillon, January of? 1962, before the Joint Economic Committee

270

PUBLIC DEBT MANAGEMENT

14. Statement by Secretary of the Treasury Dillon, February 28, 1962,
before the Senate Finance Committee on the.public debt limit
15. Statement by Secretary of the Treasury Dillon, March 14, 1962, before
the Senate Finance Committee on debt management policies
16. Statement by Secretary of the Treasury Dillon, June 26, 1962, before
the Senate Finance Committee on the debt limit

276
278
290

TAXATION DEVELOPMENTS

17. Statement by the President, October 16, 1962, on signing H.R. 10650,
the Revenue Act of 1962
18. Statement by Secretary of the Treasury Dillon, January 18, 1962,
before the Joint Committee on Internal Revenue Taxation on
depreciation reform-19. Address by Secretary of the Treasury Dillon, March 19, 1962, before
the Tax Executives Institute, Washington, D.C, on the role of tax
policy in economic growth
*
20. Statement by Secretary of the Treasury Dillon, April 2, 1962, before
the Senate Committee on Finance on H.R. 10650, the Revenue Act
of 1962
^
21. Statement by Secretary of the Treasury Dillon, May 10, 1962, before
the Senate Committee on Finance on H.R. 10650, the Revenue Act
of 1962
22. Statement by Secretary of the Treasury Dillon, July 11, 1962, on the
issuance of the new Depreciation Guidelines and Rules
-__
23. Letter from Secretary of the Treasury Dillon, August 27, 1962, to the
Senate Majority Leader concerning the administration's tax bill
24. Remarks by Secretary of the Treasury Dillon, November 15, 1962,
before the White House Labor-Management Conference on fiscal
and monetary policy
25. Remarks by Under Secretary of the Treasury Fowler, October 12, 1961,
before the American Retail Federation on tax policy for growth and
productivity
26. Remarks by Assistant Secretary of the Treasury Surrey, October 25,
1962, before the Tax Institute Symposium on the U.S. tax system
and international tax relationships

297
297
304
309
330
335
337
338
341
349

CONTENTS

V
Page

27. Individual income tax liabilities and effective rates under the revenue
acts of 1913-54
.
28. Federal taxes of the United States, 1950-62

355
370

INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS

29. Statement by Secretary of the Treasury Dillon, August 7, 1961, at the
Special Meeting of the Inter-American Economic and Social Council,
Punta del Este, Uruguay
30. Statement by Secretary of the Treasury Dillon, August 23, 1961, before
the Senate Appropriations Committee in support of the President's
foreign aid program
,
31. Remarks by Secretary of the Treasury DiUon, November 30, 1961, at
the Inter-American Economic and Social Council of the Organization
of American States
32. Statement by Secretary of the Treasury Dillon, February 27, 1962,
before the House Banking and Currency Committee on special
borrowing arrangements of the International Monetary Fund
-_33. Statement by Secretary of the Treasury Dillon, March 15, 1962,
before the House Ways and Means Committee on the Trade
Expansion Act of 1962
34. Remarks by Secretary of the Treasury Dillon, March 21, 1962, before
.the North Carolina Citizens Association on the President's trade
program
35. Report to the President by Secretary ofthe Treasury Dillon, March 26,
1962, on the balance of payments
36. Statement by Secretary of the Treasury Dillon, April 24, 1962, before
the Economic Club of New York on responding to the challenge of
the Common Market
37. Statement by Secretary of the Treasury Dillon as Governor for the
United States, April 25, 1962, at the third annual meeting of the
Board of Governors of the Inter-American Development Bank_38. Remarks by Secretary of the Treasury DiUon, May 18, 1962, at the
monetary conference of the American Bankers Association, Rome,
Italy
39. Statement by Secretary of the Treasury Dillon as Governor for the
'
United States, September 19, 1962, at the discussion of the Annual
Report of the International Monetary Fund
40. Remarks by Under Secretary of the Treasury Fowler, June 20, 1962,
at the Commerce Department Regional Conference on business and
the balance of payments
L
.
41. Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, February 7, 1962, at the American Bankers Association
Mid-Winter Trust Conference on the balance of payments and
international financial cooperation
42. Remarks by Under Secretary of the Treasury for Monetary Affairs
Roosa, May 17, 1962, at the monetary conference of the American
Bankers Association, Rome, Italy
43. Statement by Assistant Secretary of the Treasury Leddy, July 31 j
1961, before the Senate Foreign Relations Committee on amendment
of the articles of agreement of the International Finance Corporation.
44. Treasury and Federal Reserve foreign exchange operations, March
1961-August 1962
•
45. Press release, July 14, 1961, announcing the signing of an exchange
agreement between the United States and El Salvador
46. Press release, September 7, 1961, announcing the signing of an exchange
agreement between the United States and Costa Rica
.
47. Joint announcement, April 3, 1962, by Secretary of the Treasury
Dillon and the Minister of Finance of Brazil
48. Press release, June 7, 1962, announcing the signing of an exchange
agreement between the United States and Argentina
,
49. Press release, June 19, 1962, announcing the signing of an exchange
agreement between the United States and the Philippines
...
50. Cuban import regulations and amendments

403
407
410
411
415
419
423
430
435
439
445
449

456
464
468
469
480
481
481
481
481
482

CONTENTS
ORGANIZATION AND PROCEDURE
Page

51. Treasury Department orders relating to organization and procedure

485

ADVISORY COMMITTEES

52. Advisory committees utilized by the Treasury Department under
Executive Order 11007

493
TABLES

Bases of tables
Description of accounts relating to cash operations

501
504

SUMMARY OF FISCAL OPERATIONS

1. Summary of fiscal operations, fiscal years 1932-62 and monthly 1962.

506

RECEIPTS AND EXPENDITURES

2. Receipts and expenditures, fiscal years 1789-1962
508
3. Refunds of receipts and transfers to trust funds, fiscal years 1931-62. .
516
4. Budget receipts and expenditures, monthly for fiscal year 1962 and
totals for 1961 and 1962
518
5. Interfund transactions excluded from both net budget receipts and
budget expenditures, fiscal years 1952-62
554
6. Public enterprise (revolving) funds, receipts and expenditures for fiscal
year 1962, and net 1961 and 1962
556
7. Trust account and other receipts and expenditures, monthly for fiscal
year 1962 and totals for 1961 and 1962
558
8. Investments of Government agencies in public debt securities (net),
monthly for fiscal year 1962 and totals for 1961 and 1962
572
9. Sales and redemptions of obligations of Government agencies in market
(net), monthly for fiscal year 1962 and totals for 1961 and 1962
574
10. Intertrust fund transactions excluded from both net trust account
receipts and net trust account expenditures, fiscal years 1948-62
576
11. Trust enterprise (revolving) funds, receipts and expenditures for fiscal
year 1962 and net for fiscal year 1961
577
12. Budget receipts by sources and expenditures by major functions, fiscal
years 1954-62
__.
578
13. Trust fund receipts by sources and expenditures by major functions,
fiscal years 1954-62
582
14. Trust account receipts and expenditures by major classifications, fiscal '
years 1938-51
584
15. Trust account and other transactions by major classifications, fiscal
years 1952-62
586
16. Budget receipts and expenditures, based on existing and proposed
legislation, actual for the fiscal year 1962 and estimated for 1963
and 1964
_.
588
17. Trust account and other transactions, actual for the fiscal year 1962
and estimated for 1963 and 1964
591
18. Effect of financial operations on the public debt, actual for the fiscal
year 1962 and estimated for 1963 and 1964
593
19. Internal revenue collections by tax sources, fiscal years 1929-62
594
20. Internal revenue collections and refunds by States, fiscal year 1962
600
21. Customs collections and payments by districts, fiscal year 1962
602
22. Summary of customs collections and expenditures, fiscal years 1961
and 1962
1
604
23. Deposits by the Federal Reserve Banks representing interest charges
on Federal Reserve notes, fiscal years 1947-62
606
24. Postal receipts and expenditures, fiscal years 1916-62
607
25. Cash income and outgo, fiscal years 1952-62
608
PUBLIC DEBT, GUARANTEED OBLIGATIONS, ETC.

I.—Outstanding
26. Principal of the pubhc debt, 1790-1962
...
27. Public debt and guaranteed obligations outstanding June 30, 1934-62.
28. Public debt outstanding by security classes, June 30, 1952-62

616
618
619

CONTENTS

VII
Page

29. Guaranteed obligations issued by Government corporations and other
business-type, activities and held outside the Treasury, June 30,
1952-62
...
30. Tnterest-bearing securities outstanding issued by Federal agencies but.
not guaranteed by the United States Government, fiscal years
1953-62
31. Maturity distribution of marketable interest-bearing public debt and
guaranteed obligations, June 30, 1946-62
32. Summary of public debt and guaranteed obligations by security classes,
June 30, 1962
33. Description of public debt issues outstanding June 30, 1962
34. Description of guaranteed obligations held outside the Treasury, June
30, 1962
.
35. Postal savings systems' deposits and Federal Reserve notes outstanding, June 30, 1946-62.
.
36. Statutory limitation on^the public debt and guaranteed obligations,
June 30, 1962
37. Debt limitation under the Second Liberty Bond Act, as amended,
1917-62

622
623
624
625
627
649
651
622
653

II.—Operations
38. Public debt receipts and expenditures by security classes, monthly
for fiscal year 1962 and totals for 1961 and 1962
39. Changes in public debt issues, fiscal year 1962
40' Issues, maturities, and redemptions of interest-bearing public debt
securities, excluding special issues, July 1961-June 1962
41. Allotments by investor classes on subscriptions for public marketable
securities other than regular weekly Treasury bills, fiscal year 1962..
42. Public debt increases and decreases, and balances in the account of
the Treasurer of the United States, fiscal years 1916-62
.
43. Statutory debtretirements, fiscalyears 1918-62
44. Cumulative sinking fund, fiscal years 1921-62
...45. Transactions on account of the cumulative sinking fund, fiscal year
1962

656
668
690
722
724
725
726
727

III.—United States savings bonds
46. Summary of sales and redemptions of savings bonds by series, fiscal
years 1935-62 and monthly 1962
47. Sales and redemptions of Series E through K savings bonds by series,
fiscal years 1941-62 and monthly 1962
48. Sales and redemptions of Series E and H savings bonds by denominations, fiscal years 1941-62 and monthly 1962
49. Sales of Series E and H savings bonds by States, fiscal years 1961,
1962, and cumulative
-

728
729
730
734

IV,—Interest
50. Amount of interest-bearing public debt outstanding, the computed
annual interest charge, and the computed rate of interest, June 30,
1916-62, and at the end of each month during 1962.
51. Computed annual interest rate and computed annual interest charge
on the public debt by security classes, June 30, 1939-62.
52. Interest on the public debt by security classes, fiscal years 1958-62...
53. Interest on the public debt and guaranteed obligations by tax status,
fiscal years 1940-62
...

735
737
739
740

V.—Prices and yields of securities
54. Average yields of taxable long-term Treasury bonds by months,
October 1941-June 1962
_.
55. Prices and yields of marketable public debt issues, June 30, 1961 and
June 29, 1962, and price range since first traded

741
744

VIII

CONTENTS
VI.—Ownership of governmental securities
Page

56. Estimated ownership of interest-bearing governmental securities
outstanding June 30, 1952-62, by type of issuer
57. Estimated distribution of interest-bearing governmental securities
outstanding June 30, 1952-62, by tax status and type of issuer
58. Summary of Treasury survey of ownership of interest-bearing public
debt and guaranteed obligations, June 30, 1961 and 1962

745
746
748

ACCOUNT OF THE TREASURER OF THE UNITED STATES

59. Assets and liabilities - in the account of the Treasurer of the United
States, June 30, 1961 and 1962
60. Analysis of changes in tax and loan account balances, fiscal years
1952-62
-

750
751

STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES

61. Stock of money, money in the Treasury, in the Federal Reserve
Banks, and in circulation, by kinds, June 30, 1962
62. Stock of money, money in the Treasury, in the Federal Reserve
Banks, and in circulation, selected years, June 30, 1925-62
63. Stock of money by kinds, selected years, June 30, 1925-62
64. Money in circulation by kinds, selected years, June 30, 1925-62
65. Location of gold, silver bullion at monetary value, and coin held by
the Treasury on Jurie 30, 1962
.
66. Paper currency issued and redeemed during the fiscal year 1962 and
outstanding June 30, 1962, by classes and denominations

752
754
755
757
758
759

TRUST FUNDS AND CERTAIN OTHER ACCOUNTS OF THE FEDERAL
GOVERNMENT

67. Holdings of Federal securities by Government agencies and accounts,
June 30, 1952-62

760

I.—Trust funds
68. Ainsworth Library fund, Walter Reed General Hospital, June 30,
1962
69. Civil service retirement and disability fund, June 30, 1962
70. District of Columbia teachers' retirement and annuity fund, June 30,
1962
71. District of Columbia other funds—Investments as of June 30, 1961
and 1962
72. Employees health benefits fund. Civil Service Commission, June 30,
1962
.
73. Retired employees health benefits fund. Civil Service Commission,
June 30, 1962
74. Employees' life insurance fund. Civil Service Commission, June 30,
1962
75. Federal disability insurance trust fund, June 30, 1962
76. Federal old-age and survivors insurance trust fund, June 30, 1962_77. Foreign service retirement and disability fund, June 30, 1962
.
78. Highway trust fund, June 30, 1962
79. Judicial survivors annuity fund, June 30, 1962
80. Library of Congress trust funds, June 30, 1962
_•
81. Longshoremen's'and Harbor Workers' Compensation Act, rehef and
rehabilitation, June 30, 1962
82. National Archives gift fund, June 30, 1962
83. National park trust fund, June 30, 1962
84. National service hfe insurance fund, June 30, 1962
85. Pershing HaU Memorial fund, June 30, 1962
I
86. Philippine Government pre-1934 bond account, June 30, 1962
87. Public Health Service gift funds, June 30, 1962
88. Railroad retirement account, June 30, 1962
..
.
89. Unemployment trust fund, June 30, 1962
.
90. U.S. Government life insurance fund, June 30, 1962
91. U.S. Naval Academy general gift fund, June 30, 1962
92. Workmen's Compensation Act within the District of Columbia,
relief and rehabilitation, June 30, 1962

764
764
767
768
770
771
772
774
776
778
779
780
781
782
782
783
784
785
786
787
788
790
796
797
798

CONTENTS

IL—Certain other accounts
Page

93. Colorado River Dam fund, Boulder Canyon project, status by oper•• ating years ending May 31, 1933-62._.________..J....._______
94. Refugee Relief Act of 1953, loan program through June 30, 1962:.._

799
800

FEDERAL AID TO STATES

95. Expenditures made by the Government as direct payments to States
under cooperative arrangements and expenditures within States .
which provided relief and other aid, fiscal year 1962
801
CUSTOMS STATISTICS

96. Merchandise entries, fiscal years 1961 and 1962
819
97. Principal commodities on which drawback was paid, fiscal years 1961
and 1962
_ — — _ — --__:.
820
98. Carriers and persons arriving in the United States, fiscal years 1961
and 1962
'
_,
-__._.,
"821
99. Aircraft and. aircraft passengers entering the United States, fiscal
years 1961 and 1962
,_.._.
822
100. Seizures for violations of customs laws, fiscal years 1961 and 1962..
823
101. Investigative activities,"fiscal years 1961 arid 1962
...
•..
_.
824
ENGRAVING AND PRINTING PRODUCTION

102. New postage stamp issues delivered, fiscal year 1962
103. Deliveries of finished work by the Bureau of Engraving and Printing,
fiscal years 1961 and 1962
......
INTERNATIONAL CLAIMS

824
.825

104. Awards of the Mixed Claims Commission, United States and Germany, . . ^ •
certified'to the Secretary of the Treasury by the Secretary of State,
thrbugh June 30, 1962
..____...._
826
105. Yugoslav claims fund as of June 30, 1962
828
106. Status of claims of American nationals against certain foreign governments as of June 30, 1962
829
INTERNATIONAL FINANCIAL TRANSACTIONS

107. United States net monetary gold transactions with foreign countries
and international institutions, fiscal years 1945-62
108. Estimated gold reserves and dollar holdings of foreign countries as
of June 30, 1961 and June 30, 1962
.
109. United States gold stock .and holdings of convertible foreign currencies
by U.S. monetary authorities, fiscal years 1952-62
.
110. U.S. international investment and gold position, end-selected years..
111. U.S. balance of payments by major components, seasonally adjusted.
112. Assets and liabilities of the Exchange Stabilization Fund as of June 30,
1961 and 1962
J.
113. Summary of receipts, withdrawals, and balances of foreign currencies
• acquired by the United States without purchase with dollars, fiscal
year 1962
114. Balances of foreign currencies acquired by the United States without
purchase with dollars, June 30, 1962....

830
831
833
834
835
836
838
840

INDEBTEDNESS OF FOREIGN GOVERNMENTS

115. Indebtedness of foreign governments to the United States arising from
World War I, and payments thereon as of June 30, 1962
116. World War I indebtedness, payments, and balances due under agreements between the United States and Germany as of June 30, 1962_
117. Outstandirig indebtedness of foreign countries on United States Government credits (exclusive of indebtedness arising from World War
I) as of June 30, 1962, by area, country, and major program
118. Status of accounts under lend-lease and surplus property agreements
(World War II) as of June 30, 1962

842
843
844
846

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

119. Capital stock, notes, and bonds of Government agencies held by the
Treasury or other Government agencies, June 30, 1961 and 1962,
and changes during 1962
,_
120. Borrowing authority and outstanding issues of Government corporations and certain other business-type activities whose obligations are
issued to the Secretary of the Treasury, June 30, 1962
121. Comparative statement of obligations of Government corporations
and certain other business-type activities held by the Treasury, June
30, 1952-62.
122. Description of obligations of Government corporations and certain
other business-type activities held by the Treasury, June 30, 1962. _
123. Comparative statement of the assets, liabilities, and net investment of
Government corporations and certain other business-type activities,
June 30, 1953-62
_.
...
124. Statement of loans outstanding of Government corporations and certain other business-type activities, June 30, 1962
125. Dividends, interest, and similar earnings received by the Treasury
from Government corporations and certain other business-type
activities, fiscal years 1961 and 1962.,
._

850
852
853
854
858
860
864

GOVERNMENT LOSSES IN S H I P M E N T

126. Government losses in shipment revolving fund, June 30, 1962

866

PERSONNEL

127. Number of employees in the departmental and field services of the
Treasury Department, quarterly from June 30, 1961 to June 30,
1962
INDEX

867
.

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

NOTE.—Details of figures may not add to totals because of rounding.

869

SECRETARY, UNDER SECRETARIES, GENERAL COUNSEL, AND ASSISTANT SECRETARIES OF THE TREASURY DEPARTMENT FROM
JANUARY 21, 1961, TO JANUARY 1, 1963 i
Term of service
From

Official

To
Secretary of the Treasury
Douglas Dillon, New Jersey;

Jan. 21, 1961

Under Secretary
Feb.

Henry H. Fowler, Virginia.

3, 1961

Under Secretary of the Treasury for
Monetary Affairs
Robert V. Roosa, New York.

Jan. 31, 1961

General Counsel
Apr. 5, 1961
Nov. 16, 1962

Oct.

6, 1962

Robert H. Knight, Virginia.
G. d'Andelot Belin, Massachusetts
Assistant Secretaries

Dec.
Apr.
Apr.
Dec.
Dec.

20, 1957
5, 1961
24, 1961
20, 1961
18, 1962

Dec. 19, 1961
Oct. 31, 1962

A. Gilmore Flues, Ohio.
,
John M. Leddy, Virginia.
Stanley S. Surrey, Massachusetts.
, James A. Reed, Massachusetts.
1 John C. BuUitt, New Jersey.

Fiscal Assistant Secretary
June 19, 1955
June 15, 1962

Mar. 31, 1962

WiUiam T. Heffelfinger, District of Columbia.
John K. Carlock, Arizona.
Administrative. Assistant Secretary

Sept. 14, 1959

A. E. Weatherbee, Maine.

1 For officials from September 11,1789, tBrougli Jamiary 20, 1961, see the 1961 annual report exhibit 32,
pp. 389-392.

•. ..

• XI

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF
TREASURY DEPARTMENT AS OF JANUARY 1, 1963

THE

SECRETARY
DOUGLAS DILLON

Henry H. Fowler
'.
Douglass Hunt
Robert V. Roosa
J. Dewey Daane
Leland Howard
Paul A. Volcker
Frank E. Morris
R. Duane Saunders
G. d'Andelot Belin
Fred B. Smith
.
Roy T. Englert.i
Edwin F. Rains
Hugo A. Ranta.
George F. Reeves-.
Harold R. Pollak
Stanley S. Surrey..--Harvey E. Brazer
David R. Tillinghast
Donald C. Lubick
Nathan N. Gordon
James A. Reed
James P. Hendrick
Commander
Robert
Johnson, U.S.C.G
Arnold Sagalyn..
John C. Bullitt
Vacancy
:
Ralph Hirschtritt
George H. Willis
, . ' Philip P. Schaffner
Charles R. Harley
John K. Carlock
.
George F. Stickney..
Hampton A. Rabon,
Boyd A. Evans
Frank F. Dietrich
Robert M. Seabury
A. E. Weatherbee
Carl W. Clewlow
Paul McDonald
Ernest C. Betts, Jr
Amos N. Latham, Jr
Thomas M. Hughes
Joseph W, Barr
XII

Under Secretary of the Treasury.
Special Assistant to the Under Secretary.
Under Secretary for Monetary Affairs.
Deputy Under Secretary for Monetary Affairs.
Director, Office of Domestic Gold and Silver
Operations.
Director, Office of Financial Analysis.
. Assistant to the Secretary (Debt Management).
. . Director, Office of Debt Analysis.
General Counsel.
_. Deputy General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Chief Counsel, Foreign Assets Control.
Assistarit Secretary.
Deputy Assistant Secretary and Director,
' . Office of Tax Analysis.
-_. Special Assistarit to Assistant Secretary.
__"- Tax Legislative Counsel.
-- Director, Office of International Tax Affairs.
Assistant Secretary.
_ Deputy Assistant Secretary.
D.
.
, •
-_ Aide to the Assistant Secretary.
. Director, Office of Law Enforcement Coordination.
Assistarit Secretary.
Deputy Assistant Secretary.
Special Assistant to Assistant Secretary.
Director, Office of International Affairs.
Assistant Director, Office of International
Affairs.
Assistant Director, Office of International
Affairs.
Fiscal Assistant Secretary.
Deputy Fiscal Assistant Secretary.
Jr___ Assistant Fiscal Assistant Secretary.
Assistant to Fiscal Assistant Secretary.
Assistant to Fiscal Assistant Secretary.
Director, Office of Defense Lending.
Administrative Assistant Secretary.
Deputy Administrative Assistant Secretary and
Director, Office of Management and Organization.
Director, Office of Administrative Services.
Director, Office of Budget (Designate).
Director, Office of Personnel.
Director, Office of Security.
"
Assistant to the Secretary (Congressional
Relations).

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

XIII

Dixon Donnelley
Stephen C. Manning, Jr

Assistant to the S_ecretary (Public Affairs). : .
Deputy Assistant to the Secretary (Public
Affairs).
Robert A. Wallace
Assistant to the Secretary.
Thomas W. Wolfe
Deputy Assistant to the Secretary.
Charles A. Sullivan
Assistant to the Secretary.
Bradley H. Patterson, Jr
National Security Affairs Adviser.
.
\T
Margaret W. Schwartz
. . Director, Office of Foreign Assets : Control.
Seymour E. Harris
Senior Consultant to the Secretary..
William N. Turpin
Special Assistant to the Secretary.Edward L. Killham
Director, Executive Secretariat.
.....
BUREAU OF ACCOUNTS

Harold R. Gearhart
Sidney S. Sokol
John H. Henriksen
G eorge Friedman
Julian F. Cannon
Harold A. Ball.
Ray T. Bath
Sidney Cox
Howard A. Turner
Samuel J. Elson

, .,'

._ Commissioner of Accounts.
Assistant Commissioner,
Assistant Commissipner for Administration.
Staff Assistant to the Commissioner.
Chief Disbursing Officer.
Chief Auditor.
Deputy Commissioner-^Accounting Systems.
Deputy Commissioner—Deposits and. Investments.
Deputy Commissioner^^Central Accounts.
Deputy Commissioner—rCentral Reports.

BUREAU OF CUSTOMS

Philip Nichols, Jr
David B. Strubinger
Alfred F. Belter . . . .
N. G. Strub

.__

:;:;::

Commissioner pf Customs, .
,
..
Assistant Commissioner of Customs.
Deputy Commissioner for Policy Planning.
Deputy Commissioner of Management and
Controls.
Deputy Commissioner, Division of Investigations and Enforcement.
Deputy Commissioner, Division of Appraisement Administration.
Deputy Commissioner, Division of Classification and Drawbacks.
Chief Counsel.
Deputy Commissioner^ Division of Marine
Administration.
Deputy Commissioner, Division of Entry,
Value, and Penalties. .
Deputy Commissioner, Division of Technical
Services.
: ,.,

C. A. Emerick
Walter G. Roy
William E. Higman
Robert Chambers
R. V. Mclntyre
Burke H. Fhnn
George Vlases, Jr

BUREAU OF ENGRAVING AND PiRINTING

Henry J. Holtzclaw
Frank G. Uhler

...^

Director, Bureau of Engraving and Printing.
Assistjant Director.
BUREAU OF T H E M I N T

Eva Adams
Frederick W. Tate

Director of the Mint.
Assistant Director.
BUREAU OF NARCOTICS

Henry L. Giordano
Charles Siragusa
George H. Gaffney -_

Commissioner of Narcotics.
Deputy Commissioner.
Assistant to the Commissioner.
BUREAU OF THE PUBLIC DEBT

Donald M. Merritt
Ross A. Heffelfinger, Jr

Commissioner of the Public Debt.
Assistant Commissioner.

}

XIV

PRINCIPAL

ADMLNTISTRATIVE

Michael E. McGeoghegan
Jack P. Thompson

AND STAFF

OFFICERS

Deputy Commissioner.
Deputy Commissioner in Charge, Chicago
Office.

I N T E R N A L REVENUE SERVICE

Mortimer M.. Caplin
.Bertrand M. Harding
Edward F. Preston
Vernon D. Acree
Donald W. Bacon
Harold T. Swartz
William H. Smith

Commissioner of Internal Revenue.
Deputy Commissioner.
Assistant Commissioner (Administration).
Assistant Commissioner (Inspection).
Assistant Commissioner (Compliance).
Assistant Commissioner (Technical).
Assistant Commissioner (Planning and Research) .
Assistant Commissioner (Data Processing).
Chief Counsel.
Director of Practice.

Robert L. Jack
Crane C. Hauser
Thomas J. ReUly.

OFFICE. OF THE COMPTROLLER OF THE CURRENCY

James J. Saxon
A. J. Faulstich
Clarence B. Redman
Thomas G. DeShazo
WiUiam B. Camp
Justin T. Watson
Dean MillerR. Coleman Egertson
Robert Bloom

Comptroller of the Currency.
Administrative Assistant to the Comptroller.
First Deputy Comptroller.
. . Deputy Comptroller.
Deputy Comptroller.
Deputy Comptroller.
Deputy Comptroller (Trusts).
Chief National Bank Examiner.
Chief Counsel.

OFFICE OF THE TREASURER OF THE UNITED STATES

Kathryn O'Hay Granahan
William T. HoweU
Willard E. Scott...

Treasurer of the United States (Designate).
Deputy Treasurer.
Assistant Deputy Treasurer.

UNITED STATES COAST GUARD

Admiral Edwin J. RolandVice Admiral Donald McG.
Morrison
Rear Admiral Theodore J. Fabik.
Rear Admiral Oscar C. Rohnke- -

Commandant,. U.S. Coast Guard.
Assistant Commandant.
Chief, Office of Engineering.
Chief, Office of Merchant Marine Safety.

• . U N I T E D STATES SAVINGS BONDS DIVISION

William H. Neal
Bill McDonald

National Director.
Assistant National Director.
U N I T E D STATES SECRET SERVICE

James J. Rowley
Paul J. Paterni
E. A. Wildy

_ . _ . . Chief, U.S. Secret Service.
Deputv Chief.
. Assistant Chief.
COMMITTEES AND BOARDS

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

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

•ORGANIZATION OF THE DEPARTMENT OF THE TREASURY-

November 1,1962

SECRETARY
UNDER SECRETARY

I Office
\
\ ofthe
)
\ Secretory'

ASSISTANT
TO THE
SECRETARY

DEPUTY UNDER
SECRETARY FOR
MONETARY
AFFAIRS

ADMINISTRATIVE
ASSISTANT
SECRETARY

Office of
Office ot Penann«l
Control

i" ''^'^j
Officeof
MonogemenI and
Orgonizolion

W f i C l o< OomtitK
Gold and S>l>«f

[ bperoting ^
I Bureous >

\ OffKe of S t c u r i t ,

X
Bureau of
the Mint

U.S. Secret
Service

Internol
Revenue
Service

Office of the
Comptroller of
the Currency

U.S. Sovings
Bonds Division

U.S.
Coost Guord

Bureau of
Enqraving and
Printing

Bureau of
Customs

Bureau of
Narcotics

Bureau of
Accounts

Bureou of the
Public Debt

Office of the
Treosurer
of the U.S.

CHART 1

ANNUAL REPORT ON THE FINANCES
TREASURY DEPARTMENT,

Washington^ March 29, 1968.
SIRS: I have the honor to report to you on the finances of the
Federal Government for the fiscal year 1962.
The economy continued to advance throughout 1962 from the
recession low of February 1961, and further economic gains extended
into 1963. The Revenue Act of 1962 and appropriate tax administrative measures—including revision of the guidelines for depreciation—
are stimulating the growth of the economy. The President's tax proposals for 1963 are designed not only to add further impetus to that
trend but to stimulate long-term growth in the years ahead. Debt
management in 1962 substantially improved the maturity structure
of the debt and financed the deficit without producing inflationary
pressures. Confidence in the international payments system was
strengthened by the International Monetary Fund's borrowing
arrangements, greater international cooperation among monetary
authorities, and Treasiu-y and Federal Reserve operations in foreign
exchange markets.

Fiscal Policy.
Federal Government fiscal policy is reflected in administration
recommendations and policies and congressional enactments affecting
expenditures and taxation. Together with monetary and debt
management policy, fiscal policy is a key means of fulfilling our
national economic objectives, including the attainment of high
employment and production, a rapid rate of economic growth, maintenance of price stability, and equilibrium in our international balance
of payments.
Neither expenditure nor tax policy can be formulated solely on the
basis of its immediate contribution to one or another of these broad
objectives, for the level and distribution of expenditures must refiect
a national judgment concerning the activities that properly should be
undertaken by the Government, and the tax system must be geared
to the needs for equity, efficiency, and simplicity. Used flexibly,
however, in coordination with other Federal economic policies, fiscal
policies can contribute to establishing a finaricial environment that
will support and release forces for economic progress.
.
061496—63

1962 REPORT OF THE SECRETARY OF THE TREASURY

The overall fiscal plans of the Government must fulfill a number of
basic requirements.
National security and urgent nondefense needs must be provided.
The need of the economy for appropriate stimulation or restraint
must be considered, as well as the means of encouraging balanced
longer range growth.
International financial consequences of domestic economic developments and policy actions must be taken into account and the various
policy alternatives balanced to serve both domestic and international
goals.
Tax policy must be founded on an adequate revenue base, and the
laws designed to meet the tests of equity, neutrality, and simplicity,
while contributing to the encouragement of private initiative.
Federal expenditures must be controlled to assure that outlays are
justified by current needs, and are held to levels permitting the
application of a substantial part of revenue, increases generated
by satisfactory growth to eliminating current deficits or, under boom
conditions, to producing surpluses.
The budgetary process requires the testing of all programs against
a scale of priorities. Every expenditure program, military or civilian,
must be subjected to a continuous, searching examination of needs,
costs, and alternatives. This process permits reduction of expenditures for programs whose relative urgency has declined and makes
room for new and expanded activities urgent and essential to the
well-being and progress of the Nation. Intensive and continuous
efforts must be made to effect savings by substituting private for
public credit; extending the principle of user charges where appropriate; and increasing eflS.ciency and cost reductions throughout the
Government. An across-the-board, standstill order on expenditures
would be the negation of responsible budgetary policy and would
hinder the Nation in meeting the challenge of its unresolved domestic
and international problems.
Fiscal 1963

The fiscal 1963 budget was in preparation during the final months
of the calendar year 1961, when it appeared that the economic recovery was well established and would continue at a satisfactory pace
without need for additional stimulus from Federal fiscal policies.
Although nearly every measure of economic activity had reached new
records by the end of calendar 1961 and prospects for further vigorous
expansion appeared favorable, unemployment and underutilization
of productive capacity were continuing problems. Moreover, balanceof-payments problems were again causing concern.
For these reasons it appeared that new measures were required to
deal with the more complex situation that was developing. While

ANNUAL REPORT ON THE FINANCES

avoidance of the degree of restraint which would choke off expansion
short of full recovery continued to be important, it was desirable also
to guard against excesses which might impede an orderly expansion
at stable prices. Moreover, it was desirable to stimulate a higher
level of private investment to increase the competitiveness of American
products at home, thus providing a sound basis for eventual solution
of the balance-of-payments problems as well as helping to achieve
faster economic growth.
Under these conditions a balanced budget was presented for the
fiscal year 1963, with expenditures held slightly below estimated
receipts. I t was believed that only a moderate surplus should be
provided in the administrative budget to avoid a repetition of the
pattern in the previous recovery period when the Federal budget
moved from an administrative budget deficit of $12.4 billion in fiscal
1959 to a surplus of $1.2 billion in fiscal 1960. This shift of more
than $13K billion was generally considered one of the more important
factors in the premature termination of the expansionary phase of the
business cycle in the calendar year 1960. In contrast, it was expected
that the budgetary swing from the deficit in fiscal 1962 to a balance in
fiscal 1963 would have totaled only.about $7 bihion. At the same
time it was hoped that early enactment of the investment credit and
administrative depreciation reform, along with continued monetary
ease to the degree compatible with balance-of-payments requirements,
would contribute to a more rapid rate of private capital formation.
If private investment could be stimulated, this would provide added
support to the recovery, leading to a substantial reduction in the
unemployment rate and to a more complete utilization of the Nation's
productive potential.
By early June 1962, however, there were some indications that the
pace of the recovery movement had slowed and achievement of the
projected level of G N P in calendar 1962, on which a balanced budget
was predicated, seemed less probable. The economic outlook,
however, was blurred by developments related to an anticipated
steel strike, particularly by the rapid build-up in steel inventories in
the first two quarters of calendar 1962 followed by a rapid reduction in
these inventories beginning in the thkd quarter. This undoubtedly
contributed to the unsatisfactory behavior of some of the leading
economic indicators, which caused widespread concern in the summer
about the possibility of a recession.
Early in the fiscal year 1963, therefore, serious consideration was
given to an immediate tax cut. The final decision was delayed for
several months, for a clearer indication of the immediate prospects;
and when signs of further moderate strengthening in the economy
were observed, the decision was made to delay any tax recommenda-

1962 REPORT OF THE SECRETARY OF THE TREASURY

tion until a program for general tax reduction arid reform could be
thoroughly reviewed by the next Congress.
This decision not to seek an anti-recessionary tax cut, but to recommend a major program of basic tax reduction and reform to the
new Congress early in calendar 1963, reflected confidence that an
early recession was unlikely. I t reflected also belief that fundamental
changes in the tax system are required to increase incentives to
investment, risk taking, creative effort, and initiative, as well as to
release private purchasing power to overcoriie the drag on the economy
evidenced during five years of slow growth, high unemployment, arid
lagging Federal revenues. At the same time, a vigorous program of
expenditure control was carried through to minimize the initial impact
of tax reduction on the budget, and to assure that a substantial part
of the revenue increases which would result from the economic expansion induced by tax reduction would go toward eliminating budget
deficits. This would help to establish a better financial environment
for private investment and allow full advantage to be taken of the
forces for economic progress at home and abroad. Fiscal policy,
therefore, was directed along lines that would resolve the interlocking
goals of domestic growth and external stability, reduce unemployment
and provide new opportunities for our expanding labor force, and
eliminate the balance-of-payments deficit.
Administrative budget.—Administrative budget receipts in fiscal
1963 are now estimated at $85.5 billion and expenditures at $94.3
billion, resulting in an estimated deficit of %^.S billion.
Budget expenditures are estimated to rise $6.5 billion over expenditures in fiscal 1962 to $94.3 billion. Increased expenditures for
defense, space, and interest accounted for $3.7 billion of the total rise.
Expenditures for agricultural programs, mainly price support, are
estimated to rise $0.8 billion; for commerce and transportation,
$0.6 billion, of which one-half is for area redevelopment; and for
health, labor, and welfare, $0.4 billion, mainly for public assistance.
Accounting for the $4.1 billion rise in budget receipts, individual
income taxes are estimated to rise $1.7 billion to $47.3 billion; corporate income taxes, $0.7 billion to $21.2 billion; excise taxes, $0.3
billion to $9.9 billion; and other budget receipts, $1.4 billion to $7.1
billion.
Cash budget.—Payments to the public are estimated at $116.8
billion in fiscal 1963, receipts from the public at $108.4 billion, resulting
in an expected deficit in the cash budget of $8.3 billion, substantially
equal to the deficit in the administrative budget.
National income accounts.—Federal receipts on the national income
. accounts basis are estimated at $108.8 billion, expenditures at $113.2
billion, resulting in a deficit of $4.3 billion.

ANNUAL REPORT ON T H E FINANCES

Debt Management
The debt management problem in calendar 1962 was to finance a
sizable budget deficit in a year of economic expansion, while substantially improving the maturity structure of the existing debt; and
to accomplish this in consistence with the Nation's broad economic
goals and to contribute to their realization.
Fundamentally, the primary aim of debt management policy was
to assure that the 1962 deficit did not produce undesirable monetary
consequences; specifically, that it did not foster an excessive growth
in the money supply, the bank credit base, or the total volume of
liquid assets. As the economy grows, it is essential that the money
supply and the volume of liquid assets should grow at a rate fast
enough to sustain a satisfactory rate of economic expansion; but it is
equally essential that the rate of growth in liquidity be held to levels
compatible with a stable price level.
A large deficit can be financed, even during a period of expanding
economic activity, without producing monetary effects which sow the
seed for inflationary pressures in the future. If such consequences
are to be avoided, however, a major portion of the deficit must be
financed by tapping real savings rather than through the ex:pansion
of bank credit. T h a t requirement, in turn, necessitates that a
substantial portion of the deficit be financed through the issuance
of longer term securities. The basic purpose of the debt mariagers
df the Treasury was so to finance the deficit in 1962.
This goal was realized in 1962, and the Treasiu-y is attempting to
finance the even larger deficit of 1963 in the same manner. Our
national need for price stability is clear; and that need is now also a
key factor in the program to restore our balance-of-payments position
to equilibrium. Both debt managenient and monetary policy must
be directed toward assuring that monetary forces do not threaten
price stability, now or in- the future.
The deficit of calendar 1962 was financed entirely outside the
Nation's commercial banks. The Federal Reserve, in pursuing its
objective of supplying an adequate volume of reserves to the commercial banking system and providing needed currency, added $1.9
billion to its holdings of Government securities, an increase that was
in line with customary growth patterns in reserves to be expected
year by year. These additional Federal Reserve holdings were partially offset by a decline of $700 million in the Government security
holdings of commercial banks. The balance of the $6.3 billion
increase in the debt in the year ending December 31, 1962, was
financed out of savings and other sources. About $1.0 billion was
taken by Government investment accounts. The remaining $5.3

1962 REPORT OF THE SECRETARY OF THE TREASURY

billion was divided among foreign and internatioriai accounts ($1.9
billion), corporate pension funds and individuals. ($0.9 billion). State
and local governments ($0.8 billion), business corporations ($0.7
billion), and other investors ($0.9 billion).
Estimated ownership of Federal securities
[In billions]
Dec .31

1961

Banking sector:
Fe.dp.rnl TJ.fiSP.rvO B a n k s . - . . . . . .

Commercial

, . .,

Subtotal-Nonbank sector:
rrovfirnmfiTit investnient accounts -.
Foreign and international accounts
Individuals and corporate pension funds.
State and local governmp.ntsNonfinancial corporations
Insurance companies
. ._.
Mutual saving.«? bank.s_..
Savings and loan associations
AU otlier -.
Subtotal.Total

--..,.,._
-

.„.„_.„
.
-.-

-.„

1962

Increase, or
decrease (—)

$28.9
67.2

$30.8
66.5

$1.9
-0.7

96.1

97.3

1.2

54.5
13.4
67.8
•18.7
19.4
11.4
6.1
5.2
3.8

55.6
15.3
68.6
19.5
20.1
11.5
6.1
5.5
4.4

1.0
1.9
0.9
0.8
0.7
0.1
—0.1
0.3
0.6

200.4

206.7

6.3

296.5

304.0

7.5

In calendar 1961 the increase in the very liquid, under-one-year
debt substantially exceeded the increase in the total debt. The 1962
experience was.radically different. The increase in the under-one-year
debt in 1962 amounted to only $1.4 billion, or 20 percent of the increase
in the total debt. In 1962, the debt maturing beyond five years
increased by about $9 biUion, substantially more than the increase
in the total debt. The debt in the.critical one-to-five year maturity
sector was reduced by more than $3 billion. Thus, not only was the
deficit itself financed in a noninflationary manner, but a substantial
improvement was produced in the overall maturity structure of the
existing debt. This improvement is symbolized by the 7 percent
increase in the average length of the debt during the calendar year,
from four years and seven months at the end of 1961 to four years and
eleven months at the end of 1962. (By the end of March 1963, the
average length had increased still further to five years and one month,
the highest level since September 1958.)

ANNUAL REPORT ON T H E

FINANCES

Maturity distribution of ihe marketable debt
[Dollar a m o u n t s in billions]
D e c . 31
Maturity

Increase, or
decrease (—)
1961

Under-one-year
W e e k l y a n d one-year b n i s .
T a x a n t i c i p a t i o n bills
Other
T o t a l u n d e r one-year
1-5 years-'. 5 years a n d o v e r '
5-10 years
10-20 years
20 years a n d over-

T o t a l 5 years a n d over
Total marketable debt
Average length (years-months)

1962

$37.4
6.0
42.5

$45.2
3.0
39.0

85.9

87.3

$7.8
-3.0
-3.4

64.9

61.6

-3.2

19.8
12.0
13.4-

34.0
4.6
15.5

14.2
-7.4
2.1

45.2
196.0

203.0

4-7

4-11

Although the monetary impact of debt management policy is the
most fundamental concern of the Federal debt managers, it is only
one of many factors which must be weighed in ever}^ debt managemerit decision. The Treasury must always be concerned with the
present and future interest costs of carrying the debt. To the extent
consistent with its other objectives, debt management policy must be
oriented toward minimizing interest costs on the debt.
.The Treasury also has a responsibility to promote an active and
broadly based market in Government securities. Such a market is
not only in the interest of the Treasury as an issuer of securities, but
also is in the interests of investors in marketable Treasury securities
and in the interests of the Federal Reserve System. Since the dayto-day operations of monetary policy are conducted in Government
securities, a Government securities market with a tradeable volume of
issues outstanding across a broad maturity range contributes to an
effective Federal Reserve policy. The monetary authorities need an
ample range of alternatives for use in exerting those infiuences on the
credit and capital markets which will best meet their objectives.
Moreover, in placing new issues of longer term securities, the
Treasury must weigh carefully the impact of its operations on the
markets for other long-term securities: corporate bonds, municipal
bonds, and mortgages. I t is particularly important in a period when

1962 REPORT OF THE SECRETARY OF THE TREASURY

the economy is expanding at a less than desh-ed rate that the Treasury
give consideration to this impact, so that Treasury financing in the
longer term area does not disrupt or reduce the flow of funds into
these other markets. In making judgments, the Treasury must not
only decide upon the amounts of longer term funds that can appropriately be placed in Government securities, but must also give consideration to the timing of offerings and the techniques to be used.
In 1962, while the volume of other forms of lorig-term borrowing was
also increasing by a record amount, the Treasury increased the total
of outstanding Government securities maturing beyond five years by
almost $9 billion and the total maturing beyond twenty years by
more than $2.billion, as shown in the preceding table. Much of this
was accomplished through the March and September advance refundings, a technique which minimizes the strain on other markets
(see the following table). That this very substantial volume of longer
term Government securities was placed in the hands of investors
without disrupting or slowing down the flow of funds into corporate
bonds, municipal bonds, and mortgages, is demonstrated also by the
downward movement of interest rates on these securities throughout
the year and which at the yearend were generally lower than the rates
prevailing at the bottom of the recession in February 1961.
Effect of calendar 1962 advance refundings on ihe maturity structure of ihe marketable
debi
[In billions]

Maturity
Under-l-year
I to 3 years
3 to 5 years.
5 to 20 years
20 years and over

Removed

-.-

...

Total

_. _

. . .

- .
-

$7.9
3.4

Added

1.8

$5.3
5.9'
1.8

13.1

Increase, or
decrese (-r-)

-$7.9
-3.4
5.3
4.1
1.8

If we are to have a cohesive national flnancial policy, Treasury
debt management operations must be closely coordinated with the
monetary policy and operations of the Federal Reserve. In 1962,
monetary policy actions, as independently determined by the Federal
Reserve, and the debt management decisions of the Treasury were
closely and significantly integrated toward the achievement of
common goals. This coordination of policies reached a highly developed state in the continuing effort to achieve the important policy
goal of maintaining short-term interest rates in the United States at
levels which would reduce incentives for' short-term funds to flow

ANNUAL REPORT ON T H E FINANCES

abroad in response to interest rate differentials. Such flows, of course,
weaken our balance-of-payments position and tend to lead, ultimately,
to drains on our gold stock.
The role of the Treasury in this common effort was so to plan its
debt operations that appropriate amounts of new short-term securities
were placed in the market at times when upward supply pressures
on Treasury bill yields were needed to keep our short-term rate
structure in appropriate relationship with rates abroad. Such
actions were undertaken on a substantial scale in the spring and in
the fall of 1962 through raising needed cash by adding to the weekly
bill auctions and by the issuance of a $1 billion strip of biUs.
Partly because of these timely actions by the Treasury in adding to
the supply of Treasury bills, the Federal Reserve was able to continue
its policy of fostering bank credit expansion without producing undue
downward pressure on Treasury bill rates. Such large additions to
the supply of Treasury bills, however, if not offset in some manner,
could lead over time to an excessive growth in the volume of shortterm Treasury obligations and defeat a fundamental debt management objective of helping to limit the rate of growth of liquid assets
to the real needs of the economy. The necessary offsetting factor
was provided by the introduction of the device of ''prerefunding", that
is, the application of the technique of advance refunding to securities
maturing within one year.
The prerefunding device was first used in September 1962, when
almost $8 billion in securities maturing in eight months or less was
exchanged for securities maturing in approximately five years and ten
years. I t was because of the substantial reduction in the under-oneyear debt produced by the September prerefunding that the Treasury
was able to add almost $8 billion to the supply of Treasury bills during
the year and still end the year with a net increase in the total underone-year debt of only $1.4 billion.
The prerefunding was one of two new debt management tools
introduced in 1962. The second newly developed technique was the
offering of long-term Treasury bonds at competitive bidding. The
decision to try out the competitive bidding technique for marketing
long-term bonds was announced in September 1962. The first
offering of bonds using this technique was made on January 8, 1963,
and was highly successful. The winning syndicate submitted its
bid based on a 4 percent coupon rate and acquired the $250 million
issue of 30-year bonds at 99.85111, resulting in an interest cost to the
Treasury of 4.008 percent. The bonds were reoffered at par to yield
4 percent.
The experience of the postwar years had demonstrated a clear need
to develop new approaches for marketing long-term Treasury bonds if

1962 REPORT OF THE SECRETARY OF THE TREASURY

continued progress toward a more balanced maturity structure for the
Federal debt is to be made in 1963 and in the years beyond. As a
technique, competitive bidding offers the great advantage of employing
in a new way the energies of the financial community in selling longterm Treasury obligations. Only further experience can test, however, whether it will prove to be a way of selling long-term Treasury
bonds at lower interest costs and with less disturbance to other sectors
of the capital markets than the traditional procedures. Certainly
in the first offering, the Treasury succeeded in placing $250 million
in thirty-year bonds at a rate of interest lower thari the traditional
marketing procedure would have required.
I t is only through a willingness to seek out and to experiment with
new methods and new procedures, such as these, that the problems
of managing a debt in excess of $300 billion can successfully be met
in a continuously changing economic environment.
Tax Policy
The first step toward a needed reform of our Federal tax system was
taken during 1962 with the enactment of the Revenue Act of 1962.
This act, which was based on the President's recommendations to the
87th Congress, was designed to stimulate the growth of our economy
and to improve the U.S. balance-of-payments position. I t also contains many provisions to make our tax laws fairer and to eliminate
unwarranted special tax treatment.
The 1962 act encourages business expenditures on productive facilities by granting a 7 percent tax credit—^3 percent for public utilities—
for investment in depreciable machinery and equipment used in the
United States. Another major stimulus to our continued economic
growth was provided in 1962 by the announcement of new guidelines
and procedures for determining depreciation of equipment for tax
purposes. The suggested new asset lives automatically permit a more
rapid writeoff' for approximately 70 to 80 percent of the machinery and
equipment presently in use for manufacturing. They are 32 percent
shorter on the average than the old guidelines. For 1962 alone the
new liberalized depreciation allowances, combined with the tax reduction from the investment credit, provided over $2 billion of tax
benefits to industry. Together, these measures raise the rate of return
on investment, provide more incentives to cost-cutting and increases
in productivity, and augment the flow of internal funds available
for modernization and expansion.
The investment credit and the depreciation reform give U.S.
industry tax" treatment on new investment in machinery and equipment approximating that of its chief foreign competitors in domestic
and foreign markets.

ANNUAL REPORT ON THE FINANCES

The 1962 Revenue Act also stimulates domestic investment by
removing unwarranted tax inducements to investment in industrialized
countries abroad. U.S. shareholders are made taxable currently on
tax haven earnings of foreign corporations controlled by them. Dividends distributed by foreign subsidiaries of U.S. corporations in industrialized countries are made taxable at the full domestic corporation
income tax rates less a credit for foreign taxes. Profits from sales of
U.S. patents to foreign subsidiaries are made taxable at ordinary rates
rather than at capital gains rates. The tax advantages previously
granted to investment companies created abroad are removed. The
exemption from U.S. tax of earned income of citizens establishing
their residence abroad is restricted.
The 1962 act extends the reporting requirements on dividend and
interest payments to aid in disclosing income not reported for tax
purposes.
I t provides a basis for greatly curtailing abuses in the expense
account area.
I t prevents the conversion of ordinary income into capital gain
through the sale of depreciable personal property.
The tax advantages previously possessed by mutual thrift associations over competing financial institutions are substantially reduced
with regard to the tax-free accumulation of earnings as bad debt
reserves.
Earnings of cooperatives are taxed currently either at the cooperative level or the patron level.
Disputes between taxpayers and tax administrators are reduced by
permitting salvage value up to 10 percent of the cost of the original
asset to be disregarded in determining allowable depreciation
deductions.
Mutual fire and casualty insurance companies are made taxable on
their underwriting income as well as on their investment income.
The substantial tax changes adopted in 1962 set the stage for the
major tax reduction and reform program proposed by the administration in 1963. The primary objectives of this program are to restore
the Nation's economy to maximum use of its human and physical
resources and to achieve a more rapid rate of growth. These aims
would be attained by easing the unre alls tically heavy burden now
imposed by war-born Federal income taxes. Proposed lower tax
rates for both individuals and corporations would enlarge the market
for consumer goods and services and substantially improve incentives
for risk-taking and investment. In addition, the program would
minimize the diversion of energy and resources from more productive
activities to tax avoidance, make the economy more responsive to
essential market forces, achieve greater equity and relieve the low-

19 62 REPORT OF THE SECRETARY OF THE TREASURY

income and older taxpayers of hardships imposed by the present tax
system.
Tax rates for individuals would be lowered by an across-the-board
average of more than 20 percent, from the present range of 20 to 91
percent to a new level of 14 to 65 percent. To lighten the tax burden
of the one-third of all taxpayers whose entire taxable income falls in
the lower half of the present first bracket, it is recommended that this
bracket be split, with a 14 percent rate for the first half and a 16 percent
rate for the second half. Wheri in effect for a full calendar year,
lowered tax rates would reduce individual income tax liabilities by
$11 billion (at 1963 levels of income).
Corporate tax rates would also be reduced. A reduction of 5 percentage points in the tax rate applying to large corporations would
supplement the investment tax credit and depreciation reform in
providing greater incentives to increased productivity, modernization,
and expansion. I t is further recommended that the first $25,000 of
corporate taxable income be subject to a tax rate of 22 percent rather
than the present 30 percent, a reduction of almost 27 percent. This
change would be particularly helpful to small corporations which
must depend on internally generated funds for their capital. These
reductions would reduce corporate tax liabilities by $2.6 billion per
year.
Reductions in tax. rates recommended for individuals and corporations, if unaccompanied by structural reforms, would reduce tax
liabilities by $13:6 billion. I t is proposed that this substantial reduction be approached in three stages. For individuals, one-quarter of
the full reduction would become effective in 1963, three-quarters in
1964, and the full program in 1965. The withholding rate would be
reduced twice. In 1963, following enactment of the proposals, the
rate would drop to 15.5 percent. The permanent withholding rate of
13.5 percent would become effective on July 1, 1964. There would be
a three-stage reduction in corporate income tax rates. For 1963 the
tax rate on the first $25,000 of corporate income would drop to 22
percent, while the rate applicable to income in excess of $25,000 would
remain at 52 percent. In 1964 the latter rate would be reduced to 50
percent, and in 1965 to 47 percent.
A number of structural reforms are proposed for the relief of individuals and families at the lowest levels of income. These, reforms
include a minimum standard deduction of $300 for 'single persons,
$400 for a married couple, plus $100 for each dependent up to a maximum of $1,000. This provision affords relief exclusively to low-income
persons at a revenue cost far lower than that which would be entailed
if the personal exemption were increased.

ANNUAL REPORT ON THE FINANCES

I t is also recommended that the deduction for the care of children
and disabled dependents be liberalized to give recognition to present
day income levels and costs.
The $300 tax credit proposed for older persons would reduce the
tax burdens of low-income older persons, provide more equitable
taxation of income from different sources and particularly of wage
income, and siniplify the preparation of tax returns.
The proposal which would permit averaging of income over a fiveyear period in cases where a marked fluctuation in income occurred
would provide fairer tax treatment for authors, professional artists,
actors, athletes, and all others whose incomes may vary widely from
one year to another.
The program would permit, a deduction for the moving expenses
of all employees and would thereby increase labor mobility and
achieve greater fairness to taxpayers.
Other proposals would simplify the upper limit of the deduction for
charitable contributions and the computation of the floor urider
medical expenses.
The following base broadening proposals would recoup revenue,
making it possible to achieve the rate reductions recommended by
the President and still keep overall tax reduction within the limits of
prudent fiscal policy. The base broadening reforms would also
achieve important equity objectives. The most important of the reforms in this category is the proposed 5 percent floor under itemized
deductions. A separate floor equal to 4 percent of adjusted gross
income is proposed for the casualty loss deduction to restrict its use to
cases that involve hardship. The unlimited deduction for charitable
contributions, which affects only a small handful of high-income taxpayers, would be repealed.
Repeal of the exclusion applied to wage continuation payments,
known as the ''sick p a y " exclusion, is recommended except in cases of
disability.
Repeal of the dividend credit and exclusion is proposed. They fail
either to encourage equity investment or to provide a satisfactory
partial offset to the so-caUed double taxation of dividend income, and
currently involve an annual loss of $485 million of tax revenue. Other
proposals would require taxation to the employee of the current
annual value of employer financed group term life insurance, with the
exception of the first $5,000 of coverage, and would correct deficiencies in the taxation of personal holding companies.
The reduction in corporate tax rates would be accompanied by
revisions to limit related corporations subject to 80 percent common
ownership and control to a single surtax exemption.

19 62 REPORT OF THE SECRETARY OF THE TREASURY

Proposals relating to the taxation of income from natural resources
would limit serious defects which now arise in connection with the
50 percent net income limitation on percentage depletion, the grouping
of oil and gas properties for tax purposes, the deduction from ordinary
income of amounts later recovered and taxed at capital gains rates,
and the use of tax concessions on foreign mineral production to reduce
the tax liability that would otherwise be due on income from domestic
and nonniineral foreign sources.
Revenue recouped by these structural reforms would be offset in
part by repeal of the 2 percent tax on consolidated returns and a
current expense deduction for capital expenditures for machinery and
equipment used directly and specifically for research and development
activities.
Another measure, which would affect neither the tax liabilities imposed upon corporations nor the method of computing those liabilities,
is the acceleration of corporate tax payments for large corporations
to a more current basis over a five-year transition period. This
measure would yield about $1.5 billion in revenue during each of the
years of transition.
Proposed changes in the taxation of capital gains and losses are
designed to release growth stimulating investment. The present
capital gains provisions, which have not undergone basic revision
since 1942, are both inequitable in essential respects and a deterrent
to the mobility of investment capital and liquidity in capital markets.
The President recommended that the 50 percent inclusion ratio for
capital gains be reduced to 30 percent and that unabsorbed capital losses be carried forward indefinitely until exhausted. These
changes will increase taxpayer willingness, to realize capital gains and
stimulate a larger turnover of capital assets. The lower inclusion
ratio combined m t h reduced tax rates will establish capital gains tax
rates ranging from 4.2 percent to a maximum of 19.5 percent, compared
with an existing range of 10 percent to 25 percent. The holding period
which defines long-term capital gains would be lengthened from 6
months to one year to permit the more liberal treatment of bona fide
investment gains without applying unjustified reductions to speculative profits. I t is also proposed that net gains accrued on capital assets
at the time of their transfer by reason of death or gift be taxed at
capital gains rates. This would not apply to assets transferred as
charitable gifts or bequests. The proposal, which would be accompanied by several features that would effectively eliminate hardships
that might otherwise arise, would encourage investors to turn oyer
their assets during their lifetime rather than hold them for eventual
tax-free transfer at death. Proposed changes in the definition of
capital gains would restrict the use of stock options, sales of mineral

ANNUAL REPORT ON THE FINANCES

interests, sales of timber, and lump-sum pension and profit-sharing
distributions, as means of converting ordinary income into capital
gains.
Structural reforms for the relief of hardship and the encouragement
of growth would reduce individual income tax liabilities by $740 million
and corporate tax liabihties by $50 million. Reforms to broaden the
tax base and improve equity, on the other hand, would recoup $3.1
biUion from individuals and $250 million from corporations. The
capital gains provisions would increase revenues by an estimated $750
million, largely by inducing the more rapid turnover of capital assets.
Structural revisions combined with tax rate reductions would result
in net annual tax reductions aggregating $10.3 billion by 1965 when
the program would be fully effective.
Under the three-stage approach to the implementation of the program, structural revisions would not become effective until 1964.
The rate reductions effected in 1963 would result in a $3.1 billion
decrease in tax liabilities. In 1964, structural revisions would be
linked with three-quarters of the fuU tax rate reduction. The effect
would be a reduction in tax liabilities of $6.3 billion. In 1965 tax
reductions would total $10.3 billion.
International Finance
Steps taken during 1962 built upon the financial framework set up
during 1961 and buttressed still further the free world's international
payments system. During 1961 the Treasury undertook a more
active role in the foreign exchange markets while the Federal Reserve
was deeply involved in establishing increasingly close relationships
among the various central banks. During 1962 the Treasury pushed
further its operations in the foreign exchange markets and expanded,
its borrowings of foreign currencies, enlarging the total and extending
the maturities. The Federal Reserve undertook in February 1962
to operate in the exchange market for its own account and established
a circle of currency swap arrangements with central banks abroad.
These various measures were instrumental in strengthening confidence
both in the payments system and in the system's key currency, the
U.S. dollar, by providing a strong bulwark against speculative and
other pressures that might otherwise prove highly disruptive. The
establishmerit of the Special Borrowing Arrangement added substantially to the resources of the International Monetary Fund available
to deal with pressures threatening the international payments system.
At the same time, the U.S. balance of payments—the position of
which in a fiLual sense shapes longer run market developments—
showed some further improvement over 1961. Reinforced U.S.
governmental effort was pointed toward trimming the balance-ofpayments deficit, both directly, in so far as the deficit reflected

1962 REPORT OF THE SECRETARY OF THE TREASURY

transactions on governmental account, and indirectly, in the sense of
encouraging the private sector to push imaginatively and aggressively
into foreign markets. Moreover, coordinated Treasmy-FederalReserve
policies were directed toward sustaining short-term interest rates in
the United States in order to alleviate pressures which might otherwise be induced by flows of capital triggered by significant spreads
between short-term domestic and foreign interest rates. Early in
1963 the President sent to Congress a tax program designed to
improve fundamentally and significantly the investment climate at
home and thus to restrain outward flows of capital.
The combined impact of this tax program and the depreciation
reform and investment tax credit of 1962 should foster the greater
modernization and eflSciency vital to meeting international competition. The overall program is designed to stimulate economic growth
in the United States in an atmosphere of continued price stability
and enhanced competitiveness in relation to foreign products, both
at home and abroad. In this way, the United States can reach and
maintain its goal of reasonable equilibrium in its balance of payments
and thus contribute to the enduring strength of the dollar.
Export expansion

In more speciflc terms, the goal of eliminating the remaining
deflcit in U.S. international payments depends importantly on increasing the U.S. commercial trade surplus. Central to this task is the
need for a continued and accelerated expansion of commercial exports.
Although export expansion depends primarily on the competitive
vigor of the private sector, the Government, in addition to its measures to improve the basic economic framework, gives impetus to the
export drive through assistance in export financing and through
export promotion.
In the field of export financing the United States has now developed export credit facilities which are the equal of those anywhere
in the world. The Export-Import Bank has improved its existing
facflities and in cooperation with a large group of private insurance
companies has formed the Foreign Credit Insurance Association
(FCIA). The FCIA inaugurated in February 1962 a comprehensive
program of short-term export credit insurance. In mid-July 1962
it also began to issue medium-term export credit insurance. The
Export-Import Barik offers direct exporter credits and provides medium-term Bank guarantees for exports in addition to its other financial assistance to U.S. exports. In January 1963 further significant
improvements were made in the FCIA-Export-Import Bank program,
and work is going forward on continued improvement.
In addition, the general program of export promotion is being
intensified. To spearhead this campaign, a national export expan-

ANNUAL REPORT ON THE FINANCES

sion coordinator was appointed in July 1962 and a series of concrete
U.S. Government programs are under way here and abroad to promote increased U.S. business interest in exporting" and increased sales "
opportunities for U.S. products in potential markets abroad. More
intensified efforts are planned for 1963.
Governmental expenditures abroad

Tighter scrutiny and control of foreign expenditures under all
Government programs have been undertaken and will be continued.
During the past 3^ear we have had substantial further success in
reducing the net impact of the Government's own transactions on
the balance of payments. In particular, our net foreign expenditures for defense have been reduced through savings which do not
impair our overseas mflitary effectiveness and through the cooperation of other countries in accelerating purchases of U.S. military equipment which is most economically manufactured in the United States.
We must continue to press ahead with these arrangements, and
also with our efforts to obtain a greater sharing of the responsibilities
of defense and of economic assistance to less-developed countries by
other industrial nations. We wfll continue, whfle our balance-ofpayments situation requires it, to emphasize policies designed to
assure that the bulk of our foreign aid is given in the form of U.S.
goods and services rather than dollars.
International movements ol capital

The substantial volume of private foreign investnient in recent
years has enabled American business to take advantage of growing
opportunities in foreign countries. Although more vigorous growth
at home should reduce the movement of such funds abroad by increasing the attractiveness of investment opportunities here to both
domestic and foreign investors, it remains in our own interest and in.
that of the free world that the United States continue to function
as a major international source of capital.
But, we should not be alone in providing such capital. To correct
this situation we have called the attention of the European countries
to the lag in the development of their own capital markets and their
facilities for foreign investment behind the spectacular growth of their
economic output and their larger availabilities of savings.. During
the past year several European countries have begun to deyote increasing attention to their capital markets and their potentialities for
foreign investment.
Pending the more effective development of other forms of foreign
lendirig, several European countries utilized a part of their accruing
dollar holdings to make advance repayments of intergovernmental
debt due to the United States.
661496—63

19 62 REPORT OF THE SECRETARY OF THE TREASURY

Short-term capital movements and the international monetary system

During the past year, two broad types of additional steps to
strengthen the international monetary system have been taken.
Arrangements were completed under which major financial countries
agree to make available to the International Alonetary Fund up to
$6 billion, if needed, to avoid a threatened impairment of the international monetary system. The existence of these facilities acts as
a strong deterrent to speculation against the dollar and other
currencies.
The United States has also undertaken, in close cooperation with
foreign financial officials, further significant improvements in meeting
potential strains on world currencies, whether directed against the
dollar or others, and in promoting the efficiency of the free world
payments system and thereby of world trade. In 1961, for the first
time since the thirties, the Treasury undertook operations in the
foreign exchange markets. These were reinforced by the Federal
Reserve's own operations, inaugurated in 1962, as well as its reciprocal
currency agreements with the monetary authorities of other industrialized countries.
The Treasury has also undertaken direct borrowing arrangements
at short- and medium-term from official entities in other countries
which are in a strong situation. All of these operations and arrangements have been tested. Their effectiveness in meeting potential
strains on currencies was demonstrated at the time of the stock market
disturbances in the spring of 1962, during the Canadian exchange
crisis, and again during the Cuban showdown. The borrowing and
exchange operations have enabled the United States to provide a
further bulwark for the dollar and to reduce the outflow of. gold,
while we progress in our program of reducing and eliminating the
deficit in the U.S. balance of payments. They are not intended as,
nor can they be, any substitute for the efforts we are making to get
our balance of payments in equilibrium, an objective which we continue
to pursue with vigor and determination.

DOUGLAS DILLON

Secretary ojthe Treasury.
To

THE

P R E S I D E N T OF THE S E N A T E .

THE

S P E A K E R OF THE H O U S E

OF R E P R E S E N T A T I V E S .

R E V I E W OF FISCAL

OPERATIONS

Summary of Financial Operations
The administrative budget deficit for fiscal 1962 was $6.4 bfllion
as compared with $3.9 billion in 1961. Net administrative budget
receipts increased to $81.4 billion, $3.7 billion greater than in 1961,
but less than estimated at the midyear point, because of a slower
rate of recovery from the 1960-61 recession than was anticipated.
Net administrative budget expenditures in 1962 totaled $87.8 billion
as compared with $81.5 billion in 1961. The major part of the rise
of $6.3 billion was the result of increased outlays for national defense.
C H A R T 2.

The Administrative Budget
$Bil.
Deficit

87.8
..

81.5 . A
Expenditures^ ^^A

80»>Surplus

Deficit^ /

,.••-1

,^^

/...r-;, . . . : Fiscal-Yeors J T ^

Net trust receipts in fiscal 1962 totaled $24.3 bfllion and net
expenditures amounted to $24.1 bfllion, an excess of receipts of
$0.2 bfllion.
During 1962, on the basis of receipts from and payments to the
public (cash income and outgo) net payments to the public exceeded
receipts from the public by %5.^ billion, exclusive of borrowing
transactions.
On June 30, 1962, the total public debt outstanding amounted to
$298.2 bflhon, an increase of $9.2 bfllion from the preceding fiscal
yearend. The Government's fiscal operations in 1961-62 and their
effect on the public debt are summarized as follows:

1962 REPORT OF THE SECRETARY OF THE TREASURY

Administrative budget receipts and expenditures:
Net receipts (—)
_•__
_
Net expenditures
Budget deficit-.
Trust fund receipts and expenditures:
Net receipts (—)
Net expenditures.-Excess of receipts (—)Net investments of Government agencies in public debt securities
—
Net sales (—), or redemptions of obligations of Government agencies in market.
Increase (—) in checks outstanding, deposits in transit (net), etc
Change in cash balances, increase, or decrease (—):
Treasurer's account.
_
-_.
Held outside Treasury.Increase in public debt

Administrative Budget Receipts and Expenditures
ADMINISTRATIVE BUDGET RECEIPTS IN 1962

Net administrative budget receipts in fiscal 1962 rose $3.7 billion
above receipts of the previous year to $81.4 billion, an alltime high.
The economy moved ahead strongly in the first half of the fiscal year
1962 and although the rate of expansion slowed in the second half, the
levels of income and business activity were, for the year as a whole,
substantially above 1961. As a consequence, total tax revenues
increased $4.6 bfllion although coUection lags for some taxes were
a limiting factor; a decline of $0.9 bfllion in miscellaneous receipts,
primarfly a nontax source, reduced the overall rise to $3.7 bfllion.
A comparison of net administrative budget receipts after refunds
and transfers by major sources for the fiscal years 1961 and 1962 is
shown below. Additional data for 1962 on a gross basis are presented
in table 16.
1961

1962

Source

Increase, or decrease (—)
Amount

Percent

In millions of dollars
Internal revenue:
• Individual income taxes
Corporation income taxesExcise taxes. . . .
Estate and gift taxes
Total internal revenue
Customs
._
MisceUaneous receipts

. - .

Subtotal receipts.
Deduct:
Interest and other income received by the Treasury from
Government agencies included above and also included
in budget expenditures.
...
Budget receipts..

41,338
20,954
9,063
1,896

45,571
20,523
9,585
2,016

4,233
-432
523
120

10.2
-2.1
5.8
6.4

73,251
982
4,080

77,696
1,142
3,204

4,445
160
-876

6.1
16.2
-21.5

78,313

82,042

3,728

4.8

654

633

-21

-3.3

77,659

81,409

3,750

4.8

REVIEW

OF FISCAL

OPERATIONS

Individual income taxes.—In the fiscal year 1962, receipts from individual income taxes amounted to $45.6 bfllion, 56 percent of budget
revenues. The gain over 1961 in receipts from this tax source was
$4.2 bfllion, $0.5 bfllion greater than the rise in total revenues from
all sources. Receipts from both taxes withheld and taxes not withheld increased as incomes rose generally in fiscal 1962.
Corporation income taxes.—Although receipts from corporation income taxes are dependent primarily on the amount of corporate profits
for the calendar year which ends in the fiscal year, they are also
affected b y profits of the preceding calendar year. Thus, tax receipts
in the fiscal year 1962 reflected, for the most part, calendar 1961
profits and to a lesser extent profits for 1960. (Simflarly, fiscal year
1961 receipts were based mainly on 1960 profits and partly on 1959
profits.)
Profits in the calendar years 1960 and 1961 were virtually equal,
b u t receipts in fiscal 1962 were affected adversely b y the drop in
profits from 1959 to 1960. Primarfly because of this, receipts in the
fiscal year 1962 were $0.4 bfllion less than in 1961.
Excise taxes.—Receipts from this source are shown in the following
table.
Increase
1961

1962

Source
Amount
Percent
I n miUions of doUars
Alcohol t a x e s . - .
_
_ .
_ _
Tobacco taxes
Taxes on d o c u m e n t s , other i n s t r u m e n t s , a n d p l a y i n g cards
M a n u f a c t u r e r s excise taxes
Retailers excise taxes
Miscellaneous excise taxes
U n d i s t r i b u t e d d e p o s i t a r y receipts a n d u n a p p l i e d coUections
Gross excise taxes
Deduct:
Refun ds of r e c e i p t s . .
Transfers t o h i g h w a y t r u s t fund

_
_.._„.
.

N e t excise taxes

. . ..

3,213
1,991
149
4,897
398
1,498
-81

3,341
2,026
159
5,120
416
1,552
137

128
35
10
224
18
55
218

12,064

12,752

688

5.7

•

218
2,949

14
151

6 9
5.4

9,585

523

5.8

204
2,798
9,063

4 0
1.7
6.7
4.6
4.6
3.7

1 Percentage comparison inappropriate.

Net excise tax receipts, after deduction of refunds and transfers to
the highway trust fund, rose $523 mfllion in 1962 to $9,585 mfllion.
Increases were spread generally through all tax sources reflecting the
general rise in incomes infiscal1962.
Estate and gift taxes.—Stock market values rose sharply during the
fiscal year 1962. The rise was not reflected, however, in fiscal 1962 collections of estate taxes since these taxes are not payable untfl fifteen
months after death and the valuation of the estate is the lesser of
the value at time of death or one year later.

1962 REPORT OF THE SECRETARY OF THE TREASURY

The increase in calendar year 1961 security values was evidenced in
gift tax collections, which rose more than estate taxes although total
coUections were much less. The two taxes combined to lift receipts
by $120 mfllion.
Customs.—Customs duty collections increased $160 mfllion, or
16.2 percent, in 1962 as the general advance in business activity
brought a substantial increase in taxable imports.
Miscellaneous receipts.—Miscellaneous receipts are a nontax revenue
source. Receipts in the fiscal year 1961 had been enlarged by substantial advance repayments of foreign loans, b u t there was a substantial decrease in such prepayments in fiscal 1962. Total miscellaneous receipts in 1962 declined $0. 9 bfllion;
ESTIMATES OF ADMINISTRATIVE BUDGET RECEIPTS IN FISCAL
1963 AND 1964

The Secretary of the Treasury is required each year to prepare and
submit in his annual report to Congress estimates of the public revenue
for the current fiscal year and for the fiscal year next ensuing (act of
February 26, 1907 (5 U.S.C. 265)).
The estimates of receipts from taxes and customs for the current
and ensuing fiscal years,are prepared by the Treasury Department.
In general, the estimates of miscellaneous receipts are prepared by
the agencies depositing.these receipts in the Treasury.
The estunates for 1964 assume that the revision of income tax rates
and the structural changes recommended by the President in his tax
message of January 24, 1963, wfll be enacted. I t is further assumed
that, as recommended by the President, the present excise tax rates on
alcohol, tobacco, passenger automobfles and parts, and general telephone service wfll be extended untfl June 30, 1964. I t is also assumed
with respect to transportation taxes that the following proposals
wfll be enacted: Extend the present tax on transportation of persons
to December 31, 1963, to be substituted thereafter by a permanent
user charge of 5 percent on transportation of persons by air; tax
transportation of freight by air at 5 percent; tax jet fuel at two cents
per gallon for airlines and three cents for general aviation; raise the
present two cents per gallon tax on aviation gasoline to three cents for
general aviation and credit all receipts to the general fund instead of
transferring them to the highway trust fund; tax fuel used on inland
waterways at two cents per gallon; and credit the tax on gasoline
used in motorboats at the rate of four cents per gallon to the general
fund. All of the transportation proposals are assumed to be effective
as of January 1, 1964.
The estimates of revenue are based on the expectation that economic
activity wiU continue to rise in 1963 but that the year-to-year gain

REVIEW^ OF FISCAL OPERATIONS

will be less than that realized in 1962. The gross national product
is expected to total $578 billion in the calendar year 1963, an increase
of $24 bfllion over 1962. The 1962 increase was $35 bflhon. Personal
income is estimated to total $459 bfllion in 1963, an increase of $19
bfllion as compared with the 1962 rise of $24 billion. The estimated
1963 increase in corporate proflts of $2.1 bfllion to $53.0 billion falls
short of the 1962 rise of $5.3 billion.
Estimated revenues in the fiscal years 1963 and 1964 reflect the
expected increases in incomes and business activity. Receipts are
estimated to increase from $81.4 bfllion in fiscal 1962 to $85.5 biflion
in 1963 and further to $86.9 billion in 1964. The smafler rise in 1964
is due principally to the recommended reductions in income taxes.
Actual administrative budget receipts for fiscal 1962 and estimated
receipts for 1963 and 1964 are compared by major sources in the
accompanying table. The amount shown for each revenue source
is the net amount after deduction of refunds and transfers to trust
funds.
1962
actual

Source

1963
.1964
estimate estimate

Increase,
or decrease
(-),1964
over 1963

In millions of dollars
Individual income taxes
Corporation income taxes
Excise taxes
Estate and gift taxes
Customs
MisceUaneous receipts—

Subtotal receipts
Deduct:
Interest and other income received by Treasury from Government agencies included above and also included in
budget expenditures
„
Budget receipts

45,571
20,523
9,585
2,016
1,142
3,204

47,300
21,200
9,900
2,060
1,278
4,408

45,800
23,800
10,430
2,125
1,390
4,034

-1, 500
2,600
630
65
112
-374

82,042

86,146

87,579

1,433

633

646

679

81,409

85,500

86,900

1,400

Individual income taxes.—Receipts from the individual income tax
are estimated to increase from $45,571 mfllion in 1962 to $47,300
million in 1963 as a result of the expected increase in.personal incomes.
Because of the proposed tax reduction a decline to $45^800 mfllion is
estimated for 1964. Receipts in 1964 nevertheless will remain higher
than in 1962.
Corporation income taxes.—Covporsition income tax receipts are
estimated to amount to $21,200 mfllion in fiscal 1963, a rise of $677
million over 1962. This is substantially less than the increase associated with the rise in corporate profits of $5.3 biflion in the calendar
year 1962. The estimated profits level for 1962 is before adjustment
for the larger depreciation deductions aUowed for the first time in

19 62 REPORT OF THE SECRETARY OF THE TREASURY

1962 since the national income accounts have not yet been revised
for the added deduction. The effect on receipts of the greater
depreciation deduction and the investment credit under the Revenue
Act of 1962 is responsible for the small increase in receipts relative to
the substantial increase in profits.
For 1964 an increase of $2,600 mfllion to $23,800 mflhon is estimated. Receipts in 1964 wifl reflect the increase in profits estimated
for the calendar year 1963 and the effect of the first step in placing
corporation payments on a more current basis, recommended as part
of the President's tax program. As a partial offset, receipts wifl be
reduced by the inversion of the normal and surtax rates which is
also part of the program.
Excise taxes.—Net excise tax revenues, excluding transfers to the
highway trust fund, are estimated to increase from $9,585 mfllion in
1962 to $9,900 mfllion in 1963, and to $10,430 mfllion m 1964. The
expected increases extend across the entire range of excises. . Net
revenues are reduced in 1963 and 1964 by the allocation of 100 percent of revenues from the tax on trucks to the highway, trust fund,
as compared with the previous 50 percent so allocated. The repeal
of the tax on transportation of persons other than by air and the
reduction of the tax on air transportation of persons from 10 percent
to 5 percent, effective November 15, 1962, will also reduce receipts in
1963 and 1964. The changes in transportation taxes proposed by
the President wfll increase receipts somewhat in 1964.
Estate and gift taxes.—Receipts from the estate and gift taxes are
estmiated to rise moderately in 1963 and 1964. The optional valuation of estates at time of death or one year later tends to dampen the
effect of variations in security prices.
Customs.^-Customs revenues are estimated to increase from $1,142
million in 1962 to $1,278 million in 1963 and to $1,390 million in 1964
as a result of the growth of economic activity.
Miscellaneous budget receipts.—MisceUaneous receipts are expected
to increase sharply in 1963 from $2,572 mfllion to $3,762 mfllion,
because of substantial increases in rentals from Outer Continental
Shelf lands and in prepayment of foreign loans. The latter are nonrecurring and consequently a decline in miscellaneous receipts to
$3,355 million is estimated for 1964.
ADMINISTRATIVE BUDGET EXPENDITURES IN 1962 AND ESTIMATES
FOR 1963 AND 1964

The increase of $6.3 billion in administrative budget expenditures
for fiscal 1962 over 1961 brought total budget expenditures for the
year to $87.8 billion. Appi-oximately 70 percent of this increase, or
$4.5 billion, is attributable to programs of national defense, inter-

REVIEW OF FISCAL OPERATIONS

national affairs and finance, and space research and technology.
These three programs accounted for over three-fifths of the total
budget expenditures in 1962. Expenditures by major functions for
the fiscal years 1954-62 are shown in table 12, and expenditures for
1962, with corresponding estimates for 1963 and 1964, detailed by
department or agency, are contained in table 16. A distribution by
certain major functions, of actual budget expenditures for the fiveyear period 1958-62, together with the estimated expenditures for
the fiscal years 1963 and 1964, are. summarized from The Budget of
the United States Government for the Fiscal Year Ending June SO, 1964)
as follows:
Actual

Program
1958

1959

1960

Estimated
1961

1962

1963

1964

In bUlions of dollars
National defenseInternational affairs and finance
Space research and technology
Interest payments
Veterans' benefits and services
Agriculture and agricultural resources..
Health, labor, and welfare
Commerce and transportation
Other 1
—Deduct interfund transactions
Total.

44.2
2.2
.1
7.7
5.2
4.4
3.1
1.6
3.5
.6

46.5
3.8
.1
7.7
5.3
6.6
3.9
2.0
4.9
.4

45.7
1.8
.4
9.3
5.3
4.9
3.7
2.0
4.2
.7

47.5
2.5
.7
9.0
5.4
5.2
4.2
2.6
5.0
.7

51.1
2.8
1.3
9.2
6.4
6.9
4.5
2.8
6.4
.6

53.0
2.9
2.4
9.8
5.5
6.7
4.9
3.3
6.4
.6

71.4

80.3

76.5

81.5

87.8

94.3

55.4
2.7
4.2
10.1
5.5
5.7
5.6
3.4
6.9
.7

1 Includes programs relating to natural resomxes; housmg and community development; education; and
general government.

Expenditures for national defense in 1962 exceeded those in 1961
by $3.6 bfllion. Further increases of $1.9 billion and $2.4 bfllion, respectively, are estimated for the fiscal years 1963 and 1964. These
estimates include outlays for military assistance to other nations,
atomic energy, and other defense-related activities.
International affairs and finance expenditures, which include those
for economic and financial programs, foreign information and exchange
programs, and the conduct of foreign affairs, increased in 1962
by $0.3 biflion, to a total of $2.8 bfllion. Estimated expenditures in
flscal 1963 and 1964 are expected to remain at approximately the
1962 amount, with the increase in expenditm-es for the economic assistance programs of the Agency for International Development
(AID) being more than offset by the decrease of net expenditures
by the Export-Import Bank and the Department of State. Expenditures for foreign information and exchange programs and the conduct
of foreign affairs are estimated to be slightly higher in 1963 and 1964.
Expenditures for space programs totaled $1.3 bfllion in fiscal 1962.
Budget estimates for 1963 and 1964 call for respective outlays of

19 62 REPORT OF THE SECRETARY OF THE TREASURY

$2.4 bfllion and $4.2 biUion. They cover the costs of developing
manned space vehicles, space probes for the accumulation of scientific data, developing meteorological and communication satellites,
and furthering advancement in basic research and technological
development.
The increase of $0.2 biUion in interest payments in 1962 over 1961,
predominantly interest on the public debt, resulted primarily from a
higher average level of outstanding interest-bearing debt.
Veterans' benefits and services accounted for $5.4 biflion of expenditures in 1962 and in 1961. Estimates for 1963 and 1964 include an
increase of approximately $100 mfllion, or a total expenditure of
$5.5 biUioii for each of these years.
Programs relating to agriculture and agricultural resources increased in fiscal 1962 over 1961 by $0.7 billion, to $5.9 biflion. Budget
estimates for 1963 call for an additional increase to $6.7 biUion, but
with a drop to $5.6 biUion in 1964, based on anticipated substantial
sales by the Commodity Credit Corporation of cotton expected to be
placed under price support in fiscal 1963.
Health, labor, and welfare programs resulted in expenditures in
fiscal 1962 of $4.5 biUion, an increase of $0.3 biUion over those in
1961. Estimates for 1963 and 1964 include respective increases of
$0.4 biUion and $0.7 biUion, primarfly attributable to the increases
in grants to States for public assistance in 1963 and the first-year
effect on fiscal 1964.budget expenditures of certain proposed legislation.
The increase in expenditures for commerce and transportation programs during fiscal 1962 over 1961 amounted to $0.2 billion. The
estimated expenditm'es for 1963 and 1964 of $3.3 biUion and $3.4
biUion, constitute respective increases of $0.5 biUion and $0.1 billion.
The 1962 increase over 1961 was primarily for programs relating to
the advancement of business. In 1963 and 1964 the increases are
principally due to programs in area redevelopment.
Trust Receipts and Expenditures
TRUST RECEIPTS IN 1962 AND ESTIMATES FOR 1963 AND 1964

During fiscal 1962, net trust receipts amounted to $24.3 biUion, an
increase of $0.7 biUion over 1961. Total trust receipts in fiscal 1963
are estimated at $26:9 billion and $29.5 bfllion in 1964.. These
estimates give consideration to the effect on trust receipts of certain
legislative proposals.
Total trust receipts by certain of the major sources for the fiscal
years 1958-62, with estimates for 1963 and 1964, are summarized from

REVIEW OF FISCAL OPERATIONS

The Budget of the United States Government for the Fiscal Year Ending
June SOj 1964, as foUows:
Estimated

Actual

Source
1958

1959

1960

1961

1962

1963

1964

In bUUons of dollars
Employment taxes
Deposits by States, unemployment insuranceExcise taxes
Interest on trust investments
other trust receipts ^
Deduct interfund transactions
Total trust fund receipts. _ _

8.2
1.5
2.0
1.4
3.1

8.4
1.7
2.1
1.3
3.4
.1

10.7
2.2
2.5
1.3
4.6
.9

12.4
2.4
2.8
1.4
6.0
.6

12.6
2.7
2.9
1.4
5.2
.5

14.8
2.8
3.2
1.5
5.1
.5

16.6
2.8
3.3
1.6
5.7
.5

16.2

16.8

20.3

23.6

24.3

26.9

29.6

(*)

*Less than $50 mUlion.
1 Includes Federal employee and agency payments to retirement funds, veterans' life msurance premiums,
and other misceUaneous trust receipts.

Receipts from employment taxes increased during fiscal 1962 from
1961 by $155 mfllion. Most of this was due to the rise in the effective
rate of tax under the Federal Unemployment Tax Act (26 USC 3301)
from 3.0 percent to 3.1 percent. Receipts from the major source of
employment tax revenue, the Federal Insurance Contributions Act,
gained only moderately during the year despite significantly larger
payments of salaries and wages. Net receipts from employment
taxes in any given fiscal year wiU not necessarfly reflect changes in
the level of wages and salaries in that year, because of adjustments
representing corrections to prior year estimates of taxes. I t is
estimated that employment tax receipts in the fiscal years 1963 and
1964 wfll increase from 1962, by $2.2 bfllion and $1.8 billion, respectively. These rather substantial amounts are estimated primarfly
on the basis of the rise in the combined social security tax rate, from
6K percent to !}{ percent, effective January 1, 1963.
The deposits by States of unemployment insurance taxes were $331
mfllion greater than in 1961. Receipts from this source in fiscal
years 1963 and 1964 are expected to remain relatively unchanged.
Excise tax revenues transferred to trust funds -are represented by
the net transfers to the highway trust fund. In 1962, these receipts
increased $151 mfllion over 1961, reflecting the combined effect of a
greater volume of purchases of taxed commodities and the rise in
certain excise taxes provided by the Federal-Aid Highway Act of
1961, which became effective July 1, 1961. The anticipated higher
level of personal disposable income in 1963 and 1964 is expected to
result in an increase in receipts from aU tax sources. In addition, in
1963 and 1964, excise tax receipts to be transferred to the highway

1962 REPORT OF THE SECRETARY OF THE TREASURY

trust fund wfll be augmented by the transfer of 100 percent of the
revenues from the 10 percent excise tax on trucks and buses, whereas
previously only 50 percent of these receipts were transferred.
TRUST EXPENDITURES IN 1962 AND ESTIMATES FOR 1963 AND 1964

Net trust fund expenditures during fiscal 1962 amounted to $24.1
billion, a:n increase of $1.1 bfllion over 1961. Of the 1962 total,
85 percent were for health, labor, and welfare programs; more than
one-half of the total, or $13.3 biflion, were from the Federal old-age
and survivors insurance trust fund, principally as benefit payments.
Net trust expenditures in the fiscal years 1963 and. 1964 are
estimated at $27.1 bfllion and $28.0 bfllion, respectively. A distribution of total trust expenditures by certain major functions for the
five-year period, 1958-62, with estimates for fiscal years 1963 and
1964, are summarized from the 1964 Federal budget as foUows:
Actual

Estimated

Program
1958

1959

1960

1961

1962

1963

1964

I n bUlions of dollars
H e a l t h , labor, a n d welfare..
C o m m e r c e and t r a n s p o r t a t i o n
V e t e r a n s ' benefits a n d services
Agriculture a n d agricultural resources
N a t i o n a l defense
other 1
D e d u c t interfund transactions
Subtotal
.
A d j u s t m e n t to m o n t h l y T r e a s u r y s t a t e m e n t 2.
T o t a l t r u s t expenditures

14.3
2.5
.7
.6
.2
1.2
.1

16.4
2.8
.7
.5
.3
1.4
.9

19.2
2.5
.8
.4
.2
.2
.5

20.4
2.7
.7
.4
.4

21.8
2.9
.9
.4
.4
1.4
.5

22.8
3.2
.6
.4
.6
1.3
• .5

15.3
.6

19.6
-1.3

21.2
-.5

22.8
.2

25.2
-1.1

27.3
-.2

28.4
-.4

15.9

18.3

20.7

23.0

24.1

27.1

28.0

12.8
1.4
.7
.4
.3
-.3

(*)

*Less than $50 million.
1 Includes programs relating to intemational affairs and finance, housing and community development,
education, natural resources, and general government; also net transactions in deposit fund accounts.
2 Represents net investments in U.S. securities and net sales and redemptions of obligations in the market
of Government-sponsored enterprises which have been included as expenditure transactions in the related
trust fund expenditure functions above.

I t is estimated that trust expenditures in fiscal 1963 and 1964 for.
health, labor, and welfare programs will increase by $1.4 billion and
$1.0 biUion, respectively, which are largely a reflection of buflt-in
growth within the trust funds established under the social security
system.
Trust expenditures for commerce and transportation programs are
principaUy represented by those of the highway trust fund. The
estimated increases of trust expenditures in this category during fiscal
1963 and 1964 are $0.2 billion and $0.4 biflion, respectively.

REVIEW OF FISCAL OPERATION'S

Expenditures from trust accounts in fiscal 1962 for veterans' benefits and services totaled $0.7 billion, mainly for death and disabflity
claims and insurance dividend payments. In fiscal 1963 expenditures
will rise because the regular dividend payment scheduled for fiscal
1964 has been accelerated into fiscal 1963.
Trust fund expenditures in 1962 for purposes of agriculture and
agricultural resources were chiefly confined to expenditures by Government-sponsored farm credit institutions. The level of trust
expenditures for these programs is expected to be held at approximately $400 miUion through 1964.
Trust fund expenditures for national defense are principally for
foreign assistance advances. I t is estimated that in the fiscal years
1963 and 1964 these advances will increase by approximately $100
miUion each year.
Table 13 shows a distribution by major functions of aU trust fund
expenditures for the years 1954-62. Trust account and other transactions by major classification for the period 1952-62 are shown in
table 15; simflar information for the years 1938-51, at a different level
of detail, is contained in table 14.
Receipts from and Payments to the Public
The Government's financial transactions have been discussed in
this report principally in terms of administrative budget receipts
and expenditures and trust fund receipts and expenditures. To
study the impact on the private economy of Government financial
transactions, a useful measure which combines the effects of budget
and trust account transactions is laiown variously as "receipts from
and payments to the public" or ''cash income and outgo." Basically,
receipts from and payments to the public are derived by consolidating
administrative budget receipts and expenditures and trust fund
receipts and expenditures, excluding transactions involving no exchange of cash with the public. Excluded are payments between
budget and trust accounts, such as interest payments to trust funds
on their investments in U.S. securities, advances to the unemployment
trust fund, and payments to Indian tribal funds. In each of these
instances the amounts involved are considered at once trust fund
receipts and administrative budget expenditures. Examples of administrative budget receipts which are also trust fund expenditures
are franchise taxes from Government-sponsored enterprises, reimbursements for expenses and services,' and repayments of advances.
Excluded also is the accrued interest on savings bonds which the
administrative budget includes as an interest expenditure though no
transfer of cash occurs untfl the bond is redeemed. In those cases

19 62 REPORT OF THE SECRETARY OF THE TREASURY

where the Government has issued bonds or notes in lieu of checks,
the administrative budget includes these issuances as expenditures
rather than waiting until there is a cash outlay when the bonds or
notes are redeemed. An example of thi^s is the special notes issued
by the Government to the International Monetary Fund as partial
payment of the U.S. subscription to the Fund.
In most cases, both' the administrative budget and trust fund expenditures are recorded at the time checks are issued. In deriving
payments to the public, an adjustment is made to approximate a
checks-paid basis rather than a checks-issued basis.
In short, the Government's receipts from and payments to the
public are obtained by adding the administrative budget receipts and
expenditures to the trust fund receipts and expenditures with an
appropriate deduction for net intragovernmental transactions, and an
adjustment to expenditures for debt issuances in lieu of checks, the
change in checks outstanding, and certain other transactions involving
no exchange of cash with the public.
The following summary shows total receipts from and payments to
the public for the fiscal years 1958 through 1962, with estimates for
1963 and 1964. For more detailed information relating to the
Government's total cash income and outgo, see table 25.
Actual

Estimated

Receipts from a n d p a y m e n t s to t h e p u b l i c
1958

1959

1960

1961

1962

1963

1964

I n bUlions of dollars
Receipts from t h e public:
A d m i n i s t r a t i v e b u d g e t receipts
T r u s t fund receipts
_..
-D e d u c t : I n t r a g o v e r n m e n t a l transactions-

68.6
16.2
3.0

67.9
16.8
3.2

77.7
20.3
3.2

77.7
23.6
4.0

81.4
24.3
3.8

85.5
26.9
3.9

86.9
29.5
4.2

81.9

81.5

95.1

97.2

101.9

108.4

112.2

P a y m e n t s to t h e p u b l i c :
Administrative budget expenditures
T r u s t fund expenditures
.
D e d u c t : I n t r a g o v e r n m e n t a l transactions
a n d other a d j u s t m e n t s ( n e t ) . . .

71.4
16.1

80.3
18.5

76.5
20.9

81.5
23.0

87.8
24.1

94.3
27.1

98.8
28.0

4.2

4.0

3.1

5.0

4.2

4.7

4.3

T o t a l p a y m e n t s to t h e p u b l i c

83.4.

94.8

94.3

99.5

107.7

116.7

122.5

-13.1

-2.3

-5.8

-8.3

-10.3

T o t a l receipts from p u b l i c

Ex<?.ess of receipts, or p a y m e n t s (—)--

-1.5

Investments of Government Agencies in Public Debt Securities (Net)
Purchases and sales of public debt securities, together with nominal
amounts of securities of Government agencies, are included in this
classification, primarily at par, on a net basis. These investments
usually are made pursuant to legislative requirements, and provide
interest income on funds not needed to meet current expenditures.

REVIEW OF FISCAL OPERATIONS

Investment transactions are not reported in budget or trust account
operations of the agencies since they do not reflect program activities. In fiscal 1962, the purchases for public enterprise funds and
trust funds exceeded sales by $435 mfllion, the equivalent of the
excess of such purchases over sales in 1961. Also in 1962, investment
transactions of certain deposit funds constituting Governmentsponsored enterprises resulted in an excess of purchases totaling $30
mfllion, with $434 mfllion as the total excess in fiscal 1961.
Sales and Redemptions of Obligations of Government Agencies in
the Market (Net)
Certain Federal agencies have authority to issue their obligations
in the market as a means of financing their operations, as explained
below under Corporation and Certain other Business-Type Activities
of the Government. Reported at par value, transactions in the
securities of these Government agencies during fiscal 1962 resulted
in a net excess of sales, or issues, aggregating $658 mfllion, as compared with a net excess.of redemptions of $733 mfllion in 1961.
Transactions in obligations of Government-sponsored enterprises
during the year resulted in a net excess of sales totaling $1,122 million;
in fiscal 1961, the net excess of sales totaled $195 million.
Corporations and Certain Other Business-type Activities of the
Government
The various business-type programs administered by Government
corporations and certain other agencies in accordance with statutory
authority are financed by appropriations, capital stock subscriptions,
borrowings from the public or the U.S. Treasury, or by utilizing
revenues derived from their own operations. In cases where authority
exists for agencies to borrow from the Treasury, the Secretary of the
Treasury is authorized to purchase the securities of these agencies,
and in certain cases to prescribe or approve the conditions and terms
of the securities. Some agencies having authority to borrow from the
public must have the terms of the securities to be offered approved by
the Secretary of the Treasury prior to issuance m accordance with the
provisions of the Government Corporation .Control Act (31 U.S.C.
868). Agencies exempt from this requirement must consult with the
Secretary of the Treasury on proposed offerings. The checking accounts of most Government corporations and all other business-type
activities are required to be maintained with the Treasurer of the
United States. With the approval of the Secretary of the Treasury,
some accounts may be kept with the Federal Reserve Banks, or private banks designated as depositaries or fiscal agents of the United
States.
661496—63

1962 REPORT OF THE SECRETARY OF THE TREASURY

Financial statements submitted to the Treasury

Department Circular No. 966, and Supplement No. 1 thereto, issued
under authority of the Budget and Accounting Procedures Act of
1950, require Government corporations and certain business-type
agencies to submit financial data periodically. These reports serve
as the bases for certain combined statements compiled by the Treasufy
which are designed to provide a full disclosm-e of operations, financial
condition, and the Government's investment in these enterprises.
The total combined assets of agencies reporting under this circular
amounted to $124.0 bfllion as of June 30, 1962, compared with $116.1
bfllion a year earlier. One of the principal assets is represented by
loans receivable, which as of June 30, 1962, totaled $27.9 billion,
represented by U.S. dollar loans in the amount of $24.9 bfllion, foreign
currency loans totaling $2.9 billion, and loans to Federal agencies
totaling $135 mfllion. The combined liabflities on June 30, 1962,
consisting primarfly of accounts payable and accrued liabflities,
amounted to $9.9 billion, compared with $7.9 bfllion on June 30, 1961.
The net investment of the Government amounted to $114.2 billion,
which includes borrowings from the Treasury in the amount of $8.6
billion. This investment excludes the Government's interest in
mixed-ownership or Government-sponsored corporations and trust
revolving funds which amounted to $2.9 billion on June 30, 1962,
and $2.8 billion on June 30, 1961.
In fiscal 1962, the total combined income, expenses, and net income
or loss, for the agencies reporting as business-type activities was as
follows:
In millions

Operating income
Other gains

$13, 511
48
$13,559

Operating expenses
Less: Net decrease in allowances for losses

16, 333
64
16,269

Net loss for fiscal year 1962

2, 710

The net loss by major categories of the reporting agencies, consisted
of the following:
Net income,
or loss (—)
In millions

Public enterprise revolving funds
Intragovernmental revolving funds
Certain other business-type activities
Net loss, as above

— $3, 426
22
694
—2, 710

REVIEW OF FISCAL OPERATIONS

The major part of the net loss of $3.4 bfllion shown above for public
enterprise revolving funds can be attributed to the operations of two
agencies; namely, the Post OflEice Department postal fund, with a
net loss of $749 mfllion, and the Commodity Credit Corporation,
with a net loss of $2.6 bfllion.
Individual and combined financial statements, including statements
of income and expense and source and application of funds, are
published periodicaUy in the Treasury Bulletin. Comparative combined balance sheet data as of June 30, 1952 through 1962 are shown
in table 123 of this report.
Borrowing authority and advances by the Treasury

New congressional authority to borrow from the Treasury granted
in fiscal 1962 to certain Government corporations and agencies,
amounted to $1.6 bfllion, and reductions of borrowing authority
totaled $244 mfllion, resulting in a net increase during the year of
$1.3 bfllion. Unused authority as of June 30, 1962, amounted to
$21.2 biUion; on June 30, 1961, imused authority totaled $22.5 billion.
The status of the borrowing authority of these corporations and agencies is shown in table 120.
Loans or advances of funds made by the Secretary of the Treasury
to certain Government corporations and agencies, pursuant to the
terms of the borrowing authority, are secured by formal obligations
or agreements executed between the Secretary and the head of the
borrowing agency. These borrowings, or advances, are reported on
the agencies' financial statements as part of the Government's net
investment in these enterprises. Advances by the Treasury in fiscal
1962, exclusive of refinancing transactions, totaled $8.3 biUion, compared with $7.5 bfllion in fiscal 1961. Repayments during fiscal
1962 amounted to $5.7 billion, compared with $7.2 bfllion in 1961.
The borrowings from the Treasury, outstanding as of June 30, 1962,
totaled $28.6 billion, compared with $26.0 billion a year earlier. A
description of the obligations of Government corporations and agencies held by the Treasury on June 30, 1962, is shown in table 122.
Interest and other payments made to the Treasury

Interest rates applicable to borrowings from the Treasury, except
where fixed by law, are determined from month to month by the
Treasury, which takes into consideration the cost to the Government in
effecting its borrowings in the current market as reflected by the prevaihng market yields on Government obligations having maturities
approximately equivalent to the advances or loans made to the
agencies. Table 122 gives a description of the securities held as of
June 30,1962, together with the applicable interest rates.

1962 REPORT OF THE SECRETARY OF THE TREASURY

Payments in the form of interest, dividends, and distribution of
earnings are made either on the basis of the operating results of an
enterprise, or in compliance with legislative requirements. During
fiscal 1962, $685 million was received in the Treasury as interest payments on advances to agencies and $163 miUion as other payments,
compared with $706 million and $112 million, respectively, in 1961.
Details regarding these pa3niients are contained in table 125.
Capital stock owned by the United States

During the fiscal year the Government's investments in capital
stock increased by $3.9 million; repayments of Government-held
capital stock amounted to $14.5 million. Details concerning Treasury
holdings of capital stock are contained in table 119.
Guaranteed obligations of Government agencies

Certain Government corporations and agencies having authority to
borrow from the public may issue obligations guaranteed as to principal and interest by the United States. The issuance of such obligations during the fiscal year was limited to the Federal Housing Administration debentures issued in exchange for foreclosed mortgages
on behalf of its various mortgage insurance funds. During fiscal
1962 guaranteed obligations were issued amounting to $348 miUion
and redemptions totaled $144 miUion, compared with $192 mfllion
and $92 million, respectively, in 1961. As of June 30, 1962, the total
outstanding (held outside the Treasury) was $444 miflion, compared
with $240 million on June 30, 1961. Included in the amount outstanding was $0.5 million of matured obligations of liquidated corporations fpr which funds are on deposit with the Treasury covering the
matured principal and interest. A description of guaranteed obligations outstanding is contained in table 34.
Nonguaranteed obligations of Government agencies

Government-owned and Government-sponsored corporations and
agencies issuing nonguaranteed obligations to the public under their
statutory authority include the Tennessee Valley Authority,- Federal
National Mortgage Association, Federal home loan banks, Federal
land banks. Federal intermediate credit banks, and the banks for
cooperatives. Nonguaranteed obligations issued during fiscal 1962
totaled $8.1 bfllion, redemptions and other reductions amounted to
$6.6 billion, as compared with $6.6 bfllion and $7.3 billion, respectively, in 1961. The total nonguaranteed obligations outstanding
totaled $9.3 bfllion on June 30, 1962, and $7.8 bfllion on June 30, 1961.
Agencies of the Farm Credit Administration also obtain funds for
short periods, usually between bond and debenture sales dates, by
issuing notes to banks within the farm credit system or to commercial

REVIEW OF FISCAL OPERATIONS

banks. As of June.30, 1962, these outstanding notes amounted to
$135 miUion, as compared.with $73 mfllion on June 30, 1961. Certain
other agencies also issue notes at infrequent intervals to obtain funds.
Table 30 shows the nonguaranteed obligations outstanding for each
issuing agency as of June 30, 1953-62.
Account of the Treasurer of the United States
Statements of the account of the Treasurer of the United States are
published in summary balance sheet form in the Daily Statement of the
United States Treasury, and in more detafl in table 59. The accoimt
of the Treasurer consists of three major categories: Gold, sflver, and
the general account. As of June 30, 1962, the total value of gold on
hand was $16,435 miflion, principally held .in the Fort Knox
Depository with lesser amounts in mints and assay offices. Gold
liabflities included $16,314 .mfllion of gold certificates issued to
Federal Reserve Banks and held as reserve against Federal Reserve
notes and for the redemption of U.S. notes, etc., with the balance
of $121 million representing avaflable gold. Sflver bullion and silver
dollars included in the assets totaled $2,299 mfllion, against which
liabflities of sflver certiflcates (currency issued against free sflver,
etc.) amounted to $2,277 miflion, leaving a balance of sflver totaling
$22 mfllion as of June 30, 1962. The assets of the general account,
$10,509 mfllion on June .30, included the balances of gold and silver
against which there were no specific legal liabflities or reserves, cash
in the form of coin and currency, unclassifled collections, and Government funds on deposit with the Federal Reserve Banks and other
depositaries. Liabilities of the general account, $79 mfllion as of this
same date, included principally funds to the credit of the Board of
Trustees of the Postal Savings System, and uncollected items,
exchanges, etc.
There was a balance of $10,430 mfllion in the Treasurer's account
as of June 30, 1962, representing the difference between the assets and
liabflities, which consisted of the avaflable operating funds on deposit in Federal Reserve Banks; the funds held in Treasury tax and
loan accounts established in qualified commercial banks; and funds
held in general and other depositaries not immediately avaflable for
operating purposes.
During fiscal 1962 there was an increase of $3,736 mfllion in the
balance of the Treasurer's account. Dafly balances ranged from a
.low of $4,109 mfllion on Aprfl 7, 1962, to a high of $10,430 mfllion'on
June 29, 1962.
The net change in the balance during the year is accounted for as
foUows:

1962 REPORT OF THE SECRETARY OF THE TREASURY

Transactions affecting the account of the Treasurer of the. United States, fiscal
year 1962
[In millions of dollars]

Balance June 30, 1961_..l
Excess of deposits, or withdrawals (—), budget, trust, and other
accounts:
Deposits
.
101, 608
Withdrawals
106, 626
Excess of deposits, or withdrawals (—), public debt accounts:
Net increase in gross public debt
Deduct:
Excess of Government agencies' investments over redemptions in
public debt securities
503
Accrual of discount on savings bonds
and bills (included in net increase
in gross public debt above)
'__
2, 571
Less certain public debt redemptions
. (included in cash withdrawals •
above)
-1,648
Total deductions

. - 1 , 426

- 5 , 018

9, 230

Excess of sales of obligations of Government agencies in the market.._
Balance June 30, 1962

6, 694

7, 804
950
10,430.

Public Debt Operations and the Ownership of Federal Securities
Pubhc debt and guaranteed obligations on June 30, 1962, amounted
to $298.6 biUion, a net increase of $9.4 billion from the $289.2 biUion
outstanding on June 30, 1961. About two-thirds, $196 billion, of the
debt was in marketable issues, representing an increase of $8.9 biUion
during the year. The remainder of the debt, mostly in special issues
to Government investment accounts and in U.S. savings bonds held
by individuals and others, increased by $0.5 billion.
The two factors which to a large extent determine the amount by
which the public debt decreases or increases during the year are the
budget surplus or deficit and the change in the cash balance of the
Treasurer of the United States. The budget deficit of $6.4 bilhon
at the close of fiscal 1962, together with the increase of $3.7 billion in
the cash balance, amounted to more than $10 biflion. Minor items
diminished somewhat the total required for financing the deficit and
the cash balance increase, leaving a net of $9.4 billion to be financed
by additional pubhc debt obhgations during the fiscal year. 1962.
(A summary of changes in the debt during the year is shown in the
accompanying table.)

REVIEW OF FISCAL OPERATIONS
June 30,
1961

Class-of debt

39
June 30,
1962

Increase, or
decrease (—)

In biUions of dollars
Public debt:
Interest-bearing:
Public issues:
Marketable
Nonmarketable
Total public issues
Special issues to Governinent investment accounts
Total interest-bearing public debt
Matured debt on which interest has ceased
Debt bearing no interest
_._
Total public debt
._
Guaranteed obhgations not OAvned by the Treasury.
Total gross public debt and guaranteed obligations

187.1
53.5

196.1
53.4

8.9

240.6
45.0

249.5
44.9

89
-.1

285.7
.3
2.9

294.4
.4
3.3

8 8
1
4

289.0
.2

298.2
.4

9 2
2

289.2

- 298.6

9.4

*Less than $50 million.

The total Federal debt has been moving irregularly upward since 1946
and the debt increase in fiscal 1962 continued this trend (see chart 3).
There were a number of years in which budget surpluses of varying
amounts made it possible to reduce the debt, but those" reductions
were outweighed by debt increases in other years. The increases
reflect in part the cost of economic recessions; in far greater measure,
however, they were brought about by the Korean War and by continuing heavy defense expenditures since that time. The $9.4 billion
increase in the debt during fiscal 1962 was largely related to additional
defense needs growing out of the intensification of the Berlin problem following the Vienna Conference in 1961.
CHART 3

The Federal Debt'-Semiannually since 1946

1 Including public debt and guaranteed obligations

1962 REPORT OF THE SECRETARY OF THE TREASURY

The $39 biUion growth of the Federal debt since December 1946
has been much less than increases in other forms of debt (see chart 4).
In consequence, the Federal portion of pubhc and private debt
dropped from 58 percent of the total in 1946 to 28 percent in June
1961. Moreover, even with a $9^ billion increase during fiscal 1962
the Federal debt declined further to 27 percent when measured
against the debt of all borrowers. I t is clear, therefore, that as
private and State and local debt expanded with the growth of the
economy, the Federal debt proportionately diminished.
CHART

Public and Private Debt
$Bil.
l,093'/p
1,008'/,

"'019/2

288'/,

294!

360

364

1,000322'/, *^lndividual

750"638
135'/,
e/N/> fc
44b'/2

Yfr

ieo'/,-

203'/^

W^
2 5 0 • • - '6
58%.

391/2 '^Corporate

State and
Local

3l'/e

42%.

29%. 290'/,

289. 28%

298'/2

Federal

-27%

0
,.•,December, 31-

ll96Q'%l96r^

The Federal debt can also be expressed as a percentage of gross
national product, the value of all goods and services produced in a
given period (see chart 5). The changes in this relationship since
World War I I provide another indication of the relative shrinkage of
the Federal debt as the economy has grown. The ratio of Federal
debt to gross national product declined from 116 percent in 1946 to the
5^ percent in June 1961. Arid despite the $9K billion increase in the
debt during the fiscal year 1962, there was a further decline in the ratio
to 54 percent by the end of June 1962. In contrast, the growth of
total debt since World War I I has generally kept pace with the
growth of the economy. Public and private debt together amounted
to 198 percent of the gross national product in June 1962, only about
two percentage points below December 1946.

REVIEW OF FISCAL OPERATIONS
CHART

Public and Private Debt as % of Gross National Product

The primary concern of debt management is the marketable debt.
This includes most of the Federal debt other than savings bonds and
special issues to Government investment accounts. In this category,
the Treasury marketed a total of $54K billion in certiflcates, notes,
and bonds during fiscal 1962. This included over $4K bilhon of new
cash borrowing; the reflnancing of about $41 biUion in maturing
issues-; and the advance refunding of about $9 biUion in existing debt.
In addition to the $54K bilhon in securities marketed, about $1
biUion of IK.percent notes was issued in exchange for nonmarketable
Investment Series B bonds. Treasury bills issued for cash, other than
the rollover of maturing regular weekly and one-year biUs, amounted
to almost $13 biUion.
The new cash financings, largely in issues of Treasury bills and
short notes, were directed toward maintaining U.S. short-term rates
at levels reasonably competitive with short-term rates in the world
money markets in order to discourage outflows of short-term investment funds from augmenting the country's balance-of-payments
problems. In consequence, the marketable debt maturing within
one year rose to $88.4 bilhon, an increase of $7.3 billion during fiscal
1962 (see chart 6). The $18 billion increase in short-term debt
since midcalendar year 1960 provided additional hquidity during
a period of recession and early recovery. Thus, whfle this action
was undertaken to maintain short-term rates for balance-of-payments

1962 REPORT OF THE SECRETARY OF THE TREASURY

reasons, it was entirely consistent with the needs of the economy at
the time. Such action would not have been appropriate in a full
expansion phase of the business cycle. In fact, a rapidly expanding
economic environment would undoubtedly have been accompanied,
as in the past, by a substantial rise in short-term rates. This would
have assisted in strengthening our balance-of-payments position
without the need for an increase in the supply of short-term debt.
CHART 6

Structure of the Under I-Year Marketable Debt

NOTE.—Coupon issues include all certificates, notes, and bonds maturing within one year.

A large volume of early maturing issues has important imphcations
in terms of its future impact on the market. The Treasury has been
able to mitigate these potential effects through additions to regular
weeldy and one-year bills which are roUed over automatically at
maturity. The total amount of these bills has been maintained at a
fairly constant ratio (about 45 percent) of the outstanding debt
maturing within one year, exclusive of seasonal issues.
Although the major portion of new cash went into short-term issues,
more than $2}^ billion was raised by means of longer issues, over
$1 billion through a 7%-year bond, and $1K biUion through a 6K-year
bond. More importantly, significant efforts to restructure the debt
were also made in the refunding of existing obligations at maturity.
Of the $41 billion in maturing issues refinanced during fiscal 1962
(other than Treasury bills), $23% billion was in one-year certificates
or short notes maturing within 16 months; $15 bilhon in issues between 3 and 5 years to maturity; $2}i bilhon in 5-to-lO year bonds;

EEVIEW OF FISCAL OPERATIONS

and $K biUIon in bonds maturing beyond 10 years. However, the
major share of debt extension was attributable to the refunding of
obligations in advance of maturity.
The role of advance refunding since the inception of the technique
in 1960 in restructuring the marketable debt maturing beyond one
year is iflustrated by chart 7. The greatest impact has been in the
longer maturities. In the 20-year and over category, $7% bilhon, or
about half of the $15 billion outstanding, was originally issued in
advance refundings. In the 5- to 10-year and 10- to 20-year maturity
areas over one-fom^th of outstanding issues resulted from advance
refundings.
CHART

Role of Advance Refunding in Restructuring the
Over 1-Year Marketable Debt

Through June 19.62 there had been five advance refundings, of
two types. The first of these are senior refundings in which issues
generally falling into the 5- to 10-year maturity range are exchanged
into true long-term issues. The second type, called junior refundings,
generally involves the exchange of shorter term issues into intermediate or longer securities.
Senior advance refundings meet a number of debt management objectives. Among these are: First, to maintain the ownership pattern
of the issues refunded (primarfly in the hands of longer term holders);
second, to provide needed debt restructuring without absorbing longterm funds otherwise available to the private sector of the economy;
third, to effect the required debt extension with a minimum of market
churning as weU as a minimum impact on current long-term issue

19 62 REPORT OF THE SECRETARY OF THE TREASURY

prices; and fourth, to make room for additional intermediate issues.
The major purposes of junior refundings are to reduce the concentration of early maturities so that refinancing wfll result in less market
impact and to curtafl the amount of highly hquid debt in the maturity
area immediately beyond one year, thereby reducing potential inflationary pressures. The success of advance refunding in restructuring
the marketable debt is indicated b y the fact that on June 30, 1962,
about one-quarter of the debt, maturing after one year was originally
issued in advance refundings. Structural improvements in fiscal
1962 were due to a combination of advance refunding, the refinancing
of a significant amount of maturing issues into longer term securities,
and the placement of a part of new cash borrowing into intermediate
or longer-term securities. The net result was a five-naonth extension
in the average length of the marketable debt—from 4 years 6 months
on June 30, 1961, to 4 years 11 months on June 30, 1962. This increase took place despite the fact that new money borrowing was
largely in the short-term area and that the simple passage of time
shortens the existing over one-year debt by one full year each year.
The changes in the ownership of the debt during the fiscal year have
reflected the Treasury's efforts to finance the budget deficit without
generating an inflationary potential. AJthough the total debt increased by $9K billion and the marketable portion by approximately
$9 billion, commercial bank holdings increased by. only $2^ billion.
The Federal Reserve Banks also increased their holdings by approximately $2K biUion. Thus, $5 billion, or about one-half of the total
increase in the debt, was financed outside the banking system.
Savings bonds, which are nonmarketable, represent one-sixth of the
entire outstanding debt. The purchase of E and H savings bonds—
on the average, held by their owners for 7^ years—diminishes the
Treasury's problem of refinancing the debt and contributes to the
country's financial stability by keeping a sizeable portion of the debt
in the hands of the average citizen. On June 30, 1962, Series E and
H bonds were outstanding in the amount of $45 billion (including
interest accruals), a net increase of more than $1 billion during the
year.
During the fiscal year 1962 the Treasury undertook borrowing from foreign ofiicial agencies for the purpose of improving the balance-ofpayments position of the United States and deterring foreign exchange
speculation. This was the first time since 1918 that the Treasury had
conducted foreign borrowing operations. The borrowing in fiscal
1962 was nonmarketable and was in the form of foreign certificates
of indebtedness. On June 30, 1962, there was close to $1 billion of
these foreign certificates outstanding in two types, approximately

REVIEW OF FISCAL OPERATIONS

$0.9 billion in issues denominated in doUars and about $0.1 billion
in issues denominated in certain foreign currencies.
PUBLIC DEBT OPERATIONS

The refunding of the $1K bfllion one-year Treasury bflls, maturing
July 15, 1961, was the first financing of fiscal 1962. On July 5, the
Treasury announced that $2 billion of new one-year bifls (dated
July 15, 1961, to mature July 15, 1962) would be auctioned on July 11.
The new bills would replace the $ 1 ^ billion old bills maturing July 1^
and provide $500 million required new cash.
On July 13, 1961, following the one-year bill auction, the Treasury
announced that it would refund in one operation four securities totaling
$12)^ billion maturing August 1 through October 1, and that the
exchange offering would be foUowed immediately by a cash borrowing
of $3K billion through the issuance of tax anticipation bills.
The four maturing issues were:
$7.8 billion 3}^ percent certificates maturing August 1, 1961;
$2.1 billion 4 percent notes maturing August 1, 1961;
$2.2 biUion 2% percent bonds maturing September 15, 1961; and
. $332 million 1}^ percent notes maturing October 1, 1961.
Holders of these securities were given an exclusive right to exchange
them for any of the following securities:
3K percent 15K-naonth notes dated August 1, 1961, to mature
November 15, 1962, at par; or
3% percent 3-year notes dated August 1, 1961, to mature
August 15, 1964, at par; or additional amounts of
3% percent bonds originally issued on June 23, 1960, maturing
M a y 15, 1968, of which $1,390 million was outstanding, to be
issued at a price of 99.375, to yield approximately 3.98 percent to maturity.
Subscriptions for the three-way exchange option, which were received
July 17 through July 19, totaled $11.9 billion, or 94.5 percent, of the
August 1 through October 1 maturities. Subscriptions for the 15^month note totaled $6.1 billion, for the 3-year note, $5.0 billion, and
for the 6%-year bond approximately $750 miUion. The remaining
$686 miUion, or 5.5 percent, of the maturing securities was paid off in
cash.
The Treasury generally needs to raise new cash in the first half of
the fiscal year in order to cover its requirements during the period of
seasonally low tax receipts. The first such seasonal borrowing took
place on July 20, 1961, when the Treasury auctioned $3K biUion in tax
anticipation biUs dated July 26, 1961, to mature March 23, 1962.
On September 7, a refunding of two World War I I bond issues in
advance of their, maturities was announced, and at the same time plans

1962 REPORT OF THE SECRETARY OF THE TREASURY

were outlined to raise the estimated $5 billion cash needed over the
next two months.
The refunding offer, a senior advance refunding operation (wherein
intermediate-term issues are exchangeable for new long-term issues)
was available to all holders of the 2 ^ percent bonds issued during the
war-loans in 1944. The amounts of these bonds outstanding were
$4.7 billion of the. March 1965-70s and $2.9 bflhon of the March
1966-71S. Their holders were offered in exchange additional amounts
of any of the 3K percent outstanding Treasury bonds maturing in
1980, 1990, and 1998. The bonds eligible for exchange were held
largely by insurance companies, savings banks, and private individuals
(many of them original subscribers).
To balance the relative attractiveness of the exchanges, the offerings
involved the following cash payments (per $100 of face value) other
than accrued interest: For the 3Ks of 1980, $2.25 and $3.50 to be
paid by the holders of the 2Ks of 1965-70 and 1966-71, respectively;
for the 3Ks of 1990, $1.00 paid to the holders of the 1965-70s and $.25
paid by those exchanging the 1966-71s;. and for the 3Ks of 1998,
$2.00 and $1.00, respectively, paid to the holders of the 1965-70s and
1966-71S.
The advance refunding offer open to all subscribers from September
11 through September 15, and additionally for individuals through
September 20, was a success with $3.8 billion 2K percent bonds
exchanged for the outstanding 3K percent longer term bonds. Of total
subscriptions, $1.3 billion was for the 1980 maturity, $1.3 biUion for
the 1990 maturity, and $1.2 billion for the 1998 maturity. In all,
more than 51 percent of the eligible bonds of public holders (that is,
holders other than Federal Reserve Bariks and Government investment accounts) was exchanged. The result represented a significant
amount of debt extension, with little or no disturbance in the market
for outstanding issues, and achieved a definite improvement in the
maturity structure of the marketable debt.
Cash needs for the two months following the September 7 announcement were met in three steps:
Approximately $2% bfllion of June 1962 tax anticipation bills
were auctioned on September 20, 1961, with payment on
September 27.
An offering of $2 bfllion in additional amounts of 3% percent
Treasury notes to mature M a y 15, 1963 (originally issued in
M a y 1961), was announced September 28 and offered early in
October at a price of 99% to yield appiroximately 3.33 percent.
$2.3 billion of the total subscribed for was accepted.

REVIEW OF FISCAL OPERATIONS

•

$2 bfllion in one-year Treasury bflls auctioned on October 10,
to replace $1}2 bfllion of outstanding one-year bills maturing
October 16, to provide another $500 miUion new money.
These new money offerings in the September-October financings
raised $5.3 billion for the Treasury. In addition, $0.2 bilhon was
obtained by adding to regular weekly bifls on October 19 and October
26.
On November 2 the Treasury announced an exchange offer for
meeting the mid-November 2}^ percent bond maturity of $7.0 biUion.
At the same time announcement was made that $800 milhon in new
funds would be obtained for current needs (largely the estimated
amount of maturing bonds that would be turned in for cash) by issuing
a strip of bifls on November 15 to be sold on an auction basis.
The Treasury's objective of extending the maturity of the debt
whenever feasible was reflected in the exchange offer to the holders
of the bonds due November 15. The offer provided three maturity
options which included two intermediate or longer issues, as follows:
A 15-month Sji percent note, dated November 15, 1961, due
February 15, 1963, at par;
An additional amount of outstanding 3% percent bonds
originally issued November 15, 1960, maturing May 15,1966,
to be issued at a price of 99.75, to yield about 3.81 percent;
An additional amount of outstanding 3% percent bonds
originally issued on December 2, 1957, maturing November
15, 1974, to be issued at a price of 99.00, to yield about
3.97 percent.
The subscription books closed on November 9, with more than
$6K billion, or 94 percent, of the maturing bond exchanged. Of the
issues taken, more than $3.6 bilhon was for the short-term note,
$2.4 billion for the 4K-year bond, and $517 miflion for the 13-year
bond. The remaining $419 million, or 6 percent, of the maturing
bond was paid off in cash.
The $800 million bill strip auctioned on November 9 increased each
of the eight bill issues maturing December 7, 1961, through January 25,
1962, by $100 million. Subscriptions were required to be in units of
at least $8,000 or in multiples of that amount,, with a single bid price
submitted for the entire strip ranging in maturity from 22 to 71 days.
Each of the eight bill maturities increased was currently outstanding
in an amount of $1.6 bilhon against $1.7 billion for all of the other
weekly bills maturing in the next three months.
Immediately after the issuance of the bifls theTreasury, on November 17, announced an exchange offering to holders of approximately

19 62 REPORT OF THE SECRETARY OF THE TREASURY

$970 miflion Series F and G savings bonds issued in 1950 and riiaturing
in 1962. Holders of these obligations were offered an exchange into
additional amounts of 3% percent marketable bonds originally issued
June 23, 1960, maturing May 15, 1968, at a price of 99.50 for an
effective yield of 3.96 percent. Exchange values of the F and G
bonds were fixed to provide one percent more than otherwise would
have accrued from December 15, 1961, to the maturity dates of the
F and G bonds and 3.96 percent from those dates to the maturity
of the 3% percent bond. The exchange offer was accepted by holders
of $320 mfllion of the 1962 F and G maturities outstanding.
On January 3, 1962, the Treasury announced that it would borrow
$1K to $1% billion of new money in two financings to meet the Government's cash needs.
The first financing announced at the time provided the Treasury
with $500 million new cash. One-year bifls matming January 15,
1962, in the amount of $ 1 ^ bilhon were replaced m t h $2 billion of
new one-year bills maturing January 15, 1963. The second financing,
announced January 11, was the issuance of an additional $1.1 billion
of outstanding 4 percent bonds maturing October 1, 1969, originally
issued in October 1957. The new issue was priced at 99.75 to yield,
about 4.04 percent.
On February 1, 1962, plans were announced for refunding four
issues of Treasury notes totaling $11.7 biUion, three due February
15, and one on April 1. The four maturing securities were:
$9.1 billion 3% percent notes maturing February 15, 1962;
$0.6 biUion 3% percent notes maturing February 15, 1962;
$1.4 billion 4 percent notes maturing February 15, 1962; and
$0.6 bilhon IK percent notes maturing April 1, 1962.
In exchange, holders of the maturing securities were offered two new
secmities dated February 15, a 3}^ percent one-year certificate and a
4 percent 4,V2-year note. All but 3.5 percent ($416 milhon) of the
maturingissueswa^ exchanged, $6.9 billion for the one-year certificate
and $4.5 billion for the 4K-year note.
FoUowing this regular refunding, the Treasmy undertook an advance refunding in mid-February, with the exchange effective on
March 1, 1962. For the first time, one operation combined a junior
advance refunding (in which holders of relatively short-term maturities are given an opportunity to move into longer issues) and a senior
advance refunding (in which holders of intermediate-term securities
are offered an exchange into long-term issues). The Treasury offered
to the holders of five issues of outstanding Treasury bonds maturing

REVIEW OF FISCAL OPERATIONS

from February 15, 1964, through December 15, 1972, totaling $18.7
billion, the option of earning additional interest during the remaining
terms of these existing issues by extending their maturities for additional periods ranging between 6K and 26}^ years.
The advance refunding operation combined the following specific
exchange offerings:
In the junior portion, holders of the $3.9 biflion 3 percent bonds
due February 15, 1964, were eligible to exchange them on a parfor-par basis for a new issue of 4 percent bonds due in August
1971. Holders of the $6.9 biUion 2% percent bonds due February
1965 were offered an exchange into the new 4s of 1971 or into
additional amounts of the| outstanding 4 percent bonds of February 15, 1980. However, to equahze the attractiveness, of the
exchange options, holders of the 2% percent bonds were required
to pay $2.00 (per $100 of face value) on the new 4s of 1971 and
$.25 on the 4s of 1980.
In the senior portion of the advance refunding, holders of $8.0
billion 2K percent bonds of June, September, and December
1967-72S were offered two outstanding 3K percent bonds due in
February 1990 and November 1998. AU but one of these
exchanges involved cash payments by subscribers as follows:
On the 3}^s of 1990, (per $100 of face value) $1.25, $1.50, and
$1.75, respectively, by the holders of the 2}^s inaturing in June,
September, and December of 1967-72; and on the 3Ks of 1998,.
par-for-par (no payment) by holders of the June 2Ks and $.25
and $.50, respectively, by holders of the September and December
maturities.
No limit was placed on the amount of the four issues offered and
subscriptions in all totaled $5.2 bilhon and were allotted in full, $2.8
billion for the 1971 maturity, $0.6 bilhon for the 1980 maturity, and
$0.9 bilhon for each of the 1990 and 1998 matmities. Of the $5.2
billion total subscribed, $4.2 biUion of public holdings of the eligible
issues, or 25 percent, was exchanged.
To offset the expected drain due to the cash redemption of the tax
anticipation bills maturing on March 23, and to continue its efforts
to keep U.S. short-term rates competitive in the world money markets,
the Treasury, early in.March, announced an offering of $1.8 billion
in new 182-day tax anticipation bills to be auctioned on March 20
and to mature September 21, 1962. The new tax bills were dated
March 23, 1962, the date on which the old issue of tax bills matured..
In a strengthened bond market environment, the Treasury decided
in early April to raise $1% billion of needed new cash by offering an
661496)—63

1962 REPORT OF THE SECRETARY OF THE TREASURY

intermediate-term issue—a 6K-year 3% percent bond maturing
August 15, 1968. Immediately following the closing of the subscription books for the bond, $2 billion of one-year biUs were rolled
over at auction replacing a like amount.of biUs maturing April 15.
The last" financing of the fiscal year, exclusive of regular weekly
biUs, was announced in the latter part of April. The Treasury combined, in one operation the refunding of two securities maturing in
mid-May with the bond maturing on June 15. The three maturing
issues, .which totaled $11% biUion, were:
$5.5 bilhon 3 percent certificates maturing May 15, 1962;
$2.2 bilhon 4 percent notes maturing May 15, 1962; and
$4.0 billion 2% percent bonds maturing June 15, 1962.
To continue the structural improvement of the debt whenever practicable, the Treasury offered holders of the maturing securities a choice
of the following three new issues, two having maturities beyond one
year. The three options all dated May 15, 1962, were:
3% percent one-year certificate to mature May 15, 1963, at par;
3% percent 3%-year note to mature February 15, 1966, at
99.80 to yield approximately 3.68 percent to maturity; or
3% percent 9K-year bond to mature November 15, 1971, at
99.50 to yield approximately 3.94 percent to maturity.
Exchanges totaled $11 biUion, $6.7 biUion into the one-year certificate, $3.1 billion into the 3%-year note, and $1.2 biUion into the 9Kyear bond. The remaining $679 miUion, 5.8 percent of the maturing
securities, was turned in for cash.
During the course of the fiscal year, $2.7 biUion of new cash was
raised through periodic increases in the regular weeldy biU offerings
in order to mairitain upward pressure on U.S. short-term rates.
(See text table on offerings of marketable Treasury securities.)
The major part of the weekly biU increase was raised in the second
half of the fiscal year with $1.5 billion or more than one-half of the
total issued in the 91-day bills during the period of February through
May.
The following tables summarize the financing operations during the
fiscal year and show the results of the public offerings of marketable
Treasury securities, excluding the refinancing of regular weekly biUs.'
For additional information see table 41 for allotments by investor
classes and the exhibits on public debt operations beginning with
exhibit 1.

REVIEW OF FISCAL OPERATIONS

Public offerings of marketable Treasury securities excluding refinancing of regular
weekly bills, fiscal year 1962
[In millions of dollars]
Issued for
cash
Date of
issue

Description of security

1961

BONDS, NOTES, AND CERTIFICATES OF INDEBTEDNESS

Apr. 1
Aug. 1
Aug. 1
Aug. 1
Sept. 15
Sept. 15
Sept. 15
Oct. 1
Oct. 11
Nov. 15
Nov. 15
Nov. 15
Dec. 15

13^% exchange note—Apr. 1,1966 i
3>i% note—Nov. 15, 1962
3M% note—Aug. 15,1964
33^% bond—May 15,1968 additional at 99.375
33^% bond—Nov. 15,1980 additional
.'.
33^% bond—Feb. 15,1990 additional
33^% bond—Nov. 15, 1998 additional
13^% exchange note—Oct. 1,1966 i
_
33^% note—May 15,1963 additional at 99.875
33^% note—Feb. 15,1963....
3 ^ % bond—May 15,1966 additional at 99.75
Z%% bond—Nov. 15,1974 additional at 99.00
3K% bond—May 15,1968 additional at 99.50

Issued in
exchange

For
For
For
maturrenew
ing
money funding issue

In
advance
refunding

2 606
6,082
5,019
749

1,273
1,298
1,187

357

2,295

3,642
2,384
517
3 320

Total

606
6,082
5,019
• 749
1, 273
1,298
1,187
357
2,295
3,642
2,384
• 517
320

1962
Jan.
Feb.
Feb.
Mar.
Mar.
Mar.
Mar.
Apr.
Apr.
May
May
May

24
15
15
1
1
1
1
1
18
15
15
15

4% bond—Oct. 1,1969 additional at 99.75..
33^% certificate—Feb. 16,1963
4% note—Aug. 15,1966
4% bond—Aug. 15,1971
4% bond—Feb. 15,1980 additional
33^% bond—Feb. 15,1990 additional.
33^% bond—Nov. 15,1998 additional
13^% exchange note—Apr. 1,1967 i
3 ^ % bond—Aug. 15, 1968...
3>|% certificate—May 15,1963
35^% note—Feb. 15,1966 issued at 99.80....
3>g% bond—Nov. 15,1971 issued at 99.50..

1,114

6,862
4,454
563
900
933
48

1,258

6,685
3,113
1,204

Total bonds, notes, and certificates.
1961
July
July
Sept.
Oct.
Nov.

42,044

8,959

1,114
6, 862
4,454
2,806
563
' 900
933
48
1,258
6,685
3,113
1,204
56, 670

BILLS < (MATURITY VALUE)

15 .2.908% 1-yr.—July 15,1962
26 2.484% 240-day (tax anticipation) Mar. 23,1962..
27 2.705% 268-day (tax anticipation) June 22,1962..
16 2.975% 1-yr.—Oct. 15, 1962
15 2.277% 46.5-day average for strip «

503
3,503
2,511
501
800

1,491

2,004
3,603
2,511
2,003
800

1,491

- 1962
Jan. 15
Mar. 23
Apr. 15

3.366% 1-yr.—Jan. 15,1963
2.896% 182-day (tax anticipation) Sept. 21,1962
2.943% 1-yr.—Apr. 15,1963
.,
Increases in regular weekly bill offerings
1961: July through September
199
October through December
201
1962: January through March
801
April through June
1,502
Total bills
Total public offerings

600

139

2,703

12,823
17, 490

2,001
1,802
2,001

2,703
6,266
6,266

240
42, 284

19, 329
74, 999

1 Issued only on demand in exchange for 2 ^ % Treasury Bonds, Investment Series B-1975-80.
2 Issued subsequent to June 30,1961.
8 Includes about $306,000 cash payment on exchange of Series F and Q savings bonds.
4 Treasury bills are sold on a discount basis with competitive bids for each issue. The average price for
auctioned issues gives an approximate yield on a bank discount basis as indicated for each series.
« Consists of additional amounts of eight series of outstanding regular weekly Treasury bills, $100 million
maturing each week from Dec. 7.1961, through Jan. 25,1962.
6 Includes $168 million tax anticipation bills maturing Mar. 23,1962, which were presented for payment
in lieu of cash.

1962 REPORT OF THE SECRETARY OF THE TREASURY

Disposition of marketable Treasury securities excluding regular weekly bills, fiscal
year 1962
[In millions of dollars]
Security
Date of
refunding or
retirement

Description and maturity date

Issue date

Exchanged for
Redeemed
new security'
for cash
or
carried to
In admatured At ma- vance
debt
turity refund
ing

Total

BONDS, NOTES, AND CERTIFICATES OF
INDEBTEDNESS

.1961
Aug. 1 3 ^ % certificate-Aug. 1,1961.
Aug. 1 4% note—Aug. 1, 1961
Aug. 1 2H% bond—Sept. 15, 1961
Aug. 1 13-^% note—Oct. 1,1961
Sept. 15 2H% bond—Mar. 15,1965-70..
Sept. 15 23^% bond—Mar. 15,1966-71..
Nov. 15 23.^% bond—Nov. 15,196U.—

Aug.
Aug.
Nov.
Oct.
Feb.
Dec.
Feb.

16,1960
1,1957
9,1963
1,1966
1,1944
1,1944
15,1954

1962
Feb. 15
Feb. 15
Feb. 15
Feb. 15
Mar. 1
Mar. 1
Mar. 1
Mar. 1
Mar. 1
May 15
May 15
May 15

May
Feb.
Nov.
Apr.
Feb.
June
June
Oct.
Nov.
May
Apr.
June

1,1967
15.1959
15.1960
1,1957
14,1958
15,1968
1,1945
20,1941
16,1945
16.1961
14,1960
1,1945

3 ^ % note—Feb. 15,1962
4% note—Feb. 15, 1962
334% note—Feb. 15,1962
13^% note—Apr. 1, 1962.......
3% bond—Feb. 16, 1964
2%% bond—Feb. 16,1965
2}^% bond—June 16, 1967-72..
23'^% bond—Sept. 15,1967-72..
23^% bond—Dec. 15, 1967-72..
3% certificate—May 16,1962..
4% note—May 15, 1962
2H% bond—June 15,1962
Total bonds, notes, and certificates.

198
348
52,

7,741
1,938
1,891
280

419

6,644

62
126
142
86

586
1,309
8,956
465

99
157
423

6,410
2,054
3,540

2,200

40,713

2,251
1,506

7,829
2,136
2,239
332
2,251
1,506
6,963

1,164
2,214
414
764
656

. 647
1,436
9,098
. 651
1,154
2,214
414
764
. 656
6,609
2,211
. 3,963

8,959

61,873

BILLS

1961
July 15
Sept. 22
Oct. 16

3.265%—July 15, 1961.2.473%—(tax anticipation) Sept. 22,1961
3.131%—Oct. 16,1961..

July 16,1960
Apr. 3,1961
Oct. 17,1960

1,491
2.1,503
1,491

1962
Jan. 15
Mar. 23
Apr. 15
June 22

2.679%—Jan. 15, 1962
2.484%—(tax anticipation) Mar. 23, 1962.
2.827%—Apr. 16, 1962
2.705%—(tax anticipation) June 22, 1962..

Jan.
July
Apr.
Sept.

1,363
3 3, 503
.1,920
2 2,511

1139

13,782
15,982

. 240
40,963

Total bills
Total securities.

15,1961
26,1961
15,1961
27,1961

1 10

1,501
1,603
1,602

1,502
3,603
2,000
2,511

•180

8,959

14,021
65,894

1 Accepted tn payment in lieu of cash.
2 Including tax anticipation issues redeemed for taxes.
3 Includes amount redeemed for taxes and amount accepted in payment in lieu of cash for the new tax
anticipation bill maturing Sept. 21,1962.

REVIEW OF FISCAL OPERATIONS

Allotments of marketable Treasury securities other than regular weekly bills, fiscal
year 1962 i
[In millions of dollars]
Allotments by investor classes

Date of
flnancing

Issue—description of security and
maturity date

Amount
issued

U.S. Government
investment
Commer- All others
accounts
cial banks 2
and
Federal
Reserve
Banks

BONDS, NOTES, AND CERTIFICATES OF
INDEBTEDNESS

1961
Aug. 1
Aug. 1
Aug. 1
Sept. 16
Sept. 16
Sept. 15
Oct. 11
Nov. 16
Nov. 15
Nov. 15
Dec. 15

334% note—Nov. 16,1962-H
3%% note—Aug. 16, 1964-E
3J^% bond—May 15,1968 additional
33^%, bond—Nov. 15, 1980 additional
31^% bond—Feb. 15, 1990 additional
33/^% bond—Nov. 15,1998 additional
334% note—May 16, 1963-D additional....
33l% note—Feb. 15,1963-E
3 ^ % bond—May 16, 1966 additional
3>8% bond—Nov. 16,1974 additional......
3J^% bond—May 15, 1968 additional

6,082
5,019
749
1,273
1,298
1,187
2,295
3,642
2,384
517
320

1962
Jan. 24
Feb. 16
Feb. 15
Mar. 1
Mar. 1
Mar. 1
Mar. 1
Apr. 18
May 16
May 15
May 15

4% bond—Oct. 1, 1969 additional
33^% certificate—Feb. 15,1963-A
4% note—Aug. 15, 1966-A
4% bond—Aug. 15,1971
4% bond—Feb. 16, 1980 additional
33^%) bond—Feb. 15,1990 additional.
33^% bond—Nov. 15,1998 additional
3 ^ % bond—Aug. 15,1968
33^% certificate—May 15,1963...:
3 ^ % note—Feb. 15, 1966
3J^%o bond—Nov. 15,1971

1,114
6,862
4,454
2,806
563
900
933
1,258
6,686
3.114
1,204

1961
July 15
July 26
Sept. 27
Oct. 16
Nov. 15

2.908%—July 16, 1962..
2.484% (tax anticipation)—Mar. 23,1962..
2.705% (tax anticipation)—June 22,1962...
2.976%,—Oct. 15, 1962
:
2.277%—strip 3
.._

2,004
3,503
2,511
2,003
800

1962
Jan. 15
Mar. 23
Apr. 16

3.366%—Jan. 15,1963
2.896% (tax anticipation)—Sept. 21,1962..
2.943%—Apr. 15, 1963

2,001
1,802
2,001

1,241
2,203
309
61
81
50
2,056
2,158
1,514
105
136

1,455
1,216
382
732
1,056
847
139
1,416
866
276
184

100
3,411
1,518
408
177
218
221
100
2,330
17
64

780
1,618
2,043
1,591
116
94.
77
753
2,287
2,261
663

234
1,833
893
807
270
688
635
405
2,069
836
487

917
3,473
2,493
939
361

1,012
30
18
953
439

3,386
1,600
68
480
161
290
100
68
4
136

(*)

BILLS

"iii'
217
153
163

1,078

706
960
913 .

•Less than $500,000.
1 Excludes 1H% Treasury EA and EO notes issued in exchange for nonmarketable 2 ^ % Treasury Bonds,
Investment Series B-1975-80.
2 Includes trust companies and stock savings'banks.
8 Consists of an additional $100 million each of eight series of outstanding weekly bills issued in a strip on
Nov. 15, 1961, maturing Dec. 7, 1961 to Jan. 25, 1962, inclusive.

1962 REPORT OF THE SECRETARY OF THE TREASURY

The public debt subject to limitation rose to levels not far from the
temporary cefling of $298 biUion during the first half of the fiscal year
because of seasonal and other cash borrowing. . The peak of $297.3
bfllion was reached on November 24, 1961.
The temporary limit which had been authorized on June 30, 1961,
before the Berlin crisis made additional defense expenditures necessary, provided the Treasury with little margin to meet its seasonal
borrowing needs or to meet any unforeseen requirements. On March
13, 1962, an additional temporary increase of $2 billion was authorized by the Congress for tihe balance of the fiscal year, bringing the
temporary cefling to $300 bfllion for the period from March 13, 1962,
through June 30, 1962. The debt subject to limitation during the
second half of the fiscal year rose to a new peak of $299.5 biUion on
June 14, 1962.
Since the outstanding debt wotdd exceed the temporary limit of
$300 biUion at the end of the fiscal year 1962 and regular seasonal
borrowing would be required during the ensuing fiscal year, an act
approved July 1, 1962, authorized increased ceflings in the temporary
debt limit as follows: $308 biUion from July 1, 1962, through March
31, 1963, $305 bflhon from Aprfl 1 through June 24, 1963, returning
to $300 bfllion from June 25 through June 30, 1963. For further
detafl on the statutory limit on the public debt and guaranteed
obligations as of June 30, 1962, see table 36 and for a summary of
amendments to the law limiting the debt, see table 37.
Public nonmarketable debt decreased by less than $0.1 bfllion during
fiscal 1962 to $53.4 biflion. The relatively small net change reflected
more substantial increases and decreases in the various types of public
nonmarketable debt outstanding, including large changes within
the savings bonds category.
As previously mentioned, direct borrowing from foreign oflicial
agencies amounted to $1.0 bihion at the close of the fiscal year. This
amount of nonmarketable borrowing was offset by a decline of $1.1
biflion in the investment series bonds. The steady decline in investment series bonds continued in flscal 1962, and, as in the past, was
due principaUy to the exchange of nonmarketable Series B investment
bonds for marketable 5-year IK percent exchange notes.
The largest portion of the public nonmarketable debt is in U.S. savings bonds, which are demand securities payable at guaranteed redemption values. Although savings bonds of various series have
been continuously on sale since March 1935, Series E and Series H
are the only, savings bonds currently being sold. There were $45.0
bfllion of these series outstanding on June 30, 1962, amounting to 15
percent of the total interest-bearing debt. The growth in E and H
bonds outstanding was $1.1 bfllion for the year, which was slightly

REVIEW OF FISCAL OPERATIONS

larger than their increase in flscal 1961. Series F, G, J, and K bonds,
no longer on sale, decreased by $1.0 bfllion. This.decline included
the $320 mfllion Series F and G bonds that would have matured
during the calendar year 1962, but which were exchanged on December
15, 1961, in accordance with the Treasury's offer, for the 3% percent
marketable bond of 1968. Total interest-bearing sayings bonds outstanding of aU series at the close of fiscal 1962 was $47.6 bfllion, an
increase of $0.1 bfllion during the year.
Class of security

June 30,1961 June 30,1962

Increase, or
decrease (—)

In billions of dollars
U.S. savings bonds:
Series E
_
SeriesH
Subtotal E and H
Series F and Q
Series J and K

Subtotal savings bonds
Certificates of indebtedness:
Foreign series
Foreign currency series
Treasury bonds:
REA series
Investment series
Depositary bonds

37.8'
6.0

38.3
6.7

0.4
.7

43.8
1.8
1.9

46.0
.9
1.8

1.1
-.9
-.1

47.5

47.6

.9
.1

4.7
.1

(*)
-1.1
(*)
(*)

Total interest-bearing public nonmarketable issues

(*)

5.8
.1
53.6

(•)

63.4

*Less than $50 million.

During fiscal. 1962, the Treasury encouraged new and continued
investment in Series H bonds in two ways. In August 1961, H bonds
with issue dates of June 1952 through January 1957 were granted a
10-year extension. Beginning February 1, 1962, the first of these
bonds in their extended maturity period wiU earn interest at a straight
3% percent rate per annum, payable semiannually by Treasury
check. This is the first time that the Treasury has given the extension privflege to any savings bonds other than Series E. In addition,
the Treasury announced in November 1961 that the annual purchase
limit of H bonds would be increased to $20,000 after January 1, 1962.
The limit of $10,000 (maturity value) on E bonds was continued.
Detafls of these new regulations may. be found in exhibits 7-10.
OWNERSHIP OF FEDERAL SECURITIES

Of the $9.4 biUion total increase in the Federal debt during fiscal
1962, the banking system (commercial and Federal Reserve Banks)
absorbed $4.8 biUion. Private nonbank investors acquired $4.2
bfllion and Government investment accounts absorbed the remaining
$0.4 bfllion. Ownership of Federal securities by investor classes on
selected dates is presented in the following table.

1962 REPORT OF THE SECRETARY OF THE TREASURY

Ownership of Federal securities ^ by investor classes on selected dates, 1941-62
[Dollar amounts in billions].

E s t i m a t e d ownership b y :
P r i v a t e n o n b a n k investors:
Individuals 3
Tnsura.nce companip..<5
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 . . .
Foreign a.nd international fi_.
Miscellaneous investors 8
Total private nonbank investors... . . .
F e d e r a l G o v e r n m e n t i n v e s t m e n t accounts
Commercial banks
.^
Federal Reserve B a n k s . .
T o t a l gross d e b t o u t s t a n d i n g

___

Change
J u n e 30,
during
1962
fiscal y e a r
1962

F e b . 28,
1946 2

J u n e 30,
1961

$64.1
24.4
11.1
19.9
6.7
2.4
6.6

' $63.4
11.4
6.3
rl9.7
rl9.3
12.8
10.5

$65.2
11.3
6.3
19.3
19.7
14.1
11.6

25.0
8.5
19.7
2.2

135.1
28.0
93.8
22.9

143.3
66.1
62.5
27.3

147. 6
56.5
65.0
29.7

4.2
.4
2.4
2.4

55.3

279.8

289.2

298.6

9.4

J u n e 30,
1941

$11.2
7.1
3.4
2.0
.6
.2
.5

$1.8
—1

(*) '

—.4
.4
1. 5
1.1

P e r c e n t of total
Percent owned b y :
P r i v a t e n o n b a n k investors:
Individuals
Other
Total
F e d e r a l G o v e r n m e n t i n v e s t m e n t accounts
C o m m e r c i a l b a n k s . _.
F e d e r a l Reserve B a n k s
T o t a l gross d e b t o u t s t a n d i n g

20
26

23
25

22
28

45
16
36
4

48
10
34
8

60
19
22
9

49
19
22
10

100

•

*Less than $60 million.
' Revised.
1 Gross public debt, and guaranteed obligations of the Federal Government held outside the Treasury.
2 Immediate postwar peak of debt.
3 Includes partnerships and personal trust accounts. Nonprofit institutions and corporate pension trust
funds aire included under "Miscellaneous investors."
* Exclusive of banks and insurance companies.
8 Includes the investments of foreign balances and international accounts in the United States.
6 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, and nonbank dealers.

Private nonbank investors held an estimated $147.6 bfllion of
Federal securities at the end of fiscal 1962, almost one-half of the
$298.6 billion total Federal debt outstanding. This group of investors
comprises individuals (including partnerships and personal trust
accounts), insurance companies,fmutuar^savings banks, savings and
loan associations, nonfinancial corporations, pension funds, foreign
and international accounts. State and local governments, nonbank
dealers, and nonprofit associations. Commercial banks and Federal
Reserve Banks together held $94.6 billion, representing nearly onethird of the debt. The remaining $56.5 billion was held in Government investment accounts (primarily social security and unemployment
trust funds, veterans' insurance funds, and Government employees'
retirement funds). These figures are graphicaUy presented in chart 8.

REVIEW OF FISCAL OPERATIONS
CHART 8

Ownership of the Federal Debt, June 30,1962
$Bii.
Total
300-

Nonbank Investors

Gov't Invest.
Accounts
200"

/Savings
" ^ - y y / f / A If^St It uti ons
298'/2

Banks
lOO^-

All Other^V//A
;;j65:;^^ "^Coml

Federal
j, ,
Reserve^'''^m^\',,

Within the private nonbank sector, individuals increased their
holdings of Federal securities by $1.8 bfllion, from $63.4^ bfllion in
June 1961 to $65;2 bfllion in June 1962, and remained the largest
single investor group in the Federal debt ownership structure. They
increased their holdings of Series E and H savings bonds by $1.1
biUion during the fiscal year, bringing their investment in these
bonds to an afl time high of $44.6 bfllion which represented two-thirds
of aU Federal securities owned by this group. Individuals' holdings
of the discontinued Series F, G, J, and K savings bonds declined by
$0.5 biUion during fiscal 1962, whfle holdings of other Federal
securities, mainly marketable issues, were increased by about $1.2
biUion.
Federal securities held by insurance companies on June 30, 1962,
totaled $11.3 bfllion, a decrease of $0.1 biflion during the year. Life
insurance firms owned $6.2 biUion, or 54 percent of the total, $0.2
biUion less than their holdings of a year earlier. Life insurance
companies continued to reduce their investment in nonmarketable
obligations through the exchange of $0.4 biUion Investment B bonds
for marketable V/i percent notes dming the year. Through theu*
participation in the senior advance refunding of September 1961, life
insurance companies acquired an additional $1.0 biUion of securities
maturing in 20 years or more. This refunding of almost one-sixth
of their total Federal securities had the effect of sharply increasing
' Revised.

1962 REPORT OF THE SECRETARY OF THE TREASURY

the average length^ of life insurance marketable holdings to 20 years
8 months, from the 1961 fiscal yearend figure of 16 years 7 months.
Fire, "casualty, and marine insurancei^companies increased their
holdings of Federal securities by $0.1 biUion during the year, reaching
a yearend level of $5.2 bfllion. They continued to hold about
two-thirds of their marketable portfolio in securities maturing within
1 to 10 years and another 20 percent in under-one-year maturities.
The average length of the marketable holdings of these companies
was reduced by 2 months during the fiscal year to 5 years 7 months on
June;30, 1962.
At:the end of fiscal 1962 mutual savings banks held $6.3 biUion of
Federal securities, slightly less than on June 30, 1961. Savings banks
increased their holdings of securities in the 20-year and over category
by $0.3 bfllion during the year, primarfly by subscribing to long-term
issues offered in the senior advance refunding of September 1961.
Mainly as a result of this exchange, the average maturity of the
mutual savings banks portfolio rose from 10 years 6 months on
June 30, 1961, to 11 years 3 months at the end of fiscal 1962.
Federal securities held by nonfinancial corporations totaled $19.3
bfllion at the end of fiscal 1962, $0.4 biUion lower than the amount
held on June 30, 1961.
Holdings of Federal securities by State and local governments
were estimated to be $19.7 bfllion at the close of fiscal 1962, an increase
of $0.4 bfllion from that of June 1961. About $6 bfllion of the Federal
security holdings of these State and local governmental units was in
employee retirement funds. The retirement funds participated actively in the senior advance refundings during the fiscal year and
acquired $0.5 bfllion of securities maturing in 1980, 1990, and 1998.
The maturity structure of their portfoho closely paralleled that of
life insurance companies and the average length of the marketable
holdings of 186 surveyed funds on June 30, 1962, was slightly over
21 years.
The general purpose funds of State and local governments continued
to increase during the year as the investment of temporarUy idle
balances resulting from capital market borrowing and other sources
grew at a faster pace than the liquidation for current cash n^eds.
Although well over one-half of the holdings of these funds mature in
the 12 months of fiscal year 1963, there is a sizeable investment iri
securities maturing in the over 20-year maturity range. These
general funds added $0.4 bfllion of 1980, 1990, and 1998 maturities
during the advance refundings of fisc^ 1962, and at the end of the
1 In deriving average length figures, all marketable securities are classified to final maturity except
partially tax-exempt bonds which are classified to earliest call date-

REVIEW OF FISCAL OPERATIONS

year, the average length of the marketable holdings of 298 surveyed
funds reached 5 years 8 months.
The holdings of all other private nonbank investors amounted to
$25.7 biUion on June 30, 1962, an increase of $2.5 bilhon for the year.
Foreign balances invested in Federal securities increased by $0.9
biUion to $9.0 billion at the close of the fiscal year. The larger
Western European countries accounted for the bulk^of the 12-month
increase which was largely represented by special, nonmarketable certificates of indebtedness issued directly to foreign monetary authorities. International institutions increased their holdings by $0.6
biUion as the International Bank for Reconstruction and Development acquired $0.3 billion of marketable securities, and the International Monetary Fund an additional $0.2 billion of special
noninterest-bearing notes.
Savings and loan associations increased their holdings by $0.4
billion during the fiscal year to $5.4 billion. The marketable securities of the 488 large savings and loan associations included in the
Treasury survey of ownership had an average length to maturity of
9 years 3 months on June 30, 1962, 4 months longer than that of the
previous fiscal yearend.
The remaining investors (nonprofit associations, nonbank dealers,
corporate pension funds, and certain smaUer institutional groups) in
the private nonbank investor group are estimated to have increased
their holdings of Federal securities by $0.7 biUion during the fiscal
year and to have held about $6.2 billion on June 30, 1962.
Government investment accounts added to their holdings of Federal securities during the year by $0.4 billion. The largest increases
were registered by the Government employee retirement funds ($1.0
billion), the highway trust fund ($0.2 billion), and the Federal Deposit Insurance Corporation ($0.2 billion). The major offset to these
increases was a $1.1 billion reduction in the Federal old-age and survivors insurance trust fund. Of the $56.5 billion Federal securities
held by Government investment accounts on June 30, 1962, $44.9
billion, or almost 80 percent, was in the form of special issues held
only by these accounts. Details on the ownership by Government
investment accoimts are shown in tables 67-92.
The $4.8 billion increase in Federal securities held by the banking
system during the year was evenly divided between commercial and
Federal Reserve Banks. The $2.4 bflhon increase in the Federal Reserve System account brought the total to $29.7 billion at the yearend.
The $2.4 bilhon increase in the holdings of commercial banks was concentrated in the smaUer country member and nonmember bank groups
which acquired $2.0 billion of the total. New York and Chicago

1962 REPORT OF THE SECRETARY OF THE TREASURY

banks reduced their holdings of Federal securities by $0.2 biUion,
while reserve city banks added $0.6 biUion.
A breakdown of the estimated changes during fiscal 1962 in bank
versus nonbank ownership is given by type of issue in the following
table. A summary of the Treasury survey of ownership of the
interest-bearing public debt and guaranteed obligations forfiscal1962
is shown in table 58.
Estimated changes in ownership of Federal securities ^ by type of issue, fiscal year
1962
[In billions of dollars]
Change accounted for b y Total
changes

Marketable securities:
Treasury bills:
Weekly—maturing within 3 months
Weekly—maturing in 3-6 months
One-year .
Tax anticipation
Total bills
. . . *.
Treasury certificates of indebtedness
. Treasury notes.. . . . . . . .
Treasury bonds, e t c . :
Totalmarketable
Nonmarketable securities, etc.:
U.S. savings bonds
Special issues to Government investment
accounts....:;. . . .
Treasury bonds, investment series .
other
... .
Total nonmarketable, etc..
Total change

Private Govern- Commer- Federal
cial
Reserve
nonbank ment inBanks
Investors vestment banks
accounts

(*)

2.6
1.0
1.6
.3

1.1
1.1
1.6
.4

.1
-.1
-.1

1.3
-.3
.1
-.2

6.3
.2
9.2
-5.6

4.2
.8
-.9
-2.3

(*) "
(*)
(*)

1.0
.3
5.7
-4.4

.1
-.9
2.6
.6

9.1

3.6

2.5

2.4

(*)

2
-.1
.1

-.1

-.1
-1.1
1.4

-.1
-.1

-1.0
1.4

-.2

-.1

9.4

4.2

2.4

(*)
•

(*)

2.4

- •Less than $50 million.
" .
» Gross public debt, and guaranteed obligations of the Federal Government held outside the Treasury.

Taxation Developments
Taxation developments during 1962 were highlighted by the com^
pletion of congressional action on recommendations contained in the
President's tax message of Aprfl 1961 (see the 1961 annual report
exhibit 12, pp. 303-313). The Revenue Act of 1962, enacted in October, provides an investment credit to stimulate modernization of
American productive capacity, removes unwarranted tax inducements to investment abroad, and contains many provisions to make
the tax law more equitable. As a further encouragement to investment, in July 1962 the Treasury Department issued a revision of
depreciation schedules and procedures to permit more rapid and
realistic depreciation of machinery and equipment. Legislation was

REVIEW OF FISCAL OPERATIONS

also enacted granting self-employed individuals the right to take an
income tax deduction for contributions to qualified pension and profitsharing plans. The rates of the corporate income tax and certain
excise taxes were extended for another year beyond their scheduled
expiration date of June 30, 1962.
Presidential tax recommendations

The January 1962 budget message of the President for the fiscal
year 1963 repeated his request of April 20, 1961, for a tax credit for
investment in depreciable property, with offsetting revenues to be
derived from tax reforms. (For further detafls, see the 1961 annual
report, pp. 102-103.)
As part of his general recommendations to utflize Federal budget
policy for economic growth and stabflity, the President included in
the budget message a request for standby discretionary authority,
subject to congressional veto, to reduce personal income tax rates
when there is clear evidence of economic need. I t was suggested that
permissible periods and percentages for such reductions be included
in the legislation. In addition, the President urged the enactment of
legislation to strengthen the Federal-State unemployment system by
including a permanent system of extended benefits under certain
circumstances for workers whose regular benefits have expired.
The President's budget message recommended extension for another year of tax rates which were scheduled to be reduced or repealed
on July 1, 1962. These included the corporation income tax and the
excises on alcoholic beverages, cigarettes, passenger automobfles,
automobfle parts and accessories, and general telephone service. At
the same time, the President recommended revision of the 10 percent
excise tax on transportation of persons as part of his proposals
for a system of user charges for the airways and waterways. Under
these proposals, the 10 percent tax on transportation of persons,
other than by air, would have been repealed effective after June 30,
1962, and the tax on transportation of persons by air extended at the
10 percent rate through December 31, 1962. As of January 1, 1963,
the tax on air transportation would have been replaced by a 5 percent
user charge on transportation of persons and freight by air; the existing
net tax of 2 cents per gallon on aviation gasoline would have been
extended to jet fuel, with the rate increased to 3 cents a gallon on
fuel used in general (private plane) aviation; and a tax of 2 cents per
gallon imposed on fuel used in boats on the inland waterways.
These user charge recommendations also were included in the
President's message on transportation of April 5, 1962. That message
additionally recommended an increase from 5 years to 7 years in the

1962 REPORT OF THE SECRETARY OF THE TREASURY

period during which regulated public utUities, including those engaged
in transportation, can carry over operating losses.
The President's message on conservation, transmitted to the Congress on March 1, 1962, recommended the creation of a land conservation fund to be used to purchase additional recreational lands.
The fund would have been financed by fees from users of Federal
parks and recreational areas, receipts from the sale of surplus Federal lands (other than military lands), the 2 cents per gallon of the
4 cents per gaflon tax on gasoline which purchasers of gasoline may
now have refunded if the gasoline is used in boats, and an annual
graduated user charge on pleasure craft.
Revenue Act of 1962

The Revenue Act of 1962, Pubhc Law 87-834, approved October
16, 1962, improves existing law in virtually every area covered by
the President's 1961 tax proposals (see 1961 annual report, pp.
23-26). Considerable preliminary work on the bUl had been done
by the Committee on Ways and Means of the House of Representatives in 1961 (see 1961 annual report, pp. 104-105).
Investment credit.—The President originally proposed a credit
against income tax liability measured primarfly by investment expenditures in new equipment in excess of current depreciation allowances. In the law as enacted, the credit is not dependent upon
depreciation allowances. The tax credit is 7 percent (3 percent in
the case of certain public utilities) of investment made after December 31, 1961, in depreciable machinery and equipment used in the
United States. The amount of the credit may be offset in fuU
against tax liability not in excess of $25,000, and against one-fourth
of the tax liability above this level. A three-year carryback and a
five-year carryforward are provided for unused credits. In computing the credit there is taken into account the fuU cost of property
(except that the cost of used property must be reduced by the adjusted
basis of similar property disposed of) with an estimated useful life
of eight years or more, two-thirds of the cost of property with an
estimated life of six to eight years, and one-third of the cost of property with an estimated life of four to six years. AU investment in
ehgible new property and up to $50,000 per year of investment in
used property may qualify for the credit. Contrary to the President's recommendation, the law requires a reduction of the depreciable
basis of assets by the amount of the investment credit.
Gain from disposition of certain depreciable property,-—Gain from the
disposition of depreciable property generally has been taxed at capital
gains rates, even though such gain may represent, in whole or in part,
a recovery of depreciation previously charged against ordinary income.
Under the Revenue Act of 1962, the gain on the disposition of de-

REVIEW OF FISCAL OPERATIONS

preciable personal property wfll be taxed as ordinary income to the
extent of gain representing depreciation taken after December 31,
1961. In view of the recapture provided for gains reflecting "excessive" depreciation, the law contains a liberalizing change which permits
taxpayers to reduce the amount taken into account as salvage value
of depreciable personal property with a useful life of three years or
more by 10 percent of the cost of the asset. The deduction for
charitable contributions of depreciable personal property also is
revised to reflect the new treatment of gains from dispositions of
depreciable personal property. The deduction is reduced by the
amount of any depreciation taken after December 31, 1961, which
would have been taxed as ordinary income if the property had been
sold at its fair market value at the time of such contribution. This
provision prevents a second deduction of an amount already deducted
as depreciation.
The President's original recommendation that ordinary income tax
treatment be applied to gains on the disposition of real property in
the same manner as personal property was not included in the law.
Interest and dividends.—In lieu of the President's recommendation
for withholding of tax at source on interest, dividends, and cooperatives' patronage dividends, the new law provides that information
returns be ffled with the Internal Revenue Service on payments
made on or after January 1, 1963, of dividends, interest, or patronage
dividends of $10 or more per annum to any person. Simflar information statements must be furnished to the recipients of such payments.
Under prior law and regiflations, dividend payments of $10 or more,
interest payments of $600 or more, and patronage dividend payments
of $100 or more had to be reported to the Service, and there was no
reporting to the recipient.
The President's recommendation for repeal of the dividend credit
and exclusion was not included in the law.
Travel, entertainment, and gifts.—The President originally recommended that the cost of pertain business entertainment and the
maintenance of entertainment facflities, such as yachts and hunting
lodges, be disallowed in full as a tax deduction. In addition, he
requested that restrictions be imposed on the deductibility of business
gifts, business trips combined with vacations, and excessive personal
living expenses incurred on business travel away from home.
The Revenue Act of 1962 imposes substantial limitations on deductions for entertainment expanses. The so-called Cohan rifle {Cohan v.
Commissioner, 39 F. 2d 540), under which taxipayers could estimate
the amount of these expenses for tax deduction purposes, is eliminated.
Strict substantiation is now required, not only of the amount of such
expenses but of their business nature. No deduction is to.be per-

1962 REPORT OF THE SECRETARY OF THE TREASURY

mitted for the cost of most business gifts in excess of $25 to any one
individual per year. In the case of combined business and vacation
travel, if the total time away from home exceeds one week and if the
pleasure portion of the trip constitutes 25 percent or more of the time
away from home, no deduction is allowed for the portion of the expense
which is not allocable to the business activity. Entertainment expenses are disallowed unless they are directly related to—or, in the
case of entertainment immediately preceding or following a substantial and bona fide business discussion, associated with—the active
conduct of the taxpayer's business. Costs of maintaining entertainment facilities, such as yachts, hunting lodges, and country club
dues, are to be allowed as a deduction only if the particular facility
is used more than 50 percent in furtherance of the taxpayer's trade
or business; and then only with respect to the portion of the cost of
such use which is directly related to the active conduct of the taxpayer's trade or business. Exceptions to the new limitations are
made for such items as business meals and recreational expenses for
employees.
Mutual savings banks and savings and loan associations.—-Mutual
savings banks and savings and loan associations were virtually free
of income tax under prior law because deductions could be taken for
additions to bad debt reserves as long as total reserves, surplus, and
undivided proflts did not exceed 12 percent of deposits. The Treasury
Department recommended that these institutions be taxed in a manner more closely comparable to commercial banks. Under the
Revenue Act of 1962, the savings institutions may take deductions
for additions to reserves for losses on nonqualifying loans (generally
loans on other than real property) only to the extent that the deductions are based on loss experience. A special deduction is provided
for the reserve for losses on qualifying loans on real property. This
deduction is the larger of: (1) 60 percent of retained income (before
deductions for bad debt reserves) less the amount of additions to the
reserve for nonqualifying loans, but not in excess of the amount necessary to bring the reserve up to 6 percent of real estate loans; (2) the
amount necessary to bring the reserve up to 3 percent of real estate
loans; or (3) the reserve addition which would be permitted imder the
loss experience method. More generous [provision is made for new
companies. I t is also provided that the deduction for additions to
the loss reserve on real estate loans (unless determined under the
experience method) may not exceed an amount which brings the total
of reserves, surplus, and undivided proflts to 12 percent of deposits
or withdrawable accounts. Certain excise tax exemptions previously
available to savings and loan associations also were repealed by the
new law.

REVIEW OF FISCAL OPERATIONS

Cooperatives.—Under prior law a cooperative could exclude from
its taxable income patronage dividends allocated to patrons in
noncash form, even though the patrons had to pay no current tax on
such allocations because they had no market value. The act, following
the President's recommendation, provides for current taxation of
cooperative income, either at the cooperative level or the patron
level. In order for patronage dividends to be deductible by a cooperative, at least 20 percent of the face value must be paid in cash. Furthermore, where the patronage dividend is not all paid in cash, the
patron is subject to current taxation on the face value of the noncash
portion of the dividend (and this portion is deductible by the cooperative) only if it is redeemable in cash within 90 days at the option of the
patron or the patron has consented by specified means to be currently
taxable thereon.
Mutual fire and casualty insurance companies.—Stock fire and
casualty companies are taxed'on their total income, that is, income
derived from investments and income from underwriting. Mutual
fire and casualty insurance companies, on the other hand, have been
taxed at corporate rates only upon their investment income, or one
percent of their gross receipts, whichever is greater. Underwriting
income and losses have not been recognized as part of taxable income.
The President recommended the taxation of mutual fixe and casualty
companies on the same basis as their stock counterparts.
The new law taxes mutual fire and casualty companies on their
underwriting income as well as their investment income, except that it
defers tax upon a portion of each year's underwriting income, representing a reserve against underwriting losses, for a period of five years
and for an indefinite period in the case of one-eighth of each year's
underwriting income. Special provisions apply to small companies,
companies with concentrated risks, reciprocals or interinsurers,
and factory mutuals.
Foreign income.—The Revenue Act of 1962 contains a number of
provisions revising the tax treatment of foreign income. As a general
rule, the foreign income of foreign corporations o^vned by Americans
is not subject to U.S. tax until such income is distributed to the U.S.
owners. The Revenue Act of 1962 eliminates this deferral of U.S.
tax for profits of those foreign corporations which have " t a x haven"
income in excess of 30 percent of total income. The U.S. shareholders
of these " t a x haven" corporations are subject to current tax in the
United States. Tax haven corporations are, in general, those incorporated in countries which impose little or no income tax on operations outside such countries. Tax haven income includes such items
as certain types of interest, dividends, royalties, and profits from
some sales and service activities. Dividend and interest income to
661496^63

1962 REPORT OF THE SECRETARY OF THE TREASURY

the foreign corporation from less-developed coimtries which would
otherwise be tax haven income wfll not be taxed if reinvested in lessdeveloped countries. Existing law with respect to the operation of
nontax haven foreign corporations, such as manufacturing companies,
is not affected by the act. Furthermore, there are two important
overall exceptions to the application of current taxation. If U.S.
shareholders of a foreign corporation (or a group of foreign corporations) receive a certain "minimum distribution" of aftertax foreign
earnings of the corporation, or group of corporations, they will be
exempt from the current tax on the tax haven income of such corporation or corporations. Secondly, if, among other things, 75 percent of the foreign company's income came from U.S. exports and
sufiicient export promotion expenses overseas, its U.S. shareholders
will not be taxed on the profits from such export trade income which
might otherwise be tax haven income to the extent that such profits
are reinvested in assets used in its export trade business.
Another amendment revises the method of computing the U.S.
tax on dividends received by U.S. corporations from foreign subsidiaries operating in developed countries, but not as to those operating
in less-developed countries. Under prior law, the foreign income tax
paid by the foreign subsidiary was deducted from the earnings and
profits subject to U.S. tax as a dividend. In addition, the U.S.
company was allowed a tax credit (a deduction from its tax liability)
for a proportionate part of the foreign income tax paid by the subsidiary. Thus, both a deduction and a credit were allowed for the
foreign income tax, so that "double counting" existed. Under the
act, the parent corporation receiving dividends from developed area
subsidiaries is required, as a condition for obtaining the tax credit, to
include in taxable income the amount of the foreign tax, which ensures
that the earnings represented by the dividend will bear a tax equal
to the present U.S. corporate tax rate of 52 percent.
Earnings of foreign subsidiaries which are realized through a
liquidation or sale of the foreign corporation have been taxed as
capital gains in the past. Under the act, gains received by certain
U.S. shareholders on the liquidation or sale of a controlled foreign
corporation wiU be subject to U.S. tax at ordinary rates (less a credit
for foreign taxes), rather than at capital gain rates, to the extent of
the undistributed profits of the foreign corporation accumulated after
December 31,- 1962. Earnings received from less-developed country
corporations held for 10 years or more are excluded from the new
rule for such years as the subsidiary qualified as a less-developed
country corporation and wfll continue to be taxed as capital gains.
Under prior law, U.S. citizens who were "bona fide residents"
of a foreign country were exenipt from U.S. tax on their earned income.

REVIEW OF FISCAL OPERATIONS

The 1962 act limits the amount that can be so excluded to $20,000
per year for the first three years of such residence and $35,000 per
year thereafter. The act does not change the provision of existing
law that U.S. citizens physically present in a foreign country for 17
out of 18 consecutive months, but not establishing residence abroad,
may exclude $20,000 of earned income per year during the period of
such presence abroad.
The act corrects the tax advantage to U.S. taxpayers arising from
ownership of stock of foreign investment companies which accumulated their income so that these shareholders could, in effect, turn
investment income into capital gains when their stock was redeemed
or sold. Gain on the sale of stock of foreign investment companies
now wfll be taxed as ordinary income to the extent of the undistributed
earniags and profits of the company for taxable years beginning after
December 31, 1962. An exception is made if the company elects,
beginning in 1963, to distribute 90 percent of its ordinary income and
the U.S. shareholders, in addition, report their share of the undistributed capital gains of the company. Stock ownership in foreign
investment companies wfll, thus, have substantially the same tax
pbsition as that in domestic investment companies.
Other provisions of the Revenue Act of 1962 relating to foreign
income include: The elimination of the exemption of foreign real
estate from the Federal estate tax as of July 1964; the taxation at
ordiaary income rates of sales after calendar 1962 of U.S. patents and
like property by U.S. parent corporations to their foreign subsidiaries;
the correction of an aspect of the foreign tax credit mechanism relating
to interest iacome which provided an incentive to the transfer of U.S.
funds for deposit abroad on a short-term basis; the substantial
expansion of the information required to be furnished to the Internal
Revenue Service regarding foreign subsidiaries; the full U.S. taxation
of U.S. beneficiaries receiving distributions from foreign trusts created
by U.S. grantors; and taxation at fair market value rather than, as
previously, at cost of distributions of property from foreign corporations.
The act provides that its provisions wfll control in the event of
conflicts with any existing tax treaties. The Treasury Department
does not believe that there are any conflicts with such treaties (with
one minor exception in the Greek Estate Tax Treaty). Therefore,
the provision merely forestalls needless litigation without violating
our treaty obligations.
Miscellaneous items.—The act contains a number of amendments
not related to the President's tax recommendations.
The legislation permits a deduction as an ordinary and necessary
business expense of expenses of appearing before or submitting state-

19 62 REPORT OF THE SECRETARY OF THE TREASURY

ments to individual legislators, committees, or legislative bodies in
connection with legislative matters. I t also permits the deductibflity
under similar circumstances of dues paid to an organization allocable
to such activities by the organization and to the communication of
information between the organization and its members with respect
to legislation of direct interest to the members and the organization.
The legislation does not permit the deductibflity of the most significant
portion of lobbying expenses, that is, expenses incurred in connection
with appeals to the public or segments thereof to support or defeat
legislation, commonly referred to as "grassroots" lobbying.
Other amendments of more than limited interest provide that:
Expenditures incurred by farmers in the clearing of land may be
deducted to the extent of $5,000 or 25 percent of the taxable income
from farming for the year, whichever is the lesser; when an individual
is entitled in effect to spread his income for tax purposes back over
the years to which it is attributable, he may elect to apply the 20- or
30-percent limitation on charitable contributions before the income
is spread; there shall be excluded from gross income, for taxable
years ending after July 2, 1948, certain awards made pursuant to
evacuation claims of Japanese-Americans; and a tenant-stockholder
of a cooperative housing corporation may take a deduction for depreciation of his stock if he uses his share of the buflding for business or
the production of income.
Revenue efect.—The following table indicates the revenue effect of
the Revenue Act of 1962.
Estimated revenue effect of ihe Revenue Act of 1962
[In millions of dollars]
Full year

Investment tax credit 3
_
Capital gains on depreciable property
Reporting on dividends and interest
Expense accounts
Mutual savings banks and savings and loan associations
Mutual fire and casualty companies
Cooperatives
_
Foreign items:
Controlled foreign corporations
Gross-up of dividends
All other foreign items
:._.
Miscellaneous provisions
Total

Fiscal year 1963

Gross 1

Net 2

-1,020
+100
4-f240
' +100
+200
+40
+36

+50
4+155
+65
+135
+26
+26

+86
+25
+30
-5
-170

Gross 1

Net 2
-530

+6
+5

+86
+26
+30
-6

+10

-970

-515

1 Without taking into account the effect of the provisions on the economy.
2 After taking into account the estimated effect of the provisions on the economy.
3 At levels of income and investment estimated for 1962. In estimating the net revenue cost of the investment credit, its favorable effects on the level of investment were computed from statistical relationships in
the past years between investment and gradual changes in the cost of capital goods (profitability) and cash
flow. This procedure thus does not take into account the especially favorable impact on businessmen's
decisions to invest of the sudden major improvements in these factors resulting from the enactment of the
credit. Taking this into account should produce more favorable effects than those shown in the table.
* Estimated gain from increased compliance because of reporting requirements.

REVIEW OF FISCAL OPERATIONS

Depreciation developments

On July 11, 1962, the Treasury Department issued its revised
Depreciation Guidelines and Rules as Revenue Procedure 62-21 (for
background see 1961 annual report, pp. 109-111). The new guidelines apply to about 75 broad classes of assets and thus depart from
the item by item approach of Bulletin F issued in 1942. New guideline lives, on the average, are 30 to 40 percent shorter than those
previously suggested, and wfll permit more rapid depreciation than
presently taken on 70 to 80 percent of machinery and equipment.
They will not disturb the depreciation on the remaining business assets
on which depreciation is now as fast as, or faster than, that provided
in the new guidelines. Any taxpayer may use the new guideline
lives, or a life longer than the guidelines, as a matter of right for a
period of 3 years. In addition, any taxpayer may continue to use
even shorter lives if he has already done so in prior years or
may adopt shorter lives if supported by' the facts and circumstances.
Use of the guidelines (or shorter lives) wfll continue to be accepted
thereafter unless there are clear indications that the taxpayer's
replacement practices do not conform with the depreciation clauned
or are not even showing a trend in that direction. Tax^reductions ^X
possible from the new depreciation guidelines were estimated to be
$L5j3illion-injtheJb:sJ^a^^
'^'^
.^ A central aim of the new procedure is to provide an'objective test,
although not an exclusive one, of the appropriateness of the depreciation taken, whether faster, longer, or the same as in the guidelines.
This test is provided by the reserve ratio table contained in Revenue
Procedure 62-21 which illustrates for various depreciable lives classified by depreciation methods whether retirement and replacement
practices are consistent with the class life being used.. Class lives may
be lengthened or shortened if the actual reserve ratio falls beyond the
standards set forth in the reserve ratio table. The reserve ratio test
is not exclusive, and, where not met, the taxpayer always wfll
be, allowed, as previously, to demonstrate the reasonableness of
his depreciation derived on the basis of all pertinent facts and
circumstances.
Pensions, social security, and unemployment compensation

The Self-Employed Individuals Tax Retirement Act of 1962 CPubhc
Law 87-792, approyed October 10, 1962) permits self-employed
individuals to participate in qualified pension and profit-sharing plans.
Previously, only employees were permitted to be covered, by such
plans. Under the legislation, a self-employed person can contribute
annually to a pension or profit-sharing plan on his own behalf 10 percent of his personal service income or $2,500, whichever is less. In
determining his income tax liability he can deduct one-half of these

1962 REPORT OF THE SECRETARY OF THE TREASURY

contributions, so that his maxunum annual deduction is $1,250.
Under certain conditions, he can contribute (but not deduct) additional amounts within limits. The funds set aside in the plans as
well as the earnings accumulated on such funds remain free of tax
until withdrawn.
Contributions to the plans can be invested in a wide range of assets
held in a trust or a custodial account or invested directly in annuity
contracts or a special issue of Government bonds. A plan must provide that self-employed individuals shall not receive benefits before
the age of 59K unless they are disabled before that age. Benefits for
the self-employed also must begin before the age of 70K. The retirement, benefits received from the plans by self-employed individuals
wfll be taxable as ordinary income. Averaging treatment wfll be
accorded lump-sum distributions.
A self-employed person establishing a plan for himself under the
legislation is required to provide comparable coverage in the plan for
all his full-time employees with more than three years of service and
give them vested rights. A plan is not permitted to discriminate in
favor of the self-employed person, highly paid employees, oflficers,
or supervisors.
The legislation is effective for taxable years beginning after December 31, 1962. The revenue loss is estimated at $115 million for a fuU
year of operation.
No changes were made in 1962 in the law governing social security
taxes. But substantial amendments were made to the public assistance and child welfare programs under the Social Security Act by the
Public Welfare Amendments of 1962, Public Law 87-543, approved
July 25, 1962. The new law incorporates recommendations the
President made to the Congress in his message of February 1, 1962,
on this subject.
In a message to Congress on February 9, 1961, President Kennedy
recommended extension of the social security system to include a
health insurance program for all persons aged 65 or over who are
eligible for social security or raflroad retirement benefits (see 1961
annual report, p. 107). This recommendation was repeated in the
President's budget message of January 1962. The President's recommendation was incorporated in H.R. 4222, but the bill was not
reported out of the committee. A bfll simflar to H.R. 4222, but
extended to provide beneflts for those not eligible for social security,
was introduced in the Senate as an amendment to H.R. 10606 which
became Public Law 87-543. The Senate tabled the amendment.

REVIEW OP FISCAL OPERATIONS
Tax rate extension and user charges

The President's request for extension of certain tax rates was incorporated in Public Law 87-508, approved June 28, 1962. In addition
to a one-year extension of the corporate income tax and the excise
taxes on alcoholic beverages, cigarettes, passenger automobfles and
parts and general telephone service, the act repealed the 10 percent
excise tax on transportation of persons, except by air, as of November 16, 1962. The tax on transportation by air was reduced to 5 percent as of the same date with provision made for repeal of the tax as of
July 1, 1963. The domestic portion of international air trips was
exempted from tax at the time of the tax reduction. The 10 percent
tax on private line communication services was repealed as of January
1, 1963, for services used in a trade or business. The revenue effect of
this law is shown in detail in the following table.
Estimated revenue effect of the Tax Rate Extension Act of 1962
[In millions of dollars]
Effect on net budget receipts,
fiscal year 1963
Increase,
or
decrease
Increase,
(-)in
Decrease
or
revenue,
decrease in refunds Total
full year
(-)in
receipts

Source

1,300

2,800

138
9
6

315
86
14

180
78
9

263

152

416

267

235

259

240

360
60

410
60

430
73

420

470

503

395
-6

525
-18

389

507

Corporation income tax

1,300

Excise taxes:
Alcohol:
Distilledspirits
Beer
Wines

177
77
9

Total alcohol taxes
Tobacco:
Cigarettes, (small) _.
Manufacturers excise taxes:
Passenger automobiles .
..
Parts and accessories for automobiles

...

Total manufacturers excise taxes
Miscellaneous excise taxes:
Communications:
General telephone service
Repeal tax on private or leased wires

Total com-mnnic^tioris ta^fps . .
Transportation of persons:
Air:
Rate change. .
Repeal tax on domestic portion of international
travel
_
Other
Total transportation of persons
Totftl miscellaneous excise taves .^
Total excise taxes
Grand total..

..-

.:.....
.

...
.

-2
-3

—4
-46

-60

424

457

1,342

226

1,568

1,467

2,642

226

2,868

4,267

1962 REPORT OF THE SECRETARY OF THE TREASURY

Consideration of the President's airways and waterways user charge
proposals was deferred. The Congress also did not act on the land
conservation fund recommendation.
Miscellaneous legislation
Income taxes.—VvAAio, Law 87-403, approved February 2, 1962,
revised the tax treatment of General Motors stock received by
individuals as a result of the court order in the du Pont antitrust case
{United States v.. E. I. du Pont de Nemours and Co., et al, 365 U.S. 806
(1961)). The receipt of stock by individual shareholders (or any
shareholder not entitled to the corporate dividend received deduction)
is treated as a return of capital, with capital gains tax to be paid on
any excess of the value of the distribution over the stockholders'
basis for their du Pont stock. If the bfll had not been enacted, individual shareholders would have been required to pay ordinary income
tax on the full fair market value of the General Motors stock received.
Public Law 87-426, approved March 31, 1962, permits taxpayers
to deduct casualty losses on returns filed for the taxable year immediately preceding the taxable year in which the disaster occurred if t h e ,
disaster occurred before the time prescribed for the filing of the
income tax return for the prior year. To qualify for this treatment,
the casualty loss must be attributable to a disaster in an area designated by the President as a disaster area under section 1855 of Title
42 of the United States Code. Since the law is effective for any
disaster occurring after December 31, 1961, it was available to
taxpayers suffering storm losses in the Atlantic Coast storm of March
1962.
For purposes of the estimated income tax, fishermen are to be
accorded the same treatment as farmers, according to the provisions
of Public Law 87-682, approved September 25, 1962. The principal
advantage provided is the privflege of fiLling the declaration of estimated tax and paying the estimated tax by January 15 after the
end of the year in question (iii the case of calendar-year taxpayers^.
The President's recommendation in his transportation message
to Congress for a 7-year net operating loss carryover for public
utilities was adopted in large part in Public Law 87-710, approved
September 28, 1962. While corporations generally may carry net
operating losses back three years and any remaining unused loss
forward five years, this legislation permits regulated transportation
corporations (other than pipelines) to carry forward a net operating
loss for 7 years if the loss occurs in a taxable year ending after December 31, 1955.
Pubhc Law 87-768, approved October 9, 1962, liberahzed the
requirements that consumer flnance companies must meet to be
exempt from personal holding company tax. Previously^ the In-

REVIEW OF FISCAL OPERATIONS

ternal Revenue Code specified that the exempt consumer finance
companies must derive 80 percent of their gross income from loans
made under limits specified in the Code. Under the new law, consumer -finance companies need only meet State restrictions on the
amount of interest charged, or the period of loans granted. Income
from subsidiaries exempt from personal holding company tax may
be included in the 80 percent of gross income which qualifies the
finance company for exemption from personal holding company tax.
An amendment to a tariff law. Public Law 87-790, approved
October 10, 1962, extended the existing deduction permitted life
insurance companies of 2 percent of their premiums from group
accident and health insurance contracts to premiums from individual
accident and health contracts: Congress has requested the Treasury
Department to conduct a study of problems raised by this amendment, including the appropriateness of such a deduction, its desirability as between group and individual contracts, and the desirability of giving a simflar allowance to casualty insurance companies.
The Trade Expansion Act of 1962, Pubhc Law 87-794, approved
.October 11, 1962, includes several forms of adjustment assistance
for firms certified as being eligible because of serious injury by increased imports resulting from trade agreement concessions. One
relief provision extends the net operating loss carryback from three
to five years for any firm certified for tax assistance by the Secretalry
of Commerce. The 5-year carryback applies only to losses incurred
in taxable years ending on or after December 31, 1962.
Public Law 87-858, approved October 23, 1962, adds to the list
of organizations for which the additional 10 percent charitable deduction may be taken those organized and operated exclusively
to receive, invest, and disburse funds for the benefit of a college
which is an instrumentality of a State or a political subdivision thereof.
The law also contains six amendments to Part I of Subchapter L of
the Internal Revenue Code, relating to income taxation of life insurance companies. The amendments are concerned with: Taxation
of variable annuities for years beginning after December 31, 1962;
exemption from" tax for capital gains realized under segregated asset
accounts for qualified pension contracts; computation of tax where net
long-term gain exceeds net short-term capital loss; the order of priority
to be used in determining the limit applicable to certain deductions
(e.g., policyholder dividends); the definition of a new corporation for
purposes of the 8-year loss carryover; and the reduction of tax accounts in the case of certain distributions between January 1, 1962,
and December 31, 1963, of stock of given types of controlled insurance
corporations.

1962 REPORT OF THE SECRETARY OF THE TREASURY

Public Law 87-863, approved October 23, 1962, increases the
general limit on the personal income tax deduction for medical expenses from $2,500 to $5,000 multiplied by the number of exemptions,
other than those for age and blindness. The overall maximum deduction for an individual filing a separate return is raised from $5,000 to
$10,000; for a joint, head of household, or surviving spouse return,
the increase is from $10,000 to $20,000. The allowable medical deduction by an individual or his spouse, one of whom is 65 years of age
or older and disabled and not filing separate returns, is increased from
$15,000 to $20,000; for a joint return when both are over 65 and disabled, the maximum is increased from $30,000 to $40,000.
Public Law 87-863 also amends prior law to permit exemption from
income tax of pension plans which provide medical benefits to retired
employees. However, a plan wfll qualify for exemption only if the
medical benefits are subordinate to the retirement benefits.
• This act further grants taxpayers a new option to expense intangible
drilling and development costs if they previously had exercised an
option to capitalize these costs under the Internal Revenue Code of
,1939. The new option applies to taxable years beginniug after
October 22, 1962. A revision also was made in the method of computing the reduction of tax where a taxpayer restores a substantial
amount (over $3,000) included in his income in a prior year because it
was incorrectly believed to be held by him under a claim of right.
Public Law 87-870, approved October 23, 1962, provides that a
terminal railroad corporation is not required to take into income
amounts charged for terminal services performed for any raikoad
corporation which are offset by credits for related charges by the raflroad corporation. Simflarly, a raflroad shareholder of the terminal
railroad corporation is not to be considered as having received a
dividend or incurred expenses with respect to these amounts so offset.
For taxable years ending after its enactment. Public Law 87-870 is not
to apply to the extent that it would create (or increase) a net operating
loss of the terminal raflroad corporation. Special rules are provided
for application to closed years and years prior to enactment of the law.
The credit against tax permitted individuals for retirement income,
other than social security or simflar payments excluded from income,
was increased by Public Law 87-876, approved October 24, 1962, in
order to relate the value of the credit more closely to recent increases
in social security benefits and the outside earnings permitted social
security beneficiaries, The maximum amount of retirement income
which may be taken into account in computing the credit is raised
from $1,200 to $1,524. In addition, instead of earned income in
excess of $1,200 reducing the retirement income eligible for the credit
on a dollar-for-dollar basis, the dollar-for-doUar reduction wiU occur

REVIEW OF FISCAL OPERATIONS

only for earnings above $1,700; for earnings between $1,200 and
$1,700, the retirement income wiU be reduced by 50 cents for every
dollar of earnings. Moreover, for those retiring under public retirement programs, this new reduction for earned income wiU apply to
those age 62 or over, rather than 65 or over, as under prior law;
for those under 62 years of age who are under a public retirement
program, the deduction from retirement income of earned income in
excess of $900 continues to apply, the same as under prior law.
This act also includes a provision denying mutual savings banks
and savings and loan associations, unless otherwise permitted by
regulations, the right to deduct in any one year amounts paid or
credited to depositors or account holders if such amounts are paid
or credited for periods representing more than 12 months.
Excise taxes.—The Tariff Classification Act of 1962, Public Law
87-456, approved May 24, 1962, includes a provision for the transfer
of the taxes on imported sugar, petroleum products, coal, copper,
lumber, certain animal and vegetable oils and oil-bearing seeds from
the Internal Revenue Code to the new tariff schedules. Although
these taxes had been incorporated in the Internal Revenue Code,
provision always had been made for their assessment and collection
as a duty under the Tariff Act. The act also provides for transfer
of the taxes on the first domestic processing of coconut and palm
oil to the tariff schedules and changes the method of computing the
tax on sugar manufactured in the United States. The changes wfll
be effective the tenth day foUowing a proclamation of the President
relating to the new tariff schedules. At the end of calendar 1962
such a proclamation had not been issued.
Public Law 87-535, the Sugar Act Amendments of 1962, approved
July 13, 1962, extended the excise taxes on domestically manufactured
or imported sugar from December 31, 1962, through June 30, 1967.
Expenditures by manufacturers for ^local advertising" in cooperation with their distributors, which may be excluded from the selling
price on which the manufacturers excise tax is based, were expanded
by a section of Pubhc Law 87-770, approved October 9, 1962, to
include advertising in magazines or outdoor advertising signs or posters. Previously, the deduction was limited to newspaper, radio, and
television advertising.
Public Law 87-858, approved October 23, 1962, includes a section
amending the special rule for determining the constructive (taxable)
price for manufacturers' sales at retail, or to retailers. The new law
permits individual manufacturers, except those producing automobfles,
trucks and buses, business machines, and matches, to use the highest
price at which they sell to wholesale distributors as a constructive
sales price. In the case of the named products, manufacturers may

19 62 REPORT OF THE SECRETARY OF THE TREASURY

use the constructive price mentioned only if they show that the normal method of sale by manufacturers of the speciflc type of item is
not at retail, or to retaflers, or a combination thereof. If such proof
is not given, the taxable price for sales to retaflers is the actual selling
price, and for sales at retafl, the lower of the actual price or the highest price for which such articles are sold to wholesalers by manufacturers. Prior to Public Law 87-858, the requirement with respect to
automobiles, trucks and buses, business machines, and matches was
the rule for all manufacturers excise taxes.
Public Law 87-859, approved October 23, 1962, includes a.section
which extends from June 30, 1963, to June 30, 1966, the present suspension of the 3 cents per pound tax on the first domestic processing
of coconut ofl, palm ofl, and palm kernel ofl. The suspension does not
go to the additional tax of 2 cents a pound on coconut oil which is
not derived from materials from the Phhippine Islands or the Trust
Territory of the Paciflc (see also Public Law 87-456, above).
Administration, interpretation, and clarification of tax laws

During the fiscal year, the Treasury Department published 39
Treasury decisions, 3 complete regulations (not issued as Treasury
decisions), 5 executive orders, and 24 notices of proposed rulemaking
relating to tax matters.
The addition of section 456 to the Internal Revenue Code by Public
Law 87-109, required the issuance of temporary regulations (T.D.
6596) to inform taxpayers how to make the election permitted by
the section, the scope of the election, and how the special transitional rule contained in the section wfll operate. Section 456 permits
certain membership organizations to elect to defer the reporting/of
prepaid dues income which relates to a liabflity to render services or
make available membership privfleges over a period beyond the close
of the taxable year of receipt and not exceeding 36 months.
Other Treasury decisions published concerned the election for determining, for years prior to 1961, gross income from the mining of certain
clays and shale used in the manufacture of certain products; the
election to treat as allowable mining processes the crushing, grinding,
and separation of clay or quartzite from waste for certain prior taxable years when used in the manufacture of refractory products; the
election to include prepaid subscription income in gross income for
the taxable years during which a liability exists to furnish or deliver
a newspaper, magazine, or other periodical; the deduction of Mary^
land ground rent paid on or after January 1, 1962; acquisitions made
to evade or avoid income tax and allocation of income and deductions
among taxpayers; and real estate iavestment trusts.

REVIEW OF FISCAL OPERATIONS

Notices of proposed rulemaking published during the year concerned the use of taxpayer account numbers; excise tax on motor
vehicles; copyright royalties for purposes of personal holding company
tax and small business investment companies; credits and refunds
for certain excise taxes on sales and services; excise tax on toilet
preparations; and valuation of shares of open-end investment companies.
Federal-State tax relations

Signiflcant developments occurred in the area of Federal-State
administrative cooperation. In February 1962, the Secretary of the
Treasury submitted to the Congress draft legislation which would
permit the Internal Revenue Service (1) to make special statistical
studies from tax data upon written request from States (and other
governmental and private organizations) on a reimbursable basis,
and (2) to provide training facilities for representatives of State,
local, and foreign governments at a reasonable fee. Money received
in payment for work or other services would be retained in a special
account and used to reimburse the appropriation for these activities.
Public Law 87-870, approved October 23, 1962, gave effect to the
Secretary's recommendation.
Exchange of tax information between the Internal Revenue Service
and the States was increased by the negotiation of cooperative agreements with additional States. This program was initiated in 1950
as an income tax audit exchange and revised in 1957 to cover all
types of tax information. Prior to 1961 cooperative agreements were
in effect with seven States. As of July 1, 1962, agreements had been
negotiated with 13 States, and three additional States came into
the program before the end of 1962.^
During the year, agreements between the Treasury and the States
for withholding of State income taxes on salaries of Federal employees
by Federal departments and agencies were entered into with four
additional States (Wisconsin, Minnesota, New Mexico, and Virginia).
With the exception of six States, all States imposing income taxes
now provide for withholding of tax on wages and salaries, and the
Treasury has agreements with all these.
International tax matters

The major legislative developments during the year in international taxation were included in the Revenue Act of 1962 and have
been discussed in earlier paragraphs with the domestic aspects of
that act.
V
1 Cooperative agreements are in effect with: California, Colorado, Indiana, Iowa, Kansas, Kentucky,
Maryland, Minnesota, Missouri, Montana, North Carolina, Ohio, Oregon, Utah, West Virginia, and
Wisconsin.

1962 REPORT OF THE SECRETARY OF THE TREASURY

Duriug 1962, Treasury discussions were conducted with several
countries for the purpose of negotiating new tax treaties or amending
existing treaties. Talks with Japan were concluded and a protocol
was signed on August 14, 1962, which modifies and supplements the
existing income tax convention. The protocol is designed to bring
the Japanese convention into closer conformity with other income
tax conventions to which the United States is a party. The changes
relate particularly to the treatment of income from interest, dividends, and royalties.
As a result of discussions concerning the application to the Netherlands Antilles of theU.S. tax treaty with^the Netherlands, it was agreed
that for this purpose there should be modiflcations of three articles
relating to the tax treatment of interest, dividends, and royalties.
These modifications would eliminate the abuse of the convention by
persons residing outside the Antilles who create companies incorporated in the Netherlands Antilles for the purpose of investing in the
United States and deriving income subject to the reduced withholding
taxes or to tax exemption under the treaty.
Discussions as to modification of the income tax treaty with Sweden,
which began before fiscal 1962, were continued. Further negotiations
took place wiih Germany and the Netherlands with a view to modifying existing treaties, but were not concluded by the close of the
fiscal year. Exploratory talks were held with Portugal for the purpose
of considering an income tax convention to eliminate double taxation.
Treasury representatives comprised the U.S. delegation to the
Fiscal Committee of the Organization for Economic Cooperation and
Development (OECD) which has been engaged in developing a model
income tax convention to serve as a basis for treaties between the
member countries and ultimately, perhaps, as a basis for amultflateral
accord. The Fiscal Committee established two new working groups
during the year, each headed by the U.S. delegation. One is charged
with the development of a treaty provision to cope with the abuse of
income tax conventions by persons who are nonresidents of a given
country but establish legal entities there to receive income generated
elsewhere to get the benefit of that country's tax treaties. The other
working group is preparing recommendations on tax measures that
might be taken by [industrialized countries to promote private investment in developing countries.
For additional materials on taxation see exhibits 17-28.
International Financial Affairs
The U.S. balance of payments and gold and dollar movements

The U.S. balance of payments.—The U,S. overall balance-ofpayments position continued to improve in the first half of the calendar

REVIEW OF FISCAL OPERATIONS

year 1962, but much remains to be done before equUibrium is reached
in our international accounts. (The overall balance is the sum of
changes in gold and convertible currency holdings of U.S. monetary
authorities plus changes in gTOss liquid liabihties to foreigners.) After
overall deflcits averaging $3.7 billion per year in the calendar years
1958-1960, the deficit was cut to $2.5 billion in 1961 and in the first
half of 1962 was running at an annual rate of $1.4 biUion.
Our '^basic balance" (the balance on goods and services. Government
assistance, and long-term capital account, which represents all of our
recorded international transactions exclusive of U.S. private shortterm capital outflow and foreign commercial credits to.the United
States) averaged $3.3 billion per year in the calendar years 1958-1960,
then was sharply reduced to a little over $400 mfllion in 1961. In the
first half of 1962 it was running at an annual rate of $568 mfllion.
Part of the improvement in our balance-of-payments position has
been due to debt prepayments by foreign countries to the U.S. Government. In the first half of 1962, much of the reduction in our overall
deficit was apparently due to the payments difficulties experienced by
Canada in that period. (Preliminary figures indicate that, as our net
receipts from Canada were to a.large extent reversed following the
improvement of the Canadian international position, our overall deficit
with all areas rose somewhat to an annual rate for the first nine months
of 1962 of about $1.8 billion.)
Analyzing the recent situation in the broadest of terms, a fundamental indication of the strengthening of our international payments
position has been the reduction of our deflcits, as variously measured,
in spite of a rise in nonmflitary merchandise imports. In the first
half of 1962, our merchandise imports rose to $15.9 billion at an
annual rate, an increase of $1.4 bfllion over our imports for the full
year 1961. In spite of this, our basic balance in the fitrst half of 1962
worsened by only $170 million at an annual rate while the overall
deficit was lower by $1 bfllion on an annual rate basis.
For a detailed statistical analysis of the balance-of-payments data
for 1960, 1961, and the flrst half of 1962, see table 111. Data on the
U.S. international investment and gold position, which reflect changes
in our international assets and liabilities resulting from our balance of
payments and investments abroad, are presented in table 110.
In March 1962 the Secretary of the Treasury submitted a public
report to the President reviewing the various measures which had been
taken by the administration, and the tasks which remained to be accomplished, in order to cope with the urgent balance-of-payments
problem faced by the United States. (The report is reproduced as
exhibit 35. Other statements on the balance-of-payments situation
by the Secretary, Under Secretary Fowler, and the Under Secretary of

19 62 REPORT OF THE SECRETARY OF THE TREASURY

the Treasury for Monetary Affairs are presented in exhibits 38, 40,
and 41.)
Gold and dollar movements.—The gold and liquid dollar holdings of
foreign countries (excluding gold holdings of the USSR and other
Eastern European countries and China Mainland) amounted to an
estimated $43.6 billion on June 30, 1962. Of this amount, oflficial
gold reserves were $22.6 billion, official and private short-term dollar
assets held with banks in the United States were $19.6 billion, and
estimated ofiicial and private holdings of U.S. Government bonds and
notes were $1.3 bilhon. The total represented an increase of $3.6
billion over the amount held as of June 30, 1961 (see table 108).
Western European countries increased their gold and liquid dollar
assets during fiscal 1962 by $3.2 bilhon, accounting for most of the
foreign gains. Most European countries shared in the gains, with
France registering the largest increase (over $800 million); but Germany, which had the largest gain in fiscal 1961 in spite of large debt
prepayments, sustained a reduction of almost $300 milhon in fiscal
1962. Latin American holdings rose by $222 million, reversing a loss
of approximately the same amount in fiscal 1961. Asiatic holdings
rose by only $109 million, substantially below the fiscal 1961 gain, as
Japanese holdings declined by $157 million. Canadian holdings were
reduced by $235 million. The holdings of the rest of the world rose
by $349 million, including a $279 million gain by the Union of South
Africa.
The gold and liquid dollar assets held by international institutions
rose by $168 million, amounting to $7.6 biUion at the end of flscal 1962.
The estimated ofl&cial gold holdings of the world (excluding the
USSR, other Eastern European countries, and China Mainland) were
$41.3 billion as of June 30, 1962. Of this amount the United States
held $16.5 billion and international institutions $2.1 billion.
Treasury foreign exchange reporting system.—Dsitsi relating to capital movements between the United States and foreign countries have
been collected by the Treasury Department siiice 1935. The data are
obtained from monthly reports by banks and brokers and quarterly
reports by nonfinancial concerns to the Treasury Department through
the Federal Reserve Banks. The reports provide information on
liabilities to foreigners, claims on foreigners, and securities transactions with foreigners, and constitute the basis for statistics on the
dollar holdings of foreign countries and international institutions and
other statistics on capital movements which enter into the U.S. balance of payments.
The program begun during flscal 1961 to enlarge the coverage and
to improve the reliability of the reports was continued during fiscal
.1962. Substantial improvements were made in the coverage of report-

REVIEW OF FISCAL OPERATIONS

ing by nonbanking firms. In consultation with other interested Government agencies and with the Federal Reserve System, a broad review
of the foreign exchange reporting- system was begun with a view to
appraising the need for developing additional types of data and
the feasibility of obtaining them. Some of these proposals were discussed with a number of banks and nonbanking concerns. By the end
of the fiscal year preparations were in an advanced stage for the introduction of a new report from nonbanking concerns on their liquid
assets abroad. (This report was put into effect in August 1962.)
These steps were part of the continuing program to ensure the reliability of the capital movements statistics.
Foreign exchange stabilization operations

The operations which were begun in the fiscal year 1961 were continued and expanded during fiscal 1962. After many years of controls
exercised by most foreign countries over their international payments,
the major world currencies became convertible for nonresidents in
1959 and funds were permitted to flow much more freely in international money markets. Movements of short-term funds in search
of favorable interest rates or in response to doubts about currency
stability made it highly desirable for the United States to protect the
dollar against temporary and disorderly exchange rate movements by
means of ofl&cial operations in the exchange markets. These operations are of particular importance at a time when the U.S. balance of
payments is in deflcit. Transactions of this nature have, of course,
been conducted for years by many other countries and were also
carried on by the United States before World War II.
The flrst of these operations was reported in 1961. I t consisted of
intervention in the forward exchange market for Deutsch emarks following the revaluation of the mark in March 1961, and was successfully completed in the latter half of the calendar year. All forward
commitments were liquidated, and with the strengthening of the
dollar it proved advantageous to purchase moderate amounts of
Deutschemarks on a spot basis for use in future operations. A portion
of the marks so acquired was employed during the latter part of the
fiscal year 1962 at times of temporary pressure on the dollar. With
the usefulness of such operations flrmly established, the Treasury
broadened its activities during the fiscal jGen by diversifying into
other major currencies and by testing and activating new techniques
of intervention in the exchange markets.
One major operation undertaken by the Treasury involved the
sale of forward Swiss francs to offset ^^hot money" infiows into Switzerland, which had temporarily sweUed Swiss dollar reserves in the wake
of the Berlin crisis in the faU of 1961. In order to provide cover for
661496—63

19 62 REPORT OF THE SECRETARY OF THE TREASURY

these forward transactions, a line of credit was arranged with the
Swiss National Bank, and a portion ($46 million) of this line was
utilized by the issuance of three-month certiflcates of indebtedness
denominated in Swiss francs to supply the Treasury with additional
Swiss franc balances. In the second half of the fiscal year the fiow of
dollars into Switzerland was reversed. Consequently, the borrowings
were repaid, the forward obligations substantially reduced, and some
gold was purchased from Switzerland by the United States. These
operations of the Treasury to even out the flow of U.S. dollars to and
from Switzerland were also of assistance to the Swiss authorities by
introducing new methods to help offset the excessive liquidity in the
. Swiss market that tends to be created by the occasional inflows of
short-term funds into a traditional ^^safe haven."
Early in the fiscal year a balance of Netherlands guilders was acquired, for such use as might later prove desirable. In January,
when a substantial premium on the forward guilder encouraged doUar
inflows into the Netherlands and deterred outflows for short-term
investment purposes, it was decided to test operations in the forward
guilder market. The subsequent decline in the premium on the forward guilder and also a weakening in the spot guilder rate allowed
additional purchases of spot guflders to cover the Treasury's forward
commitments and also left a balance to permit further occasional
intervention in the market.
Owing to a continuing balance-of-payments surplus in Italy, that
country's dollar reserves increased substantiaUy during the period
and created a potential gold demand on the United States. To lessen
the accumulation of dollars by Italy, the Treasury took over a substantial bloc of forward contracts from the Italian exchange authorities
and also began to operate in the spot market in lire, using for this purpose lire borrowed against the issuance of certiflcates of indebtedness
denominated in lire. These operations have been continued and
expanded up to the present time.
The foreign currency borrowing operations in Swiss francs and
Italian lire were the first such borro^vings undertaken since 1918.
They proved a particularly useful tool, giving the United States
foreign currency balances for operational needs in a manner mutuaUy
advantageous to the United States and the foreign monetary authorities concerned.
Early in 1962 the Federal Reserve began foreign exchange operations with policy objectives identical to those of the Treasury, and
coordinated through the Federal Reserve Bank of New York which
acts as agent for both. Federal Reserve operations during the period
took the form of a series of swap arrangements with seven countries
totaling $700 million, which added greatly to the U.S. resources avafl-

REVIEW OF FISCAL OPERATIONS

able for exchange operations. The usefulness of such swap arrangements to foreign countries as well as to the United States was shown
in the case of Canada where a Federal Reserve swap played an important role in the Canadian Government's stabUization program of June
1962, designed to reinforce Canada's efforts to defend the Canadian
dollar.
The usefulness of these operations is not limited to the immediate
effects of the transactions themselves. The fact that the United
States, in cooperation with the monetary authorities of other leading
countries, has brought into being facilities to protect the doUar in
international exchange markets against temporary pressures in itself
provides reassurance and deters speculative movements. Thus, the
exchange markets remained relatively calm at the time of the worldwide stock market declines of May and June 1962, a gratifying development that may be explained, at least in part, by the existence of
cooperative facilities to protect currency values. (See exhibit 44.)
Treasury exchange and stabilization agreements

During the fiscal year Treasury exchange agreements were signed
with Costa Rica, El Salvador, and the Philippines, and the agreements
with Mexico and Argentina were renewed or replaced. As of June
30, 1962, agreements were in force with five countries, Argentina,
Brazfl, Costa Rica, Mexico, and the Philippine Republic, in the total
amount of $226 million. A one-year exchange agreement with Chile,
in the amount of $15 million, ended on February 9, 1962. The oneyear exchange agreement with El Salvador, in the amount of $6
million, which would have expired on July 14, 1962, was terminated
at the request of El Salvador on May 4, 1962.
The Treasury Department on September 7, 1961, concluded a
one-year $6 mfllion exchange agreement with Costa Rica to assist that
country in simplifying its foreign exchange rate structure and in
achieving an exchange system free of restrictions. This exchange
agreement supplemented a $15 mfllion standby arrangement with the
International Monetary Fund, which was announced on September 6,
1961. (See exhibit 46.)
The existing Treasury exchange agreement with Mexico for $75
mfllion was renewed for two years on December 22, 1961. The agreement was extended to support Mexico's exchange rate, in conjunction
with an International Monetary Fund standby arrangement for $90
mfllion and also an Export-Import Bank credit of $90 million which
had been announced on August 2, 1961.
The $50 mfllion exchange agreement between the U.S. Treasury
Department and Argentina signed on June 7, 1962, replaced one for
a simUar amount signed on December 28, 1961. This agreement was
supplementary to an International Monetary Fund standby arrange-

19 62 REPORT OF THE SECRETARY OF THE TREASURY

ment of June 6, 1962, in the amount of $100 million, for the purpose
of assisting the Argentine Government in continuing its stabilization
efforts. During the flscal year Argentina repaid $12 million against
advances totaling $25 million made under an exchange agreement in
force in 1959. No drawings were made by Argentina in the flscal year
1962.. (See exhibit 48.)
On June 19, 1962, a $25 million Treasury exchange agreement with
the Philippine Republic was signed. The Treasury agreement added
to the financial support provided by the $40,400,000 standby arrangement between the International Monetary Fund and the Philippines,
which went into effect on April 11, 1962. (See exhibit 49.)
During the flscal year the Government of Brazil made several
drawings under the $70 million exchange agreement concluded in
May 1961 between the Brazilian Government and the Treasury
Exchange Stabilization Fund. (See annual report for 1961, p. 122,
exhibit 23 and this report exhibit 47.) A drawing of $35 mfllion was
made on September 26. A special 45-day drawing of $30 million
made on October 31 was repaid on December 14, 1961. Another
$9.5 million was drawn on Aprfl 27, 1962.
The International Monetary Fund

Drawings from the Fund were made by 21 countries during fiscal
1962 in various currencies equivalent to over $2.5 billion. The
Uhited Kingdoin and Canada, respectively, drew $1.5 billion and
$300 million. The remaining $700 million was acquired by lessdeveloped countries.
The drawing by the United Kingdom, in August 1961, was accompanied by a standby arrangement with the Fund under which the
United Kingdom could draw an additional $500 mfllion during the
following twelve months. These facflities,' constituting the largest
ever provided by the Fund, were in support of a series of flscal and
monetary measures and certain other policies designed to restore a
strong United Kingdom balance-of-payments position at the existing
rate of exchange and without the imposition of restrictions on trade
and current payments. During the following months, the United
Kingdom position improved markedly, and through repurchases by
the United Kingdom and drawings of sterling by other members, over
$900 million of past United Kingdom Fund drawings were repaid by
Jiine 30, 1962.i
The drawing by Canada, its first, represented part of a total of
$1,050 mfllion in the form of short-term flnancial assistance extended
in June 1962 to defend the stability and convertibility of the Canadian
' Subsequently the entire drawing was repaid, but the standby continued in effect.

REVIEW OF FISCAL OPERATIONS

dollar at the recently established par value. ^ Additional assistance
was provided by the Export-Import Bank ($400 mfllion), the Federal
Reserve System ($250 mfllion), and the Bank of England ($100
million). Another industrialized country, Japan, also received Fund
assistance in the form of a $305 million standby arrangement for. one
year beginning January 1962; as of June 30, 1962, no currency drawing had been made under this arrangement.
Among the less-developed countries which made drawings on the
Fund during the flscal year, the largest use of Fund resources was by
India ($250 mfllion), followed by Argentina ($110 million), Indonesia
($82 million), the United Arab Republic ($60 million), and Mexico
($45 million). Ten additional Latin American countries and four in
other areas also made drawings.
In all, ten currencies were drawn from the Fund during the fiscal
year: Continental European currencies (German marks, French
francs, Netherlands guflders, Italian lire, Belgian francs, and vSwedish
kronor) totaling $1.4 bfllion, U.S. dollars totaling $760 million, sterling
totaling $215 mfllion, $75 mfllion in Canadian dollars, and $80 million
in Japanese yen. At the time of the United Kingdom drawing, the
Fund replenished its holdings of dollars and other currencies needed
by the sale of $500 million of its gold, of which $150 million was sold
to the United States. Repayments to the Fund totaled $1.4 billion,
including $1.2 bfllion of currencies repurchased by countries against
earlier drawings, $38 million of repayments in gold, and $155 mfllion
through drawings of currencies by other members.
Standby arrangements were in effect as of June 30, 1962, with 21
countries against which about $1.9 bfllion of currencies could be
drawn. Nearly $1.3 bfllion of this amount was available to the
United Kingdom. Upon expiry of the existing United Kingdom
arrangement in August 1962, a new one-year standby arrangement of
$1.0 bfllion was concluded.
During the fiscal year steps were taken toward strengthening the
international monetary S3^stem by a special borrowing arrangement
between the Fund and the ten leading industrial countries or their
central banks (the United States, the United Kingdom, France, Italy,
Japan, Canada, the Netherlands, and Belgium, and the central banks
of Germany and Sweden.) This followed intensive discussions of the
requirements of the international monetary system and of the abflity
of the Fund to meet exceptional demands for its resources arising
chiefly as the result of more widespread currency convertibflity and
temporary major disturbances due to short-term international capital
movements. The arrangement was embodied in a decision of January
8, 1962, and an exchange of letters among the countries concerned in
December 1961. The Fund decision set forth the terms and conditions

1962 REPORT OF THE SECRETARY OF THE TREASURY

on which the Fund would borrow supplemental resources and make
s.uch resources avaflable to a potential drawing country. Proposals
for the borrowing by the Fund of the currencies of the principal
industrial countries had been previously discussed at the Annual
Meeting of the Fund Board of Governors in Vienna in September
1961. In December representatives of the United States and the
nine other interested governments, meeting in Paris, reached agreement on the terms and conditions under which they would be prepared
to lend their currencies to the Fund. These terms and conditions
were set forth in an exchange of letters between Secretary DiUon and
the French Minister of Finance, dated December 15, 1961, and by
similar letters exchanged between the French Minister and the other
governments.
Under these arrangements, the participants would be prepared to
lend their currencies to the Fund up to specifled amounts whenever
the Fund, together with these countries, considered that additional
resources were needed to forestall or cope with an impau^ment of the
international monetary system. The total amount of such resources
would be the equivalent of $6 bfllion, including a U.S. credit arrangement of $2 billion.
On February 2, 1962, the President requested legislation to authorize U.S. participation in the Special Borrowing Arrangements/
In support of the legislation Secretary Dillon testifled before the
House Committee on Banking and Currency in February (see exhibit 32) and before the Senate Foreign Relations Committee in
March. The authorizing legislation was enacted on June 19, 1962
(Public Law 87-490). The borrowing arrangements became effective
on October 24, 1962, when the United States formally adhered to the
Fund decision.
In accordance with arrangements under which members of the
Fund which have accepted the convertibility obligations of Article
V I I I of the Agreement consult with the Fund on a voluntary basis, the
first annual consultation between the Fund and the United States was
held in March 1962.
Programs for financing economic development

The International Bank,—New loans authorized by the International Bank (IBRD) during fiscal 1962 totaled over $880 million, and
were extended for development projects in nineteen countries. Loans
for electric power accounted for over one-half the total, followed by
transportation projects ($241 million), and industrial and other
purposes ($148 miUion).
1 The President's message and the relevant documents are contained in the National Advisory Council,
on International Monetary and Financial Problems, Special Report, On Special Borrowing Arrangements
of the International Monetary Fund, January 1962.

REVIEW OF FISCAL OPERATIONS

Disbursements of loan funds during the period totaled $485 million.
Continuing its recent practices, the I B R D sold, without its guarantee,
$319 million of portions of its loan portfolio. The Bank's outstanding
funded debt increased by $292 million, as new borrowings and receipts
from transactions arranged earlier, mostly outside the United States,
amounted to $463 miUion, and repayments and refundings totaled
$171 miUion.
During the entire period of its operations the I B R D has extended
loans totaling over $6.5 billion, excluding cancellations, terminations,
and refundings. Principal repayments to the Bank totaled $542
mfllion and portions of loans sold or agreed to be sold amounted to
$1.3 billion. Disbursements totaled $4.8 billion. Excluding the early
postwar reconstruction loans to European members totaling about
$500 mfllion, I B R D development loans amounting to $2.2 bilhon have
been made in Asia and the Middle East, $1.6 billion in the Western
Hemisphere, $947 million in Europe, $885 million in Africa, and $418
million in Australia.
The I B R D continued during fiscal 1962 to provide various advisory
services and technical assistance to its members. In the furtherance
of the mobilization of capital from the industrialized countries for investment in countries formulating comprehensive development plans,
the I B R D has taken an active role in the formation and coordination
of consultative groups. During the year groups for Nigeria and
Tunisia met under the chairmanship of the I B R D . Requests by other
countries for the formation of such groups are being considered. The
flnancial consortia of countries interested in providing major assistance
to India and Pakistan held a number of meetings dming the year,
and additional flnancing commitments were made in support of the
development plans of these nations.
The International Development Association.—The International Development Association (IDA), an afffliate of the International Bank
providing development flnancing on lenient terms, had by June 30,
1962, extended $235 million in credits since the commencement of its
operations in November 1960. Eighteen credits totaling $134
mfllion were extended during the fiscal year.
The initial resources of the IDA are contributed by the member
governments according to a schedule of installments over a flve-year
period ending in 1964. Of the total initial subscriptions, amounting
to about $917 mfllion on the basis of the membership as of June 30,
1962, the U.S. share is $320,290,000. The three remaining U.S.
installments of $61.7 mfllion each are payable in November 1962,
1963, and 1964.
As of June 30, 1962, IDA's freely convertible resources, including
subscription instaUments to be received, available for additional credits

19 62 REPORT OF THE SECRETARY OF THE TREASURY

amounted to about $520 million. This figure does not include the 90
percent portion of the subscriptions of the Part I I members which is
payable in their own currencies. Discussions of the question of the
replenishment of IDA resources commenced during the year, and at the
Annual Meeting of the Board of Governors held in Washington in
September 1962, it was agreed that the Executive Directors would
study this question and make specific recommendations.
The International Finance Corporation.—The International Finance
Corporation (IFC), an afliliate of the International Bank which invests in productive private enterprises, made nine investment commitments during the year totaling $18.4 million. An underwriting
commitment of $2.9 million also was made. The cumulative total of
investment commitments, net of cancellations, reached $62.5 million
as of June 30, 1962, in addition to the underwriting commitment,
comprising investments in 20 countries. I F C investments sold or
agreed to be sold to private investors totaled $10.1 million. Cumulative disbursements amounted to about $45 million and uncommitted
funds available for operational activities totaled $55.3 million.
The I F C Articles of Agreement were amended during flscal 1962 to
remove the restriction on equity investment. Most new commitments undertaken since the amendment became effective in September
1961 included the acquisition by the I F C of some common stock,
^long with flxed-interest obligations.
Inter-American Development Bank.—On June 30, 1962, the InterAmerican Development Bank (IDB) completed its first full year of
operations. Since its first loan in February 1961, it had approved 69
loans totahng $224 million in almost every Latin American country.
Forty-eight loans totaling $156 million were made from ordinary
capital and twenty-one loans totaling $68 million were made from
the Fund for Special Operations. Loans have been made in the fields
of both industry and agriculture and most have financed private
enterprise projects.
The IDB's authorized resources total $1 billion, but because Cuba
did not become a member, actual resources are about $959 million;
composed of about $813 million in ordinary capital and $146 milhon
in the Fund for Special Operations. The ordinary capital consists
of about $382 million in paid-in capital with the remainder in callable
capital. The paid-in portion is made up of 50 percent gold or U.S.
dollars and 50 percent in the currency of the member country; it is
paid in three installments, the last of which is due by October 31,
1962. The aggregate U.S. participation in the I D B amounts to
$450 milhon, comprising a subscription of $150 million for paid-in
shares of capital stock, a subscription of $200 million to the caUable
capital stock, and a quota of $100 million in the resources of the Fund

REVIEW OF FISCAL OPERATIONS

for Special Operations. Also included in the Bank's ordinary resources is about $24 miflion in Italian hre, raised by a bond issue in
Italy in April 1962 in the Bank's first borrowing operation.
The payment of about $146 million in contributions to the Fund
for Special Operations was completed in October 1961. These are
calculated on the basis of quotas separate from the capital subscriptions but are also paid 50 percent in gold or U.S. currency and 50
percent in member's currency. Loans from the Fund for Special
Operations are made on terms appropriate for dealing with special
circumstances and, unlike those from ordinary capital, are usually
repayable in the currency of the borrower.
Qn June 19, 1961, the I D B entered into an agreement with the
United States which entrusted to the Bank the administration of
the Social Progress Trust Fund, comprising $394 million of the funds
appropriated by the Congress on May 27, 1961, for the InterAmerican Social and Economic Cooperation Program (Public Law
87-41). Under the Trust Fund Agreement, the I D B is empowered
to use the resources to extend loans and provide technical assistance
to Latin American countries on flexible terms and conditions to
support their own efforts in specifled flelds of social development.
As of June 30, 1962, thirty-six Social Progress Trust Fund loans had
been extended for a total amount of $224 million to 14 Latin American
countries, and $1.1 million had been extended in the form of nonreimbursable technical assistance.
The Third Annual Meeting of the Board of Governors of the I D B
was held in Buenos Aires, Argentina, in April 1962. The U.S. delegation was headed by Secretary of the Treasury Dillon, as U.S.
Governor. Dming the meeting the Governors approved resolutions
directing the Executive Directors to study the question' of enlarging
the resources of the Bank and the question of export financing in
Latin America.
The Alliance for Progress.—President Kennedy, on March 13, 1961,
caUed upon the peoples of Latin America to join in an ''Alliance for
Progress" to work cooperatively in a concerted effort to satisfy basic
needs for homes, work, land, health, and schools. He requested the
convocation of a special meeting of the Inter-American Economic
and Social CouncU at the ministerial level to discuss this program.
The meetiag was held at Punta del Este, Uruguay, in August 1961.
As leader of the U.S. delegation. Secretary of the Treasury DiUon
outlined the objectives of the AUiance and suggested speciflc proposals for the pursuit of these objectives during the decade of the
sixties. He indicated that the United States would be prepared to
provide over a biUion doUars of assistance for the first year of the
Alliance. He said that if Latin America took the necessary internal

1962 REPORT OF THE SECRETARY OF THE TREASURY

measures it might reasonably expect its own efforts to be matched
by an infiow of capital during the next decade amounting to at least
$20 bUlion from all sources of external financiug, public and private.
The Charter of Punta del Este, adopted at the meeting, established
the framework of the Alliance for Progress, which places emphasis on
the responsibflities of the Latin American countries to undertake administrative reforms, including both land and tax reforms, and to
prepare plans and implementing measures to promote balanced economic and social growth. I t was agreed that the development plans
and programs of individual countries would be reviewed by a panel
of experts selected by the Inter-American Economic and Social
CouncU of the Organization of American States.
During the flscal year 1962, the U.S. Government authorized
assistance in the form of loans and grants in excess of $1.1 biUion
to Latin America in pursuance of the AUiance for Progress. The
sources of this assistance included the Agency for International
Development ($475 mfllion), loans by the Export-Import Bank having a maturity of more than five years ($263 miUion), the Social
Progress Trust Fund administered by the Inter-American Development Bank ($224 mfllion). Food for Peace ($147 mfllion), and the
Peace Corps ($7 miUion).
The Agency for International Development.—Pursuant to the Foreign
Assistance Act of 1961 (Public Law 87-195) the International Cooperation Administration and the Development Loan Fund were abolished,
and the foreign economic assistance program established by the
legislation was assigned to the new Agency for International Development (AID) in the Department of State, which was created on November 4, 1961. Among the authorities entrusted to AID were development
lending, development grants and technical cooperation, investment guarantees, supporting assistance, surveys of investment
opportunities, and development research. In addition, AID was
made responsible for administering part of the funds provided under
the Inter-American Progxam for Social Progress (Public Law 86-735)
and for negotiating loans involving U.S.-owned local currencies,
including those acquired under sections 104(e) and 104(g) of the
Agricultmal Trade Development and Assistance Act of 1954 (Public
Law 480), as amended.
During fiscal 1962, AID dollar commitments amounted to $2.5
biUion. Of the total, dollar repayable loans authorized accounted
for $1.6 bilhon. About $920 mfllion was authorized for loans to
countries in the Near East and South Asia, more than one-half this
amount to India. Loan authorizations to Latin America totaled
about $455 mfllion, loans to Africa about $165 million, and loans
to Far Eastern countries about $62 milhon.

REVIEW OF FISCAL OPERATIONS

Under the provisions of the Foreign Assistance Act, the AID
continued the recent policy of maximizing expenditures within the
United States of foreign assistance funds. Commodity procurement
was prohibited from specified countries other than less-developed
countries, and the portion of assistance transferred to foreign countries
in the form of doflars rather than U.S. goods and services was being
reduced.
The Export-Import Bank.—The total of the loans, guarantees,
and export credit insurance authorized by the Export-Import Bank
during the flscal year amounted to over $1.8 billion, representing, the
largest volume of business done by the Bank in any year since the
large postwar reconstruction loans were extended to European
countries. Development project credits totaled $555 mfllion, and
emergency foreign trade loans $500 million. Included within the
latter were $400 million in short-term standby credits for Canada
extended in June 1962 to be used, if needed, to maintain Canada's
trade with the United States. This amount was additional to credits
made available by the International Monetary Fund, the Federal
Reserve System, and the Bank of England to assist in the maintenance
of the par value of the Canadian dollar. The Export-Import Bank
also extended exporter credits and guarantees amounting to $462
mfllion, and committed $345 million for export credit insurance
through the Foreign Credit Insurance Association (FCIA).
The FCIA, an unincorporated group of over 70 major American
marine, casualty, and property insurance companies, which began
operations in February 1962, was formed in response to a request by
the Export-Import Bank for participation by the insurance companies
with the Bank in providing export credit insurance for U.S. exporters.
This was one of the activities started during the year to implement
the President's directive to prepare a new program to place U.S.
exporters on a basis of full equality with their competitors in other
countries. Comprehensive policies issued by the FCIA cover both
political and credit risks and are available for short-term (usually
up to 180 .days) and, beginning July 16, 1962, for medium-term (six
months to five years) credit transactions. The Export-Import Bank
underwrites all of the political risks and half of the credit risk on policies issued by FCIA.
Another new program instituted by the Export-Import Bank
during the year was a system of guarantees for commercial banks
and other financial iastitutions providing medium-term export
financing without recourse on the U.S. exporter. Under this program
the commercial banks assume the credit risks on the early maturities
of the foreign buyer's obligations, and the Export-Import Bank

1962 REPORT OF THE SECRETARY OF THE TREASURY

guarantee covers political risks on all inaturities and credit risks on the
later maturities.
The Export-Import Bank disbursed $943 million during the fiscal
year, and export guarantees and insurance amounting to $807 million
were financed privately. In addition, the Bank sold $300 mfllion
of its portfolio paper to private U.S. banks. Its earnings from interest
and fees were $165 million. Interest paid to the U.S. Treasury on
borrowed money was $57 million, and a $35 million dividend was
declared on the stock of the Bank held by the Secretary of the Treas^
ury. The Bank's uncommitted lending authority on June 30, 1962,
was $846 million.
Other international organizations and conferences

The Organization for Economic Cooperation and Development.—The
Organization for Economic Cooperation and Development (OECD) ^
is the successor of the Organization for European Economic Cooperation (OEEC). The OECD took the place of the OEEC in September
1961. The United States and Canada joined the new organization
although they had not been members of the old one.
Under Secretary of the Treasury Fowler attended the flrst Ministerial Council meeting of the OECD in Paris on November 16-17,
1961. At this meeting the Council of Ministers determined that
OECD member countries as a group should try. to increase real
output by 50 percent in the decade of the sixties.
The Economic Policy Committee of the OECD held regular meetings throughout the year in order to discuss the overaU economic
situation in the member countries. Under Secretary Roosa was
a regular U.S. delegation member to these meetings.
The Treasury has participated in the activities of two Working
Parties of the Economic Policy Committee. The Working.Party on
Policies for the Promotion of Better Payments Equilibrium (Working
Party 3) meets regularly at intervals of approximately six weeks;
Under Secretary Roosa is the Chairman of the U.S. delegation to this
Working Party. These meetings review the situations of both surplus
and deficit countries, and aim at achieving joint cooperation toward
the goal of international monetary stability.
A second study group of the Economic Pohcy Committee, the
Working Party on Policies for the Promotion of Economic Growth
(Working Party 2), since its inception has been concerned with
implementing the 50 percent collective growth target adopted by the
OECD Ministerial Councfl in^November 1961. f|
» Members of the OECD include the United States, Canada, Austria, Belgium', Denmark, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, and the United Kingdom.

REVIEW OF FISCAL OPERATIONS

The Development Assistance Committee (DAC) of the OECD has
investigated and considered means whereby development aid could
be made avaflable on a more effective basis and with a greater degree
of harmonization. DAC membership includes Belgium, Canada,
France, Germany, Italy, Japan, ^ the Netherlands, Portugal, the
United Kingdom, the United States, and the Commission of the
European Economic Community.
• The total flow of long-term official and private flnancial resources
from DAC members to the developing countries increased from $7.4
bfllion in the calendar year 1960 to $8.7 bfllion in 1961. The Annual
Aid Review of the DAC provides for careful study and examination
of each member's program and enables a comparison of relative aid
burdens and general aid policies. The Treasury Department
participated in the U.S. review which was held in June.
The Economic Development and Review Committee of the OECD
annually reviews the economies of the member countries and issues
a public report; the Treasury participates in the Committee's formal
examination of the U.S. economy and in the drafting of the public
report that follows. The Treasury also participates in the work of
the Fiscal Committee of the OECD and supplies the U.S. delegate
to the meetings. Other OECD Committees in which the Treasury
has an interest include the Trade Committee and the Committee for
Invisible Transactions.
The European Economic Community.—The movement toward
European economic integration intensified during the fiscal year 1962.
The members of the European Economic Community (EEC) (France,
Italy, Germany, Belgium, the Netherlands, and Luxembourg) cut
their internal tariffs by ten percent on December 31, 1961; at the same
time they abolished intra-EEC quota restrictions on industrial goods.
In addition, the member nations moved, on December 31, 1961, from
Stage I to Stage I I of the timetable which was established for the
E E C . E n t r y into the second stage entailed arriviag at agreement on
a common agricultural policy for the Six.
In M a y 1962, it was announced that a ^'speed-up" decision had
been made to cut tariffs by an additional ten percent on July 1, 1962.
As a result, on July 1, 1962, tariffs within the Common Market were
50 percent below what they were in 1957 on industrial products.
The reduction of basic duties on a large number of agricultural
products reached 35 percent. The rate at which customs duties
have been cut has placed the E E C two years ahead of the timetable
laid down in the original Treaty.
Great Britain applied in August 1961 for fifll membership in the
European Economic Community; Ireland, Denmark, and Norway
J Japan is not an OECD member but participates in the DAC.

1962 REPORT OF THE SECRETARY OF THE TREASURY

have also applied for full admission. A number of other European
countries have applied for associate membership.
The General Agreement on Tariffs and Trade,—The nineteenth
session of the Contracting Parties to the General Agreement on
Tariffs and Trade (GATT) was held during the fiscal year. This
session and the work of various committees of the GATT were concerned as usual with a very broad range of problems affecting world
trade. There was evident, however, a new stress on the need for
adaptation of the GATT program to deal more effectively with certain
special problems, notably those of agricultural trade and the need of
thiB less-developed countries for expanded export markets. An impetus was given to more vigorous attention to the latter problem by
a Ministerial Meeting under GATT in November 1961, at which 44
countries were represented. A Declaration on the Promotion of the
Trade of Less-Developed Countries was adopted by the Contracting
Parties as a basis for future work in this field.
With the continued strengthening of the currencies of the major
trading countries, representatives of the United States pressed, both
in GATT meetings and on other occasions, for further progress
toward eliminating nontariff restrictions by the major developed
countries. The quantitative restrictions by the economically-strong
countries in Western Europe against nonagricultural products have
been relaxed to a point where they have only minor signiflcance.
Other nontariff restrictions, however, continue to present obstacles to
U.S. exports.
The United States has continued to direct major effort toward
relaxing agricultural restrictions. One forum for this effort has been
in GATT Committee I I , which is now seeking * ^practical, measures
for the creation of acceptable conditions of access to world markets
for agricultural commodities." There have also been direct high-level
U.S. negotiations with officials of E E C and its member governments,
designed to protect the trading rights and opportunities of the United
States in the Common Market. Intensive study is now being given by
the interested departments, including the Treasury, of the indirect
barriers to U.S. exports. A program of action is to be undertaken
when the nature and signiflcance of these barriers is more completely
understood.
Negotiations with the E E C countries were of central importance
in the GATT Tariff Negotiations Conference which convened in
Geneva in September 1960. These complex negotiations involved
two phases. The first phase was concerned mainly with questions
of compensation where rates of duty previously bound in GATT
were to be increased through the establishment by the EEC. of a
single common external tariff to replace the various tariffs of the

REVIEW OF FISCAL OPERATIONS

member countries. These ''compensation" negotiations were sub. stantially completed by May 1961. Then began a general round of
negotiations for reciprocal reductions of tariff levels, involving
negotiations by many countries, not only with the E E C , but also
among themselves.
In this phase, the United States negotiated agreements for reciprocal
tariff reductions with the E E C and 14 other countries. By far the
most important of these agreements, measured by the amount of
trade affected, was the one with the E E C . Next in importance was
the agreement with the United Kingdom. Both phases of the
negotiations were formally concluded in July 1962, when the final
act authenticating the results of the Tariff Conference was opened
for signature.
International conferences.—The Annual Meeting of the Boards of
of Governors of the International Monetary Fund and the International Bank and its afl&liates was held in Washington in September
1962. The U.S. delegation was headed by Secretary Dillon as U.S.
Governor and Under Secretary of State Ball as Alternate Governor.
Under Secretary Fowler, Under Secretary of the Treasury for Monetary Affairs Roosa, Assistant Secretary Leddy, and Mr. Frank A.
Southard, Jr. (U.S. Executive Director of the Fund) acted as temporary Alternate Governors. The delegation included members of
the agencies constituting the National Advisory Councfl on International Monetary and Financial Problems, members of congressional committees, and other ofl&cials of the Government concerned
with the affairs of the international financial organizations.
President Kennedy addressed the Governors on September 20 and
emphasized the necessity for the other developed countries to assume
a greater share of the free world's financial burdens. The President
also announced the interest of the United States in an expansion of
resources of the International Development Association. At the
meeting of the Fund Governors, Secretary Dfllon (see exhibit 39) reviewed domestic developments in the United States and noted the
improvement in the international position of the dollar and of the
international payments system generally. In the meeting of Governors-of the Bank and its afl&liated iastitutions, the Executive Directors of the International Development Association were requested to
prepare a report on the need for increasing its resources.
Secretary of the Treasury Dillon headed the U.S. delegation to
the Special Meeting of the Inter-American Economic and Social
Council at the Ministerial level held at Punta del Este, Uruguay,
August 5-17, 1961 (see exhibit 29). The Charter of Punta del
Este and the Declaration to the peoples of America were signed
at this Conference. In December, Secretary Dillion attended the

19 62 REPORT OF THE SECRETARY OF THE TREASURY

North Atlantic Treaty Organization Ministerial meeting in Paris.
Under Secretary Fowler represented the Treasury Department at the
First Meeting of the Joint United States-Japan Committee on Trade
and Economic Affairs, held at Hakone, Japan, November 2-4, 1961.
Secretary Dillon led the U.S. delegation at the seventh meeting of
the Joint Canadian-United States Committee on Trade and Economic
Affairs held in Ottawa, January 12-13, 1962. He also, headed the
U.S. delegation to the Third Annual Meeting of the Board of Governors of the Inter-American Development Bank held in Buenos Aires,
Argentina, Aprfl 23-26, 1962 (see exhibit 37).
Secretary Dillon and Under Secretary Roosa addressed the American
Bankers Association meeting held in Rome, May 15-18. Secretary
Dillon reviewed the U.S. balance-of-payments problem and stressed
the importance of the development of European capital markets (see
exhibit 38). Under Secretary Roosa outlined U.S. activities in
foreign exchange markets (see exhibit 42).
Lend-lease silver

During World War I I the United States transferred a total of 410.8
million ounces of Treasury silver to certain foreign countries under
authority of the Lend-Lease Act of March 11, 1941. Although the
agreements differed somewhat in detail, they provided that the debtor
countries were to return a like kind and quantity of silver within five
years after termination of the national emergency as determined by
the President. Accordingly, the lend-lease silver was due to be returned by April 27, 1957, although the agreements with several of the
countries permitted a postponement of part of the repajmient for
two additional years. Prior to June 30, 1960, the entire amount of
silver due from the Governments of Australia, Belgium, Ethiopia, the
Netherlands, and the United Eangdom (also acting for the Government of the Fiji Islands) had been returned and taken into the account
of the Treasurer of the United States. In addition, a large portion of
the silver furnished during the war under lend-lease for use in undivided India had been retmrned and taken into the Treasurer's account
pursuant to arrangements concluded in 1957, whereby the U.S. Government agTced to a division of liability for this silver between India
and Pakistan. (See annual reports for 1957, pages 49 and 50; 1958,
pages 56 and 57; and 1959, page 65.) Saudi JArabia [commenced repayments during fiscal 1961.
, In the course of fiscal 1962, a total of 15.6 mfllion fine troy ounces
of silver, consisting of 3.6 million ounces from India, and 12.0 million
ounces from Pakistan was returned and taken into the account of
the Treasurer of the United States. Cash repayments of $13.7 million
made by Saudi Arabia were received and taken into the Treasurer's
account. Converted on the basis of the market price for silver on

REVIEW OF FISCAL OPERATIONS

the dates of receipt of such repaynients, this is equivalent to 14.4
million fine troy ounces of silver. On June 15, 1962, the United States
and Pakistan concluded an agreement providing for an extension in
connection with the balance remaining outstanding on account of
Pakistan's obligation. Pursuant to this agreement, the outstanding
balance, which amounts to approximately 4.6 million ounces, is to be
returned in three annual installments commencing in 1962. Repayment may be made either in silver or in dollars on the basis of the
market price of silver on the date the payment is made.
Lend-lease silver transactions as of J u n e SO, 1962
[In millions of fine ounces except where otherwise specifically indicated]
Silver transSilver
ferred from returned and
Dollar
repaySilver
the Treasury taken into
Silver
ments
tobe
being
to lend-lease the account
for account of the Treas- returned (millions) returned
of foreign
urer of the
governments United States
Australia
Belgium..
Ethiopia
Fiji
.
India
Netherlands
Pakistan
Saudi Arabia
United Kingdom

Total

11.8
.3
5.4
.2
172. 5
56.7
53.5
122.3
88.1

11.8.
.3
5.4
.2
172.2
56.7
47.9
-1.4
88.1

0.3

410.8

384.0

1.3

1.0

• 2 $13.7

3 4.6
5.5

2 $13.7

10.1

1 Includes 1,031,250 ounces lost at sea while in transit.
2 Equivalent to 14.4 million fine troy ounces of silver converted on basis of the market price on the date
of receipt.
3 Under an agreement originally concluded with Pakistan in 1957 and modified in 1962, the balance is
being returned in annual installments.

Foreign Assets Control

For the purpose of preventing Communist China from obtaining
foreign exchange through the exportation of merchandise to the United
States, the Foreign Assets Control Regulations prohibit the unlicensed
purchase and importation into the United States of Communist China
or North Korean merchandise, as well as numerous other commodities
therein specifled which are of types that have historically come from
China. The Control does not issue licenses authorizing importation
of Chinese-type merchandise unless satisfactory evidence of [its nonCommunist Chinese origin is presented.
Importation under general licenses is authorized with respect to
speciflc shipments of Chinese-type merchandise certified to be of nonCommunist Chinese origin by the Government of a foreign country
from which they were directly exported, provided that the country in
question has set up procedures for certification pursuant to standards
agreed to by the Treasury Department. The following Governments
now have such certification procedures: Australia, Belgium, Canada,
661496—63

1962 REPORT OF THE SECRETARY OF THE TREASURY

Formosa, France, the Federal Republic of Germany, Hong Kong
India, Italy, Japan, the Netherlands, the Republic of Korea, Spain,
Switzerland, the United Kiagdom, and Vietnam. Notices of the
availability of certiflcates of origin for particular commodities and of
the governments prepared to issue them are published from time to
time in the Federal Register, During the year a number of additional
items became available for certiflcation.
The enforcement measures of the Control resulted in a number of
successful criminal prosecutions. A total of $64,894 was collected by
the Government in forfeitures, fines, and other penalties as a result of
proceediags under the Foreign Assets Control Regulations.
The Cuban Import Regulations were issued on February 6, 1962,
under Proclamation 3447 and section 620(a) of the Foreign Assistance
Act of 1961 to implement the embargo proclaimed by the President on
trade with Cuba (see exhibit 50). As iaitially issued they prohibited
the importation of all goods of Cuban origin and all goods imported
from or through Cuba, except pursuant to license. On March 23,
1962, the Regulations were extended to include imports of goods
manufactured in third countries containing Cuban components. As
amended, they were issued under the additional authority of section
5(b) of the Trading with the Enemy Act.

ADMINISTRATIVE

REPORTS

Management Improvement Program i
Continued emphasis in the Treasury Department on the potentialities of management and their realization was reflected during the
fiscal year 1962 in a wide variety of actions taken to improve administrative operations.
Identifiable annual savings from management improvements duiing
the year amounted to $12.7 million, the second highest reported during
the past sixteen years. Of this total, $1.9 miUion resulted from the
incentive awards program. In addition, there were numerous accomplishments which contributed to the efficiency of administration but
which cannot be measured in terms of savings in money or manpower.
The more significant management improvements of Treasury bureaus are covered in the administrative reports of the specific operational bureaus in this report. Selected activities of a more general
nature are discussed below. A detailed account is presented in the
annual report Progress in Management Improvement obtainable from
the Office of the Secretary.
Special studies and projects

Several revisions were made in the internal organizational structure
of the Office of the Secretary to improve and strengthen the alignment
and coordination of Treasury functions.
A special appraisal of the long-range planning of all Treasury bureaus and offices was completed and appropriate implementation of
recommendations was under consideration at the end of fiscal 1962.
Staff of the Office of the Secretary visited 81 Treasury offices.in 8
metropolitan areas in connection with the field appraisal project
directed toward greater emphasis on the Treasury's management improvement program and increased field participation.
A study was completed of the administrative and training aspects of
. the Treasury Law Enforcement Officer Training School, and steps
were being taken at the close of fiscal 1962 to effect improvements in it.
The Treasury Department Plan for Appraisal of Field Organization
and Management, designed for the individual needs of the bureaus,
was conipleted and submitted to the Bureau of the Budget. The
special reviews called for in the plan have been conducted or wiU be
completed in the near future.
In 10 metropolitan areas where the Civil Service Commission established Federal executive boards during the year, 79 Treasury field
officials were designated to participate as members.
A comprehensive study of the roles and missions of the U.S. Coast
Guard was completed and 80 recommendations were submitted for
approval and implementation. The study group, which participated
actively during a nine-month period, included staff members from
1 See bureau reports for significant bureau accomplishments.

101

102

1962 REPORT OF THE SECRETARY OF THE TREASURY

the Treasury Department, the Bureau of the Budget, and the Department of Defense.
Financial management ^

In connection with the Government-wide responsibility of the Department for central accounting and financial reporting, that portion
of the Treasury's system of central accounts which relates to accounting in the regional accounting offices of the Bureau of Accounts was
streamlined effective July 1, 1961. Improvement of the new procedures continued throughout fiscal 1962. I t is expected that these improvements and others planned will result in an increase in annual
recurring savings from the $94,686 reported for fiscal 1962 to $150,000
thereafter.
Responsibility for fiscal internal auditing and administrative accounting for appropriations and funds was transferred from the Fiscal
Assistant Secretary and the Commissioner of Accounts to the Administrative Assistant Secretary by Treasury Order No. 170-9 dated
Jidy 28, 1961 (see exhibit 51). This, together with his responsibilities
in the areas of budgeting, personnel, and management and organization, represents a significant step toward a ^^controller type" of organization. Internal issuances relating to accounting were reviewed and
a new series of accounting policy statements were prepared and issued,
with the old series rescinded as obsolete:
The Department conducted a general overall preliminary evaluation
of the internal audit programs of .all Treasury bureaus. Also, full
appraisals were made of the fiscal internal audit systems in actual
operation in two bureaus. In addition substantial departmental assistance was provided in the revision of the internal audit system and
programs of one bureau, and similar assistance was being extended to
two other bureaus. '
Personnel management

Significant advances were made toward achieving the following
Office of Personnel objectives: Improved service to management at all
levels in the Department;, effective leadership in personnel administration; and improved cooperation and better utilization of available
resources within and outside the Department.
" President Kennedy's Executive Orders 10987 and 10988 on agency
appeals systems and employee-management cooperation in the Federal
Service constituted two of the year's most signiflcant personnel developments. Regulations implementing these orders and revised
standards of conduct were prepared cooperatively by representatives
of the bureaus and the Office of Personnel.
The fifth Treasury Department orientation program was held for
middle and upper management personnel from the bureaus and the
OflSce of the Secretary.. The Secretary of the Treasury and his key
assistants briefed 110 employees at the training sessions on Treasury
organization and functions.
A comprehensive study of qualifications and classification standards
of Treasury enforcement agents was initiated and virtually completed
during the year.
i See detailed statement in the AnntLal Report to the Secretary ofthe Treasury on]Improvement8 in Financial
Management,

ADMINISTRATIVE REPORTS

103

Delegations of personnel authority were rewritten and approved by
the Secretary. Bureaus were aided in developing classification and
qualification standards. Guides on manpower utilization were issued.
A new system for reporting training was devised, and analyses of
training programs were made and supplied to bureau heads and top
departmental staff. A new system was devised for reporting activities
in the equal emplo3mcLent opportunities areas.
In keeping with management's emphasis on measures to increase
productivity, there was a significant growth in employee-training
throughout the Department. More than 95,000 courses were completed, representing some 3.5 miUion man-hours of training, an increase
over 1961 of 47 percent in courses completed, and 36 percent in
man-hours of training. The largest number was in the technical,
scientific, and professional area which accounted] for 54 percent
of the total courses completed and 87 percent of thej total, man-hours
of training.
The Office of the Secretary stressed the development of executive
skills, and emphasized the eft'ective use pf available training resources
within and outside the Federal service in meeting Treasury training
requirements. Among the external resources used by the Department in the training of high level personnel were: the Industrial
College of the Armed Forces; the National War College; the Departof State's Foreign Service Institute; the Brookings Institution; the
Woodrow Wilson School of Public and International Affairs at
Princeton University; and the Civil Service Commission.
The first State-Treasury personnel exchange program was initiated
in consonance with a recommendation of the Subcommittee on
National Policy Machinery of the Senate Committee on Government
Operations.
A plan was developed with the CivU Service Commission for
nationwide inspection of Treasury personnel management in fiscal
1963 which provided for Department participation in the CivU
Service Commission inspection and utilization of Civil Service Commission evaluations.
Incentive awards program

The Department continued to stimulate interest in the incentive
awards program with particular emphasis on encouraging employees
to make worthwhfle suggestions. This emphasis on useful suggestions
resulted in a slight drop in the number of suggestions received and
those adopted. There was an increase of 75 percent in the estimated
tangible savings over those in 1961. There was also a 20 percent
increase in the number of performance awards. The payment of
awards for superior work performance provided a valuable incentive
for increased production on routine jobs.
Safety program

For calendar 1961 the Treasury Department and the Department
of the Army shared the President's Safety Award for establishments
haviag more than 75,000 employees. The disabling injury frequency
rate (the number of lost time injuries per miUion man-hours) was
reported as 3.5, the lowest ever recorded by the Treasury Depart-

104

1962 REPORT OF THE SECRETARY OF THE TREASURY

ment. The number bf injuries dropped from 633 in calendar 1960
to 590 in calendar 1961 reflecting the success of accident prevention
efforts.
Property management

The Department continued its vigorous efforts to dispose of excess
real and personal property promptly and to take full advantage of
surplus property available from other agencies.
Eight properties, consisting of land and improvements with a total
acquisition cost of $85,000, were declared excess. Four other properties previously declared excess were sold for $28,000. Of real
property not involving acreage, 87 parcels, having a total acquisition
cost of $1,700,000, were disposed of, and 86^additional parcels, having
a total acquisition cost of $669,000, were approv^ed for disposal.
In addition to flnancial receipts, the disposal of these properties wifl
reduce maintenance and protection costs.
Treasury bureaus were moved into new buildings at 10 locations.
In several instances these moves permitted the housing under one
roof of offices formerly widely scattered. This resulted in: saving
time, salaries of employees, and transportation costs; bringing together various phases of related work; and, greater convenience to
the public.
During fiscal 1962, the Treasury Department received from other
Federal agencies without reimbursement excess personal property
with an original acquisition cost of about $2 million, and declared
excess personal property with an original acquisition cost of about
$14 mflhon.
Bureau of the Comptroller of the Currency V
The Bureau of the Comptroller of the Currency is responsible for
the execution of laws relating to the supervision of national banking
associations. The duties of the office include those incident to the
formation and chartering of new national banking associations, the
examination of all national and District of Columbia banks, the
establishment of branch banks, the consolidation of banks,.the conversion of State banks into national banks, recapitalization programs,
and the issuance and redemption of Federal Reserve notes.
There were numerous significant developraents in the Bureau of the
Comptroller of the Currency during the fiscal year 1962. A policy
of fifll public disclosure has been established. Public hearings now
are held on all matters involving issues of national interest with respect
to mergers, consolidations, applications to organize new national
banks, branch applications, and other related matters. This approach
has exposed operations of the Comptroller's office to full public view,
thus assuring timely and objective action compatible with the views,
principles, and laws involved. In addition to the policy of full public
disclosure, a program was established for distributing to all national
banks and other interested parties copies of communications relating
tp policies and procedures of the Comptroller's office. To accomplish
this, the publication of The Weekly Bulletin was instituted to announce
receipt of and action taken on applications for new charters, branches,
1 Additional information concerning the Bureau of the Comptroller of the Currency is' contained in the
separate Annual Report ofthe Comptroller ofthe Currency,

ADMINISTRATIVE REPORTS

105

mergers, consolidations, purchase of assets, assumption of liabilities,
name and location changes, conversions, and other information of
interest to national banks and the entire financial community.
Effective August 1, 1962, the Comptroller's office established 14
regional offices in lieu of the old system of 12 district offices. This
regionalism of the National Banking System eliminated split States,
resulted in a better distribution of examination work among field
offices, facilitated optimum utilization of bank examining manpower,
and gave long overdue recognition to the economic growth in the
Northwestern States, the Rocky Mountain States, and the Southern
States.
A broad and intensive study was made of the practical problems
which confront the National Banking System in coping with the everchanging factors of our modern dynamic economy. The Comptroller
of the Currency sought and received the cooperation and assistance
of this country's bankers who face the day-to-day practical problems
of modern banking. Twenty-four of the leading bankers served as
advisers to the Comptroller in order to prepare the study.. A complete
and thorough reexamination was made of [the entire structure of the
National Banking System, including laws, regulations, policies, procedures, forms, and examinations. The study which was submitted to
the Comptroller on September 11, 1962, has thrown light on those
factors which have impeded the proper functioning of the commercial
banks. Prompt action will be taken on all matters which can appropriately be the subject of new and revised regulations issued by the
Comptroller within the framework of present laws. Where needed,
additional legislation will be proposed to provide greater flexibility
and additional capacity to national banks, so that they may more
effectively meet the needs of the public and business for credit and
other banking services.
Other major improvements resulting from changes within the
Bureau are speedier action on applications for charters, mergers, and
branches. All persons concerned with these functions were notified
and a system of reporting was estabhshed to assure adherence to time
standards. This approach has greatly expedited business of the utmost
importance to the banking community. Under former procedure,
bank examination reports were sent to the Washington headquarters
of the Comptroller's office where employees of the central office dealt
directly with national bank officials on all matters requiring attention.
I t is now the policy of this Office to have regional chief national bank
examiners deal directly with national bank officials on these matters.
There have been many other accomplishments in the Bureau of
the Comptroller of the Currency during the past year. Though there
are many more to be made, the new program has given the banking
community a new spirit of progress and accomplishment. The vigor,
energy, enterprise, and initiative which banks throughout the country
are displaying are clearly evident in the constant flow of proposals
for new charters, new branches, additional capital flotations, as well as
in plans for mergers,[ consolidations, and for the formation of bank
holding companies. Fresh capital is being committed in increasing
amounts to new banking ventures at home, and opportunities abroad
are being explored at an accelerating rate. Confidence in the national
banking community is at a high level.

106

1962 REPORT OF THE SECRETARY OF THE TREASURY

Abstract of reports of condition of active national banks on the date of each report
from June 30, 1961, to June 30, 1962
[In thousands of dollars]
June 30,1961 Sept. 27,1961 Dec. 30,1961 Mar. 26,1962 June 30,1962
(4,524 banks) (4,523 banks) (4,513 banks) (4,498 banks)
(4,500
banks)
ASSETS

Loans and discounts, including
overdrafts
U.S. Government securities, direct
obligations
Obligations guaranteed by U.S.
Government
Obligations of States and political
subdivisions
Other bonds, notes, and debentures
Corporate stocks, including stocks
of Federal Reserve Banks
_.
Total loans and securities
Cash, balances with other banks,
and cash items in process of collection
___
Bank premises owned, furniture
and fixtures
Real estate owned other than bank
premises
__._
Investments and other assets indirectly representing bank premises or other real estate
Customers' liability on acceptances
Other assets
—
Total assets-

63,439,852

65,126,699

67,308,734

67,464,993

69,770,562

33,397,413

35,613,945

35.959,763

34,928,617

34,382,833

124,680

124,167

127,915

126,471

125,219

10,123,742

10,630,990

11,077,350

11,898,873

12,808,791

1,419,736

1,590,467

1,569,230

1,525,106

1,772,265

337,241

340,672

359,281

367,439

108,842,664

113,426,840

116,402,273

116,311,499

119, 240,770

25, 274,240

24,489,635

31,078,445

25,161,121

26,860,010

1,774,055

1,807,908

1,849,848

1,884,665

1,931,130

53,978

58,226

61,365

66,398

66,176

381,100

187,073

191,615

191,196

195,312

187,289

441,638
725,347

459,098
750,041

479,808
746,117

477,513
741,979

453,726
820,783

137,298,995

141,183, 263

150,809,052

144,838,377

149,558,884

69,212,876

60,131,866

67,138,117

60,143,776

60,704,744

40,338,073

41,379,308

42,034,484

44,710,716

46,974,830

3,756.972

4,843,695

3.627,015

3,976,499

5,639,542

9,762,861
7,848,020
1, 566,137

9,164,153
8, 252,977
1,399,562

10, 270,143
10,463,584
2,077, 274

9,845,648
8,163,124
1,404,624

10,389,793
8, 277, 623
1,741,128

LIABILITIES

Demand deposits of individuals,
partnerships, and corporations...
Time and savings deposits of individuals, partnerships, and corporations.-.
_
Deposits of U.S. Government and
postal savings
Deposits of States and political
subdivisions
_
Deposits of banks
Certified and officers' checks, etc..
Total deposits.
Demand deposits
Time and savings deposits...
Mortgages or other liens on bank
premises and other real estate
Rediscounts and other liabilities
for borrowed money
Acceptances outstanding
Other liabihties
_

122,484,938

125,171,660

78,891,899
43,593,039

80,512,872
44,658,688

136,510,617
89,966,459
46, 545,158

128,244, 286 133,727, 660
79,725,825
48,518,461
3,562

82,834,181
60,893,479

3,338

3,447

3,773

356.466
448,976
2,667,224

1,085,863
467, 225
2.776,661

224,615
489,640
2,705,101

129.504, 646

138,933,746

132,793,527

137,316,024

3, 510, 219
5, 665,738
2,237,432

3,677,244
6,935,779
2,080,103

3,651,736
6,058,057.
2,067,971

3,682,476
6,123,886
2.164,235

- Total liabihties

1, 263,307
484,797
2,807, 585

3,574
379,445
462,658
2,742,687

CAPiTAii ACCOUNTS

Capitalstock
•Surplus
Undivided profits
Reserves and retirement account
for preferred stock
_

3,478,403
5,620,169
2,071,321
269,160

276, 228

282,180

267,086

272, 264

Total capital accounts

11,439,053

11, 678,617

11,876,306

12,044,850

12, 242,860

150,809,062

144,838,377

Total habihties and capital
accounts
_

137, 298,995

141,183,263

149,668,884

Changes in the condition of active national banks

The total assets of the 4,500 active national banks in the United
States and possessions on June 30, 1962, amounted to $149,559
million, as compared with the total assets of 4,524 banks amounting

ADMINISTRATIVE^ REPORTS

107

to $137,299 miUion on June 30, 1961, an increase of $12,260 million
during the year. The deposits of the banks in 1962 totaled $133,728
million, which was $11,243 million more than in 1961. The loans in
1962 were $69,771 million, exceeding the 1961 figure by $6,331 million.
Securities heM totaled $49,470 million, an increase of $4,067 million
during the year. Capita;l accounts of $12,243 million were $804
million more than in the preceding year.
Summary of changes in number and capital stock of national banks

The authorized capital stock of the 4,502 national banks in existence
on June 30, 1962, consisted of common stock aggregating $3,682
million, and preferred stock aggregating $3.2 million. The common
stock of the 4,525 national banks in existence a year earlier amounted
to $3,478 million, and preferred stock to $1.3 million. During the
year charters were issued to 47 national banks having an aggregate
of $17.1 million of common stock and $2 million of preferred stock.
There was a net decrease of 23 in the number of national banks in the
system by reason of voluntary liquidations, statutory consolidations
and mergers, conversions to and mergers or consolidations with State
banks under the provisions of the act of August 17, 1950 (12 U.S.C.
214), and one receivership.
More detailed information regarding the changes in the number and
capital stock of national banks in 1962 is shown in the following table.
Organizations, capital siock changes, and liguidaiions of national hanks, fiscal year
1962
Number
of banks

Charters in force June 30, 1961, and authorized capital stock i.
Increases:
Charters issued
Capital stock:
232 cases by statutory sale
_
506 cases by statutory stock dividends
1 case by stock dividend under articles of association.
31 cases by statutory consolidation...
___
31 cases by statutory merger
Total increases
Decreases:
Voluntary liquidations
Statutory consohdations.
statutory mergers
Conversions into State banks..
Merged or consolidated with State banks..
Receivership
Capital stock:
6 cases by statutory consolidation.
3 cases by statutory merger
4 cases by retirement

Total decreases
Net change.-

Charters in force June 30,1962, and authorized capital stock L .

4,525
47

Capital stock

Common

Preferred

'$3,477,604,359

$1,323,300

17,106,000

2,000,000

45,753,295
122,443,591
25,000
16,970,640
12,033,367
47

213,331,793

18
22
13
3
13
1

2,720,000

2,000,000

675,000 '
3,866,200
25,000
980,660
226,600

163,660

8,492.350

163,660

-23

204,839,443

1,836,340

4,602

- 3,682,343,802

3,169.640

' Revised.
1 These figures differ from those in the preceding table. The figures as of June 30, 1961, include one new
bank not yet open for business, and one bank in the process of merging or consolidating with and into a
State bank under the provisions of the act of Aug. 17, 1950 (12 U.S.C. 214), and exclude one .bank consolidated with another national bank imder the provisions of the act of Nov. 7, 1918, as amended (12 U.S.C.
215). The figures as of June 30, 1962, include two new banks not yet open for business, one bank in the
process of going into voluntary liquidation, one bank in the process of merging or consolidating with and
into a State bank, and exclude three banks consolidated with and one bank merged with other national
banks imder the provisions of the act of Nov. 7, 1918, as amended (12 U.S.C. 215).

108

19 62 REPORT OF THE SECRETARY OF THE TREASURY
Bureau of Customs

' The major responsibility of the Bureau of Customs is to administer
the Tariff Act of 1930, as amended. Primary duties include the
assessment and collection of all duties, taxes, and fees due on imported
merchandise, the enforcement of customs and related laws, and the
administration of certain navigation laws and treaties. As an
enforcement organization, the Bureau of Customs is concerned
primarily with combating smuggling and frauds on the revenue.
I t also enforces the regulatioris of numerous other Federal agencies.
Collections

Revenue collected by the Customs Service during the" flscal year
1962 was an alltime record of approximately $1,624 million, or 14.1
percent, more than the $1,423 million collected in 1961. These figures
include customs duty collections, excise taxes on imported merchandise collected for the Internal Revenue Service, and certain miscellaneous collections. Larger customs collections than in fiscal 1961 were
reported by 42 out of 45 customs districts. Collections by customs
districts are shown in table 21.
Customs duty collections alone amounted to more than $1,171
million, 16.2 percent more than the $1,008 million collected in 1961.
Collections by Customs of internal revenue taxes on imported liquors,
wines, perfumes, etc., amounted to almost $445 million, 9.5 percent
more than the $406 million collected in 1961. Miscellaneous collections amounted to almost $8 million, a decrease of 14.9 percent from
those collected in 1961. The major classes of all collections by the
Customs Bureau are shown in table 22.
Of all imports into the United States during fiscal 1962, more than
38 percent were duty free. Included were some commodities, such
as copper and iron and steel scrap, imported free for Government
stockpile purposes, or authorized by special acts of Congress for free
entry although dutiable under the Tariff Act of 1930, or taxable under
the Internal Revenue Code. The 62 percent which was dutiable
constituted the basis of customs.duties on imports.
Customs operations in 1962

Vehicles and persons entering.—Nearly 158 million persons were
subject to customs inspection in fiscal 1962. More than 45.4 million
carriers entered U.S. harbors, international airports, or crossed U.S.
borders, bringing nearly 128 million passengers. In addition, approximately 30 million persons walked across the borders. There was an
0.4 percent increase in carriers and an 0.3 percent increase in persons
entering the United States as compared with fiscal 1961. Statistics
for the two years are contained in tables 98 and 99.
Entries of merchandise.—The volume of imports into the United
States in fiscal 1962 resumed its long-term rise, breaking the record
set in fiscal 1960. The value totaled $15.5 billion, up $1.7 billion
from fiscal 1961. Formal entries of merchandise, comprising consumption, warehouse, and rewarehouse, exceeded one million for the
seventh consecutive year, and 1.5 million for the first time in history.
There were 1,547,940 formal entries filed during fiscal 1962, a 10.7
percent increase over 1961. Baggage declarations and informal entries
covering mail importations and other shipments valued at less than

ADMINISTRATIVE REPORTS

109

$250 totaled 7,079,926, an increase of 29.1 percent. The volume of
entries handled by customs officers during the past two years is shown
in table 96.
Drawback transactions.—Drawback allowance on the importation
of merchandise manufactured from imported materials and for certain
other export transactions usually amounts to 99 percent of the customs
duties paid at the time the goods are entered. The total drawback
paid in fiscal 1962 was $14,756,430, an increase of 27.3 percent over
1961. The principal imported materials used in manufactured exports in 1962 were petroleum and its products; chemicals; citrus
fruit juices; tobacco, unmanufactured; coal-tar products; sugar; watch
movements; copper and manufactures; iron and steel semimanufactures; aluminum; and medicinal preparations. Table 97 shows the
drawback transactions for 1961 and 1962.
Appraisement of merchandise {including Customs Information Exchange?).—The number of. invoices filed during fiscal 1962 increased
8.5 percent; 2,366,771 compared with 2,181,008 in 1961. .The
number of packages examined by appraisers' personnel totaled
1,504,689, an increase of 9.3 percent over the 1,377,351 examined in
fiscal 1961.
. . .
The backlog of unappraised invoices more than 30 days old rose to
307,000, reflecting an increase of 58.2 percent over the 194,000 on hand
at the close of fiscal 1961. This sharp rise may be attributed to the
initiation in January 1962 of the U.S. import duties annotated verification program. (USIDA) which requires customs examiners to be
responsible for the verification of four statistical elements, i.e., country
of origin, commodity code number, unit of quantity, and value with
respect to each item on each invoice of imported merchandise. During
the first 5 months of operation, 652,759 entries were verified. These
comprised 1,145,531 individual items, each requiring four verifications.
There were 289,322 items (25.3 percent of the total) which required
correction of one or more of the verified elements.
Under the Antidumping Act of 1921, as amended (19 U.S.C. 160171), .16 complaints were received, compared with 32 in 1961. The
disposal of 33 cases left 12 under investigation at the end of fiscal
1962, compared with 29 the previous.year. For a determination as
to.possible injury to American industry four cases were referred to
the U.S. Tariff Commission. One new case on countervailing duty
was received in addition to the three cases carried oyer from 1961.
Three cases were closed, leaving one outstanaing.
Two new cases involving convict labor were received during the
year in addition to the one case carried over from 1961. One case
was closed, leaving a balance of two cases.
The activities of the Customs Information Exchange in New York,
N.Y., continued at approximately the same high level as that of 1961.
Appraisers' reports of classification and value, coyering a cross section
of imported merchandise received at each port, totaled 76,000
compared with 78,000 in 19.61. These reports indicate the relative
number of commodity items received at any given port for the first
time, as well as regularly received items at new prices or subject to
different terms of sale from previous shipments.

110

1962 REPORT QF THE SECRETARY OF THE TREASURY

Classification and value differences indicate the number of instances where the value or classification of merchandise information
varied among ports or when the conclusions of appraising officers
differed. Ih the latter, additional study and analysis were required
before a uniform price or rate could be established. There were
6,775 reports of value differences during fiscal 1962, as compared with
7,243 in 1961. Differences in classification totaled 4,693 during 1962
compared with 4,803 in 1961, indicating a decrease in new commodities
received.
Detailed investigations abroad to obtain information for appraisement decreased from 215 in flscal 1961 to 212 in 1962. The low incidence of inquiries was ascribed to the continuing effect of the elimination of foreign value as a basis of appraisement under the terms of the
Customs Simpliflcation Act of 1956 (19 U.S.C. 1402) and to the current
regulation which permits a foreign inquiry only as a last resort in
securing value information.
Technical services.—The laboratories of the Technical Services
Division analyzed about 132 thousand samples in flscal 1962, an increase of 6.5 percent over those in 1961. The increase in the number
of samples was general with approximately two-thirds of the classes
reflecting an increase. Imported merchandise samples submitted
for appraisement and tariff classification information made up the
large majority of those analyzed. Other types analyzed were those
taken from seizures, mainly of narcotics and other prohibited merchandise ; preshipment samples of merchandise intended for shipment
to the United States analyzed to assist in establishing proper classification; and samples tested for other Government agencies.
Chief chemists analyzed cargo sample weighing data to assure that
accuracy and precision were within control limits. Studies were
made of 20 cargoes of raw sugar, 47 cargoes of refined sugar, and 58
cargoes of tobacco. Statistical evaluation of the verification of liquidations by comptrollers (final determination of duty and taxes) and
the development and furnishing of investigative aids for enforcement
officers were continued.
The division recommended tentative approval of bulk weighing
and sampling equipment at three locations. Installations at two other
locations were being considered at the close of the fiscal year.
A contract was awarded for the construction of a 75-ton capacity
truck scale in Brooldyn, N.Y.
In cooperation with the Immigration and Naturalization Service,
plans and specifications were prepared and contracts were awarded for
the construction of a border station and two residences at the following
locations: Lancaster, Minn.; Opheim, Mont.; Antler, Fortuna, Hannah, Sarles, and Walhalla, N . D . Several of these construction projects have been completed. Construction plans of various projects
involving space for Customs prepared by the General Services Administration or engineering firms were reviewed and appropriate
changes recommended. The General Services Administration has
awarded contracts for an inspection station at Massena, N.Y., and at
Sault Ste. Marie, Mich. Other major General Services Administration border projects now under way include Jackman, Lubec, Vanceboro, and Van Buren, M e . ; Derby Line and Highgate Springs, Vt.;

111

ADMINISTRATIVE REPORTS

Lewiston Bridge, N.Y.; Del Rio and El Paso (Cordova Island), Tex.;
Nogales, Ariz.; Pigeon River, Minn.; Sweetgrass, Mont.; and Pembina,
N.D.
Export controL—The following table shows the volume of export
control activities:
Activity

1961

Export declarations authenticated,
Shipments examined
Number of seizures
Value of seizures
Export control employees
.._

4,758,249
696,467
222
$666,903
173

1962

Percentage
increase, or
decrease (—)

4,721,709
641,489
196
$604,707
201

-0.8
7.6
-11.7
-23.2
16.2

Protests and appeals.—Protests ffled by importers against the rate
and amount of duty assessed and other decisions made by collectors
of customs increased 4.6 percent. Appeals for reappraisement filed by
importers who did not agree with appraisers as to the value of merchandise decreased 37.1 percent. The following table shows the
number of protests and appeals filed during fiscal 1961 and 1962.
Protests and appeals

Protests:
Filed with collectors by importers (formal)
_
Filed with collectors by importers (informal)...,
Allowed by collectors..
Denied by collectors and forwarded to customs court
Appeals for reappraisement filed with collectors

1961

___
.--

35,627
n.a.
3,532
27,907
27,281

1962

Percentage
increase, or
decrease (—)

37,270
62,374
n.a.
n.a.
17,164

n.a. Not available.

4.6

"W.l
,

Marine activities.—Vessels in the American merchant marine continued to increase during fiscal 1962. At the end of the year the
documented fieet totaled 52,730, an increase of 3.2 percent. During
the year 1,476 vessels were removed from documentation so that
approxioiately 3,100 vessels (roughly the total number of all sizes
built) never before documented were added. Approximately 8,700
were documented as yachts and almost 44,000 were authorized
through documentation to be used in commercial activities in foreign,
coasting, or fishing trades. There was an increase of 16 percent in
the number of vessels documented as yachts. The following table
compares the volume of marine documentation during fiscal years
1961 and 1962.
Activity

Total vessels documented at end of year
Documents issued (registers, enrollments, and licenses)
Licenses renewed and changes of master endorsed
Mortgages, satisfactions, notices of lien, bills of sale, abstracts
of title, and other instruments of title recorded
....__.
Abstracts of title and certificates of ownership issued
Navigation fines imposed
_
Tonnage tax payments
i
Certificates and permits
_
_
Name changes
.._
_
n.a. Not available.

1961

1962

Percentage
increase, or
decrease (—)

61,115
17,396
47,440

62,730
17,286
49,238

3.2
-.6
3.8

14,964
7,764
2,919
23,731
1,162
929

15,707
7,697
n.a.
n.a.
1,493
1,110

6.0
-2.0

29.6
19.6

112

1962 REPORT OF THE SECRETARY OF THE TREASURY

Total gross tonnage of vessels documented at the end of fiscal 1962
was 25,489,871. The decrease in tonnage during the year was less
than in other recent years, because a number of large vessels previously under foreign flag were admitted to American registry. As in
1961 such transfers apparently were made to qualify for participation in the transportation of foreign-aid cargoes under the CargoPreference Act, as amended (46 U.S.C. 1241(b)) which requires that
at least 50 percent of such cargoes be shipped in American-flag vessels.
The Bureau redefined the rig classifications used in the docimientation of vessels and added certain designations for new types of vessels,
such as hydrofoil and nuclear craft. The Bureau eliminated distinctions between types of unrigged or nonself-propelled vessels, since
such distinctions were no longer useful, and designated all such yessels
as barges. Sail-propelled vessels were so designated, and distinctive rig designations such as ^^bark," ''sloop," and ''ketch," were
eliminated.
Development of a simplified system of ship registry was continued.
A packet of forms and an outline of procedures were being reviewed
at the end of the year preparatory to transmittal to other appropriate
Government agencies and to steamship companies and associations
for further review and comment. The proposed changes will require
legislation, which is in preliminary draft.
The Bureau of Customs continued to represent the Treasury
Department on the Water Transportation Facilitation Committee,
chaired by the Department of Commerce, and composed of all Government agencies interested in shipping problems. The committee
continued work on developing an international program for simplifying entry and clearance controls. Attention has been focused on the
Draft Convention for the Facilitation of International Waterborne
Transportation in the Western Hemisphere, proposed as a regional
agreement for adoption by the Organization of American States
(OAS) through the Inter-American Ports and Harbors Conference.
The convention, which is sponsored by the Permanent Technical
Committee on Ports of the Conference, is modeled along the lines of
the International Civil Aviation Organization (ICAO) agreement
covering aircraft procedures and has attached an annex of standards
and recommended practices. The committee was also active in
assisting in the formulation of U.S. policy for the approaching meeting
of a committee on travel and transport of the Intergovernmental
Maritime Consultative Organization (IMCO), which is considering
similar action on the broader international scope of the latter group.
The United States has suggested to IMCO that the OAS draft convention and annex might serve as a basis for consideration in implementing its own program. The Customs Bureau is vitally interested
in the work of the Water Transportation Facilitation Committee
because the flrst impetus of the work program in the facilitation field
is expected to be in the area served by Customs. This agency has a
wide interest in the whole field of waterborne transportation procedures through its responsibilities for assisting other agencies with
enforcement of regulations. These include: Manning and inspection
requirements of the U.S. Coast Guard; quarantine requirements of

ADMINISTRATIVE REPORTS

113

the U.S. Public Health Service; and immigration requirements of the
U.S. Immigration and Naturalization Service.
•
I t is expected that the Bureau will be represented on the U.S.
delegations to the meeting of the IMCO group in London, England,
in November 1962 and in the OAS meeting which is schedulecl to follow
the IMCO meeting.
"
The Subcommittee on Tonnage Measurement, Intergovernmental
Maritime Consultative Organization, met in London, England,
from December 11 through 15, 1961. The U.S. delegation, headed by
Customs, presented for consideration a simplified formula for the
admeasurement of cargo and passenger vessels. The subcommittee
set up a working group to consider as a matter of urgency and recommenci to the subcommittee proposals for the treatment of shelter-deck
ships for tonnage-measurement purposes. The working group also is
to develop detailed proposals for a universal system of tonnage
measurement based upon unification of existing systems or national
proposals for new systems, such as the U.S. simplified formula.
The U.S. delegation is participating in the program of the working
group and is studying and evaluating the foreign proposals. Work is
continuing within the United States to refine and extend the coverage
of the U.S. proposals in the light of foreign evaluations and our own
national requirements. At the end of fiscal 1962, the Tonnage
Measurement Subcommittee of the U.S. Shipping Coordinating
Committee, also headed by Customs, was drafting a proposal dealing
with shelter-deck treatment for consideration of the working group
and recommendation to the IMCO subcommittee.
The shelter-deck spaces are cargo spaces between decks and the
superstructures of vessels. I t is desired to continue the present exemptions of shelter-deck spaces from inclusion in tonnage without
requiring the tonnage openings and other features now required.
Domestic legislation would be required to put the U.S. proposals into
effect.
Amending legislation enacted on August 17, 1961 (46 U.S.C. 35)
peritiits that U.S. vessels sold while abroad may be documented anew
as vessels of the United States in such manner and under such circumstances as prescribed by the Secretary of the Treasury. Previ-^
ously, the vessels could not be redocumented until they returned to
the United States. Legislation was enacted on August 30, 1961
(46 U.S.C. 404a) to permit a flshing vessel to transport without
monetary consideration the catch of another U.S. fishing-vessel from
the high seas to a port in the United States without having to exchange
their fishing licenses for registers. By an amendment to the Ship
Mortgage Act of 1920, dated September 26, 1961 (46 U.S.C. 922),
preferred mortgages may be placed on towboats, barges, scows,
lighters, car floats, canal boats, or tank vessels of not less than 25
gross tons. Previously, preferred mortgages could be placed on such
vessels only if they measured 200 gross tons or more. Pursuant to an
act of June 30, 1961 (46 U.S.C. 289b), passengers may be transported
on Canadian vessels in southeastern Alaska, and passengers and
merchandise may.be transported on Canadian vessels between Hyder,

6614&6—63-

114

1962 REPORT OF THE SECRETARY OF THE TREASURY

Alaska, and other points in Alaska and other points in the United
States, until the Secretary of Commerce determines that U.S. flag
service is available to provide such transportation. Several legislative proposals were reviewed which would exempt foreign vessels in
certain circumstances from the prohibition against transporting
merchandise between points in the United States.
The exemption of water-ballast spaces from gross tonnage was
reviewed in the light of the adaptation and availability of such spaces.
As a result, new requirements connected with the granting of exemptions from gross tonnage for water-ballast spaces were put into effect
and provisions made for a Bureau review of all cases where such
exemption exceeds 30 percent of the vessel's gross tonnage, calculated
without any allowance for water ballast.
Instructions were issued to clarify the treatment of water-ballast
spaces bounded by wood. This action was predicated upon Coast
Guard rulings that water-ballast spaces in hull compartments bounded
by wood could not be considered properly constructed and are not
useable for water ballast. I t was determined that such spaces should
be included in gross tonnage.
The United States added Greece to the list of countries whose
admeasurement rules it recognizes. Consequently, Greek vessels,
the registers of which indicate gross and net tonnages determined imder
its national rules, are taken in ports of the United States to be of the
tonnage so expressed.
Applications for admeasurement of yachts increased at some ports
during the spring and summer; however, the overall backlog of applications was reduced through the use of additional personnel.
The applications received at the end of fiscal 1962 were being processed
and the yachts scheduled for admeasurement within a reasonable
time. Two hydrofoil vessels were measured during the year, one of
which was built in the United States as an experimental vessel for
the U.S. Maritime Administration. New vessels built for oceanographic research and existing vessels being converted to such service
were also measured.
A procedure to facilitate the frequent exchange of information
between the Panama Canal admeasurers and Customs has resulted
in a better understanding of Canal admeasurement practices and is
expected to prove helpful in the Bureau's issuance of Panama Canal
tonnage certificates.
At the request of the Military Sea Transportation Service, Department of the Navy, waiver of the navigation laws of the United States
was granted pursuant to the authority contained in the act of December 27, 1950 (46 U.S.C. 1 note), to permit certain foreign-flag vessels
under time charter to Military Sea Transportation Service to transport
military cargo and passengers between Cape Canaveral, Fla., and
San Juan and Mayaguez, P.R., for a period of two years from December 9, 1961.
At the request of the Acting Secretary of the Army, waiver of the
navigation laws was granted to the extent necessary to permit Canadian vessels to be employed in dredging, towing, and transporting of
merchandise and passengers in connection with the dredging of

ADMINISTRATIVE

115

REPORTS

Wolfe Island Cut on the Saint Lawrence River. This operation is
related to the Saint Lawrence Seaway project.
Instructions were issued requiring vessels leaving ports in Alaska
and Hawaii for noncontiguous territories of the United States to
clear and present export declara.tions in the same manner as vessels
departing from any other State. Instructions also were issued
requiring that portable deck tanks be listed-on a vessel's inward
manifest as cargo regardless of their custoins status otherwise. Vessels
clearing for ports in the Sino-Soviet bloc. Hong Kong, Macao, or
Cuba, were held to be subject to the requirement for filing, before
departing, outward manifests and export declarations for the cargo
aboard destined only for such ports and not for cargo destined for
other ports on the same voyage.
Australia was added to the list of countries whose yachts may obtain licenses to cruise in U.S. waters without entering and clearing at
each domestic port of call and without paying tonnage taxes and other
entry fees. This was done in anticipation of the imminent arrival of
an Australian competitor in the American cup races and upon satisfaction that yachts of the United States were granted reciprocal
privileges by the Australian Government.
The following table compares entrances and clearances of vessels
in fiscal 1961 and 1962.
Vessel movements

Entrances: . .
Direct from foreign ports .
Via other domestic ports. _ .
Total

_— ^

- -

1962

Percentage
increase, or
decrease (—)

48,364
38,459

47,463
' 39,631

—1.9
3.0

86,823

87,094

46,421
38,193

46,772
39,667

-1.4
3.9

84,614

86,439

1.0

_. _
-_

Clearances:
Direct to foreign ports....__
Via other domestic ports. .
Total.

1961

Law enforcement and investigative activities.—Th^ Customs Agency
Service conducted 20,356 investigations during 1962, compared with
18,828 in 1961, an increase of 8.1 percent. These investigations
were made under the customs, navigation, and related laws administered by the Bureau of Customs and several laws administered by
other Government agencies and enforced by Customs. Table 101
shows the number and types of cases investigated during 1961 and
1962.
As in other recent years, the most active enforcement districts were:
Laredo, Tex:, with 637 arrests and 245 convictions; Los Angeles,
Calif., with 499 arrests and 285 convictions; and New York, N.Y.,
with 99 arrests and 59 convictions.
Customs agents made 1^429 arrests and convicted 685 violators,
compared with 1,483 arrests and 743 convictions in fiscal 1961.
The following table shows the nmnber of arrests and dispositions during
fiscal 1961 and 1962.

116

1962 REPORT OF THE SECRETARY OF THE TREASURY

Activity

Arrests....
Convictions
Acquittals
-..
Nolle pressed
Dismissed
^___
_._
Not indicted
._
Under, or awaiting indictment
_._
__
Turned over to State and other Federal authorities for prosecution
^^._-

1961

Percentage
increase, or
decrease (—)

1962

1,483

1,429

742
34

r396

686
32
67
283
4
456

-3.7
-7.8
-3.0
-33.7
-29.1
-71.4
16.2

208

297

42.8

101-

399
14

«• Revised.

Officers of the Customs Agency Service cooperated during fiscal
1962 with Federal, State, and local law enforcement agencies and with
officials of foreign governments in 6,127 cases, 937 more than in fiscal
1961.
Customs agents and enforcement officers made 5,819 seizures
during fiscal 1962, as compared with 4,017 seizures in 1961. Fines
and penalties incurred in fiscal 1962 totaled $21,374,970 compared
with $28,469,300 in 1961.
Although included in statistics for the Customs Agency Service
as a whole, the customs port investigators made 344 arrests during
fiscal 1962, as compared with 265 the year before. They also made
3,753 seizures of merchandise in fiscal 1962, compared with 2,579
in 1961, with a total appraised value of $8,728,834 and $8,409,141,
respectively.
Between September 1961 and April 1962, a task force was formed
of representatives of the Office of the Secretary of the Treasury, the
Bureau of the Budget, and the Bureau of Customs to survey and
determine the enforcement requirements of the Customs Agency
Service. The group visited more than a dozen ports including the
New York International Airport. The study included utilization of
personnel, management and supervision, equipment, duty assignments,
geographical areas requiring enforcement coverage, .efficiency of personnel, radio and automotive equipment, and electronic investigative
aids. The task force study concluded: That the concept of basic
customs enforcement is in harmony with present policy and will
remain so in the foreseeable future; that the present system of customs
enforcement is as efficient as current resources permit; and that the
request of the Bureau of Customs for an increase iri personnel and
equipment to meet its enforcement responsibilities is justified. I t
recommended that the Customs Agency Service force be increased to
1,200 customs port investigators, the build-up to be extended over a
three-year period. The task force concluded that the Bureau's enforcement efficiency has reached the highest level in its history limited
only by inadequate strength. The consolidation of the intelligence
gathering and investigative arm with the basic enforcement functions
has resulted in a balanced law eriforcement organization with adequate authority, and professional standards in the concept, training,
morale, and dedication to duty of national significance.
Customs seizures of narcotic drugs during fiscal 1962 declined from
the unusually large amounts for 1961 as detailed in the following table.

117

ADMINISTRATIVE REPORTS
Seizures of narcotic drugs
Fiscal years

Drug seizures

1961
Narcotic drugs: (weight in grams)
Heroin _
_
._
Number of seizures
Raw opium
Number of seizures
. ___
Smoking opium
!^
Number of seizures..
-^_
others____
Number of seizures...
_
Marihuana: (weight in kilograms)
.
Bulk
Number of seizures
Cigarettes—(Number)
Number of seizures

1962

Percentage
increase, or
decrease (—)

11,177.13
147
27,364. 23
9 .
__
17,383. 99
19
. 3,790.64
153

. 2,357.80
111
7,553.59
8
7,651.75
10
9,347.15
283

-78.9
-24.5
• -72.4
-11.1
. -56.0
-47.4
146.6
85.0

3,'645.573
397
3, 256
176

9,176.824
429
1,766
139

151.7
8.1
. -45.8
-21.0

. ---

Cocaines,has decliried in prominence with two seizures of about four
pounds each. In both cases the indicated source was Bolivia.
Mexico contiriues to supply at least 95 percent of the marihuana
consumed in the United States. During fiscal 1962 several important gangs trafficking in this commodity were put out of business. One of the most active operated from E l Paso, Tex., to New
York, N.Y. In a year-long investigation customs agents arrested 9
members of this gang, who were all sentenced to periods varying from
2 to 15 years. Another investigation brought into custody 13 members and employees of a Chicago gang, several of whom received sentences of 2 to 10 years, while others are fugitives, having forfeited
substantial bail. Another investig;ation resulted in the apprehension
of 8 members of a gang in Junction, Tex., operating between Mexico
and Detroit,, Mich. The most recent conspiracy case, not concluded
at the^end of fiscal 1962, involved the arrest of 14 defendarits who
were engaged in smuggling marihuana through El Paso, Tex., and
shipping it to Los Angeles, Calif.
Information developed by customs officers stationed abroad was
responsible for the capture of several lots of narcotics destined for the
United States. The largest involved 40 pounds of smoking opium and
13 pounds of heroin which Chinese crewmembers had sriiuggled aboard
a British naval vessel in Singapore, and which the captain located
between Honolulu and San Francisco, along with diamonds and jade
valued at $70,000. Customs officers at Honolulu also seized $5,000
worth of Chinese medicines which crewmembers had smuggled into
that port.
Seizures of merchandise throughout the country by all types of
customs officers during fiscal 1962 for violation of laws enforced by
the Customs Service numbered 16,475 with an appraised value of
$26,853,303, compared with 14,658 seizures in 1961, appraised at
$15,850,918. This reflected an increase of 12.4 percent in the number
of seizures and 69;4 percent in the appraised value from the year
before. Title to only a fraction of the merchandise captured passed
to the Government, as most was destroyed or returned to the owners
upon payment of fines or penalties. Details of seizures are shown in
table 100.

118

1962 REPORT OF THE SECRETARY OF THE TREASURY

Foreign trade zones.—During fiscal 1962 the value of merchandise
received in Foreign Trade Zone No. 1 at New York, N.Y., increased
by almost $5 million or 13 percent. Long tons delivereci from the
zone increased 4.3 percent over last year, although the value of such
merchandise was 7.1 percent less. Three ships berthed to lade domestic ship's stores and 27 ships used the zone facilities for discharging cargo from foreign countries. Large quantities of refined
sugar, radios, piece goods of wool and cotton, bulk and bottled liquor,
cameras, Brazil nuts, steel, chemicals, machinery, caviar, talc, cutlery, zinc and lead ingots, and tungsten ore were stored and more
than 6,700 manipulations operations were performed in the zone.
, The number of entries received in Foreign Trade Zone No. 2 at
New Orleans, La., increased 10.9 percent over last year. Duties
and taxes collected increased 24.3 percent. Fishing lures were brought
into the zone, commingled with American made lures, and assembled
into kits. Other articles brought into this zone were Brazil nuts,
casein, burlap, chemical compounds, chicory, chinaware, cotton,
earthenware, fish meal, fish netting, lead and lead oxide, logs, lumber,
musical instruments, mustard seed, sugar, tile, sewing machine
heads, transistor radios, waste bagging, whiskey, wire rope, and
personal and household effects. A grant for the establishment of
Foreign Trade Subzone No. 2A, at New Orleans, was issued on
February 14, 1962, by the Foreign Trade Zones Board.
There were decreases in all activities at Foreign Trade Zone No.
3 at San Francisco. No vessels used the zone facilities for discharging
cargo, nor were any ships berthed to lade domestic ship's stores.
There were 615 manipulations performed in the zone during the year.
The number of entries received at Seattle, Wash. (No. 5) increased
21.6 percent over fiscal 1961. Long tons receiyed in the zone increased. 40.7 percent and the value of goods received increased 27.2
percent. All activities at this zone increased with the exception of
long tons and value of goods delivered from the zone. A wide variety
of articles from many countries was received in the zone for the
Seattle World's Fair. Largest tonnage commodities were ball and
roUer bearings, camp lanterns and stoves from Japan; waterproof
wearing apparel from Norway; mung beans from Thailand; chemicals
and machinery from Canada; cotton waste from Mexico; and
exhibition material from France.
Foreign Trade Zone No. 7 began operations at Mayaguez, P.R.,
on August 21, 1961. Activities within this zone, which is 4 ^ miles
inland from the piers, consisted of repacking and remarking of dental
instruments, the marking of books, pamphlets, and wool sweaters
with the country of origin, and the manufacture of raw cotton into
cotton card laps.
Foreign Trade Subzone 7A opened at Penuelas, P.R., on May 1,
1962. Two vessels used the zone facilities for discharging cargo from
foreign countries and two ships berthed in the zone to lade domestic
ship's stores.
Foreigri Trade Zone No. 8 at Toledo, Ohio, began operations on
August 28, 1961. Goods entering this zone consisted of 14 different
commodities from 9 countries of origin. Construction began in
May 1962 to expand this zone's facilities by an additional 35,000
square feet.

119

ADMINISTRATIVE REPORTS

The following table contains a brief summary of foreign trade
zone operations during fiscal 1962.

Long tons
New York_.
New Orleans.San Francisco
Seattle.Mayaguez
Penuelas
Toledo
__.

5,182
3,783
• 6,282
800
22
7
291

_
.

Delivered from zone

Received in zone

Number
of entries

Trade zone

Long tons

Value

42,868
28,411
1,627
418
246
34,667
12,146

$39,821,181
13,029,866
1,866,064
701,388
246,759
665,216
7,088,675

46,263
39,969
1,930
337
239
21,322
7,937

Value
$37,109,941
19,207,748
2,244,636
667,841
147,261
1,085,640
4,723,879

Duties and
internal
revenue
taxes
collected
$3,701,750
1,425,618
241,654
110,247
9
15,337
24,025

Customs ports of entry, stations, and airports.—The limits of the ports
of Atlanta, Ga., and Sitka, Alaska, were extended and redescribed to
include areas not theretofore covered. The ports of entry at Beaufort
and Morehead City, N . C , were consolidated as the port of BeaufortMorehead City. A new customs station was established at Salisbury,
Md. The designations of Hodgon and Littleton, Maine, as customs
stations were revoked. The International Seaplane Base at Ranier,
Minn., was designated as an international airport (airport of entry).
The following offices of the Appraiser of Merchandise, were established as principal customs field offices: District No. 47, Colorado;
District No. 34, Dakota; District No. 40, Indiana; District No. 42,
Kentucky; District No. 1, Maine and New Hampshire; District No.
19, Mobile; District No. 15, North Carolina; District No. 16,
South Carolina; and District No. 43, Tennessee.
Cost of administration

Regular nonreimbursable customs employment increased 3.3 percent in fiscal 1962. Total employment increased 3.9 percent. Export
control employnaent, financed by funds from the Department of Commerce, increased 16.2 percent, and employment financed by funds
transferred from the Department of Agriculture increased 13.3 percent.
Customs operating expenses totaled $65,917,528, including export
control expenses and the cost of additional inspection reimbursed by
the Departmerit of Agriculture.
The following table shows man-year employment data in fiscal 1961
and 1962.
Operation

Regular customs operations:
Nonreimbursable _
Reimbursable'i.-_
:

___

Man-years Man-years Percentage
1962
1961
increase

Total regular customs employment
_
Export controL
Additional inspection for Department of Agriculture..
Total employment.-

_ ..

7,328
302

7,673
316

3.3
4.3

7,630
173
188

7,888
201
213

3.4
16.2
13.3

7,991

8,302

3.9

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

120

1962 REPORT OF THE SECRETARY OF THE TREASURY

Management improvement program

Significant improvements were made in many areas of customs
activity with annual recurririg savings of over $137,000. Of this,
approximately $42,500 was realized during the year and was used
to finance Customs' half of the construction of one border station
and two residences at Walhalla, N.D., a joint Customs-Immigration
project. The full recurring amount will be applied to meet increased
costs of a steadily rising workload. I t is estimated that these expenses in fiscal 1963 will be at least 8 percent higher than those of
1962, the previous peak.
Travel and air commerce.—A new procedure was adopted to accelerate the clearance of in transit air passengers through the United
States. These passengers may now check their baggage through the
United States to the port of departure without examination by customs officers. Previously, unless the baggage was forwarded under
bond, baggage examination was required even though the passenger
was transiting the United States en route to another country.
A bilingual customs inspector participated in a European tour conducted by U.S. firms engaged in international passenger transportation. The inspector explairied customs procedures and provided
information to encourage foreigners to visit the United States.
Duty paid by returning U.S. residents,on articles shipped to them
from overseas and later claimed to be free under their exemption is
now refunded before verification of the claim. Under previous procedures the claim had to be verified before the refund was made.
Efitry of merchandise.—Entry offices were established at four additional airports during the year to facflitate the clearance of merchandise. This service, now provided at our six largest airports, enables
importers of air cargo to complete all necessary customs requirements
at the airport.
The procedures for forwarding imported air cargo from the port of
first arrival to another port for entry were simplified by an optional
plan which eliminated the necessity for preparing additional in-bond
manifests.
Importers of alcoholic beverages were authorized to pay internal
revenue taxes on a semimonthly basis. This deferred payment procedure extends to importers the same privileges previously granted to
firms withdrawing domestic liquor from internal revenue bonded
warehouses.
As another convenience to importers. Customs now collects both
duty and internal revenue tax due on imported tobacco products.
Before this change, importers were required to make payments to two
separate services.
A new procedure permits joint examination by the Uriited States
and Canadian Customs of theatrical effects exported by rail from the
United States to Montreal, or Toronto, Canada, for temporary use.
The railroad cars are examined by Canadian Customs for import
purposes and by United States Customs for export purposes jointly at
the importers' premises, thus eliminating one examination formerly
performed at the border and resulting in a saving of time to the
theatrical companies.
Government military agencies, the General Services Administration,
and the Atomic Energy Commission were authorized to obtain imme-

ADMINISTRATIVE REPORTS

121

diate delivery permits for indeflnite periods of time on importations
for their respective agencies. Before this, the permits had to be renewed yearly with resulting inconvenience and delay if not renewed
on time.
The application for special license to lade or unlade and the request
for overtime services were combined into one form for airline companies,
with a provision for autoinatic yearly renewal.
^ Procedures were revised to permit importers of carpet wool to retain
liability for use of the wool unless specific requests were made for
relief of such liabflity under the importer's bond. This procedure
also provides Customs with a better method of controlling the use of
imported carpet wool.
The release of merchandise entered under inf o r m a l e n tries was expedited by permitting customs brokers to prepare serially numbered
informal entries under the control of customs officers.
The customs form under which vessels are permitted to proceed
from one domestic port to another was revised to require a listing of
each foreign port which the vessel touches while so proceeding.
This will provide more complete information for the collectors of
customs at succeeding American ports in meeting accountability requirements for foreign cargo aboard.
Other improvements made during the year were: Customs employees
were authorized to accept personal checks from individuals importing
merchandise for their personal use, rather than requiring cash, when
banking facilities are not available; three forms were combined into
one for use in reporting discrepancies between manifested merchandise
and landed merchandise to provide for a simpler method of rectifying
any discrepancies; a packing list was required of imported merchandise to enable customs to make a representative examination while
selecting fewer packages; and four days were added to the two already.
allowed within which an entry .must be flled under certain special immediate delivery procedures.
Liquidation of^ entries.—The backlog of'import entries awaiting
tentative determination of duties and taxes due was reduced to 458,000
as of June 30, 1962, almost 100,000 less than the number of such entries
on hand a year earlier. This reduction of more than 17 percent was
accomplished by a continued high rate of individual production, improved procedures, and by the addition of some personnel.
Enforcement activities,-—A system of radio telephones was installed
in customs patrol cars at four selected seaports. This new communication system has increased the effectiveness of enforcement operations
by permitting closer supervision of waterfront areas and by releasing
personnel previously assigned to offices to outside activities. Both
incoming and outgoing calls are handled directly from patrolcars with
this equipment which supplements the two-way radio system already
in use.
An electronic status console was installed at the customs enforcement headquarters in New York, N.Y. This console, which is patterned after similar devices used by several major police departments,
consists of an illuminated map of the New York pier area showing the
location of all docked ships by lights and the location of customs patrols
by smaU magnetized cars. All calls, to and from the dispatcher, previously recorded by harid, are npw autoraaticaUy recorded on reuseable

i22

1962 REPORT OF THE SECRETARY OF THE TREASURY

magnetic tape. The use of this console has increased the efficiency of
enforcement in the New York area and has released some office personnel for outside enforcement activities.
Other management improvements.—The Canadian query program,
established several years ago to provide accurate information on U.S.
customs requirements to Canadian exporters was expanded by the
designation of four additional appraisers' offices to provide this
service. This expansion has brought the source of the information
closer to the recipients and has resulted in better compliance with
customs requirements by Canadian businessmen.
The quality of import statistics furnished to the Bureau of the
Census was improved by a new plan, under which any cha^nges in
quantity, value, classification, rate, or description of imported merchandise are corrected before the statistical copies are transmitted to
Census. This change benefits both the Government and industry by
providing more accurate data on imported merchandise.
As a convenience to importers, brokers, and customs personnel, all
requirements for additional invoicing iaformation were consolidated
iato the customs regulations.
A forms management program, which provides for the continuous
review and control of aU customs forms, was adopted with an officer
designated in the Washington headquarters and in each principal
customs field office to carry out the program. During the fiscal year,
25 customs forms were abolished, 61 were revised, 2 were consolidated,
and 2 new forms were created. The establishment of a uniform paper
stock for printing entry forms saved $4,000 in annual printing costs.
Management teams from the Washington headquarters inspected
46 collection, appraisement, agency, and laboratory districts during
the year. In the course of the inspections manpower requirements
were reevaluated in terms of existing and anticipated workloads,
simplified procedures were installed, and other changes were made to
improve the efficiency of field operations.
Under the iacentive awards program, 780 suggestions were received
and 230 were adopted with awards of $5,300. The 230 suggestions
adopted represent a slight increase over those adopted in fiscal 1961.
Total identifiable savings resulting from the suggestions amounted to
$17,500.
. Future plans and programs.—A task force of citizens, appointed in
fiscal 1961 to study ways of improving customs procedures and facilities for foreign tourists and U.S. citizens returniag from abroad,
completed its report. The report, made pubhc on February 21, 1962,
contained 32 recommendations. On March 19, 1962, the Secretary
of the Treasury appointed a steering committee to study the recommendations of the task force. Those found to be desirable wiU be
put into effect.
Future plans for Customs include: The preparation of detailed plans
to improve internal accountiag and fiscal procedures; the application
of electronic data processiag to accountiag operations at New York,
N.Y.; a continuation of-the study of mail parcels designated as gifts
to determine whether there is widespread abuse of the statutory
exemption for gift parcels which may require corrective action; and
completion of the project to establish improved procedures for the
designation of international airports according to their capabihty to
process aircraft arriving from abroad.

ADMINISTRATIVE REPORTS

123

Office of Defense Lending
The Office of Defense Lendiag, established July 1, 1957, by Treasury
Department Order No. 185, is responsible for the followiag functions
which had been transferred to the Secretary of the Treasury.
Activities under the Defense Production Act

The makiag and administering of loans to private business enterprises under the authority of section 302 of the Defense Production
Act of 1950, as amended (50 App. U.S.C. 2153), were assigned to the
Secretary of the Treasury by Executive Order No. 10489, dated September 26, 1953. Under section 302, this Office can consider only
applications for loans which are certified as essential for national
defense purposes by the Office of Emergency Planning of the Executive
Office of the President.
No new loans were authorized duriag the fiscal year 1962. Loans
outstandiag were reduced from $121.6 million to $121.3 million and
commitments from $13.6 milhon to $1.5 miUion during the year.
Gross reductions in borrowing duriag the fiscal year amounted to
$13.9 million, but borrowing of $11.9 million was necessary to purchase
an outstanding commitment, thus making a net reduction, of $2 million
in notes payable to the Treasury. Interest payments of $3.5 million
were made.
Activities under the Federal Civil Defense Act

The lending functions under section 409 of the Federal Civil Defense
Act were transferred to the Secretary of the Treasury on September
28, 1953, pursuant to section 104 of the Reconstruction Finance Corporation Liquidation Act (50 App. U.S.C. 2261). Since the close of fiscal
1955 no admiaistrative expense allowance has been authorized for this
program, and no applications for new loans have been accepted. As
of July 1, 1961, the loans outstanding amounted to $798,344 and deferred participation commitments to $1,776,138. These loans had
been reduced to $691,687 and the commitments to $1,308,343 as of
June 30, 1962. Notes payable to the Treasury were reduced by
$140,000. Interest paid amounted to $19,295.
Liquidation of Reconstruction Finance Corporation assets

The Reconstruction Fiaance Corporation was abolished effective at
the close of June 30, 1957, pursuant to the provisions of Reorganization
Plan No. 1 of 1957. Its remaining assets, liabilities, and obligations
were, transferred to the Secretary of the Treasury, the Admiaistrator
of the Small Business Administration, the Housing and Home Finance
Administrator, and the Administrator of General Services. The
Secretary of the Treasury is responsible for completing the liquidation
of busiaess loans and securities with iadividual balances as of June 30,
1957, of $250,000 or more, securities of and loans to railroads, securities
of flnancial institutions, and the windup of corporate affairs.
Net income and proceeds .of liquidation amounting to $2.5 million
were paid into the Treasury as niisceUaneous receipts in fiscal 1962,
thus making a total of $47 mfllion paid since Jifly 1, 1957. The
portfoho of R F C loans, securities, and commitments amounted to
$8.3 miUion on June 30, 19'62, a reduction of $7.8 mfllion from the

124

1962 REPORT OF THE SECRETARY OF THE TREASURY

$16.1 million outstanding a year earlier. Total reductions effected
have amounted to $47.2 million, approximately 85 percent of the
portfolio of $55.5 million transferred to the Secretary of the Treasury
on July 1, 1957.
The Office of Domestic Gold and Silver Operations
The Office of Domestic Gold and Silver Operations was established
in the Office of the Under Secretary for Monetary Affairs in accordance
with Treasury Department Order No. 193 dated October 9, 1961 (see
exhibit 51). The duties transferred to the Under Secretary by the
October 9, 1961, amendments to Parts 54 and 80 of Title 31 of the
Code of Federal Regulations were delegated to the Director, Office of
Domestic Gold and Silver Operations, by'Treasury Department Order
No. 193-1 of October 20, 1961.
Assistance is given by this Office to the Under Secretary for Monetary Affairs in the formulation, execution, and coordination of policies
and programs relating to gold and silver, in both their monetary and
their- commercial aspects.
Information and statistics relating to the use of gold and silver are
prepared for his guidance in meeting these responsibilities.
The Office administers the Treasury Department Gold Regulations
relating to the purchase, sale, and control of industrial gold, issues
licenses and other authorizations for industrial, professional, and artistic use of gold, both in the United States and abroad, receives and
examines reports of operations, and investigates and supervises the
activities of users of gold. Investigations into possible violations of
the Gold Regulations are correlated with the U.S. Secret Service or
other enforcement agencies.
The Office develops, implements, administers, and ex.ecutes regulations and procedures pertaining to silver, particularly newly-mined
silver, including records, reports, and other related matters.
Bureau of Engraving and Printing
The Bureau of Engraviag and Printing designs, engraves, and
prints U.S. currency. Federal Reserve notes, securities, postage and
revenue stamps, and various commissions, certificates, and other
fornis of engraved work for Government agencies. The Bureau also
prints bonds and postage and revenue stamps for the governments of
insular possessions of the United States.
Dehveries of all classes of work to the customer agencies in the
.fiiscal year 1962 totaled 27,715,972,318 pieces, as compared with
26,746,227,150 pieces in 1961, an mcrease of 969,745,168, or
approximately 3.5 percent, in the deliveries of Bureau products.
Changes were made in the organizational structure during the year
in order to improve operating efficiency.
Management attainments

The Director of the Bureau held frequent conferences and meetings
with supervisory personnel for the purpose of providing constant
stimulation and leadership. An Employment Policy Review Board
was established to receive, investigate, and evaluate complaints of

ADMINISTRATIVE REPORTS

125

discrimination. The Bureau's concern in promoting and maintaining
high morale among employees was refiected in the employee development and training policy, and in the employee relations policy which
embraces fair employment practices, favorable working conditions, and
safety and health services.
Manpower requirements were reviewed throughout the year and
each vacancy was evaluated before a request was made for a replacement. The reduction of personnel from 3,038 employees at the
beginning of the fiscal year to 2,943 at its close, a decrease of 95, was
largely the result of the application of management improvement
techniques.
The Bureau conducted industrial engineering studies, analyses of
production processes, and quality control surveys to improve work
methods and operations, increase industrial efficiency, and insure
development and practice of sound quality control systems. Improvements in equipment as well as in the processes employed in the
manufacture of currency and postage stamps were made. To facilitate operations, further modiflcations were made on sheet-fed rotary
currency presses and web-fed rotary stamp presses. Other Bureau
research activities to improve the quality of its products related to
paper, tape, labels, film, adhesives, plate wear, presses, and equipment.
Close liaison was maintained with representatives of the Department of Agriculture concerning the expanded food stamp program
and with the Post Office Department in planning future requirements
for regular and commemorative postage stamps.
Reviews and audits made by the Bureau's Internal Audit Staff
indicate that Bureau policies have been carried out effectively. In
fiscal 1962, 74 financial and management type audits, containing 91
audit recommendations, were released. Ninety-six recommendations
were cleared and only 41 audit recommendations were stfll under
consideration at the close of the year.
Through the excess property program the Bureau received $1,771
from the sale of obsolete equipment and material declared excess, and
obtained equipment valued at $187,120 at no charge through the
Federal utilization program.
I t is estimated that annual recurring savings of $24,671 will accrue
from employee suggestions adopted during the fiscal year. Through
the records management program 672 cubic feet of noncurrent records
were transferred from office space to the records storage area and 311
cubic feet of obsolete records were destroyed. In response to 1,126
requests, 75 new forms were prepared, 36 were eliminated, 35 consolidated, and 347 were improved and revised in connection with the forms
management program.
The Bureau continued to emphasize the Treasury Department
safety program. April 1962 marked the second month in the history
of the Bureau safety program in which no disabling injuries occurred. The injury frequency rate has been decreasing yearly.
The second major application of machine accounting, payroll and
labor distribution, was developed during the year. This included the
installation of punch-card time.and attendance reporting, programming and wiring of the control panels, and labor cost distribution.
Payroll operations were being reviewed at the end of fiscal 1962 for
further refinement and improvement.

126

196 2 REPORT OF THE SECRETARY OF THE TREASURY

The Bureau conducts continuing employee development programs
which encompass both outside and internal training and orientation.
The course of supervisory development conferences was completed
by 69 employees. The objectives were to increase skills in the human
relations aspects of the supervisors' jobs and to increase their knowledge, of the pertinent laws and regulations. A 35-mm color slide
presentation of the salary and wage program prepared by Bureau personnel was used for the first time.
Estimated savings resulting from management improvements
during fiscal 1962 totaled nine man-years and approximately $73,300
on a recurring annual basis. All realized savings were applied against
the cost of products and have been reflected either in the Bureau's
billing rates or in decreases in appropriation requests by the Office of the
Treasurer of the United States for funds for the purchase of currency.
New issues of postage stamps and deliveries of finished work

New issues of postage stamps delivered by the Bureau in flscal 1962
are shown in table 105. A comparative statement of deliveries of
finished work for fiscal 1961 and 1962 appears in table 103.
Finances

The Bureau operations are financed by reimbursements to a working
capital fund authorized by law. Balance sheets and a statement of
income and expense as of June 30, 1962 and 1961, follow.
Balance sheets as of June SO, 1962 and 1961
J u n e 30, 1962

Assets
C u r r e n t assets:
Cash with Treasury
Accounts receivable
Inventories: ^
R a w materials
W o r k in process.
F i n i s h e d goods
Stores.
P r e p a i d expenses

_._
_

_
_

_
_ .-_
_

T o t a l c u r r e n t assets
Fixed assets: 2
Plant machinery and equipment
M o t o r vehicles
_
OflSce m a c h i n e s
F u r n i t u r e a n d fixtures
Dies, rolls, a n d plates
_
Building appurtenances
Fixed assets u n d e r construction

....

_
__
._ _

Less portion charged off as depreciation
Excess fixed assets (estimated'reahzable value)__
.

. .

. ..

.__•

T o t a l fixed assets

Deferred charges
Total assets. _

Footnotes at end of table.

J u n e 30, 1961

$3,314,240
2,081,938

$3,294,070
1,274,673

800,032
3,964, 540
3,138, 817
1,064, 506
66,248

762,620
3, 669,498
2,996,548
1,097, 064
61,396

14,410,320

13,165, 769

19, 684,923
94,300
193, 714
442,276
3,965, 961
2,196, 607
306,030

19,606, 859
88,317
193,843
435, 031
3,955,961
2,138, 720
36, 789

26,872, 810
12,370,307

26,354,520
11,008,940

14, 502,503
819

16,346,680
360

14,503,322

16,345,940

64, 632

104, 623

28,978,274

28, 606,322

127

ADMINISTRATIVE REPORTS
Balance sheets as of June SO, 1962 and 1961—Continued
June 30, 1962

Liabilities and investment of the United States
Liabilities:»
Accounts payable
Accrued liabilities:
Payroll
Accrued leave
Other
Trust and deposit liabilities
Otherliabilities

."
_

Total liabihties
Investment of the U.S. Government:
Principal of the fund:
Appropriation from U.S. Treasury_
Donated assets, net
Total principal
.
Earned surplus, or deficit (—) *_ _

Total investment of the U.S. Government

Total habilities and investment of the U.S. Govemment

June 30,1961

' $462,127

$400,910

1,019,655
1,643,968
97,776
576,777
1,082

883,639
1,475,161
116,196
564,063
4,876

3,791,285

3,443,845

3,250,000
22, 000,930

3,260,000
22,000,930

26,250,930
-63,941

26,250,930
-88,463

25,186,989

25,162,477

28,978,274

28,606,322

1 Finished goods and work in process inventories are valued at cost. Except for the distinctive paper
which is valued at the acquisition cost, raw materials and stores inventories are valued at the average cost
of the materials and supplies on hand.
2 The act of August 4,1960, establishing the Bureau of Engraving and Printing fund, specifically excluded
from the assets of the fund the land and buildings occupied by the Bureau (31 U.S.C. 181a). These assets
are valued at about $9,000,000. However, under the Supplemental Appropriation Act of 1961 (74 Stat. 614),
$1,260,000 was appropriated for emergency repairs to the Bureau of Engraving and Printing Annex Building.
Plant, machinery and equipment, furniture and fixtures, oflice machines, and motor vehicles acquired on or
before June 30,1950, are stated at appraised values. Additions since June 30,1950, and all building appurtenances are valued at acquisition cost. Dies, rolls, and plates were capitalized as pf July 1, 1961, on the basis
of average unit costs developed for the fiscal year 1950 reduced to recognize their estimated useful life. Since
July 1,1961, all costs of dies, roUs, and plates have been charged to operations in the year acquired.
3 Outstanding commitments, consisting of undelivered purchase orders and unperformed contracts,
totaled $3,626,842 as of Jime 30,1962, compared with $3,617,362 as of June 30,1961; of these amounts, $2 296,113
as of June 30,1962, and $2,497,766 as of June 30,1961, related to contracts entered into prior to June 30, but not
to be performed until the ensuing fiscal years.
4 The act of August 4,1960, provided that any surplus accruing to the fund in any fiscal year be paid into
the general fund of the Treasury as miscellaneous receipts except that any surplus would be applied first to
restore any impairment of capital by reason of variations between prices charged and actual costs (31 U.S.C.
181a).

Statement of income and expense for ihe fiscal years 1962 and 1961
1962

Income and expense
Operating revenue: Sales of engraving and printing.—
Operating costs:
Cost of sales:
Direct labor..
Direct materials used

_ __

Prime cost

Total overhead
Total costs 1
Footnotes at end of table.

$24,681,846

$24,236,683

9,366,166
3,946,379

9,438,947
4,033,664

13,312,535

13,472,611

7,307,064
1,061,617
288,218
1,274,941
488,086
294,843
1,578, 862
. 56,639
36,694

7,184,656
1,110,691
246,372
1,294,445
467,983
293,681
1,946,966
236,'308
9,217

Overhead costs:
Salaries and indirect labor
. .
. .
Factory supphes
-_.
Repair parts and supphes
Employer's share personnel benefits..
Rents, communications, and utilities
Other services
.
Depreciation and amortization
Losses on disposal or retirement of fixed assets
Sundry expense (net)

1961

•

12,386,864

12,779,118

26,699,399

26,261,629

128

1962 REPORT OF THE SECRETARY OF THE TREASURY

Statement of income and expense for the fiscal years 1962 and 1961—Continued
1962

Income and expense
Operating costs;—Continueid
Cost of sales:—Continued
Less:
Nonproduction costs:
Shop costs capitalized
• Cost of miscellaneous services rendered other agencies
Net increase, or decrease ( - ) in finished goods and work in process
inventories. . . .
...
. .
.
_ Total
Cost of sales

_. .

Operating profit, orloss(—)
Nonoperating revenue:
Sales of card checks — ._
Operation and maintenance of incinerator and space utilized by other
Treasury activities
Other services

Nonoperating costs:
Purchase of card checks Freight out-card checks
Other costs of miscellaneous services rendered other agencies..

1961

164,126
450, 630

116, 275
431,151

427,311

1, 444,333

1, 042, 066

1,990,759

24, 657,333

24,260, 870

24, 512

-26,287

385,779
64,861

379,467
49, 072

450, 630

641", 921

450,630

173,620
36,167
431,151

460, 630

640,838

24,512

—24,204

213,392

Nonoperating profit.

1,083

Net profit, or loss (—) for the year 2

1 No amounts are included in the accounts of the fund for (1) interest on the investment of the Government
in the Bureau of Engraving and Printing fund, (2) depreciation on the Bureau's buildings excluded from
the assets of the fund by the act of August 4,1960, and (3) other costs incurred by other agencies on behalf
of the Bureau.
2 The act of August 4,1950, provided that any surplus accruing to the fund in any fiscal year be paid into
the general fund of the Treasury as miscellaneous receipts except that any surplus would be applied first to
restore any impairment of capital by reason of variations between prices charged and actual cost (31 U.S.C.
181a).

Fiscal Service
The Fiscal Service consists of the Office of the Fiscal Assistant
Secretary, the Bureau of Accounts, the Bureau of the Public Debt, and
the Office of the Treasurer of the United States. The Fiscal Assistant
Secretary, in addition to being responsible for the operations of these
offices, gives general supervision to the Office of Defense Lending.
He is responsible for administration of the cash position of the Treasury, which includes the distribution of funds between Federal Reserve
Banks and other Government depositaries, and participates in planning Treasury financing operations. He also is responsible for the
general direction of the fiscal agency operations of Federal Reserve
Banks and the Treasury's central agency participation in the joint
financial management improvement program with the Bureau of the
Budget and the General Accounting Office.
The reports which follow detail the operations under the responsibilities of the Fiscal Assistant Secretary as they relate to the three
components of the Fiscal Service.
BUREAU OF ACCOUNTS

The Bureau's functions are mainly Government-wide in scope and
include the maintenance of the Government's system of central
accounts; issuance of the Government's central financial reports;

ADMINISTRATIVE REPORTS

129

accounting and reporting for foreign currencies acquired by the
Government without purchase with dollars; disbursing for virtually
all civilian agencies of the Government; general direction and designation of Government depositaries; determination of qualifications and
underwriting limitations of surety companies to write fidelity and
other surety bonds covering Government activities; investment of
social security and other trust funds; administration of loans and advances by the Treasury to Government corporations and other
agencies; and participation with the Office of the Fiscal Assistant
Secretary in the joint financial management improvement program.
Technical guidance is furnished to Treasury bureaus and other
agencies on accounting systems and related matters affecting the
central accounting and reporting function. Periodic audits relating
to funds administered in the Bureau are conducted and special audits
within the Department are supervised and coordinated. The collection of amounts due and the payment of claims under certain
international agreements are administered. The Bureau performs
other fiscal work as may be required.
Reorganization Plan III, dated April 2,1940, established the Bureau
of Accounts, and on December 12, 1952, the Bureau was reorganized
pursuant to Treasury Department Order No. 164. On July 28, 1961,
Treasury Department Order No. 170-9 transferred from the Fiscal
Assistant Secretary and the Commissioner of Accounts, certain
responsibilities relating to the development of regulations and the
general administration of fiscal internal auditing and administrative
accounting for appropriations and funds as they affect the various
bureaus of the Department. (See exhibit 51.)
Accounting and Reporting
Systems improvement

Under the direction of the steering committee for the joint financial
management improvement program. Bureau staff continued to
participate with the General Accounting Office and the Bureau of
the Budget during the fiscal year 1962 in the following studies:
Current practices of the executive branch relating to programming,
budgeting, accounting, reporting, pricing, and billing for reimbursable
services and supplies furnished by the agencies (a preliminary report
was made in July 1961); identification and appraisal of the financial
reporting practices of the executive branch as a whole, to determine
possibilities for consolidation, coordination, simplification, etc., and
to develop appropriate recommendations (a preliminary report was
submitted in June 1961); and, a study to determine improved methods
of recording and reporting motor vehicle operatipns and related cost
data as a basis for managing Federal fleet operations.
Agreements with Minnesota and Wisconsin were completed by the
Bureau for the withholding of State income taxes from compensation
of Federal employees, pursuant to the act of July 17, 1952, as amended
(5 U.S.C. 84b, 84c), and appropriate instructions were issued to Government agencies. The staff continued to advise and assist Federal
and State agencies in the solution of mutual problems on the withholding of State income taxes.
661496—63

130

1962 REPORT OF THE SECRETARY OF THE TREASURY

Other systems work carried out during fiscal 1962 included the
following diverse matters: Cooperation was given Federal Reserve
Banks and the Internal Revenue Service in solving problems relating
to revenue accounting and depositary receipt operations, including
conversion to electronic data processing (EDP). Staff continued
to serve on a board of Civil Service examiners for the purpose of
rating applicants for accounting positions in the Government.
Treasury and Fiscal Service regulations and instructions to Government agencies were prepared on a wide range of fiscal and accountingmatters. The Office of the Treasurer was assisted in initiating
development of an accounting manual for fiscal operations, and in
simplifying certain daily reporting. A report was prepared on the
costs of mailing pajrroll checks direct to employees. Improvements
were made in the method of allocating withheld income and social
security taxes. New procedures were developed for handling Federal
unemployment tax and railroad unemployment insurance contributions. The Bureau also participated in studies to determine the
feasibility pf converting to computer systems the payroll operations
of the Fiscal Service and the central accounting and reporting
operations.
Central accounting

The central accounts for the receipts, expenditures, appropriations,
and related cash operations of the Government are maintained by the
Division of Central Accounts in accordance with section 114 of the
Budget and Accounting Procedures Act of 1950 (31 U.S.C. 66b), and
Treasury Department Circular No. 945, as amended. The central
accounting system integrates the transactions of all collecting arid
disbursing officers and the Treasurer of the United States, the appropriation, fund, and receipt accounts of the Government, and budget
results, with a disclosure of the related cash assets and liabilities.
The data required for such central reports as the Monthly Statement
of Receipts and Expenditures of the United States Government and the
annual Combined Statement of Receipts, Expenditures and Balarices of
the United States Government have as their source the central accounting system.
By using deposit in transit accounts, the system of central accounts
provides a Government-wide control over deposits reported by
collecting and disbursing officers for credit to the account of the
Treasurer of the United States. The central accounting system also
provides the means by which the data on checks issued as reported
by disbursing officers are integrated with the detaUed check reconciliation of disbursing officers' accounts by the Office of the Treasurer
of the United States and with the expenditure data affecting appropriations and funds.
Under revised procedures placed in operation during flscal 1962,
Treasury regional offices now keep control accounts for all transactions at the level of each agency accounting station for which the
Treasury disburses. Agenc}^- accounting stations, on the basis of
their own records, furnish the Division of Central Accounts monthly
statements of transactions, classifled by the individual appropriation, fund, and receipt accounts involved. The classified transactions reported are then reconciled to the control accounts maintained

ADMINISTRATIVE REPORTS

131

in the Treasury regional accounting offices. A significant streamlining of the system has resulted in an estimated first-year saving
of $94,686 and estimated annual recurring savings of $150,000.
Expenditure transfer and adjustment documents (previously recorded in agency station control accounts by Treasury regional
offices) are now handled centrally in the Division of Central Accounts.
This procedure minimizes the number of points of contact for agency
stations with respect to reconcfliations with Treasury control accounts.
A total of 3,881,951 accounting items was processed during fiscal
1962 by the central and regional accounting offices of the Division
of Central Accounts. The total for fiscal 1961 was 4,155,787.
Central reporting
In the survey of Government-wide financial reporting in fiscal
1961 the representatives of the joint financial management improvement program determined that the information published in the
major financial reports of the Government was being utilized but
would be of more value if updated and if certain additional data were
included.
Accordingly, the Treasury in fiscal 1962 took steps to make the
data in certain of its reports more timely and somewhat wider in
scope. The principal reports compiled in the Division of Central
Reports include: The Monthly Statement of Receipts and Expenditures
of the United States Government, the monthly statement of Budgetary
Appropriations and Other Authorizations, Expendiiures and Unexpended
Balances, the monthly Treasury BuUetin, the annual Combined Statement of Receipts, Expenditures and Balances of the United States
Government, the Annual Report of the Secretary of the Treasury, the
Semiannual Consolidated Report of Balances of Foreign Currencies
Acguired Without Payment of Dollars, the semiannual Report on
Foreign Currencies in Custody of the United States, and the monthly
and quarterly reports on foreign currency transactions under Pubhc
Law 480, as amerided. In an effort to comply with the requests of
the users, the foUowing improvements were made.
Monthly Statement of Receipts and Expenditures of the United States
Government.—The format was revised to provide for the reporting of
refunds of receipts to identif}^ their application to budget accounts
or trust accounts, with the refund of trust account receipts reported
in amounts reimbursed from trust funds as deductions from trust
receipts.
Treasury Bulletin.—Most of the 18 statistical series appearing
monthly which were not already covering the month immediately
preceding the month of publication were updated. More than 45
tables for the issues of November and December 1961 and January
1962 gradually were rescheduled to accelerate their publication by at
least one month. Statements of flnancial condition for Government
corporations and certain other business-type activities beginning
with the February 1962 issue have been published a month sooner
than those for the year before.
Four new tables were added. Under the Exchange Stabflization
Fund, information on current stabflization agreements has appeared
quarterly beginning with the November 1961 issue. U.S. gold stock,
and holdings of convertible foreign currencies by U.S. monetary

132

1962 REPORT OF THE SECRETARY OF THE TREASURY

authorities have been shown monthly beginning with July 1961 in a
table of international flnancial statistics. A new series, with explanatory headnote, on foreign currencies acquired by the United States
without purchase with dollars was begun in the issue for February
1962. Transactions and balances in Treasury accounts were shown
for flscal years beginning with 1954, and for agency accounts beginning
with the fiscal year 1958.
Combined Statement of Receipts, Expenditures and Balances of the
United States Government.—^^&w tables added showed: Clearing
accounts for taxes withheld from salaries of Government employees,
by organizational units; interfund transactions excluded from receipts
and expenditures of certain trust accounts; and legislative actions on
authorizations to expend from public debt receipts, with a brief
textual statement of an historical and explanatory nature.
Control of foreign currencies

The operations of the Division of Central Reports relating to the
accounting and reporting of foreign currencies continued to expand
during fiscal 1962. The Foreign Assistance Act of 1961, approved
September 4, 1961 (22 U.S.C. 2363(c)), requires each department and
agency to submit semiannually to the Secretary of the Treasury an
inventory report showing by countr}^ of origin all foreign currencies
on hand which have been acquired without payment of dollars, their
consolidation into a single report, and its transmittal to the Congress.
To implement this legislation, Department Circular No. 930 was
revised to provide for central accounting for foreign currencies and
uniform valuation and reporting by all executive agencies. The
consolidated report of the Treasury which is submitted to the Congress semiannual^ shows the required inforniation by agencies,
countries, units of currency, and U.S. dollar equivalent. During
fiscal 1962, the first two semiannual reports required were submitted
to the Congress as of June 30, 1961, and December 31, 1961.
Summary of holdings of foreign currencies acguired without payment of dollars.
J u n e SO, 1962
U.S. dollar
equivalent
(in thousands)

Holder

Agency for International Development
Department of Agriculture.
Department of Defense
_
Department of Justice.._
Department of state
....
Treasury Department
United States Information Agency.

..-.
..

Total
.
.
.
Country-owned counterpart funds held in foreign government accounts
Total

....

$1,423,992
• 17,999
467
709
1,284,610
556
2, 728,281
267,518
2,995,851

Approximately $2,142 million of the total held by the United
States, as of June 30, 1962, was generated under Title I of the Agricultural Trade Development and Assistance Act of 1954, as amended;
$286 mfllion generated under the Mutual Security Act of 1954, as
amended, and the Foreign Assistance Act of 1961; and the balance of
$300 million generated under the lend-lease, surplus property, and
other legislation.

ADMINISTRATIVE REPORTS

133

The foreign currency transactions occurring during the year in
Treasury custody accounts are summarized as follows: Collections
generated under various Government programs amounted to the
equiyalent of $1,318.2 million; transfers for authorized uses without
reimbursement amounted to the equivalent of $1,086.2 million; and
withdrawals for sales to Government agencies for doUars to the
equivalent of $242.1 million.
Internal auditing

Audits were made during the year under review of certain major
trust funds, including the unemployment trust fund. Federal old-age
and survivors insurance trust fund, and the highway trust fund. The
procedures relative to administrative accounting and the various
cash funds of the Bureau also were audited, and comprehensive audits
were made of regional disbursing offices in Chicago, Denver, Dallas,
and Portland. Other work carried out during the year included an
audit of unissued stocks of Federal Reserve notes, an audit of administrative-accounts'and records in the Office of the Comptroller of the
Currency, the annual confirmation of outstanding loans on the books
of the Office of Defense Lending, and the verification of discount rates
applicable to the weekly offering of U.S. Treasury bills.
Disbursing Operatioris
During fiscal 1962 the Division of Disbursement, through fifteen
regional disbursing offices, performed disbursing services for over 1,500
offices of agencies located throughout the United States, its possessions,
and the Philippines. The Division services all executive agencies,
except the Department of Defense, the Post Office Department, and a
few relatively small agencies. Technical supervision also is exercised
over the disbursing operations delegated by the Chief Disbursing
Officer to U.S. disbursing officers located at embassies and consulates
in foreign countries, and to assistant disbursing officers and cashiers
attached to agencies located throughout the United States and foreign
countries. Under arrangements with the Department of State payments are made also in behalf of domestic civilian agencies requiring
disbursing services in foreign countries.
The computer system in the Chicago regional disbursing office,
which began operation in January 1961, continued to operate through
the flscal year 1962 with a high degree of productivity and efficiency.
More than 80 million checks were produced by the Chicago computer
system during the year, comprising payments for veterans' benefits,
social security benefits, income • tax refunds, national service life
insurance dividends. Federal employees' salaries, and public debt
interest.
Two additional computer systems of more advanced design began
operation in January 1962 in the Philadelphia and Kansas City
regional disbursing offices. Through June 30, 1962, these two systems
had produced a total of more than 35,900,000 checks. The demonstrated capability and lower cost of the Philadelphia and Kansas City
systems have resulted in a decision to replace the Chicago computer
system with similar equipment next year.
After a review of the workload remaining in regional disbursing
offices affected by the conversion of a high volume of payments to

134

1962 REPORT OF THE SECRETARY OF THE TREASURY

electronic data processing, the decision was made to close the Salt
Lake City regional disbursing office as of June 30, 1962.
Signiflcant improvements were made in other areas also. Further
conversion of payment flies was made from addressograph plates to
punched cards. Checks were prepared from punched cards furnished
by Social Security Administration payment centers covering new,
adjusted, or reinstated cases. Machine utihzation was improved.
Key punch machines were replaced by printing key punches, and the
use of key veriflers was substituted for manual verification of punched
cards. A new method was employed to ship Government checks to
regional disbursing offices. Work was realigned and work methods
revised following comprehensive surveys of regional disbursing office
operations. Recurring annual savings realized during the year
under the management improvement program amounted to $546,698.
The average unit cost of processing checks and bonds in fiscal 1962 was
3.73 cents compared with 4.13 cents in 1961, exclusive of nonrecurring E D P site preparation costs.
The volume of work completed in fiscal 1962, as compared with that
of 1961, follows:
1961

Classification

1962
Number

Pajmients:
Social security
Veterans' benefits
,
_
Income tax refunds.
._
.
_
Veterans' national service hfe insurance dividend program
Other
Adjustments and transfers
...^
.
Savings bonds issued
._
.
Total

,__

146,249,107
62,736, 556
40,317,763
7,096, 822
43,386,926
250,683
3,739,793

163,629,154
63, 256,915
40,470,741
6,013,284
44,113,436
178, 784
3,999, 111

303,777,640

321,661,425

Deposits, Investments, and Related Operations
Federal depositary system

The Federal Reserve Banks and commercial banking institutions in
the United States, insular possessions, and foreign countries are, by
designation of the Secretary of the Treasur}^-, Government depositaries authorized to furnish Government agencies with a variety of
banking and financial services. These depositaries, which include
more than 11,500 commercial banking institutions (some of which
furmsh more than one type of banking service) supplement the services
provided by the Treasurer pf the United States. This established
depositary system provides for local deposit of Government collections
by various Government officers and the subsequent transmission of
collections to the Treasurer's operating accounts maintained in Federal
Reserve Banks.
The various types of depositary services and the number of commercial banking institutions which, as of June 30, 1962, were
authorized to provide these services, are shown in the following table.

ADMINISTRATIVE REPORTS

Tjipe of service provided by depositaries

Receive proceeds from deposits of taxpayers and sale of pubhc debt .securities for credit in
Treasury tax and loan accounts
__
_
.
•
.
Receive deposits from directors of internal revenue, military finance officers, and other
Government oflicers
.
.
.
Maintain official checking accounts of postmasters, clerks of United States courts, and
other Government oflicers
«
.
Furnish bank drafts to Government officers in exchange for collections
Service State unemployment compensation benefit pajmaent and clearing accounts
.
Operate limited banking facihties at military installations:
In the United States and its outlying areas
Overseas
.
^....^

135
Number of
banking
institutions

11,439
883
4,127
2,222
59
284
173

Investments

The Secretary of the Treasury, under specific provisions of law,
is responsible for investing various Government trust funds. The
Department also furnishes investment services for other funds of
Government agencies (see table 67).
Trust funds are invested in marketable Government securities and,
where authorized by law, in special public debt obligations issued
specifically to the fund. The legislative authority to issue special
public debt obligations applies only to the major trust funds and the
law usuaUy specifies the interest rates; however, in some cases the
Secretary has discretionary authority to establish the rates. Where
specified by law, it is either a fixed rate or is based on a formula
using the average coupon rates on designated classes of outstanding
Governmerit securities.
During fiscal 1962, further uniformity in interest rates was achieved
by relating the rates on special obligations to market yield rates.
The Civil Service Retirement Act, as amended by the act of October
4, 1961 (5 U.S.C. 2267(d)), provides: T h a t interest rates on special
obligations issued to the civil service retirement and disability trust
fund shall equal the average market yield, computed as of the end of
the month immediately preceding the date of issue, on all marketable
interest-bearing public debt obligations not due or callable until 4
years from the end of such month; and that beginning with the
calendar year 1962 special issues held by the fund prior to enactment
of the amending act shall be redeemed and reinvested as nearly as
practicable in equal annual arnounts over the period of 10 calendar
years.
Loans and advances by the Treasury

Under provisions of law, various Government corporations and
agencies are authorized to. borrow from the Treasury to finance
certain programs. The Bureau of Accounts administers the loan
agreements and maintains accounts for the loans, advances, and
subscriptions to capital stock of U.S. Government and international
corporations. Tables 119 and 120 show the status of loans and advances as of June 30, 1962.
Panama Canal Company

, The Panama Canal Company Act, approved June 29, 1948 (62
Stat. 1076; 2 Canal Zone Code 245-258), created the Panama Canal
Company and, among its provisions, directed the Company to pay
interest to the Treasury on the net direct investment of the Government in the Company. Pursuant to section 246(b) of the Code,
the direct investment of the Government in the Company, as of June

136

19 62 REPORT OF THE SECRETARY OF THE TREASURY

29, 1948, was certified to the Treasury in the amount of $358,795,305.36 on which the interest is computed. This figure is subject to
change on the basis of subsequent certifications to tbe Treasury as to
the value of increases or decreases in transfer of assets. Cumulative
net reductions in the Government's direct investment had reduced
the amount thereof to $340,215,042 as of June 30, 1962, including a
net increase of $341,028 in the direct investment during the fiscal
year 1962. Section 246(c) of the Code provides certification by
the Secretary of the Treasury as to the annual rate of interest to be
paid by the Company. Interest payments received by the Treasury
in the fiscal year 1962 amounted to $9,364,406.
Surety bonds

The Secretary of the Treasury, under the act of July 30, 1947 (6
U.S.C. 8), issues certificates of authority to qualified corporate sureties
for the execution of bonds in favor of the United States. These
certificates are renewable on M a y 1 each year, and a list of companies
holding such certificates is published annually in the Federal Register
(Department Circular No. 570, Revised). Applications of companies
requesting authority to write Federal bonds are examined by the
Bureau, and the qualiflcations of companies so authorized are reviewed on a current basis. As of June 30, 1962, a total of 236 companies held certiflcates of authority. During the year a total of
36,836 bonds and consent agreements were approved as to corporate
surety.
The head of each executive agency is required by the act of August
9, 1955 (6 U.S.C. 14) to obtain blanket, position schedule, or other
types of surety bonds covering employees required by law or administrative ruling to be bonded. Premiums are paid by the Government rather than by the employees. The law permits the legislative
and judicial branches to follow the same procedure.
A summary follows of the information reported by agencies for
transmittal to Congress by the Secretary of the Treasury, shomng the
number of officers and Employees covered, the aggregate penal sums of
the bonds procured, and the premiums paid by the Government as
of June 30, 1961 and 1962.
June 30, 1961
Number of officers and employees covered:
Executive branch
Legislative and judicial branches
Total

Total

1,003,613
1,342

1,006,059
1,522

1,004,955

1,007,581

.:. $3, 522, 501,050
..
10,317,000

$3, 538, 697,750
11,318, 500

3,532, 818,050

3,550,016,250

285,689
2,268

280,776
2,091

287, 857

2P2,866

38,616
596

46,296
582

39,110

45,877

Aggregate penal sum's of bonds procured:
Executive branch.
Legislative and judicial branches
'

• ..

Annual premium paid by Government:
Executive branch
Legislative and judicial branches
. ...
Total
Administrative expenses:
Executive branch
Legislative and judicial branches
Total

_ .
.

June 30, 1962

. . .

ADMINISTRATIVE REPORTS

137

Foreign Indebtedness
World War I .

A total of $396,049.36 in semiannual payments was received in
flscal 1962 by the Treasury from the Government of Finland under
the funding and moratorium agreements covering World War I
indebtedness. In accordance v^th the act of August 24, 1949 (20
U.S.C. 222), these funds were used to finance certain educational
exchange programs with Finland. The status of World War I
indebtedness of foreign governments to the United States is shown in
tables 115 and 116.
World War II

Under lend-lease and surplus property agreements, debtor governments made dollar payments during the year aggregating $119.7
million (including the dollar value of silver repayments). Payments
made in local currencies were equivalent to $26.2 million. Since
the inception of these programs, total payments and credits against
the original indebtedness have amounted to $3,552.2 million, as
indicated in table 118, which shows the status as of June 30, 1962.
The Government of France, under agreement of January 30, 1958,
was granted an pption to defer certain annual iristallments under its
lend-lease and surplus property agreements. Accordingly, the 1958
and 1959 installments were postponed until 1981 and 1982. However, on April 19, 1962, the French Government made an accelerated
payment of $59,622,516.54, representing both of the postponed
installments. This payment was additional to the annual installment
of principal and interest due and paid on July 1, 1961.
Credit to the United Kingdom

Under the terms of the flnancial aid agreement of December 6,
1945, the United Kingdom borrowed $3,750,000,000 from the United
States which was repayable in 50 annual installments, beginning
December 31, 1951, with. interest at 2 percent per annum. The
agreement was amended March 6, 1957, to permit deferral of any
seven principal and interest installments due after 1956, with interest
charged at the same rate on any installments of principal or interest
deferred. The United Kingdom elected to defer payment of interest
installments due in 1956 and 1957, amounting to $70,385,447.48 and
$69,406,431.45, respectively. Also, payment of the principal installment of $49,929,818.55, due in 1957, was deferred. Payment was
made of the amount due December 31, 1961, consisting of $54,045,641.36 as prmcipal and $65,290,608.64 as interest. Through June 30,
1962, cumulative payments totaled $489,585,390.49 as principal,
leaving a principal balance of $3,260,414,609.51 plus deferred interest
installments of $139,791,878.93, or a total balance of $3,400,206,488.44.
Germany, postwar (World War II) economic assistance

Under the External Debt Settlement Agreement, as amended, the
Federal Republic of Germany agreed to repay to the United States
$1 billion for postwar (World War II) economic assistance. The
Treasury received payment of interest during the flscal year 1962
in the amount of $9,752,288.56. As of June 30, 1962, cumulative

138

1962 REPORT OF THE SECRETARY OF THE TREASURY

payments on principal amounted to $799,629,452.21, leaving a principal balance of $200,370,547.79. The next principal installment is
not due until January 1, 1966, because of the advance payments
which have been made.
Claims Against Foreign Governments and Nationals
Foreijajn Claims Settlement Commission

Under the International Claims Settlement Act of 1949, as amended
(22 U.S.C. 1642-1642p), the Foreign Claims Settlement Commission
has docketed over 4,000 claims of American nationals for losses
resulting from confiscation of property by the Government of CzechosiovaMa. The Commission began in March 1960 to certify awards
to the Secretary of the Treasury. Payments made on awards are
within the limits of amounts realized from the sale of certain blocked
Czechoslovakian assets, following a prescribed order of priority as
set forth in the act. Initially, all awards of $1,000 or less are paid
in full, and awards in excess of $1,000 are paid to the extent of $1,000;
additional pro rata payments are made on the balance of awards
until the fund is exhausted or until all awards have been paid in
full. The Commission had until September 15, 1962, to complete
its affairs in connection with the settlement of these claims.
The Foreign Claims Settlement Commission has completed adjudication of the Bulgarian, Hungarian, Rumanian, Italian, and Soviet
claims programs, pursuant to the International Claims Settlement
Act of 1949, as amended (22 U.S.C. 1641-1641q). In addition to
the initial'payment of a maximum of $1,000 on all awards under
these programs, pro rata payments have been authorized, consisting
of two from the Rumanian claims fund, four from the Bulgarian
claims fund, and one from the Soviet claims fund. The Italian
awards, including accrued interest, have been paid in full. Additional funds for further payments on the Soviet awards are not
expected.
The origin and history of the claims of American nationals against
these five governments were summarized in the 1958 annual report,
page 112. For the status of the claims funds as of June 30, 1962,
see table 106.
The Governments of Poland and the United States signed an
agreement on July 16, 1960, for the settlement of claims of American
nationals. Under the agreement Poland will pay $40,000,000 to
the United States in twenty annual instalhnents of $2,000,000 each.
On January 10, 1962, the second installment was received. The
time for filing claims with the Foreign Claims Settlement Commission
against the Government of Poland expired March 31, 1962.
Mixed Claims Commission, United States and Germany

On April 2, 1962, the Treasury received the annual payment of
$3,700,000 from the Federal Repubhc of Germany (on World War
I debts) as provided for by the External Debt Settlement Agreement
signed vdth the Federal Republic on February 27, 1953. These
funds were used to make an additional distribution to award holders
amounting to 8.9 percent of the interest accrued on Class I I I awards

ADMlNISTRATiVJE REPORTS

139

(those over $100,000), which includes the award under Private Law
509, approved July 19, 1940. The status of the claims fund as of
June 30, 1962, is shown in table 104.
Divested property of enemy nationals

As of June 30, 1962, the balance on deposit in the Treasury as
the net proceeds of property divested by the Attorney General of
the United States, pursuant to the act of August 9, 1955 (22 U.S.C:
1631a(a)), totaled $694,625. The funds are being held in the names
of individuals who are nationals of Bulgaria ($94,144), Hungary
($408,907), and Rumania ($191,574). Through June 30, 1962, the
Department of Justice has authorized refunds to individuals aggregating $170,252.
Other Operations
Management improvement program

Under the Bureau's continuing program to bring about operating
economies through management, improvements were adopted during
the year which created, annual recurring savings of $649,312. This
included the amount of $546,698 realized in disbursing operations
and $94,686, which was the first-year estimated savings realized in
the central accounting modification, both of which were referred to
earlier.
Incentive awards program.—Efforts were continued to promote
additional employee interest in the program, with employees encouraged to make worthwhile suggestions for the improvement of
operations and reduction of operating costs. Of the 160 suggestions
made during the year, 77 were adopted and accounted for a total annual
recurring saving of $7,928.
Safety program.—Monthly inspection, by designated employees
on a rotational basis, of all space occupied by the Bureau continues
to eliminate safety hazards and create widespread awareness of the
importance of an effective accident prevention program. The
success of the monthly inspection program is evidenced by the fact
that the Bureau,' while employing approximately 2,000 employees,
experienced only five lost-time accidents during calendar 1961.
Personnel administration.—Surveys were made during the year of
the personnel administration programs iri the Birmingham, Chicago,
Dallas, Portland, and San Francisco regional offices. These surveys
were part of the biannual program initiated in fiscal 1961 in which
all major regional offices are being covered.
Increased emphasis was placed on recruiting qualified college graduates for employment with the Bureau. Additional classification
authority (to grade GS-7) was delegated to four additional regional
offices.
Training.—Training was completed of programmers to staff the
E D P computer installations in Philadelphia and Kansas City. Similar training was initiated for the computer instaUations in Birmingham
and San Francisco. In conjunction with this technical training the
E D P programmers were also given supervisory training.
The scope of management training was broadened during the year,
with new appoiritees in technical and professional positions afforded
an opportunity to develop through on the job performance and through

140

1962 REPORT OF THE SECRETARY OF THE TREASURY

formal training in a variety of institutions. Bureau efforts are being
directed toward a further refinement of the established program.
Donations and contributions

'^Conscience fund" contributions received in the Bureau of Accounts during the year and deposited into the Treasury amounted to
$29,125. Other unconditional donations totaled $102,027, including
$15,745 contributed by a single donor. Such receipts by other
Government agencies amounted to $10,295 and $17,258, respectively.
Conditional gifts, amounting to $5,685, were received to further the
defense effort.
In accordance with the act of June 27, 1961 (31 U.S.C. 901(a)),
authorizing the Secretary of the Treasury, on behalf of the United
States, to accept gifts of money or property to reduce the public debt,
a special account was established on the books of the Treasury for
this purpose. Gifts of money and the proceeds of real or personal
property credited to this account in fiscal 1962 amounted to $8,962, of
which $8,000 was used to purchase and retire public debt securities.
Government losses in shipment

A self-insurance plan, supplanting contracts with private insurance
companies, was established by the Government Losses in Shipment
Act, as amended (5 U.S.C. 134-134h; 31 U.S.C. 528, 738a, 757c(i)),
under which the Government assumes the risk of losses on its.shipments of money, bullion, securities, and other valuables. Payments
are made from a revolving fund for valuables lost, destroyed, or
damaged while in shipment, for losses incurred in the erroneous payment of U.S. savings bonds by paying agents, and for certain losses
by the Postal Service. Claims totaling $67,271 were paid in the fiscal
year 1962. Table 126 shows the status of the fund and details of
operations under the act.
Deposits of interest charged on Federal Reserve notes

The Board of Governors of the Federal Reserve System is authorized
by section 16 of the Federal Reserve Act, as amended (12 U.S.C. 414),
to charge Federal Reserve Banks interest on the uriredeemed Federal
Reserve notes issued to the Banks in excess of gold certificates held as
collateral against the notes. By exercising this authority annual
interest payments from 1947 through 1958, equal to approximately
90 percent of the net earnings of the Federal Reserve Banks, have been
received by the Treasury. Beginning with the calendar year 1959,
the amount paid has been equal to 100 percent of the net earnings,
after payment of statutory dividends to member banks.
In fiscal 1962 the deposit was $718,350,488.38; since 1947 total
deposits have aggregated $6,325,479,299.15 (see table 23).
Payment of pre-1934 Philippine bonds

In accordance with the act of August 7, 1939, as amended (22
U.S.C. 1393(g) (4) (5)), the Treasury maintains a trust account for
deposits by tlie Philippine Government, representing amounts payable
as principal and interest on pre-1934 bonds of the Philippines. For
the status of the account as of June 30, 1962, see table 86.
Withheld foreign checks

The delivery of U.S. Government checks to payees residing in certain
foreign areas continued to be prohibited during fiscal 1962 in accord-

141

ADMINISTRATIVE REPORTS

ance with Department Circular No. 655, dated March 19, 1941, as
amended. These foreign areas are listed in the 1960 annual report,
page 117.
Depositary receipts

The Internal Revenue Code requires employers to withhold from
the salaries of employees amounts of Federal income and Federal
insurance contribution act (FICA) taxes. Regulations provide that
where the total taxes withheld, plus the FICA tax on the employer,
exceed $100 each month, the taxes must be paid monthly to the
Treasury by purchase of a depositary receipt through a local Government depositary designated for that purpose, or directly to a Federal
Reserve Bank. Depositary receipts are validated by Federal Reserve
Banks at the time the taxes are paid and returned to the employers for
use as evidence of payment in filing their quarterly tax returns with
District Directors of Internal Revenue.
When the depositary receipt procedure was established in 1944, its
application was limited to the deposit of withheld individual income
taxes (26 U.S.C. 3402). Since then withholding requirements have
been extended to cover FICA taxes, beginning in 1950 (26 U.S.C.
3101 and 3111); railroad retirement taxes, beginning in 1951 (26 U.S.C.
3201 and 3221); and certain excise taxes, beginning in 1953 (section
477.2(b) of Treasury Decision No. 6025, approved July 31, 1953).
The increases in the earlier years were attributable to the extension of
the system to additional tax classes, while in later years they have been
' due to increased tax rates, a greater number of employers and employees,
and the enforcement activities of the Internal Revenue Service.
The following table shows the volume of depositary receipts since
inception of the accelerated collection system.
Income and
social security taxes

Fiscal year

1944
1945
1946
1947
1948
1949
1950
1961
1962
1953
1954...
1956
1956
1957
1958
1959.I960
1961
1962

•..
.—
. . . . .

3,616,012
3,527,611
3,699,168
3,887,630
3,989,196
3,922,399
4,481,451
4,664,374
4,895,784
5,600,904
5,425,723
6, 316,929
7, 632,789
8,142,296
8,481,465
8,961,762
9,469,067
9,908,068
10,477,119

Railroad
retirement
taxes

Federal
excise
taxes

10,802
11,395
11,025
11,128
11,707
12,776
10,947
10,751
10,625
10,724
10,262

701,243
652,971
694,125
682,014
681,210
604,933
598,881
618,971
610,026

Total

3,516,012
3,527,611
3,699,158
3,887,630
3,989,196
3,922,399
4,481,451
4, 664,374
4,906,586
5,612,299
6,137,991
6,981,028
8,338,621
8, 837,086
9,173,622
9,577,446
10,078,663
10,537,763
11,097,407

BUREAU OF THE PUBLIC DEBT
The Bureau of the Public Debt, in support of the management of
the public debt, has responsibility for the preparation of Treasury
Department circulars offering public debt securities, the direction of
the handling of subscriptions and making of allotments, the formulation of instructions and regulations pertaining to each security issue,

142

1962 REPORT OF THE SECRETARY OF THE TREASURY

the issuance of the securities, and the conduct or direction of transactions in those outstanding. The Bureau is responsible for the flnal
audit and custody of retired securities, the maintenance of the control
accounts covering all public debt issues, the keeping of individual
accounts with owners of registered securities and authorizing the
issue of checks in payment of interest thereon, and the handling of
claims on account of lost, stolen, destroyed, or mutilated securities.
Of the four offices maintained, the principal one, which includes the
headquarters of the Bureau, is in Washington, D.C. This office is
charged with the receipt and custody of all new securities and their
issuance directly to owners or to the Federal Reserve Banks and
branches or other authorized issmng agents. Except for savings
bonds, the office conducts transactions in all outstanding securities
(including securities of the Government-owned corporations for which
the Treasury acts as agent), and audits and maintains custody of the
securities when retired and interest coupons when paid. An office in
Chicago, 111., conducts transactions relating to all savings bonds outstanding and maintains the issue and retirement records of the paper
type savings bonds except the retirement records of Series E bonds
reissued since January 1, 1962. A fleld branch audit office in Cincinnati, Ohio, audits retired paper type savings bonds except Series E
bonds retired on reissue since January 1, 1962, and transmits retirement information to the Chicago office, for recording. All issue and
retirement records of the punch-card type savings bonds and retirement records of Series E paper type bonds reissued since January 1,
1962, are prepared and maintained in a field office in Parkersburg,
W. Va., where the major auditing, accounting, and record keeping
operations are performed by a large scale electronic data processing
(EDP) system. Decision has been made to close the Cincinnati office
during the early part of fiscal 1963 and to transfer its operations to the
Parkersburg and Chicago offices.
Under Bureau supervision many transactions in public debt
securities are conducted by the Federal Reserve Banks and their
branches as fiscal agents of the United States. Selected post offices,
private financial institutions, industrial organizations, and others
(approximately 19,100 in all) cooperate in the issuance of savings
bonds. About 15,600 private financial institutions redeem savings
bonds.
Management improvement

New transistor equipment was installed in. the Parkersburg office of
the Bureau to update the system used to process and maintairi alphabetical and numerical records of Series E savings bonds in punch-card
form. The new equipment was placed in operation on a rental basis
on February 1, 1962. All stubs and bonds shipped to the Parkersburg
office on and after January 2, 1962, have been processed under the
new system, and all alphabetical and numerical tape records relating
to transmittals before that date have been converted. The updating
of the system wUl result in annual savings of approximately $450,000,
mainly in reduced equipment rental fees and tape costs. The greater
speed, flexibility, and capacity of the new equipment also made it
possible to plan for expansion to include savings bond work previously
performed in other Bureau offices.

ADMINISTRATIVE REPORTS

143

Effective January 1, 1962, the use of a punch-card bond of single
form and design was initiated for Series E savings bond transactions
requiring the issue of a replacement bond after original issue. This
new type eliminates the cumbersome and costly procedures involved
in maintaining stocks of separate bond designs for each change in the
series or form of Series E bonds, and will result in continuing reductions in printing and storage costs and substantial savings in Federal
Reserve Bank reimbursable expenses. This will also free the electronic equipment in the Parkersburg office for greater use in processing
issue and retirement data, and enable the Bureau to replace with
automated procedures certain operations previously performed
manually or on conventional tabulating equipment.
The closing of the Cincinnati Savings Bond Audit Branch, which
has been auditing, processing, and classifying all retired paper savings
bonds, was approved, by the Secretary of the Treasury. The flnal
closing of the office is scheduled for December 1962. Effective July 1,
1962, the audit and classification of aU Series F, G, H, J, and K
savings bonds were transferred to the Chicago office, which performs
other related activities in connection with bonds of these series.
Effective August 1, 1962, the audit and classification of Series A, B,
C, D, and E bonds in paper form were transferred to the Parkersburg
office. These bonds constitute the bulk of the paper bond workload
and will be processed electronically in much the same manner as the
Series E card bonds. Programs are also being developed to establish
and maintain numerical records of Series E paper bonds on magnetic
tape as a byproduct of the audit of such bonds in the Parkersburg
ofl&ce. The manually maintained numerical registers of the Chicago
office vdll be closed arid filmed sometime during the fiscal year 1963.
Studies in the Chicago office resulted in a revision of certain mail
and file activities and the simplification of the system used to control
securities on hand or in process in the Division of Loans and Currency
Branch. These changes and the discontinuance of the Series E
numerical register posting activity will result in substantial savings in
personnel and space requirements in the Chicago office.
The procedure for granting relief on claims arising from the loss,
theft, or destruction of an unmatured savings bond was modified to
permit the issuance of a check for the redemption value of the bond
when the owner requests immediate payment. Before this change it
was necessary to issue a new bond marked ^^duplicate" and process
the bond itself for redemption. The new method facilitates the
processing of claims cases and improves service to the public.
Revised instructions were issued to the Federal Reserve Banks in
connection with the conduct of Treasury bill transactions and the
processing of redeemed interest coupons. The instructions dealing
with bills provide inforniation relating to strips of bills and a new
$50,000 denomination, which was placed in use during January 1962.
The instructions dealing with coupons simplify paper work and reduce
the number of shipping records that Federal Reserve Banks are
required to maintain.
The Bureau has continued to stress its training program. Bureau
personnel participated iu such outside training activities as a Budget
Bureau conference on the management of productivity, the annual
symposium of the Federal Government Accountants Association,

144

19 62 REPORT OF THE SECRETARY OF THE TREASURY

a personnel management conference, and a management seminar.
Other personnel received technical training in the programming and
operation of the new electronic data processing system, in management analysis, and in the application of audit techniques to data
processing operations.
Under the incentive awards program 103 suggestions were received
and 62 were adopted, with recurring savings estimated at $10,019.
Cash awards totaling $915 were made for the adopted suggestions.
Cash awards totaling $11,900 were given to 88 employees who received
outstanding performance ratings. An additional $16,200 was distributed to 533 employees for sustained superior work performance.
Bureau operations

One measure of the work of the Bureau is the change in the composition of the public debt. The debt falls into two broad categories:
public issues and special issues. The public issues consist of marketable Treasury bills, certiflcates of indebtedness, notes, and bonds;
and nonmarketable obligations, chiefly U.S. savings bonds and Treasury bonds of the investment series. Special issues of certificates,
notes, and bonds are made by the Treasury directly to various Government trust and certain other accounts and are payable only for these
accounts.
During fiscal 1962 the gross public debt increased by $9,230 million
and the guaranteed obligations not owned by the Treasury increased
by $204 million. The most significant change iri the composition of
the outstanding debt during the year was the net increase of $8,924
million in interest-bearing marketable public issues; Treasury bills
and notes increased a total of $14,519 million and Treasury bonds
decreased $5,804 million. Total public debt issues, including issues
exchanged for other securities, amounted to $203,530 million during
1962, and retirements amounted to $194,301 million. •
A summary of public debt operations handled by the Bureau appears
on pages 38 to 55 of this report, and a series of statistical tables dealing
with the public debt will be found in tables 26 to 58. The following
statement gives a comparison of the changes in the various classes of
public debt issues in the amounts outstanding at the close of the fiscal
years 1961 and 1962.
Increase, or decrease(—)
Classification

1961

1962

In millions of dollars
Interest-bearing debt:
Marketable obligations
Treasury bonds, investment series
U.S. savings bonds
Special issues.-..
other
Total interest-bearing debt
Matured debt and debt bearing no interest.
Total

3,303
—953
—30
144
—34

8,924
-1,103
92
—104
961

2,430
210

8,770
459

2,640

9,230

ADMINISTRATIVE REPORTS

145

U,S. savings bonds.—The large volume of work involved in the
issuance and redemption of savings bonds creates the greatest number
of administrative problems for the Bureau of the Public Debt. These
bonds are issued in registered form and are ovra.ed by tens of millions
of persons. Both alphabetical and numerical ov^mership records have
been established and maintained for 2.4 billion bonds issued during
the past twenty-seven years. The adjudicating of claims and replacing lost, stolen, and destroyed bonds (which now total 1.7 million
pieces) and the handling and recording of retired bonds also contribute
to the administrative burdens.
Receipts from. sales during the year were $4,411 million and
accrued discount charged to the interest account and credited to the
savings bonds principal account amounted to $1,358 million, a total
of $5,769 million. The sales include $10 million of Series H bonds
issued in exchange for Series F and J bonds, but exclude $219 million
of Series H bonds issued in exchange for Series E bonds. Savings
bond redemptions charged to the Treasurer's account during the
year, including about $2,585 million of matured bonds, amounted to
$5,716 million. The redemptions include $320 million of Series F
and G bonds exchanged for marketable Treasury bonds and $10
million of Series F and J bonds exchanged for Series H. bonds, but
exclude $219 miUion qf Series E bonds exchanged for Series H bonds.
The amount of unmatured and matured savings bonds of all series
outstanding on June 30, 1962, including accrued discount, was
$47,818 million, an increase of $64 million frorii the amount outstanding on June 30, 1961. Detailed information regarding savings bonds
vnll be found in tables 46 to 49, inclusive, of this report.
There were 92.7 million stubs representiag issued bonds of Series E
received for registration making a grand total of 2,355.5 million,
includiag reissues, received through June 30, 1962. In recent years
original stubs of paper type bonds were arranged alphabetically
in seiniannual blocks, b}^ name of owner, and microfilmed. The
stubs were then arranged ia numerical sequence by bond serial numbers
for a full calendar year file and microfilmed, after which they were
destroyed. These microfilms are permanent registration records.
The original issue of paper bonds was discontuiued in fiscal 1958.
The issue stubs of the punch-card type bonds are microfilmed in
batches as they are received by the Bureau. Electronic data processing equipment is used to audit the stubs and develop a numerical
and alphabetical register on magnetic tape showing ownership of
bonds. In addition, the magnetic tape file of bonds issued serves as a
locater index to the bond stub image on microfilm.
The follovdng tables show the status of processmg operations for
registration stubs of the paper type and card type Series E saviags
bonds. The table on card type bonds also shows steps taken in
processing retired card type bonds and paper type bonds of Series E
retired on reissue transactions since January 1, 1962.
661496—63

146

1962 REPORT OF THE SECRETARY OF THE TREASURY
s t u b s of issued p a p e r t y p e Series E savings b o n d s i n Chicago oflace
( I n m i l h o n s of pieces) •
Period

A l p h a b e t i c a l l y sorted
Stubs
received

C u m u l a t i v e t h r o u g h J u n e 30,
1957
...
Fiscal year:
1958
1959
1960
1961
1962
Total

AlphabeticaUy
filmed

Destroyed
after
filming

Numerically
filmed

Restricted
basis sort

F i n e sort
prior t o
ulming

1,896.9

1,871.6

1,825.0

1,804.1

1,655.9

1,649.1

37.1
2.1
1.9
1.9
1.7

62.1
2.5

85.7
24.4
2.3
1.6
2.1

89.9
41.1
1.9
1.9
2.1

178.3
100.9

184.1
101.9

1.9
1.9

1,941.6

1,936.1

1,941.0

1,938.9

All retired bonds in card form, issued only in Series E, and all
Series E paper bonds retired on reissue transactions since January 1,
1962, are handled in the Parkersburg office. There, after microfilming,
the bonds are audited and required permanent record data are
prepared by an electronic data processing system before being
destroyed. The following table shows the status of these operations.
Balance

Fiscal year

Received

ConMicroKeyverted
filmed p u n c h e d to magnetic
tape

Audited .
and
Declassi- stroyed
fied

• Unfilmed

Not
conN o t key- v e r t e d
p u n c h e d to magnetic
tape

Unaudited

S t u b s of issued card t y p e Series E savings b o n d s in P a r k e r s b u r g oflace
(in m i l h o n s of pieces)
1958
1959.
I960
1961
1962
Total

69.5
87.5
87.2
88.7
91.0

67.8
88.2
84.7
90.7
90.2

41.4
103.4
82.6
92.4
88.7

5.7
119.0
102.5
92.2
89.1

34.7
106.9
83.6
92,9
88.9

58.3
154.4
154.1

413.9

411.6

408.5'

408.5

407.0

366.8

1.7
1.0
3.5
1.5
2.3

18.1
2.2
6.8
3.1
6.4

63.8
22.3
7.0
3.6
5.4

24.8
5.4
9.0
4.8
6.9

R e t i r e d card t y p e Series E savings b o n d s recorded i n P a r k e r s b u r g oflace
(in millions of pieces)
1958
1959...
I960
1961
1962
Total

17.5
45.-2
55.2
69.7
62.4

16.7
45.5
54.3
60.6
61.3

10.5
51.4
62.6
61.5
61.1

.1
53.2
60.0
62.4
61.1

7.3
52.8
52.4
62.8
60.3

20.6
93.0
95.0

240.0

238.4

237.0

236.8

235.6

208.6

.8
.5
1.4
.6
1.6

7.0
.8
3.5
1.7
3.0

17.4
9.4
4.6
1.9
3.2

10.2
2.6
5.4
2.3
4.4

R e t i r e d p a p e r t y p e Series E savings b o n d s processed in P a r k e r s b u r g oflice
(in t h o u s a n d s of pieces)
J a n . 1-June 30,
1962

817.1

774.7

736.3

696.1

42.4

80.8

121.0

Retired savings bonds of all series received during fiscal 1962
numbered 91.6 million. Retired paper bonds of all series, except

ADMINISTRATIVE

147

REPORTS

Series E bonds retired on reissue transactions, between January 1 and
June 30, 1962, were processed through the Cincinnati office where they
were audited, microfilmed, and destroyed. A list of the serial numbers
of retired paper bonds audited by the Cincinnati office was transmitted
to the Chicago office for posting of retirement reference data to numerical ledgers for permanent record. The following tables show the
status of these operations for the Chicago and Cincinnati offices.
R e t i r e d p a p e r t y p e savings b o n d s of all series in t h e b r a n c h a u d i t offices i
(in miUions of pieces)
Period
Bonds
received

Audited

Microfilmed

Balance
Destroyed
Unaudited

C u m u l a t i v e t h r o u g h J u n e 30,
1957-.
Fiscal year:
1958
1959
1960
1961
1962
• Total

Unfihned 2

1,063.2

1,060.2

1,045.4

3.0

6.7

997. 5

81.8
48.7
43.2
32.6
28.4

81.2
49.1
44.4
32.9
28.4

82.6
47.7
46.2
34.0
28.2

3.6
3.2
2.0
1.7
1.7

5.9
6.9
3.9
2.5
2.7

79.3
72.4
47.5
32.2
28.3

1,297. 9

1,296. 2

1,284.1

1,257. 2

1 There is only one audit oflace now in existence but prior to June 1958 there were five such oflaces and
this table includes data for all of them.
a Excludes 9.4 million pieces of unfilmed spoiled stock transferred to permanent storage and 1.7 million
pieces of unissued stock to be destroyed without microfilming.

R e t i r e d p a p e r t y p e savings b o n d s of all series recorded i n
Chicago oflace
(in millions of pieces)
Period
s t a t u s of posting
Number
of retired
bonds
reported

Balance
Posted

Verified
U n p o s t e d 1 Unverified 1

C u m u l a t i v e t h r o u g h J u n e 30, 1957..
Fiscal year:
1958.
1959
I960..
....
1961
- .
1962
Total

1,523.9

1,518.0

1,435.1

84.6
50.3
45.3
37.1
28.6

87.2
50.4
45.7
37.2
29.2

64.0
86.2
55.5
39.3
32.6

1,769.8

1, 767. 7

1, 712. 6

5.9

4.8

3.3'
3.2
2.8
2.7
2.1

28.0
3.3
4.9
2.8
1.2

1 Excludes 53.9 million pieces received in 1964 and 1965 which were not verified.

Of the 84.7 million Series A - E savings bonds redeemed prior to
release of registration and received in the audit offices during the
year, 82.6 million, or 97.5 percent, were redeemed by approximately
15,600 paying agents. These agents 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 $10,641,374,
which was at the average rate of 12.88 cents per bond.
The following table shows the number of savings bonds outstanding
as of June 30, 1962, b y series and denomination.

148

1962 REPORT OF THE SECRETARY OF THE TREASURY
Denomination (in thousands of pieces)

Total

Series i

$10

$25

$50

$100

$200

$500

441,864
6,963
3
4
13
68
' 292
720
444
552

884

236,691

96,270

76,120

7,167

11,854
2,257

Total.... 449,923

884

E
H
A
B

c
D

F
G
J
K

(*)

1
2
6
24
82

1
2
13

76
236,881

96,286

(*)
'\

1
1
4
19
93
241
150
76,629

7,157

$1,000

$6,000 $10,000 $100,000

12,848
3,344 ' " ' 2 8 5 '

38
77

(*)
'\

4
27
140
45
148

1
69
284
124
308

9
27
19
47

12
28
29
48

1
2

14,476

16,985

387

232

•Less than 500 pieces.
1 Currently only bonds of Series E and H are on sale.

The following table shows the number of issuing and paying agents
for Series A-E savings bonds by classes.
June 30

Post
oflaces J

Banks
•

Building
and savings and
loan associations

Credit
unions

Companies
operating
payroll
plans

All
others

Total

Issuing agents
24,038
26,060
2,476
1,178
1,120
1,093
1,061
1,046

1945
1950
1956
1958
1969.—
1960
1961
1962
-

16,232
16, 255
15,692
16,047
16,178
16,436
13,505
13,569

3,477
1,567
1,655
1,702
1,778
1,851
1,617
1,670

2,081
622
428
357
336
320
285
281

2 9,605
3,052
2,942
2,640
2,401
2,352
2,045
1,978

660
688
587
688
643
590
673

54,433
45,966
23,681
22,611
22,501
22,696
319,103
19,107

57
56
59
60
60
16
16

13,466
16,691
17, 662
18.654
18,778
19,163
315^ 449
16,653

(2)

Paying agents
1946
1950
1956
1958
1959
I960
1961
1962.

...

13,466
15,623
16,269
16,744
16,860
17,127
13,670
13,687

874
1,188
1,580
1,690
1,797
1,606
1,690

137
139
171
168
169
158
160

1 Estimated by the Post Oflace Department for 1965 and thereafter. Sale of Series E savings bonds was
discontinued at post oflaces at the close of business on December 31,1953, except in those localities where no
other pubhc facilities foi* their sale were available.
2 "All others" included with companies operating payroll plans.
3 Substantial reduction due to reclassification by Federal Reserve Banks effective Dec. 31,1960, to include
only the actual number of entities currently qualified.

Interest checks issued on current income type savings bonds (Series
G, H, and K) duriag the year totaled 5,094,481 with a value of
$276,092,431, an increase of 59,498 checks from those issued during
1961, and an increase in value of $17,645,004. New accounts established totaled 235,881, compared with 212,235 in 1961. As of June
30, 1962, there were 1,798,976 active accounts with owners of current
income saviags bonds, a decrease of 45,052 accounts during the year.
There were reductions of 114,367 accounts of Series G bonds, which
have been maturing since Miay 1, 1953, and 31,584 accounts of Series
K, which were first sold on May 1, 1952, and discontuiued effective

ADMINISTRATIVE REPORTS

149

at the close of business April 30, 1957. An increase of 100,899 occurred in accounts of Series H bonds, which were first sold on June
1, 1952.
Apphcations duriag the year for the issue of duplicates of lost, stolen,
or destroyed savings bonds amounted to 40,534. These, together with
1,191 cases on hand at the beginning of the year, totaled 41,725. In
24,805 cases the bonds were recovered, and in 15,922 cases the issuance
of duplicate securities was authorized. On June 30, 1962, there
remained 998 cases not settled.
Other U.S. securities.—Duriag the year, 31,828 individual accounts
covering publicly held registered securities were opened and 34,970
were closed. This reduced the total of open accounts on June 30,1962,
to 245,536 covering registered securities in the priacipal amount of
$13,197 million. There were 471,021 interest checks with a value of
$426,209,097 issued to owners of record during the year, a decrease of
283 checks from the number issued in 1961, and a decrease in value
of $1,204,256.
Redeemed and canceled securities received for audit included
4,841,103 bearer securities and 350,466 registered securities, a total of
5,191,569 as compared with 4,324,984 ia 1961; and 20,485,027 coupons
were received, which was 390,887 more than in 1961.
OFFICE OF THE TREASURER OF THE UNITED STATES

The Treasurer of the United States is responsible for the receipt,
custody, and disbursement, upon proper order, of the public moneys
and for maintaining records of the source, location, and disposition
of these fimds. The Office was created by an act bf Congress approved
September 2, 1789, as amended (31 U.S.C. 141, 147).
The Office of the Treasurer uses the facilities of the Federal Reserve
Banks as fiscal agents of the United. States to perform many of its
fimctions throughout the country. These include the verification
and destruction of U.S. paper currency; the redemption of public
debt securities; the keeping of cash accounts. in the name of the
Treasurer; the acceptance of deposits made by Government officers
for credit; and the custody of bonds held to secure public deposits in
commercial banks.
Commercial banks in the United States and in foreign countries
which qualify as depositaries provide bankiag facilities for activities
of the Government at places where they are located. Data on the
transactions handled for the Treasurer by the Federal Reserve Banks
and commercial banks are reported daily to the Treasurer and are
entered in the Treasurer's general accounts.
The Treasurer maiatains current summary accounts of all receipts
and expenditures; pays the principal and interest on the public debt;
provides checking account facilities for Government disbursing officers,
corporations, and agencies; pays checks drawn on the Treasurer of
the United States and reconciles the checking accoimts of the disbursing officers; procures, stores, issues, and redeems U.S. currency;
audits redeemed Federal Reserve currency; examines and determines
the value of mutilated currency; acts as special agent for the payment
of priacipal and interest on certain obligations of corporations of the
U.S. Government and on certain obligations of Puerto Rico issued on

150

196 2 REPORT OF THE SECRETARY OF THE TREASURY

or before January 1, 1940. The Treasurer also acts as special agent
for the payment of principal and interest on certain pre-1934 dollar
bonds of the PhUippine Islands. By agreement with the Post Office
Department, the electronic installation of the Office of the Treasurer
is being expanded to include the processing of postal money orders.
The Office maintains facilities in the inain Treasury building to:
Accept deposits of public moneys by Government officers; cash U.S.
savings bonds and checks drawn on the Treasurer; receive excess and
unfit currency and coins; and to conduct transactions in both marketable and nonmarketable public debt securities. The Office also
prepares the Daily Statement of the United States Treasury and the
monthly Circulation Statement of United States Money.
Acting under authority delegated by the Comptroller General of
the United States, the Treasurer processes claims arising from forgery
of endorsements and other irregularities involving checks paid by the
Treasurer and passes upon claims for substitute checks to replace
unpaid checks which have been lost or destroyed.
The Treasurer of the United States was designated Treasurer of
the Board of Trustees of the Postal Savings System in accordance
with Treasmy Order No. 177-20, dated December 22, 1961 (see
exhibit 51). She is also custodian of bonds held to secure pubhc
deposits in commercial banks, bonds held to secure postal savings
on deposit in such banks, and miscellaneous securities and trust
funds.
Management improvement program

Many changes made throughout the Treasurer's Office during the
year iacreased efficiency and financial savings. Several of the
improvements were developed and effected in cooperation with other
bureaus of the Fiscal Service, other Government agencies, and
Federal Reserve Banks. The more significant are described in the
following paragraphs.
Improved programming and timely installation of computers of
advanced design and additional capabilities have enabled the
Treasurer's Electronic Data Processing Division to meet the growing
demand for its services. The Division processed 449 million checks
in fiscal 1962 as compared with 430 million the previous year and
expects to pay and reconcile about 466 million checks in 1963. Also,
late in June 1962, the Division began to process postal money orders
and it expects to handle an estimated 133 million during fiscal 1963,
and 244 million annually thereafter. Although the large monetary
savings anticipated from the processing of money orders by electronic
equipment will not be fully realized by the Government until late in
fiscal 1963, improvements in accounting control and service of issued
money orders will be immediate.
Those disbursing officers who use electronic equipment in issuing
checks send check issue information on magnetic tape to the Treasurer.
This tape is used in the electronic system to reconcile automatically
such check issues with payments, thereby speeding reconciliation and
reducing substantially the amount of manual reconciliation. I t is
estimated that by the end of flscal 1963, about 65 percent of all checks
will be so issued and reconcfled.

ADMINISTRATIVE REPORTS

151

The use of these check issue tapes in the electronic system also
results in the earlier detection and reporting of differences between
the amounts for which checks are issued and the amounts for which
they are paid, thereby making possible earlier notification to banks
and the U.S. Secret Service of any checks found to be altered.
Improved procedures have reduced the time elapsing between the
receipt of mutilated checks from the Federal Reserve Banks and their
entry into the electronic system, have put the Treasurer's records of
the checking accounts of disbursing officers on a more current basis,
and enabled the Office to advise the banks sooner when payment on
a mutilated check is declined.
Revised instructions issued to disbursing officers on the remailing
to payees of recovered original checks and the batching of documents
relating to check claims have greatly reduced the number of duplicate
payments and expedited the handling of correspondence in the Check
Clauns Division.
The bureau's training program has been broadened and a longrange plan is being expanded to give qualified employees an opportunity to achieve their highest potential. Approved by the Civil
Service Commission and in effect are two continuing bureau programs: the check claims examiner training program and the digital
computer programming training program. Also, a regularly scheduled
supervisory training program is being planned.
Assets and liabilities in the Treasurer's account

The assets of the Treasurer consist of gold and silver bullion, coin
and paper currency, deposits in Federal Reserve Banks, and deposits
in 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 1961 and 1962 is shown in table 59.
Gold.—The gold assets, which amounted to $17,550.1 million on
June 30, 1961, on the daily Treasury statement basis, continued to
decline throughout most of the year. Receipts were $408.3 million
and disbursements $1,523.3 million. The flnal balance of $16,435.0
million on June 30, 1962, included liabilities of $16,158.0 million in
gold certiflcates or credits payable in gold certificates and $156.0
million for the gold reserve against currency, leaving a free gold
balance of $121.0 mfllion.
Silver.—Depletion of the Treasury's stocks of silver bullion available for coinage prompted the President, on November 28, 1961, to
direct that further sales of bullion, at the fixed price of 90.5 cents per
ounce, should be suspended, except to Government agencies. As
silver certificates become unfit for further circulation, they are being
replaced, in part, by Federal reserve notes. Silver bullion at the
monetary value of $1.29+ per ounce, held to secure outstanding certificates, is thus made available and is released from time to time to
meet the Department's increasingly heavy requirements for subsidiary
silver coinage.
Transactions in silver bullion during the year are summarized, in
millions of dollars, in the following table.

152

19 62 REPORT OF THE SECRETARY OF THE TREASURY
Silver bullion
Fiscal year 1962

Held to
secure silver
certificates
Monetary
value

On hand July 1, 1961.
Received (+) or disbursed (—), net.
Revalued
Released for coinage...
Used in coinage
On hand June 30, 1962..

Held for coinage, etc.
Monetaryvalue

$2,252. 3
+0.2
-69.4
2,183.1

-$2.0
-f69.4
-59.0

Cost value Recoinage
value
$57.1
-15.4
-0.1

+$2.0

-20.0

-1.9

8.4

The closing balance of $2,183.1 million in silver bullion at the
monetary value was held, together with $115.7 million in silver
dollars, to secure outstanding silver certiflcates of $2,276.6 million on
June 30, 1962. A free balance of $22.2 million in monetized silver
remained.
Balances with depositaries.—The following table shows the number
of each class of depositaries and balances on June 30, 1962.

Class

Federal Reserve Banks and branches
...
.
other domestic depositaries reporting directly to the Treasurer
_ _._
Domestic depositaries reporting through Federal Reserve Banks:
General depositaries
.
Special depositaries. Treasury tax and loan accounts
Foreign depositaries ^
Total

Deposits to the
Number of
credit of the
accounts with Treasurer of the
depositaries' United States
June 30,1962
36
44
1,757
11, 439
78

2 $915,195,508
39, 519,920

13, 354

10,170,526 802

266,381, 804
8, 814, 673, 942
135, 755, 629

1 Includes only depositaries having balances with the Treasurer of the United States on June 30, 1962.
Excludes depositaries duly designated for this purpose but having no balances on that date and those designated to furnish oflacial checking account facilities or other services to Government oflacers but which are not
authorized to maintain accounts with the Treasurer. Banking institutions designated as general depositaries are frequently also designated as special depositaries, hence the total number of accounts exceeds the
number of institutions involved.
2 Includes checks for $303,269,291 in process of collection.
3 Principally branches of U.S. banks and of the American Express Company, Inc.

Bureau operations

Receiving and disbursing public moneys.—Moneys collected by
Government officers are deposited with the Treasurer at Washington,
in Federal Reserve Banks, and in designated Government depositaries for credit to the account of the Treasurer of the United States.
All payments are withdrawn from this account. Moneys deposited
and withdrawn in the fiscal years 1961 and 1962, exclusive of certain
intragovernmental transactions, are shown in the following table on
the basis of the Daily Statement of the United States Treasury,

ADMINISTRATIVE

Deposits, withdrawals, and balances in the Treasurer's account
Cash deposits (net) (including internal revenue, customs, trust
funds, etc.)
Public debt receipts i
Less accrued discount on U.S. savings bonds and Treasury bills...
Total net deposits

Balance at begiiming of fiscal year..
Total
Cash withdrawals (includes budget and trust accounts, etc.)...
Net transactions in:
Investments of Government agencies in public debt securities,
excess of investments
Sales and redemptions of obligations of Government agencies in
market, excess of redemptions, or sales (—)
-...
-Public debt redemptions i
Less redemptions included in cash withdrawals
Total net withdrawals
Balance at" close of fiscalyear
.1 Fpr details for 1962 see .table 38.

153

REPORTS

1961

1962

$96, 897, 026, 794 $101, 608,057,928
176,247, 926, 563 203, 530,446, 854
-2,309, 768, 703
- 2 , 571,113,247
270, 835,184,654
8,004, 740, 998

302, 567,391, 535
6,694,119,954

278, 839, 925, 652

309,261, 511,489

18,283, 877,037
921,036,604

106, 626, 338, 957
602, 677,061

1,107,286, 500
173, 607, 748,801
-1,774,143,244

-950, 771, 810
194,300, 562, 743
-1,647,689,011

272,145, 805, 698
6, 694,119, 954

298, 831,117, 940
10,430,393, 549

Old series, currency.—The Old Series Currency Adjustment Act,
approved June 30, 1961 (31 U.S.C. 912-916) (see annual report for
1961, exhibit 10, p. 297), authorizes and directs the Secretary of the
Treasury to make certain adjustments and to take certain other
action with respect to all large size currency outstanding which was
issued prior to July 1, 1929, and with respect to small size gold certificates outstanding which were issued between July 1, 1929, and
January 30, 1934, the date of enactment of the Gold Reserve Act of
1934 (31 U.S.C. 440-446). Any such old series currency presented to
the Treasury is now being redeemed from the general fund of the
Treasury and the amount of the public debt outstanding is correspondingly reduced.
In ac(3ordance with the provisions of the act, gold and silver reserves
in the aggregate amount of $61,059,919 were released as of July 1,
1961. These reserves had been held as security for gold certiflcates
issued before January 30, 1934, and as security for or for the redemptipn of Treasury notes of 1890 and of silver certiflcates issued before
July 1, 1929. The freeing of these reserves resulted in an equivalent
increase in the free gold balance and the free silver balance in the
general fund available for the issuance of gold certiflcates to Federal
Reserve Banks and for the issuance of additional amounts of silver
certiflcates.
The amount of each of these old series currency issues outstanding
on July 1, 1961, was credited as a public debt receipt and established
as a public debt liability bearing no interest as follows:
- Gold certificates
$29,959,809
Sflver certificates
29, 958, 443
.Treasury notes of 1890___
1,141,667
Also, as provided by section 4 of the act, each Federal Reserve
Bank paid into the Treasury an amount equal to its Federal Reserve

154

1962 REPORT OF THE SECRETARY OF THE TREASURY

notes of any series prior to the Series of 1928 outstanding as of July 1,
1961. These payments were made on July 28, 1961, in the aggregate
amount of $36,419,050. This amount was credited to public debt
receipts and established as a public debt liability bearing no interest
(section 6(b) of the act). The amount received from each Federal
Reserve Bank was as follows:
Federal Reserve Bank
Boston
NewYork
Philadelphia
Cleveland
RichmondAtlanta
Chicago,

Amount
$2,397,025
9, 259,995
2,704,685
3,756,436
1,647,845
2,054,150
5,637,450

Federal Reserve Bank
St. Louis
Minneapolis...
Kansas'City
Dallas.
San Francisco
Total

Amount
$1,385,645
1,307,395
1,661,510
972,616
3,834,400
36,419,050

In accordance with section 6(c) of the act, the Secretary of the
Treasury, from time to time, may determine the amount of each
denomination of each kind of old series currency outstanding which
in his judgment has been destroyed or irretrievably lost and so will
never be presented for redemption. The public debt liability for
these currencies is thereupon reduced by the amount of the determinations with corresponding credit to miscellaneous receipts of the
Treasury. Under this provision, the Secretary on October 20, 1961,
determined that $1,000,000 of Treasury notes of 1890 would never be
presented and the public debt was reduced accordingly on October 27,
1961.
The act also authorizes the establishment of a historical collection
of the paper currency issues of the United States.
Issuing and redeeming paper currency.—By law the Treasurer is the
agent for the issue and redemption of U.S. paper currency. The
Treasurer's Office procures all U.S. paper currency from the Bureau
of Engraving and Printing and places it in circulation as needed,
chiefly through the facilities of the Federal Reserve Banks and their
branches.
The Federal Reserve Banks and branches, as agents of the Treasury,
redeem and destroy the major portion of the U.S. currency as it
becomes unflt for circulation. A small amount is handled directly by
the Treasurer's Office.
Federal Reserve notes are issued by Federal Reserve Banks.
The Federal Reserve Banks also redeem these notes, cut them in
half, and forward the halves separately to Washington where the
Currency Redemption Division of the Treasurer's Office verifies the
lower halves and the Office of the ComptroUer of the Currency verifies
the upper halves. Both halves are then destroyed under the direction
of a special committee.
The Currency Redemption Division also redeems unfit paper
currency of all types received from local sources in Washington and
from Government officers abroad; and examines and identifies for
lawful redemption aU burned and mutUated currency received from
any source. The last operation requires special techniques and unlunited patience on the part of skiUed examiaers as the currency re-

ADMINISTRATIVE

155

REPORTS

ceived may be charred, discolored, moldy, in fragments, or in claylike
chunks. During fiscal 1962, such currency was examined for 43,595
claioiants and payment made therefor to the extent of $6,918,664.
A comparison of the amounts of paper currency of all classes,
including Federal Reserve notes, issued, redeemed, and outstanding
during the fiscal years 1961 and 1962 follows.
1961

1962
Amount

Pieces

3, 568,125,302 $34,162, 802, 793
1, 687, 618, 740
8,224,217,983
1,623,060,302
7, 698,190, 987
3, 632, 683, 740 34, 688, 829, 789

Outstanding July 1
Issues d u r i n g year
Redemptions during year
O u t s t a n d i n g J u n e 30

Pieces
3,632, 683, 740
1, 720,343, 853
1, 569,251, 054
3, 783, 776, 539

Amount
$34, 688, 829, 789
8, 834, 281, 203
7,674, 837,133
35, 848,273, 859

Table 66 shows by class and denomination the value of paper currency issued and redeemed during the fiscal year 1962, and the amounts
outstanding at the end of the year. Tables 61 through 65 give further
details on the stock and circulation of money in the United States.
Checking accounts of disbursing officers and agencies.—As of June 30,
1962, the Treasurer maintained 2,393 checking accounts as compared
with 2,290 on June 30, 1961. The number of checks paid, by categories of disbursing officers, during fiscal 1961 and 1962 foUows.
N u m b e r of checks p a i d
D i s b u r s i n g oflacers
1961
Treasury
Army
.
Navy

.„.

ALIT F o r c e

Other.
Total

- -

•_ - -

1962

301,031,795
27, 943,028
35,388,109
32,163,458
33, 655,044

319, 668,162
28,670, 963
33,834,057
33,152,049
33, 770,098

430,181,434

448, 985,309

Settling check claims.—During the fiscal year the Treasurer acted
upon 374,000 requests to stop payment on Government checks, including approximately 53,000 requests for information and for photostatic copies of paid checks. In addition, 52,000 requests for removal
of stop payments were processed.
The Treasurer acted upon 227,000 paid check claims during the year,
including those referred to the U.S. Secret Service for investigation
which involved the forgery, alteration, counterfeiting, or fraudulent
issuance and negotiation of Government checks. Reclamation was
requested from those having liability to the United States on 33,000
clauns, and $3,312,000 was recovered. Settlements and adjustments
totaling $3,564,000 were made on 32,000 forgery cases. Disbursements from the check forgery insurance .fund, established to enable the
Treasurer to expedite settlement of check claims, totaled $263,000.
As recoveries are made, these moneys are restored to the fund. Settlements totaling $3,000,000 have been made from this $50,000 revolving
fund established by the act of November 21,1941 (31 U.S.C. 561-564).

156

1962 REPORT OF THE SECRETARY OF THE TREASURY

Claiois involving 97,000 outstanding checks were acted upon. Of
this number, 77,000 were certified for issuance of substitute checks
valued at $26,304,000 to replace checks that were not received or
were lost, stolen, or destroyed.
Collecting checks deposited,-^QoY&rxmi&nt officers during the year
deposited more than 6,700,000 commercial checks, drafts, money
orders, etc., with the Cash Division in Washington for collection.
Sale of uncirculated coin sets.—The Cash Division packaged and
sold to collectors 37,000 sets of uncirculated coins minted in 1960 and
192,000 sets minted in 1961. This service is rendered at no expense
to the Government as, in addition to the face value of the coins, a
fee of 58 cents a set is charged for the cost of assembling, handling,
and mafling the coins. Treasury Order No. 179-3, dated October 16,
1961 (see exhibit 51), transferred all functions and responsibilities for
the sale and distribution of uncirculated coins other than over-thecounter sales to the Bureau of the Mint effective with coins minted
in calendar 1962. The Cash Division will continue to sell such sets
over the counter.
Custody of securities.—The face value of securities held in the
custody of the Treasurer as of June 30, 1961, and June 30, 1962, is
shown in the following table:
J u n e 30
P u r p o s e for w h i c h held
1961
A s collateral:
T o secure deposits of p u b l i c m o n e y s i n d e p o s i t a r y b a n k s
T o secure postal savings funds
I n lieu of sureties
In custody:
F o r t h e Secretary of t h e T r e a s u r y i
F o r B o a r d of T r u s t e e s , P o s t a l Savings S y s t e m . . .
F o r t h e Comptroller of t h e C u r r e n c y
F o r t h e Federal D e p o s i t I n s u r a n c e C o r p o r a t i o n
F o r t h e R u r a l Electrification A d m i n i s t r a t i o n
F o r t h e D i s t r i c t of C o l u m b i a . .
F o r t h e Commissioner of I n d i a n Affairs
Foreign obligations 2
_
others
F o r servicing o u t s t a n d i n g g o v e r n m e n t issues:
U n i s s u e d bearer securities
.-.
Total

1962

$134, 161, 600
17, 848, 500
4, 038,900

$133,025,100
18,728, 500
4,832,050

31, 260, 583,684
344, 137,000
12, 157,000
1, 385, 297,830
97, 984,184
51, 501,866
38, 358, 725
12,068, 244,132
67, 710, 676

34,888,248,969
286,637,000
12,341,000
1,357,097,830
99. 576, 759
93, 563,935
36. 549,150
12,064,388,132
65,127,646

1,968,817,900

1,853,438, 750

47,450,841,896

50,913, 654,820

1 I n c l u d e s those securities listed in table 119 as in c u s t o d y of t h e T r e a s u r y .
2 Issued b y foreign g o v e r n m e n t s to t h e U n i t e d States for i n d e b t e d n e s s arising from W o r l d W a r I .
3 I n c l u d e s U . S . savings b o n d s in safekeeping for i n d i v i d u a l s .

Servicing securities for Federal agencies and for certain other governments.—In accordance with agreements between the Secretary of the
Treasury and various Government corporations and agencies and
Puerto Rico, the Treasurer of the United States acts as special agent
for the payment of principal of and interest on their securities. The
amounts of these payments during the fiscal year 1962, on the basis
of the Daily Statement of the United States Treasury were as follows:

157

ADMINISTRATIVE REPORTS

Principal

Payment made for

Federal home loan banks
Federal land banks
_
Federal Farm Mortgage Corporation
Federal Housing Administration
Federal National Mortgage Association
District of Columbia Armory Board. . . .
Home Owners' Loan Corporation
Philippine Islands
_._
_
Puerto Rico

'... $1,641,660,000
336,247,800
._
3,800
144,016,100
346,546,000

Total

Interest
paid with
principal
$31,790,704
468,052
15
1,482,452
404

Registered
interest i

Coupon
interest

$7,360,244

$7,704,099
86,218,113
481

13,439,377

21,125
12,000
412,000

5,250

14,875

81, 590,026
825,825
-5,178
3,037
79,323

2,468,918,826

33,746,877

20,814,496

176,416,725

1 On the basis of checks issued.

Internal Revenue Service ^
The Internal Revenue Service is responsible for collecting internal
revenue and for administering the internal revenue laws. One of the
primary objectives of the Service is to sustain public confidence in the
revenue system and to encourage voluntary compliance with the tax
laws. The Service is also responsible for administering certain other
statutes including the Federal Alcohol Administration Act (27 U.S.C.
201-212), the Liquor Enforcement Act of 1936 (18 U.S.C. 1261, 1262,
3615), and the Federal Firearms Act (15 U.S.C. 901-909).
Internal revenue collections and refunds

Collections.—Internal revenue collections in the fiscal year 1962
totaled $99.4 billion, an increase of $5.0 billion over 1961. Individual
income taxes increased $4.4 billion, 89 percent of the increase in total
revenue collections, and reflected a continued rise in the national level
of personal income, particularly in wages and salaries. Corporation
income tax collections decreased 2 percent from last year. This
decline is attributed to significantly lower payments from corporations
whose tax liabflities were affected adversely by the lower profit levels
of 1960-1961.
Employment taxes increased slightly more than $0.2 billion, 2 percent over 1961. Gains in these taxes reflected not only the higher level
of personal income, but also increases in tax rates. The old-age, disability, and survivors insurance tax rate, payable by both employers
and employees, increased from 3 to 3)^ percent on the first $4,800 of
taxable wages, effective January 1, 1962. The Federal unemployment insurance tax rate on employers of 4 or more increased from 3
percent on the first $3,000 of wages paid during the calendar year
1960 to 3.1 percent on the first $3,000 of wages paid during calendar
1961.
Excise tax collections increased $0.7 billion, or 6 percent, in 1962.
Gains from this source reflect, for the most part, the general rise in
business activity. There was a sizable increase in collections of the
Federal use tax on highway motor vehicles, mainly due to the higher
1 Additional information will be found in the separate Annual Report of the Commissioner of Internal
Revenue.

158

196 2 REPORT OF THE SECRETARY OF THE TREASURY

tax rate effective with the taxable year beginning July 1, 1961, pursuant to the Federal-Aid Highway Act of 1961 (26 U.S.C. 4481).
A comparison.of collections in the fiscal years 1961 and 1962 by
principal types of tax is shown below. Collections from 1929 through
1962 by detailed categories are given in table 19.
Refunds.—DuTing fiscal 1962 refunds of internal revenue, comprising
both principal and interest, totaled $6.3 billion compared with $6.0
billion in 1961. Gross collections, less refunds, were $93.1 biUion in
fiscal 1962 and $88.4 billion in 1961. These ainounts will differ from
net budget receipts which not only exclude refunds and amounts
transferred to trust funds, but also include collections from customs
and miscellaneous sources.
1961

1962

Source
I n t h o u s a n d s of dollars
Income taxes:
Corporation
Individual:
W i t h h e l d b y employers

21,764,940

21,296, 711

32, 977, 664
13,175,346

36,246,109
14, 403,485

T o t a l i n d i v i d u a l income taxes
T o t a l income taxes
E m p l o y m e n t taxes:
Old-age a n d disability insurance
U n e m p l o y r a e n t insurance
Railroad r e t i r e m e n t

46,153,001
67, 917, 941

50,649, 594
71, 945,305

11, 586,283
345,366
570, 812

11, 686,231
457,629
564,311

Total employment taxes...
E s t a t e a n d gift taxes
Excise taxes:
Alcohol taxes
Tobacco taxes
o t h e r excise taxes

12, 502, 451
1, 916,392

12, 708,171
2,035,187

3,212,801
1,991,117
6,860,384

3,341,282
2,025, 736
7,385,158

12; 064,302
94, 401, 086

12, 752,176
99, 440,839

other

T o t a l excise taxes
T o t a l collections

Interpretation and communication of tax law to taxpayers

The Service prepares and distributes basic regulations, rulings, tax
forms, and instructions to assist taxpayers in understanding their
rights and responsibflities. I t also publishes a series of tax guides
and disseminates information through the various news media.
Additional assistance needed by taxpayers to prepare their tax returns
correctly, comply with ffiing requirements, and to meet payment
deadlines, is provided at district and local offices.
Taxpayer publications.—This is basically a self-help program for
taxpayers. The Service issues approximately 50 publications in plain
everyday language for the guidance of taxpayers on practicaUy all.
aspects of Federal taxation. Several of the most widely used taxpayer
publications are the detailed tax guides prepared, for different classes
of taxpayers, such as individuals, small businesses, farmers, and aliens.
During 1962 the ^'Mr. Businessman's Kit," which contains all the tax
forms and related instructions needed by a businessman to comply
with the requirements of the Federal tax laws, was developed for
presentation to new business entities. This package is intended to
save the taxpayer the time and effort required to inquire about his

ADMINISTRATIVE REPORTS

159

various tax obligations, to encourage voluntary compliance, and to
help him avoid inadvertent noncompliance. Other publications cover
the tax effect of special problems common to broad segments of the
popiflation.
Puhlic information program.—Recognizing that tax information is
vital to maintaining and strengthening the self-assessment tax system,
the Service conducted a nationwide public information program
through the press, radio, and television, theater and group showings of
films, and speeches made by Internal Revenue officials. In addition
more than 185 technical and general news releases were issued in
fiscal 1962 by the national office including reports on the Service's
nationwide gambling raids, developments in the conversion to automatic data processing, and articles about the Service's centennial.
Taxpayer assistance.—The purpose of this program is to give
courteous and competent help to each taxpayer who seeks assistance
from the Service. I t is of paramount importance that employees
assigned to the program create and maintain favorable relations with
the public, since personal contact is made with more taxpayers
through this program than through all other Service programs combined. Thus, the 1962 taxpayer assistance program placed emphasis
on quality, as well as quantity, of assistance rendered. Over 11
million taxpayers visited or telephoned the field offices for assistance
during the 1962 filing period, an increase of 8 percent over 1961.
Internal revenue personnel gave assistance to 6.4 million taxpayers
by telephone and fully prepared the returns of 509,000 other taxpayers.
In general the assistance provided the public went beyond the point
of merely aiding the taxpayer in entering income and deduction items
on the return. Sufficient time was taken by assistors to explain to
the taxpayer the status of items of income, deductions, and exemptions.
Tax return forms program.—The Service continued its efforts to
simplify and improve the tax return forms and instructions. Members
of the Tax Return Forms Committee visited certain service centers
and selected regional and district offices to observe firsthand the
problems encountered in the processing systems. As the result of
the Service's conversion to an automatic data processing system in
the Atlanta Region, several forms were recast and the method of
distribution changed. Numerous suggestions and recommendations
for revising the forms and instructions were received during the year
from taxpayers, practitioners, and Service employees. These were
studied and many valuable suggestions were adopted. More than 250
forms, instructions, and documents were revised or reviewed. Increased emphasis was placed on inventory valuations and methods,
and five questions relating to these items were added to all business
income tax return forms.
Regulations program.—During the year, 32 Treasury decisions,
5 Executive orders, and 19 notices of proposed rulemaking, relating
to matters other than alcohol and tobacco taxes, were published in
the Federal Register. These regulations were issued under provisions
of the Internal Revenue Code of 1954 as originally enacted, subsequent
public laws, or on the basis of an administrative determination.
Eight hearings on the provisions of the proposed regulations, which
were published in 1962, were held in accordance with the provisions

160

1962 REPORT OF THE SECRETARY OF THE TREASURY

of the Administrative Procedure Act. Approximately 250 taxpayers
or their representatives participated.
Depreciation reform program.—The Service cooperated with
Treasury representatives in their studies on depreciation and in the
development of the Department's depreciation reform program.
On May 2, 1961, the President announced a program of assistance
to the textile industry designed to meet a wide range of problems
resulting from rapid technological changes, shifts in consumer preference, and increasing international competition. The Treasury Department was directed as part of the overall program to expedite
review of existing depreciation allowances on textile machinery.
To carry out this directive, an intensive review was niade by
Treasury officials of the schedule of average useful lives of machinery
and equipment used in the domestic textile industry. Included were
studies by Service engineers, inspection trips to several textfle mills
and textfle machinery manufacturing plants, meetings with representatives of the industry, and a careful evaluation of recent technological innovations. As a result of these studies, revised average
usefifl lives for machinery and equipment used in the textfle industry
were announced by the President on October 11, 1961, and published
by the Internal Revenue Service in Bulletin F.
Service engineers made studies of seven additional industries at
the direction of the Secretary of the Treasury, to aid in the overall
consideration of depreciation reform: Aircraft, automobile, electrical
machinery and equipment, machine tool, railroad, steel, and mining
and beneficiation of low-grade iron ore. A three-man team was
assigned to conduct the study of each industry. Their reports and
recommendations were submitted to the Secretary early in calendar
1962.
In addition, the Service worked with Treasury representatives in
completing their studies on depreciation and in developing the revenue
procedure set forth in the new Depreciation Guidelines and Rules
released on July 11, 1962. (See exhibit 22.)
Receipt and processing of returns

Number of returns filed.—In the 1962 flscal year, 96.4 million tax
returns of all classes were received. This was 0.6 million, or 0.6
percent, more than the number received in 1961. Individual income
tax returns increased 0.2 mfllion; whfle declarations of estimated
individual income tax decreased almost 0.1 million. Employment
tax returns increased 0.3 million, with almost three-fourths of the
increase in employers' returns for household employees. Information
returns received in 1962 totaled more than 340 million, compared with
330 mfllion in 1961.
Processing of returns.—The three area service centers located at
Lawrence, Mass.; Kansas City, Mo.; and Ogden, Utah, processed
60.5 million individual income tax returns. Of these, 49.5 million
were 1961 returns ffled during the 1962 filing period and 11.0 million
were 1960 returns filed during the 1961 filing period but processed
after June 30, 1961. This was an increase of 0.5 mfllion, or nearly
one percent above fiscal 1961. In addition, 4.8 mfllion declarations of
estimated individual income tax were processed. Accounts receivable
werelestablished for appropriate individual income and estimated

—

.ADMINISTRATIVE REPORTS

161

tax returns. Mailing and delinquency check operations were performed on all employers' returns, forms 940 and 941, except calendar
year 1961 forms 940, and forms 941 for the quarter ended March 31,
1962, required of taxpayers located in the Atlanta region. The
initial transfer of work from the present area service centers to regional
service centers under the automatic data processing program occurred
during the year. Mafling and delinquency check operations on
forms 940 and 941 ffled in districts of the Atlanta region were
transferred from the Midwest Seryice Center to the new Atlanta
Regional Service Center. During the first half of the year new
high-speed magnetic tape computers were installed in the midwest
and western service centers. Completion of this conversion program,
initiated in fiscal 1961 in the Northeast Service Center, made it
possible for all area service centers to process individual income tax
returns filed for the 1961 tax year on this advanced equipment duruig
the 1962 filiag period.
In the 6-m6nth period ended June 30, 1962, nearly 36.8 mfllion
refunds were scheduled on iadividual income tax returns filed for the
1961 tax year. This was an increase of over 0.8 mfllion, or 2.4 percent,
above the same period in 1961.
Automatic data processing.—Automatic machine processing of tax
returns is being installed by the Service in order to keep abreast of
its ever-growing returns processing and revenue enforcement work-,
load. Installation of the system is proceeding on a carefully phased
basis, with major attention being given to avoiding adverse effects on
employees to be redeployed. Some of the significant highlights during
the year were: Establishment of the Office of Assistant Commissioner,
Data Processing; completion of systems design and programs for
processing business returns; timely completion and dedication of the
National Computer Center at Martinsburg, W. Va., and the new
Atlanta Regional Service Center building; activation of the Phfladelphia.
Regional Service Center; processing of business returns in the Atlanta
Regional Service Center and the National Computer Center; initiation
of systems design for processing individual returns; selection of sites
for the Dallas, Tex., Cincinnati, Ohio, and Omaha, Nebr., regional
service centers, and continuation and improvement of the plan for
personnel redeployment.
The automatic data processing master file was started during the
year when the Atlanta Regional Service Center began processiag
corporation income tax returns and certain employer and excise
returns. As a result, throughout the seven southeastern states com-prising the Atlanta region, the Service is now able t o : Make automatic
checks on compliance by business entities' in] filing required returns;
electronicaUy verify the mathematical accuracy of the returns, the
credits claimed, and the balance of tax due or any aUowable credit
or refund; and mechanically apply overpayments to any other taxes
due from the taxpayers. Progress has been made on systems development for returns filed by individual taxpayers. This phase of the,
system is scheduled for installation in the Atlanta region in 1963.
As the automatic data processing program has progressed, the Service
has continued and intensified its massive effort to redeploy district
office employees whose work is* affected.
661496—63

162

1962 REPORT OF THE SECRETARY OF THE TREASURY

Enforcement activities

The enforcement activities include correcting errors in tax liability
on returns voluntarily ffled, securing delinquent returns, collecting
delinquent accounts, investigating evidence or allegation of fraud,
suppressing the trafl&c in iUicit liquor, conducting a firearms control
program, providing collection litigation services to district offices,
administering a taxpayer appeals system, processing civil litigation
cases and those involving criminal prosecution, conducting the
Federal-State cooperative exchange, program, and managing the
Service's tax program abroad.
Examination of returns.—During 1962, nearly 3.5 million returns
were examined, approximately the same number as were examined
in 1961. A comparison of the number examined during the two
years follows:
Type of return

Fiscal
year
1961

Fiscal
year
1962

In thousands of returns
Income tax:
Corporation.
Individual and fiduciary
Total income tax
Estate and gift taxes
Excise and employment taxes
Grand total

163
3,079
3,242
32
212

127
3,120
3,248
30
. 195
3,473

i-Excludes examinations resulting in no tax change where such examination was made from the
taxpayers' copies of returns in the course of an audit covering both income and.excise and/or employment
taxes.

Adjustments on returns examined during the year resulted in the
recommendation of additional tax and penalties amounting to $1,884.5
million, a decrease of $66.4 million from the $1,950.9 million recommended in flscal 1961. The amounts recommended are the result of
examinations and informal conferences with taxpayers by audit fleld
personnel. In some instances further adjustments are made as a
result of appeals action or court decision.
Mathematical veriUcation.—Nearly 58.8 million individual income
tax returns were mathematically verified during fiscal 1962, a decrease
of 0.7 million, or 1 percent from the year before. The number of
error cases disclosed by mathematical verification was 2.4 million, a
decrease of 2.8 percent. The number with a tax increase dropped 4.3
percent, while the number with a tax decrease was about the same as
in 1961. The tax increases averaged $90, while the tax decreases
averaged $70. The aggregate amount of tax increases was $134.6
million, compared with $132.0 million in 1961; tax decreases totaled
$69 million, compared with $66 million.
Delinquency investigations and delinquent returns secured.—During
1962, the Service made 1.5 million delinquency investigations compared with 1.3 million in 1961. The number of delinquent returns

ADMINISTRATIVE REPORTS

163

secured was 935,000, a decrease of 3 percent. The amount of tax,
penalties, and interest due on these returns amounted to $165 mUlion compared with $159 million in 1961. I t was necessary during
the year to redeploy some manpower from work on delinquent returns
to the collection of past-due accounts because of an increased backlog.
This redeployment of personnel resulted in a sizable increase in the
number of past-due accounts closed. The increase niore than offset
the decline in the number of delinquent returns secured. In addition,
in examining tax returns, district audit divisions secured 73,000
delinquent returns compared with 95,000 in 1961. Tax, penalties,
and interest on these returns amounted to $39.2 million, a decrease of
23 percent.
Summary of additional tax from direct enforcement.—Additional tax,
penalties, and interest assessed in 1962 as a result of direct enforcement activities amounted to $1,969 million compared with $2,130
million assessed in 1961. A comparison of additional tax from direct
enforcement during the last two fiscal years is shown in the following
table.
Sources

1961

1962

In thousands of dollars
Additional tax, interest, and penalties resulting from examination
Increase in individual income tax resulting from mathematical verification. _
Tax, interest, and penalties on delinquent returns
Total additional tax, interest, and penalties
.
:
Claims disaUowed

»• 1,788,305
131,981
209, 873
r 2,130,159
649,471

1, 631,236
134, 583
203, 679
1, 969, 498
352,285

-" Revised.

Tax fraud investigations, indictments, and convictions.—In 1962,
preliminary investigations totaled 10,229, compared with 12,866 in
1961, and full-scale investigations totaled 3,469, compared with 3,677
in 1961. Prosecution was recommended in 2,128 cases, 32 more than
in 1961. Indictments were returned against 1,702 defendants in
1962 compared with 1,709 in 1961. In cases reaching the courts,
1,013 pleaded guilty or nolo contendere, 178 were convicted, 65 acquitted, and 181 cases were dismissed. These compare with 1,129
pleas of guilty or nolo contendere, 102 convictions, 49 acquittals, and
194 dismissals in the preceding year.
In enforcement of the wagering and coin-operated gaming device tax
statutes, special agents of the Service in 1962 conducted raids at 630
locations in 277 cities. These raids resulted in the seizure of 151
automobiles, $377,000 in currency, and considerable gambling equipment, and the arrest of 743 tax violators. The Service continued its
cooperation with the Department of Justice drive on organized
crime through the initiation of a number of tax investigations involving
racketeers. The number of convictions in the past ten flscal years
is shown in the following table.

164

1962 REPORT OF THE SECRETARY OF THE TREASURY
N u m b e r of
individuals
convicted

Fiscal y e a r

1953
1954
1955
1956
1957
1958
1959
1960
1961-.
1962...

_
_

•

_ _

929
1,291
1,339
1,572
1,266
1,096
909
1,086
1,231
1,191

Alcohol and tobacco tax administration.—Signiflcant progress was
made in eliminating the well-organized illicit alcohol traffic which has
flourished in the metropolitan areas of the eastern seaboard. The east
coast plan has proved highly effective against the principals and key
subordinates of the syndicates engaged in large-scale production of
nontaxpaid alcohol by reducing the incidence of such violations
through the location and prompt seizure of most of their distilling
plants. As a result, the major operating groups have sustained severe
monetary losses, and have been forced to abandon or curtail operations
and to seek outside financial support for new ventures. The mandatory preventive raw materials program has continued to be an effective method of curtailing the production of nontaxpaid spirits by
means of soliciting the voluntary cooperation of dealers in refusing to
sell the essential materials to laiown violators or suspected persons,
placing noncooperating dealers under demand to report dispositions
thereof, and prosecuting those who violate the regulations.
Seizures and arrests for violations of alcohol tax laws are shown in
the following table.
N u m b e r of G a h o n s of N u m b e r of
stills seized m a s h seized
arrests
made i

Fiscal year

1940
1946
1950
1955
1956
1967
1958
1959
I960
1961
1962

.
:

- .:
.

10,663
8,344
10,030
12,509
14,499
11,820
9,272
9,225
8,290
6,826
6,886

6,480,200
2, 945,000
4,892, 600
7,375,300
8,643,200
6, 756,600
5,140,800
4,655,600
4,274, 400
3,669, 500
3, 424, 500

1 Includes arrest for firearms violations and, beginning with 1955, tobacco tax violations.
ing these two classes of violations during 1962 numbered 398 and 2, respectively.

25,638
11,104
10,236
10, 546
11,380
11,513
11,631
10, 912
10,376
9,503
9,126

Arrests involv-

The continued study and development of unproved and streamlined
methods of Government supervision of distUled spirits plants, followed
by pilot operations to test the conclusions, has resulted in a decrease
of 89 inspectors (on-premises) by eliiiiinatiag positions which became
vacant duriag the year. The feasibUity of still further reductions in
the on-premises supervision force, without unacceptable risks of reve-

ADMINISTRATIVE REPORTS

165

nue losses, is being tested by additional pflot operations initiated near
the close of the year.
Pflot operations to test new or revised procedures and techniques
used in conducting selected inspections at breweries and bonded wine
cellars were completed. The preparation, testing, and institution of
these new procedures required considerable time and contributed to
the reduction, in the number of inspections made from 36,044 in 1961
to 32,260 in flscal 1962.
Collection of past-due accounts.—-Nearly 3.2 mfllion accounts became
past due in fiscal 1962, about 9 percent more than the unusually high
number in 1961. However, the amount of delinquent tax involved,
$1.5 bfllion, was less than in 1961. Although the increased emphasis
on reducing the inventory of past-due accounts resulted in the closiag
of 3.1 mfllion, 6 percent more than in the preceding year, those closed
have not kept pace with the new accounts. On June 30, 1962, the
inventory of 1.1 mfllion past-due accounts was 10 percent above last
year. The total tax on these accounts, however, amounted to $1,036
mfllion, an increase of only one percent. The nominal percentage
increase in amount compared with the 10 percent increase in number
reflects the emphasis on closing large accounts.
Revised procedures iaitiated late in flscal 1961 to accelerate the
assessment and collection of trust fund taxes were improved and fully
implemented during flscal year 1962. Whfle these procedures account
for much of the increase in new taxpayer past-due accounts duruig
1962, the increased emphasis on prompt collection of withholding and
simflar taxes from employers and excise taxpayers is expected to result
in increased compliance. Under the revised procedures, immediate
contacts are made to collect taxes from taxpayers who fail to pay the
tax due on returns ffled or fail to obtain depositary receipts evidencing
timely payinent to the Government of employment or excise taxes.
Appeals and civil litigation.—District audit divisions referred 15,513
protested, income, estate, and gift tax cases to regional appellate divisions at the request of taxpayers. This was an increase of 642 cases,
or four percent, over the 14,871 protested cases referred to appellate
divisions in 1961. The appellate divisions disposed of 14,921 [pre-90day and 90-day cases during flscal 1962 compared with 16,135 such
cases the year before. On June 30, 1962, pre-90-day and 90-day case
inventory in appellate divisions numbered 11,805 compared with
10,922 a year ago. Petitions ffled with the Tax Court of the United
States numbered 4,752, compared with 5,451 ffled in 1961. The
Supreme Court decided seven tax cases, sustaining the position of the
Government in flve cases. The circuit courts of appeals decided 414
tax cases (exclusive of bankruptcy, receivership, insolvency, compromise, ahd liquor cases). Of these, the Government's position was
supported in 268 cases.
Taxpayers who have paid a disputed tax may sue for refund in the
Court of Claims or in a U.S. district court. The district courts decided 192 cases for the Government, 213 for the taxpayers, and 44
cases partly for the Government and partly for the taxpayer. The
Court of claims decided 27 cases for the Government, 23 cases for the
taxpayer, and 6 partly for each.

166

1962 REPORT OF THE SECRETARY OF THE TREASURY

Major administrative improvements

Benefits from management improvements.—The progressive management environment of the Service and the vigor of leadership exercised
by its executives and supervisors at all levels are reflected in part by
results achieved through the management improvement program.
Although total tangible recurring savings of nearly $5 million were
speciflcally identifled, the large majority of beneflts were of an intangible nature. Regardless of the category, management actions have
strengthened the enforcement effort, reduced bacldogs of work, improved taxpayer service, and otherwise contributed to the successful
attainment of the Service mission.
Organizational changes in the national office.—On September 19, 1961,
less than a year after its establishment as a separate division, the
Automatic Data Processing Division was converted to the Office of
Assistant Commissioner (Data Processing). This new office was assigned responsibility for the implementation and operation of the automatic data processing system and the closely related returns processing, revenue accounting, and service center operations. The functions
of the Reports Division formerly attached tofthe Office of Assistant
Commissioner (Administration) were also placed under the jurisdiction
of the new Assistant Commissioner (Data Processing).
At the same tirne, the Assistant Commissioner (Operations) was
redesignated as the Assistant Commissioner (Compliance).
On December 20, 1961, the Fiscal Management Division was transferred from the Office of the Commissioner to the Office of the Assistant
Commissioner (Administration).
On May 1, 1962, the International Tax Relations Division, in the
Office of Assistant Commissioner (Technical), was abolished and the
Foreign Tax Assistance Staff established in the Office of the
Commissioner.
Personnel

The personnel admiaistration program continued to respond to the
needs of management and employees for better manpower utUization,
more effective communications, and assistance in carrying out organizational and program changes with efficiency and high morale.
Major areas of attention included: Recruitment; data processing
staffing and redeployment; occupational standards studies; and noteworthy advances in employee-management relations, including preparation fdr more formalized dealings with organized groups under
the President's Executive Order 10988.
On June 30, 1962, employees on the rolls numbered 56,510, compared with 53,680 a year before. There were 3,357 employees in the
national office and 53,153 employees ui field oflices including service
centers, regional, district, and local offices, and the Office of International Operations.
An analysis of the personnel structure by type of position for the
fiscal years 1961 and 1962 is shown in the followiag table.

ADMINISTRATIVE

167

REPORTS

Personnel
Location a n d t y p e
J u n e 30,1961 J u n e 30,1962
BY

LOCATION

N a t i o n a l office...
Regional a n d district offices i
BY

3,031
50, 649

3,357
63,153

5,769
2,657
4,502
11,289
1,558
425
915
611

5,861
3,028
. 4, 650
11, 942
1,624
441
978
522

27, 726

29, 046-

TYPE

P e r m a n e n t personnel:
Supervisory personnel
Enforcement personnel:
R e v e n u e officers...
Office a u d i t o r s
T a x examiners
R e v e n u e agents
Special a g e n t s . . . :
Alcohol t a x inspectors
Alcohol t a x investigators
Storekeeper-gaugers

T o t a l enforcement personnel
Legal persormel
.
:
Other technical personnel
Clerical personnel, messengers, a n d laborers 2.
T o t a l p e r m a n e n t personnel
T e m p o r a r y personnel
Grand total-

.
.
1

599

630

5,101
17,492

5,566
18,114

51,471
2,209
53,680

53, 928
2,582
56, 510

1 Includes Office of I n t e r n a t i o n a l Operations personnel (headquarters a n d field offices) n u m b e r i n g 391
for 1961 a n d 428 for 1962.
' ,
2 Includes 4 overseas employees hired locaUy for 1961 a n d 3 for 1962.

Training

Training programs were expanded to insure smooth conversion to
automatic data processing. Seminars were held to familiarize management personnel with the conversion plan; 51 employees were
trained as digital computer programmers; programs were developed
and conducted for employees of the pilot regional service center in
Atlanta; and guidelines were issued to field offices for retraining employees whose jobs will be eliminated or changed. The growing
number of users of automatic data processing equipment in private
industry also led to increased emphasis on training enforcement personnel in techniques of examining the returns of such taxpayers. A
program was developed for trainiag auditors of the Inspection Service
in conducting audits of the automatic data processing service centers.
The fiscal year 1962 marked the first full year of management training under the new management development program. Sixteen executives completed the 11-week executive course; 125 managers completed the 5-week managerial course; and 690 supervisors completed
the 2-week supervisory course. In addition, through a specially
designed centralized 2-week course, 27 regional analysts received training in the techniques of management analysis and coordination.
In July 1961 the first national office administrative intern program
began. Under a training agreement with the Civil Service Commission the program provides for developing top quality administrative
technicians Sirough recruiting and training applicants of high poten-

168

1962 REPORT OF THE SECRETARY OF THE TREASURY

tial. The program has proved highly successful and steps were taken
to provide for regional participation.
A Special Training Advisory Committee was appointed by t h e .
Commissioner in August 1961 to survey the entire collection training
program and develop a comprehensive career training plan for that
activity. Its report and recommendations were to be completed-^by
October 1, 1962. ;
Space and equipment

Through close.cooperation with the General Services Administration, the Service was successful in obtaining new space and improving
; space conditions in many offices throughout the country. ^ The following offices were moved into new buildings in 1962: Jackson, Miss.;
Springfield, 111.; Little Rock, Ark.; Phoenix,.Ariz.; Oklahoma City,
Okla.; Richmond, Va.; and Houston, Tex. Additional space was acquired at 206 locations to relieve crowded conditions and to accommodate new employees. After three years of. extensive studies, a
long-range equipment replacement plan was begun; based on a comprehensive set of furniture and equipment standards which are believed
to be the first of their kind in Government.
Cost of administration

;;

Expanding operations for 1962 were financed by a congressional
appropriation of $452 million, $38.1 million above the 1961 appropriation. Total obligations amounted to $450.1 raillion compared with
$413.3 million in 1961. Man-years realized totaled 56,481 compared
with 53,206 in 1961. The additional funds over 1961 were used
mainly to finance the second step of development under the longrange plan, to inaugurate the organized crime drive, to cover costs of
the automatic data processing program including the NationaL Computer Center, to cover increases in travel per diem allowances authorized by Congress, and to reimburse the Social Security Administration
for assignment of taxpayer account numbers.
Long-range planning

The long-range plan was updated in the light of improved workload
projections, current work performance rates, and new research results
to provide the basis for the 1964 budget request. . The plan comprises
estimates of the additional manpower and other resources needed
each year from 1963 through 1968 to eliminate operating deficiencies
and meet the constant growth in tax administration workload.
During the past two years,.substantial progress was made toward
the long-range objectives established in the plan. The installation of
an automatic data processing system is well under way, with regional
service centers activated in the Atlanta and Philadelphia regions :and
the-National Computer Center in operation at Martiasburg, W. Va.
Personnel increases in the audit area have provided for the initial
phases of a program to expand the capacity to examine tax returns
and to improve the quality of examinations, thereby increasing voluntaiy compliance. Investigations of racketeers and other persons suspected of tax frauds have been expanded through the organized crime
drive. Additions to the coUection staff have enabled the Service to
increase the number of delinquent accounts closed and to cope with

ADMINISTRATIVE REPORTS

169

ah upward trend in the number of accounts becoming delinquent.
At the same time that these improvements were being made in the
data processing and enforcement areas, steps were being taken to
promote a better understanding of the tax laws, regulations, and forms.
These actions provided for widening the dissemination of tax information, expanding the facilities for taxpayer assistance, and making
greater use of personal contacts ^vith taxpayers to explain their tax
responsibilities.
Resources utilization

During the year the Service placed special emphasis on efficiency
and economy, in keeping with the President's call for a lean and flt
Federal establishment. Specifically, in April 1962, at a regional commissioners' conference, the Commissioner called for a three-phase
program to strengthen resources utilization. Phase I, referred to as
^^belt-tightening," involved a short-range search for positions in the
national office and regional offices which cmfld be eliminated or reallocated to direct tax enforcement operations in the fleld. This was
accomplished in.May and June and resulted in the elimination of 280positions originally scheduled to be fflled in fiscal 1962 at an annual
cost of $2.4 million.
Phase I I , being carried out by a high-level ad hoc Committee on
Resources Utilization at the close of the fiscal year was scheduled to
complete its examination of the following matters by December 31,
1962: A study of the organization and functions of the national office
to ascertain whether any operations can be eliminated, reassigned to a
different component or level, or accomplished in a better way; a number of studies affecting regional and district office organization and
functions; a study of manpower planning and control in selected activities; and collateral studies to determine how effectively the Service is using its resources.
Phase I I I is to be the implementation of the recommendations
which may be approved on the basis of Phase I I studies.
Inspection activities

Internal audit.—The internal audit program provides for an annual
indepeiident review and appraisal of Service operations as a protective and constructive service to the Commissioner and all other levels
of management. This broad program covers all field organizations
and activities of the Revenue Service and provides for a determination as to whether the policies, practices, procedures, and controls
are adequate, efficient, and effective. Audit responsibilities have been
increased recently as a result of the adoption of automatic data processing. At present this involves the Service's computer center and
four service centers, which utilize high-speed electronic computers
and related peripheral equipment. Emphasis in the Internal Audit
Division is placed on the examination of the Service functions most
closely related to tax collection and enforcement of the tax laws. I t
also cooperates with the Internal Security Division in carrying out
the integrity programs of the Service.
During the year 303 internal audit reports were issued compared
with 253 in 1961.
Internal security.—The flscal year 1962 marked one of the most
intensive programs in the history of the Service to insure the integrity

170

19 62 REPORT OF THE SECRETARY OF THE TREASURY

of its employees. The Service investigated allegations of corruption
or attempted corruption of its employees by non-Service persons and
also investigated charges of unethical or corrupt practices on the part,
of enrolled practitioners. In the administration of the voluntary selfassessment system of taxation, the Service is largely dependent on the
integrity of taxpayers and their representatives. These persons in
turn have the right to demand the utmost integrity and impartiality
from Internal Revenue Service officials and employees. During the
year top Service officials made vigorous efforts to promote understanding among employees, taxpayers, and practitioners as to the
importance of integrity and the need to expose corruption wherever
discovered. As a result a series of meetings were held with tax practitioner groups. These meetings indicated a resurgence of interest
by the tax profession in the matter of ethical standards of practice
and are expected to result in revi talization and tightening of codes
of ethics among professional groups. During this fiscal year inspection assumed primary responsibility for the investigation of attempts
to bribe Service employees. Instructions were issued to strengthen
procedures to be followed by employees when a bribe offer or overture is made. .
During the year 50 cases of actual or suspected bribery attempts
by taxpayers or their representatives were reported by Service employees. Nineteen of these cases were closed and resiflted in initiation
of prosecution of 10 taxpayers or their representatives.
A total of 8,956 investigations of employees and applicants for
employment were completed, which was 23 percent more than in the
preceding flscal year, and the highest on record. In addition, police
checks were made on 3,955 employees given short-term temporary
appointments.
Enrollment of practitioners

During the year the Office of Director of Practice commenced a
period of revitalization of its enrollment and disciplinary functions.
Increased production was generated by more adequate staffing and
better utilization of personnel. More disciplinary actions were concluded, either by resignations, suspensions, or reprimands, than during
the 1960 and 1961 fiscal years combined. There was increased
surveillance of activities of persons enrolled to practice before the
Internal Revenue Service, applicants for enrollment, and preparers
of tax returns exercising the privilege of limited practice. Emphasis
was placed on the high ethical standards expected of practitioners.
The issuance of enrollment cards for persons entitled to practice
before the Internal Revenue Service .good for a period of five years
was inaugurated in 1952. Before that time all enrollment cards were
of unlimited duration. In 1952 each enrollee was required to apply
for a new card, and 55,632 such cards were issued. When these cards
expired in 1957, renewal applications were required from the enroUees
whose eligibility to practice had lapsed. At that time 29,673 cards
were issued. In the cycle which ended for the second time in the
1962 fiscal year, 22,838 enrollment cards were renewed, exceeding by
20,316 those renewed in the nonpeak year, 1961. At the end of fiscal

ADMINISTRATIVE REPORTS

171

1962 approximately 70,000 persons were eligible to practice before
the Internal Revenue Service.
Technical assistance to foreign government officials

The Commissioner of Internal Revenue and the Deputy Commissioner went to Buenos Aires in October 1961 to attend a conference
of North and South American tax officials held to work on tax administration goals for Alliance for Progress countries. Sixty representatives from 17 countries were present, as well as representatives
of the Organization of American States, the United Nations, the
Economic Commission for Latin America, the International Development Bank, and the U.S. Treasury Department. At this conference
the Commissioner stated that the U.S. Government would be willing,
upon request, to send Internal Revenue Service men to Latin America
to give technical advice, and to provide training in the United States
for visiting Latin American tax officials. Since October 1, 1961, the
Service has given technical training in the United States to tax
officials from Brazil, Chile, Colombia, Guatemala, and Peru, and has
sent tax administration experts to Chile, Colombia, Ecuador, and
Peru.
The President's emphasis on tax administration and tax reform as
a basic objective of the Alliance for Progress has brought a number
of Latin American visitors to the United States and seems to have
stimulated a greater interest in tax matters on the part of many other
countries. During the year, 156 officials representing 41 foreign
governments visited the Service to observe and study its management
and operating techniques.
Office of International Finance
The Office of International Finance assists the officers of the Department in the formulation and execution of policies and programs in
international flnancial and monetary matters.
By direction of the Secretary, the responsibilities of the Office of
International Finance include the Treasury's activities in relation to
international flnancial and monetary problems, covering such matters
as the U.S. balance of payments, the convertibility of currencies, exchange rates and restrictions, and the extension of stabilization
credits; gold and silver policy; the Bretton Woods Agreements Act,
and the operations of the International Monetary Fund, the International Bank for Reconstruction and Development, the International
Finance Corporation, the Inter-American Development Bank, and the
International Development Association; foreign lending and assistance; the North Atlantic Treaty Organization; the Anglo-American
Financial Agreement; the U.S. Exchange Stabilization Fund; and the
Foreign Assets Control.
The responsibilites of the Office of International Finance also
include activities of the Treasury in relation to the National Advisory
Council on International Monetary and Financial Problems. The
Secretary of the Treasury is Chairman of the Council, which was
established in 1945 by the Bretton Woods Agreements Act (22 U.S.C.

172

1962 REPORT OF THE SECRETARY OF THE TREASURY

286b) in order to coordinate the policies and operations of the U.S.
representatives on the International Monetary Fund, and the International Bank, and of all the agencies of the Government which make
or participate in making foreign loans or which engage in foreign
financial, exchange, or monetary transactions. The acts authorizing
U.S. membership in the International Finance Corporation, the
Inter-American Deyelbpment Bank, and the International Development Association also provide for the coordination by the National
Advisory CouncU of the U.S. representatives to these institutions.
The Office also acts for the Treasury on the financial aspects of
international treaties, agreements, and organizations in which the
United States participates, and it takes part in negotiations with
foreign governments with regard to matters included within its
responsibilities. I t assists the Secretary on international flnancial
aspects of problems arising in connection with his responsibUities
under the Tariff Act.
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 Department of State and the Department of Defense on financial matters
related to their normal operations in foreign countries and on the
special financial problems arising from defense preparation and
military operations. In conjunction with its other activities the
Office studies the financial policies of foreign countries, exchange rates,
balances of payments, the fiow of capital, and other related problems.
It serves the Secretary in connection with his continuing responsibilities to review for the President the entire range of administration
programs and policies for achieving a lasting equilibrium in the U.S.
balance of payments and a stronger international payments system,
and prepares reports to the President on the balance-of-payments
situation and on administration measures in this area.
The Office admiaisters the Treasury foreign exchange reporting
system. The reporting system collects through the Federal Reserve
Banks statistical data on capital movements between the United
States and foreign countries.
The Division of Foreign Assets Control administers regulations
and orders issued under section 5(b). of the Tradiag with the Enemy
Act. The Foreign Assets Control Regulations block all property in
the United States in which any Communist Chinese or North Korean
interest exists and prohibit all trade or other financial transactions
with those areas or their nationals. The Cuban Import Regulations
govern imports into the United States of goods of Cuban origin,
goods containing Cuban components, or goods from or through Cuba.
(See exhibit 50.) These regulations were issued initially under
authority of the Foreign Assistance Act of 1961 approved September 4,
1961 (22 U.S.C. 2370) and Proclamation 3447, and, as amended,
under section 5(b) of the Trading with the Eiiemy Act.
The Control also administers regulations which prohibit persons in
the United States from purchasing, selling, or arranging the purchase
or sale of strategic commodities outside the United States for ulti-

ADMINISTRATIVE REPORTS

l73

mate shipment to the Soviet bloc. The latter regulations supplement
the export control laws administered by the Department of Commerce.
The Control carries on licensing activities in connection with
transactions otherwise prohibited by the regulations mentioned above
and takes action to enforce these regulatipns.
Bureau of the Mint ^
The major functions of the Bureau of the Mint are the manufacture, distribution, and redemption of domestic coins; the receipt,
processing, custody, disbursement and movement of gold and silver
bullion; the manufacture of medals of a national character and special
medals for other U.S. Government agencies; the manufacture of
foreign coins; and other technical services.
Two organizational changes which modified the Mint's duties in
the fiscal year 1962 were made by the Treasury. Department
Order No. 179-3, dated October 16, 1961 (see exhibit 51), transferred all functions and responsibilities for the sale and distribution
of sets of uncirculated coins, other than over-the-counter sales, from
the Office of the Treasurer of the United States to the Bureau of
the Mint. Department Order No. 193, dated October 9, 1961,
established within the Office of the Under Secretary for Monetary
Affairs an Office of Domestic Gold and Silver Operations, and transferred to it from the Bureau of the Mint the administration of gold
and sflver regulations.
The Office of the Director of the Mint located in Washington, D . C ,
administers all activities of the Bureau of the Mint. Six field institutions were in operation during the fiscal year 1962, the Philadelphia,
Denver, and San Francisco mints; the New York Assay Office; the
silver bullion depository in West Point, N.Y., which is an adjunct of
the Assay Office; and the gold bullion depository in Fort Knox, Ky.
The gold and sflver depositories are solely for the storage of bullion.
Each of the other four institutions also handles and has custody of
gold and silver and performs several different types of operations.
All coins have been manufactured at the Phfladelphia and Denver
mints since March 1955 when coinage operations were suspended at
the San Francisco Mint. The latter institution continued to function as an assay office and bullion depository and Public Law 87-534,
approved July 11, 1962, authorized that its official designation be
the United States assay office at San Francisco. Electrolytic refineries for refining precious metals are located in the Denver Mint
and the New York Assay Office. The engraving and the proof coin
and medal production divisions are in Phfladelphia. Because of an
increased coinage workload, the number of employees in the Bureau
rose from 927 on June 30, 1961, to 1,051 on June 30, 1962.
Domestic coinage

The production of U.S. coins reached 3.5 billion in the flscal year
1962, an alltime record, and the second successive year in the Mint's
» Additional information concerning the Bureau of the Mint is contained in the separate annual report
of the Director of the Mint.

174

196 2 REPORT OF THE SECRETARY OF THE TREASURY

history in which domestic output exceeded three billion pieces.
Compared with 1961 the number of coins manufactured was 13 percent higher, but the quantity of metals processed was 20 percent
larger, because of an increase in the higher denominations. The
one-cent piece, as usual, was produced in greatest volume, representing 73 percent of the five denominations coined. No silver dollars
were coined, as the stock on hand, last augmented in 1935, continued
to be adequate both for circulation and for the redemption of silver
certificate currency by the public. The 1962 output of 3.5 bfllion
subsidiary silver and minor coins, required a total of 13,448 short
tons of metals, including 2,577 tons of silver (75,149,179 fine troy
ounces), 9,972 tons of copper, 462 tons of nickel, and 437 tons of
zinc and tin. Although the two mints operated around the clock,
the demand was so great that finished coins were shipped out as soon
as they were struck; therefore it was not possible to build up an inventory of coins in mint vaults at any time during the year. A
summary of domestic coin production during fiscal 1962 is shown in
the following table.
Production of U.S. coins ^
Number
Denommation

Face
value

Tn millions

standard
gross
weight

Distribution
(based on
pieces)

Short tons

Percent

1-cent pieces _
5-cent pieces
Dimes

2, 547. 8
335.7
372.6

$25.5
16.8
37.2

8,734
1,860
1,027

73.3
9.7
10.7

Quarter dollars
Half dollars
Total

173.9
46.4

43.5
23.2

1,198
639

6.0
1.3

3,476.3

146.2

13, 448

100.0

Metallic composition

Bronze (95% copper, 6% zinc and tin)
Cupronickel (76% copper, 26% nickel)
Silver (900 parts silver, 100 parts
copper).
Do!

1 Includes 3,161,805 sets of proof coins manufactured at Philadelphia.

Foreign coinage

U.S. Government mints have manufactured coins for foreign
governments since authorized to preform this service by the Congress
in 1874 (31 U.S.C. 367). As this law provides, foreign coins are manufactured on a reiaibursable basis at actual cost. From time to tiaie
37 countries throughout the world have availed themselves-of U.S.
minting facilities. The Philadelphia Mint made coins for Costa Rica,
Korea, Liberia, and the PhUippines during fiscal 1962. According to
the legally prescribed standards and devices of the respective countries
12 different denominations were produced. Approximately 900 tons
of metals were processed in 1962 into a total of 214.2 mfllion foreign
coins, representing an increase of 94 percent over the 110.4 mUlion
pieces produced in 1961.

ADMINISTRATIVE REPORTS

175

Foreign coinage by ihe Philadelphia Mini, fiscal 1962

Costa Rica

Number of
coins produced (in
millions)

Denomination

Government

_ _

2 colones
1 colon

_.__._.

60 hwan
10 hwan.

_ _
,

20.0
100.0
1.2
.8
1.2
1.0
3.0
5.0

_ 1 doUar
50 cents
26 cents
10 cents
5 cents
1 cent

900 parts silver, 100 parts copper.
Do.
Do.
Do.
76% copper,, 25% nickel.
95% copper, 6% zinc.

12.2

Total
Philippines

German silver (70% copper, 18% zinc, 12% nickel).
95% copper, 5% zinc.

120.0

Total
Liberia

75% copper, 25% nickel.
Do.

2.0

Total
Korea

1.0
1.0

MetaUic composition

25 centavos
5 centavos

Total .-Grand total

40.0
40.0

German silver (70% copper, 18% zinc, 12% nickel).
80% copper, 20% zinc.

80.0
214.2

Issue and stock of coins

Production schedules for domestic coins are geared to meet the anticipated business requirements of the Nation. Although the two mints
operated at top speed throughout the flscal year, continuing large coin
requisitions be3'^ond the customary heavy seasonal demand exceeded
the mints' output for the 12-month period. The channels through
which the mints issue coins for circulation include facflities in 37 cities.
They are the Office of the Treasmer of the United States in Washington, D:C., and the 12 Federal Reserve Banks and their 24 branches.
These facilities deliver the coins, as required, to commercial banks,
which place them ia actual circulation. Proof coins and uncirculated
coins of interest principaUy from a numismatic standpoint rather than
as circulating media, are sold in speciaUy packaged sets by the mint
offices and the Office of the Treasurer of the United States.
The demand for coins for general circulation was greatest ia the
three smaUest denominations. The most signiflcant changes in demand from flscal 1961, however, were for half dollars (138.8 percent
increase) and quarter doUars (118.3 percent increase). A factor
contributing to this was the expanded development and use of new
types of coin-operated machines. Some of these are coin-operated
dry cleaning machines, automatic food dispensing machiaes in commercial, industrial, and recreation areas, and bUl and coin changing
machines. The foUowing table shows the various denominations
issued during the fiscal year.

176

1962 REPORT OF THE SECRETARY OF THE TREASURY
Issue of U . S . coins i

Denomination

Number

F a c e value

I n miUions
1-cent pieces
5-cent pieces
_. . . _
Dimes.
.-.
Q u a r t e r dollars
_ ~
Half d o h a r s .
Silver dollars
Total

... _

.
.,.
_.

Standard
gross weight

Distribution
(based o n
pieces)

Short t o n s

Percent

2,554.9
338.3
374.5
176.0
•48.1
26.9

$26.5
16.9
37.4
43.8
24.1
26.9

8,758
1,865
1,032
1,206
663
792

72.6
9.6
10.6
5.0
1.4
.8

3,517.8

174.6

. 14,316

.100.0

1 Includes 3,151,854 sets of proof coins sold by the Philadelphia Mint.
denomination currently minted (10, 50,100, 250, and 500).

A set consists of one coin of each

The total stock of domestic coins in the United States, estimated
monthly by the Office of the Director of the Mint, is grouped according
to face value into (1) minor coins (1 and 5 cent pieces), (2) subsidiary
silver (half dollars, quarter dollars, and dimes), and (3) standard
silver dollars. The esthnate is based on new coins manufactured,
uncurrent (worn) coins withdrawn from circulation, certain exports
and imports, and general disappearance. The stock includes coin
held b y the mints and other Treasury offices, b y Federal Reserve
Banks and their agents, and in chculation (which includes coins in
commercial banks as well as in the hands of the. public). The total
stock is compared at the close of the fiscal years 1961 and 1962, in the
following table.
F a c e value (in milhons)
s t o c k of U . S . coins
J u n e 30, 1961 J u n e 30, 1962

M i n o r coins
Subsidiar3'' silver coins _ .
Silver doUars
Total

_-_
_ _ _

Increase, or
decrease (—)

$594.1
1,608.7
487.6

$636 0
1,710.8
487.4

$42.0
102.1
1 -.2

2,690.3

2,834.1

143.8

»• Decrease represents the amount of uncurrent (worn) silver dollars withdrawn from circulation and
returned to the mints during fiscal 1962. The last silver dollar coinage was in September 1936.

Gold transactions

The Treasury's stocks of gold bullion held ia the custody of the
Philadelphia, San Francisco, and Denver miats, the New York Assay
Office, and the Fort Knox Gold Bullion Depository were increased by
$112.1 million duruig the year and decreased by $1,244.4 million,
effecting a net decrease of $1,132.3 million. Gold movements between
mint institutions in 1962 totaled 37.4 million ounces (1,283 tons)
valued at $1,309.4 million, including 14.4 million ounces (494 tons)
valued a t $504.1 million transferred between the Assay Office and
Fort Knox. Since the amount moved to Fort Knox equaled the
amount moved from there, yearend holdings a t the Depository
remained at 356.7 million ounces (12,229 tons) valued at $13,483.4

ADMINISTRATIVE

177

REPORTS

mUlion. Opening and closing stocks and transactions for the year are
shown in the following table.
Quantity
Value a t $35
per ounce

Gold h o l d i n g s a n d t r a n s a c t i o n s (excluding i n t e r m i n t
transfers i)

F i n e ounces
Short t o n s
I n miUions
.

16,968

494 9

$17,321.5

_ _ _ ..
...

26
13
72

7
.4
2.1

25.6
13.5
73.1

110

3.2

112.1

86
2
71
1,060

2.5
.1
2.1
30.9

88.0
2.1
72.6
1,081.7

H o l d i n g s on J u n e 30, 1961
Receipts in fiscal year 1962:
N e w l y m i n e d domicstic gold
_
Scrap gold from d o m e s t i c sources
F o r e i g n a n d other miscellaneous deposits
Total receipts.

_ _ _

_ _

Issues in fiscal year 1962:
Sales for domestic i n d u s t r i a l , professional, a n d artistic u s e .
Exchanges for scrap gold _
Exchanges for other t h a n scrap gold •.
o t h e r m o n e t a r y issues.
.
_ . _ .
..
T o t a l issues

.. .

H o l d i n g s on J u n e 30, 1962 . . .
N e t decrease in h o l d i n g s . _

_ .
._

.
_

1,219

35.6

1,244. 4

15,859

462.5

16,189.2

1,109

32.4

1,132.3

1 Intermint transfers amounted to 37.4 miUion ounces (1,283 tons) valued at $1,309.4 miUion during fiscal
1962.

Silver transactions

The mint institutions in Denver, Philadelphia, New York City, and
San Francisco received a total of 20.3 million fine ounces of silver
bullion from various sources during the fiscal year 1962. Of this
amount, 15.6 million ounces were returns of lend-lease silver by foreign
governments, with 3.6 million ounces retmned by India, and 12.0
million b y Pakistan. Approximately 0.1 million ounces of newly
mined domestic silver were received under the act of July 31, 1946
(31 U.S.C. 316d). Bullion from uncurrent U.S. silver coins withdrawn from circulation and melted for recoinage provided 0.3 million
ounces from worn standard silver dollars and 1.2 million ounces from
worn fractional silver coins. Deposits of silver, principally in the
form of scrap from domestic sources, in exchange for fine bars
amounted to 2.6 million ounces. The other 0.5 million ounces were
purchases of domestic and foreign silver contained in gold deposits.
The Philadelphia and Denver mints processed a total of 75.1
million flne ounces of silver into U.S. subsidiary coins during the fiscal
year. The classes of silver included 28.1 million ounces of bullion
ordinary; 1.4 million ounces' of recoinage bullion from uncurrent
domestic coins; and 45.6 million ounces of silver bullion at monetary
value of $1.29-1- per flne ounce which was made available under the
Presidential directive of November 28, 1961, by the retirement of
five and ten dollar silver certificates. Sales of Treasury silver for
domestic iadustrial, professional, and artistic use by mint offices
totaled 38.7 million ounces during the year. Opening and closing
stocks and transactions for the year are summarized in the following
table.
661496—03-

-13

178

1962 REPORT OF THE SECRETARY OF THE TREASURT
Quantity i

SUver buUion holdings and transactions (excluding intermint
transfers)

Fine ounces
(in miUions)

Holdings on June 30,1961.
Receipts in fiscal 1962:
Lend-lease silver from foreign governments.. __ __
Newly mined domestic, act of July 31,1946 (31 U.S.C. 316d)^
Recoinage bullion from uncurrent U.S. silver coins
Deposits in excha,nge for fine bars....„..,
Other miscellaneous receipts

...,,.

Totalreceipts...
Issues in fiscal 1962:
Manufactured into U.S. subsidiary silver coins.
Sales for domestic industrial, professional, and artistic use
Other miscellaneons issues,

.
.

Total issues
Holdings on June 30, 1962

Short tons

1,756. 2

60,214

15.6
.1
1.5
2.6
.5

535
3
51
88
20

20.3

697

75.1
38.7
2.7

2,576
1,328
91

116.5

3,995

1, 660. 0

56, 916

1 Does not include 64.7 million fine ounces (2,220 tons) of Treasury silver held by other agencies of the
U.S. Government.

Revenue and monetary assets and liabilities

Revenue deposited by the Bureau of the Mint into the general fund
of the Treasury totaled $67.4 mfllion in the fiscal year 1962, a $5.1
mfllion increase over the previous year. Seigniorage accounted for
$57.5 mfllion, as follows: Seigniorage on the 592.8 mfllion subsidiary
sflver coins manufactured amounted to $22.7 mfllion, on the 2,883.5
mfllion minor coias, $34.8 mfllion, and on the 155,000 flne ounces of
silver bullion revalued from cost to monetary value as security for
sflver certificates, $0.1 mfllion. Profit on sale of sflver bullion
amounted to $7.4 mfllion, and other miscellaneous deposits were
$2.5 mfllion.
. . . .
Monetary assets and liabilities of the miat institutions on June 30,
1961, and Jime 30, 1962, are compared in the following statement.
June 30, 1961 June 30, 1962

. Item

In miUions
Gold bullion
Silver bullion
Silver coin
Minor coin._
Minor coinage metal, etc

Assets
^

._ . __

Total assets.
Bullion fund
Minor coinage metal fund
other miscellaneous
___.
Total liabUities

Liabihties

$17,321.5
2, 225. 2
93.4
.2
.9

$16,189. 2
2,129.6
66.8
.2
1.0

19,641.3

18,386.7

19,640.1
.8
.4

18,385.6
.6
.5

19, 641.3

18,386.7

ADMINISTRATIVE REPORTS

179

U.S. gold and silyer production and consumption

The estimates of U.S. gold and silver production, and consumption,
made annually by the Office of the Director of the Mint, are on a
calendar year basis..
. The reflnery production of newly mined domestic gold totaled
1,566,800 fine ounces valued at $54,838,000 in 1961, compared with
1,679,800 fine ounces valued at $58,793,000 in 1960. Among the
sixteen States where'goldfwas produced. South Dakota continued as
t h e major producing State accountiag for 36 percent of the total.
U t a h ranked second, followed by Arizona, Washington, and Alaska.
The refinery production of newly mined domestic sflver totaled
34,900,000 fine ounces in 20 States in 1961, compared with 36,800,000
ounces.the previous year. Idaho accounted for one-half of the total
production with Arizona, Utah, Montana, and Colorado following.
Gold and silver issued for domestic industrial, professional, and
artistic use in calendar 1961 amounted to 2,775,000 fine ounces and
105,500,000 fine ounces, respectively. Comparative issues in 1960
were 3,000,000 ounces of gold and 102,000,000 ounces of silver.
Management improvement

In accordance with its longstanding policy, the Bureau of the Mint
continued an active management program during flscal 1962. A
sustained demand for domestic coins resulted in an extremely heavy
manufacturing workload, and efforts were made to attain maximum
production with avaflable funds. Coinage operations at the Denver
Mint were started on an overtime basis and by September 1961,
three 8-hour shifts operated six days per week. The Philadelphia
Mint, also on overtime, operated much of the year with two 12-hour
shifts five days a week for all divisions except the proof coin production
section which operated three shifts seven days a week, and the melting
room which operated two additional 8-hour shifts on Saturdays.
Phfladelphia produced a total of 214.2 million foreign coias in 1962,
permitting the use of appropriated funds for the production of
additional domestic coins at Denver, where unit costs are lower,
thereby increasing the total production of domestic coins. A total
of 2.5 billion domestic coins struck°at Denver and 1 billion at Philadelphia resulted in a record annual output of 3.5 billion pieces. The
increase in manpower requirements amounted to 124 additional
employees.
Representative management actions at Denver included increased
blank storage facflities; the installation of a coil conveyor to facflitate
entry to the annealiag furnace and reentry to the main line for the
finish rolling mill; improved sweeps processiag equipment; and
improvements ia the weighing of sflver clips for makeup by performing that operation in the iagot meltiag room, resulting in savings
of eight man-hours per day duriag periods of sflver production.
Improvements made at Philadelphia included the rebuilding of
upsetting miUs, with increased production and reduced maintenance
costs; the installation of blank storage bins to provide for opera-

180

1962 REPORT OF THE SECRETARY OF THE TREASURY

tions during periods when one of the rolling mills may be shut down
for repairs; a new ventilating system for the rolling room; the installation of electronic gauges anci controls to control the thickness of
strip and eliminate blanks which may be over or under weight; and
the installation of additional melting capacity, to bring it into line
with rolling capacity. The shipping and receiving entrance was
enlarged to accommodate large motor trucks.
Because of the tremendous demand for proof coins, additional
presses and other equipment were purchased for that operation.
Late in the year the proof coin operation was moved from a basement ,
location to larger quarters with better lighting. Air-conditioning
of the room, installed to reduce dust and dirt, will improve the quality
of proof coins. I t is expected that there will be fewer rejects, and
productive capacity will be substantially increased. The processing
of proof coin orders was facilitated greatly by the use of automatics
data processing equipment.
In the New York Assay Office unprovements were made in the
refinery operations by mechanizing the removal of bottom silver and
foul electrolyte from the cells and by installing water-cooled molds
for casting silver anodes.
The annual recurring savings from these improvements throughout "
mint institutions amounted to $7,200, all related to appropriation
items. The savings were applied to partially offset increased costs
of wages, supplies, and niaterials.
Continuing attention was given to the incentive awards prograiii,
records management, safety, control of communication cost, and
forms and reports control. Cash awards amounting to $3,315 were
granted to employees for suggestions made and effectuated in prior
years which have resulted in annual recurring savings of $77,169.
From a number of private management firms invited to submit
proposals, one was selected to survey current and long-range coinage
requhements, and the operations and facilities of the Bureau of the
Mint in relation to those requh^ements. The objective of the study
begun in fiscal 1962 is to insure that Alint operations are conducted
as effectively and economically as« possible and that proper advance
provisions are made for growth needs. I t will cover coinage requirements for the next 25 years with consideration of all possible factors
which may affect demand for coins including population a-nd economic
changes, sales taxes, coin machines, credit cards, and increases in
coin collection activities.
Bureau of Narcotics ^
The Bureau of Narcotics administers the Federal laws governing
narcotic drugs and marihuana and carries out the responsibilities
of the Government under the international conventions and protocols
^ relating to these drugs.
The Bureau supervises U.S. imports and exports of narcotic drugs
as well as the manufacture and domestic trade in these drugs to
1 Further information is avaUable in the separate report of the Bureau of Narcotics entitled. Traffic in
Opium and Other Dangerous Drugs for the Year Ended December St, 1961.

ADMINISTRATIVE

181

REPORTS

prevent their diversion for abuse. I t apprehends interstate and
international violators of narcotic laws. I t cooperates with State
and local law enforcement authorities in the United States. At the
request of law enforcement authorities in foreign countries Bureau
agents assist in international narcotic trafficking investigations of
mutual interest. These cooperative efforts have reduced the smuggling of illicit narcotics into this country.
Law enforcement

The Bureau concentrates its enforcement emphasis on suppressing
international and interstate traffic in narcotic drugs and marihuana.
While its targets are the wholesale traffickers, its cooperation with
State and local authorities is designed to eliminate retail peddling
and promote treatment of addicts.
In Europe and the Middle East dming 1962 Bureau of Narcotics
agents assisted police in the seizure of more than a ton of opium and
intermediate base morphine from the illegal traffic.
Number of violators of the narcotic and m a r i h u a n a laws prosecuted during the fiscal
year 1962 with their dispositions and penalties
Narcotic laws
Registered persons
Federal
court
Convicted
Acquitted

State
court

Federal
court

State
court
257
13

•5

144

Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos,
4,932

. 9

State
court

100

1,058

Fines imposed

Average sentence per conviction:
1962
._
1961

Nonregistered persons

751
37

Yrs. Mos. Yrs. Mos.
Sentences imposed

Nonregistered persons

Total K. .

Marihuana laws

986

$16,810

$53,402

623
$4,151

144

$2,850

Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs. Mos,

Average fine per conviction:
1962
1961....

3
4

$1,600

$3,020

6
6

$71
1 27

6
6

3
3

11
10

$65
21

1
2

5
5

$42
6

10
11

3
3

$75
()4

1 Some cases tried in Federal courts and some cases tried in State courts are made by Federal and State
officers working in cooperation.

182

1962 REPORT OF THE SECRETARY OF THE TREASURY

Within the United States, the Bureau has intensified its efforts in
the areas of organized crime, with encouraging results. In February
1962, for example, 11 high echelon international traffickers were
convicted in a single case in New York, N.Y., for consphacy to violate
the narcotic statutes. Theh* operation extended from France, Italy,
and Canada to the United States. Then conviction, climaxing a
lengthy trial, resulted from extended cooperative effort with the
Organized Crime and Racketeering Section of the Department of
Justice. In June 1962, another huge narcotic conspiracy case was
brought to a successful conclusion in New York, N.Y., with the conviction of 13 top-level gangsters. Their operation involved France,
Canada, and the United States.
During fiscal 1962 the Bureau seized a total of 86,345 grams of
narcotics, principally heroin, in the Ulicit traffic, as compared with
157,358 grams in 1961. Seizures of marihuana amounted to 145,230
grams bulk as compared with 620,437 grams bulk in 1961.
The number of violators of the narcotic laws reported by Federal
narcotic enforcement officers is shown in the accompanyiag table.
The^ Narcotic Control Act of 1956 (21 U.S.C. 174)^ continues
be an important and effective aid in discouraging the illicit traffic in
the United States, as reflected in the longer sentences imposed. In
jurisdictions where heavier sentences have been imposed they have
acted as a steadfly increasing deterrent to fllicit traffic.
Control of manufacture and medical distribution

In its control of the legitimate trade the Bureau issues permits
for imports of the crude materials, for exports of finished drugs,
and for the intransit movement of narcotic drugs and preparations
passing through the United States from one foreign country to another.
I t supervises the manufacture and distribution of narcotic medicines
within the country and has authority to license the growing of opium
poppies to meet the medicinal needs of the country if and when their
production might become necessary in the public interest.
Under the Narcotics Maniif actming Act of 1960 (21 U.S.C. 501-517;
26 U.S.C. 4702, 4731) the Bureau determines, in the interest of public
health and safety, what narcotic drugs shall be manufactured and
used by establishing ^'basic classes^' for those which are authorized.
It licenses the manufacture of such drugs and fixes annual manufacturing quotas for each producer, thus keeping total production within
predetermined medical and scientific requirements. Under that act
the Bureau, with the assistance of an advisory committee, also
classifies pharmaceutical preparations containing narcotic drugs
according to various control categories, applying to each category
that degree of control which is found to be warranted by its risk of
addiction or abuse.
The importation, manufacture, and distribution of opium and
coca leaves and their derivatives are subjected to a system of quotas
and allocations designed to insure their proper distribution for medical
needs. During the year, 209,736 kUograms of raw opium were imported from Burma, Tmkey, and India and 180,380 kilograms of coca
leaves were imported from Peru to meet medical requirements for
opium derivatives and cocaine and to supply nonnarcotic coca flavoring extracts. The latter were obtained as a byproduct from the same
leaves from which the cocaine was simultaneously extracted.

ADMINISTRATIVE REPORTS

183

The quantity of narcotic drugs exported during 1962 was less than
that exported the year before. The export total, however, never
has been significant in comparison with the quantity used within the
United States. The manufacture of narcotics continued to be extensive principally because of the large medical consumption of pethidine,
codeine, and papaverine.
There were 1,695 thefts of narcotics, amounting to 70,289 grams,
reported during 1962 from persons authorized to handle the drugs,
compared with 1,671 thefts amounting to 65,406 grams in 1961.
Practically all of the approximately 343,092 persons registered
to engage in lawful narcotic and marihuana activities were employed
in the manufacture, wholesale or retail distribution, or dispensing
or prescribing of narcotic drugs for legitimate medical uses. As
iadustrial and scientific users of narcotic substances are few, the
quantities used for these purposes are insignificant.
International control and cooperation

Opium, coca leaves, marihuana, and their more important derivatives have been iaternationally controlled by the terms of the Opium
Conventions of 1912, 1925, and 1931. In addition, under Article I I
of the 1931 Convention and the international Protocol of November 19,
1948, nine secondary derivatives of opium and 57 synthetic drugs
have been found by the World Health Organization to have addicting
qualities simflar to morphine or cocaine and have been brought under
the controls provided by the treaties.
For each calendar year the Bureau submits to appropriate agencies
of the United Nations advance estimates of requirements for each
basic drug covered by the several international conventions, and after
the jesiT has ended, complete statistics of their manufacture, distribution, imports, exports, and stocks.' The Bureau applies a system
of import, export, and iatransit permits which conforms to the requirements of these conventions as well as to our own Narcotic Drugs
Import and Export Act. I t exchanges, directly with the narcotics
control authorities of other governments, information relating to
movements of drugs imder the permits, as well as iaformation relatiag
to illicit traffickers and fllicit movements of narcotics between countries. Through the State Department the Bureau cooperates in
matters of narcotic policy with other governments and m t h the
United Nations.
The former Commissioner of Narcotics, Mr. Harry J. Anslinger,
now retired, is the U.S. representative on the United Nations Commission on Narcotic Drugs, which meets annually to review the work
of the various international agencies concerned with narcotics and to
make recommendations on narcotic matters to the Economic and
Social Councfl.
An agreement to limit the production of opium to world medical
and scientific needs, signed at the United Nations on June 23, 1953,
was approved by the United States Senate August 20, 1954, and was
followed by Senate Resolution 290 of June 14, 1956, urging other
governments to ratify it. This Protocol requires the ratifications of
25 states including any three of seven named producing countries and
an3^ three of nine named manufacturing countries. As of June 30,
1962, 42 ratifications had been deposited including six from manufacturing countries and two from producing countries. When one
additionaL producing country has deposited its ratification the Proto

184

19 62 REPORT OF THE SECRETARY OF THE TREASURY

col wfll become effective and should then accomplish a much further
reduction in the quantity of opium available to the illicit traffic.
At the request of authorities of France, Lebanon, Turkey, and
Syria, Bureau agents during the year.assisted in the apprehension of
major international narcotic traffickers who were sources of supply
for criminal groups in the United States.
Several cases were developed in Turkey in which Turkish authorities
seized large quantities of morphine base, heroin, and opium and
arrested many defendants. Major narcotic conspiracy investigations
were successfully conducted with police authorities of Canada, Italy,
France, and Mexico. The continued joint narcotic law enforcement
program with Mexican authorities has signiflcantly curtailed illicit
narcotic traffic from Mexico to Texas and southern California. •
Cooperation with States, counties, and local authorities

Excellent cooperation continues between Federal, State, and local
narcotic law enforcement agencies in the exchange of law enforcement
information. A4any types of minor violations and routine inspections
formerly handled by the Bureau are now referred to State or local
authorities for investigation and prosecution, or are investigated
jointly with them.
Training schools

The Bureau of Narcotics Training School was established in 1956
to meet the need for State and local law enforcement officers trained
in narcotic enforcement techniques. The school provides 2-week
intensive courses in narcotic law enforcement procedures through
lectures, demonstrations, and technical instruction in methods of
detection and prevention of illicit narcotic trafficking. Police officers
from foreiga countries who visit the United States to receive training
in general law enforcement methods and procedures also attend this
school.
The training school, staffed by 20 experts in narcotic law enforcement, has now graduated 948 State and municipal law enforcement
officers representing 393 separate agencies from 47 States, the District
of Columbia, and Puerto Rico. Ninety foreign law enforcement
officers, representing 22 separate agencies, from Afghanistan, Belgium,
Bolivia, Canada, Ceylon, Ecuador, Egypt, Ethiopia, Indonesia, Iran,
Iraq, Japan, Jordan, Korea, Lebanon, Mexico, the Netherlands,
Peru, the Phflippines, ThaUand, Turkey, and Venezuela also have attended. Twenty-five Federal narcotic agents attended the Treasury
Law Enforcement School and five attended its technical equipment,
operators' school.
The names of 47,303 active addicts, many of whom were reported
by State and local agencies, were recorded in the Bureau's central
index as of June 30, 1962.
Management improvement

During the fiscal year the Bureau improved the internal audit
program by appointing an additional field supervisor. The United
States was divided into eastern and western divisions, and the field
supervisors were assigned an area of responsibility. This appoiatment enables yearly audits to be made of all field offices as well as
of Bureau headquarters.

ADMINISTRATIVE REPORTS

185

With departmental assistance, the internal audit program was reviewed, new policies established, and an internal audit manual prepared. This document and the revised program provide available
reference sources for all interested personnel as weU as instructions
for execution of the enthe program.
A new system of property accountability was placed in operation
on June 30, 1962. This program was designed to shnplify property
accountability in the field and to provide more adequate property
control at headquarters.
Nineteen employees were paid cash awards totaling $3,265 under
the incentive awards program for adopted suggestions or special acts
and services.
United States Coast Guard
The U.S. Coast Guard is responsible for enforcing or assisting in
the enforcement of Federal laws on the high seas and ^waters subject
to the jurisdiction of the United States. These laws govern navigation, shipping, and other maritime operations, and the related protecr
tion of life and property. The Service also coordinates and provides
maritioie search and rescue facilities for marine and air commerce,
and the Armed Forces. Other functions iaclude promotiag the safety
of merchant vessels, furnishing ice breaking services, and developing,
installing, maintaining, and operating aids to maritime navigation.
The Coast Guard has a further responsibility for maintaining a state
of readiness to function as a specialized Service of the Navy in time
of war or national emergency.
Search and rescue

The National Search and Rescue Plan of 1956 was updated in 1961
and approved by the Secretary of the Treasury and the heads of other
Government agencies concerned. The plan has been promulgated as
an interagency agreement. As a part of this program the Coast
Guard again held exercises concerning survival and search and rescue
procedures for military and airliaes personnel in Miami, Fla., and
Honolulu, Hawaii. Each session was attended by approximately 200
persons,.
The Atlantic Merchant Vessel Reporting System (AMVER) was
used successfuUy many times during the year ia coordinating the
services of merchant vessels assisthig in search and rescue cases. An
estunated 90 percent of the domestic merchant ships and 65 percent
of the foreign vessels traveling the AMVER region are participating
in the program. The AMVER brochure has been printed in 10
foreign languages to promote greater participation by foreign vessels.
Typical examples of assistance rendered by the Coast Guard during
fiscal 1962 are described below.
Air evacuation of injured crewman.—In November 1961 a crewman
of the SS Conde De Fontanar, suffering from a severe head injury
after falling into a hold, was transferred to another ship, the SS
Jerusalem, for examination by a doctor. The doctor's diagnosis indicated that the patient required neurosurgery and to save his life
should be removed to a hospital without delay. This evacuation
was carried out by an amphibious aircraft from the Coast Guard Air
Detachment, Bermuda, which landed at sea and transferred the patient to a Bermuda hospital.

186

19 62 REPORT OF THE SECRETARY OF THE TREASURY

Rescue of dredge crew.—Ten men, who had abandoned ship from
the dredge Cartagena, were rescued by the U.S.C.G.C. Acushnet on
December 26, 1961. The breaking of the dredge's tow line from a
coihmercial tug had set it adrift about 260 miles east of Cape Cod,
Mass.
Overdue cabin cruiser located.—The cabin cruiser Marina, with two
persons on board, departed Clearwater, Fla., on February 19, 1962,
for Apalachicola. When it failed to arrive on schedule, two Coast
Guard aircraft and a patrol boat began a search, which was hampered
by fog and a low ceiling. As weather permitted, additional ahcraft
joiaed the search. On February 23 the Marina, disabled and anchored, was sighted by a Coast Guard plane. The Marina was then
towed to safety by another cabin cruiser.
Injured Russian crewman evacuated.—On March 17, 1962, the Coast
Guard was requested to evacuate a seriously injured crewman from
the Russian M/V Dbitelny on the Bering Sea. A Coast Guard aircraft transported a Navy doctor and hospital corpsman to a prearranged rendezvous at the Coast Guard Loran Station, St. Paul
Island, where the injured man had been transferred by the- Dbitelny.
After an emergency operation, the patient was fiown to Elmendorf
Air Force Base and adinitted to a U.S. Ah Force hospital.
Search for missing B-52 aircraft.—An Air Force B-52, with eight
persons on board, was reported overdue and possibly down in the
Atlantic Ocean on October 14, 1961. The Commander, Eastern Area,
coordinated a search effort participated in by 79 Coast Guard, Navy,
Air Force, and Canadian aircraft, five Coast Guard cutters, and two
merchant ships. In spite of an intensive search through October 18,
covering 286,225 square miles, no trace of the aircraft was found.
A statistical summary of search and rescue assistance comparing
the fiscal years 1961 and 1962 follows.
Rescue operations

By aviation
units
1961

Vessels assisted:
Refloated (number)
Towed (number).
Otherwise aided (number).
Property involved (value
mcluding cargo in thousands)
'_
Miles towed
Aircraft assisted:
Escorted (number)
Otherwise aided (number) .
Property involved (value
mcluding cargo in thousands)
Miles escorted
Personnel assisted
Miscellaneous assisted (floods,
forest fires, etc.)
Attempts to assist (no physical assistance rendered)
Persons involved (number):
Lives saved or rescued
from peril
Medical assistance "furnished
_
Other assistance
Miscellaneous property involved (value in thousands)

83
379
1,004

1962

74
280
976

By vessels

Total

By other
equipment

1961

1962

1961

1962

202
2,219
1,063

227
2,385
1,210

1,625
8,666
3,454

1,908
10, 928
2,891

1961

1962

1,910
11,264
5,521

2,209
13,593
6,076

$627,395
119,696

$776,226
138,085

383
168

303
160

2
44

4
45

5
179

9
174

390
391

316
379

668

724

403

456

1,705

1,986

$1,090,938
61,883
2,776

$710,668
52,469
3,166

.114

159

201

1,015

1,056

1,261

1,371

1,874

2,171

1,635

1,741

5,413

6,826

8,822

9,738

2,806

2,597

2,392
79,199

2,622
86,519

. $16,991

$46,440

ADMINISTRATIVE

187

REPORTS

Marine inspection and allied safety measures

During the fiscal year, 4,200 marine casualties were reported and
investigated. Marine boards of investigation looked into six of these
cases which were considered major. The investigations discloseci
that 166 persons lost their lives from vessel casualties, 136 from personal accidents, and 243 deaths were from miscellaneous causes.
These figures do not include pleasure vessels covered by the Federal
Boating Act of 1958 (46 U.S.C, 527).
The most serious casualty of the year resulted from the collision
of the Norwegian Tanker Berean and the Nationalist Chinese Freighter
Union Reliance in the Houston Ship Channel. Eleven crewmembers
and the pilot of the Union Reliance were lost.
National motorboat numbering program.—Forty-one States are now
numbering motorboats under plans approved by the Coast Guard.
The approval by the Coast Guard of a numbering system for the
State of New jerse}^ is pendiag. Numbering legislation is under
consideration in five other States and Puerto Rico. A press release
issued in M a y 1962 outlined the important features of the Federal
Boating Act and interpreted certain provisions of Coast Guard
numbering regulations. This publicity is expected to help reduce
violations as well as to improve the quality of applications for number.
On December 31, 1961, there were 3,085,732 boats numbered in the
United States, of which 2,826,690 were issued through approved
State systems. The Coast Guard handled the remainder which were
for States not haviag approved progTams.
During the calendar year, there were 4,095 pleasure craft involved
in reportable accidents which led to. 1,101 fatalities, 1,088 iajuries,
and property damage estunated at $4,372,200.
A digest of certain marine inspection activities for comparing the
fiscal years 1961 and 1962 follows.

Inspection actiyities

1961
Inspections for certification
Drydockings
Reinspections
Factory inspections
___
M iscellaneous inspections
Merchant vessel plans reviewed
_
Violations of navigation and inspection laws 2,

Gross tonnage

Number
1962

5,433
4,218
5,810
6,731
6,204
5,856
607, 245 11,568,399
22,801
25.107
32,300
35,915
11,412
28,059

1961
11,301,814
13,654,872
8, 201,551

1962
8,532,734
13,413,450
13,320,800

1 Includes such items as life rafts, life jackets, and flares.
2 Administrative penalty action completed, year ending April 30.

Merchant marine technical activities.—During the fiscal year, the
plans for the construction of 23 large cargo ships, five tankers, and
123 barges were approved by the Coast Guard. The preceding
table shows the total nuniber of plans reviewed during 1961 and
1962.
The Coast Guard reviewed many plans for vessels of novel and
unique design which are to be used to transport bulk chemicals. An
estimated 400 new chemical compounds are developed each year,
requiring new concepts of transportation. The Coast Guard is

188

1962 REPORT OF THE SECRETARY OF THE TREASURY

constantly formulating new regulations or revising those in effect
to keep abreast of these new concepts and to establish safeguards
against the hazards involved in the water-borne movement of bulk
chemicals.
After dockside tests of its nuclear power plant the N.S. Savannah
went to sea under nuclear power for a complete test of its reactor.
The nuclear characteristics of the power plant were essentially as
predicted, and the vessel was accepted by the Government on May 1,
1962.
A new technical branch was established by the Coast Guard at
New York City, N.Y., to review plans for all new marine construction,
conversion, and alteration on vessels subject to Coast Guard inspection along the eastern coast from North Carolina to Maine. The
new branch is expected to speed up and improve vessel plan approval
procedures and facilitate the solution of related problems.
Merchant Marine Council meetings, conferences, and publications.—
The Merchant Marine Council held eight regular committee meetings
and one public hearing to consider proposed regulations which would
amend present requirements for merchant marine safety.
Coast Guard representatives participated in several meetings of
the Intergovernmental Maritime Consultative Organization to discuss
various matters relating to international maritime safety. Other
international conferences attended by Coast Guard officials included
consideration of: carriage of dangerous goods by sea; navigational
lights for the Red Sea; prevention of pollution of the sea by ofl;
and standards for electrical installations on ships.
To promote marine safety the Coast Guard participated in numerous
meetings and conferences held within the United States during the
year. Two million copies of the pamphlet, Pleasure Craft, containing
highlights of the Federal Boating Act of 1958, were printed and distributed to the public. Another educational publication, the Recreational Boating Guide, for the novice boatman proved popular, with
some 98,000 being sold to date through the Government Printing
Office.
Merchant marine personnel.—Dviring the fiscal year, 63,182 documents were issued to merchant marine personnel, and Coast Guard
shipping commissioners supervised the execution of 7,871 sets of
shipping articles involving 494,926 individual transactions relating
to the shipment and discharge of seamen.
Merchant marine investigating sections in major U.S. ports and
merchant marine details in foreign ports investigated 15,572 cases
involving negligence, incompetence, and misconduct. Charges were
preferred and hearings conducted before civilian examiners in 1,031
of these cases. Security checks were made of 17,122 persons desiring
employment on merchant vessels.
Law enforcement

Coast Guard law enforcement activities include the port security
program and routine and special patrols to enforce safety, conservation, water pollution, and treaty laws.
The Coast Guard has set up special patrols in the North Paciflc
Ocean and the Bering Sea to observe the increased fishing and whaling

189

ADMINISTRATIVE REPORTS

activities of Japanese and Russian fieets. The Coast Guard patrols
are being conducted alternately by three cutters, each spending six
weeks in the patrol area during the period April 15 to September 15.
Their presence should lessen the possibility of treaty violations and
illegal incursions into U.S. territorial waters in pursuit of flsh or
whales. Although. no violations have been observed, the patrols
should assure American fishermen that the Federal Government is
effectively protecting their rights. Recent minor incidents in the
Northwest Atlantic, apparently resulting from the presence of large
Russian fishing fleets on the traditionally American fishing areas of
Georges Bank, indicate that similar patrols may be needed in that
area.
The following statistics reflect the volume of enforcement work by
the Coast Guard during the fiscal year 1962 compared with 1961.
Enforcement work

1961

1962

Number
Vessels boarded.
Waterfront facilities inspected
Reported violations of:
Motorboat Act
Port security regulations
Oil Pollution Act
other laws
_
Explosives:
Loading permits issued
Loadings supervised.
Tons covered by issued permits.
other hazardous cargoes inspected..
Anchorage violations

152,441
24,254

171,150
29,294

25,125
• 714
462

63,706

801
701
116,601
7,465
23

756
513
279,689
6,801
19

1,244
524
642

Cooperation with other Federal agencies

The Coast Guard'^assisted other2;Federal|agencies during the last
two fiscal years as follows:
Alcohol Tax Unit, Treasury -(aircraft days)
Coast and Geodetic Survey (aerial survey days)
Fish and Wildlife (censuses taken)
Weather Bureau:
Reports furnished
Warnings disseminated

1961
27
138
220

1962
36
225
237

84, 490
19, 299

95, 588
17, 928

Aids to navigation

The new Buzzards Bay, Mass., Light Station was placed in operation during the fiscal year, replacing a lightship. Constructed in
73 feet of water, the offshore station is operated by seven men and has
a 9,000,000 candlepower light. A second offshore light station
is in the final stages of construction at Brenton Reef, R.I., to replace
another lightship. The Overfalls Lightship has been discontinued,
because of major improvements to other aids to navigation in the area.
A new lighthouse with a 28,000,000 candlepower light was placed in
operation at the entrance to the Charleston, S.C, harbor.
The foUowing statistics reflect the volume of aids to navigation
maintained at the close of the last two fiscal years.

i90

1962 REPORT OF THE SECRETARY OF THE TREASURY

Navigational aids

Loran transmitters
Radiobeacons.Fog signals (except sound buoys)
Lights (including lightships)
Daybeacons..Buoys:
Lighted (including sound)...
Unlighted sound
Unlighted
River type
Total

40,891

1 Includes three experimental loran-C stations.
2 Includes 118 spar buoys.

Ocean stations

The Coast Guard continued to operate four ocean stations in the
North Atlantic and two in the North Pacific. These ships, during
their cruises of approximately 507,477 miles, provided meteorological,
navigational, communication,, and rescue services for air and marine
commerce, and collected various scientific data.
International ice patrol

The international ice patrol, made up of an aircraft detachment, a
radio station, and an oceanographic vessel, operated in the North
Atlantic between March 3 and June 22, 1962. The ice menace to
shipping during the 1962 season was relatively mild.
Bering Sea patrol

The 1961 Bering Sea patrol was carried out by the cutters Northwind and Storis from May 20 to September 30, 1961. This patrol is
principaUy concerned with law enforcement, search and rescue, aids
to navigation, logistics, oceanography, and the furnishing of medical
and dental treatment to Alaskan natives.
Coast Guard intelligence

Internal security investigations involving* 3,039 cases were conducted, and 7,916 mUitary national agency checks were made during
the year. In addition 18,625 merchant mariners and 25,606 applicants
for port security cards were screened before issuance of their
documents.
Facilities, equipment, construction, and development

Floating units.—Ships in active commission on June 30, 1962, consisted of 174 cutters, 74 patrol boats, 27 lightships, 38 tugs, and 13
buoy boats. Construction has begun on two of the newly designed
210-foot WPC Class medium patrol cutters as part of the program to
replace overage and obsolete ships.
Shore establishments.—Damage to Coast Guard installations from
hurricane Carla and the severe March storm exceeded $3,000,000.
Three shore stations, extensively damaged, requhe replacement.
Eleven light stations were converted from manned to automatic
operation. Five facilities, including light stations and light attendant
•stations, were disestablished. Fifteen additional mobUe boarding

ADMINISTRATIVE REPORTS

191

teams were established, and other shore units were reorganized to
provide better service to the public and to improve economy.
Aviation and aircraft.—The Coast Guard operated 134 aircraft, iacluding 38 helicopters, dm^iag flscal 1962. Nine SC-1,30 long range
aircraft are now in service, three of which were procured during the
fiscal year. Action was taken to procure several turbine-powered,
amphibious S-62 helicopters as replacements for the older H 0 4 S type.
Communications.—A study to improve search and rescue landliae
communications facilities along the Atlantic and Gulf coasts made i t
possible to combiae the east coast search and rescue teletype network
with that of the Atlantic merchant vessel reporting system. The
savings realized permitted expansion of the search and rescue communications capability at no added expense to the Government.
Engineering developments

Aeronautical engineering.—All of the Coast Guard's U F amphibian
aircraft have now been converted to the longer-wiaged UF-2G type.
This has led to improvements ia safety, speed, range, and payload.
The reliability of the engines on Coast Guard SC-130 ahcraft has
unproved so markedly that the authorized time between overhauls
has been increased from 1200 to 1800 hours. Specifications have been
developed to adapt the commercial S-62 helicopter for use in Search
and Rescue operations. This new helicopter, to be manufactured by
Sikorsky Aircraft, will be known as type HU2S-1G when placed in
service.
Civil engineering.—During the .flscal year, 100 unlighted fibrous-glass
buoys were manufactured and placed on station in western rivers for
feasibility tests. In addition, conventional steel buoys were completely redesigned to hnprove serviceability, maintenance, and safety.
The loran construction program made considerable progress, with
three new loran transmitting stations along the eastern coast now
nearing completion. These stations have been tested and are being
calibrated before being placed ia service. A new transmitting station
as an addition to an existing loran chain was also completed.
Electronics engineering.—The New York harbor RATAN station at
Sandy Hook, N.J., was placed in experimental operation in December
1961. This RATAN station employs a harbor surveillance radar and
television broadcast station, which permits conversion of radar information for broadcasting to users having ordinary TV receivers.
The user is thus supplied with radar service without investing in
costly radar equipment.
The loran-C stations now in use and those under construction will
provide much better service for military arid civilian users than
loran-A, the fhst of the long-range aids to navigation systems. The
signals generated by loran-C have greater range and are more precise
for navigational purposes. The Coast Guard recently contracted for
18 loran-C ahcraft receivers to take advantage of this advanced allweather navigational system.
Naval engineering.—The manufacture of fourteen 82-foot B class
W P B steel patrol boats has been completed, and ten sunilar vessels
of the class C type are under construction. These new steel vessels
are to replace 83-foot wooden patrol boats. The Coast Guard has
placed in service an 82-foot patrol boat powered by two gas turbine

192

1962 REPORT OF THE SECRETARY OF THE TREASURY

engines. This is the flrst operational installation of such a power
plant on a patrol vessel. Six steel 65-foot W Y T harbor tugs were
constructed, and six more are nearing completion. The last of four
65-foot pusher-tender barge combinations was completed for use in
aids-to-navigation work on rivers in the Second District.
Testing and development.—A new primary dry battery power system
for buoys has been accepted for Service-wide use. The new system
wUl double the available power and largely eliminate the installation
of batteries in buoys while at sea. Several advanced power systems
for unattended aids-to-navigation are undergoing test and evaluation.
These include nuclear and propane thermoelectric power supplies.
A radar data computer, capable of reducing ship collision hazards, is
being evaluated for the Maritime Administration. Early reports on
this system indicate a very satisfactory performance.
Coast Guard Reserve

During the flscal year, l i 2 organized Reserve training units (port
security) were designated as operational. These units were organized
and trained to establish port security units in all key ports of the
United States, including Hawaii, Alaska, and Puerto Rico. A machine system for matching mobilization billets with Reserve personnel
is scheduled for implementation in fiscal 1963. This will permit the
issuance of preassignment mobilization orders to reservists and available retired personnel.
Personnel

The following table illustrates the personnel strength of the Coast
Guard as of June 30, 1961 and 1962.
1961

Personnel

1962

Number
Military personnel:
Commissioned officers . . . .
Chief warrant officers
Warrant officers
•.
..
Cadets
Enlisted men.. _
Total

.•

_.
'...

. _ . - - .
.

. .

•_

.
.--.

. .

Civilian personnel:
Salaried (General Service)
Wageboard
Lamplighters .

.
..

_.
. . . . . .

Total (exclusive of vacancies) .
Ready reservists:
Officers
Enlisted men

Total

__....
-_-_._
.

. . .
-

_._

3,061
812
206
386
27,100

3,122
849
178
372
27,200

31,663

31,721

2,477
2,219
220

2,539
2,148
207

4,916

4,894

3,650
27,399

3,570
24,638

. 31,049

28,208

The following table shows the changes in the numbers of officers
on active duty as of June 30, 1961 and 1962. The net gain of 61
was sufficient to meet the increased commitments at the beginning of
fiscal 1963.

ADMINISTRATIVE

193

REPORTS

1961

Officers

1962

Number
Additions of commissioned officers:
Coast Guard Academy graduates..
Officer Candidate School graduates .
Reserve officers called to acti v^e duty
Former mercliant marine officers appointed
Total

•

Losses of commissioned officers:
Regular 1..-.
Reserve on completion of obligated service

• •
'

Total
Net gain

. -_.

119
204
17
5

116
208
18
5

345

346

88
210

135
150

298

285

1 Through retirements, resignations, revocations, and deaths.

Recruiting and training.—Fifty-four main recruiting stations and
approximately 50 substations were manned by 226 recruiters. During
the fiscal year there were 13,231 applications for enlistment in the
regular Coast Guard and 3,314 were enlisted. The Reserve received
6,708 applications and enlisted 2,763. The Receiving Center,'Cape
May, N.J., trained 3,550 recruits and the Receiving Center, Alameda,
Calif., an additional 2,768.
^Training for foreign visitors.—Approximately 105 visitors from 21
foreign countries, under the sponsorship of other Government agencies,
were extended the use of Coast Guard facilities for training in aids-tonavigation, loran, search and rescue procedures, merchant marine
safety, vessel inspection, port security, law enforcement, and aviation.
Coast Guard education program.—The education and training
programs participated in and sponsored by the Service are summarized
for 1961 and 1962 as follows.
Education and training programs

Coast Guard Academy:
Apphcations
Applications approved
Appointments
Cadets
Graduates (bachelor of science degrees)
Officer training completed:
Officer Candidate School graduates
Postgraduate.-.-.
Flight training
Helicopter pilot training
C-130-B aircraft training
_.
Short term speciahzed courses
Ofl duty courses at civilian schools
Enlisted training completed:
Coast Guard basic petty officer schools
Navy basic petty officer schools
Advanced schools (Coast Guard and Navy)
Specialized courses (Service and civilian schools)
Correspondence courses completed:
Coast Guard Institute courses completed
U.S. Armed Forces Institute courses completed.
Naval correspondence schools courses completed
1 Estimate.
661496—63-

-14

10,691
261
6,724

194

1962 REPORT OF THE SECRETARY OF THE TREASURY

Public Health Service support.—On June 30, 1962, there were 92
Public Health Service personnel on duty m t h the Coast Guard
serving at 22 shore stations and aboard ships assigned to ocean
stations, the Bering Sea patrol, and Arctic and Antarctic operations.
Fiscal and supply management

The Coast Guard indoctrinated its personnel at Headquarters and
fleld units in the use of the new Military Standard Requisitioning and
Issue Procedures (MILSTRIP), which went into effect in all Defense
agencies and the General Seryices Administration on July 1, 1962.
Through an agreement with the Department of Defense, the Coast
Guard can now use the facilities of that agency to obtain usable
material declared excess as well as to dispose of its own surplus items.
Coast Guard Auxiliary

The AuxUiary, a voluntary nonmflitar}^' organization functioning in
more than 575 communities, conducted numerous public instruction
courses in safe boating during flscal 1962. These courses had an
enrollment of approximately 125,000 persons. Courtesy examinations of the safety equipment of approximately 126,000 motorboats
were made by specially qualifled auxfliarists. The Auxfliary also
assisted the Coast Guard in patrolling 1,270 regattas, and responded^
to an estunated 5,000 calls for assistance. On June 30, 1962, the
organization had some 21,700 members and 14,000 facflities, including
boats, aircraft, and radio stations in 760 flotfllas.
Funds available, obligations, and balances

The following table shows the amount of funds avaflable for the
Coast Guard during flscal 1962, and the amounts of obligations and
unobhgated balances.

Appropriated funds:
Operating expenses
Reserve training
Retired pay.
Acquisition, construction, and improvements
Total appropriated funds
Reimbursements:
Operatingexpenses
.
Acquisition, construction, and improvements
Total reimbursements
Trust fund, U.S. Coast Guard gift fund
Grand total

Funds
available i

Net total
obhgations

$211,877,681
16,000,000
• 31,350,000
49,962,293

$211,614,481
15,950,735
30,866,678
33,754,815

Unobligated
balances 2

$263,200
49,265
483,322
16,207,478

309,189, 974

292,186, 709.

17,003,265

30,910,135
25,621,221

30, 910,135
16,367,140

9,254,081

56,531,356

47,277,275

9,254,081

18,182

6,993

12,189

365,739,512

339,469, 977

26,269,635

1 Funds available include unobligated balances brought forward from prior year appropriations as follows:
Acquisition, construction, and improvements: •
Appropriated funds
$10,962,293
Reimbursements
15,349,984
U.S. Coast Guard gift fund
:
.
.
_..
11,238
2 Unobligated balance of $25,461,559 under the acquisition, construction, and improvement appropriation
remains available for obligation in the fiscal year 1963. These funds are programmed for obhgation in fiscal
1963 for the following general purposes:
Coast Guard Department
projects
of Defense
projects
For projects deferred in fiscal 1962 to be subsequently accomphshed
$2,920,000
For completion of projects started in fiscal 1962
13,287,478
$9,254,081
Total.

16,207,478

9,254,081

ADMINISTRATIVE REPORTS

l95

Management improvement

The Coast Guard management improvement program contiriues
to be an effective means of enlisting the collective efforts of mflitary
and civilian personnel in furthering efficiency and improving service
to the public. Recurrent savings estimated at more than $2.7
mfllion resulted from improvements in the use of manpower, facflities
and space, and reductions in the costs of materials and services during
the fiscal year. Of these savings approximately $257,000 was
credited to military and civflian suggestions and superior work
performance. Numerous other improvements, although not measurable in a tangible way, contributed to better safety, morale, and
worldng conditions.
A comprehensive management study was made of the Coast Guard
Reserve program in the flscal year 1962. The recommendations arising
from this survey are now under consideration. A financial management task force was organized and began an analysis and evaluation
of the Coast Guard's accounting functions arid systems. A prunary
goal of this group is to investigate the possibflities of converting,
where practicable, manual operations to machine processes. Coast
Guard officials and staff personnel also participated in a recently
completed study of the roles and missions of this Service. The study
group was made up of representatives from the Treasury and Defense
departments and the'Bureau of the Budget.
[United States Savings Bonds Division
The primary responsibflity of the U.S. Savings Borids Division is to
promote the sale and retention of U.S. savings bonds and the'sale of
savings stamps. Comparatively smafl in staff, the Division concentrates its activities on planning and directing the sales promotional
efforts of a large corps of volunteers. This corps is comprised of thousands of public-spirited men and women who serve as a sales promotional force and as issuing agents. Over the years they have been
primarfly responsible for the success of the savings bonds program.
Thousands of banks and other flnancial institutions sell savings
bonds without compensation. As a public service, private hidustry
finances advertising time and space costs of the program, which
amount to more than $50 mfllion annually. The promotional expenses of the payroll savings campaigns in the more than 40,000 participating businesses and industries, as well as the operating costs of the
plans, are likewise borne by the businessmen of the Nation. Thanks
to this nationwide volunteer support, the cost to the Governmerit of
promoting the sale of savings bonds is only slightly over one dollar for
every one thousand dollars of E and H bonds sold.
The savings bonds program not only makes a major contribution
to Government financing—Series E and H savings bonds now total 15
percent of the public debt—but since its inception it has also proved
to be a vital instrument in promoting thrift and regular saving ori the
part of millions of Americans. The payroll savings plan has beeri
especially eft'ective both in developing the thrift habit amorig the
Nation's wage earners and in channeling systematic savings irito
Series E bonds, the most popular Governirient security. More than
eight mfllion Americans at work in industry and Government partici-

196

1962 REPORT OF THE SECRETARY OF THE TREASURY

pate hi payroll savhigs programs, accounting for more than 40 percent
of current E and H bond purchases.
Despite the increased competition for the savings dollar since
January 1962, the savings bonds program continued to show gains
during flscal 1962 as thousands of new savers enrolled in the plan.
PayroU savings campaigns in more than 7,000 American firms were
completed during the Januar}^--August 1962 period with a total of over
850,000 new enrollments, nearly 40 percent more than the number of
new ^^sign-ups" a year earlier. Sales of small denomination E bonds,
bought mainly by payroll savers, are at record or near-record levels
for peacetime. From January-July 1962, for example, purchases of
the $50 denomination attained the post World War I I record for any
corresponding period, and sales of the $25 and $50 denominations
combined were running at a five-year high.
To launch the 1962 savings bonds program, the Secretary of the
Treasury iavited 800 executives to a conference with top Government
officials in Washington on January 19, 1962. He announced a Freedom
Bond Drive for May and June 1962, the first nationwide savings bonds
campaign since the Korean war. Addressing the conference. President
Kennedy stated that promoting the sale of savings bonds ^^ . . . is an
effort that has been going on for a number of years, but I am sure you
realize that it is our task to emphasize to the American people how
important a contribution they can make to their country and also to
their own personal welfare." The executives were asked to conduct
personal solicitation payroll savings campaigns among theh employees
as a part of the Freedom Bond Drive, thus providing every employee
a new opportunity to save systematically for his own and his country's
security.
Much of the year's success is due to the Freedom Bond Drive, to
the payroll saviags campaigns in industry throughout the country,
and to the Mercury 7 spacecraft exhibits, replicas of the famous 'Treedom 7", '^Liberty Bell 7", and 'friendship 7", which carried America's
ffi'st astronauts iato space. During the Treasury's Freedom Bond
Drive in M a y and June these spacecraft toured all States except
Alaska and Hawaii, and were exhibited in 259 cities and towns.
The three capsules were made avaflable to the savings bonds program
through the cooperation of the McDonnell Corporation, which designed and built the Mercury capsules for the National Aeronautics
and Space Administration, and General Motors Corporation, which
provided the transportation.
The Division also promotes the sale of savings stamps, a plan which
allows students and other small savers to buy savhigs bonds over a
period of time. The sale of savings stamps in fiscal 1962 amounted to
$18.0 mfllion, 2 percent below the precediag year. The sales volume
represented purchases of 104 mfllion stamps. As part of the Division's
promotional program a ''Junior Astronaut" campaign for savings
stamps was scheduled for the 1962-63 school year. When buying his
first stamp of the school year, each student wfll receive a certificate
designating hirii as a ''Junior Astronaut" pledged to keep his country
strong and free. The Treasury Department acknowledges with appreciation the cooperation of the National Aeronautics and Space
Admiaistration ia this promotion.

ADMINISTRATIVE REPORTS

197

Management improvement

Headed by a National Director and an Assistant National Director,
the U.S. Savings Bonds Division is composed of three principal
branches: Sales, Planning, and Advertising and Promotion. The
chiefs of these three branches, together with the National Director
and Assistant National Director, comprise the Division's Management
Committee, whose main purpose is the improvement of services by the
Division.
Constant attention is given to improvement in operation, organization, and the utflization of manpower. During the year, three positions were abolished with savings of $32,698. annually.
Administration of nonexpendable property and approval of acquisitions for all offices of the Division, departmental and fleld, are
centralized in the headquarters office in Washington, D.C. Under
this arrangement during fiscal 1962 the Division kept new purchases to
a minimum and acquhed excess property with an estimated inventory
value of approximately $2,500 which the General Services Administration made avaflable from other Federal agencies.
United States Secret Service
The major functions of the United States Secret Service as defined
by section 3056 of Title 18, United'States Code, are the protection of
the President of the United States and members of his family, the
President-elect, and the Vice President at his request; the detection
and arrest of persons committing any offenses against the laws of the
United States relating to obligations and securities of the United
States and of foreign governments; and the detection and arrest
of persons violatino' certain laws relating to the Federal Deposit
Insurance Corporation, Federal land banks, and national farm loan
associations.
Management improvement

The study has been continued of the feasibility of applying automatic data processing to the system of classification and coding of
handwriting of suspected forgers of Government checks and bonds.
The use of high-speed electronic equipment to aid in the rapid association of forgeries of common authorship, and in the early identffication
of multiple and interstate forgers is beheved to have great potential
in solving the iacreasing number of such cases. Application of automatic processing to payroll and time and leave records also is beiag
studied, as is a plan for electronically processiag other statistical
records and reports.
An improved form to report the technical analysis of new counterfeit
notes, the product of a joint study with the Bureau of Engraving and
Printing, has been adopted. The technique and procedure for
analyzing these notes have been revised, thereby expediting the
reports and iacreasing the value of the information developed.
A significant number of check and bond forgery investigations were
complicated by the overprinting of endorsements which, in some cases,
obliterated the forged writing. To remedy this difficulty, a filtered
photograph, deleting the overprinting and retaining the questioned
writiag, now accompanies such cases referred to the field.

198

1962 REPORT OF THE SECRETARY OF THE TREASURY

Formal request has been made to Congress to amend the law (31
U.S.C. 529a) to enable the Secret Service to use again the funds
expended for the purchase of evidence, in those instances of recovery
of the funds. With such authority the Secret Service would be in a
position to negotiate with a higher degree of flexibflity ia seeking and
purchasing evidence leading to makers of counterfeit notes.
A comprehensive plan was initiated and is being developed to
appraise the organization and management of the field activities.
This plan, in use on a trial basis by a special study group, is related
to the inspection program. At the conclusion of an inspection, each
irispector submits a progress report on areas being studied, including
any area of particular iaterest where economies or improved operations
can be made. Current studies include the Secret Service Manual,
automatic data processing, field participation in budget development,
daily reporting, procedures, improved protective devices and communication methods relating thereto, staffing standards, and
workloads.
The entire range of field reporting requirements has been reviewed.
Some nonessential paperwork has been eliminated and certain reports
were changed from a monthly to a quarterly, semiannual, or annual
basis.
Certain field offices have been designated as centers for which the
latest polygraph equipment is being provided and from which polygraph services can be obtained. Because of the strategic location of
these centers, the field can derive maximum benefits from operators
and equipment.
Ways and means were explored of utilizing excess Government
property to the greatest extent practicable before purchasing new
items. A program was inaugurated and instructions were issued to
all field offices on methods of participation. As a result, a significant
amount of needed property and equipment were acquired.
After an appraisal of the format and technique of preparing The
Record, a Secret Service weekly pubhcation, a number of innovations
were adopted to simplify its preparation and to streamline the general
makeup. As a result of other studies and surveys related to The
Record and allied material, considerable saving of clerical time was
made throughout the field offices.
An extensive analysis of financial reporting requirements was
completed and documented for inclusion in the Financial Management
Manual as Chapter VII—Reports and Statements. A form was
developed for the iaternal reporting monthly of administrative
expenses.
A new financial management regulation was prepared and issued.
Among other things, this regulation provided for the establishment of
a budget committee, which has been effective in developing and
coordinating information and for establishing policy in the preparation
of the budget.
Protective and security activities

The protection of the F h s t Family and the Vice President, when
requested, continued to be the most important responsibility of the
Secret Service. Security arrangements were effected within and

199

ADMINISTRATIVE REPORTS

outside the United States during the fiscal year 1962 without significant incident.
. . .
Investigations concerning protective activities increased from 870
in 1961 to 882 in 1962, a rise of 1.4 percent. There were 46 such
cases pending at the close of fiscal 1962, which was 19 less than
a year earlier. Arrests resulting from investigation of these cases
increased from 86 to 109, or 26.7 percent.
Enforcement activities

Despite the entry of organized criminals into the field, counterfeiting was an unprofitable crime in the year under review. Persons
arrested for counterfeiting offenses totaled 737 and 44 counterfeiting
plants were captured.
The following table summarizes seizures of counterfeit money
dming fiscal 1961 and 1962:
Counterfeit money seized, fiscal years 1961 and 1962
1961

Notes and coins

Counterfeit and altered notes:
After circulation
_
,
Before circulation
Total
Counterfeit coins seized:
After cii'culation.
Before circulation
Total.
Grand total..

.
.

....:.. _

. _. _
._

1962

Percentage
increase, or
decrease (—)

$547,076.50
$548,756.35
1, 632,070. 00 3,565,567.00

3.1
118.5

2,179,146. 60 4,114,323; 36

88.8

19,140.00
1,453.43

16.0
-74.9

20,593.43
22, 297.14
. . . 2, 201,443. 64 4,134,916.78

-7.7
87.8

16, 501.94
5,795. 20

Seven out of every eight counterfeits manufactured were seized
before they could be passed to the public. Yet, new counterfeit note
issues have been improving consistently with the development of the
graphic arts, and with increasing ease of production. These, together
with the wide geographic distribution made by organized crhninals,
have increased the enforcement problem and have requhed the Secret
Service to originate newer and faster methods to protect the public
from loss.
As a result of intensive investigation, and constant surveiUance and
undercover work, special agents in New York in February 1962,
recovered a million dollars in counterfeit notes in the largest domestic
seizure in the history of the Secret Service. This issue of counterfeit
currency was controlled by a group with nationwide underworld connections. While beiag held for distribution to gangsters in other
areas, the notes were being safeguarded by a comparatively miaor
figure hi the syndicate. The same group controlled six other types of
counterfeit notes which were actively passed along the eastern seaboard. Information was received that $2,500,000 of one of the six
riew counterfeits was destined for Cuba and Puerto Rico, but such
activity did not materialize.
Four men were arrested in New York, N.Y., in October 1961, and
$25,000 in counterfeits was recovered. . Shortly thereafter, the
arrests in Georgia of three men from Brooklyn, N.Y., resulted in
another large seizure of counterfeit currency.

200

1962 REPORT OF THE SECRETARY OF THE TREASURY

In September 1961, a $10 counterfeit note appeared in New York
City, N.Y. Within 30 days, although 12 persons had been arrested,
the chculation of these counterfeits had spread to Massachusetts,
Connecticut, Rhode Island, New Jersey, Penns^dvania, Maryland,
the District of Columbia, Virginia, North Carolina, Florida, Ohio, and
Nebraska.
A man who was arrested in Seattle, Wash., in January 1962, for
passing a $20 note was found to have $4,800 in counterfeit money
which was seized. Four additional arrests and seizures amounting to
$480,000 of these same counterfeits followed. While the seizures
amounted to almost the enthe $500,000 printed, the notes had been
passed in Washington, California, Nevada, New Mexico, Michigan,
Nebraska, Missouri, Illinois, and Oregon in the short time the venture
had been in operation.
Soon after, two men and a woman were arrested in Seattle, Wash.,
for passing another issue of counterfeit $20^ notes and a similar counterfeit $ 100 note. The supplier of these notes was quickly apprehended
in Casper, Wyo., and the manufacturing plant was seized. When the
counterfeit note maker was arrested in Dickinson, N. Dak., an additional $350,000 in $20 and $100 notes was seized.
One issue of another new $20 counterfeit note was traced to Cuba. .
The ffi^st note appeared in Cuba in July 1961. These notes and
counterfeit $100 notes of Cuban origin frequently are confiscated in
the United States from Cuban exiles who converted their pesos into
dollars before leaviag Cuba and thus are defrauded by black market
money exchangers. The amount of $27,560 in these counterfeit notes
was seized in this country in fiscal 1962.
Counterfeit money seized, fiscal years 1961 and 1962
Counterfeit currency

Loss to the public. _.
Before circulation
Total

._
.-.

. .

1961

1962

$563.678.44
1,637,865.20

$567,896.35
3,567,020.43

0.8
117.8

2, 201,443. 64 4,134,916. 78

87.8

Percent
increase

The forgery of Government checks continued to represent a major
enforcement problem. During fiscal 1962 the Secret Service iavestigated 40,351 cases involving an amount of $4,244,133.16, an increase
of 15.8 percent over 1961. Arrests of persons for check forgery totaled
3,414, an increase of 15.1 percent.
The Secret Service also investigated 7,804 cases involving the
forgery of $758,715 worth of U.S. savings bonds, an increase of 2.6
percent over 1961. For this offense, 82 persons were arrested.
A few of the more flagrant cases investigated during 1962 are
described in the following paragraphs.
In New York, N.Y., a man and a woman, the woman an old offender,
were arrested and admitted stealing and forging 340 checks in a 10month period. They realized about $17,000 from their criminal efforts
and when arrested had only $10 in their possession. The money
received from this illegal activity was spent to satisfy a $400-a-week
narcotic habit.

ADMINISTRATIVE

201

REPORTS '

In Greenwood, Miss., an arrested forger admitted stealing and
forging 100 checks in a four-morith period. The checks were stolen
and forged in Greenwood and Jackson, Aliss., Little Rock, Ark., and
Memphis, Tenn.
Also in Greenwood, a multiple forger was arrested who was responsible for the forger}^ of more than 100 checks. Whfle awaiting trial,
he escaped from jail on September 16, 1961, vowing to continue stealing checks as long as he was free. H e was traced by his forgeries
through the States of Mississippi, Illinois, Arkansas, and Florida. H e
was arrested in Jacksonville, Fla., on December 18 after forging and
cashing 100 more Government checks which he had stolen from rural
maflboxes since his escape.
In Indianapolis, Ind., a 33-year-old woman was arrested for forging
a $1,023.88 check. This was her fourth arrest for multiple theft and
check forgery.
In 1961 there were passed in the United States 121 stolen and forged
money orders of the Canadian Pacific Raflway. In August 1961, the
Secret Service followed the trial of the forgers through Virginia, West
Virginia, Michigan, Ohio, Illinois, Indiana, Maryland, and New York,
before identifying and arresting them and identifying the thief who was
by that time in jail in Ontario, Canada.
The Secret Service in September 1961 arrested six persons in Chicago who admitted realizing about $30;000 in eight months by forging
Government checks. One of those arrested had acted as a clearing
house for the ring, accepting the checks which were stolen from the
mail and assigning them to persons who forged the endorsements. To
others went the task of passing the forged checks. The proceeds were
divided among the entire ring.
In Shelby, N . C , a man was arrested for forging 50 Government
checks while on parole from a 1957 conviction for forgery.
Three persons arrested in Buffalo, N.Y., in December 1961, admitted the forgery and passing of over 200 checks in that area.
The following table shows the number of crhninal and noncrhninal
investigations completed in fiscal 1961 and 1962. This table reflects
the arrest of 169 persons in 1962 for crhnes other than counterfeiting
and forgery, bringing the total of persons arrested to 4,402, an increase,
of 15.7 percent over those in 1961. Cases of all types investigated,
which included counterfeiting and forgery, totaled 63,791, an increase,
of 12.1 percent.
Criminal and noncriminal cases investigated, fiscal years 1961 and 1962

Cases investigated

Counterfeiting.
_
Forged Government checks
Forged Government bonds
Miscellaneous criminal
Miscellaneous noncriminal _ . _
Total

, ._

1961

._ ._ _._
_

1962

Percentage
increase, or
decrease ( - )

11,004
34,846
7,603 ,
1,226
2,223

10,052
40,351
7,804
1,187
4,397

-8.7
+15.8
+2.6
-3.2
+97.8

56,902

63, 791

+12.1

202

1962 REPORT OF THE SECRETARY OF THE TREASURY
Number of arrests, fiscal years 1961 and 1962
Offenses

Counterfeiting
Forged Government checks.
Forged or stolen bonds
Miscellaneous
.
Total

1961

1962

595
2,967
75
169

737
3,414
82
169

3,806

4,402

Percentage
increase
23.9
15.1
9.3

Convictions of 3,923 persons in Secret Service cases in flscal year
1962 represented an increase of 13.9 percent over 1961. In all Secret
Service cases brought to trial in this period, 98.3 percent resulted
ia convictions.
The rising tide of lawlessness as shown by these statistics is also
reflected in the general crime picture throughout the country.

EXHIBITS

Public Debt Operations, Calls of Guaranteed Obligations, Regulations,
and Legislation
Treasury Certificates of Indebtedness, Treasury Notes, and Treasury Bonds
Offered and Allotted
EXHIBIT 1.—Treasury certificates of indebtedness
A Treasury circular containing a representative certificate offering during the
fiscal year 1962 is reproduced in this exhibit. The circular pertaining to the other
exchange offering is similar in form and therefore is not reproduced in this report.
However, the essential details for the two issues are summarized in the first table
following the circular and the final allotments of new certificates issued in exchange
are shown in the second table.
DEPARTMENT CIRCULAR NO. 2-62.

PUBLICDEBT

TREASURY

DEPARTMENT,

Washington, February 5, 1962.
J. OFFERING OF CERTIFICATES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par, from the people of
the United States for certificates of indebtedness of the United States, designated
'^yi percent Treasury certificates of indebtedness of Series A-1963, in exchange for
any of the following notes:
3)^ percent Treasury notes of Series A-1962, maturing February 15, 1962
4 percent Treasury notes of'Series D-1962, maturing February 15, 1962
3>4 percent Treasury notes of Series F-1962, maturing February 15, 1962
V/i percent Treasury notes of Series EA-1962, maturing April 1, 1962
Interest will be adjusted in the case of the \y2 percent Treasury notes of Series
EA-1962 as set forth in section IV hereof. The amount of the offering under this
circular will be limited to the amount of eligible notes tendered in exchange and
accepted. The books will be open only on Febraary 5 through February 7,1962, for
the receipt of subscriptions for this issue.
2. In addition to the offering under this circular, holders of the eligible notes are
offered the privilege of exchanging all or any part of such notes for 4 percent
Treasury notes of Series A-1966, which offering is set forth in Department
Circular, Public Debt Series, No. 3-62, issued simultaneously with this circular.
II. DESCRIPTION OF CERTIFICATES

1. The certificates will be dated February 15, 1962, and will bear interest from
that date at the rate of 3}^ percent per annum, payable semiannually on August 15,
1962, and February 15, 1963. They will mature February 15, 1963, and will not
be subject to call for redemption prior to maturity.
2. The income derived from the certificates is subject to all taxes imposed under
the Internal Revenue Code of 1954. The certificates are subject to estate,
inheritance, gift, or other excise taxes, whether Federal or State, but are exempt
from all taxation now or hereafter imposed on the principal or interest thereof by
any State, or any of the possessions of the United States^ or by any local taxing
authority.
•
.
3. The certificates will be acceptable to secure deposits of public moneys.
They will not be acceptable in payment of taxes.
4. Bearer certificates with interest coupons attached will be issued in denominations of $1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and
$500,000,000. The certificates will not be issued in registered form.
5. The certificates will be subject to the general regulations of the TreasuryDepartment, now or hereafter prescribed, governing United States certificates.

205

206

1962 REPORT OF THE SECRETARY OF THE TREASURY
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the OflGice of the Treasurer of the United States, Washington 25, D.C.
Banking institutions generally may submit subscriptions for account of customers,
but only the Federal Reserve Banks and the Treasury Department are authorized
to act as ofl&cial agencies.
2. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of certificates applied for; and
any action he may take in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent out
promptly upon allotment.
IV. PAYMENT

1. Payment for the face amount of certificates allotted hereunder must be
made on or before February 15, 1962, or on later allotment, and may be made
only in notes of the four series enumerated in section I hereof, which will be
accepted at par, and should accompany the subscription. Coupons dated
February 15, 1962, should be detached and cashed when due by holders of the
maturing notes of Series A-1962, Series D-1962, and Series F-1962 in coupon
form. In the case of registered notes of Series F-1962, the final interest due on
February 15, 1962, will be paid by check drawn in accordance with the assignments
on the notes surrendered, or by credit in any account maintained by a banking
institution with the Federal Reserve Bank of its district. Coupons dated April 1,
1962, must be attached to the 1}^ percent Treasury notes of Series EA-1962 when
surrendered and accrued interest from October 1, 1961, to March 1, 1962
($6.22253 per $1,000), will be credited, accrued interest from February 15, 1962,
to March 1, 1962 ($1.35359 per $1,000), on the certificates to be issued will be
charged, and the difference ($4.86894 per $1,000), will be paid to subscribers
following acceptance of the notes.
v . ASSIGNMENT OF REGISTERED NOTES

1. Treasury notes of Series F-1962 in registered form tendered in payment
for certificates ojffered hereunder should be assigned by the registered payees or
assignees thereof to "The Secretary of the Treasury for exchange for 3>^ percent
Treasury certificates of indebtedness of Series A-1963 to be delivered to
_____",
in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange, and thereafter should be surrendered
with the subscription to a Federal Reserve Bank or branch or to the Office of the
Treasurer of the United States, Washington 25, D.C. The notes must be delivered at the expense and risk of the holder,
VI. GENERAL PROVISIONS

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

DOUGLAS DILLON,

Secretary of the Treasury.

Summary of information pertaining iq Treasury ceriificates of indebtedness issued during the fiscal year 1962
Department
circular

Date of
prehminary announceNumber
ment

Date

)
Concurrent
exchange
offering
circular
number

1962
Feb. 1

2-62

1962
Feb. 5

3-62

Apr. 26

9-62

Apr. 30

10-62,11-62

Certificates of indebtedness offered for exchange

33^ percent Series A—1963 issued at par in exchange for—
3 ^ percent Series A—1962 notes maturing February 15, 1962,
4 percent Series D—1962 notes maturing February 15, 1962,
3H percent Series F—1962 notes maturing February 15, 1962,
1\^ percent Series E A—1962 notes maturing April 1, 1962.
3H percent Series B—1963 issued at par in exchange for—
3 percent Series A—1962 certificates maturing May 15,1962,
4 percent Series E—1962 notes maturing May 15, 1962,
2H percent Treasury bonds of 1959-62 maturing June 15,1962.

1 See Department Circular No. 2-62, sections III and IV, in this exhibit, for provisions for subscription and payment.
2 Coupons dated June 15,1962, were required to be attached to the 2H percent Treas*
ury bonds of 1959-62 in coupon form when surrendered. Accrued interest from December 16,1961, to May 15,1962 ($9.33379 per $1,000), on the bonds was paid to subscribers

Date
subscription
books
closed

AUotment.
payment
date on
or before
(or on
later
aUotment)

Date of
issue

Date of
maturity

1962
Feb. 15

1963
Feb. 15

1962
1962
Feb. 7 iFeb. 16

May 15

May 2 2 May 15

in the case of bearer bonds foUowing their acceptance and in the case of registered bonds
foUowing discharge of registration. Coupons dated May 15, 1962, were detached from
the certificates of Series A—1962 and the notes of Series E—1962 in coupon form by
holders and cashed when due.

O
00

Allotments of Treasury certificates of indebtedness issued during ihe fiscal year 1962, by Federal Reserve districts
[In thousandsl
3 H p e r c e n t Series A-1963 certificates issued in exchange for—1
3 H p e r c e n t Series 4 p e r c e n t Series 3H p e r c e n t Series 13^ p e r c e n t Series
A-1962 T r e a s u r y D-1962 T r e a s u r y F-1962 T r e a s u r y EA-1962 T r e a s u r y
notes maturing
notes maturing
notes maturing
notes maturing
A p r . 1, 1962 2
F e b . 15, 1962 2
F e b . 15, 1962,2
F e b . 15, 1962 2

F e d e r a l Reserve d i s t r i c t

Boston
NewYork
Philadelphia
.
Cleveland
R i c h m o n d _._
Atlanta _
Chicago
S t . Louis _
Minneapolis
Kansas'City
.
Dallas..
San Francisco
Treasury

- -

. _

..
-..

_..
._

_
--

. .

__
.

T o t a l securities eUgible for exchange

Footnotes at end of table.

»^
T o t a l issued

$2; 700
308,729
5,493
3. 540
2,708
8,699
• 25,883
6,307
527
2,664
500
2,162
55

$148,250
5,106,110
89,069
232,980
51,688
123,737
361,542
203,980
61,794
91,466
37,502
339,695
13,742

369,967

6,861,655

$27,683
162,989
5, 732
45, 866
5,890
16,950
75,739
19, 530
20, 698
20, 450
7,860
40,253
1, 908

$110,417
4, 479,176
67,172
174,054
34,907
90,283 =
217, 550
163,398
• 36,583
59,814
26, 667
286, 292
11,501

451,548

5,757,814

302,877

856,478

. 3,199, 759

95,296

4,454,410

585,103
61,954

1,308,026
126,960

8,957, 573
140,470

465,263
85,913

11,315,965
416,297

647,057

1,434,986

9,098,043

551,176

11,731,262

$7,450
155, 216
10,672
9,520
8,183
7,805
42,370
14,745
3,986
8,538
2,475
10,988
278
282,226

T o t a l certificate a l l o t m e n t s
Securities eUgible for exchange:
E x c h a n g e d i n c o n c u r r e n t offerings .
T o t a l exchanged
..
N o t s u b m i t t e d for exchange

_
..

'
- •

o
>
o

Allotments of Treasury ceriificaies of indebtedness issued during the fiscal year 1962, by Federal Reserve districts—Continued
[In thousands]
3H percenjt Series B-1963 certificates issued in exchange for—i
Federal Reserve district

Boston
New York
Philadelphia..
Cleveland
Richmond
A tlan ta
Chicago
St. Louis
Minneapohs. — Kansas City
DaUas
San Francisco...-.--Treasury

---.

Total certificate allotments".
Securities eligible for exchange:
Exchanged in concurrent offerings
Total exchanged
Not submitted for exchange
Total securities eligible for exchange
1 Subscriptions were allotted in full.
2 4 percent Series A-1966 Treasury notes also offered in exchange for this security; see
exhibit 2.

3 percent Series
A-1962 certificates maturing
May 15, 1962 3

4 percent Series 2H percent Treasury bonds of
E-1962 Treasury
notes maturing 1959-62 maturing
June 15, 1962 3
May 15, 1962 3

Total issued

$40,702.
506,662
22,006
56,497
16,106
29,468
93,478
33, 579
13,015
25, 763
17, 250
70,993
2,201

$27,677
1,341,820
22,324
62,864
25,064
35, 568
189,534
30,098
15, 528
63,842
32,578
102,295
1,412

3,807,398

927, 720

1, 950, 604

6,685, 722

1,602, 788

1,125, 894

1, 589, 348

4,318,030

6,410,186
99,032

2,053, 614
157, 279

3, 539,952
423, 346

11,003, 752
679, 657

5,509,218

2,210,893

3,963,298

11, 683,409

2,718,473
85,230
57, 745
24,054
63,448
301, 697
70,800
20,231
84, 232
38, 658
248,243
7,699

$155,267
4,566,955
129,560
177,106
65,224
128,484
584, 709
134,477
48,774
173,837
88,486
421,531
11,312

3 SH percent Series B-1966 Treasury notes and SH percent Treasury bonds of 1971
were also offered in exchange for this security; see exhibits 2 and 3, respectively.

O
CO

210

1962 REPORT OF THE SECRETARY OF THE TREASURY
EXHIBIT 2.—Treasury notes

Two Treasury circulars,^ one containing an exchange offering and the other a
cash note offering during thd fiscal year 1962, are reproduced in this exhibit.
The circulars pertaining to the other note offerings during 1962 are similar in
form and therefore are not reproduced in this report. However, the essential
details for each issue are summarized in the first table following the circulars and
the final allotments of the liew notes issued for cash or in exchange are shown in
the second table.
DEPARTMENT CIRCULAR NO. 1062. PUBLIC JDEBT
TREASURY

DEPARTMENT,

Washington, July 17, 1961.
I. OFFERING OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par and accrued interest,
from the people of the United States for notes of the United States, designated
3K percent Treasury notes of Series H-1962, in exchange for which any of the
following eligible securities, singly or in combinations aggregating $1,000 or
multiples thereof, may be tendered:
3J4 percent Treasury certificates of indebtedness of Series C-1961, maturing
August 1, 1961
4 percent Treasury notes of Series A-1961, maturing August 1, 1961
2% percent Treasury bonds of 1961, maturing September 15, 1961
IJ/2 percent Treasury notes of Series EO-1961, maturing October 1, 1961.
Interest will be adjusted in the case of the 2^{ percent Treasury bonds of 1961,
and in the case of the IY2 percent Treasury notes of Series EO-1961, as set forth
in section IV hereof. The amount of the offering under this circular will be
limited to the amount of eligible securities tendered in exchange and accepted.
The books will be open only on July 17 through July 19, 1961, for the receipt of
subscriptions for this issue.
2. In addition to the offering under this circular, holders of the eligible securities
are offered the privilege of exchanging all or any part of such securities for
3% percent Treasury notes of Series E-1964, or
3% percent Treasury bonds of 1968 (additional issue)
which offerings are set forth in Department Circulars Nos. 1063 and 1064, respectively, issued simultaneously with this circular.
II. DESCRIPTION OF NOTES

1. The notes will be dated August 1, 1961, and will bear interest from that
date at the rate of 3J4 percent per annum, payable on a semiannual basis on
November 15, 1961, and on May 15 and November 15, 1962. They will mature
November 15, 1962, and will not be subject to call for redemption prior to maturity.
2. The income derived from the notes is subject to all taxes imposed under the
Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
3. The notes will be acceptable to secure deposits of public moneys. They
will not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached, and notes registei^ed as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000, and $500,000,000. Provision wfil be made
for the interchange of notes of different denominations and of coupon and registered notes, and for the transfer of registered notes, under rules and regulations
prescribed by the Secretary of the Treasury.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches
and at th^ OfRce of the Treasurer of the United States, Washington, D.C. Bank-

EXHIBITS

211

ing institutions generally may submit subscriptions for account of customers, but
only the Federal Reserve Banks and the Treasury Department are authorized to
act as official agencies.
2. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of notes applied for; and any
action he may take in these respects shall be. final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out
promptly upon allotment.
IV. PAYMENT

1. Payment at par for notes allotted hereunder must be made on or before
August 1, 1961, or on later allotment, and may be made only in the securities of
the four issues enumerated in section I hereof, which will be accepted at par, and
should accompany the subscription.
2. Coupons dated August 1, 1961, should be detached from the 3}i percent
certificates of indebtedness of Series C-1961, and the 4 percent Treasury notes
of Series. A-1961, maturing August 1, 1961, by holders and cashed when due.
3. Coupons dated September 15, 1961, must be attached to the 2% percent
Treasury bonds of 1961 in coupon form when surrendered, and accrued interest
from March 15, 1961, to August 1, 1961 ($10.38723 per $1,000) will be paid to
subscribers. Payment to subscribers will be made in the case of bearer bonds
following their acceptance and in the case of registered bonds following discharge
of registration. In the case of registered bonds, the payment will be made by
check drawn in accordance with the assignments on the bonds surrendered, or by
credit in any account maintained by a banking institution with the Federal
Reserve Bank of its district.
4. Coupons dated October 1, 1961, must be attached to the 1^ percent Treasury
notes of Series EO-1961 when surrendered, and accrued interest from April 1,
1961, to September 1, 1961 ($6.27049 per $1,000) will be credited; accrued interest
from August 1, 1961, to September 1, 1961 ($2.73777 per $1,000), on the notes to
be issued will be charged, and the difference ($3.53272 per $1,000) will be paid to
subscribers following acceptance of the notes.
V. ASSIGNMENT OF REGISTERED BONDS

1. The 2% percent Treasury bonds of 1961 in registered form tendered in
payment for notes offered hereunder should be assigned by the registered payees
or assignees thereof, in accordance with the general regulations of the Treasury
Department governing assignments for transfer or exchange, in one of the forms
hereafter set forth, and thereafter should be surrendered with the subscription to
a Federal Reserve Bank or branch or to the Office of the Treasurer of the United
States, Washington, D.C. The bonds must be delivered at the expense and risk
of the holder. If the notes are desired registered in the same name as the bonds
surrendered, the assignment should be to ''The Secretary of the Treasury for
exchange for 3J4 percent Treasury notes of Series H-1962"; if the notes are
desired registered in another name, the assignment should be to '-The Secretary
of the Treasury for exchange for 3}i percent Treasury notes of Series H-1962 in
the name of__
"; if riotes in coupon form are desired, the assignment
should be to "The Secretary of the Treasury for exchange for S}i percent Treasury
notes of Series H-1962 in coupon form to be delivered to-^
".
VI. GENERAL PROVISIONS

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

DOUGLAS DILLON,

Secretary of ihe Treasury.

212

1962 REPORT OF THE SECRETARY OF THE TREASURY
DEPARTMENT CIRCULAR NO. 1068. PUBLIC DEBT
TREASURY

DEPARTMENT,

Washington, October 2, 1961.
I. OFFERING OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99.875 percent of their
face value and accrued interest, from the people of the United States for notes
of the United States, designated S}i percent Treasury notes of Series D-1963.
The amount of the offering under this circular is $2,000,000,000, or thereabouts.
In addition to the amount offered for public subscription, the Secretary of the
Treasury reserves the right to allot up to $100,000,000 of these notes to Government investment accounts. The books will be open only on October 2, 1961, for
the receipt of subscriptions for this issue.
II. DESCRIPTION OF NOTES

1.- The notes now offered will be an addition to and will form a part of the 3}4
percent Treasury notes of Series D-1963 issued pursuant to Department Circular No. 1061, dated May 1, 1961, will be freely interchangeable-therewith, and
are identical in all respects therewith except that interest on the notes to be issued
under this circular will accrue from October 11, 1961. Subject to the provisions
for the accrual of interest from October 11, 1961, on the notes now offered, the
notes are described in the following quotation from Department Circular No. 1061:
" 1 . The notes will be dated May 15, 1961, and will bear interest from tbat
. date at the rate of S}i percent per annum, payable semiannually on November 15,
1961, and thereafter on. May 15 and November 15 in each year until the principal
amount becomes payable. They will mature May 1:5, 1963, and will not be
subject to call for redemption prior to maturity.
"2. The income derived from the notes is subject to all taxes imposed under
the Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
"3. The notes will be acceptable to secure deposits of public moneys. They
will not be acceptable in payment of taxes.
"4. Bearer notes with interest coupons attached, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000, and $500,000,000. Provision will be made
for the interchange of notes of different denominations and of coupon and registered
notes, and for the transfer of registered notes, under rules and regulations prescribed by the Secretary of the Treasury.
"5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes."
III.

SUBSCRIPTION AND ALLOTMENT

EXHIBITS

213

accepting demand deposits, may submit subscriptions for account of customers
provided the names of the customers are set forth in such subscriptions. Others
than commercial banks will not be permitted to enter subscriptions except for
their own account. Subscriptions from commercial banks for their own account
will be received without deposit, but will be restricted in each case to an amount
not exceeding 50 percent of the combined capital, surplus, and undivided profits,
of the subscribing bank. Subscriptions from all others must be accompanied by
payment of 2 percent of the amount of notes applied for, not subject to withdrawal
until after allotment. Following allotment, any portion of the 2 percent payment
in excess of 2 percent of the amount of nqtes allotted may be released upon the
request of the subscribers.
2. All subscribers are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of any notes
of this additional issue, until after midnight October 2, 1961.
3. Commercial banks in submitting subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
4. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, to allot less than the amount of nbtes applied for, and to make
different percentage allotments to various classes of subscribers; and any action
he may take in these respects shall be final. The basis of the allotment will be
publicly announced, and allotment notices will be sent out promptly upon allotment.
IV.

PAYMENT

1. Payment at 99.875 percent of their face value and accrued interest from
May 15 to October 11, 1961 ($13.15897 per $1,000), for notes allotted hereunder
must be made or completed on or before October 11, 1961, or on later allotment.
The total amount of such payment will be $1,011.90897 per $1,000 face amount.
In every case where payment is not so completed, the payment with application
up to 2 percent of the amount of notes allotted shall, upon declaration made by
the Secretary of the Treasury in his discretion, be forfeited to the United States.
Any qualified depositary will be permitted to make payment by credit in its
Treasury Tax and Loan Account for not more than 75 percent of the amount of
notes allotted to it for itself and its customers up to any amount for which it
shall be qualified in excess of existing deposits when so notified by the Federal
Reserve Bank of its district.
v.

GENERAL PROVISIONS

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

DOUGLAS DILLON,

Secretary of the Treasury.

Summary; of information pertaining to Treasury notes issued during: the fiscal year 1962
Department
circular
Date of
preliminary announcement
Number
Date

Concurrent
exchange
offering
circular
number

Treasury notes offered for exchange or for cash

Date of
issue

D ate-of
maturityi

Date:
subscription
booljs
closed

AUotment
payment
date on
or before
(onon>
later
aUotr
mentr

CO
OS

O
1961
July 13

1062

1961
July 17

1063,1064

July 13

1063

July 17

1062,1064

Sept. 28
Nov. 2

1068
1069

Oct. 2
Nov. 6

1070,1071

1962
Feb. 1

3—62

1962
Feb. 5

10—62

Apr. 26
•

2—62

Apr. 30 9—62,11—62

3H percent Series H—1962 issued at, par in exchange for.—
33^ percent Series C—1961 certificates matm'ing August 1, 1961, 4'percent Series A—
1961 notes maturing August 1, 1961, 2% percent Treasury bonds of 1961 maturing
September 15,. 1961, 1 ^ percent Series-E 0—1961 notes maturing October 1, 1961.

1961
July 19

3M percent Series E—1964 issued at par in exchange for^
_. Aug. 1 Aug. 15" July 19
33^ percent Series C—1961 certificates matm'ing August 1, 1961, 4-percent Series A—
196L notes maturing August 1, 1961, 2M percent Treasury bonds of 1961 maturing
September 15, 1961,-13^ percent Series E 0—1961 notes maturing October 1,1961..
196S
3K percent Series D—1963 (additional issue) issued for cash at 99.875.
3 May 15 May 15 Oct'. 2.
334 percent Series E—1963 issued at par in exchange for—...
Nov. 15 Feb. 15 Nov. 9^
23^ percent Treasury bonds of 1961 maturing-No vember 15, 1961.
1962
4 percent Series^ A—1966 issued at par in exchange for—_..i
Feb. 15 Aug. 15- Feb. 7
3f^ percent Series A—1962 notes, maturing February 15, 1962, 4 percent Series D—
1962-notes matming February 15, 1962, 334 percent Series F—1962 notes maturing
February 15, 1962, IH percent Series EA—1962 notes maturing AprU 1, 1962.
3 ^ percent Series B—1966 issued at 99.80 in exchange for—__
May 15 Feb. 15. May 2.
3 percent Series A—1962 certificates maturing May: 15, 1962, 4 percent Series. E—1962
notes maturing May 15,1962, 234 percent Treasury bonds of 1959-62 matm'ing June
15, 1962.

1 See Department Circular No. 1062, sections III and.IV, m this exhibit, for provisions
for subscription and payment.
2 Coupons dated August 1, 1961, were detached from the 33^ percent certificates of
indebtedness of Series C—1961, and the 4 percent Treasm-y notes of Series A—1961 by
holders and cashed when due. Coupons dated September 15, 1961, were required to
be attached to the 2H percent Treasury bonds of 1961 in coupon form when surrendered.
Accrued mterest from March 15 to August 1, 1961 ($10.38723 per $1,000), on the bonds
was paid to subscribers in the case of bearer bonds foUowing thein acceptance and in
the case of registered bonds foUowing discharge of registration. Coupons dated October
1, 1961, were required to be attached to the 13^ percent Treasury notes of Series EO—
1961. Accrued interest from AprU 1 to September 1,.1961 ($6:27049-per $1,000),, on the
maturing notes was credited; accrued interest from. August 1 to September 1, 1961
($3.18261 per $1,000), on the new'notes was charged; and. the dilTerence ($3:08788-per
$1,000) was paid to subscribers following acceptance, of the notes.
3 Interest payable from October 11,1961.
< See Department Circular No. 1068, sections III andlV, in this exhibit, for provisions

for subscription and pa3rment.
8 Coupons dated November 15, 1961, were detached from the 23^ percent Treasury
http://fraser.stlouisfed.org/
bonds of 1961 in coupon form by holders and cashed when due.

Federal Reserve Bank of St. Louis

1961
1962
Aug. L Nov. 15

1961
1 Aug. 1

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2 Aug; 1

4 Oct. 11
s^Nov. 15

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6 Feb. 15
fMay 15

6 Coupons.dated February 15,1962, were detached from the maturing notes of Series
A—1962, Series D—1962, and Series F—1962 by holders and cashed when due. Coupons
dated April 1, 1962, were required to be attached to the 13^ percent; Treasury notes of
Series EA—1962, and accrued" interest from October 1^ 1961, to March 1,1962 ($6.22253
per $1,000), on the maturmg notes was credited; accrued interest from February 15'to
Marchi,. 1962 ($1.54696 per $1,000), on the newnotes was charged; and the difference
($4.67557 per $1,000) waspaid to subscribers following, acceptance of the notes.
7 Coupons dated May 15, 1962, were detached from the 3 percent certificates of inr
debtedness of Series A—1962 and the 4 percent Treasury notes of Series E—1962 in
bearer form and cashed when due. The cash payment of $2.00 per $1,000 on account
of the issue price of the new notes was. made to subscribers, in the case of registered
securities following release of registration, and in the. case of bearer securities-following
their acceptance. Coupons dated June 15, 1962, were required to be attached^ to- the
234 percent Treasury bonds of 1959-62 ih coupon form when surrendered. Accrued
interest from December 15,1961,. to May 15,1962 ($9.33379 per $1,000), togetber. with the
cash payment ($2.00 per $1,000) was paid to subscribers in the case of registered bonds
following release of registration and in the case of bearer bonds following their acceptance. •

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Allotments of Treasury notes issued during the fiscal year 1.962, by Federal Reserve districts
[In thousands]
SH percent Series H-1962 Treasury notes issued in exchange for—i
Federal Reserve district

Boston
New York
Ehiladelphia
Cleveland
Eichmond
Atlanta
Chicago
St. Louis
Minneapohs
Kansas City
Dallas
San Francisco
Treasury

---

33^ percent Series 4 percent Series 2H percent TreasC-1961 certifi- A-1961 Treasm'y
ury boiids of
cates maturing notes maturing
1961 maturing
Aug. 1, 19612
Sept. 15, 19612
Aug. 1,19612
$34,332
3,881,860
25,618
101,410
39,334
49,728
143,436
32,292
11,633
19, 669
23,069
190,422
7,601

$36,980
281, 695
10, 784
32, 882
6,632
22,890
74,315
18,920
18,844
23, 680
18,541
110,171
1,568

13^ percent Series
EO-1961 Treasury notes maturing Oct. 1,19612

Total issued

$43, 776
304,074
19,483
82,132
8,093
13,618
105,240
18, 591
18, 698
12, 625
12, 705
40,-230
1,321

$371
140,188
1,185
7,259
1,670
2,978
19,884
2,248
1.183
2,230
3,247
660

$115,459
4,607,817
57,070
223, 683
55,729
89,214
342,875
72,051
50, 258
58,204
57,.562
341,383
10, 490
6,081, 795

Total note allotments
Securities eligible for exchange:
Exchanged in concurrent offerings....

4,560,304

657,902

680,586

183,003

3,180,535

1, 279,846

1,210, 608

96,814

5, 767,803

Total exchanged
Not submitted for exchange
Total securities eUgible for exchange.

7,-740,839
87,936

.1,937,748
197,865

1,891,194
348,066

.279, ,817
52,158

11,849, 598
686,025

7, 828,775

.2,135,613

2,239, 260

331,975

12, 535,623

Footnotes at end of table.

I—L

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Allotments of Treasury notes issued during the fiscal year 1962, by Federal Reserve districts—Continued
[In thousands]
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SU percent Series E-1964 T r e a s u r y notes issued in exchange for— i

Boston
NewYork
._
_ _ . .
Philadelphia
Cleveland..
.
.__-_
Richmond
Atlanta
. . . .
Chicago
St. Louis
Minneapolis
KansasCity
Dallas
..
.
San Francisco
Treasury
Covernnip.nt inve-'^tnip.nt a,ccnnnts_

. . . .

.
. _
.

Total note allotments
^.
Securities eligible for exchange:
E x c h a n g e d in c o n c u r r e n t offerings. .
Total exchanged...
N o t submitted-for exchange

_ . _ . .
...

T o t a l securities eligible for exchange

... _

^
o

4 percent
Series A—1961
T r e a s u r y notes
maturing
A u g . 1, 19613

2H percent
Treasury bonds
of 1961
maturing
Sept. 15, 19613

13^ p e r c e n t
Series E 0—1961
T r e a s u r y notes
maturing
Oct. 1, 19613

$55,799
2, 520, 821
13,022
41,411
15, 887
43, 784
166, 033
26, 043
11,439
31,187
11,466
109, 580
2,780

$40,499
444,815
25,606
61, 231
12,418
34, 242
158,491
38,315
35,617
64,691
40, 291
42, 823
1,537

$38,573
410, 058
24, 224
54, 233
17,104
29, 803
151,079
31,358
23,663
36, 671
26, 560
44,800
2,170

$1, 396
49, 702
1,085
2,700
1, 745
1,173
16,475
2,602
900
7,002
978
2,800

$136,267
3, 425, 396
63, 937
159, 575
47,154
109.002
492, 078
98, 318
71, 619
129, 551
79, 295
200.003
6,487

$107,261
657, 617
84, 228
199, 366
83, 263
92. 570
356,186
90,145
69, 821
80, 069
89,793
284,319
6
100,000

3,049, 252

990, 576

890.296

88, 558

5, 018, 682

2, 294, 644

4, 691, 587

947,172

1,000, 898

191, 259

6,830,916

tei

7, 740, 839
87,936

1,937, 748
197,865

1,891,194
348,066

279,817
52,158

11,849, 598
686,025

7, 828, 775

2,135, 613

2, 239, 260

331,975

12,535,623

SH percent
Series C—1961
certificates
maturing
A u g . 1, 19613

Federal Reserve district

334 p e r c e n t
Series D—1963
T r e a s u r y notes
(additional
issue) issued
for cash *

T o t a l issued

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Footnotes at end of table.

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Allotments of Treasury notes issued during the fiscal year 1962, by Federal-Reserve districts—Continued
[In thousands]

Federal Reserve district

Boston
New York
PhUadelphia...
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury

Total note allotments
Securities eligible for exchange:
Exchanged in concurrent offerings

3,199, 759

95, 296

4,454,410

5, 757,814

369,967

6,861, 555

8, 957, 573
140, 470

465,263
85,913

11,315,965
415, 297

551,176

11,731,262

302, 877

856.478

282, 226

451, 548

6, 544, 250
419,227

585,103
61, 954

1,308,026
126, 960

6, 963,477

647, 057

1, 434, S

...
.

3, 642,464
2,901, 786

Total exchanged--.
Not submitted for exchange
Total securities eligible for exchange

$163,830
2, 635,481
130,661
. 199,315
55,043
134,631
451,107
141,972
110,051
135, 764
100,917
189,477
6,161

$101, 598
2, 218,198
49,870
146, 219
34,134
75, 781
213, 091
74, 980
41,185
55, 745
50,351
137,247
1,360

$10, 285
141, 560
13, 681
14,091
8,165
10, 870
44, 267
10, 087
13, 864
12, 727
10, 806
11, 322
1,152

$2,363
37, 553
1,376
1,248
529
2,095
24,494
8,750
1,562
7,567
685
5,773
1,301

$49, 584
238,170
• 65,734
37, 757
12, 215
45,885
169,255
48,155
53, 440
59,725
39,075
35,135
2,348

$114,-577
,739,989
79,881
132, 037
48,050
139,734
476, 062
171, 255
56,484
113, 086
95, 339
459, 999
15, 971

...

4 percent Series A—1966 Treasury notes issued in exchange for334 percent Series
E—1963 Treasury
notes issued in
exchange for
4 percent
13^ percent
334 percent
SH percent
23^ percent
Series EA—1962
Series D—1962
Series F—1962
Series A—1962
Treasury bonds Treasury notes
Treasury notes
Treasm'y notes
Treasm'y notes
Total issued
of 1961 maturing
maturing
maturing
maturing
maturing •
Nov. 15, 196116
Feb. 15, 1962 6
Feb. 15, 1962 6
Apr. 1, 1962 6
Feb. 15, 1962 6

8,043

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Footnotes at end of table.

bO
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Allotments of Treasury notes issued during the fiscal year 1962, by Federal Reserve districts—Continued
[In thousands]
SH percent Series B-1966 Treasury notes issued in exchange for—i
3 percent
Series A—
1962 certificates
maturing
May 15,1962 7

Federal Reserve district

Boston
NewYork...PhiladelphiaCleveland
Richmond.-.
Atlanta
Chicago.- ___
St. Louis.
Minneapolis _
Kansas City.
DaUas
San Francisco
Treasury
Total note aUotments
Securities eUgible for exchange:
Exchanged in concurrent offerings
Total exchanged— - .
.
Not submitted for exchange
Total securities eligible for exchange

.
-

.
. . .

.
_

. _
.

. - -

1 Subscriptions were allotted in full.
2 SH percent Series E-1964 Treasury notes and 3% nercent Treasury bonds of 1968
were also offered in exchanee for this security; see this exhibit and exhibit 3, respectively.
3 334 percent Series H-1962 Trieasury notes and S'^A percent Treasury bonds of 1968
were also offered in exchange for this security; see this exhibit and exhibit 3, respectively.
4 Subscriptions from Government investment accounts were allotted in full. All
others were allotted 37 percent with subscrintions for $100,000 or less being allotted in
full and those for more than $100,000 being aUotted not less than $100,000.

_ _
--

.
. .

„.

... .
,
.

...

4 percent
Series E—
1962 Treasury
notes maturing
May 15,19627

234 percent
Treasury bonds
of 1959-62
maturing
June 15, 1962 7

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$47,494
491,732
29,278
114,277
19,629
29,432
173,890
13,402
25, 686
41,666
36,744
111,917
2,628

$67,964
382,479
19,273
91,648
17, 827
18,513
97, 696
21,169
20,055
29,504
22,164
53,020
918

$16,447
716,929
13,648
25,015
10,183
20, 889
167,349
18,257
17,216
28,757
33,262
65,167
775

$131,905
1,591,140
62,199
230.940
47,639
68,834
438,935
52,828
62,957
• 99,927
92,170
230,104
4,321

1,137,775

842,230

1,133,894

3,113,899

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4,272,411

1,211,384

2,406,058

7,889,853

. _.

6,410,186
99,032

2,053, 614
157,279

3,539,952
423,346

11,003,752
679,657

--._

5,509,218

2,210, 893

3,963,298

11, 683,409

_ _.

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5 3% percent Treasury bonds of 1966-and- 3% percent Treasury bonds of 1974 were also
offered in exchange for this security; see exhibit 3.
6 33^ percent Series A-1963 certificates were also offered in exchange for this security;
see exhibit 1.
7 334 percent Series B-1963 certificates and SH percent Treasury bonds of 1971 were
also offered in exchange for this security; see exhibits 1 and 3, respectively.

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EXHIBITS

^^'

219

EXHIBIT 3,—Treasury bonds
Four Treasury circulars representative of the fourteen bond offerings during the
fiscal year 1962 are reproduced in this exhibit: an exchange offering (additional
issue) for maturing issues; an exchange offering (additional issue) for U.S. savings
bonds of Series F and G maturing during the calendar year 1962; a cash offering
(additional issue); and an advance refunding exchange offering. Circulars pertaining to the other bond offerings are similar in form and therefore are not
reproduced in this report. However, the essential details for each issue are
summarized in the first table following the circulars and the final allotments of the
new bonds issued for cash and in exchange for maturing or outstanding securities
are shown in the second table.
D : E P A R T M E N T C I R C U L A R N O . 1064.

PUBLIC DEBT

TREASURY

DEPARTMENT,

Washington, July 17, 1961.
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99.375 percent of their
face value and accrued interest, from the people of the United States for bonds of
the United States, designated 3% percent Treasury bonds of 1968, in exchange for
which any of the following securities may be "tendered:
SYs percent Treasury certificates of indebtedness of Series C-1961, maturing
August 1, 1961
4 percent Treasury notes of Series A-1961, maturing August 1, 1961
2% percent Treasur}^ bonds of 1961, maturing September 15, 1961
IH percent Treasury notes of Series EO-1961, maturing October 1, 1961.
A cash adjustment, as provided in section IV hereof will be made in favor of
subscribers for the discount from the face value of the new bonds. Interest will
be adjusted in the case of the 2 ^ percent Treasury bonds of 1961, and in the case
of the 1}^ percent Treasury notes of Series EO-1961, as set forth in section IV
hereof. The amount of the offering under this circular will be limited to the
amount of eligible securities tendered in exchange and accepted. The books will
be open only on July 17 through July 19, 1961, for the receipt of subscriptions for
this issue.
2. In addition to the offering under this circular, holders of the eligible securities
are offered the privilege of exchanging all or any part of such securities for
S}i percent Treasury notes of Series H-1962, or
3K percent Treasury notes of Series E-1964
which offerings are set forth in Department Circulars Nos. 1062 and 1063, respectively, issued simultaneously with this circular.
II. DESCRIPTION OP BONDS

1. The bonds now offered will be an addition to and will form a part of the series
of 3% percent Treasury bonds of 1968 issued pursuant to Department Circulars
Nos. 1044 and 1049, dated June 8 and August 1, 1960, respectively. They will be
freely interchangeable therewith, and are identical in all respects therewith except
that interest on the bonds to be issued under this circular will accrue from August 1,
1961, in the case of the certificates and notes maturing August 1 and the bonds
maturing September 15, and from September 1, 1961, in the case of the notes
maturing October 1. Subject to the provisions for the accrual of interest on the
bonds now offered, the bonds are described in the following quotation from
Department Circular No. 1044:
' ' 1 . The bonds will be dated June 23, 1960, and will bear interest from that date '
at the rate of 3% percent per annum, payable on a semiannual basis on Novernber
15, 1960, and thereafter on May 15 and November 15 in each year until the
principal amount becomes payable. They will mature May 15, 1968, and will
not be subject to call for redemption prior to maturity.
"2. The income derived from the bonds is subject to all taxes imposed under the
Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift,
or other excise taxes, whether Federal or State, but are exempt from all taxation
now or hereafter imposed on the principal or interest thereof by any State^ or any
of the possessions of the United States or by any local taxing authority.

220

1962 REPORT OF THE SECRETARY OF THE TREASURY

' ' 3 . The bonds will be acceptable to secure deposits' of public moneys. They
will not be acceptable in payment of taxes.
''4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision will be made for the interchange of
bonds of different denominations and of coupon and registered bonds, and for the
transfer of registered bonds, under rules and regulations prescribed by the Secretary
of the Treasury.
'*5. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds."
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches and
at the OflSce of the Treasurer of the United States, Washington, D.C. Banking
institutions generally may submit subscriptions for account of customers, but only
the Federal Reserve Banks and the Treasury Department are authorized to act
as official agencies.
2. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of bonds applied for; and any
action he may take in these respects shall be final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out promptly
upon allotment.
IV. PAYMENT

1. Payment at 99.375 percent of their face.value and accrued interest for bonds
allotted hereunder must be made on or before August 1, 1961, or on later allotment. Payment for the face amount of the bonds allotted may be made only in
the' securities of the four issues enumerated in section I hereof, which will be
accepted at par, and should accompany the subscription. Accrued interest on
the bonds allotted will be collected from, and interest on the securities to be
exchanged and the cash adjustment for the discount on the bonds to be allotted
will be paid to, subscribers as follows:
SYs percent ceriificates of indebtedness of Series C-1961—Coupons dated August 1,
1961, must be attached to the certificates when surrendered. Accrued interest
from February 1, 1961, to August 1, 1961 ($15,625 per $1,000) on the certificates
surrendered plus the discount ($6.25 per $1,000) on the bonds allotted will be
credited; accrued interest from May 15, 1961, to August 1, 1961 ($8.21332 per
$1,000) on the bonds allotted will be charged, and the difference ($13.66168 per
$1,000) will be paid to subscribers following acceptance of the certificates.
4 percent Treasury notes of Series A-1961—Coupons dated August 1, 1961,
must be attached to the notes when surrendered. Accrued interest from February
1, 1961, to August 1, 1961 ($20.00 per $1,000) on the notes surrendered plus the
discount ($6.25 per $1,000) on the bonds allotted will be credited; accrued interest
from May 15, 1961, to August 1, 1961 ($8.21332 per $1,000) on the bonds allotted
will be charged, and the difference ($18.03668 per $1,000) will be paid to subscribers
following acceptance of the notes.
2y4: percent Treasury bonds of 1961—Coupons dated September 15, 1961, must
be attached to the bonds in coupon form when surrendered. Accrued interest from
March 15, 1961, to August 1, 1961 ($10.38723 per $1,000) on the bonds surrendered
plus the discount ($6.25 per $1,000) on the bonds allotted will be credited; accrued
interest from May 15, 1961, to August 1, 1961 ($8.21332 per $1,000) on the bonds
allotted will be charged, and^ the difference ($8.42391 per $1,000) will be paid
to subscribers. Payment to subscribers will be made in the case of bearer bonds
following their acceptance and in the case of registered bonds following discharge
^of registration. In the case of registered bonds, the payment will be made by
check drawn in accordance with the assignments on the bonds surrendered, or by
credit in any account maintained by a banking institution with the Federal
Reserve Bank of its district.

EXHIBITS

221

IY2 percent Treasury notes of Series EO-1961—Coupons dated October 1, 1961,
must be attached to the notes when surrendered. Accrued interest from April 1,
1961, to September 1, 1961 ($6.27049 per $1,000) on the notes surrendered plus
the discount ($6.25 per $1,000) on the bonds allotted will be credited; accrued
interest from May 15, 1961, to September 1, 1961 ($11.47758 per $1,000) on the
bonds allotted will be charged, and the difference ($1.04291 per $1,000) will be
paid to subscribers.
v . ASSIGNMENT OF REGISTERED BONDS

1. 2% percent Treasury bonds of 1961 in registered form tendered in payment
for bonds offered hereunder should be assigned by the registered payees or assignees
thereof, in accordance with the general regulations of the Treasury Department
governing assignments for transfer or exchange, in one of the forms hereafter set
forth, and thereafter should be surrendered with the subscription to a Federal
Reserve Bank or branch or to the Office of the Treasurer of the United States,
Washington, D.C. The bonds must be delivered at the expense and risk of the
holder. If the new bonds are desired registered in the same name as the bonds
surrendered, the assignment should be to "''The Secretary of the Treasury for
exchange for 3% percent Treasury bonds of 1968"; if the new bonds are desired
registered in another name, the assignment should be to "The Secretary of the
Treasury for exchange for 3% percent Treasury bonds of 1968 in the name of
"; if new bonds in coupori form are desired, the assignment should be
to "The Secretary of the Treasury for exchange for 3% percent Treasury bonds of
1968 in coupon form to be delivered to
".
VI. GENERAL PROVISIONS

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

Secretary of ihe Treasury.
DEPARTMENT CIRCULAR NO. 1072.

PUBLIC DEBT

TREASURY DEPARTMENT,

Washington, November 17, 1961.
I. OFFERING OF BONDS

1. The Secretary of the Treasury,. pursuant to the authority of the Second
Liberty Bond Act, as amended, invites'subscriptions, at 99.50 percent of their
face value ..and accrued interest, for boiids of the United States, designated 3%
percent Treasury bonds of 1968, in exchange for a like face amount of United
States savings bonds of Series'F and G maturing in the calendar year 1962,
which will be accepted at exchange values as provided in section IV hereof.
Holders of Series F and G bonds aggregating less than "an even multiple.of $500
maturity value (the lowest denomination of new bonds available) may exchange
such bonds with payment of the difference in cash to make up the next higher
$500 multiple. Interest on the bonds will be adjusted as of December 15, 1961,

1962 RtlPOilt OF fHE SEJCkETARY 0 ^ THE TRJJASURY
and an adjustmeiit in favor of subscribers representing the discount from.the
face value of the bonds will be made as provided in section IV hereof. The
amount of the offering under this circular will be liinited to the amount of securities, together with Cash adjustments, tendered in exchange and accepted. The
books will be open fbr the receipt of subscriptions for this issue from all classes
of subscribers from Noveniber 20 through November 24, 1961, and in addition,
subscriptions may be submitted by individuals through November 30, 1961:
For this purpose individuals are defined as natural persons in their own right.
Delivery of the new bonds will be made on December 2t), 1961.
• II. DESCRIPTION OF BONDS

1. The bonds now offered will be an additiori to and will form a part of theSYs
percent Treasury bonds of 1968 issued pursuant to Department Circulars Nos.
1044, 1049, and 1064, dated June 8, 1960, August 1, 1960, and July 17, 1961,
respectively, will be freely interchangeable therewith, and are identical in all
respects therewith except that interest on the bonds to be issued under this circular
will accrue from December 15, 1961. Subject to the provision for the accrual
of interest from December 15, 1961, on the bonds how offered, the bonds are
described in the following quotation frOm Department Circular- No. 1044:
" 1 . The bonds will be dated June 23, 1960, and will bear interest from that
date at the rate of 3% percent per annum, payable on a semiannual basis on
November 15, 1960, and thereafter on May 15 and November 15 in each .year
until the principal amount becomes payable. They will mature May 15, 196^,
and will not be subject to call for redemption prior to maturity.
"2. The income derived from the bonds is subject to all taxes imposed under the
Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxatiori now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
"3. The bonds will be acceptable to secure deposits of public moneys. They
will riot be acceptable in payment of taxes.
"4. Bearer borids with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision will be made for the intercharigej
of bonds of different denominations and of colipon arid registered borids, and
for the transfer of registered bonds, under rules and regulations prescribed by
the Secretary of the Treasury. .
"5. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds."
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington, D.C. Banking institutions generally, and paying agents eligible to process bonds under
Treasury Department Circular No. 888, Revised,- may submit exchange subscriptions for account of customers, but only the Federal Reserve Banks and the
Treasury Department are authorized to act ias official agencies.
2. The Secretary of the Treasury reserves the right to reject Or reduee ariy
subscription, and to allot less than the amount Of bonds applied for; and any
action he may take in these respects shall be final. Subject to these reservatioris,
all subscriptions will be allotted in full. Allotmerit notices will be sent out
promptly upon allotrnent.
IV. PAYMENT

1. Payment for the face amount of bonds allotted hereunder must be made
on or before December 20, 1961, or on later allotment, and may be made only
in a like face amount of United States savings bonds of Series F and Series G
maturing from January 1 to December 1, 1962, inclusive, and any cash difference
necessary to make up an even $500 multiple, which bonds and cash should ac-

223

EXHIBITS

company the subscription, together with the net ampunt, if any, to be collected
from the subscriber as set forth in tables I and II at the end of this circular.
The Series F and G bonds will be accepted in the exchange at amounts set forth
thereunder for their respective months of maturity. These exchange values are
higher than present redemption values. They have been set so that holders
of Series F and G bonds who elect to accept this exchange offer will receive, in
effect, an investment yield approximately one percent per annum more than
would otherwise accrue from December 15, 1961, to the maturity dates of their
bonds, and will receive an investment yield of approximately 3.96 percent on the
3% percent marketable bonds received in exchange for the period from the maturity
dates of their Series F and Q bonds to May 15, 1968. All subscribers will be
charged the interest from November 15, 1961, to December 15, 1961 ($0.32 per
$100) on the bonds allotted. Other adjustments with respect to bonds accepted
in exchange will be made as set forth in tables I and II, which also show the net
amounts to be collected from or paid to subscribers for each $100 (face amount)
of bonds accepted in exchange.
(a) Series F bonds.—The exchange values of Series F bonds, .the differences
between such values arid the offering price of the 3% percent bonds, the interest
which will accrue on the new bonds and the total amounts to be collected from
or paid to holders of Series F bonds per $100 (face amount) are as set forth in
table I.
TABLE I.—For Series F bonds

Exchange
F bonds matur- values of
ing in 1962 on
F bonds
per $100
the first day
(face amt.)
of—

COL. 1
January
February
March
1
April _
May
Tnne _
Jiily...
August
September
October
November
December

$99.88
99. 64
99.40
99.16
98.92
98.64
98.40
98.16
97. 92
• 97.68
97.44
97.20

Charge or credit for
differences between
$99.50 (offering price
per $100 of new
bonds) and exchange
values of F bonds

Charge

Credit

COL. 2

COL. 3

$0.10
0.34
0.58
0.86
LIO
L34
L58
L82
2.06
2.30

$0.38
0.14

1 Total amounts per
$100 (face amt.) of F
Interest
bonds.accepted
2 Interest
Nov. 15 to
accruing
Dec. 15,
per $100 on
1961, to be
TO BE new bonds
from Nov.
charged on 3 TO BE
COLnew bonds PAID TO L E C T E D 15, 1961, to
SUBper $100
FROM
maturity
SUBdates of F
(face amt.) SCRIBERS
SCRIBbonds in
OfF
(COLS. 3
ERS
1962
bonds
minus 4)
(COLS. 2
plus 4
minus 3)
COL. 4
$0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32

COL. 5
$0.06

COL. 6

$0.18
0.42
0.66
0.90
L18
1.42
i:66
L90
2.14
2.38
2.62

COL. 7
$0.50
0.83
L13

1.47
1.79
2.12
2.43
2.76
3.09
3.40
3.73
4.05

1 In addition, for each $100, or multiple or fraction thereof, between the face amount of Series F bonds
submitted and the face amount of bonds subscribed (to next higher multiple of $500) the subscriber must
pay $99.82 ($99.50 issue price plus $0.32 accrued interest).
2 Including $0.32 per $100 paid by subscriber as accrued interest from November 15,1961, to December 15,
1961 (COL. 4). This data is included for information only.
3 The net amount to be paid to subscribers will be paid following acceptance of the bonds by the agency
through which the exchange is made.

(b) Series G bonds.—The exchange values of Series G borids, the differences
between such values and the offering price of the 3% percent bonds, the accrued
interest to be credited on the Series G bonds, the interest which will accrue on the
new bonds and the total amounts to be collected from or paid to holders of Series
G bonds per $100 (face amount) are as set forth in table II.

224

1962 REPORT OF THE SECRETARY OF THE TREASURY
TABLE II.—For Series G bonds

C r e d i t for
differences
between
Exchange
$99.50
G bonds maturvalues of
(offering
i n g i n 1962 on , G b o n d s
price per
t h e first d a y of—
per $100 $100) of n e w
(face a m t . ) b o n d s a n d
exchange
values of
G bonds

COL. 1
Tanuary .
February.
March
AprU
May
Tune
Tuly.
August
September
October
November
December

$99.98
99.94
99.90
99.86
99.82
99.79
99.76
99.71
99.68
99.64
99.60
99.56

COL. 2
$0.48
0.44
0.40
0.36
0.32
0.29
0.26
0.21
0.18
0.14
0.10
0.06

I n t e r e s t to
b e credited
on G bone s
per $100
(face a m t . )

COL. 3
$1.15
0.94
0.73
0.52
0.31
0.10

• (^)

0.94
0.73
0.52
0.31
0.10

1 T o t a l a m o u n t s per
$100 (face a m t . ) of C
Interest
b o n d s accepted
2 Interest
N o v . 15 to
accurmg
p e r $100 o n
D e c . 15,
1961, to b e
TO BE
new bonds
charged on 3 T O B E
COLfrom N o v .
n e w bone s P A I D T O L E C T E D
15, 1961, to
per $100
SUBFROM
maturity
(face a m t . )
SCRIBSUBdates of G
of G
ERS
SCRIBb o n d s in
bonds•
(COLS. 2
ERS
1962
plus 3
(COLS. 4
m i n u s 4)
minus 2
a n d 3)
COL. 4
$0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32

COL. 5

COL. 6

$1.31
1.06
0.81
0.56
0.31
0.07
$0.16
0.83
0.59
0.34
0.09
0.16

COL. 7
$0.50
0.83
L13
L47
L79
2.12
2.43
2.76
3.09
3.40
3.73
4.05

1 In addition, for each $100, or multiple thereof, between the face amount of Series G bonds submitted and
the face amount of-bonds subscribed (to next higher rnultiple of $500) the subscriber must pay $99.82 ($99.50
issue price plus $0.32 accrued interest).
2 Including $0.32 per $100 paid by subscriber as accrued interest from November 15,1961, to December 15,
1961 (COL. 4). This data is included for information only.
3 The net amount to be paid to subscribers will be paid following acceptance of the bonds by the agency
through which the exchange is made.
* Interest wiU be paid to Tanuary 1,1962, on bonds maturing Tuly 1,1962, in regular course on Tanuary 1,
1962, by checks maUed by the Treasury Department. As these checks wUl include unearned interest for
the period from December 15, 1961, to Tanuary 1, 1962, each subscriber who tenders these bonds will be
required to make an interest refund of $0.10 per $100 (face amount). The above ambunt of $0.16 in COL. 6
includes such refund.

2. Any qualified depositary will be permitted to make payment by credit in
its Treasury tax and loan account for any cash payments authorized or required
to be made under this circular for bonds allotted to it for itself and its customers
up to any amount for which it shall be quahfied in excess of existing deposits,
when so notified by the Federal Reserve Bank of its district.
3. Series F and G bonds tendered in exchange must bear appropriate requests
for payment in accordance with the provisions of Treasury Department Circular
No. 530, Eighth Revision, afe amended, or the special endorsement provided for
in Treasury Department Circular No. 888, Revised. In any case in which bo'nds
in bearer form, or registered bonds in another name, are desired, requests for
payment must be supplemented by specific instructions signed by the owner who
signed the request for payment. An owner's instructions for bearer or registered
bonds may be recorded on the surrendered bonds by typing or otherwise recording
on the back thereof, or by changing the existing request for payment form to
conform to one of the two following forms:
(a) I am the owner of this bond and hereby request exchange for 3%%
Treasury bonds of 1968 in bearer form to be delivered to (insert name and address
of person to whom delivery is to be made).
(b) I am the owner of this bond and hereby request exchange for 3%%
Treasury bonds of 1968 registered in the name of (insert exact registration desired—see section V hereof).
V. REGISTRATION OF BONDS

1. Treasury bonds may be registered only as authorized in Treasury Department Circular No. 300, Revised, as supplemented. Registration in the name of
one person payable on death to another is not authorized. Registered Treasury
bonds may be transferred to a purchaser only upon proper assignment. Treasury
bonds registered in the form "A or B " may be transferred only upon assignment

EXHIBITS

225

by or on behalf of both, except that if one of them is deceased, an assignment by
or on behalf of the survivor will be accepted. Since Treasury bonds are not
redeemable before maturity at the option of the owners, the effects of registering
them in the names of two or more persons are important. Information concerning
the effects of various forms of registration may be obtained from any Federal
Reserve Bank or branch, the Office of the Treasurer of the United States, Washington, D . C , or from banking institutions generally.
VI. GENERAL PROVISIONS

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

Acting Secreiary of the Treasury,
DEPARTMENT CIRCULAR NO. 1-62.

PUBLIC DEBT

TREASURY DEPARTMENT,

Washington, January 15, 1962.
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99.75 percent of their
face value and accrued interest, from the people of the United States for bonds
of the United States, designated 4 percent Treasury bonds of 1969. The amount
of the offering under this circular is $1,000,000,000, or thereabouts. In addition
to the amount offered for public subscription, the Secretary of the Treasury
reserves the right to allot up to $100,000,000 of these bonds to Government
investment accounts. The books will be open only on January 15, 1962, for the
receipt of subscriptions for this issue.
n. DESCRIPTION OF BONDS

1. The bonds now offered will be an addition to and will form a part of the
series of 4 percent Treasury bonds of 1969 issued pursuant to Department Circulars Nos. 996, 1024, and 1056, dated September 16,1957, March 23, 1959, and November 18, 1960, respectively, will be freely interchangeable therewith, and are
identical in all respects therewith except that interest on the bonds to be issued
under this circular will accrue from January 24, 1962. Subject to the provision
for the accrual of interest from January 24, 1962, on the bonds now offered, the
bonds are described in the following quotation from Department Circular No. 996:
" 1 . The" bonds will be dated October 1, 1957, and will bear interest from that
date at the rate of 4 percent per annum, payable semiannually on April 1 and
October 1 in each year until the principal amount becomes payable. They
will mature October 1, 1969, and will not be subject to call for redemption prior
to maturity.
"2. The income derived from the bonds is subject to all taxes imposed under
the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
^'3. The bonds will be acceptable to secure deposits of public moneys.
"4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision will be made for the interchange
of bonds of different denominations and of coupon and registered bonds, and for"
66i7496i—63

226

19 62 REPORT OF THE SECRETARY OF THE TREASURY

the transfer of registered bonds, under rules and regulations prescribed by the
Secretary of the Treasury.
"5. Any bonds issued hereunder which upon the death of the owner coristitute
part of his estate, will be redeemed at the option of the duly constituted representatives of the deceased owner's estate, at par and accrued interest to date of
payment, ^ provided:
(a) that the bonds were actually owned by the decedent at the time of his
death; and
(b) that the Secretary of the Treasury be authorized to,apply the entire
proceeds of redemption to the payment of Federal estate taxes.
Registered bonds submitted for redemption hereunder must be duly assigned
to 'The Secretary of the Treasury for redemption, the proceeds to be paid to the
District Director of Internal Revenue at
for credit on Federai estate
taxes due from estate of
' Owing to the periodic closing of the
transfer books and the impossibility of stopping payment of interest to the registered owner during the closed.period, registered bonds received after the closing
of the books for payment during such closed period will be paid only at par with
a deduction of interest from the date of payment to the next iriterest pa,yment
date; ^ bonds received during the closed period for payment at a date after the
books reopen will be paid at par plus accrued interest from the reopening of the
books to the date of payment. In either case checks for the full six months'
interest due on the last day of the closed period will be forwarded to the owner
in due course. All bonds submitted must be accompained by Form PD 1782,^
properly completed, signed and sworn to, and by proof of the representatives'
authority in the form of a court certificate or a certified copy of the representatives'
letters of appointment issued by the court. The certificate, or the certification
to the letters, must be under the seal of the court, and except in the case of a
corporate representative, must contain a statement that the appointment is
in full force and be dated within six months prior to the submission of the bonds,
unless the certificate or letters show that the appointment was made within one
year immediately prior to such submission. Upon payment of the bonds appropriate memorandum receipt will be forwarded to the representatives, which will
be followed in due course by formal receipt from the District Director of Internal
Revenue.
"6. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds."
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington. Only the
Federal Reserve Banks and the Treasury Department are authorized to act as
official agencies. Commercial banks, which for this purpose are defined as banks
accepting demand deposits, may submit subscriptions for account of customers
provided the names of the customers are set forth in such subscriptions. Others
than commercial banks will not be permitted to enter subscriptions except for
their own account. Subscriptions from commercial banks for their own acQOunt
will be restricted in each case to an amount not exceeding 5 percent of the combined
amount of time and savings deposits, including time certificates of deposit,
or 15 percent of the combined capital, surplus, and undivided profits, of the
subscribing bank, whichever is greater. Subscriptions from banking institutions
generally for their own account and from States, political subdivisions or instrumentalities thereof, public pension and retirement and other public funds, and
dealers who make primary markets in Government securities and report daily to
the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon, will be received without deposit. Subscriptions from all others must be accompanied by payment of 25 percent of the
amount of bonds applied for, not subject to withdrawal until after allotment.
Following allotment, any portion of the 25 percent payment in excess of 25 percent
of the amount of bonds allotted may be released upon the request ofthe subscribers.
1 An exact half-year's interest is computed for each full half-year period irrespective of the actual number
of days in the half year. For a fractional part of any half year, computation is on the basis of the actual
number of days in such half year.
2 The transfer books are closed from March 2 to AprU 1 and from September 2 to October 1 (both dates
inclusive) in each yea,r.
8 Copies of Form P D 1782 may be obtained from any Federal Reserve Bank or from the Treasury Department, Washington, D.O.

EXHIBITS

227

2. All subscribers are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any
bonds of this additional issue, until after midnight January 15, 1^62.
3. Commercial banks in submitting subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
4. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, to allot less than the amount of bonds applied for, and to make
different percentage allotments to various classes of subscribers; and any action
he may take in these respects shall be final. The basis of the allotment will be
publicly announced, and allotment notices will be sent out promptly upon allotment.
IV.

PAYMENT

1. Payment at 99.75 percent, of their face value and accrued interest from
October 1, 1961, to January 24, 1962 ($12.63736 per $1,000), for bonds allotted
hereunder must be made or completed on or before January 24, 1962, or on later
allotment. The total amount of such payment will be $1,010.13736 per $1,000
face amount of bonds allotted. In every case where payment is not so completed,
the payment with application up to 25 percent of the amount of bonds allotted
shall, upon declaration made by the Secretary of the Treasury in his discretion,
be forfeited to the United States. Any qualified depositary will be permitted to
make payment by credit in its Treasury tax and loan account for bonds allotted
to it for itself and its customers up to any amount for which it shall be qualified
in excess of existing deposits, when so notified by the Federal Reserve Bank of its
district.
V. G E N E R A L P R O V I S I O N S

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

Secretary of ihe Treasury.
DEPARTMENT CIRCULAR NO. 4-62.

PUBLIC DEBT

TREASURY DEPARTMENT,

Washington, February 19j 1962.
I. OFFERING OF BONDS

i. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended,. invites subscriptions from the people of the
United States for bonds of the United States, designated 4 percent Treasury
bonds of 1971:
(1) at par in exchange for 3 percent Treasury bonds of 1964, dated February 14, 1958, due February 15, 1964; or
(2) at 102.percent of their face value in exchange for 2^^ percent Treasury
bonds of 1965, dated June 15, 1958, due February 15, 1965. The cash
payment due from the subscriber on account of the issue price of the new
bonds ($20.00 per $1,000) will be payable by the subscriber as set forth in
section IV hereof.
Interest will be adjusted as of March 1, 1962, as set forth in section IV hereof.
Delivery of the new bonds will be made on March 9, 1962. The amount of the
offering under this circular will be limited to the amount of the eligible securities
tendered in exchange and accepted. The books will be open for the receipt of
subscriptions for this issue from all classes of subscribers from February 19 through

228

1962 REPORT OF THE SECRETARY OF THE TREASURY

February 21, 1962, and, in addition, subscriptions may be submitted by individuals through February 28, 1962. For this purpose individuals are defined as
natural persons in their own right.
2. In addition to the offering under this circular, holders of the 2J^ percent
Treasury bonds of 1965 are offered the privilege of exchanging all or any part of
such bonds for 4 percent Treasury bonds of 1980, which offering is set forth in
Department Circular, Public Debt Series—No. 5-62, issued simultaneously with
this circular.
3. Nonrecognition of gain or loss for Federal income tax purposes.—Pursuant to
the provisions of section 1037(a) of the Internal,Revenue Code of 1954 as added
by Public Law 86-346 (approved September 22, 1959), the Secretary of the
Treasury hereby declares that no gain or loss shall be recognized for Federal
income tax purposes upon the exchange with the United States of the eligible
bonds enumerated in paragraph one of this section solely for the 4 percent Treasury bonds of 1971. Gain or loss, if any, upon the obligations surrendered in
exchange will be taken into account upon the disposition or redemption of the
new obligations.
II. DESCRIPTION OP BONDS

1. The bonds will be dated March 1, 1962, and will bear interest from that date
at the rate of 4 percent per annum, payable on a semiannual basis on August 15,
1962, and thereafter on February 15 and August 15 in each year until the principal
amount becomes payable. They will mature August 15, 1971, and will not be
subject to call for redemption prior to maturity.
2. The income derived from the bonds is subject to all taxes imposed under
the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt frorri all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
3. The bonds will be acceptable to secure deposits of public moneys. They
will not be acceptable in payment of taxes.
4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, arid $1,000,000. Provision will be made for the interchange
of bonds of different denominations and of coupon and registered bonds, and for
the transfer of registered bonds, under rules and regulations prescribed by the
Secretary of the Treasury.
5. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, goyerning United States bonds.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington 25, D.C.
Banking institutions generally may submit subscriptions for account of customers,
provided the names of the customers are set forth in such subscriptions,, but only
the Federal Reserve Banks and the Treasury Department are authorized to act
as official agencies.
2. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of bonds applied for; and any
action he may take in these respects shall be final. Subject to these reservations,
all subscriptions will be allotted in full. Allotment notices will be sent out
promptly upon allotment.

EXHIBITS
IV.

229

PAYMENT

1. Payment for the face amount of bonds allotted hereunder must be made on
or before March 9, 1962, or on later allotment, and may be made only in a like
face amount of the two series of bonds enumerated in paragraph one of section I
hereof, which should accompany the subscription.
2. 8 percent bonds of 1964-—Coupons dated August 15, 1962, and all subsequent coupons, must be attached to'the 3 percent Treasury bonds of 1964, in
bearer form, when surrendered. Accrued interest from February 15 to March 1,
1962 ($1.16022 per $1,000) will be paid to subscribers, in the case of bearer bonds
following their acceptance and in the case of registered bonds following discharge
of registration. In the case of registered bonds, the payment will be made by
check drawn in accordance with the assignments on the bonds surrendered, or by
credit in any account maintained by a banking institution with the Federal
Reserve Bank of its district.
3. 2ys percent bonds of 1965.—Coupons dated August 15, 1962, and all subsequent coupons, must be attached to the 2% percent Treasury bonds of 1965, in
bearer form, when surrendered. Accrued interest from, February 15 to March 1,
1962 ($1.01519 per $1,000) on the 2^^ percent bonds will be credited, the payment
($20.00 pier $1,000) due the United States on account of the issue price of the
new bonds will be charged, and the difference ($18.98481 per $1,000) must be
paid by subscribers and should accompany the subscription.
V. A S S I G N M E N T

OF R E G I S T E R E D

BONDS

1. Treasury bonds of the two eligible series in registered form tendered in
payment' for bonds offered hereunder should be assigned by the registered payees
or assignees thereof, in accordance with the general regulations of the Treasury
Department governing assignments for transfer or exchange, in one of the forms
hereafter set forth, and thereafter should be surrendered to a Federal Reserve
Bank or branch or to the Office of the Treasurer of the United States, Washington 25, D.C. If the new bonds are desired registered in the same name as the
bonds s.urrendered in exchange, the assignment should be to "The Secretary of
the Treasury for exchange for 4 percent Treasury bonds of 1971"; if the new bonds
are desired registered in another name, the assignment should be to "The Secretary of the Treasury for exchange for 4 percent Treasury bonds of 1971 in the
name of
"'; if new bonds in coupon form are desired, the assignment
should be to "The Secretary of the Treasury for exchange for 4 percent Treasury
bonds oi 1971 in coupon form to be delivered to
".
VI. GENERAL

PROVISIONS

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

DOUGLAS DILLON,

Secreiary of ihe Treasury,

Summary of information pertaining to Treasury honds issued during ihe fiscal year 1962

to
Department
circular
D a t e of
prelimin a r y announcement
Number

Concurrent
exchange
offering
circular
number

Date

1961
Tuly 13

1064

1961
Tuly 17

1062,1063

Sept.

1065

Sept. 11

1066,1067

Sept.

1066

Sept. 11

1065,1067

Sept.

1067

Sept. 11

1065,1066

Nov.

1070

Nov.

1069,1071

Nov.

N o v . 17

1071

Nov.

6
6

1072

N o v . 17

1962
Tan. 11

1-62

1962
Tan. 15

F e b . 15

4-62

F e b . 19

F e b . 15
F e b . 15

5-62
6-62

F e b . 19
F e b . 19

1069,1070

D a t e of
issue

T r e a s u r y b o n d s issued for exchange or for cash

1960
T u n e . 231
3J^ percent of 1968 (additional issue) issued a t 99 375 in exchange for—
3 ^ p e r c e n t Series C—1961 certificates m a t u r i n g A u g u s t 1, 1961,
4 percent Series A—1961 notes m a t u r i n g A u g u s t 1,1961,2M percent T r e a s u r y b o n d s of
1961 m a t u r i n g S e p t e m b e r 15, 1961,
1]^ p e r c e n t Series E 0—1961 notes, m a t u r i n g October 1, 1961.
334 p e r c e n t of 1980 (additional issue) issued a t prices i n d i c a t e d below in exchange f o r — . . . Oct. 33
21^ p e r c e n t T r e a s u r y b o n d s of 1965-70, m a t u r i n g M a r c h 15, 1970 (102.25),
1958
21^ p e r c e n t T r e a s u r y b o n d s of 1966-71, m a t u r i n g M a r c h 15, 1971 (103.50).
S}i p e r c e n t of 1990 (additional issue) issued a t prices i n d i c a t e d below in exchange f o r — . . . F e b . 143
21^ p e r c e n t Treasm-y b o n d s of 1965-70, m a t u r i n g M a r c h 15, 1970 (99.00).
21^ p e r c e n t T r e a s u r y b o n d s of 1966-71, m a t u r i n g M a r c h 15, 1971 (100.25).
1960
33
SH percent of 1998 (additional issue) issued at prices indicated below in exchange f o r — . . . Oct.
2H p e r c e n t T r e a s u r y b o n d s of 1965-70, m a t u r i n g M a r c h 15, 1970 (98.00),
2 H p e r c e n t T r e a s u r y b o n d s of 1966-71, m a t u r i n g M a r c h 15, 1971 (99.00).
SH percent of 1966 (additional issue) issued at 99.75 in exchange for—__
21^ p e r c e n t T r e a s u r y b o n d s of 1961, m a t u r i n g N o v e m b e r 15,1961.
S H percent of 1974 (additional issue) issued a t 99,00 in exchange for—
21^ p e r c e n t T r e a s u r y b o n d s of 1961, m a t u r i n g N o v e m b e r 15, 1961.

5-62

4-62
7-62

. . . .

SH p e r c e n t of 1990 ( a d d i t i o n a l i s s u e ) issued a t prices
2 H p e r c e n t T r e a s u r y b o n d s of 1967-72, m a t u r i n g
. 21^ p e r c e n t T r e a s u r y b o n d s of 1967-72, m a t u r i n g
2 H p e r c e n t T r e a s u r y b o n d s of 1967-72, m a t u r i n g

Allotment
payment
date on
or before
(or o n
later
allotment)

1961
1961
Tuly 19 2 A u g .

1980
N o v . 15

6 S e p t . 29

1990
F e b 15

6 S e p t . 29

CO
Oi

O
>^
o

Ul
7 S e p t . 29

1966
N o v . 158 M a y 15

Nov.

9 9 N o v . 15

1957
1974
D e c . 28 N o v . 15

Nov.

9 10 N o v . 15

1962
Mar. 1

• ^

1998
N o v . 15

1957
1969
Oct. 1 " Oct.
1

4 p e r c e n t of 1971 issued a t p a r or a price as i n d i c a t e d below in exchange for— _ _
3 p e r c e n t T r e a s u r y b o n d s of 1964, m a t u r m g F e b r u a r y 15, 1964 ( p a r ) ,
2 H p e r c e n t T r e a s u r y b o n d s of 1965, m a t u r m g F e b r u a r y 15,1965 (102.00).
4 p e r c e n t of 1980 (additional issue) issued at 100.25 in exchange for—
2 H p e r c e n t T r e a s u r y b o n d s of 1965, m a t u r i n g F e b r u a r y 15,1965.

1968
M a y 15

1968
1960
Tune 2 3 " M a y 15

S H p e r c e n t of 1968 (additional issue) issued at 99.50 in exchange for-^—_
U . S . savings b o n d s of Series F a n d G, m a t u r i n g i n t h e calendar year 1962.
4 p e r c e n t of 1969 (additional issue) issued for cash a t 99.75

D a t e of
maturity

Date
subscription
books
closed

1971
A u g . 15

(12)

13 D e c . 20

1962
1962
Tan. 15 " J a n . 24
(16)

17 M a r . 9

Ul
.

1980
1959
Tan. 2318 F e b . 15 .

1990
1958
i n d i c a t e d below in exchange f o r - . . _ F e b . 1418 F e b . 15
S e p t e m b e r 15, 1972 (101.50),
Tune 15,1972 (101.25),
D e c e m b e r 15, 1972 (101.75).

(16)

•18Mar. 9

(16)

20 M a r . 16

Feb. 15 .

7-62

Feb. 19 1

SH percent of 1998 (additional issue) issued at par or prices as indicated below in exchange
for—.
21-^ percent Treasury bonds of 1967-72, maturing September 15,1972 (100.25),
2H percent Treasury bonds of 1967-72, maturing Tune 15,1972 (par),
21^ percent Treasury bonds of 1967-72, maturing December 15,1972 (100.50).

Apr.

8-62

Apr. 9

SH percent of 1968 issued for cash at par

Apr. 26

11-62

Apr. 30

Oct. 31 Nov. 15

Apr. 18

1968
Aug. 15

(16)

Apr.

21 Mar. 16

9 22 Apr. 18

1971
Nov. 15

SH percent of 1971 issued at 99.50 in exchange for—
May 15
May 2 23 May 15
3 percent Series A—1962 certificates, maturing May 15, 1962,
4 percent Series E—1962 notes, maturing May 15, 1962,
2H percent Treasury bonds of 1959-62, maturing Tune 15, 1962.
8 Interest payable from November 15, 1961.
1 Interest payable from August 1, 1961, in the case of the certificates, the notes ma8 Coupons dated November 15, 1961, were detached from the maturing 21^ percent
turing August 1,1961, and the bonds; and from September 1,1961, in the case of the notes
Treasury bonds of 1961 in bearer form by holders and cashed when due. In the case
maturing October 1,1961.
of registered bonds final interest was paid by check drawii in accordance with assign2 See Department Circular No. 1064, sections III and IV, in this exhibit, for provisions
ments on the bonds. A cash payment of $2.50 per $1,000 (on account of the issue price
for subscription and payment.
of the new bonds) was made to subscribers in the case of bearer bonds following their
3 Interest payable from September 15,1961.
acceptance and in the case of registered bonds following discharge' of registration.
4 For individuals (natural persons in their own right) books closed September 20,
10 Coupons dated November 15, 1961, were detached from the 2H percent Treasury
1961; and for all other classes of subscribers, September 15,1961.
bonds of 1961 in bearer form by holders and cashed when due. In the case of registered
6 Coupons dated September 15, 1961, were detached from the 2H percent Treasury
bonds final interest was paid by check drawn in accordance with assignments on the
bonds of 1965-70 and 1966-71 in bearer form by holders and cashed when due. In the
bonds. A cash payment of $10.00 per $1,000 (on account of the issue price of the new
case of registered bonds, interest was paid by check in the regular course. Coupons
bonds) was made to subscribers in the case of bearer bonds following their acceptance
dated March 15,1962, and all subsequent coupons, were required to be attached to the
and in the case of registered bonds following discharge of registration.
bonds when surrendered. Accrued interest from May 15 to September 15, 1961
11 Interest payable from December 15,1961.
($11.69837 per $1,000), on the bonds issued and the payment ($22.50 per $1,000 for the
bonds of 1965-70 and $35.00 per $1,000 for the bonds of 1966-71) due on account of the
12 For individuals (natural persons in their own right) books closed November 30,
issue prices of the new bonds were paid by subscribers.
1961; and for all other classes of subscribers, November 24,1961.
s Coupons dated September 15, 1961, were detached from the 2H percent Treasury
13 See Department Cii-cular No. 1072, sections III and IV, in this exhibit, for probonds of 1965-70 and 1966-71 in bearer form by holders and cashed when due. In the
visions for subscription and payment.
case of registered bonds, interest was paid by check in the regular course. Coupons
i< Interest payable from Tanuary 24, 1962.
dated March 15,1962, and all subsequent coupons, were required to be attached to the
bonds when surrendered. Accrued interest from August 15 to September 15, 1961
16 See Department Circular No. 1-62, sections III and IV, in this exhibit, for pro($2.94837 per $1,000), on the bonds issued was charged to subscribers. In the case of
visions for subscription and payment.
the bonds of 1965-70, the accrued interest was deducted from the payment ($10.00 per
Ifl For individuals (natural persons in their own right) books closed February 28,
$1,000) due subscribers on account of the issue price of the new bonds and the difference
1962; and for all other classes of subscribers, February 21,1962.
($7.05163 per $1,000) was paid to subscribers in the case of bearer bonds following their
17 See Department Circular No. 4-62, sections III and IV, in this exhibit, for proacceptance, and in the case of registered bonds following discharge of registration. In
visions for subscription and payment.
the case of the bonds of 1966-71, a cash payment of $5.44837 per $1,000 (representing
18 Interest payable from March 1,1962.
accrued interest on the new bonds plus $2.50 per $1,000 due to the Treasury on account
18 Coupons dated August 15, 1962, and all subsequent coupons, were required to be
of the issue price of the new bonds) was made by subscribers.
attached to the 2H percent Treasury bonds of 1965 in bearer form when surrendered.
Accrued interest from February 15 to March 1, 1962 ($1.01519 per $1,000), on the 2H
7 Coupons dated September 15, 1961, were detached from the 2H percent Treasury
percent bonds was credited; accrued interest from February 15 to March 1,1962 ($1.54696
bonds of 1965-70 and 1966-71 in bearer form by holders and cashed when due. In the
per $1,000), plus the payment ($2.50 per $1,000), due on account of the issue price of
case of registered bonds, interest was paid by check in the regular course. Coupons
the new bonds was charged; and the difference ($3.03177 per $1,000) was paid by subdated March 15,1962, and all subsequent coupons, were required to be attached to the
scribers.
bonds when surrendered. Accrued interest from May 15 to September 15, 1961
($11.69837 per $1,000) on the bonds issued was charged to subscribers. In the case of
20 Coupons dated March 15, 1962, and all subsequent coupons, were required to be
the bonds of 1965-70, the accrued interest was deducted from the payment ($20.00 per
attached to the 2H percent bonds due September 15, 1972, in bearer form, when sur$1,000) due subscribers on account of the issue price of the new bonds and the difference
rendered. Accrued interest from September 15, 1961, to March 1, 1962 ($11.53315 per
($8.30163 per $1,000) was paid to subscribers in the case of bearer bonds following their
$1,000), on the 2H percent bonds was credited; accrued interest from February 15 to
acceptance and in the case of registered bonds following discharge of registration. In
March 1,1962 ($1.35359 per $1,000), plus the payment ($15.00 per $1,000) due on account
the case of the bonds of 1966-71, a cash payment of $1.69837 per $1,000 (representing
of the issue price of the new bonds was charged; and the difference ($4.82044 per $1,000)
accrued interest on the new bonds less $10.00 per $1,000 due the subscriber on account
was paid by subscribers. Coupons dated Tune 15, 1962, and all subsequent coupons,
of the issue price of the new bonds) was made by subscribers.
were required to be attached to the 2H perceat bonds due Tune 15,1972, in bearer form.
(Footnotes- continued on following page)

9-62,10-62

fcO
CO

charged; and the difference ($5.02884 per $1,000) was paid by subscribers. Coupons
when surrendered. Accrued interest from December 15,1961, to March 1,1962 ($5.21978
dated Tune 15, 1962, and all subsequent coupons, were requhred to be attached to the
per $1,000), on the 2H percent bonds was credited; accrued interest from February 15
2H percent bonds due December 15, 1972, in bearer form when surrendered. Accrued
to March 1, 1962 ($1.36359 per $1,000), plus the payment ($12.50 per $1,000) due on acinterest from December 15, 1961, to March 1, 1962 ($5.21978 per $1,000), on the 2H pereount of the issue price of the new bonds was charged; and the difference ($8.63381 per
cent bonds was credited; accrued interest from November 15, 1961, to March 1, 1962
$1,000) was paid by subscribers. Coupons dated Tune 15, 1972, and all subsequent
($10.24862 per $1,000), plus the payment ($5.00 per $1,000) due on account of the issue
coupons, were required to be attached to the 2H percent bonds due December 15, 1972,
price of the new bonds was charged; and the difference ($10.02884 per $1,000) was paid
in bearer form, when surrendered. Accrued interest from December 15, 1961, to
by subscribers.
March 1, 1962 ($5.21978 per $1,000), on the 21^ percent bonds was credited; accrued
interest from February 15 to March 1, 1962 ($1.35359 per $1,000), plus the payment
22 Qualified depositaries were permitted to make payment by credit in Treasury tax
($17.50 per $1,000) due on account of the issue price of the new bonds was charged; and
and loan accounts for bonds allotted to them and their customers up to any amount
the difference ($13.63381 per $1,000) was paid by subscribers.
for which they were qualified in excess of existing deposits.
23 Coupons dated May 15, 1962, were detached from the 3 percent certificates of in21 Coupons dated March 15, 1962, and all subsequent coupons, were required to be
debtedness of Series A-1962 and the 4 percent Treasury notes of Series E-1962 in
attached to the 2H percent bonds due September 15, 1972, in bearer form when surbearer form and cashed when due. The cash payment of $5.00 per $1,000 on account
rendered. Accrued interest from September 15, 1961, to March 1, 1962 ($11.53315 per
of the issue price of the new bonds was made to subscribers, in the case of.registered
$1,000), on the 21^ percent bonds was credited; accrued interest from November 15,
securities following release of registration and in the case of bearer securities following
1961, to March 1, 1962 ($10.24862 per $1,000), plus the payment ($2.50 per $1,000) due on
their acceptance. Coupons dated Tune 15, 1962, were required to be attached to the
account of the issue price of the new bonds was charged; and the difference ($1.21547
2H percent Treasury bonds of 1959-62 in coupon form when surrendered. Accrued
per $1,000) was paid by subscribers. Coupons dated Tune 15, 1962, and all subsequent
mterest from December 15, 1961, to May 15, 1962 ($9.33379 per $1,000), together with
coupons, were required to be attached to the 2H percent bonds due Tune 15, 1972, in
the cash payment ($5.00 per $1,000) was paid to subscribers in the case of registered
bearer form when surrendered. Accrued interest from December 15,1961, to March 1,
1962 ($5.21978 per $1,000), on the 2H percent bonds was credited; accrued interest from ' bonds following release of registration and in the case of bearer bonds following their
November 15, 1961, to March 1, 1962 ($10.24862 per $1,000), due on the new bonds was . acceptance.

to
00

O
O

W
Ul

O
?d

Allotments of Treasury bonds issued during the fiscaL year 1962, by Federal Reserve districts
[In thousands]
S H p e r c e n t T r e a s u r y b o n d s of 1968 ( a d d i t i o n a l issue) issued in exchange for—i
F e d e r a l R e s e r v e district

Boston
...
NewYork
. _.
Philadelphia..
Cleveland
.-_
Richmond
Atlanta
Chicago -S t . Louis
Minneapolis
Kansas City,
Dallas
1
SanFrancisco
Treasury

S H percent
Series C-1961
certificates
maturing
A u g . 1,1961 2

_
_.

. . . . ._
_

.
_.

Total bond allotments__.:
Securities ehgible for exchange:
E x c h a n g e d i n c o n c u r r e n t offerings
T o t a l exchanged
N o t s u b m i t t e d for e x c h a n g e . .
T o t a l securities ehgible for exchange

_. . .

._ ._

_. _ . . .

$14,125
84,322
2,436
1,164
257
3, 630
11,127
1,617
712
3,462
1,852
6.475
104

4 percent
Series A-1961
T r e a s u r y notes
maturing
A u g . 1,19612

2H percent
Treasury bonds
of 1961 m a t u r i n g
Sept. 15,19612

11^ p e r c e n t
Series EO-1961
Treasury notes
maturing
Oct. 1,1961 2

- $18,094
100, 664
5,993
12,439
5,354
11,175
47,493
13,424
6,571
19,898
15,904
11,980
20,281

$11,205
173,344
8,240
17,395
2,491
3,648
35, 813
7,446
4,167
12,622
6,487
13,153
24,301

$8
4,220
54
166
30
115
1,595
746
30
634
554
104

T o t a l issued

$43,432
362,550
16,723
31,164
8,132
18, 568
96,028
23,233
11,480
36, 616
24,797
31,712
44,686

131,283

289,270

320,312

8,256

749,121

7,609,556

1,648,478

1, 570,882

271, 561

11,100,477

7, 740, 839
87,936

1,937, 748
197,865

1,891,194
348,066

279,817
52,158

11, 849,598
686,025

7, 828,775

2,135, 613

2,239,260

331,975

12, 535, 623

Footnotes at end of table.

bO
00
CO

Allotments of Treasury honds issued during ihe fiscal year 1962, by Federal Reserve districts—Continued
[Iu thousands]
1:0
sy2 p e r c e n t T r e a s u r y b o n d s of 1980 (additional issue)
issued in exchange for— 3
F e d e r a l Reserve district

Boston
NewYork
Philadelphia
Cleveland
_.
RichmondAtlanta
Chicago.
St. Louis
Minneapolis
Kansas City
Dallas
S a n Francisco
Treasury

2 K percent
Treasury bonds
of 1965-70
maturing Mar.
15, 1970 4

2H percent
Treasury bonds
of 1966-^71
maturing Mar.
15, 1971 4

$171,691
346,307
17,761
23,208
10,196
4,415
27,990
4,756
3,337
4,958
18, 999
15, 636
385,468

$60,164
110,777
13,136
10,347
1,056
924
13,259
1,277
2,520
2,116
14,866
6,929
444

T o t a l issued

$231,855
457,084
30,897
33,555
11,252
• 5,339
41,249
6,033
,5,857
7,074
33,865
22,565
385,912

33^ percent T r e a s u r y b o n d s of 1990 (additional issue)
issued in exchange for— 3
2H percent
Treasury bonds
of .1965-70
maturmg Mar.
15, 1970 5

23^ p e r c e n t
Treasury bonds
of .1966-71
maturing Mar.
15, 1971 6

$39,207
418,979
25,181
11, 736
34, 670
7,198
30,839
7,236
•4,547
29,071
27,281
10,732
75, 051

$51,351
368,783
36,035
11,190
5,550
733
24,345
6,534
1,276
9,597
5,479
2,769
52,157

T o t a l issued

$90,558
787,762
61,216
22,926
40,220
7,931
55,184
13,770
5,823
38, 668
32,760
13, 501
127,208

Total bond allotments
Securities eligible for exchange:
E x c h a n g e d in c o n c u r r e n t offerings

1,034,722

237,815

1,272,537

721, 728

575, 799

1,297,527

1,216,533

1,267,875

2,484,408

1,529, 527

929,891

2,459,418

Total exchanged-N o t s u b m i t t e d for e x c h a n g e . . _

2,251,255
2,436,351

1,505, 690
1,421,801

3,756,945
3,858,152

2,251, 255
2, 436, 351

1, 505, 690
1,421,801

3,756,945
3,858,152

4, 687, 606

2, 927, 491

4, 687, 606

2, 927, 491

7,615,097

T o t a l securities eligible for exchange.

O
S3

K
Ul
K
Q

>
o

^
H^
d

SH p e r c e n t T r e a s u r y b o n d s of 1998 ( a d d i t i o n a l issue)
issued i n exchange for— 3
2H percent
2H percent
Treasury bonds Treasury bonds
of 1965-70 m a t u r - of 1966-71 m a t u r ing M a r . 15,
ing M a r . 15,
19716
1970 6

F e d e r a l R e s e r v e district

Boston.-.N e w York
Philadelphia
Cleveland
Richmond...
Atlanta
Chicago
St. Louis
Minneapolis.
Kansas City
DaUas
S a n Francisco
T r e a s u r y __

_°.
-..

.._

:
._

_...

.-.

... . _

Total bond allotments..
Securities ehgible for exchange:
E x c h a n g e d i n c o n c u r r e n t offerings

...

T o t a l exchanged
N o t s u b m i t t e d for exchange
T o t a l securities eligible for exchange

...

...
. - . _.
.

$6, 229
370, 973
3,953
46, 398
693
5,297
6,526
983
618
15,060
1,726
26, 509
9,940

$8, 347
306,846
8,951
19, 800
5,023
2, 329
13,616
1,307
463
18, 995^
22,158
18, 435
265, 806

T o t a l issued

$14, 576
677,819
. 12, 904
66,198
5,616
7,626
20,142
2,290
1,081
34,055
23, 884
44, 944
275,746

SH percent
SH percent
Treasury bonds Treasury bonds
of 1974 (addiof 1966 (addit i o n a l issue)
tional issue)'
issued in exissued in exc h a n g e for 2}-^
c h a n g e for 2 H
percent Treasury percent T r e a s u r y
b o n d s of 1961
b o n d s of 1961
maturing Nov.
maturing Nov;
15, 1961 1 7
15, 1961 18
$124, 512
1,049,888
52, 664
116,858
38, 535
45, 558
383,089
80, 486
84.081
101,943
74,122
226, 832
5,796

$4,454
430; 669
4,841
3, 955
3,162
1,803
31, 579
5,766
1,977
8;965
2,536
16, 624
1,091

494, 805

692,076

1,186, 881

2,384,364

517, 422

1,756, 450

813, 614

2, 570, 064

4,159, 886

6,026,'82S

2, 251, 255
2,436, 351

1,505,690
1, 421, 801

3, 756, 945
3, 858,152

6, 644, 250
419,227

6, 544, 250^
419, 227

4, 687, 606

2, 927, 491

7, 615,097

6,963,477

6,963, 477

^
I—f
y^

Footnotes at end of table.

to=
03:

Cr?;

Allotments of Treasury bonds issued during the fiscal year 1962, by Federal Reserve districts—Continued
[In thousands]

Federal Reserve district

4 percent Treasury bonds of 1971 issued in
SH percent Treasury bonds of 1968 (additional issue) issued in
exchange for— 3
exchange for Series F and Series G savings bonds maturing in
4 percent
the calendar year 1962 i
Treasury bonds
of 1969 (additional, issue)
Series F
3 percent
2H percent
Series G
issued for
Cash difl'ersavings bonds savings bonds
Treasury bonds Treasury bonds Total issued
cash 10
Total issued 9
exchanged
exchanged
ences
of 1964 maturing of 1965 maturing
Feb. 15, 1964 Feb. 15, 1965'!

Boston
NewYork
Philadelphia
Cleveland
Richmond
Atlanta.---Chicago..
St. Louis.
Minneapolis
Kansas City.
Dallas
San Francisco
Treasury
Government mvestment accounts..

$1,423
5,347
2,992
2,821
1,351
2,374
17, 451
3,917
5,246
4,100
1,017
847
230

$23,104
43,438
19,961
21, 558
16,311
11,381
• 48,514
19,728
13, 538
23,472
8,916
19,032
2,030

$11
49
39
24
14
13
75
24
14
17
8
15
6

$24, 538
48,834
22,992
24,403
17,676
13,768
66,040
23,669
18, 797
27, 589
9,941
19,894
2,266

$66,933
298, 502
58,896
75,112
48,326
59,814
161,185
44, 349
39,111
45.139
43,451
73,149
369
100,000

$44, 696
434, 609
39,856
54,812
22,987
31, 609
212. 448
51,862
53,459
53,101
57, 613
93,164
4,042

$43, 707
1,025,961
50,142
42,941
22, 733
42, 650
225,340
39, 283
24, 209
44, 880
33,342
52. 588
3, 593

$88,403
1, 460,57089,998
97, 753
45, 720
74, 259
437,788
91,145
77, 668
97,981
90, 955
145, 752
7,635

Total bond aUotments
Securities eligible for exchange:
Exchanged in concurrent ofierhags.

49,115

270,983

309

320,407

1,114, 336

1,154,258

1,651, 369

2, 805, 627

Total exchanged
Not submitted for exchangeTotal securities eligible for exchange.

270,983

320,407

562, 596

1,154, 258
2, 699,924

2, 213,965
4,682, 269

3,368, 223
7, 382,193

3,854,182

P, 896, 234

10,750,416

Ul
O

>
O

d
Kj

4 p e r c e n t T r e a s - SH p e r c e n t T r e a s u r y b o n d s of 1990 ( a d d i t i o n a l issue) issued i n exchange
u r y b o n d s of 1980
for— 3
( a d d i t i o n a l issue)
issued i n exchange for 2 H
2H p e r c e n t
2 H percent
2H percent
percent Treasury Treasurv bonds Treasury bonds Treasury bonds
b o n d s of 1965
of 1967-72 m a T o t a l issued
of 1967-72 m a of 1967-72 m a t u r i n g Dec. 15,"
maturing Feb.
t u r i n g S e p t . 15,
t u r i n g Tune 15,
1972 13
1972 13
15, 1965 312
1972 13

'
F e d e r a l Reserve district

Boston
_N e w Y o r k - . .__
Philadelphia
Cleveland _ .
Richmond
Atlanta.
Chicago
St. L o u i s .
Minneapolis
Kansas City
Dallas
S a n Francisco
Treasury

.
_. . . . . . . _ . . .

...

..
..
.

...

..
.

. . .

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

_._
..

._
.

.. . ...
. . _ . . .

_ . _ .
.

... .

$6, 881
452, 050
4,771
9,935
5, 588
8,250
32,386
4, 659
1,725
9,647
12,390
12,385
1,929

$6,693
146,119
15, 802
8,211
12,067
2.538
25,417
2,983
773
2,381
3.550
5,079
1,623

$8,747
250,016
20,015
11,862
7,462
5,557
15,351
3,050
1,570
3,071
7,079
10, 464
400

$12.431
166,826
21,288
20.494
7,147
4,369
45.931
8,846
3, 527
5,111
10,152
14,667
1,486

•$27,871
562,961
57,105
40 567
26,676
12.464
86, 699
14 879
5,870
10 563
20,781
30,210
3,509
900 155

562, 596

233,236

344, 644

322, 275

1,651,369

180, 505

419,513

333,406

933,424

2,213,965
4,682,269

413,741
1,343,487

764,157
1,951,816

655, 681
2,869,658

1.833,579
6,154,961

6,896,234

1,757,228

2, 715,973

3,515,339

7,988, 540

ft
X
ffi
Ul

Footnotes at end of table.

to •
OO

tSD
OO
(X)

Allotments of Treasury bonds issued during the fiscal year 1962, by Federal Reserve districts—Continued
CJ

[In thousands]

S3
SH p e r c e n t TrearSury b o n d s of 1998 ( a d d i t i o n a l issue) issued in exchange
for—3
F e d e r a l R e s e r v e district

Boston
NewYork.
Philadelphia
.
Cleveland
Richmond
Atlanta
Chicago
.. .
S t . Louis
Minneapolis
.
KansasCity
Dallas
SanFrancisco
Treasury.
G o v e r n m e n t i n v e s t m e n t accounts

. .
. .
..

T o t a l b o n d aUotments
Securities ehgible for exchange:
E x c h a n g e d i n c o n c u r r e n t offerings
T o t a l exchanged
N o t s u b m i t t e d for e x c h a n g e . . .
T o t a l securities eligible for exchange

21^ percent
Treasury bonds
of 1967-72 m a t u r i n g Tune 15,
1972 1*

2ir^ p e r c e n t
Treasury bonds
of 1967-72 m a t u r i n g S e p t . 15,
1972 1*

21^ p e r c e n t
Treasury bonds
of 1967-72 m a t u r i n g D e c . 15,
197214

$9,173
96,515
6,085
6,330
5,834
2,943
13,152
a, 724
1,337
14,116
9,979
8,076
3,241

$467
338,196
5,609
6,030
5,404
1,077
8,388
5,224
1,264
30,873
5, 061
2,681
9,239

$11,500
182,841
13,818
14,641
7,332
6,267
29,465
9,687
2,509
24,462
9,081
16,000
5,803

180,505

419,513

233,236

344, 644

413,741
1,343,487
1,757, 228

SH p e r c e n t
Treasury bonds
of 1968 issued
for cash is
T o t a l issued

$21,140
617,552
25, 512
27,001
18,570
10,287
51,005
18,635
5,110
69,451
24,121
26,757
18,283

$61,655
430,897
43,828
71,931
47,730
55,410
170,077
44,268
32,555
41,936
40,849
126,258
156
100,000

333,406

933,424

1,257,540

322,275

900,155

764,15'"
1,951,816

655, 681
2,859, 658

1,833, 579
6,154,961

2, 715,973

3, 515,339

7, 988, 540

O
S3
H9

O
S3
ft

^
S3
O
ft
ft
S3
ft

>
d
Ul

SH p e r c e n t T r e a s u r y b o n d s of 1971 issued in exchange f o r ^ i
3 percent
Series A-1962
certificates
maturing
M a y 15, 1962 lo

F e d e r a l R e s e r v e district

Boston
NewYork. .
Philadelphia
ClevelandRichmond
Atlanta
Chicago
_
St. Louis
Minneapolis
Kansas City
Dallas. .
S a n Francisco
Treasury..

_
.

. .

._
_

.- --•

_.
_
.

_-- _
--

.
_- . . .
._
_ _.'.

. -_
..

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

..... .

--.

. ...

T o t a l securities eUgible for exchange

1 Subscriptions were allotted in fuU.
2 334 percent Series H-1962 Treasury notes and SH percent Series E-1964 Treasury
notes were also offered in exchange for this security; see exhibit 2.
3 These exchanges were advance refundings. All subscriptions were allotted in full.
4 SH percent Treasury bonds of 1990 and SH percent Treasury bonds of 1998 were
also offered in exchange for this security.
5 SH percent Treasury bonds of 1980 and SH percent Treasury bonds of 1998 were
also offered in exchange for this securitj'"8 SH percent Treasury bonds of 1980 and SH percent Treasury bonds of 1990 were
also offered in exchange for this security.
7 SH percent Series E-1963 Treasury notes and SH percent Treasury bonds of 1974
were also offered in exchange for this security; see exhibit 2 and this exhibit, respectively.
8 SH percent Series E-1963 Treasury notes and SH percent Treasury bonds of 1960
were also offered in exchange for this security; see exhibits and this exhibit, respectively.

$4,096
305,127
4,472
9,533
6,167
14, 359
78,084
1,741
10, 360
7,844
10,596
12, 634

4 percent
Series E-1962
Treasury notes
maturing
M a y 15, 1962 le
$13,601
168,799
10, 218
7,484
1,776
10,962
22,621
9,019
16,906
12,379
3,493
6,468
38

214 p e r c e n t
Treasury bonds
of 1959-62
maturing
Tune 15. 1962 is
$5,457
281,695
10,716
19,782
4,204
3,752
38, 662
7,242
5,079
10,072
2,522
64,946
1,325

T o t a l issued

$23,054
755, 621
• 25,406
36, 799
12,147
29,073
139,367
18, 002
32,346
30,296
16, 611
84,048
1,363

465. 013

283, 664

455,454

1, 204,131

4,945,173

1, 769,950

3,084,498

9, 799, 621

5,410,186
99, 032

2,063,614
157,279

3. 639, 952
423,346

11, 003, 752
679, 667

5, 509,218

2,210,893

3,963,298

11, 683.409

ft
X

ffi
w
Ul

8 Exchanges together with cash differences necessary to make up- the next higher
$500 multiple.
10 Subscriptions from Government investment accounts were allotted in full. All
others were allotted 60 percent with subscriptions for $50,000 or less being allotted in
full and those for more than $60,000 being aUotted not less than $60,000.
11 4 percent Treasury bonds of 1980 were also offered in exchange for this security.
12 4 percent Treasury bonds of 1971 were also offered in exchange for this security.
13 SH percent Treasury bonds of 1998 were also offered in exchange for this security.
i< SH percent Treasury bonds of 1990. were also offered in exchange for this security.
1"^ Subscriptions from Government investment accounts were allotted in full. All
others were aUotted 15.percent with subscriptions for $50,000 or less being aUotted in
fuU and those for more than $50,000 being allotted not less than $50,000.
10 SH percent Series B-1963 certificates and 3 ^percent Series B-1966 Treasury notes
were also offered in exchange for this securit3^' see exhibits 1 and 2, respectively.
00
CO

240

1962 REPORT OF THE SECRETARY OF THE TREASURY
Treasury Bills Offered and Accepted
EXHIBIT 4.—Treasury bills

During tlie fiscal year 1962 tliere were 52 weekly issues each of 13-week and
-26-week Treasury bills (the 13-week bills represent additional issues of bills with
an original maturity of 26 weeks), 3 issues of tax anticipatioA series, 4 one-year
issues (one 364-day and three 365-day bills), and one issue of a strip of weekly
bills issued November 15, 1961, representing additional amounts of 8 series of
outstanding Treasury bills. Four press releases inviting tenders and four releases
announcing the acceptance of tenders are reproduced in this exhibit. The press
releases of June 13 and June 19, 1962, are in a form representative of a weekly
double issue of regular bills (91- and 182-day) in which there is an additional
issue of a currently outstanding issue of 182-day bills having 91 days remaining
before maturity and a new issue of 182-day bills. . The details of the issue of
strip bills are explained in the releases of November 2 and November 10, 1961.
The tax anticipation series is represented by the releases of March 13 and March
21, 1962, and the one-year bill issues are represented by the releases of April 3
and April 11, 1962. The essential details regarding each issue, of Treasury
bills during the fiscal year 1962 are summarized in the table following the releases.
PRESS RELEASE OF JUNE 13, 1962
The Treasury Department, by this public notice, invites tenders for two
series of Treasury bills to the aggregate amount of $2,000,000,000, or thereabouts,
for cash and in exchange for Treasury bills maturing June 21, 1962, in the amount
of $1,802,246,000, as follows:
91--day bills (to maturity date) to be issued June 21, 1962, in the amount of
$1,300,000,000, or thereabouts, representing an additional amount of bills dated
March 22, 1962, and to mature September 20, 1962, originally issued in the amount
of $600,081,000, the additional and original bills to be freely interchangeable.
182-day bills, for $700,000,000, or thereabouts, to be dated June 21, 1962,
and to mature December 20, 1962.
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest. They will be issued in bearer form
only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000,
and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty p.m., eastern daylight saving time, Monday, June 18,
1962. Tenders will not be received at the Treasury Department, Washington.
Each tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not more
than three decimals, e.g., 99.925. Fractions may not be used. It is urged that
tenders be made on the printed forms and forwarded in the special envelopes
which will be supplied by Federal Reserve Banks or branches on apphcation
therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. • Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury-bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect shall be final.
Subject to these reservations, noncompetitive tenders for $200,000 or less for the

241

EXHIBITS

additional bills dated March 22, 1962 (91 days remaining until maturity date on
September 20, 1962), and noncompetitive tenders for $100,000 or less for the 182day bills without stated price from any one bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids for the respective
issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on June 21, 1962, in cash or other
immediately available funds or in a like face amount of Treasury bills maturing
June 21, 1962. Cash and exchange tenders will receive equal treatment. Cash
adjustments will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
but are exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the possessions of the United States,
or by any local taxing authority. For purposes of taxation the amount of discount
at which Treasury bills are originally sold by the United States is considered to be
interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and
such bills are excluded from consideration as capital assets. Accordingly, the
owner of Treasury bills (other than life, insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or branch.
PRESS RELEASE OF JUNE 19, 1962
The Treasury Department announced last evening that the tenders for two
series of Treasury bills, one series to be an additional issue of the bills dated March
22, 1962, and the other series to be dated June 21, 1962, which were offered on
June 13, were opened at the Federal Reserve Banks on June 18. Tenders were
invited for $1,300,000,000, or thereabouts, of 91-day bills and for $700,000,000,
or.thereabouts of 182-day bills. The details of the two series are as follows:
91-day Treasury biUs maturing 182-day Treasury biUs maturing
September 20,1962
December 20,1962
Range of accepted competitive bids
Price
1 99.320
99.310
99.312

High....
Low
Average

Approximate
equivalent
annual rate
2.690%
2. 730%
8 2. 721%

Price
2 98. 592
98. 580
98. 585

Approximate
equivalent
annual rate
2. 785%
2.809%
3 2.800%

(73 percent of the amount of 91-day biUs bid for at the low price was accepted and 8 percent of the amount of
182-day bills bid for at the low price was accepted.)
1 Excepting 2 tenders totaling'$1,200,000.
2 Excepting 2 tenders totaling $250,000.
3 On a coupon issue of the same length and for the same amount invested, the return on these bills would
provide yields of 2.78 percent for the 91-day biUs, and 2.88 percent for the 182-day biUs. Interest rates on
bills are quoted in terms of bank discount with the return related to the face amount of the bills payable at
maturity rather than the amount invested and their length in actual number of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed in terms of interest on the amount
invested, and relate the number of days remaining in an interest payment period to the actual number of
days in the period, with semiaimual compounding if more than one coupon period is involved.

661496^63-

-17

242

1962 REPORT OF THE SECRETARY OF THE TREASURY
Total tenders applied for and accepied by Federal Reserve districts
District

A p p l i e d for

Boston
New York
Philadelphia..
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis..
Kansas C i t y . .
Dallas.
San Francisco.

$60, 558.000
1, 958,235,000
28, 380,000
45, 932.000
18, 969,000
25, 867,000
223, 649.000
32, 618.000
21, 336,000
36, 711,000
26, 709,000
125, 921,000

Total...

2,594,885,000

Accepted

. Applied for

Accepted

$44, 158,000
896, 909,000
13, 380,000
24. 932,000
18. 699.000
21, 632,000
148. 489,000
26, 348,000
13. 958,000
33. 179.000
17, 385,000
42, 774,000

$6,716,000
976,921.000
8,066,000
26,822,000
6,878,000
9,169,000
83,884,000
7,119,000
7,197.000
17,316.000
9,522,000
27,707,000

$5.115,000
583,421.000
2.698,000
20,822.000
2.038.000
7,177,000
42,204,000
5,159,000
5,422,000
9,048.000
4,522,000
12,387,000

11,301,843,000

1,185,316,000

2 700,013,000

1 Includes $229,036,000 n o n c o m p e t i t i v e t e n d e r s accepted a t t h e average price of 99.312.
•'^ I n c l u d e s $59,866,000 n o n c o m p e t i t i v e t e n d e r s accepted a t t h e average price of 98.585. -

PRESS RELEASE OF NOVEMBER 2, 1961
The Treasury Department, by this public notice, invites tenders for additional
amounts of eight series of Treasury bills to an aggregate amount of $800,000,000,
or thereabouts, for cash. The additional bills will be issued November 15, 1961,
will be in the amounts, and will be in addition to the bills originally issued and
maturing, as follows:
A m o u n t of
additional issue

$100.000,000
100,000,000
100,000.000
100,000,000
100,000,000
100, 000,000
100,000.000
100,000,000

M a t m - i t y dates

Original issue dates 1961

Tune 8
Tune 16
Tune 23
Tune 29
Tuly 6.
Tuly 13
Tuly 20
Tuly 27

Dec.
Dec.
Dec.
Dec.
Tan.
Tan.
Tan.
Tan.

7, 1961
14, 1961
21, 1961
28, 1961- . .
4, 1962
11, 1962
18, 1962
26, 1962

D a y s from
N o v . 15, 1961,
to m a t u r i t y

22
29
36
43
50
57
64
71

Amount
outstanding
(in mUlions)
N o v . 2, 1961
$1,609
1,601
1,601
1,600
1,600
1,601
1,600
1,601

$800,000,000

The additional and original bills will be freely interchangeable.
Each tender submitted must be in the amount of $8,000, or an even multiple
thereof, and the amount tendered will be applied to each of the above series of
bills on the basis of the ratio of each series to the total of all series. (For example,
an accepted tender for $40,000 will be applied $5,000 to the issue with original
date of June 8, .1961, and $5,000 to each of the additional weekly issues through
the issue with original date of July 27, 1961.)
The bills offered hereunder will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest. They will be issued in bearer form orily,
and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000, and
$1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty o'clock p.m., eastern standard time, November 9, 1961.
Tenders will not be received at the Treasury Department, Washington. In the
case of competitive tenders the price offered must be expressed on the basis of
100, with not more than three decimals, e.g., 99.925. Fractions may not be used.

EXHIBITS

243

A single price must be submitted for each unit of $8,000, or even multiple thereof.
A unit represents $1,000 face amount of each issue of bills offered hereunder, as
previously described. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal Reserve
Banks and branches On apphcation therefor.
Others than banking institutions will not be permitted to submit tenders
except for their own account. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers
in investment securities. Tenders from others must be accompanied by payment •
of 2 percent of the face amount of Treasury bills applied for, unless the tenders
are accompanied by an express guaranty of payment by an incorporated bank or
trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall be
final. Noncompetitive tenders for $80,000 or less (in even multiples of $8,000)
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids, provided, however, that
if the total of noncompetitive tenders exceeds $400,000,000, the Secretary of the
Treasury reserves the right to allot less than the amount apphed for on a straight
percentage basis with adjustments where necessary to the next higher multiple
of $8,000. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank in cash or other immediately
available funds on November 15, 1961.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
but are exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the- possessions of the United States, or
by any local taxing authority. For purposes of taxation the amount of discount
at which Treasury bills are originally sold by the United States is considered to be
interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and
such bills are. excluded from consideration as capital assets. Accordingly, the
owner of Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bills, whether on original issue or on subsequent purchase, and the
amount actually received either upon sale or redemption at maturity during the
taxable year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue. Copies
of the circular may be obtained from any Federal Reserve Bank or branch.
PRESS RELEASE OF NOVEMBER 10, 1961
The Treasury Department announced last evening that tenders for additional
amounts of eight series of Treasury bills to an aggregate amount of $800,000,000,
or thereabouts, to be issued November 15, 1961, which were offered on November
2, were opened at the Federal Reserve Banks on November 9. The amount of
accepted tenders will be equally diyided among the eight regular weekly issues of
outstanding Treasury bills maturing December 7, 1961, to January 25, 1962,
inclusive. The details of the offering afe as follows:
Total applied for
$1, 519, 424, 000
Total accepted (includes $8,984,000 entered on a noncompetitive
basis and accepted in full at the average price shown below).
800, 136, 000

244

1962 REPORT OF THE SECRETARY OF THE TREASURY
Range of accepted competitive bids

High..Low
Average

Approximate equivalent aimual rate of
discount based on 46.6 days (average
number of days to maturity)
2.175%
2.323%
1 2.277%

/79 percent of the amount bid for at the low price was accepted.)
1 On a coupon issue of the same length as the average for the biUs and for the same amount invested, the
return on these bUls would provide a yield of 2.31 percent. Interest rates on biUs are quoted in terms of
bank discount with the return related to the face amount of the 'biUs payable at maturity rather than the
amount invested and their length in actual number of days related to a 360-day year. In contrast, yields
on certificates, notes, and bonds are computed in terms of interest on the amount invested, and relate the
number of days remaining in an interest payment period to the actual number of daj^s in the period, with
semiannual compounding if more than one coupon period is involved.

Total tenders applied for and accepted hy Federal Reserve Districts
District

Applied for

Accepted

Boston.
New York
PhUadelphiaCleveland--'-Richmond
Atlanta
Chicago
St. Louis
MinneapolisKansas City..
DaUas...
San Francisco

$24,640,000
1,098, 448,000
11,080,000
14. 584,000
1,168,000
6,392,000
274, 552,000
2,352,000
11,880,000
2,384,000
944,000
72,000,000

• $7,968,000
603,648,000
11,080,000
13, 744,000
1,168,000
3,792,000
108,384,000
2,184,000
5,680,000
2,384,000
944,000
39,160,000

Total...

1, 619,424,000

800,136,000

PRESS RELEASE OF MARCH 13, 1962
The Treasury Department, by this public notice, invites tenders for
$1,8()0,000,000, or thereabouts, of 182-day Treasury bills, for cash and in exchange
for Treasury tax anticipation series bills maturing March 23, 1962,.in the amount
of $3,502,886,000. The bills will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided. The bills ,of this series
will be designated tax anticipation series, they will be dated March 23, 1962,
and they will mature September 21, 1962. They will be accepted at face value
in payment of income and. profits taxes due on September 15, 1962, and to the
extent they are not presented for this purpose the face amount of these bills will
be payable without interest at maturity. Taxpayers desiring to apply these
bills in payment of September 15, 1962, income and profits taxes have the privilege
of surrendering them to any Federal Reserve Bank or branch or to the Oflice of
the Treasurer of the United States, Washington, not more than fifteen days before
September 15, 1962, and receiving receipts therefor showing the face amount of
the bills so surrendered. These receipts may be submitted in lieu of the bills
on or before September 15, 1962, to the District Director of Internal Revenue
for the district in which such taxes are payable. The bills will be issued in bearer
form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000,
$500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty p.m., eastern standard time, Tuesday, March 20, 1962.
Tenders will not be received at the Treasury Department, Washington. Each
tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not more than
three decimals, e.g., 99.925. Fractions may not be used. It is urged that
tenders be made on the printed forms and forwarded in the special envelopes
which will be supphed by Federal Reserve Banks or branches on application
therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to.submit tenders except for their

EXHIBITS

245

own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty' of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for $400,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids. Settlement for accepted
tenders in accordance with the bids must be made or completed at the Federal
Reserve Bank on March 23, 1962, in cash or other immediately available funds
or in a like face amount of tax anticipation series bills maturing on March 23, 1962.
Cash and exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale
or otlier disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on the principal
or interest thereof by any State, or any of the possessions of the United States,
or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States is considered
to be interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code
of 1954 the amount of discount at which bills issued hereunder are sold is not
considered to accrue until such bills are sold, redeemed, or otherwise disposed of,
and such bills are excluded from consideration as capital assets. Accordingly, the
owner of Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bills, whether on original issue or on subsequent pui:chase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or branch.
PRESS RELEASE OF MARCH 21, 1962
The Treasury Department announced last evening that the tenders for $1,800,000,000, or thereabouts, of tax anticipation series 182-day Treasury bills to be
dated™ March 23, 1962, and to mature September 21, 1962, which were offered on
March 13, were opened at the Federal Reserve Banks on March 20.
The details of this issue are as follows:
Total applied for
$3,592,711,000
Total accepted (includes $145,718,000 entered on a noncompetitive basis and accepted in full at the average price
shown below)
1, 800, 936, 000
Range of accepted competitive bids: (Excepting one tender of $100,000)
High, equivalent rate of discount approximately 2.870% per
annum
98. 549
Low, equivalent rate of discount approximately 2.910% per
annum
98. 529
Average, equivalent rate of discount approximately 2.896% per
annum 1
:
98. 536
(85 percent of the amount bid for at the low price was accepted.)

1 On a coupon issue of the same length and for the same amount invested, the return on these bills would
provide a yield of 2.98 percent. Interest rates on biUs are quoted in terms of bank discount with the return
related to the face amount of the bills payable at maturity rather than the amount invested and their length
in actual number of days related to a 360-day year. In contrast, yields on certificates, notes, and bonds are
computed in terms of interest on the amount invested, and relate the number of days remaining in an interest
payment period to the actual number of days in the period, with semiannual compounding if more than
one coupon period is involved.

246

1962 REPORT OF THE SECREfARY OF T^HE TREASIJRY

Boston
New York
PhUadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Federal Reserve district

Total appUed
for

$61,164,000
2,629.743.000
57,550.000
151.173,000
29.085,000
36,622,000
332,978.000
25, 790,000
26, 500.000
28,264,000
15,957.000
198,885.000

$19.464.000
1.346 988 000
14,260,000
66. 573,000
9, 785,000
24,232,000
144,348,000
16,270,000
7,550,000
19,039,000
12,382,000
131,045,000

3, 592. 711.000

1,800,936,000

_ .

Total

....

Total accepted

PRESS RELEASE OF APRIL 3, 1962
The Treasury Department, by this public notice, invites tenders for $2,000,000,000, or thereabouts, of 365-day Treasury bills, for cash and in exchange for
Treasury bills maturing April 15, 1962, in the amount of $2,000,462,000, to be
issued on a discount basis under competitive and noncompetitive bidding as
hereinafter provided. The bills of this series will be dated April 15, 1962, and
will mature April 15, 1963, when the face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty p.m., eastern standard time, Tuesday, April 10, 1962.
Tenders will not be received at the Treasury Department, Washington. Each
tender must be for an even multiple of $1,000, and in the case of competitiye
tenders the price offered must be expressed on the basis of 100, with not more
than three decimals, e.g., 99.925. Fractions may not be used. (Notwithstanding the fact that these bills will run for 365-days, the discount rate will be computed on a bank discount basis of 360-days, as is currently the practice on all
issues of Treasury bills.) It is urged that tenders be made on the printed forms
and forwarded in the special envelopes which will be supplied by Federal Reserve
Banks or branches on application therefor.
Banking institutions generally- may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the F.ederal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
Thie Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for $400,000 or
less without stated price from any one bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids. Settlement for
accepted tenders in accordance with the bids must be made or completed at the
Federal Reserve Bank on April 16, 1962, in cash or other immediately available
funds or in a like face amount of Treasury bills maturing April 15, 1962. Cash
and exchange tenders will receive equal treatment. Cash adjustments will be
made for differences between the par value of rnaturing bills accepted in exchange
and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the
sale or other disposition of the bills, does not have any exemption, as such, and

247

EXHIBITS

loss from t h e sale or other disposition of Treasury bills does not have any special t r e a t m e n t , as such, under t h e Internal Revenue Code of 1954. T h e bills
are subject t o estate, inheritance, gift, or other excise taxes, whether Federal or
State, b u t are 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 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 is considered to be interest. Under sections 454(b) and 1221(5) of t h e Internal Revenue
Code of 1954 t h e a m o u n t of discount a t which bills issued hereunder are sold
is not considered t o accrue until such bills are 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 difference 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 D e p a r t m e n t Circular No. 418 (current revision) and this notice,
prescribe t h e terms 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.
P R E S S R E L E A S E OF A P R I L 11, 1962
The Treasury D e p a r t m e n t announced last evening t h a t the tenders for
$2,000,000,000, or thereabouts, of 365-day Treasury bills to be dated April 15,
1962, and to m a t u r e April 15, 1963, which were offered on April 3, were opened a t
the Federal Reserve Banks on April 10.
The details of this issue are as follows:
Total applied for
$3,453,408,000
Total accepted (includes $159,176,000 entered on a noncompetitive
basis and accepted in full a t the average price shown below) _ 2,000,446,000
Range of accepted competitive bids:
High, equivalent rate of discount approximately 2.918% per
annum
97.041
Low, equivalent rate of discount approximately 2.957% per
annum
97.002
Average, equivalent rate of discount approximately 2.943% per
annumi
. 97.017
(86 percent of the a m o u n t bid for a t the low price was accepted.)
' On a coupon issue of the same length and for the same amount invested, the return on these bills would
provide a yield of 3.05 percent. Interest rates on bills are quoted in terms of bank discount with the .return
related to the face amount of the bills payable at maturity rather than the amount invested and their length
in actual number of days related to a 360-day year. In contrast, yields on certificates, notes, and bonds
are computed in terms of interest on the amount invested, and relate the number of days remaining in an
interest payment period to the actual number of days in the period, with semiannual compounding if more
than one coupon period is involved.
F e d e r a l Reserve district

Boston. - .
NewYork
Philadelphia . .
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City . .
Dallas
San F r a n c i s c o . -

T o t a l applied
for

•
.-

;

_.
.
.

Total

•

T o t a l accepted

$29,614,000
2,450,984,000
46,179,000
158,894,000
26,233,000
23,379,000
413.778,000
22. 597.000
30,460,000
39,386,000
30,914,000
180.990,000

• $18,614,000
1,540,322,000
11,179,000
93,894,000
17, 733,000
15,379,000
169,478,000
16.497,000
20,460,000
23,186, 000
14,714,000
58, 990,000

3,453,408.000

2,000,446,000

Summary of information pertaining to Treasury bills issued during the fiscal year 1962
[Dollar amounts in thousands]
00
Maturity value

Prices and rates
Total bids accepted

Tenders accepted
Date of
issue

Date of
maturity

Days
to
maturityi

Total
apphed
for

Total
accepted

On
competitive
basis

On noncompetitive
basis

Average
For cash
In
price
exchange
per
hundred

Competitive bids accepted

Equivalent
average
rate
Price
(perper
cent)
hundred

High

Low

Equivalent
rate
(percent)

Price
per
hundred

Equivalent
rate
(percent)

Amount
maturing on
issue
date of
new
offering

o
o

Regular Weekly
1961
July
6
6
13
13
20
20
27
27
Aug. 3
3
10
10
17
17
24
24
31
31
Sept. 7
7
14
14
21
21
28
Oct.

28
5
5
13
13

Oct. 5, 1961
Jan.
4.1962
Oct. 13,1961
J a n . 11,1962
Oct. 19,1961
J a n . 18,1962
Oct. 26.1961
J a n . 25,1962
N o v . 2,1961
F e b . 1,1962
N o v . 9,1961
F e b . 8,1962
N o v . 16,1961
Feb.'15,1962
N o v . 24,1961
F e b . 23.1962
N o v . 30,1961
M a r . 1,1962
D e c . 7,1961
M a r . 8.1962
D e c . 14.1961
M:ar. 15.1962
D e c . 21.1961
M a r . 22,1962
D e c . 28,1961
1962
M a r . 29
Jan.
4
Apr. 5
J a n . 11
A p r . 12

91 $1, 762.657 $1,100. 537
182
922. 646
499.944
92 2,087.020 1,100.878
182 1,047,421
500,178
91 1, 915.676 1,100.005
182
960.304
499.904
91 1, 714. 669 1,099,886
182
907,700
500,080
91 1, 913,229 1,101,263
182 1.136,249
600,319
91 2,003,239 1.100,218
182 1,093,478
600,153
91 2,121, 632 1,100,833
182 1,009.307
600,027
92 1, 939. 574 1,100,794
183 1,294.482
600,092
91 1,820. 721 1.100.316
182
933,836
600,386
91 2,221,842 1,109,065
182 1,102,430
695,235
91 2,136,156 1,101,001
182 1,075,492
600. 608
91 2,098.653 1,099, 762
182 1.143. 592
600,213
91 1,776,050 1,100,210

$960,710
469, 667
869,013
456.949
860,191
454,500
898,124
464,206
890,017
561,388
877,706
560, 613
854,464
554,316
871,533
557,308
900,916
566.286
919,508
557,024
852,406
550.715
841.163
647,739
901,218

$149,827
30,387
231,865
43.229
239,814
46,404
201.762
36,874
211.246
38.931
222, 612
39, 540
246,369
45,711
229,261
42,784
199,400
44.101
189. 557
38,211
.248, 595
49,893
258,609
52,474
198,992

$1,064,740
472,790
1,088,967
497,723
1,024,385
466,954
1,038, 602
458.946
983.514
539,024
1,047,135
568, 593
991.404
547.830
1,002.642
546,799
1,088, 410
573.716
1,097,317
666.185
1,087,324
698,628
989,239
537,708
1,016,848

$45,797
27,154
11,911
2,455
76. 620
32, 950
61,284
41,134
117. 749
61.295
53,083
31, 660
109j 429
52.197
98,152
53. 293
11,906
26,670
11. 748
29,050
13, 677
1,980
110.523
62.605
83,362

99.417
98.743
99.407
98.730
99. 444
98. 794
99.433
98. 763
99.419
98. 707
99. 402
98. 677
99.363
98. 602
99. 360
98. 580
99. 413
98. 677
99.395
98. 639
99.412
98. 643
99.428
98. 644
99.435

2.305
2.468
2.322
2.612
2.200
2.385
2.244
2.446
2.300
2.557
2.366
2.617
2.519
2.765
2.504
2.793
2.321
2.617
2.392
2.692
2.328
2.686
2.262
2.681
2.234

2 99.429
98.764
2 99. 413
98.736
99.451
98. 801
99.450
2 98. 784
99.426
2 98. 717
99.411
2 98. 686
2 99.369
2 98. 616
2 99.368
98. 696
99.425
98.691
2 99.402
98.660
2 99.418
98.664
99.432
2 98.652
99.444

2.259
2.445
2.297
2.600
2.172
2.372
2.176
2.406
2.271
2.538
2.330
2.599
2.496
2.738
2.473
2.762
2.276
2.689
2.366
2.670
2.302
2.662
2.247
2.666
2.200

99. 407
98. 733
99. 403
98. 726
99. 437
98. 784
99. 425
98. 753
99. 415
98. 702
99.398
98. 673
99. 360
98. 594
99.366
98. 578
99. 407
98. 663
99.393
98. 633
99.408
98. 636
99.426
98. 636
99. 429

2.346 $1,100.096
2.606
500.236
2.336 1,100,815
2.520
500.112
2.227 1,100.341
2.405
400,172
2.276 1,100,767
2.467
500.051
2.314 1,100, 652
2.567
3 500,388
2.382 1,100,389
2.625
3 500.174
2.532 1,100,018
2.781
3 500,436
2.520 1,100,352
2.797
3 500,145
2.346 1,000,929
2.645
3 500,141
2.401 1, ioo, 635
2.704
3 500,282
2.342 1,100.604
2.698
3 500,004
2.275 1,101,056
2.698
3 600,077
2.269 1,100,048

182
91
182
90
181

•557,498
923,172
569,773
886,961
547,773

42, 572
177.085
40,473
213,427
52,369

548,460
1,032.059
648,361
979, 670
597,252

51, 610
68,198
51,886
120,718
2,890

98. 637
99.418
98. 643
99.403
98. 651

2.697
2.302
2.683
2.389
2.684

98.644
99.435
2 98. 650
2 99.410
2 98.660

2.682
2.235
2. 670
2.360
2.665

98. 631
99.408
98. 641
99. 401
98. 646

2.708
2.342
2.688
2.396
2.693

1.271,738
1. 666,037
1,304,941
2,107,387
1,101,177

600,070
1,100. 257
600,246
1,100.388
600,142

8 500.085
1,100,537
3 500,135
1,100,878
3 500,375

o
S3

>
Ul
d

19
19
26
26
Nov. 2
2
9
9

Jan. 18
Apr. 19
Jan. 25
Apr. 26
Feb. 1
May 3
Feb. 8
May 10

91
182
91
182
91
182
91
182

241,550 1 987,130
113,055
868,635
640,157 • 60,200
697,407 . 2,960
211,899
889,375
970,794
130,480
59,404
63,297
640,739
646,846
214,911
921,107
178,809
885,005
56,318
544.086
519, 614
80,789
229.473
1,086,191
118,744
975.462
436,749
63,503
445,373 > 64,879

2,221,014
1,112,072
2,037,952
1,251,616
2,156,522
1,629,976
1,976,644
1, 646.150

1,100,185
600,367
1,101,274
600.143
1,099,916
600,403
1,204,935
600,252

>1,519,344

800,056

791,152

1,100,203
600.105
1,100.491
600.696
1,099,962
600,071
1.102.423
600, 646
1,100,950
600,818
1,104, 676
601,595
1,101, 768
600, 633

842,642
639.027
873,394
645,242
885. 753
650,583
891,234
548,841
862,429
643,096
861,870
548,211
910,117
553.351

99.398
98.618
99. 412
98. 631
99. 424
98. 679
99. 406
98. 709

2.382
2.734
2.326
2.708
2.280
2.613
2.349
2.554

99.405
2 98.624
99.417
98. 638
99.428
98.686
2 99.413
98.718,

2.364
2.722
2.306
2.694
2.263
2.599
2.322
2.536

99.395
98.613
99.410
98. 629
99.421
98. 677
99.402
98.706

2.393 1 1,100,005
3 400,290
2.744
2.334 1,099,886
2.712 3 400,115
2.291 1,101,263
3 600,252
2.617
2.366 1,100,218
8 500,372
2.560

99. 706

2.277

99. 719

2.175

99. 700

2.323

1961

Dec. 7
Dec. 14
Dec. 21
<15 Dec. 28

22
29
36
43

1962

16
16
24
24
30
30
Dec. 7
7
14
14
21
21
28
28

Jan. 4
Jan. 11
Jan. 18
Jan. 25
Feb. 15
May 17
Feb. 23
May 24
Mar. 1
May 31
Max. 8
June 7
Mar. 15
June 14
Mar. 22
June 21
Mar. 29
June 28

1962

Jan.

4
4
11
11
18
18
25
26
Feb. 1
1
8
8
15
15
23
23
Mar. 1
1
8
8
15
15

Apr. 6
July 5
Apr. 12
July 12
Apr. 19
July 19
Apr. 26
July 26
May 3
Aug. 2
May 10
Aug. 9
May 17 ,
Aug. 16
May 24
Aug. 23
May 31
Aug. 30
June 7
Sept. 6
June 14
1Sept. 13

Footnotes at end of table.

50
67
64
71
91

182
91
181
91
182
91
182
91
182
91
182
91
182

2.223.971
1.096.879
1.946.220
1.239,229
2,061,423
1,036. 721
2,233.037
1, 035,466
2.074.426
1,375,026
2,326,653
1,166.175
1,912,253
1; 160,809

91 1,988, 654 1,100.839

930,028
1,050.108
600.464
563,483
2,107,768
1.100,848
856,027
91
642,077
599.939
182 1,132,339
2,158.993
1.101,
697
840,834
91
537.135
600,454
182 1,306.355
888,125
91 2,326.015 1,101. 591
600,021
551,980
182 1,116.296
91 2.213.424 1,201,084 1,002, 424
600,310
557,034
182 1.334.152
979, 258
91 2,047.810 1,200,170
553, 671
600,080
182 1,178.359
984,975
91 2.029,621 1,200.301
600,423
551, 601
182 1.194.948
983,273
90. 2.423,968 1.201, 655
547,964
600.937
181 1,284,273
91 2,100, 507 1,200,744 1,001, 794
600,231
561, 667
182 1,198,149
91 1,914,135 1,199,835 1,002 496
600,851
563, 269
182 1.105, 776
979,320
91 .2, 716,068 1,200.987
182 1 1,164, 549 1 600,291 1 547, 667 1

. 182

8,904

800,056

257,561
981,168
61,078
536.750
227,097 ) ^ 983.356
55,464
561, 613
214. 209 1,024,719
566, 694
49. 488
1,015,232
211,189
558.129
51, 805
238, 521 1.008,721
661,341
57. 722
985,471
242,806
547,803
53,384
1,019,565
191,651
47,282
557,148

119.036
63.355
117,135
39,083
75,243
34,477
87,191
42. 517
92, 229
39,477
119,205
53, 792
82, 203
43.485

99.364
98. 624
99. 359
98. 626
99. 341
98. 581
99.337
98. 661
99. 348
98. 547
99. 325
98. 526
99. 344
98. 562

2.516
2.721
2.537
2.734
2.606
2.807
2.624
2. 867
2. 579
2.874
2.670
2.915
2.594
2.845

2 99.372
2 98. 638
2 99.363
98. 630
99. 346
• 98.595
2 99.346
2 98. 564
2 99.352
98. 655
2 99.331
2 98. 640
99.350
98. 572

2.484
2.694
2.620
2.725
2.687
2.779
2.587
2.840
2.564
2. 858
2.647
2.888
2.571
2.825

99.361
98. 614
99.354
98.623
99.339
98. 570
99.336
98.644
99.346
98. 644
99. 322
98. 520
99.338
98. 550

2.528
2.742
2.556
2.739
2.616
2.829
2.631
2.880
2.587
2. 880
2.682
2.927
2.619
2.868

1,100,833
3 500,728
1,100,794
3 500,151
1,100,316
3 600,268
1,109,065
5 500,354
1,101,001
5 500,368
1,099,762
5 500,767
1,100,210
6 500,230

1,020,903
554,320
1,088,800.
597,360
979, 730
546, 707
962,801
548, 460
1, 014, 959
524, 471
1,018. 010
522,308
1,112. 802
598,117
1,094,920
557,365
1,104, 596
647,917
1,076,306
547,848
1,081,473
697,104

79.936
46,144
12, 048
2,579
121, 967
53, 747
138,790
51, 561
186,125
75, 839
182,160
77, 772
87, 499
2,306
106, 735
43, 572
96,148
52, 334
123. 529
53,003
119;514
3,187

99. 317
98. 513
99. 286
98. 447
99. 300
98. 499
99. 321
98. 546
99. 316
98. 514
99. 319
98. 535
99.303
98. 508
99. 288
98. 476
99. 326
98. 561
99,312
98. 543
99. 291
98. 498

2.703
2.941
2.823
3.073
2.770
2.970
2.688
2. 875
2.705
2.939
2.695
2.898
2.759
2.962
2.849
3.031
2.666
2.847
2,721
2.882
2.804
2.972

2 99.325
2 98.528
2 99. 296
2 98.460
99. 306
98. 507
99.325
98. 568
2 99. 322
2 98. 520
99. 324
98. 544
99. 317
2 98. 519
2 99.293
2 98. 480
99.334
98. 566
2 99.319
2 98. 551
2 99. 296
2 98. 604

2.670
2.912
2.785
3.046
• 2.745
2.953
2.670
2.852
2.682
2.927
2.674
2.880
2.702
2.929
2.828
3.023
2. 635
2.836
2.694
2.866
2.789
2.959 1

99.312
98. 499
99.283
98. 439
99.297
98. 496
99.319
98. 537
99.313
98. 511
99.314
98. 529
99.298
98.600
99. 286
98.472
99.322
98. 564
99.305
98. 534
99.289
98.494

2.722
2.969
2.836
3.090
2.781
2.975
2.694
2.894
2. 718
2.945
2.714
2.910
2.777
2.967
2.856
3.039
2.682
2.860
2.749
2.900
2.813
2.979

1,100,257
5 499,944
1,100,388
5 500,178
1,100,186
6 499,904
1,101,274
5 500,080
1,099,916
600,319
1, 204,935
600,153
1,100,203
600,027
1,100,491
600,092
1,099,962
600,386
1,102,423
595.235
1.100.950
600.608

170.811
36,981
245,821
57.862
260,863
63,319
213,466
48, 041
198, 660
43,276
220,912
46, 409
215,326
48,822
218,382
52,973
198.950
48.664
197,339
47,582
221.667
52,624 1

^.
X
m
M
2
S
S

to
h^
CO

Summary of information pertaining to Treasury bills issued during the fiscal year 1962—Continued.

[Dollar amounts in thousands]

O-

M a t u r i t y value

Prices a n d rates

T o t a l b i d s accepted

T e n d e r s accepted
Dateof
issue

D a t e of
maturity

Days
to
maturity 1

C o m p e t i t i v e b i d s accepted
High

Total
applied
for
Total
accepted

On
competi, tive
basis

On noncompeti-1
tive
basis

CTT

F o r cash

In
exchange

Average
price
per
hundred

Equivalent
average
rate
(percent)

Price
per
hundred

Low

Equivalent
rate
(percent)

Price
per
hundred

Equivalent
rate
(percent)

Amount
maturing on
issue
d a t e of
new
offering

S3
hj

Regular Weekly—Continued

01:

o,
1962
M a r . 22
22
. .29
29
Apr.
5
6
12
12
19
19'
26
26
May 3
3

IP;

10
17
17
24
24,
31
31
June.. • 7
•

14
14

1962
J u n e 21
Sept., 20
June,'28
S e p t . ;27
July • 5
Oct.: A4
J u l y 12
Oct. 11 '
J u l y 19
Oct. 18
J u l y 26
Oct. 25
Aug.. 2
Nov. 1
Aug. 9
• Nov. - 8
Aug! 16
N o v . .15"
A u g . 23;;.
N o v . 23i';
A u g . 30 K
N o v 29 •>
Sept. 6 ,
Dec.. 6,Mo
Sept. 13' ;.
D e c . 13,'.

:
:

:
:
;
!
.

91 $2,161. 841 $1. 200, 651 $ 972,669
182 1,182,184
600,081
539,410
91 2,181, 889 1, 200.161 1,001,789
182 1,248, 210
600,230
551,241
91- 2, 226, 252 1, 200, 638 1,020, 512
182 1,217,326
600,667
661,955
91 2,470, 431 1.200,273
959,530
182 1.088, 042
600,'202
541, 465
91 2, 236, 888 1, 200,982
952,047
182 1,240, 611
600,309
539,'539
91 2,103, 292 1, 200, 752
992,386
182 1,167. 651
. 600,408
546,481
91 2; 322, 683 1,201, 600 1,005, 837
182 1,356; 897
600,048
663, 547
91 2,524,338 1.204,210 1, 002,142
182 1,351,891
601, 639
551.661
91 2; 181,138 1, 200, 403
979,142
182 1,138, 822
600.140
539, 677
91 2,096, 266 1, 300; 412 1,105,409
183- 1, 247,,318
600, 316 ' 563,077
91 2,329,-80'5 i, 301,155 1,129;:931
182 1,338, 960
601, 324
. 658,932
9 1 ' 2,301, 686 1,301,003 1,115, 741
182 1, 556, 785
701,967 . 657v575
91 2.200.376 1.300,406 i, 082,344
182- 1, 667. 508 . •'• 700,118
645V193

$227,983 $1,010,971
60,671
535, 724
198,362
1.113,205
48,989
557,241
180,126
1,061,937
48,612
557.596
240,743
1,134,663
58,737
597,155
248,935
1,093,815
. 60,770
556,969
208,366
1,074,953
53,927
534,863
196.763
1,018,109
46.501
: 527,557
202,068
1,056,982
49,978
537,783
221,261
1,101,640
60,463
537,611
195,003
1,131,715
. 47, 239
537, 688
17 i; 224 . 1,206, 713
• 42,392
; 638,691
'185, 262
1,213,644
44,392 - 674,259
218,061
1.187,561
.54,925 1 681,307

$189, 680
99. 320
64,357
98. 557
86, 946
99. 313
42, 989
98. 556
138, 701
99. 303
42,971
98. 546
65,610
99. 312
3,047
98. 577
; 107.167
99.312
43.350
98. 572
125, 799
99.307
• 65,646
98.566
183, 491
99. 305
.72,491- : 98.562
147, 228
99.313
63, 866 • 98.576
98,863 : 99.331
62, 529 1 98.613
168, 697 i 99.317
62,728 ' 98.679
94,442 i 99.329
62,633 • 98,613
87, 339
99'. 320
. 27; 708 1 98.591
• 112, 844 : 99.325
• 18, 811 : 98:606

•'
:
•
;
•'
:

2.689
99.326
2.864
2 98.561
2.719
99.320
2. 857
98.564
2. 757
2 99. 306
2.875
2 98. 555
2. 720.
99. 318
2.814
98. 590
2.723
99.316
2. 826
2 98. 577
2.740
99.314
2.837
98. 574
. 2. 748
' 99. 310
2.845
98.570
2.'719 : 99.318
2.816 i 98.586
2.646 i 99,337
2.744 ; 2 98. 620
2.700 '2 99.322
2. 795 . 2 98. 587
2.656
99.335
2. 743 ' 98.616
2. 691
99::329
2.787
2 98. 598
2.671
99.331
2.758
2 98. 612

.
.
'

2.666
2.846
2.690
2. 840
2. 749
2.858
2.698
2. 789
2.706
2. 815
2.714
2.821
2.730
2. 82,9
2.698
2.799
2. 623
2. 730
2. 682
2. 780.
2. 631
2.738
2. 655
2.773
2.647
2.745

99. 317
98. 553
99.309
98. 562
99.300
98. 542
99. 311
98. 572
99. 308
98. 568
99.305
98. 562
99.303
98. 560
99. 312
98.572
99.329
98.606
99.312
98.576
99. 325
; 98.609
99.337
98.590
99.321
98. 604

.
•
:
•

•
.

2.702
2. 862.
2.734
2. 864
2.769
2.884
2. 726
2. 825
2.738
2. 833
2. 749
2.844
2. 757
2.848
2.722
2.825
2.655
2.757
2. 722
2.801
2. 670
2. 751
2.702
2.789
2.686
2. 761

$1,104, 676
600,213
1,101, 768
600,070
1,100, 839
600,246
1,100, 848
600,142
1,101,697
600.357
1,101, 691
600,143
1,201, 084
6.00,403
1,200,170
500,262
1, 200,301
600,105
1, 201, 655
600, 696
1,200,744
600,071
1,199, 835
600. 646
1.200,987
600;818

^-'
>-\
o

Sept. 20
Dec. 20
Sept. 27
Dec. 27

91
182
91
182

2,593,786
1,185.865
2,267,126
1. 337.687

1.300, 743
700.552
1,300,482
700,197

1,071, 807 . 228, 936 1.091,096
640, 522
60,030
617. 674
1,097,164
203.318
1.217. 777
650.092
50.106
668, 348

Tax Anticipation
1961
J u l y 26
Sept. 27

1962
M a r . 23
J u n e 22

240
268

5,148,893 3, 502, 886
5,131, 492 . 2, 510, 855

2,989, 315
1,999,062

513,57i
511,803

3,602,886
2,510,855

1962
M a r . 23

Sept. 21

182

3, 593, 761

1, 655, 218

146, 768

1. 633. 956

1. 801,986

One-Year

168,030
. '

2.721
2.800
2.792
2.872

2 99. 320
2 98. 592
-2 99.300
2 98. 567

2.690
2.785
2.769
2.864

99.310
98.580
99. 291
98.544

2.730
2.809
2.806
2.880

98. 344
97.986

2.484
2.705

2 98. 400
2'98. 042

2.400
2.. 630

98. 320
•97. 975

2. 520
2. 720

98. 536

2:896

2 98. 549

•2.870

98. 529

2.910

3. 502, 886

99.312
98. 585
99. 294
98. 548

209,647
82,978
82,705.
31, 849

1. 200. 651
601, 695
1, 200,151
600,633

1961
J u l y 15
Oct. 16

1962
J u l y 16
Oct. 16

366
364

4,174,100
3. 756, 827

2, 003, 516
.2, 003, 463

1, 792, 543
1,963,932

210,973
139,631

1, 993. 947
1,992,636

9, 569
10, 827,

97. 051
96. 992

2. 908
2.975

97.101
2 97. 037

2.859
2.930

97. 039
96.979

2.920
2. 988

1, 500, 509
1, 502,165

1962.
J a n . 15
A p r . 16

1963
J a n . 15
A p r . 15

365
365

3, 650. 870
3, 453,716

2,001,255 ; 1. 810.833
2,000, 754 1, 841, 270

190,422
159,484

1.862,666
r, 920. 608

138, 689
80,146

96. 588
97.017

3.366
2.943

2 96. 614
97. 041

3.340
2.918

96. 672
97. 002

3.381
2.957

1, 501, 672
2,000,462

1
1 The 13-week bills represent additional issues of bills with an original maturity of 26
weeks.
2 Relatively small amounts of bids were accepted at a price somewhat above the high
shown. However, the higher price is not shown in order to prevent an appreciable
discontinuity in the range (covered by the high to low prices shown) which would
make it misrepresentatlve.
;
,
:
.
8 In addition, $100,104,000 of the strip of bills issued on June 14, 1961, matured,
4 An additional $100 million each of 8 series of weekly bills issued in a "strip" for cash
(see press releases dated Nov. 2 and Nov. 10, 1961, in this exhibit).
«In addition, $100,007,000 of the strip of bills issued on Nov. 15, 1961, matured^
NOTE.—The usual timing with respect to issues of Treasury biUs is: Press release
inviting tenders, 8 days before date of issue; closing date on which tenders iare accepted,
3 days before date of issue; and press release announcing acceptance of tenders, 2 days
before date of issue. Figures are final and may differ from those shown in press release
announcing preliminary results of an offering.
;

Noncompetitive tenders (without stated price) from any one bidder for $200,000 or
less in the case of the 13-week bills, and for $100,000 or less in the case of the 26-week
bills, were accepted in full at the average price for accepted competitive bids. For
the tax anticipation series dated July 27, 1961, the amount was $500,000 and for the
issues dated Sept. 27, 1961, and Mar. 23, 1962, the amount was $400,000. For the oneyear biUs the limitation was $400,000.. In the case of the strip of bills, noncompetitive
tenders for $80,000 or less (in even multiples of $8,000) were accepted in full at the average price of accepted competitive bids.
All equivalent rates of discount showm are on a bank-discount basis.
Quahfied depositaries were permitted to make payinent by credit in Treasury tax
and loan accounts for Treasury biUs of the tax anticipation series dated July 26 and
Sept. 27, 1961, allotted to them for themselves and their customers up to any amount
for which they were qualified in excess of existing deposits when so.notified by the
Federal Reserve Bank of their districts.

252

1962 REPORT OF THE SECRETARY OF THE TREASURY
Guaranteed Obligations Called

EXHIBIT 5.—Calls for partial redemption, before maturity, of insurance fund
debentures
During the fiscal year 1962, there were fifteen calls for partial redemption,
before maturity, of insurance fund debentures, seven dated September 20, 1961,
and the others dated March 21, 1962. The notices of call were published in the
Federal Register of September 28, 1961, and March 29, 1962. The notice covering
the twelfth call of the 2>i 2^8, 2%, 2%, 3, S/s, 3>i, B^/s, 3>i 3%, 3%, and 4^8 percent
Series A A mutual mortgage insurance fund debentures is shown in this exhibit.
Since the other notices of call are similar to this exhibit, they have been omitted
but the essential details are summarized in the table following the notice of call.
NOTICE OF CALL.

FEDERAL REGISTER OF MARCH 29, 1962

To Holders of 2Y2] 2%; 2y^; 2Y^, S; SYs; SYA] 3 % ; SY2] Sy^; SYs; and JfYs Percent M u t u a l
Mortgage Insurance F u n d Debentures, Series A A :
NOTICE OF CALL FOR PARTIAL R E D E M P T I O N , BEFORE MATURITY, QF 2H, 2H, 2H,
2H, 3, 31^, SH, SH, SH, 2,Hr m , and 4i^ P E R C E N T MUTUAL MORTGAGE INSURANCE
FUND D E B E N T U R E S , SERIES AA

Pursuant to the authority conferred by the National Housing Act (48 Stat. 1246;
U.S.C. title 12, sec. 1701 et seq.) as amended, public notice is hereby given that
2Y2, 2%, 2%, 2%, 3, SYs, 3>^, 3%, 3K, 3 ^ , 3%, and 4/3 percent mutual mortgage insurance fund debentures. Series AA, of the denominations and serial numbers '
designated below, are hereby called for redemption, at par and accrued interest,
on July 1, 1962, on which date interest on such debentures shall cease:
2Y2, 2ys, 2y^, 2ys, S, 3Y%, ^ M , ^ K , SYI, 8%, 8YS, and J,Ys Percent M u t u a l Mortgage
Insurance F u n d Debentures, Series A A
Serial numbers
(all numbers
inclusive)

Denomination

^KH
^w
inn
iUU

.-.

500

1 f.r.(.

i , uuu

/11» 794 t o 11, 805
^^^^ gQ7 ^^ ^2, 874
135, 275 to 35, 324
^3^^ 33g ^Q ^g^ gjQ
f 9, 901 to 9, 910
9, 915 to 13, 329
13 332
r27,'216 to 27, 254

n 000

j27, 269 to 40, 086

/ '^' ^9^ *o 7, 606

10, 000
5, 934 to 8, 065
The debentures first issued as determined by the issue dates thereof were selected
for redemption by the Commissioner, Federal Housing Administration, with the
approval of the Secretary of the Treasury.
No transfers or denominational exchanges in debentures covered by the foregoing call will be made on the books maintained by the Treasury Department
on or after April 1, 1962. This does not affect the right of the holder of a debenture to sell and assign the debenture on or after April 1, 1962, and provision will
be made for the payment of final interest due on July 1, 1962, with the principal
thereof to the actual owner, as shown by the assignments thereon.
The Commissioner of the Federal Housing Administration hereby offers to
purchase any debentures included in this call at any time from April 1, 1962, to
June 30, 1962, inclusive, at par and accrued interest, to date of purchase.
Instructions for the presentation and surrender of debentures for redemption
on or after July 1, 1962, or for purchase prior to that date will be given by the
Secretary of the Treasury.
APPROVED: March 22, 1962
W. T. HEFFELFINGEE,

Fiscal Assistant Secretary of the Treasury,

NEAL J. HAKDY,
Commissioner.

EXHIBITS

253

Debentures redeemed on or after July 1, 1962, will have interest paid with
principal for each $1,000 for each percent as follows: $12.50 for 2>^%; $13,125
for 2%%; $13.75 for 2%%; $14,375 for 2^8%; $15.00 for 3 % ; $15,625 for 3/8%;
$16.25 for 3H%; $16,875 for 3%%; $17.50 for 3/2%; $18.75 for 3%%; $19,375 for
3%%; and $20,625 for 4/8%.
Debentures purchased between April 1 and June 30, 1962, will have interest
paid with principal from January 1, 1962, to date of purchase, at the following rates
per day for each $1,000 for each percent: $0.069061.for 2 / % ; $0.072514 for 2^8%;
$0.075967 for 2%%; $0.075967 for 2%%; $0.082873 for 3 % ; $0.086326 for 3%%;
$0.089779 for 3K%; $0.093232 for 3%%; $0.096685 for 3 ^ % ; $0.103591 for 3%%;
$0.107044 for 3%%; and $0.113950 for 4/8%.

Summary of information contained in the notices of call for partial re demption of insurance.fund debentures during ihe fiscal year 1962

Notice of c a l l . .
Redemption date
Serial n u m b e r s caUed b y denominations:
$50
$100
$500
$1,000-

$5,000
$10,000
F i n a l d a t e for transfers or d e n o m inational exchanges ( b u t n o t
for sale or a s s i g n m e n t ) .
Redemption
on
call
date,
a m o u n t of interest per $1,000
p a i d in full w i t h principal.

P r e s e n t a t i o n for p m c h a s e prior
to caU d a t e :
Period
A m o u n t of accrued interest
per $1,000 per d a y p a i d
w i t h principal.

2 H , 2 H , 2 H , 2 H , 3, 3;.^,
SH,SH,SH.W4,a.ndiH
percent m u t u a l m o r t gage insurance fund deb e n t u r e s . Series A A ,
e l e v e n t h caU

23^, 2 H , 2 H , 2 H , 3, SH,
SH,SH,SH,SH,SH,d.nd
AH
percent
mutual
mortgage
insurance
fund d e b e n t u r e s , Series
A A , twelfth caU

234, 2 H , 2 H , 3, 33^, 334,
SH, a n d 33^ percent
housing insm'ance fund
d e b e n t u r e s . Series B B ,
s e v e n t h call

Sept 20, 1961
J a n . 1, 1962

M a r c h 21 1962
J u l y 1, 1962

Sept 20,1961
J a n . 1, 1962

8698-8791, 8793-11793,
11806.
24861-25382, 25389-35274,
35325-35338, 25387.
6326-6477, 6479-9900, 99119914.
17494-17895, 17899-27215,
27255-27268.
5406-5499, 5601-7594, 76077608.
3890-3962, 3964-5933
S e p t e m b e r 30, 1961

11794-11805, 11807-12874.... 140-160

2 H , 2 H , 2 H , 3, 33^, 33^4,
SH, SH, a n d i H percent
housing insurance fund
d e b e n t u r e s . Series B B ,
eighth call

SH, W i , a n d 43^^ percent
section 220, housing insurance fund d e b e n t u r e s .
Series C C , second call

CT)

M a r c h 21, 1962
J u l y 1, 1962-.

. . M a r c h 21, 1962.
J u l y 1, 1962.

161-198.

5-8.

990-1181

1-35.

9901-9910, 9915-13329,
347-369
13332.
27216-27254, 27269-40086-... 848-1007

370-408

4-11.

1008-1197

10-35. •

7595-7606, 7609-11701

309-357

358-407

5934-8065
M a r c h 31, 1962

2249-2413
S e p t e m b e r 30, 1961

2414-2999
M a r c h 31, 1962

35275-35324, 35339-49510.... 876-989

•_

1-219.
M a r c h 31, 1962.

o
o

Ul
O
S3

$12.50 for 2i/i%, $13,125 for
2 H % , $13.75 for 2 H % ,
$14,375 for 2 H % , $15.00
for 3 % , $15,625 for 33^%,
$16.25 for S H % , $16,875
for 3 ^ % , $17.50 for 3 ^ % ,
$18.75 for SH7o, $20,625
for 43^%.

$12.50 for 23^%, $13,125 for
2 H % , $13.75 for 2 H % ,
$14,375 for 2 H % , $15.00
for 3 % , $15,625 for 33^%,
$16.25 for S H % , $16,875
for 3 ^ ^ % , $17.50 for 33^%
$18.75 for S H % , $19,375
for S H % , $20,625 for

$12.50 for 23^%, $13.75 for
2 H % , $14,376 for 2 H % ,
$15.00 for 3 % , $15,625 for
33^%, $16.25 for S H % ,
$16,875 for S H % , $17.50
for 33/2%.

$12.50 for 23^%, $13.75 for
2H7o, $14,375 for 2 H % ,
$15.00 for 3 % , $15,625 for
S H % , $16.25 for 334%,
$16,875 for SH7o, $17.50
for 33^^%, $20,625 for

$16,875 for SH7o, $18.75 for
3 % % , $20,626 for 43^^%.

iH%.

iH%.
Oct. 1—Dec. 31,1961
$0.067935 for 23^%,
$0.071332 for 2 H % ,
$0.074728 for 2M%,
$0.078125 for 2 H % ,
$0.081522 for 3 % ,
$0.084918 for SH7o,
$0.088315 for 334%,
$0.091712 for SH7o,
$0.095109 for 33/2%,
$0.101902 for 3M%,
$0.112092 for 43^%,
from J u l y 1, 1961, to
date of p u r c h a s e .

AprU 1—June 30, 1962
$0.069061 for 23^%,
$0.072514 for 2 H % ,
$0.075967 for 2H7o,
$0.075967 for 2 H % ,
$0.082873 for 3 % ,
$0.086326 for 33^^%,
$0.089779 for 33^4%,
$0.093232 for S H % ,
$0.096685 for 31/^%,
$0.103591 for 3 % % ,
$0.107044 for S H % ,
$0.113950 for 43-^%,
from J a n . 1, 1962, to
d a t e of p u r c h a s e .

Oct. 1—Dec. 31, 1961
$0.067935 for 23^%,
$0.074728 for 2M%,
$0.078125 for 2H7o,
$0.081522 for 3 % ,
$0.084918 for 33^^%,
$0.088315 for 33^4%,
$0.091712 for 3 % % ,
$0.095109 for 33^%,
from J u l y 1, 1961, to
date of p u r c h a s e .

AprU 1—June-30, 1962
$0.069061 for 23^%, •
$0.075967 for 2 % % ,
$0.075967 for 2H7o,
$0.082873 for 3 % ,
$0.086326 for 3 3^^%,
$0.089779 for S H % ,
$0.093232 for 3 % % ,
$0.096685 for 33^%,
$0.113950 for 43^^%,
from J a n . 1,1962, to d a t e
of p u r c h a s e .

April 1—June 30, 1962.
, $0.093232 for S H % ,
$0.103591 for 3 % % ,
$0.113950 for 43^^%, from
J a n . 1, 1962, td d a t e of
purchase.

>
Ul
Hi

N o t i c e of call
Redemption date
Serial n u m b e r s . called b y de.nominations:
$50
—.—;
$100
...
$500
$1,000
.
$5,000
—
$10,000....
. F i n a l d a t e for transfers or den o m i n a t i o n a l exchanges. .(but
not.for sale or a s s i g n m e n t ) . , .
R e d e m p t i o n on caU d a t e , a m o u n t
of interest .per $1,000 p a i d in fuU
w i t h principal.
.

2^,2^,3,33^,3^,334,33^,
SH,
a n d 43^ percent
servicemen's mortgage
insurance fund debent u r e s , Series E E , eighth
call

2H, 2 H , 3, 33^. 33.4, 3 % ,
33^, 3 % , 3 ^ , a n d 43^^ percent servicemen's mortgage insurance fund deb e n t u r e s . Series
EE,
n i n t h call

23''^ percent war housing
insurance fund debent u r e s . Series H , t w e n t y fifth call

2H percent w a r housing
insm'ance fund debentm-es. Series H , t w e n t y sixth call

23^ percent T i t l e I housing
insurance fund debentures. Series L , fourt e e n t h call

Sept. 20,1961
J a n . , 1 , 1962.

M a r c h 21, 1962..
.
Julyl, 1962................

Sept. 20, 1961.
J a n . 1, 1962...

M a r c h 21, 1962
J u l y 1, 1962.

Sept. 20, 1961.
J a n . 1, 1962.

201-303...
789-1205
194-366
665-1110.
126-202
178-313
Sept. 30,,1961

304-378..
1206-2445
367-639
1111-2315
203-548
314-499
M a r c h . 3 1 , 1962

4701-4722
16792-17001...
4802-4847
20556-20740...
4594-4624
44223-45210...
Sept. 30, 1961

4723-4748.:

$13,125,; for. 2 H % , . $14,375
for 2H%,. $15.00 for. 3 % ,
$15,625. .for S H % , $16.25
for 33^4%, $16,875 for
SH%,
$17.50 for 33^%,
$18.75 for 3 % % , . $20,625
fQrm%.
. .... .

.
:
.
_.-...

$13.125.' for ;• 2^^%, ;$l'4.375
for 2 ^ % , $15.00 for. 3 % ,
$15,625 .for 33^%,. $16.25
for 33^4%, $16,875 for
SH%,
$17.50 for 33/2%,
.$18.75 for 354%,. $19,375
for 37^%, $20,625, ,for
4^^%. -

..Presentation for p u r c h a s e - p r i o r
to caU d a t e :
Period
.
.! Oct. 1-Dec. 31, 1961
AprU 1-June 30, 1962
A m o u n t of accrued interest^ $0.071332 for 2 H 7 o , $0.078125 $0.072514 for 2>^%, $0.075967
for 2 H % , $0.082873 for
per $1,000 per d a y p a i d '
for 2 H % , $0.081522 for
3%, $0.086326 for 33^%,
w i t h principal.
3 % , $0.084918 for 33^^%,
$0.088315 ..for
$0.089779.-,, .for .. 33^4.%,
33^4%,
for
$0.091712 for
$0.093232
334%,
for
$0.095109 for
$0.096685
33^%,
for
$0.101902^ for. 33^%,
$0.103591
33/4%,
33/4%,.
for
0.112092" for
$0.107044
'iH%,
43-^%,
for
from J u l y 1, 1961,
to
$0.113950
iH%,
from J a n . 1,1962, to date
date of p u r c h a s e .
of p u r c h a s e .

m%,

$12.50.1-..'!..

17002-17392
4848-4945
20741-21154
4625-4925

.._,

...I...

45211-47210
M a r c h 31, 1962,^^..^^
$12.50-y.,Vr'^S,-r---

143-147.
542-548.
77-80'.

Sept. 30„1961..
•

$12.50.'

'w
M

:Ui

Oct. 1-Dec. 31, 1961
$0.067935 from J u l y 1,
1961, to date of p u r c h a s e .

AprU 1-June 30, 1962
$0.069061 from J a n . 1,1961,
to d a t e of p u r c h a s e .

Oct. 1-Dec. 31, 1961.
$0.67935'from J u l y 1, 1961,
to date of p u r c h a s e .

fcO
cn

Summary of information contained in the notices of call for partial redemption of insurance fund debentures during the fiscal year 1962—

fel

Continued

hd
O
&3

23^ percent T i t l e I h o u s i n g
insurance fund debent u r e s , Series L , fifteenth
caU

2% percent T i t l e I housing
insurance fund debent m e s , Series R , twelfth
call

2 ^ percent T i t l e I h o u s i n g
insurance fund debent m e s . Series R , thirt e e n t h call

3 p e r c e n t T i t l e I housing
i n s u r a n c e fund debent u r e s , Series T , e l e v e n t h
call

3 percent T i t l e I h o u s i n g
i n s u r a n c e f u n d debent u r e s , Series T , twelfth
call

M a r c h 21, 1962
J u l y 1, 1962....

Sept. 20,1961.
J a n . 1, 1962...

M a r c h 21, 1962
J u l y 1, 1962-.-_

Sept. 20, 1961.
J a n . 1, 1962...

M a r c h 21, 1962.
J u l y 1,1962.

175-179
339-417
148-168
549-621
81—82
M a r c h 3Y,"l962

426-496.
947-1020
221-229
290-313
240-249
Sept. 30,1961

496-510
1021-1134.
230-273
314-477
250-269
M a r c h 31, 1962.

433-464
1272-1347.....
462-482..
637-707
350-375
Sept. 30, 1961.

456-494.
1348-1630.
483-561.
708-1027.
376-393.
M a r c h 31, 1962.

$12.50

$13.75

$15.00

$15.00.

AprU 1-June 30, 1962
$0.069061 from J a n . 1,1962,
to d a t e of pm-chase.

Oct. 1-Dec. 31, 1961
,
$0.074728 from J u l y 1,1961,
to d a t e of p u r c h a s e .

AprU 1-June 30,1962.
$0.076967 from J a n . 1,1962,
to d a t e of p u r c h a s e .

Oct. 1-Dec. 31,1961
$0.081522 from J u l y 1,1961,
to d a t e of p u r c h a s e .

AprU 1-June 30,1962.
$0.082873 from J a n . 1, 1962,
to d a t e o f p u r c h a s e .

O
Notice of call
:.
Redemption date
Serial n u m b e r s called b y denominations:
$60
$100$500._
$1,000
$5,000
F i n a l d a t e for transfers or den o m i n a t i o n a l exchanges ( b u t
n o t for sale or a s s i g n m e n t ) .
R e d e m p t i o n on call d a t e , a m o u n t
of interest per $1,000 p a i d in
full w i t h p r i n c i p a l .
P r e s e n t a t i o n for p u r c h a s e prior
to caU d a t e :
Period
.
A m o u n t of accrued interest
p e r $1,000 per d a y p a i d
w i t h principal.

tei
o

EXHIBITS

257

Regulations
ExfflBiT 6.—Second a m e n d m e n t , November 17, 1961, to Department Circular
No. 418, Revised, regulations governing Treasury bills
TREASURY

DEPARTMENT,

Washington, November 17, 1961.
D e p a r t m e n t Circular No. 418, Revised, dated February 23, 1954 (31 C F R 309),
as amended, is hereby further amended by revising sections 309.3 and 309.8 as
follows:
S E C . 309.3 Denominations and exchange.—Treasury bills will be issued in
denominations (maturity value) of $1,000, $5,000, $10,000, $50,000, $100,000,
$500,000, and $1,000,000. Exchanges from higher to lower a n d lower to higher
denominations of the same series (bearing the same issue and m a t u r i t y dates) will
be permitted a t Federal Reserve Banks and a t the Office of the Treasurer of t h e
United States, Washington. Insofar as applicable, t h e general regulations of t h e
Treasury D e p a r t m e n t governing transactions in bonds and notes will govern
transactions in Treasury bills.
SEC. 309.8 Tenders; when cash deposit is required.—Tenders should be submitted on t h e printed forms a n d forwarded in the special envelopes which will be
supplied on application to any Federal Reserve Bank, or branch. If a special
envelope is not available, the inscription " T e n d e r for Treasury bills" should be
placed on the envelope used. T h e instructions of t h e Federal Reserve Banks with
respect to the submission of tenders should be observed. Banking institutions
generally m a y submit tenders for account of customers provided the names of t h e
customers are set forth in such tenders. Others t h a n banking institutions will
not be permitted to submit tenders except for their own account. Tenders from
incorporated banks and t r u s t companies, and from responsible and 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 the face a m o u n t of
the Treasury bills applied for as the Secretary of t h e Treasury m a y from time to
time prescribe: Provided, however, t h a t such deposit will not be required if t h e
tender is accompanied by an express guaranty of p a y m e n t in full by an incorporated
bahk or t r u s t company. Forfeiture of the prescribed p a y m e n t m a y be declared
by t h e Secretary of t h e Treasury, if p a y m e n t is not completed, in t h e case of
accepted tenders, on t h e prescribed date.
R O B E R T V.

ROOSA,

Acting S.ecretary of ihe Treasury.

E X H I B I T 7.—Third a m e n d m e n t , August 2, 1961, to Department Circular No. 530,
Eighth Revision, regulations governing United States savings bonds
TREASURY

DEPARTMENT,

Washington, August 2, 1961.
Sections 315.32 and 315.37 of D e p a r t m e n t Circular No. 530, E i g h t h Revision,
as amended, dated December 26, 1957 (31 C F R 1959), are hereby amended to
read as follows:
S E C . 315.32(b) Method of interest payments.—* * *
(5) T h e interest due at m a t u r i t y in t h e case of bonds for which an optional
extension privilege has not been granted and at t h e final m a t u r i t y for all bonds
for which an optional extension privilege has been granted will be paid with t h e
principal and in t h e same manner. However, if t h e registered owner of a bond
in beneficiary form dies on or after t h e due date without having presented and
surrendered t h e bond for p a y m e n t or authorized reissue, and is survived by t h e
beneficiary, t h e interest m a y be paid to t h e legal representative of or t h e person
entitled to t h e registered owner's estate. To obtain such payment, t h e bonds
with a request therefor by t h e beneficiary should be submitted together with t h e
evidence required in S E C . 315.70.

66194&—63

258

1962 REPORT OF THE SEORETARY OF THE TREASURY

S E C . 315.37. Ai or after maturity.—Pursuant to its terms, a savings bond of any
series will be paid at or after m a t u r i t y at t h e m a t u r i t y value fixed by t h e terms
of t h e D e p a r t m e n t Circular offering t h e particular series of bonds t o . t h e public/
current at t h e time of redemption, and in no greater a m o u n t . No advance
notice will be required for t h e redemption of matured savings bonds except t h a t
any current income bond for which a n optional extension period has been provided
will, beginning with t h e first day of t h e third calendar m o n t h following t h e
calendar m o n t h in which t h e bond originally matured, be regarded as u n m a t u r e d
until it reaches its final m a t u r i t y date, and t h e same notice prior to redemption
will be required for it as is required for bonds of t h e same series which have not
reached original m a t u r i t y .
DOUGLAS

DILLON,

Secretary of the Treasury.

EXHIBIT 8.—Fourth a m e n d m e n t , November 17, 1961, to D e p a r t m e n t Circular
No. 530, Eighth Revision, regulations governing United States savings bonds
TREASURY

DEPARTMENT,

Washington, November 17, 1961.
In S E C . 315.10, p a r a g r a p h (b) is hereby amended, effective J a n u a r y 1, 1962, to
read as follows:
S E C . 315.10. Amount which may be held.—

(b) Series H.—$20,000 (maturity value) for each calendar year up to and
including t h e calendar year 1956; $10,000 (maturity value) for t h e calendar years
1957 1 to 1961, inclusive; $20,000 (maturity value) for t h e calendar year 1962
and each calendar year thereafter.
^
R O B E R T V. R O O S A ,

Acting Secretary of ihe Treasury.

EXHIBIT 9.—First a m e n d m e n t , August 2, 1961, to Department Circular No. 905,
Second Revision, regulations governing Series H savings bonds
TREASURY

DEPARTMENT,

Washington, August 2, 1961.
Sections 332.12 and 332.15 of D e p a r t m e n t Circular No. 905, Second Revision,
dated September 23, 1959 (31 C F R 1960 Supp. 332), are hereby amended to
read as follows:
SEC. 332.12. Improvement of investment yield and extension of term for'out^
standing Series H bonds.—(a) Increased future investment yields to maturity for all
outstanding bonds with issue dates of J u n e 1, 1952, through M a y 1, 1959."^—The
investment yields on all outstanding Series H bonds with issue dates prior to
J u n e 1, 1959, are hereby increased (for the remaining period to maturity) by
not less tban one-half of one percent, and by lesser amounts if they are redeemed
1 Effective May 1, 1957. Accordingly investors who purchased $20,000 (maturity value) of bonds of Series
E bearing issue dates of January 1 through April 1 were not entitled to purchase additional bonds of that
series during 1957. The same hmitation applies to bonds of Series H bearing those issue dates. Investors
who purchased less than $10,000 (maturity value) of bonds of either series prior to May 1 were entitled only
to purchase enough of either series to bring their total for that series for 1957 to $10,000 (maturity value).
2 For bonds with issue dates of June 1, 1959, or thereafter, see section 332.3..

EXHIBITS

250

earlier.! T h e resulting yields are in terms of rate percent per annum, compounded
semiannually. See tables 2 through 16 a t t h e end of this circular for revised
schedules of interest checks and investment yields.^ This increase will be effective
beginning with t h e interest checks due December 1, 1959, for bonds with the issue
inonth of J u n e or December of any year prior to 1959, and for all other bonds
on the next interest p a y m e n t date after December 1^ 1959.
(b) Optional extension privilege for owners of bonds with issue dates of J u n e 1,
1952, through J a n u a r y 1, 1957.—Owners of bonds with the above issue dates are
hereby granted t h e privilege of retaining their bonds for an additional period of
10 years With an investment yield of approximately 3.75 percent payable semiannually. This privilege is generally referred to elsewhere in these regulations
and t h e regulations governing United States savings bonds as an "optional
extension privilege." No special action is required of owners desiring to take
a d v a n t a g e of this optional extension privilege. Merely by holding their bonds
after m a t u r i t y they will earn further interest which will accrue and be paid
semiannually by check drawn to the order of the owner or coowners beginning
six m o n t h s from the original m a t u r i t y date. Interest p a y m e n t s will be m a d e in
.the a m o u n t s shown in tables I through X a t t h e end of this circular. T e r m
" o w n e r s " as used in this section includes registered owners, coowners, surviving
beneficiaries,-next of kin, and legatees of deceased owners, and persons who have
acquired bonds p u r s u a n t to judicial proceedings against t h e owners, except t h a t
j u d g m e n t creditors, trustees in bankruptcy, a n d receivers of insolvents' estates
will have t h e right only to p a y m e n t in accordance with the regulations governing
United States savings bonds.
SEC. 332.15. Payment or redemption.—(a) Prior to maturity.—Prior to m a t u r i t y
a bond of Series H will be redeemed a t par, in whole or in p a r t (in the a m o u n t of
an authorized denomination or multiple thereof), at the option of the owner,
after six months from t h e issue date on the first day of a calendar m o n t h a n d
upon one m o n t h ' s notice in writing, by (1) a Federal Reserve Bank or branch, (2)
the Bureau of the Public Debt, Division of Loans and Currency Branch, 536
South Clark Street, Chicago 5, Illinois, or (3) the Treasurer of the United States,
Washington 25, D . C . Such notice m a y be given separately or b y presenting a n d
surrendering the bond with a duly executed request for p a y m e n t . If notice is
given separately, the bond m u s t be presented with a duly executed request for
p a y m e n t to t h e same agency not less t h a n t w e n t y days before the redemption
date fixed by the notice.
(b) At maturity.—Upon m a t u r i t y a bond of Series H will be redeemed a t par
upon presentation of the bond with a duly executed request for p a y m e n t to one
of t h e agencies designated in (a). I n t h e case of any Series H bond for which an
optional extension, privilege has been provided, such bond will be redeemed a t
par upon original m a t u r i t y and for two calendar months following the m o n t h
in which .the bond originally matures without advance notice.^
. (c) During optional extension period.—Any bond of Series H for which an optional
extension period has been provided will, beginning with the first day of the third
calendar m o n t h following the calendar m o n t h in which the bond originally matures,
be regarded as u n m a t u r e d until it reaches its final m a t u r i t y date, and m a y be
redeemed in the same manner and subject to the same notice for redemption as
provided in (a).
DOUGLAS DILLON,

Secretary of ihe Treasury.
• The investment yields to maturity heretofore prescribed for the bonds referred to in section 332.12 were
(according to issue dates) as follows:
Percent per annum
compounded
semiannually
June 1, 1952, through January 1, 1967
3.00
• February 1, 1957, through May 1, 1959
3.25
- These.tables were published, in the 1960 annual report, pages 269-274; however, their substance is included as the fiist part of tables I-X appended hereto.
- 8 For example, if a bond is dated June 1, 1962, the date of original maturity is February 1, 1962. Tlie date
on which the right to payment without advance notice wUl be suspended is May 1, 1962.

260

1962 REPORT OF THE SECRETARY OF THE TREASURY
T A B L E I — U N I T E D STATES SAVINGS B O N D S — S E R I E S H

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM J U N E 1 THROUGH
N O V E M B E R 1, 1952

Table showing: (1) A m o u n t s of interest checks paid on United States savings bonds of Series H , by denominations,
on each interest payment date folloiving issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
a n n u m compounded semiannually.

{

M a t u r i t y value
R e d e m p t i o n value i . . .
Issue price

Period of t i m e b o n d is held after
issue date

H year...
1 year
I H years.
2 years...
2}i years.
3 years...
3 K years.
4 years...
4 K years.
5 years...
5)^ years.
6 years...
6M years.
7 years...

$500
500
500

$1,000
1,000
1,000

$5,000
5,000
5,000.

$10,000
10,000
10,000

(1) A m o u n t s of interest checks for each
denomination

$2.00
6.25
6.26
6.26
6.25
6.25
6.25
6.25
8.50
8.50
8.50
8.50
8.60
8.50

$4.00
12. 50
12. 50
12.50
12. 50
12.50
12.50
12.50
17.00
17.00
17.00
17.00
17.00
17.00

$40.00
126.00
125.00
125.00
125.00
125.00
125.00
125. 00
170.00170.00
170.00
170.00
170. 00
170.00

$20.00
62. 50
62.50
62.50
62.50
62.50
62.50
62.50
85.00
85.00
85.00
85.00
85.00
85.00

Approximate investment
yield on face value 2

(2) F r o m
issue d a t e
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40
2.49
2.57
2.63
2.69
2.73

(3) F r o m
each interest
payment
d a t e (a)
to m a t u rity 3
Percent
33.13
3 3. .18
33.22
33.27
33.34
33.41
33.49
3 3.58
3 3.60
3 3.63
33.66
8 3.69
3 3. 74
*4.31

A m o u n t s of interest checks a n d i n v e s t m e n t yields to m a t u r i t y on basis of J u n e 1,1959, revision
7 H years
.
....
8 years
8M years
9 years
9 H years
9 years a n d 8 m o n t h s ( m a t u r i t y )
P e r i o d of t i m e b o n d is held after
m a t u r i t y date
}yi y e a r
1 year
1}4 years
2 years
2 H years
3 years
3 K years
4 years
4K years.
5 years...
5 H years
"6 years
6V^ years
,
7 years
73/2 years
8 years
„.
8V^ y e a r s . . .
9 years...
9)^ years
10 years (extended m a t u r i t y ) e.

$8.75
8.75
10.10
10.10
10.10
10.10

$17. 50
17.50
20.20
20.20
20.20
20.20

$87. 50
87. 50
101.00
101.00
101. 00
101.00

$175.00
175. 00
202. 00
202.00
202.00
202.00

2.78
2.82
2.88
2.94
2.99
3.12

(b) to extended maturity 8

E x t e n d e d m a t u r i t y period

$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18. 75
18.75
18.75
18.75
18.75
18.75
18. 75
18.75
18.76
18.75
18.75
18.75
18.75
18.75
18.76
18.76
18. 75
18.75
18.76
18.75

$93. 75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75

$187.50
187. 50
187. 60
187. 50
187. 50
187. 50
187. 50
187. 60
187. 60
187. 50
187. 50
187. 50
187. 50
187.50
187.50
187.60
197. 50
187.60
187. 60
187. 60

4.51
4.83
5.18
6.06
12.37

3.15
3.17
3.19
3.21
3.23
3.25
3.26
3.27
3.29
3.30
3.31
3.32
3.33
3.34
3.36
3.36
3.36
3.37
3.38
3.39

3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.76
3.76
3.75
3.75
3.75
3.75

> A t aU t i m e s , except t h a t b o n d is n o t r e d e e m a b l e d u r i n g first 6 m o n t h s .
2 C a l c u l a t e d on t h e basis of $1,000 b o n d .
3 A p p r o x i m a t e i n v e s t m e n t yield on t h e basis of origirial (prior to J u n e 1,1959, revision) schedule of interest
checks is: (1) 3.00 percent per a n n u m for entire period from issuance to m a t u r i t y . (2) As s h o w n for a n y
period from each interest p a y m e n t d a t e to m a t u r i t y .
* A p p r o x i m a t e i n v e s t m e n t yield from effective date of t h e J u n e 1,1959, revision to m a t u r i t y .
5 A p p r o x i m a t e i n v e s t m e n t jrield for t h e full 10-year extension is 3.75 percent per, a n n u m .
819 years—8 m o n t h s from issue d a t e .

261

EXHIBITS
TABLE II—UNITED STATES SAVINGS BONDS—SERIES H

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM DECEMBER 1,
1952, THROUGH MAY 1, 1953

Table showing: (1) Amounts of interest checks paid on United States savings bonds of Series H, by denominations,
on each interest payment date following issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (o) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
annum compounded semiannually.
Maturity value
Redemption value i...
Issue price

{

Period of time bond is held after
issue date

y^ year...
1 year
13^ years.
2 years...
2H years.
3 years...
3M years.
4 years...
4J^ years.
5 years...
6H years.
6 years...
6H years.

$500
600
500

$1,000
1,000
1.000

$5,000
5,000
5,000

$10,000
10,000
10,000

Approximate investment
yield on face value 2

(2) From
(3) From
issue date to each interest
(1) Amounts of interest checks for each each interest
payment
date (a)
denomination
payment
to matudate
rity 3

$2.00
6.25
6.25
6.25
6.25
6.25
6.25
6.26
8.50
8.50
8.60
8.60
8.50

$4.00
12.50
12. 50
12.50
12.50
12.50
12.50
12. 60
17.00
17.00
17.00
17. )0
17.00

$40.00
125. 00
125. 00
125. 00
125. 00
125. 00
126. 00
125. 00
170. 00
170. 00
170. 00
170. 00
170.00

$20.00
62. 50
62.50
62. 50
62.50
62. 50
62.50
62.60
85. 00
85.00
85. 00
85. ("0
85.00

Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40
2.49
2.57
2.63
2.69

Percent
33.13
3 3.18
33.22
33.27
33.34
33.41
33.49
3 3.58
3 3.60
3 3.63
4 3.66
3 3.69
4 4.24

Amounts of interest checks and investment yields to maturity on basis of June 1,1959, revision
7 years...
7J^ years
8 years
8H years
9 years
9H years
9 years and 8 months (maturity)._i
Period of time bond is held after
maturity date
3^ year
1 year
IH years
2 years
2H years
3 years...
33^ years
-.
-4 years
43^ years
.
5 years
53^ years
6 years...
-—
63^ years
7 years
73^ years
-8 years
83^ years.
9 years...
93^ years
-.
10 years (extended maturity) ^

$8.76
8.75
9.85
9.86
10.15
10.15
10.15

$17.50
17.50
19.70
19.70
20.30
20.30
20.30

$87. 60
87. 50
98.50
98. 60
101. 50
101. 50
101. 50

$176.00
176.00
197.00
197. 00
203.00
203.00
203.00

2.74
2.78
2.85
2.90
2.96
3.01
3.14

(b) to extended maturity s

Extended maturity period
$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18. 75
18.75
18.75
18.76
18.75
18.75
18.76
18.75
18.75
18.75
18.76
18.75
18.76
18.76
18.75
18.75
18.75
18.75
18.76
18.75

$93. 75
93.76
93.75
93.76
93.75
93.75
93.76
93.75
93.76
93.75
93.75
93.75
93.75
93.75
93.75
93.76
93.75
93.76
93.75
93.75

$187. 50
187. 50
187. 50
187. 60
187. 50
187. 50
187. 60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 60
187. 50
187. 50
187. 60
187. 50
187. 50
187. 50

4.39
4.61
4.82
5.21
6.09
12.43

3.17
3.19
3.21
3.23
3.25
3.26
3.28
3.29
3.30
3.32
3.33
3.34
3.35
3.36
3.36
3.37
3.38
3.39
3.39
3.40

3.75
3.76
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.76
3.75
3.75
3.75
3.76

1 At all times, except that bond is not redeemable during first 6 months.
2 Calculated on the basis of $1,000 bond.
3 Approximate investment 3^eld on the basis of original (prior to June 1,1959, revision) schedule of interest
checks is: (1) 3.00 percent per annum for entire period from issuance to maturity. (2) As shown for any
period from each interest payment date to maturity.
* Approximate investment yield from effective date of the June 1,1959, revision to maturity.
« Approximate investment yield for the full 10-year extension js 3.75 percent per annum.
P19 years—8 months from issue datQ,

262

196 2 REPORT OF THE SECRETARY OF THE TREASURY
TABLE III—UNITED STATES SAVINGS BONDS—SERIES H

TABLE OF C H E C K S ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM J U N E 1 THROUGH
NOVEMBER 1, 1953

Table showing; {1) Amounts of interest checks paid on United States savings bonds of Series H, by denominations,
on each interest payment date following issue; (2) the approximate investment yield on the face value from issue
dale to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (a) to maturity, or (6) to extended maturity. Yields are expressed in terms of rate percent per
annum compounded semiannually.
Maturity value
Redemption value L.,
Issue price

{

Period of time bond is held after
issue date

3^ year..
1 year...
IH years
2 years. _
2H years
3 years.33^ years
4 years..
i H years
6 years..
5H years
6 years. _

$500
500
500

$1,000
1,000
1,000

$5,000
6,000
5,000

$10,000
10,000
10,000

(1) Amounts of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.25
6.26
6.26
6.26
8.50
8.50
8.50
8.60

$4.00
12.50
12.50
12.50
12.50
12.50
12.60
12.50
17.00
17.00
17.00
17.00

$20.00
62.50
62.50
62.60
62.60
62.60
62.50
62.60
85.00
85.00
85.00
85.00

$40.00
125.00
125.00
125.00
125.00
125.00
125.00
125.00
170.00
170.00
170. 00
170.00

Approximate investment
yield on face value 2

(2) From
issue date
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40
2.49
2.57
2.63

(3) From
each interest
payment
date (a)
to maturity 3
Percent
3 3.13
3 3.18
3 3.22
3 3.27
3 3.34
3 3.41
3 3.49
3 3.58
3 3.60
3 3.63
3 3.66
4 4.19

Amounts of interest checks and investment yields to.maturity on basis of June 1,1959, revision
63^ years
:_.
7 years
IH years
8 years
83^ years
9 years
93^ years
9 years and 8 months (maturity)..
Period of time bond is held after
matmity date
H year
1 year..
IH years
2 years
23^ years
3 years.
33^ years
_.
4 years
43^ years
5 years
53^ years
6 years
1
63^ years
7 years
73^ years
8 years
83^ years
9 years
93^ years
10 years (extended maturity)

$8.75
8.75
9.55
9.55
10.20
10.20
10.20
10.20

$17. 50
17.50
19.10
19.10
20.40
20.40
20.40
20.40

$87. 60
87.60
96.50
95.50
102.00
102.00
.102.00
102.00

$175. 00
175.00
191.00
191.00
204.00
204.00
204. 00
204. 00

2.69
2.75
2.81
2.87
2.93
2.98
3.03
3.17

(b) to extended maturity ^

Extended maturity period
$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18. 75
18.75
18.75
18.75
18.75
18.76
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75

$93. 75
93.75
93.75
93.75
93.76
93.76
93.75
93.75
93. 75
93.75
93.75
93.75
93.75
93.76
93.75
93.75
93.75
93.75
93.75
93.75

$187. 50
187. 60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 60
187. 60
187. 50
187. 50
187. 50

4.31
4.47
4.62
4.88
5.23
6.12
12.49

3.19
3.21
3.23
3.25
3.27
3.28
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
3.38
3.39
3.39
3.40
3.41
3.41

3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75

1 At aU times, except that bond is not redeemable during first 6 months.
2 Calculated on the basis of $1,000 bond.
3 Approximate investment yield on the basis of original (prior to June 1,1959, revision) schedule of interest
checks is: (1) 3.00 percent per annum for entire period from issuance to matmity. (2) As shown for any
period from each interest payment date to maturity.
* Approximate investment yield from effective date of the June 1,1959, revision to maturity.
;
« Approximate investment yield for the full 10-year extension is 3,75 percent per annum.
819 years—8 months from issue date.

263

EXHIBITS
TABLE IV—UNITED STATES SAVINGS BONDS—SERIES H

TABLE OF C H E C K S ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM DECEMBER 1,
1953, THROUGH MAY 1, 1954

l^ble showing: (1) Amounts of interest checks paid on United States savings bonds of Series Ti, by denominations,
on each interest payment date follovnng issue; {2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (a) to maturity, or (6) to extended maturity. Yields are expressed in terms of rate percent, per
annum compounded semiannually.

{

Matmity value
Redemption value '
Issue price

Period of time bond is held after
issue date

3^ year...
1 year
13^ years.
2 years...
23^ years.
3 years...
33^ years.
4 years...
43^ years.
5 years...
63^ years.

$500
500
500

$1,000
1,000
1,000

$5,000
5,000
5,000

$10,000
10,000
10,000

(1) Amounts of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.25
6.25
6.25
6.25
8.50
8.50
8.50

$4.00
12.50
12.50
12.50
12.50
12.50
12.50
12.50
17.00
17.00
17.00

$40.00
125.00
125.00
125. 00
125. 00
125.00
125.00
125. 00
170.00
170.00
170.00

$20. 00
62.50
62.50
62.50
62.50
62.50
62. 50
62.50
85.00
85.00
85.00

Approximate investment
yield on face value 2

(2) From
issue date
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40
2.49
2.57

(3) From
each interest
payment
date (a)
to maturity 8
Percent
33.13
3 3.18
33.22
3 3.27
33.34
33.41
33.49
33.68
3 3. 60
3 3.63
44.16

Arnounts of interest checks and investment yields to maturity on basis of June 1,1959, revision
6 years
63^ years
7 years
73^ years
8 years
83^ years
9 years
93^'years
.....
9 years and 8,months (maturity)..
Period of time bond is held after
matmity date
3^ year
1 year
• 13^ years
:
-^
2 years
^..
23^ years
^
3 years
_,..
33^ years
.'
4 years
..".
43^ years
.
6 years
.
53^ years
._
6 years
^
63^ years
^
7 years
1
..
'.>73^ years
.
8 years
'.
83^ years.._.__.
9 years
93^ years
..,
10 years (extended maturity)

$8.75
8.75
9.35
9.35
9.35
10.45
10. 45
10.45
10.45

$17. 50
17.50
18.70
18.70
18.70
20.90
20.90
20.90
20.90

$87.50
87. .50
93.50
93.50
93.50
104. 50
104. 50
104. 50
104.50

$175. 00
175. 00
187.00
187.00
187. 00
209. 00
209. 00
209.00
209.00

2.64
2.70
2.77.
2.83
2.88
2.94
3.00
3.06
3.19

(b) to extended maturity ^

Extended maturity period
^9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.76

$93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93. 75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.76
93. .76

$187. 50
187. 50
187. 50
187.50
187.50
187. 50
187.50
187.50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187.50
187. 50
187. 50
187. 50
187. 50
187. 50

4.25
4.38
4.51
4.70
5.00
5.36
6.27
12. 80

3.22
3.24
3.26
3.27
3.29
3.30
3.32
3.33
3.34
3.35
3.36
3.37
3.38
3.39
3.39
3.40
3.41
3.42
3.42
3.43

3.75
3.75
3.75
3.76
3.75
3.75
3.76
3.75
3.76
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.75
3.75

1 At aU times, except that bond is not redeemable during first 6 months.
2 Calculated on the basis of $1,000 bond.
. 3 Approximate investment yield on the basis of original (prior to June 1,1959, revision) schedule of interest
•checks is: (1) 3.00 percent per annum for entire period from issuance to maturity. (2) As shown for any
period from each interest payment date to maturity.'
4 Approxiihate investiheht yield from effective date of the June 1,1959, revision to maturity.
5 Approximafe'ihvestment yield for the full 10-year extension is 3.75 percent per annum.
«19 years—8 months from issue date.

264

1962 REPORT OF THE SECRETARY OF THE TREASURY
TABLE V—UNITED STATES SAVINGS BONDS—SERIES H

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM J U N E 1
THROUGH NOVEMBER 1, 1954

Table showing: (1) Amounts of inter est checks paid on United States savings bonds of Series H, by denominations
on each interest payment date following issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
annum compounded semiannuaUy.
[Maturity value
Face valuer Redemption value i
[issue price

Period of time bond is held after
issue date

3^ year...
1 year
13^ years.
2 years...
23^ years.
3 years...
33^ years.
4 years...
43^ years.
5 years...

$500
500
600

$1,000
1,000
1,000

$5,000
5,000
6,000

$10,000
10,000
10,000

(1) Amounts of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.25
6.25
6.25
6.25
8.50
8.50

$4.00
12.50
12.60
12.60
12.50
12.50
12.50
12.50
17.00
17.00

$40.00
125.00
125.00
125.00
125.00
125.00
126. 00
125.00
170. 00
170. 00

$20.00
62.50
62.50
62.60
62.50
62.60
62.60
62.60
85.00
85.00

Approximate investment
yield on face value '
(2) From
issue date
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40
2.49

(3) From
each interest
payment
date (a)
to maturity 3
Percent
3 3.13
3 3.18
8 3.22
3 3.27
8 3.34
8 3.41
3 3.49
3 3.58
3 3.60
4 4.13

Amounts of interest checks and investment yields to maturity on basis of June 1,1959, revision
53^ years
6 years...
—
63^ years
•...
7 years
73^ years
8 years
83^ years
9 years
9H years
9 years and 8 months (maturity)..
Period of time bond is held after
maturity date
3^ year
1 year
13^ years
:
2 years
23^ years
3 years
33^ years
4 years
43^ years
^
5 years...
63^ years
6 years
63^ years
7 years
73^ years
8 years'...
83^ years
9 years
93^ years
10 years (extended maturity) 8.

75
75
75
75
75
75
45
45
45
45

$17. 60
17.50
17.50
19.60
19.50
19.50
20.90
20.90
20.90
20.90

175.00
175.00
175.00
195.00
195. 00
195. 00
209.00
209.00
209. 00
209.00

$87.50
87.60
87.50
97.50
97.50
97.50
104. 50
104. 50
104. 50
104. 50

2.58
2.65
2.71
2.78
2.85
2.91
2.97
3.03
3.08
3.22

(b) to extended maturity 5

Extended maturity period
$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.76
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75

$93.75
93.75
93.76
93.76
93.75
. 93.75
93.75
93.76
93.75
93.75
93.75
93.75
93.76
93.75
93.76
93.76
93.76
93.75
93.75
93.76

$187. 60
187. 50
187. 50
187.50
187.50
187. 60
187. 50
187. 50
187. 50
187.50
187. 50
187. 50
187. 50
187. 50
187. 50
187.50
187. 50
187. 50
187. 50
187.60

4.21
4.32
4.46
4.57
4.73
5.00
5.36
6.27
12.80

3.24
3.26
3.28
3.30
3.31
3.32
3.34
3.36
3.36
3.37
3.38
3.39
3.40
3.40
3.41
3.42
3.43
3.43
3.44
3.44

3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.76
3.76
3.76

•» At aU times, except that bond is not redeemable dming first 6 months.
2 Calculated on the basis of $1,000 bond.
3 Approximate investment yield on the basis of origmal (prior to June 1,1959, revision) schedule of mterest
checks is: (1) 3.00 percent per annum for entire period from issuance to matmity. (2) As shown for.any
period from each interest payment date to maturity.
4 Approximate investment yield from effective date of the June 1,1969, revision to maturity.
6 Approximate investment yield for the full lOryear extension is 3.76 percent per aimum.
fi 19 years—8 months from issue date.

265

EXHIBITS
TABLE VI—UNITED STATES SAVINGS BONDS—SERIES

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM DECEMBER 1,
1954, THROUGH MAY 1, 1955

Table showing; (1) Amounts of interest checkspaid on United States savings bonds of Series H, by denominations,
on each interest payment date following issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (o) to maturity, or (6) to extended maturity. Yields are expressed in terms of rate percent per
annum compounded semiannually.
[Maturity value
Face valuej Redemption value L.
[issue price

Period of time bond is held after
issue date

14 year...

1 year
13^ years.
2 years...
23^ years.
3 years...
33^ years,
4 years...
43^ years.

$500
500
600

$1,000
1,000
1,000

$5,000
6,000
5,000

$10,000
10,000
10,000

(1) Amounts of interest checks for each
denomination

$2.00
6.25
6.26
6.25
6.25
6.25
6.26
6.25
8.50

$4.00
12.50
12.50
12.50
12.50
12.50
12.50
12.60
17.00

$40. 00
125. 00
125.00
125. 00
126.00
126. 00
125. 00
125. 00
170. 00

$20.00
62.50
62.50
62.50
62.60
62.50
62.50
62.50
85.00

Approximate investment
yield on face value 2
(2) From
issue date
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25
2.28
2.40

(3) From
each interest
payment
date (a)
to maturity 3
Percent
33.13
3 3.18
8 3.22
3 3..27
3 3.34
33.41
3 3.49
33.68
44.10

Amounts of interest checks and investment yields to maturity on basis of June 1,1959, revision
$17. 50
17.50
17.50
19.30
19.30
19.30
20.70
20.70
20.70
20.70
20.70

6 years
53^ years
6 years
63^ years
7 years
73^ years
8 years
83^ years
9 years
93^ years
9 years and 8 months (maturity).
Period of time bond is held after
maturity date
}4 year
1 year
13^ years
2 years
23^ years
3 years
33^ years
4 years
43^ years
5 years
53^ years
6 years
.
63^ years
....
7 years...
73^ years
8 years
83^ years
1
9 years
93^ years
10 years (extended maturity)

$87. 50
87.50
87.50
96.50
96.50
96.50
103. 50
103. 50
103. 50
103. 50
103. 50

$176. 00
175. 00
175. 00
193. 00
193.00
193. 00
207. 00
207. 00
207. 00
207. 00
207 00

2.50
2.69
2.66
2.74
2.81
2.87
2.94
3.01
3.06
3.11
3.24

(b) to extended matmity«

Extended maturity period
$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.37
9.38

$18. 76
18.75
18.75
18.75
18.75
18.75
18.76
18.57
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75

$93. 75
93.76
93.76
93.75
93.76
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.76
93.75
93.75
93.76
93.75
93.75
93.75
93.76

$187. 60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187.50
187. 50
187. 50
187. 50

4.17
4.26
4.37
4.46
4.68
4.75
4.95
5.31
6.21
12.68

3.26
3.28
3. 30
3. 32
3.33
3. 34
3.35
3. 37
3.38
3.39
3.40
3.40
3.41
3.42
3. 43
3.43
3.44
3.44
3.45
3.46

3.75
3.76
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.76
3.76
3.75
3.76

1 At aU times, except that bond is not redeemable during first 6 months.
2 Calculated on the basis of $1,000 bond.
3 Approximate investment yield on the basis of original (prior to June 1,1959, revision) schedule of interest
checks is: (1) 3.00 percent per annum for entire period from issuance to maturity. (2) As shown for any
period from each interest payment date to maturity.
4 Approximate investment yield from effective date of the June 1,1959, revision to maturity.
* Approximate investment yield for the full 10-year extension is 3.75 percent per annum.
«19 years—8 months from issue date.

266

1962 REPORT OF THE SECRETARY OF THE TREASURY
TABLE VII—UNITED STATES SAVINGS BONDS—SERIES H .

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM J U N E 1
THROUGH NOVEMBER 1, 1955

Table showing; (1) Amounts of interest checks paid on United States savings bonds of Series H, by denominations,
on each interest payment date foUowing issue: (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield'on the. face value from each interest
payment date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
annum compounded semiannuaUy.
[ M a t u r i t y value
F a c e valuer R e d e m p t i o n value L . .
[issue price

P e r i o d of t i m e b o n d is held after
issue d a t e

}4 year
1 year.
13^ years
2 years
23^ years
3 years
33^ years . . .
4 years

$500
600
500

$1,000
1,000
1,000

$5,000
5,000
5,000

$10,000
10,000
10,000

(1) A m o u n t s of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.26
6.25
6.25
6.25

$4.00
•12.50
12.50
12.50
12.60
12.60
12.50
12.50

$40.00
125. 00
126.00
125.00
125.00
125.00
126.00
125.00

$20.00
62.60
62.50
62.50
62.50
62.60
62.50
62.60

Approximat e investment
yield on f ace value 2

(2) F r o m
issue d a t e
to each
interest
payment
date
Percent
0.80
1.66
1.93
2.07
2.15
2.21
2.25
2.28

(3) F r o m
each interest
payment
d a t e (a)
to m a t u rity 3
Percent
3 3.13
3 3.18
3 3. 22
33.27
33.31
33.41
3 3.49
44.09

Amounts of interest checks and investment yields to maturity on basis of June 1,1959, revision
43^ years
6 years
53^ years
6 years
63^ years
7 years
73^ years
Syears
83^ years
•,.
9 years
93^^ years
9 years and 8 months (maturity)..
Period of time bond is held after
matmity date
H year—
1 year
13^ years
2 years
23^ years
3 years
33^ years
4 years
43^ years
5 years
63^ years
6 years
63^years
7 years
IH years
8 years
83^ years
9 years
9H years
10 years (extended maturity)

$8.76
8.76
8.75
9.66
9.65
9.66
9.65
10.50
10.60
10.50
10.50
10.50

$17. 50
17.50
17.50.
19.10
19.10
19.10
19.10
21.00
21.00
21.00
21.00
21.00

$87. 50
87.50
87.60
95.50
96.60
95.50
95. 60
106.00
106.00

105. 00
105.00
106. 00

$176.00
175.00
175.00
191.00
191.00
191.00
191.00
210.00
210.00
210. 00
210.00
210.00

2.41
2.51
2.69
2.69
2.77
2.84
2.89
2.97
3.03
3.08
3.13
3.27

Extended maturity period

$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18. 75
18.76
18.75
18.76
18.75
18.76
18.76
18.76
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18. 75
18.75
18.75
18.75

$93. 75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.76
93.75
93.76
93.75
93.76
93.76
93.75
93.75
93.76
93.75
93.76
93.75

$187.
187.
187.
187.
187.
187.
187.
• 187.
187.
187.
187.
187.
187.
187.
187.
187.
187.
187.
187.
187.

4.15
4.23
4.32
4.39
4.49
4.63
4.82
5.02
5.38
6.30
12.87

(b) to extended m a t u r i t y *

50
60
50
50
60
60
50
50
50
50
60
60
60
50
50
50
60
50
50
60

3.29
3.31
3.32
3.34
3.35
3.37
3.38
3.39
3.40
3.41
3.41
3.42
3.43
3.44
3.44
3.45
3.46
3.46
3.47
3.47

3.75
3.75
•3.76
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75

1 At all times, except that bond is not redeemable during first 6 months.
» Calculated on the basis of $1,000 bond.
3 Approximate investment yield on the basis of original (prior to June 1,1969, revision) schedule of interest
checks is: (1) 3.00 percent per annum for entire period from issuance to maturity. (2) As shown for any
period from each interest payment date to maturity.
4 Approximate investment yield from effective date of the June 1,1959, revision to maturity.
' Approximate investment yield for the full 10-year extension is 3.75 percent per annum,
819 ye^rs—8 njonths from issue cj^te.

267

fiXHifeifs
TABLE VIII—UNITED

STATES SAVINGS B O N D S — S E R I E S

TABLE OF CHECKS IS SUED AND I N V E S T M E N T YIELDS FOR PONDS BEARING ISSUE DATES FROM D E C E M P E R 1,
19.55, THROUGH MAY 1, 1956

Table showing: (/) A m o u n t s of interest checks paid on United States savings bonds of Series H , by denominations'
on each interest payment date follovnng issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date: and (3) the approximate investment yield o n t h e face value from each interest
payment date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
a n n u m compounded semiannually.

M a t u r i t y value
R e d e m p t i o n value '
Issue price

P e r i o d of t i m e b o n d is held after
issue d a t e

3^ y e a r . . . .
1 year
13^ y e a r s . .
2 years
23^ y e a r s . .
3 years
33^ y e a r s . .

$500
500
500

$1,000
1,000
1,000

$5,000
5,000
5,000

$10,000
10,000
10, 000

(1) A m o u n t s of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.25
6.25
6.25

$4.00
12-. 50
12.50
12.50
12.50
12.50
12.50

$40. 00
125.00
125.00
125.00
126.00
125. 00
125. 00

$20.00
62. 50
62.50
62.50
62.50
62.50
62.50

Approximate investment
yield on face value 2

(2) F r o m
issue d a t e
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15
2.21
2.25

(3) F r o m
each interest
payment '
d a t e (a)
to m a t u rity 3
Percent
33.13
3 3.18
33.22
33.27
33.34
33.41
4 3.99

A m o u n t s of interest checks a n d i n v e s t m e n t yields to m a t u r i t y on basis of J u n e 1,1959, revision
4 years
43/^ years
.
5 years...
53^ "years
6 years
^
63^ years
7 years
73^ years
8 years
83^ years
9 years
93^ years
9 years a n d 8 m o n t h s ( m a t u r i t y ) . .
P e r i o d of t i m e b o n d is held after
maturity date
3/^ y e a r
1 year
13^ years
2 years
23^ y e a r s
3 years...
33^ y e a r s .
4 years
43^ years
5 years
53^ years
6 years
63^ y e a r s . . .
7 years
73^ years
:
8 years
83^ years
9 years
93^ years
10 years (extended m a t u r i t y )

$6.50
8.75
8.75
8.75
9.80
9.80
9.80
9.80
10.55
10. 55
10. 55
10.55
10.55

$13.00
17.50
17.50
17.50
19.60
19.60
19.60
19.60
21.10
21.10
21.10
21.10
21.10

$65.00
87.50
87.50
87.50
98.00
98.00
98.00
98.00
105. 50
105.50
105. 50
105. 50
105. 50

$130.00
175.00
175.00
175.00
196.00
196.00
196.00
196. 00
211.00
211.00
211.00
211.00
211.00

2.29
2.42
2.52
2.60
2.70
2.79
2.86
2.92
3.00
3.06
3.11
3.16
3.30

(b) to extended matmity ^

E x t e n d e d m a t u r i t y period

$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
. 9.38
9.38

$18. 75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.75
18.76
18.75
18.75

$93.75
93.75
93.75
93.75
93.75
93. 75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75

$187. 50
187.50
187.50
187.50
187. 50
187.50
187.50
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187.60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50

4.13
4.20
4.28
4.38
4.45
4.64
4.66
4.85
5.04
5.41
6.33
12.93

3.32
3.34
3.35
3.36
3.38
3.39
3.40
3.41
3.42
3.43
3.43
3.44
3.45
3.46
3.46
3.47
3.47
3.48
3.48
3.49

3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.76
3.75

1 A t all t i m e s , except t h a t b o n d is n o t redeemable d u r i n g first 6 m o n t h s .
2 Calculated on t h e basis of $1,000 b o n d .
3 A p p r o x i m a t e i n v e s t m e n t yield on the basis of original (prior to J u n e 1,1959, revision) schedule of interest
checks is: (1) 3.00 percent per a n n u m for entire period from issuance to m a t u r i t y . (2) A s s h o w n for a n y
period from each interest p a y m e n t d a t e to m a t m i t y .
4 A p p r o x i m a t e i n v e s t m e n t yield from eft'ective d a t e of t h e J u n e 1,1959, revision, to m a t u r i t y .
5 A p p r o x i m a t e i n v e s t m e n t yield for t h e full 10-year ex_tension is 3.75 p e r c e n t per a n n u m .
919 years—8 m o n t h s from issue d a t e .

268

1962 REPORT OF THE SECRETARY OF THE TREASURY
T A B L E I X — U N I T E D STATES S A V I N G S B O N D S — S E R I E S H

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS B E A R I N G ISSUE DATES FROM J U N E 1 THROUGH
N O V E M B E R 1, 1958

Table showing; (1) A m o u n t s of interest checks paid on United States savings bonds of Series H , by denominations,
on each interest payment date following issue; (2) the approximate investment yield on the face value from issue
date to each interest payment date; and (3) the approximate investment yield on the face value from each interest
payment date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent p e r
a n n u m compounded semiannually.
[Matmity value..
Face value-! Redemption value L . .
[issue price

Period of time bond is held after
issue date

14 year
1 year
13^ years
2 years
23^ years
3 years

$600
500
500

$1,000
1,000
1,000

.$5,000
6,000
5,000

$10,000
10,000
10,000

(1) Amounts of interest checks for each
denomination

$2.00
6.25
6.25
6.26
6.25
6.25

$4.00
12.50
12.50
12.60
12.50
12.60

$20. 00
62.50
62.50
62.50
62.60
62.60

$40.00
125.00
125. 00
125:00
125. 00
125.00

Approximate investment
yield on fa ce value 2

(2) From
issue date
to each
mterest
payment
date
Percent.
0.80
1.66
1.93
2.07
2.15
2.21

(3) From
each interest
payment
date (a)
to maturity 3
Percent
33.13
3 3.18
33.22
33.27
33.34
43.91

A m o u n t s of interest checks a n d i n v e s t m e n t yields to m a t u r i t y o n basis of J u n e 1,1959, revision
33/^ y e a r s
4 years...
43^ y e a r s
6 years
53^ y e a r s
6 years
63^ y e a r s
7 years
73^ years
8 years
^...
.83^ years
•
9 years
93^ y e a r s
.
9 years a n d 8 m o n t h s ( m a t u r i t y ) .
P e r i o d of t i m e b o n d is h e l d after
maturity date
}/2 y e a r
1 year
13^ years
2 years
23^ years
3 years
33^ y e a r s
4 years
43^ y e a r s
5 years
_
53^ years
6 years
63^ y e a r s . . .
7 years
73^ y e a r s . „
8 years
83^ y e a r s
.
9 years
93^ years
.
10 years (extended m a t u r i t y ) 8.

$6.60
6.50
8.75
8.75
9.75
9.75
9.75
9.76
9.75
10.60
10.60
10.60
10.60
10.60

$13. 00
13.00
17.60
17.50
19.50
19.60
19.50
19. 50
19.60
21.20
21.20
21.20
21.20
21.20

$65. 00
65.00
87. 50
87.60
97.50
97.50
97.60
97.60
97.50
106. 00
106. 00
106.00
106.00
106. 00

$130. 00
130.00
175.00
175.00
196. 00
195. 00
195. 00
195.00
195.00
212. 00
212. 00
212. 00
212. 00
212.00

2.26
2.30
2.43
2.63
2.65
2.74
2.82
2.89
2.95
3.02
3.08
3.14
3.19
3.33

E x t e n d e d m a t u r i t y period

$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38
9.38

$18. 76
18.75
18.75
18.76
18.75
18.75
18.75
18.76
18.75
18.75
18.75
18.75
18.76
• 18.75
18.75
18.75
18.75
18.75
18.75
18.75

$93. 76
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75
93.75

$187. 50
187. 60
187. 50
187. 50
187. 50
187. 50
187. 50
187. 50
187.50
187. 50
187. 50
1876. 0
1875. 0
187. 50
187. 60
187. 50
187. 60
• 187.50
187. 50
187.60

4.03
4.17
4.24
4.33
4.38
4.45
4. 56
4.68
4.87
5.07
5.44
6.36
12.99

(b) to extended matmity ^
3.34
3.36
3.37
3.39
3.40
3.41
3.42
3.43
3.44
3.44
3. 45
3.46
3.47
3.47
3.48
3.48
3.49
3.49
3.60
3.60

3.76
3.76
3.75
3.75
3.75
3.76
3.76
3.75
3.76
3.75
3.75
3.75
3.75
3.75
3.75
3.75
3.76
3.76
3.75

1 A t all t i m e s , except t h a t b o n d is n o t r e d e e m a b l e d m i n g first 6 m o n t h s .
2 C a l c u l a t e d o n t h e basis of $1,000 b o n d .
3 A p p r o x i m a t e i n v e s t m e n t j i e l d o n t h e basis of original (prior to J u n e 1,1959, revision) schedule of i n t e r e s t
checks is: (1) 3.00 p e r c e n t p e r a n n u m for entire period from issuance t o m a t u r i t y . (2) A s s h o w n for a n y
period from each i n t e r e s t p a y m e n t d a t e to m a t u r i t y .
4 A p p r o x i m a t e i n v e s t m e n t yield from effective d a t e of t h e J u n e 1,1959, revision to m a t u r i t y .
5 A p p r o x i m a t e i n v e s t m e n t yield for t h e full 10-year extension is 3.75 p e r c e n t p e r a n n u m .
819 years—8 m o n t h s from issue d a t e .

269

EXHIBITS
T A B L E X — U N I T E D STATES SAVINGS B O N D S — S E R I E S H

TABLE OF CHECKS ISSUED AND INVESTMENT YIELDS FOR BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1956,
THROUGH JANUARY 1, 1957
Table showing: (1) A m o u n t s of interest checks paid on United States savings bonds of Series H , by denominations,
on each interest payment date following issue; (^2) the approximate investment yield on the face value from issue
date to each interest p a y m e n t date; and (3) the approximate investment yield on the face value from each interest
. p a y m e n t date (a) to maturity, or (b) to extended maturity. Yields are expressed in terms of rate percent per
a n n u m compounded semiannually.

{

M a t u r i t y value
R e d e m p t i o n v a l u e L_.
Issue price

P e r i o d of t i m e b o n d is held after
issue d a t e

3^ y e a r . . .
1 year...
13^ years.
2 years...
23^ years.

$500
500
600

$1,000
1,000
1,000

$5,000
5,000
5,000

$10,000
10,000
10,000

(1) A m o u n t s of interest checks for each
denomination

$2.00
6.25
6.25
6.25
6.25

$4.00
12.50
12.60
12.50
12.50

$20. 00
62.60
62.50
62.50
62.50

$40.00
125.00
126. 00
125. 00
125. 00

Approximate investment
yield on face v a l u e 2

(2) F r o m
issue d a t e
to each
interest
payment
date
Percent
0.80
1.65
1.93
2.07
2.15

(3) F r o m
each i n t e r e s t
payment
d a t e (a)
to maturity 3
Percent
33.13
3 3.18
33.22
33.27
4 3.84

A m o u n t s of interest checks a n d i n v e s t m e n t yields to m a t u r i t y on basis of J u n e 1,1959, revision
3 years
33^ years
4 years
43^ years
6 years
63^ years
6 years...
63^ years
..
7 years
73^ years
8 years
83^ years
9 years...
93^. years
9 years a n d 8 m o n t h s ( m a t u r i t y )
P e r i o d of t i m e b o n d is held after
maturity date
yi year
....
1 year.
13^ years
-.
2 years
23^ years
3 years
33^ y e a r s . . .
4 years
43^ y e a r s . . .
5 years
.
53^ years
6 years
63^ years
7 years
73^ years
8 years
83^ years
9 years
93^ years
10 years (extended m a t u r i t y ) 8

$6.50
6.50
6.50
8.75
8.75
10.00
10.00
10.00
10.00
10.00
10.60
10.60
10.60
10.60
10.60

$13. 00
13.00
13.00
17.50
17.60
20.00
20.00
20.00
20.00
20.00
21.20
21.20
21.20
21.20
21.20

$66. 00
65.00
65.00
87.50
87.50
100. 00
100.00
100.00
100. 00
100. 00
106. 00
106. 00
106. 00
106. 00
106.00

$130. 00
130. 00
130. 00
175. 00
175.00
200. 00
200.00
200.00
200. 00
200. 00
212. 00
212. 00
212. 00
212. 00
212. 00

2.22
2.28
2.32
2.44
2.54
2.66
2.77
2.85
2.922.99
3.06
3.12
3.17
i.22
C.36

(b) to extended maturity«

E x t e n d e d m a t u r i t y period

$9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.37
9.38
9.38
9.38
9.38
9.38

9.38
9.38

$18. 75
18.75
18.75
18.75
18.75
18.75
18.75
18.76
18.75
18.75
18.75
18.76
18.76
18.76
18.75
18.76
18.76
18.75
18.75
18.75

$93. 75
93.76
93.76
93.75
93.75
93.76
93.75
93.76
93.75
93.75
93.76
93.75
93.75
93.76
93.75
93.75
93.75
93.75
93.76
93.76

$187. 60
187. 50
187. 60
187. 50
187. 50
187. 60
187. 50
187. 60
187. 50
187. 50
187. 50
187. 60
187. 60
187. 60
187. 60
187. 50
187. 50
187. 60
187. 50
187. 60

3.95
4.07
4.2r
4.29
4.38
4.43
4.60
4.68
4.70
4.87
6.07
5.44
6.36
12.99

3.37
5.39
5.40
C.41
5.42
5.43
5.44
5.45
5.46
5.47
5:47
5.48
5.49
5.49
5.50
5.50
3.61
5.61
5.62
5.62

3.75
3.75
3.75
3.76
3.75
3.75
3.75
3.75
3.76
3.75
3.75
3.76
8.76
3.75
3.75
3.75
3.75
3.75
3.76

1 A t aU times, except t h a t b o n d is n o t r e d e e m a b l e d u r i n g first 6 m o n t h s .
2 C a l c u l a t e d on t h e basis of $1,000 b o n d .
3 A p p r o x i m a t e i n v e s t m e n t yield on t h e basis of original (prior to J u n e 1,1959, revision) schedule of interest
checks: (1) 3.00 percent per a n n u m for entire period from issuance to m a t u r i t y . (2) As s h o w n for a n y
period from each interest p a y m e n t d a t e to m a t u r i t y .
4 A p p r o x i m a t e i n v e s t m e n t yield from effective d a t e of t h e J u n e 1,1959, revision t o m a t u r i t y .
» A p p r o x i m a t e i n v e s t m e n t yield for t h e full 10-year extension is 3.75 percent per a n n u m .
819 years—8 m o n t h s from issue d a t e .

270

196 2 REPORT OF THE SECRETARY OF THE TREASURY

E X H I B I T 10.—Second a m e n d m e n t , November 17, 1961, to D e p a r t m e n t Circular
No. 905, Second Revision, regulations governing Series H savings bonds
TREASURY DEPARTMENT,

Washington, November 17, 1961. '
Tn S E C . 332.7, p a r a g r a p h (a) is hereby amended, effective J a n u a r y 1, 1962, to.
read as foliov^s:
S E C . 332.7. Limitation on holdings.^—The limits on t h e a m o u n t of a n y Series H
bonds originally issued during a n y :one calendar year t h a t m a y be held by any one
person a t a n y one time (which will be computed in accordance with t h e regulations
currently in force governing United States savings bonds) ^ are:
(a) General limitation.—$20,000 (maturity value) for t h e calendar year 1962
and each calendar year thereafter.
R O B E R T V. ROOSA,

Acting Secreiary of ihe Treasury.

Legislation
E X H I B I T 11.—An act to increase temporarily the public debt limit set forth in
section 21 of t h e Second Liberty Bond Act
[Public Law 87-414, 87th Congress, H.R. 10050, March 13, 1962]

Be it enacied by the Senate and House of Representatives of ihe
United States of America i n Congress assembled. T h a t , during
the period beginning on t h e date of the e n a c t m e n t of this Act
a n d ending on June 30, 1962, t h e public debt limit set forth in
.^
the first sentence of section 21 of t h e Second Liberty Bond Act, Temporary inas amended (31 U.S.C. 757b), shall be temporaril}^ increased by crease.
$2,000,000,000. Such increase shall be in addition to t h e temporary increase provided by t h e Act of June 30, 1961 (Public
Law 87-69; 75 Stat. 148).
A p p r o v e d ' M a r c h 13, 1962.

EXHIBIT 12.—An act to increase for a one-year period t h e public debt limit s e t
forth in section 21 of the Second Liberty Bond Act
[Public Law 87-512, 87th Congress, H.R. 11990, July 1, 1962]

Be it enacted by the Senate arid House of Representatives of ihe
United Staies of America in Congress assembled. T h a t t h e public
debt limit set forth in the first sentence of section 21 of t h e
Second Liberty Bond Act, as amended (31 U.S.C. 757b), shall Debt hmit, tembe temporarily increased—
PX,^p ^^g^c'-^^'e.
(1) during t h e period beginning on July 1, 1962, a n d ending
on March 31, 1963, t o $308,000,000,000,
(2) during the period beginning on April 1, 1963, a n d ending
on June 24, 1963, to $305,000,000,000, and
(3) during t h e period beginning on June 25, 1963, a n d ending
on June 30, 1963, to $300,000,000,000.
Approved July 1, 1962.

Financial Policy
E X H I B I T 13.—Statement by Secretary of t h e Treasury Dillon, January 30, 1962,
before t h e Joint Economic Committee
T h e past twelve months have been an active, and I think fruitful, period in
terms of our economic policy. I n m a n y ways, remarkable progress has been
evident. Nevertheless, urgent problems remain. I a m grateful for this opportunity to review with you t o d a y both our recent experience and our plans for
meeting t h e needs of t h e future.
1 Department Circular No. 630.

EXHIBITS

271

Progress and problems
Last year began in recession, b u t closed with o u t p u t and income at new record
highs. T h e personal hardship and economic waste of unemployment were
reduced. Nearh^ a million workers were added to nonfarm payrolls. I n d u s t r y ,
while working longer hours a t higher pay, is also earning greater profits. And,
while providing.a higher s t a n d a r d of living for our citizens, we have strengthened
our military defenses and contributed further to t h e economic progress of other,
less fortunate nations.
This progress was achieved within a context of general price stability. On t h a t
solid base, exports reached a record volume, contributing to a significant reduction
in our basic balance-of-payments deficit. At t h e same time, defenses against
potentially disturbing short-term, capital movements are being greatly reinforced.
As a result, confidence in t h e dollar has been strengthened.
However, t h e economy is still operating well below its full potential. Our
growth r a t e over recent years has hardly been satisfactory. Unemployment is
still at an unacceptably high level. T h e deficit in our international accounts,
while smaller, remains troublesome. And, t h e very progress of t h e p a s t year,
not only in this country b u t in other parts of t h e free world, has brought with it
new problems to which we m u s t find solutions.
Financial policies in 1961
There is no single, easy explanation for our progress during 1961. A large p a r t
of t h e answer lies in t h e natural vitality of our t y p e of m a r k e t economy operating
under conditions of overall price stability—the fundamental prerequisite for all
our a t t e m p t s to achieve faster growth at home while simultaneously working
t o w a r d a sustainable balance in our international accounts. T h a t price stability,
in turn, can be traced primarily to sharp gains in industrial efficiency and worker
productivity as o u t p u t expanded from its recession level, gains t h a t enabled
industry to p a y higher wages and to increase profits without raising prices.
Government policy supplied another large p a r t of t h e answer. First, there was
t h e psychological, b u t nonetheless real, reaction t h a t flowed from President
K e n n e d y ' s earliest s t a t e m e n t s a n d programs. At horae, t h e President's clear
intent to deal with t h e recession promptly and effectively helped restore confidence
in t h e economic outlook, encouraging expanded investment ahd spending.
Similarly, t h e President's expressed determination to maintain t h e strength of t h e
dollar internationally without resort t o protection, controls, and restraints m e t
with a p r o m p t response. T h e speculative capital outflow subsided and t h e gold
drain was sharply reduced.
This positive approach entailed, under t h e particular circumstances t h e n
prevailing, acceptance of a sizable budgetary deficit, which was further enlarged
by t h e higher levels of defense spending called for by t h e Berlin crisis. At a time
when h u m a n and industrial resources were readily available to expand output, t h e
rising t r e n d of Government outlays and t h e consequent deficit were i m p o r t a n t
factors in speeding t h e recovery without creating pressures on t h e price structure.
T h e stimulating effects of tfie budget were reinforced b y monetary and credit
policies. Throughout t h e past year, t h e credit markets have had ample funds to
meet t h e combined demands of businesses, individuals, and t h e various levels of
Government, t h u s facilitating a revival in capital outlays, higher levels of home
building, and steady progress t o w a r d meeting t h e accumulated needs of local
governments. I n sharp contrast to other recovery periods,since World War II,
lending rates have held almost steady, particularly in t h e long-term area. B o t h
corporations and S t a t e and local governments can still raise funds at virtually
t h e same cost as a year ago. Mortgage rates, after declining in t h e early p a r t o f
1961, have been substantially unchanged since last spring. This stability was
particularly striking in a year when t h e total funds raised in t h e capital markets by
corporations, homebuyers, and State and local, governments, reached a new
alltime peak.
All this was accomplished without permitting rates for short-term money
m a r k e t instruments to drop t o t h e extremely low levels characteristic of earlier
periods of easy money and recession. T h a t was a significant achievement, for
short-term rates, while less i m p o r t a n t in influencing investment activity at home,
can play a critical role in directing t h e flow of liquid capital between t h e financial
centers of t h e world. Here, Treasury debt management policy, as well as greater
flexibility in t h e day-to-day conduct of open m a r k e t operations, was an i m p o r t a n t
factor.

272

1962 REPORT OF THE SECRETARY OF THE TREASURY

Working in close cooperation with the Federal Reserve, the Treasury, ih
financing the deficit, increased the outstanding total of securities maturing within
a year by more than $10 billion. At the same time, there was no shortening of thc
average maturity of the marketable public debt, largely as a result of the continued
use of the ''advance refunding" technique. This type of financing involves the
exchange of outstanding issues for longer maturities, with a minimum impact on
market conditions and flows of funds into productive investment.
This combination of a budgetary deficit with flexible monetary and debt
management policies, carefully attuned to the realities of the balance of payments
as well as domestic needs, was appropriate bpth in terms of magnitude and timing.
The extremes of the 1958 recession—when the deficit reached nearly $12>^ bilhon
and interest rates dropped sharply, only to surge abruptly higher as recovery
started—were successfully avoided. Financial policies were stimulating without
being inflationary; the threat of disturbing short-term capital outflows was
ameliorated. Moreover, business expansion has proceeded in orderly fashion.
Today, signs of the sort of excesses that breed instability and require sudden
changes in policy are notable for their absence.
Our basic goals
This does not mean, of course, that all the pohcies appropriate to the past
twelve months are suitable for meeting the challenges of 1962. With recovery
largely completed, the domestic focus must now be on maintaining forward
momentum while guarding against inflationary pressures as our resources are more
fully utilized. Confidence in the dollar has been maintained. To sustain that
confidence, further progress toward a longrun equilibrium in our basic international
accounts is a necessity.
Our fundamental objectives, domestic growth and a payments balance, must
be pursued together, within the framework of free markets. All administration
policy is pointed toward that end. We reject policies that presume irreconcilable
conflict between our objectives; policies that attach sole priority to growth, or
sacrifice growth to external equilibrium. These purported solutions are both
unacceptable and unworkable in a world in which our capacity to grow is being
challenged and our allies in freedom need the strength and stabihty assured by a
sohd dollar.
Success in reaching our twin objectives will require hard decisions, not only by
those who shape the financial policies of Government, but also by those who set
price and wage policies for management and labor.
A balanced budget
The President's Budget Message is a financial reflection of our national needs
and priorities. Expenditures wiU rise moderately in fiscal 1963, almost entirely
because of defense needs and despite painstaking elimination of nonessential
spending, both military and civilian. These expenditures can and should be
supported by a growing economy. In the light of past experience and current
trends, the projections of a further rise in the Gross National Product (GNP) to
$570 billion in 1962 that underlie the revenue estimates are entirely reasonable.
Without raising tax rates an advance of this sort will generate revenues slightly
larger than expenditures. Under the economic conditions we foresee, the achievement of such a balance is highly important in avoiding inflationary pressures as the
economy moves closer to its full potential.
One result of this budget will be to reduce the possibility of severe strains on the
monetary system as the economy expands, strains that could bring sharp and sudden increases in interest rates and unsettling market reactions that impede the flow
of savings into productive investment. In 1956 and 1957, and particularly in
1959, strains of this sort appeared to be developing at a time when too much of the
burden of maintaining balanced growth and curbing excesses was thrust upon
the monetary authorities. Monetary policy is an essential and powerful tool for
facihtating appropriate adjustments in the economy. But unless it is supported
by appropriate budgetary pohcy, the results can be capricious and unpredictable,
contributing too little to either stability or growth.
The debt ceiling
The President's recent request to raise the temporary debt hmit to $308 biUion
is the result of an unavoidable concentration of revenues in the final half of fiscal
1963, a concentration that stems largely from the normal recurring seasonal
pattern of tax receipts. Borrowing of about $9 billion will be necessary between
the end of this fiscal year and the principal tax payment dates In fiscal|1963, even

EXHIBITS

273

though the budget for the fiscal 3^ear as a whole is balanced. Moreover, while we
anticipate that the total debt on June 30 of this year will be somewhat lower than
the current figure of over $297}^ billion, prompt enactment of an increased ceiling
is needed to restore some margin for flexibihty and unforeseen contingencies—a
margin that has been virtually exhausted by the higher defense expenditures required to meet the Berlin crisis, which developed after the enactment of the
current limit of $298 billion.
Measures to encourage investment
A balanced budget in times of relative prosperity means that the Federal Government on an overall basis does not draw on the national flow of savings available for investment. Thus a balanced budget in these circumstances promotes
the flow of private investment.
Why is an increase in such investment so important to us today?
At the heart of the matter is the fact that it makes possible greater productive
efficiency. Gains in efficiency are necessary for growth at home, for price stability,
and-for aggressive penetration of foreign markets. Thus, increased investment
is the key to achieving our major objectives, growth and external balance, simultaneously in the years ahead. And, this is where the American economy has
fallen furthest behind in recent years.
Since the mid-fifties investment in capital equipment in the United States has
averaged less than 6 percent of the Gross National Product as compared to about
7 percent during the earlier postwar years. By contrast, German investment has
been averaging about 12 percent of GNP during recent years, French between 8
and 9 percent, and the Common Market countries as a group about 10 percent.
It is not a coincidence that these countries have been growing by roughly 5 percent per year, while generally maintaining a strong external payments position.
Nor is it mere happenstance that some other countries, where productive investment has been a relatively small proportion of GNP, have had to cope with relatively slow growth and recurrent payments difficulties.
Certainly growth alone, or larger investment by itself, is no guarantee of external balance. But foreign experience strongly suggests that our twin objectives
can be not only compatible, but mutually reinforcing.
In our economy, investment in plant and equipment is properly the province
of private businesses, individually responding to the profit motive and competitive pressures by increasing production efficiencies and seeking out new markets.
The Government nevertheless has an essential role to play in maintaining an
economic climate that will encourage and facilitate the investment process.
I have mentioned the role of budgetary policy in this regard. But a balanced
budget alone cannot meet our urgent need to increase our rate of investment in
productive capital equipment. It is also vitally important that our tax system
should recognize the need to accelerate the modernization of our physical plant
and equipment.
This is why the administration has attached first priority, among tax reform
measures, to the investment credit and the related revision in depreciation
schedules. The first steps toward depreciation reform have already been taken
with the new depreciation allowance guidelines for most of the textile industry.
Revisions in guidelines for other industries will be announced this spring.
Based on exhaustive statistical and engineering studies, these administrative
actions, consistent with the present law, recognize past experience and practices
as well as the impact of technological advances and other factors on the economic
life of plant and equipment. They will provide a much more realistic basis for
taxation, and will stimulate business modernization and expansion. They can
not alone, however, assure the necessary flow of funds into new productive facilities, nor will they place American firms on an equal footing with their competitors
abroad, where special incentive allowances are commonplace. To achieve this,
revision of depreciation guidelines must be accompanied by the proposed investment credit. These coordinated reforms go together and should not be separated.
In enacting the investment credit, we must also recognize the need to avoid a
loss of revenue that could jeopardize the prospects for a vigorous recovery with
stable prices. It is for this reason that the President is urging the simultaneous
enactment of tax reforms that will balance the cost of the investment credit and
at the same time eliminate certain defects and inequities in our tax structure.
Meanwhile the Treasury is continuing its intensive review of the broad issues
of tax reform, including the structure of the personal income tax. Fundamental
changes of this sort inevitably require careful preparation, and close analysis of a
welter of detail. In the end, congressional heiarings will provide the best assur661496—63

274

1962 REPORT OF THE SECRETARY OF THE TREASURY

ance of a full and fair appraisal of the implications of any basic change in the tax
laws. The President plans to submit to the Congress later in this session a
broad program of tax reform so that this process of public scrutiny can get underway promptly, looking to enactment of the reform in 1963. Any comment now
on the nature of these proposals would be premature, but a thorough-going reform
of this type will almost certainly entail some adjustments in the basic individual
tax rates.
Toward payments equilibrium
Tax reform to stimulate modernization of our industrial equipment provides a
foundation for other efforts to improve our balance-of-payments position, including measures aimed directly at increasing exports to the large and rapidly
growing markets of Europe and other developed countries. The administration
is pursuing with vigor its program to make more American businesses aware of
the opportunities in foreign markets, to familiarize those markets with American
products, and to enlarge and speed the flow of information between American
producers and their potential markets. A. new and comprehensive program of
export credit insurance, undertaken by the Export-Import Bank in cooperation
with private insurance companies and banks, is now ready and will provide simplified procedures and comprehensive risk guarantees fully equivalent to those long
available to most of our competitors abroad.
In today's world, export markets are highly competitive. The rapid growth
and consolidation of the European Common Market, creating a free internal
market but protected from outsiders by a wall of uniform tariffs, poses a serious
problem, but it also presents a great opportunity. The problem is that we must
assure ourselves of access to the richest of our foreign markets, a market to which
we export almost $3}^ billion per. year, a far larger amount than we import from
the same area. The opportunity lies in the mutual negotiation of lower tariffs
on a reciprocal basis for broad groups of products, at one and the same time
expanding our export potential and forging a strong Atlantic trading partnership.
To seize this opportunity. President Kennedy has sent to Congress a new Trade
Expansion Act.
Increased exports are, over the longrun, the most effective means of eliminating
our basic balance-of-payments deficit in a manner consistent with our other
objectives and responsibilities. But because of our current position, other efforts
to reduce the drains directly related to our overseas commitments must be continued and reinforced.
One of the most important is the negotiation of arrangements with certain of
our allies to offset the dollar outflow arising from maintaining our military forces
overseas. In addition, a large portion of our economic assistance is being tied
to purchases in this country. And, the proposed legislation to equalize the
impact of the corporate income tax on business operations at home and in developed countries abroad would eliminate a special stimulus to investment in industrialized nations.
The balance of payments in 1961
Although some of, these measures have been in effect for only a limited period
of time and others are yet to be undertaken, our balance of payments showed
substantial improvement for 1961 as a whole. While firm data are still not
available, current indications are that the basic deficit—the net of all our recorded
transactions except volatile short-term capital flows—declined to roughly $600
million, as compared to almost $2 billion during 1960. A part of this improvement, almost $700 million, can be credited to advance repayments by foreigners
of long-term Gbvernment loans. Nevertheless, the improvement in the remainder
of the basic account was substantial. Preliminary figures point to an overall
deficit, including short-term capital outflows, approximating $2.5 billion, down
from $3.9 billion in 1960 and from an average of $3.7 billion over the three years
1958-1960.
Much remains to be done before equilibrium is restored. Some yearend figures
now becoming available and tentative data for the fourth quarter emphasize the
need for caution. The overall deficit appears to have risen to well over $1 billion
in the final quarter, considerably above the average for the first three quarters
of the year.
The increase in the deficit from the third to fourth quarters appears to have
been entirely a matter of short-term capital outflows, one of the most elusive
items to pin down statistically. Estimates now at hand suggest that these
flows, for the year as a whole, were almost as large as in 1960.
There were, however, clear and significant differences in the character of these

EXHIBITS

275

outflows. In 1960, reflecting some uncertainty over t h e stability bf t h e dollar,
the outflow had been in considerable p a r t of a speculative character, and the
flows were quicklj?- translated into a drain of gold. This disruptive speculation
ceased early in 1961. There was, however, a continuing outflow of short-term
funds over t h e first three quarters of 1961, related largely to an increase in t h e
financing of foreign trade by American banks.
I n t h e fourth quarter, a further outflow from this source was coupled with
large shifts of liquid funds to foreign markets, partly in response to interest r a t e
differentials, and partly related to certain quirks in t h e impact of domestic and
foreign t a x t r e a t m e n t of earnings of American companies with operations in
C a n a d a resulting from changes made in Canadian tax laws during t h e year.
Some shifts recorded as an outflow were apparently promptly reinvested in t h e
New York m a r k e t by agencies of foreign banks. This again seems to be t h e case
particularly with Canadian banks and their agencies. We cannot as yet pinpoint
the relative weight of all these factors. There are serious questions whether our
conventional classifications of short-term capital flows accurately reflect their true
significance for t h e balance of p a y m e n t s . This difficult subject is presently a
m a t t e r of intensive study.
Certainly, t h e fact t h a t t h e exchange markets have been calm for months
belies any implication t h a t these recent outflows are a s y m p t o m of concern about
the dollar. So does t h e fact t h a t a much smaller proportion of t h e dollars flowing
abroad was converted into gold during 1961. I n addition early and necessarily
fragmentary d a t a for J a n u a r y indicate t h a t these unusual outflows have ceased.
Strengthening the international monetary system
Whatever their cause, t h e large flows of short-term capital since t h e institution
of currency convertibility by major foreign countries provide evidence of t h e need
to bulwark t h e dollar and t h e whole international p a y m e n t s mechanism against
their potentially disturbing impact. I n a world of convertible currencies and
free markets, sizable flows of liquid funds between markets can be expected as a
natural response to myriad changes in b o t h our own and foreign economies. T h e
danger is t h a t , under certain circumstances, they may set off self-propelling speculative movements.
During t h e past year, we have used three approaches in dealing with this
problem:
For m a n y months, the Treasury, operating within t h e framework of t h e newly
created Organization of Economic Cooperation and Development, has been
conducting fruitful consultations with other financial powers on a periodic basis.
These discussions have laid t h e foundation of common understanding and cooperation t h a t is a prerequisite for effective international action to prevent, limit, or
offset currency movements t h a t could undermine a stable monetary system.
They have been supplemented by Federal Reserve participation in t h e regular
meetings of E u r o p e a n central bankers at Basle, and by bilateral consulations with
our principal financial partners.
T h e Treasury also has undertaken t h e purchase and sale of foreign currencies
for t h e first time in a generation. . These operations helped at certain critical
periods to reduce incentives to shift funds abroad on a speculative basis or to t a k e
a d v a n t a g e of t e m p o r a r y differentials in t h e exchange markets. T h e Federal
Reserve has also recently decided to undertake operations in foreign currencies, .
a development which we in Treasury regard as highly promising. Chairman
M a r t i n will be elaborating further on this approach during his testimony this
afternoon. I look forward to our continued cooperation with t h e Federal Reserve
in t h e international field, just as in t h e domestic area.
Finally, and most significant for the strengthening of t h e international monetary
system, is t h e agreement reached among ten of the major industrialized countries
to buttress t h e resources and capabilities of t h e International Monetary F u n d by
lending it specified amounts of their own currencies when necessary to cope with
t e m p o r a r y stresses. This $6 billion of s t a n d b y facilities, including almost $2^/4
billion of E u r o p e a n Common M a r k e t currencies, will both reduce the likelihood
of a ' ' r u n " on any member currency and provide t h e means to withstand t h e
impact of a speculative attack should one develop. T h e new arrangements will
powerfully reinforce t h e effectiveness of t h e Fund, and could.be of great assistance
to t h e United States. Enabling legislation will be s u b m i t t e d to t h e Congress
shortly.
.
..
Economic security and stabilization
T h e President has proposed a series of measures to promote greater economic
security for all our people, to permit more of our citizens to share fairly in the

276

1962 REPORT OF THE SECRETARY OF THE TREASURY

growth of the economy, and to reduce the hardships and waste of recurrent recessions. Aid to depressed areas and worker retraining can help speed growth
and eliminate pockets of hardship. Broadened unemployment insurance can
both reduce personal misfortune and strengthen the "automatic stabilizers"
that have helped prevent our postwar recessions from turning into full scale
depressions. And, a reserve shelf of public works will strengthen our defenses
against a possible future recession.
The President has also set before you a carefully devised plan for introducing
an element of flexibility into our tax structure. The measure would facilitate
a timely, but temporary, reduction in personal income tax rates, at his initiative,
in the event of a serious business downturn. Its significance lies in the fact that
a reduction in personal tax rates could speedily give a powerful boost to consumer
spending power at critical junctures, when delay might permit cumulative downward forces to take hold. Adequate safeguards are provided, including strict
limits on the amount and duration of any such tax reduction. This carefully
circumscribed delegation of authority to the President, always subject to congressional veto, would be a significant addition to our arsenal of antirecessionary
weapons.
The continuing challenge
The. continuing economic challenge before us is clear: We rriust fashion the
most effective arrangements possible to assure that our free economy will reach
its unrivalled potential and enable us to fulfill our responsibilities for leadership
in the free world. In meeting that challenge, we are acting in those areas where
Government can appropriately and helpfully initiate new programs and policies.
Equally important, we have tried to be conscious of those things Government
cannot do, or that the private sector of our economy can do better.
The essential and unique characteristic of the American economy is the strength
it derives from individual freedom for all of us, as workers, employers, owners,
and consumers. In shaping our program for the years ahead, we are working
toward the sort of environment that will strengthen and preserve that precious
heritage.

Public Debt Management
EXHIBIT 14.—Statement by Secretary of the Treasury Dillon, February 28, 1962,
before the Senate Finance Committee on the public debt limit
I am here today in support of H.R. 10050, approved by the House of Representatives on February 20, 1962, which provides for a temporary increase of S2
billion in the public debt limit to a total of $300 billion for the remainder of the
current fiscal year. As you know, the President in his Budget Message requested
an increase to $308 billion for the fiscal year 1963. It will be necessary to request
the Congress later in this session to approve the additional $8 billion before
June 30, 1962.
The Treasury is confronted with a serious situation: Under present legislation
we are operating under a debt ceiling of $298 billion. This is made up of the
permanent limit of $285 billion, plus a temporary increase of $13 billion enacted
last June which expires June 30, 1962. In fixing the present ceiling at $298
billion, the Congress gave consideration to the Treasury's estimate of a high
point in this fiscal year of $295 billion in the amount of debt outstanding subject
to the limitation, plus a margin of $3 billion to provide for flexibility in financing
and for contingencies. When the request was made for the $298 billion ceiling
last June we were basing the amount required on the estimated budget deficit
for fiscal year 1962, which at that time was $3.7 billion. Since then, mainly
because of increased defense expenditures necessitated by the Berlin situation,
the estimated budget deficit for this fiscal year has grown to $7.0 billion.
That increase in the deficit has, in effect, used up our margin of flexibility.
The debt subject to the limit is now very close to the ceiling. This situation
imposes serious operating difficulties on the Treasury for the remainder of the
fiscal year 1962. There is no leeway as far as market financing operations are
concerned, nor is there a margin to handle the necessary fluctuations in trust
fund investments which are carried on mainly through special issues of public
debt obligations.
When the debt ceiling becomes too restrictive, it forces the Treasury to obtain
some relief through such unusual and costly measures as utilizing the borrowing
power of certain Government agencies. This had tb be done several times from

277

EXHIBITS

1953 to 1958 when the debt hmit leeway became virtuaUy exhausted. There
have also been other times, including a quite recent occasion, when the Treasury
because of a very low margin under the debt ceiling, has been forced, in its own
financing operations, to defer some borrowing when it would have been m o s t
advantageous.
The table I am submitting to the committee shows our debt projections a t
semimonthly intervals for the remainder of the fiscal year 1962. T h e $2 billion
increase we are requesting in the temporary limitation is the smallest increase
t h a t would meet essential requirements for t h e rest of this fiscal year. I t will
be noted from this table t h a t a $300 bilhon ceiling wiU afford us a margin of only
$2.1 billion in March, and only $800 million in June.
I t is important to observe t h a t for the purpose of these projections, we h a v e
assumed t h a t the Treasury's operating cash balance at the Federal Reserve Banks
and in Treasury tax arid loan accounts in commercial banks would hold steady
throughout the periods covered at $3.5 biUion. This is not a large balance in
relation to our Government's tremendous cash requirements. I t represents less
t h a n half of an average month's budget expenditures. I t is equal to a little more
t h a n one-third of one m o n t h ' s total cash p a y m e n t s to t h e public, not counting
cash paid out to redeem p u b h c debt obligations. During t h e p a s t twelve months,
t h e operating cash balance has averaged about $4.5 biUion, giving us a highly
desirable degree of flexibility in the conduct of day-to-day Treasury operations.
I believe t h a t a temporary increase in the debt limit to $300 billion is essential
to t h e orderly and economical management of t h e Governmerit's flnances for t h e
remainder of this fiscal year. I earnestly recommend its favorable consideration
and p r o m p t approval by this committee.
Actual and estimated public debt outstanding fiscal year 1962, wiih estimates based
on constant operating cash balance of $8,500,000,000 {excluding free gold)
[In billions. Estimates based on 1963 Budget document]

Date

Operating balance
Federal Reserve
Banks and depositaries (excluding
free gold)

Public debt subject to limitation

AUowance to provide flexibihty in Total pubhc debt
financing and for limitation required
contingencies

ACTUAL

1961—June 30
July 15
July 31
Aug. 15 . . .
Aug.31
Sept. 15. .
Sept. 30
Oct. 15
Oct. 81_
Nov. 15
Nov. 30
Dec. 15
Dec.31
1962—Jan. 16
Jan. 31
Feb. 16

$.5.9
3.3
5.8
4.2
5.3
3.1
8.1
7.0
5.4
4.7
5.4
2.8
5.7
3.1
3.9
3.0

$288.9
289.1
292.2
292.1
293.6
293.2
293.6
296.0
296.5
296.7
296.9
297.0
296.1
296.3
296.4
296.3
ESTIMATED

Feb. 28
•-.Mar. 1 5 - _.
Mar.31
Apr. 15
_
Apr. 30
May 16..
May 31
June 15
June 30

3.6
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5

296.3
297.9
293.3
296.8
296.1
296.3
296.6
299.2
294.0

$3.0
12.1

3.0
3.0
3.0
3.0
3.0
1.8
3.0

1 Temporarily the full $3 billionflexibilitywill not be available on these dates.

$298.3
300.0
296.3
299.8
299.1
299.3
299.6
300.0
297.0

278

l^^2 REPORT

OF THE SECRETARY OF THE TREASUHY

E X H I B I T 15.—Statement by Secretary of the Treasury Dillon, M a r c h 14, 1962,
before the Senate Finance Committee on debt m a n a g e m e n t policies
1 welcome the opportunity to discuss with this distinguished committee the
Treasury's debt management policies and, in particular, our use of advance
refunding as a tool in achieving bur debt management objectives.
The management of the debt is one of the major financial responsibilities of the
Federal Government and it is, in addition, an important a r m of economic policymaking. If t h e Federal debt were small, we could afford to manage it much as
t h e treasurer of a corporation manages his company's debt, without giving much
t h o u g h t to the impact of our operations on the money markets and t h e economy.
This is not, however, t h e case. The magnitude of the Federal debt is such t h a t
the decisions made in managing the debt can have profound effects on the money
markets, on the structure of interest rates, and on the magnitude of t h e flow of
funds into corporate and municipal bonds and mortgages. Moreover, debt
management decisions can have a significant impact on the liquidity of t h e economy, on the effectiveness of monetary policy, and on the balance of p a y m e n t s .
All of this means t h a t the management of the debt is a continuous and unrelenting task. Even in a year in which t h e Federal budget is in balance, debt
operations, on a very large scale must be carried out both to meet the seasonal
financial needs of the Government and to refund maturing obligations.
T h e primary objective of d e b t m a n a g e m e n t is to assure a satisfactory placement
of t h e debt, and our aim m u s t always be to minimize the burden on t h e American
taxpayer of t h e interest cost of t h e debt. An i m p o r t a n t objective of economic
policy with respect to debt m a n a g e m e n t is to help create conditions in t h e money
and capital markets which are most conducive to t h e orderly growth of t h e
economy w i t h o u t inflation. A further objective, now of very great importance,
is to conduct operations in such a way as to contribute toward the achievement
of equihbrium in our balance of p a y m e n t s . We m u s t constantly blend these
objectives so as to obtain the overall result t h a t most clearly reflects the national
interest a t the moment, as well as over the long t e r m .
I n seeking to a t t a i n these debt m a n a g e m e n t objectives, we are continually
striving to produce a more balanced m a t u r i t y structure for the debt, t h a t is, a
broad distribution of the outstanding debt among holders interested in short-term
securities, others who w a n t issues of intermediate term, and those whose needs
are for long-term bonds. This will enable us to reach all types of d e m a n d for
Government securities and to avoid the problems produced by an excessive concentration of debt in a particular m a t u r i t y area.
One of t h e Treasury's principal instruments in working toward t h e needed
restructuring of t h e debt over t h e past few years has been the advance refunding.
I would like to emphasize, however, t h a t the achievement of a more balanced
debt structure is not an end in itself. I t is a necessary means toward achieving
all of t h e other goals t h a t I have already mentioned. We do not advocate
lengthening t h e debt structure merely for its own sa'^e. If it were possible to
accomplish all of our objectives with a Federal debt entirely composed of short
maturities, our problem, in some respects, might be easier. I n t h a t same light,
t h e shortest m a t u r i t y of all wbuld be t h a t of printing money. B u t merely to
mention t h a t extreme result—the ultimate result of continually shortening the
m a t u r i t y of t h e debt—is to give t h e answer. T h e eventual breakdown of t h e
entire p a y m e n t s mechanism would be the inevitable end of t h a t kind of course.
One fact of life which bears heavily on any debt manager is t h a t , unless he
moves in a fairly regular fashion to p u t out reasonable a m o u n t s of intermediate
and long-term debt, he will, within t h e space of a few years, flnd himself with a
debt t h a t is predominantly short-term in character, and getting shorter every
day. I n this connection, I would hke to call your attention to chart A. This
chart shows w h a t would happen to the size of the under one-year debt if, beginning today, we were to refund all maturing securities with one-year issues during
the next five years. W i t h no change in t h e total size of the debt, t h e a m o u n t of
debt m a t u r i n g within one year would rise from t h e present level of $88.5 billion
to $132.4 billion in two years and to $153.1 biUion in five years. As a percentage
of t h e present total of outstanding marketable debt, this would mean a rise from
45 percent to 67 percent to 77 percent.

279

EXHIBITS
CHART A

^POTENTIAL GROWTH OF THE UNDER 1-YEAR MARKETABLE^
PUBLICDEBT
$Bil.

Assuming 1-Year Rollovers without Attrition^

160

148
132'/2

120

Rolled over from
Preceding Year ^

153

135'/2

l06'/2

148
l35'/2

132'A
Maturing within
Following Year

^BI^^A

'64

'65

'66

'67

Asof March I Each Year1 Without any future change in the marketable debt or in the volume of seasonal bills. Partially taxexempt bonds to earliest call date.

G r a n t e d t h a t t h e printing press extreme is out of the question, why, t h o u g h ,
should a concentration of debt in t h e short-term area cause serious economic
problems? W h y are we seeking a balanced m a t u r i t y structure which includes
reasonable a m o u n t s of intermediate and long-term debt? These are t h e questions
I would like to discuss further before considering t h e subsequent question:
namely, if it should be agreed t h a t we ought to p u t out some long-term d e b t ,
why use t h e advance refunding technique rather t h a n offering long-term issues
for cash or in regular refunding operations?
Off hand, looking a t t h e smooth manner in which our short-term security operat i o n s have usually been carried out, with relatively little disruptive i m p a c t on
t h e money markets, and a t interest rates usuaUy lower t h a n on longer-term issues,
one m i g h t ask why we do not p u t t h e entire Federal debt in short-term securities.
T h e answer is t h a t the short debt only behaves this way now because we h a v e
k e p t its size down to t h e present relative magnitudes. While it is true t h a t t h e r e
is a strong d e m a n d for short-term Government securities, the d e m a n d is not witho u t limits. If t h e Federal Government were to t r y to increase t h e supply of
short-term securities far beyond t h e needs of t h e economy for this kind of i n s t r u ment, yields would be certain to rise sharply. As a consequence, if we were to
concentrate t h e entire Federal debt in maturities of five years or less, t h e average
interest cost of t h e debt would probably be a t least as high as it is with our present
debt structure.
A good example of w h a t can happen when t h e Federal Goverment pushes
more debt into a particular m a t u r i t y area t h a n t h e economy wishes tb hold is
provided by t h e experience of 1959. Because, under, the interest r a t e ceiling, it
could not offer securities with a m a t u r i t y over five years bearing a coupon higher
t h a n 4>i percent, while t h e m a r k e t demanded a higher rate, t h e Treasury concent r a t e d all of its financing operations from April 1959 through March 196Q in t h e

280

1962 REPORT OF THE SECRETARY OF THE TREASURY

five-year or under area. During that period you will recall that the debt increased
by $9.1 billion. I would like to call your attention to chart B, which shows the
effect on yields of this concentration of relatively short-term financing. Chart B
shows the pattern of yields on Government securities in January 1960, when
short-term issues from 91-day bills out to five-year notes were selling at higher
yields than bonds maturing in twenty-five to thirty-five years. I need not remind
you that we have only one outstanding U.S. Government security bearing a
coupon of 5 percent. This was a 4-year and 10-month obligation sold on October
6, 1959. Without reviewing the experience of 1959 and early 1960 in detail or
the related role of Federal Reserve action and other market factors at that time,
the events of that period provide a vivid demonstration that concentrating an
excessive amount of Treasury securities in short maturities, a greater quantity
than the market desires to absorb, produces higher rather than lower interest
costs.
CHABT B

MARKET YIELDS ON TREASURY SECURITIES
n—I—I—I—^—I—I—I—r

5.0

••••••,'••^,! ? ? • .

Pattern of Rates
•••^
y ^ Jan. 6,1960
^^..^^
.••••••••••••••..^,

•••..
4.5

— Years to Maturity -

As time passes and the economy grows, the demand for short-term Government securities for use as liquidity reserves will also grow,, and it would be quite
appropriate for the Treasury to expand the outstanding volume of short-term
Government securities consistent with this growing demand. During 1961, the
outstanding amount of Government securities maturing within one-year was
increased by $10.6 billion. Thus far in 1962, the under one-year debt has been
increased by an additional $2.6 billion. We have not been reluctant to increase
the outstanding short-term debt in those quantities which we felt the economy
could appropriately absorb, and we will continue to do so in the future.
Increasing the supply of short-term securities, of course, tends to put upward
pressure on short-term rates. One of the Treasury's purposes in increasing the
volume of under one-3^ear debt during the past year has been to do just that—
to put upward pressure on short-term interest rates and, thereby, to keep our
short-term rates in reasonable equilibrium with rates in other countries. The
objective was to deter outflows of short-term money to foreign countries stemming
from interest rate differentials, outflows which would weaken our balance-ofpayments position. In substantially increasing the supply of under one-year
debt, the Treasury did help to push short-term rates higher, as illustrated by the

EXHIBITS

281

fact that yields on 3-month Treasury bills have moved up from around 2.25
percent in January 1961 to 2.80 percent at present.
Even if it were possible to reduce substantially the burden of interest costs by
concentrating on relatively short-term security offerings, which we do. not believe
to be true, there is a vital economic reason for avoiding an excessive concentration
of short-term debt;' that is, the undesirable effects of such an excessive concentration on the liquidity of the economy and the effectiveness of monetary policy.
Short-term Government securities are close substitutes for money. They can
be turned into cash quickly, with little marketing cost and relatively little risk
of loss. A banking system holding excessive quantities of short-term Government securities will respond only slowly to monetary controls. This means
that to achieve a given level of monetary restraint the Federal Reserve would be
required to adopt more restrictive measures than would otherwise be necessary.
An excessive volume of short-term debt hampers an effective monetary policy
in still another way. The shorter the maturity structure of the debt, the more
often the Treasury must come to the market in sizable refunding operations.
Because of the magnitude of Treasury debt operations, it has always been considered essential that the Federal Reserve maintain an "even keel" in the market
during such operations. However, if the Treasury is almost continually in the
market, the Federal Reserve will find itself with very little room to operate in
carrying out its responsibilities. A balanced debt structure, which reduces the
number of occasions during the year that the Treasury must carry out sizable
refunding operations, will make for the exercise of more effective monetary
control by the Federal Reserve.
For all of these reasons, it is essential that the Treasury, from time to time, put
out some longer-term debt. If this must be done, why is it often more advantageous to put out longer-term debt through advance refunding rather than through
direct cash sales or regular refunding operations?
There are three important and unique advantages to the Treasury in the
advance refunding approach. First, and most important, the advance refunding
technique does not immediately pull large blocks of long-term funds out of the
capital markets, funds which otherwise would go into corporate and municipal
bonds or mortgages. What this means is that job-creating business investments
and the financing necessary to build schools, roads, other public improvements,
and homes will not be curtailed. Were the Treasury to sell any substantial
quantity of long-term bonds for cash, it would immediately reduce the quantity
of long-term funds available for private investment and investment by State and
local governments and, thereby, slow down our economic expansion. With the
economy still operating well below capacity levels, we believe that this would be
poor economic policy.
The advance refunding, however, has the least possible immediate impact on
the current flow of new long-term savings. It merely changes the form in which
old savings are held by lengthening the maturity of the obligation. New cash
funds are not involved, except to the relatively minor extent that some investors
buy the eligible securities in the market in order to make the exchange, and even
in such cases an equivalent amount of funds is freed for other uses.
By use of the advance refunding technique, the Treasury can assure the retention of its regular customers for genuine long-term investments. This is not
possible if long-term securities are only sold as part of regular refundings since,
for a considerable period before the maturing securities come due, they have
become liquid money market instruments; and their ownership has largely been
shifted out of the hands of long-term investors into the hands of short-term in*
vestors who are not likely to be interested in long-term securities.
A second important advantage of advance refunding is that, through this
technique, a substantial quantity of long-term bonds can be added to the Government's debt structure with an absolute minimum of upward pressure on longterm interest rates. This was the experience in earlier advance refundings, and
it was certainly the experience in our.most recent operation. In last month's
advance refunding, we placed an additional $1.4 billion in bonds maturing in 1990
and 1998 in the hands of the public. Yet the level of long-term Government
bond yields is somewhat lower today than it was at the time we announced the
advance refunding on February 15. The level of long-term interest rates in both
the corporate and the municipal bond markets is lower now than on February 15.
If we had attempted to sell $1.4 billion of long-term bonds in the current market
as a cash offering or regular refunding, we would certainly have put substantial
and immediate upward pressures on long-term bond yields.

282

1962 REPORT OF THE SECRETARY OF THE TREASURY

T h e administration's policy on long-term interest rates has been s t a t e d on
m a n y occasions during t h e p a s t year. We have continually sought to avoid
p u t t i n g u p w a r d pressures on long-term interest rates, in order to provide t h e kind
of atmosphere in t h e capital m a r k e t s conducive to a large flow of long-term funds
into private investment. Our debt m a n a g e m e n t policies have been a n d are being
directed t o w a r d this end. We feel t h a t our efforts in this direction have been
successful. For 1961 saw t h e largest combined flow of funds into corporate
bonds, municipal bonds, a n d mortgages in our history and, despite this fact,
long-term interest rates, on t h e whole, are no higher t o d a y t h a n they were a year
ago, when we were close to t h e b o t t o m of t h e recession (see c h a r t C ) . While
yields on long-term U.S. Government bonds are about }i of one percent higher
t h a n a year ago, yields on corporate bonds are approximately unchanged a n d those
on municipal bonds a n d mortgages are lower. I n considering these results, we
should realize t h a t t h e most i m p o r t a n t long-term rates from t h e point of view of
t h e economy are those for new corporate borrowing, for t h e sale of new municipal
bonds, a n d for mortgages, since they finance new jobs a n d new schools, roads, a n d
homes.
CHART C

LONG-TERM MARKET YIELDS
Monttily Averages 1959-62

,.••%.

..••

^ N e w Aa Corporate Bonds'^
"\
Reoffering Yields

••\y

niunicipal B o n d s ^ ^
I I I I I I I I I I I I I I I I I I I I I I I I I I

I l l l l l l i l l

^x/^-H--^/"--'

1959

I960

1961

1962

1 Estimate of average yields on Moody's Aa rated new Corporate bonds.
2 Bond Buyers average of 20 bonds on first Thursday in each month.

A third i m p o r t a n t reason for using t h e advance refunding approach is t h a t it is
usually t h e cheapest way for t h e Treasury to p u t out long-term securities. There
is one simple reason for this. When t h e Treasury p u t s out long-term securities
for cash or in a regular refunding, we m u s t appeal to investors who have complete
freedom of action. They are free to choose among our Treasury offerings, corpor a t e bonds, corporate equities, municipal bonds, mortgages, a n d still other
alternatives. T h e jaelds on our long-term cash or refunding issues m u s t be fully
competitive with these alternatives.
However, in an advance refunding we are appealing t o a group of investors who
do not have complete freedom of action. To move out of their present holdings,
m a n y of these investors would have to realize substantial capital losses on m a r k e t
sales. T h r o u g h t h e advance refunding, these investors may extend t h e m a t u r i t y
of their holdings without p u t t i n g capital losses on their books a n d with a minimum

283

teXHIBITS

of inconvenience and uncertainty. It is because of this special appeal of an
advance refunding to those who otherwise would not wish to disturb their holdings that the Treasury can in this way put out larger quantities of long-term
bonds at lower interest costs to the taxpayer than would be possible by other
means.
I mentioned earlier that we placed in the hands of private investors $1.4 billion
of bonds maturing in 1990 and 1998 in last month's advance refunding. To have
attempted to sell such a large quantity of long-term bonds for cash would have
required a greater total interest cost to the Treasury than we paid in our advance
refunding offering.
I would like to present a numerical example, which, I believe, illustrates this
last point. While the situation is hypothetical, it rather closely parallels the
form of last month's advance refunding. The details of the example are shown in
chart D, but I will attempt to summarize the principal features.
CHART D

INTEREST COST OF EXTENDING DEBT TO

1998..

Through Advance Refunding and through Direct Long-Term Borrowing-, Per $100
3/1/62
Interest to be.^
Poid
Saved
Cosh
Borrowing...$6.95-

2/15/64
;

12/15/72
Extension through Advance Refunding

3'>fe7o, 2/15/64^

_$5.88.

I 37o, 2/15/64

Advance
Refunding.

a ^
43.42.

Issues Offered

84%7l27i5A72^
. - . - , - . -i ^ Issues Replaced
. 26.98-

Advance
Refunding.Total
Net

21/2%, 12/15/67-72

I27.98_

'- $178.35 $32.86
$145.49
Direct Long-Term Borrowing

Cash
Borrowing..$156.01
$ l0.52-.Net odditional interest on Direct Long-Term Borrowing
8
10
12
-Years to Maturity-

1 Hypothetical issues based on market pattern of rates on Feb. 14, 1962: SH% note due Feb. 15, 1964,
"sold" at a discount to yield 3.55%; 4% bond due Dec. 15,1972, "exchanged" for 3% bond due Feb. 15,1964,
plus $0.25 per $100 payable by the Treasury; and 4 ^ % bond due Nov. 15,1998, "sold" at par. Other issues
were actually involved in the latest advance refunding.
2 Interest figures are simple arithmetic totals. They are not discounted to present value. Even when
discounted at 4.25% (the rate for 1998 cash borrowing directly) the net discounted cost through advance
refunding is lower.

In the example we assume that the Treasury needs to borrow $1 billion in cash
and that, to improve the debt structure, it is desirable to place this $1 billion out
in the 1998 maturity area. We can accomplish these objectives in one of two
ways.. One way, of course, is to sell a $1 billion 1998 bond directly for cash. An
alternative is to place $1 billion in bonds out in the 1998 area through advance
refunding and to raise the required, cash through the sale of a short-term issue in
the maturity area vacated by the advance refunding.
• We will assume that the $1 billion of 1998 bonds could have been sold for cash
in the present market with a 4}^ percent coupon, priced at par. In the opinion
of the Treasury, this interest cost assumption for the sale of such a large quantity
of new long-term bonds is most conservative. Even on the basis of this conservative assumption the total interest paynients on these 4}4 percent bonds through
their maturity in 1998 wovUd amount to $156.01 per $100 of bonds sold.

284

1962 REPORT OF THE SECRETARY OF THE TREASURY

Now let us look at an alternative way of handling the situation which, as I
noted earlier, rather closely parallels last month's advance refunding operation.
It is, in effect, a way of putting an issue into the long-term area while drawing
funds from the shorter-term area. This is done by what some market observers
have called 'leap frogging". Not all of the leaps may occur at once; but to make
this example clear, I will assume that they do. What happens is that a 10-year
issue, for example, is converted into a 36-year issue; theri, following behind that,
a 2-year issue is converted into a 10-year issue. There are two leaps involved:
one from 10 out to 36 years; the second from 2 out to 10 years. In effect, the
second move has filled in the space vacated when the first move occurred.
After that, the third step is an easy one: borrow for cash at a two-year maturity.
In the end, then, the' Treasury will have its cash. It will have borrowed the cash
at the two-year rate of interest, but it will have no more two-year debt outstanding
than before the operation began. Nor will it have any more 10-year debt than
before. The only increase will haye occurred in the 36-year debt.
Now let me repeat the example more precisely, using issues and prices now in the
market. What we have here is a combination ''junior" and "senior" advance
refunding. The "senior" portion involves the advance refunding of $1 bilhon
of 2Y2 percent bonds maturing in 1972 into 3Y percent bonds maturing in 1998.
To fill the 1972 vacancy in the maturity structure created by this "senior" advance
refunding, there is a "junior" advance refunding of 3 percent bonds maturing in
196'4 into 4 percent bonds maturing in 1972. Finally, to meet the $1 bilhon cash
requirement, the 1964 gap in the maturity structure created by the "junior"
advance refunding is filled by seUing for cash $1 billion of 3}^ percent notes maturing
in 1964.
Adding the interest payments to maturity on the 1964 note which we would sell
for cash, and the interest payments on the 1972 bonds placed through the "junior"
advance refunding and the 1''998 bonds placed through the "senior" advance
refunding, we find that the total interest cost resulting from this three-part operation over the entire period to 1998 is $145.49 per $100 borrowed. Thus, we
would have achieved our objectives of raising $1 billion in cash and placing $1
billion in bonds out in the 1998 area through advance refunding at a total interest
cost during the period of $10.52 less per $100 borrowed than if we had issued
$1 bilhon of 4}^ percent 1998 bonds directly for cash. The total interest cost
savings on the $1 billion of debt would have amounted to $105.2 million.
Moreover, the debt management objectives would have been achieved without
draining new lorig-term funds out of the capital markets or placing any overall
upward pressure on long-term interest rates.
The basic reason that the advance refunding, approach resulted in a lower total
interest cost to the Treasury is that, in the "senior" advance refunding, holders of
the 1972 maturities were induced to extend an additional 26 years with a 3}i
percent coupon, )4 of 1 percent below the minimum coupon that would have been
required for a direct cash sale of 1998 bonds. In order to induce the holders of the
1972 bonds to extend to 1998 at 3}^ percent, the Treasury had to offer to increase
their return from 2}^ percent to 3)4 percent during the ten years from 1962 to
1972, but this was an exchange that the Treasury could well afford to make.
It represented a payment of 1 percent in additional interest for the next 10 years
in return for a saving of % of 1 percent in interest over the following 26 years—a
fair offer but no bonanza.^
In our last advance refunding, 19 percent of the public holdings of the 2Y2
percent bonds of 1967-72 were exchanged for SY2 percent bonds maturing in 1990
and 1998. This was a response with which the Treasury was well satisfied.
But if this had been a windfall offering, something which involved an undeserved
gain for the investor, one would have to conclude that American investors holding
81 percent of the bonds did not know a windfall when they saw one, because 81
percent of the bonds were not exchanged.
To sum up, the advance refunding offers a number of unique advantages to the
Treasury. Through this device, it is possible to put out substantial quantities
of long-term Treasury bonds with the least possible drain of new long-term funds
out of private investment channels and with the minimum of upward pressures
• 1 The calculated interest costs and interest savings in thefiveadvance refundings are summarized in the
tables attached to the appended correspondence with Senator John J. WilUams.

285

EXHIBITS

•on long-term interest rates. I n addition, this technique has enabled the Treasury
to place long-term bonds in private hands a t lower interest costs t h a n could have
been possible through cash offerings or regular refunding offerings of any comparable size. To be sure, as m a r k e t conditions shift about, there will be times
when long-term cash issues or refunding exchanges will also be appropriate.
B u t the appraisal will depend in large p a r t upon analysis of alternatives such as I
have tried to outhne here. Clearly, in the toolkit of debt management, advance
refunding m u s t be recognized as an instrument of major importance.
Advance refunding was first used by m y predecessor. Secretary Anderson, who
conducted two advance refunding operations in 1960. Last m o n t h ' s operation
was this administration's third use of this technique, making a total of five advance
refundings in aU. These advance refunding operations have accomphshed much
in producing a more balanced m a t u r i t y structure for the debt. The average
length of the debt today is 4 years and 11 months, the longest it has been since the
fall of 1958. If the five advance refundings had not been undertaken, the average
length of the debt would now be only 3 years and 7 months, almost 30 percent
shorter (see chart E ) . We now have $15.2 billion in outstanding debt maturing
beyond 20 years. $7.7 biUion, or just over half of this total, was placed through
advance refunding.
CHART E

^AVERAGE LENGTH OF THE MARKETABLE PUBLIC DEBTl
Years

Years,
5-3

Advance Refundings-,

Monthly

Without Advance Refunding ^ \

'52

'54

'56

3.7

'62

December 31
1 Adjusted to exclude 2H% bonds exchanged for nonmarketable 2%% bonds.
to earliest call date; ail other callable bonds to maturity.

Partially tax-exempt bonds

I n conclusion, advance refunding is a technique t h a t we would hope to use
again in the future, whenever circumstances are appropriate for its use. In seeking
to conduct our d e b t management operations in a responsible manner, we will
continue to be mindful of the need to minimize the interest burden of the debt,
a n d we will also continue to be mindful t h a t our debt management policies,
through their impact on the money and capital markets, m u s t contribute toward
our major econdmic objectives of sound economic growth, reasonable price stability, a n d equihbrium in our balance-of-payments position.

286

106 2 REPORT OF THE SECRETARY OF THE TREASURY
WASHINGTON, D . C , March 5, 1962.

Honorable DOUGLAS

DILLON,

Secreiary of ihe Treasury,
Washington 25, D.C.
MY DEAR

M R . SECRETARY:

In connection with t h e series of advance refunding operations b y l a e
Treasury D e p a r t m e n t I would appreciate t h e following information:
1. T h e m a t u r i t y date a n d t h e coupon rate of t h e outstanding bonds involved in
the refunding operation a n d t h e m a t u r i t y date a n d coupon r a t e of t h e new
bonds offered in transfer.
2. The total a m o u n t of these bonds of each series which were traded for the new
issue (if more t h a n one issue is involved give t h e a m o u n t involved in each
transfer).
3. I n connection with each refunding operation please furnish t h e total a m o u n t
of additional interest which will be paid b y t h e Government t o these new
bondholders during t h e period between t h e date of t h e refunding operation
and t h e original date of m a t u r i t y of t h e bonds traded in.
W h a t I a m trying t o establish is how much additional interest the Federal
Government will be paying during t h e next five to t e n years above t h e a m o u n t
which would have been paid h a d these low coupon bonds been allowed t o mature
in a normal manner.
Yours sincerely,
J O H N J. W I L L I A M S ,

U.S. Senator from Delaware.

WASHINGTON, D . C , March 13, 1962.
DEAR JOHN:

In response t o your letter of March 5, I enclose two tables which provide t h e
information you requested on t h e five advance refundings which t h e Treasury
has undertaken in the past two years.
One of t h e tables presents the additional interest costs incurred b y the Treasury
in t h e five advance refundings. I n addition, i t shows t h e interest savings to the
Treasury in these advance refundings on t h e assumption t h a t t h e original issues
are to be refunded a t m a t u r i t y into t h e issues offered in exchange a t today's interest rate levels. Looking a t both t h e additional interest costs to t h e Treasury
and t h e interest savings involved in advance refundings places t h e interest cost
issue in its proper perspective.
You will note t h a t only t h e June 1960 a n d March 1961 "junior" advance
refundings resulted in a n e t interest cost t o t h e Treasury on these assumptions
and that, in taking t h e five advance refundings as a whole, these calculations indicate a net interest savings to the Treasury of $541 miUion over the entire period
through fiscal year 1999.
With.best wishes.
Sincerely,
DOUGLAS

DILLON,

Secreiary of the Treasury.
T h e H o n o r a b l e J O H N J. W I L L I A M S ,

United States Senate,
Washington 25, D.C.

Five advance refundings 1960-62
[DoUar amounts in millions]

Old issues

F o r n o n t a x a b l e holders
^
or before tax

N e w issues
A m o u n t exchanged

Description

J u n e i960:
2 1 ^ % 11/15/61

Amount
outstanding

T e r m to
maturity
(yearsmonths)

$11,177

1-5

Description

Percent
jSH
13^

T e r m to
maturity
(yearsmonths)

March 1961:
2 H % 6/15/59-62
2M% 12/15/59-62
2^^% 2/15/63
2^/^% 8/15/63

Total

Publicly
held

Total

3-11
7-11

2-6
6-6
2-10

$3, 893
320
4,214

$3,814
264
4, 077

34.8
2.9
37.7

20-1}^
29-4H
S8~1H

13-5
21-2
29-5
28-11

643
993
1,095
1,248
3, 979

512
777
993
1,113
3.395

30.5
35.3
29.3
32.7
31.9

2,109
2, 815
3. 738
3,812
12, 474

&-8A
S-2H
8-SH
9-2H

SH
SH
SH
SH

11-15-80
2-15-90
11-15-98
11-1&-98

5,262
3,449
3,971
6, 755

1-3
1-9
1-11
2-5

SH
SH
SH
SH

11-L5-67
11-15-67
11-15-67
11-15-66

6-8
6-8
6-8
5-8

5-5
4-11
4-9
3-3
4-4

1,296
1,177
1,131
2,438
6,041

1,226
819
998
2,399
5,442

\SH
\SH
[3^
\SH
\SH
[SH

11-15-80
2-15-90
11-15-98
11-15-80
2-15-90
11-15-98

19-2
28-5
37-2
19-2
28-5
37-2

10-8
19-11
28-8
9-8
18-11
27-8
19-2

1,035
722
495
238
576
692
3,757

5891
6221
469|
203
515^
4281
2,826

4
[4
14
(SH
\SH
jSH
\SH
(SH
\SH

8-15-71
8-1.5-71
2-15-80
2-15-90
11-15-98
2-15-90
11-15-98
2-15-90
11-15-98

9-5H
9-51/^
17-11H
27-113^
SQ-SH '
21-llH
36-8?^
27-1 I H
SQ-8H

7-6
6-6
15-0
17-8
26-5
17-5
26-2
17-2
25-11

p 1,154
p 1, 651
P561
P233
P180
P345
P420
P322
P333

13-0
11-11

p 5,198
p 23,189

ss-m

19, 436

24-7

Effect on
average
length
of m a r ketable
debt
Publicly
(months)
held

P e r c e n t exchanged

Date
5-15-64
5-15-68

11,177
October 1960:
2 } ^ % 6/15/62-67
2V^% 12/15/63-68
2}^%, 6/15/64-69
2V^% 12/15/64-69

Extension
(yearsmonths)

24.6
34.1
28.5
36.1

Approxi" B o o t " 1 Approximate minip a i d to
m a t e him
u m reinTreasury vestment
( + ) per yield from v e s t m e n t
r
a t e for
$100
exchange
extension
, d a t e to
period admaturity 2 justment
for " b o o t " 1
Percent
4.24
• 4 14

Percent
4.51
4.22

3.92
•3.96
3.97
3.99

4.23
4.17
4.09
4.14

-f $0. 30

3 75
3.75
3.75
3.63

3.98
4.10
4.08
4.09

+2.25
- 1 00
- 2 00
+3.50
+0.25
-1.00

4 16
4 23
4 19
4.15
4.21
4.19

4.31
4.36
4.28
4.30
4.36
4.30

4.11
4 10
4.20
4.21
4.19
4.21
4.19
4.19
4.17

4.32
4.36
4.36
4.37
4.30
4.38
4.30
4.38
4.30

34.7
2.4
0.8

37.1
27.8
32.5
30.3
33.9
31.4

31.1

25.9
30.2
26.3
35.8
30.3

48. 0

50.1

51.4

52.6

49.3

51.1

29.9
32.1

29.9

23.5

23.1

28.2

19.1

•

6.3

1.6

September 1961:
2 } ^ % 3/15/65-70

4,688

8-6

2 H % 3/15/66-71.

2, 927

9-6

7,615
M a r c h 1962:
S% 2/15/64 •
2 H % 2/15/65...

3,854

1-llH

6,896

2-llH

2 H % 6/15/67-72

1,756

10-3]^

2 H % 9/15/67-72

2,716

10-61^

23.^% 12/15/67-72

3,512

10-91/^

Total . • _

18, 734
69, 435

p Preliminary.
> In sense of equahzing an exchange.

p 1,104
p 1, 2931
P384f
p 198\
P165/
p 185\
P266/
P299\
P281/
p 4,174
p 19, 915

4.5
+ 2 00
+ 0 25
+1.25

27.5

18.7

18.0

p 27. 7
P33.4

p 24.6
P33.0

+1.50
+0.25
+1.75
+0.50
4.1
3 16.6

2 Based on price of bonds ehgible for exchange—mean of bid and ask prices at noon on
day before announcement, adjusted for "boot" payments.
3 Based on debt level of March 1, 1962.

fcO

QO
QO

Five advance refundings—Interest costs and interest savings

fel

Added interest cost over remaining life of issues eligible for exchange and estimated interest savings from maturity of eligible issues to maturity
of issues offered i n exchange ^

[In millions]

Added interest to
maturity
of
eligible
issue

Fiscal year

1960. . _ .
1961
_.__
1962... _
1963
1964
1
1965 .

:._

1966...
1967
1968
1969...
1970
1971
1972
1973
1974
1975

SLO
53.1
19.9

Interest
savings
from maturity of
ehgible
issue to
maturity
of
offered
issue 2

Added interest to
maturity
of
ehgible
issue

Interest
savings •
from ma- Added inturity of
terest to
ehgible
maturity
issue to
of
maturity
ehgible
of
issue
offered
issue 2

-$L8
-2.9
-2.5
.2

$29.5
39.8
39.8
39.8
39.8

$15.9
65.9
35.8
2.7

Interest
savings
from maturity of
ehgible
issue to
maturity
of
offered
issue 2

March 1962

Interest
savings
from maturity of
ehgible
issue to
maturity
of
offered
issue 2

Added interest to
maturity
of
ehgible
issue

$0.2
6.2
15.0
15.9

3-$3.3
37.6
37.6
37.6

3 -$30.8
60.3
56.0
37.3

15.9
n.3
3.2

37.6
37.6
37.6
37.6
31.0

Added interest to
maturity
of
eligible
issue

Total of five advance
refundings

Interest
savings
from maturity of
ehgible
issue to
matm-ity
of
offered
issue 2

.2
.2
.2

September 1961

March 1961

October 1960

June 1960

39.8
39.5
33.4
27.5
5.7

$0.2
4.4
8.7
24.8
29.0
29.0
29.0
29.0
29.0

10.7

$4.7
19.2
26.9
26.9
26.9
26.9

Added interest to
maturity
of
ehgible
issue

Interest
savings
from maturity of
ehgible
issue to
maturity
of
offered
issue 2

$0.3
1.2

$1.0
98.5
91.5
173.5
136.0
114.7

-$L7
3.2
12.7
17.3

18.3
18.3
18.3
18.3
18.3

2.0
2.0
2.0
2.0
2.0

95.7
95.4
89.3
83.4
65.1

18.1
13.6
9.8
10.7
31.4

18.3
18.2
4.6

2.0
1.4
11.2
14.5
14.5

29.0
18.2
4.6

50.2
57.3
67.1
70.4
70.4

fel

1976
1977
1978
1979
1980

- .

1981 1982
1983 - .
1984
1985 - 1986
1987 1988
1989 - .
1990
1991
1992 '.
1993
1994
1995

—

—
_
- -

—

1996
1997
1998
1999 - - -

. -

Totals

74.0

-6.4

334.6

29.0
29.0
29.0
29.0
29.0

26.9
26.9
26.9
26.9
26.9

14.6
14.6
14.6
14.5
14.1

70.4
70.4
70.4
70.4
70.0

26.3
24.6
24.6
24.6
24.6

2L9
18.8
18.8
18.8
18.8

13.4
13.4
13.4
13.4
13.4

61.6
56.8
66.8
66.8
66.8

24.6
24.6
24.6
24.6
21.9

18.8
18.8
18.8
18.8
15.2

13.4
13.4
13.4
13.4
11.0

66.8
56.8
66.8
56.8
48.1

17.3
17.3
17.3
17.3
17.3

9.2
9.2
9.2
9.2
9.2

6.9
6.9
6.9
6.9
6.9

33.5
33.6
33.6
33.6
33.6

17.3
17.3
17.3
6.5

9.2
9.2
9.2
3.6

6.9
6.9
6.9
2.6

33.6
33.6
33.6
12.6

1,626.9

718.4

120.3

67.6

301.4

631.2

255.5

316.2

1,085.9

fel

•

Net savings, or added
cost (—) over life of
issue offered

-$80.4

$383.8

-$62.7

1 Includes cash payments on account of issue price: Payments to the Treasury are
credited in the fiscal year received; payments by the Treasury are charged pro rata
over the term of the issue offered in exchange.
2 Estimates based on hypothetical issues needed to refund eligible issues at their
maturity for the remaining term of the issues offered in exchange. For June 1960

$229.8

$60.7

$541.0

advance refunding rates based on market yields at the time of the November 1961
refunding on the issues offered in the June 1960 exchange. For all other advance refundings, rates are based on market pattern of yields on February 28,-1962.
3 Cash payments to the Treasury on account of issue price exceed added interest cost

00
CO

290

1962 REPORT OF THE SECRETARY OF THE TREASURY

E X H I B I T 16.—Statement by Secretary of the Treasury Dillon, J u n e 26, 1962,
before the Senate Finance Committee on the d e b t limit ^
T h e President in his Budget Message last J a n u a r y requested a t e m p o r a r y
debt limit of $308 billion for fiscal 1963. This request was based on his estimate
t h a t t h e fiscal 1962 deficit would a m o u n t to $7 billion and t h a t there would be a
$500-million surplus in fiscal 1963. I a m here today to renew t h e request for a
$308 billion temporarj?- debt limit for fiscal year 1963.
The present t e m p o r a r y limit of $300' billion will expire at t h e end of this m o n t h .
On July 1st t h e d e b t limit will revert to its p e r m a n e n t level of $285 billion unless
new legislation has been enacted prior thereto. Since t h e debt will substantially
exceed t h e p e r m a n e n t level of $285 billion on July 1st, it is essential t h a t there
be new legislation prior to t h a t d a t e .
The debt limit bill which passed t h e House df Representatives on June 14,
1962 (H.R. 11990) does not provide t h e flat $308 bilhon debt Hmit which we
requested for fiscal 1963. Rather, it provides a graduated debt h m i t set at
$308 billion for t h e peripd July 1, 1962, through March 31, 1963, $305 bilhon
for t h e period April 1, 1963, t h r o u g h J u n e 24, 1963, and $300 bilhon from J u n e 25,
1963, through t h e end of the fiscal year. This graduated debt limit is acceptable
to t h e Treasury, provided t h a t it is understood t h a t this debt ceilings in t h e
House bill were carefully tailored to meet t h e Treasury's seasonal financial
requirements under t h e assumption of a balanced budget. The graduated
reductions established in t h e House bill would not be adequate if we were to
run a deficit of any substantial size in fiscal 1963. This fact was specifically
recognized a n d clearly set forth in t h e report of t h e House Ways a n d Means
Committee, which reads as follows (page 2):
<'* * * ll is the.view of your committee t h a t t h e increases provided by this
bill are t h e minimum necessary to provide for t h e seasonal variation in t h e
collection of revenues, assuming a balanced budget for t h e fiscal year 1963.
The administration has indicated t h a t there may be a balanced budget for
the fiscal year 1963.: Your committee has concluded t h a t t h e series of debt
limitations provided under this bill for t h e various periods of t h e year will
be adequate to provide for t h e expected seasonal variation in expenditures
and receipts, b u t would not give sufficient flexibility should a deficit be
incurred in t h e fiscal year 1963. In this latter eventuality, your committee
believes t h a t it will be appropriate later in t h e fiscal year 1963 to again
review t h e s t a t u t o r y debt limitation. T h u s this 'step approach' to t h e debt
limitation, with t h e two reductions in t h e latter p a r t of t h e fiscal year, is
designed t d provide: for seasonal needs, without providing so much leeway
t h a t it can subsequently be used to cover deficit financing."
This s t a t e m e n t by t h e H o u s e Ways and Means Committee regarding t h e n a t u r e
of t h e graduated set of debt limits passed by t h e House is, I beheve, wholly
accurate.
With t h e fiscal year 1962 now nearl}^ concluded, I can report to you t h a t we
still expect t h e deficit for fiscal 1962 to be about $7 billion. Past experience
has shown, however, t h a t fiscal yearend totals are a p t to var}^ several hundred
million dollars in either direction from preliminary estimates. Therefore, the
final deficit figure for fiscal 1962 may prove to be somewhat less t h a n $7 billion
or it may exceed t h a t a m o u n t by a few hundred million dollars. In order to be
on t h e conservative side, we have used a $7){ billion figure in the projections on
t h e attached table.
For fiscal year 1963, the J a n u a r y Budget document showed a $500 million
surplus. The President has requested a few new programs since J a n u a r y , in
particular a capital improvement program for distressed areas," t h a t would use
t h e bulk of this estimated surplus b u t stiirleave a balance. Whether or not this
balance is actually achieved depends largely on revenue receipts which, in t u r n ,
are dependent on t h e state of the national economy. The J a n u a r y revenue
estimate of, $93 billion assumed t h a t t h e gross national product would average
1 The Secretary also made a statement on May 31, 1962, before the House Ways and Means Committee
QU the debt limit,
.

EXHIBITS

291

$570 billion during calendar 1962 and t h a t t h e economy would continue its
u p w a r d t r e n d t h r o u g h o u t t h e entire fiscal year.
Admittedly, t h e expansion of t h e economy so far this year has not measured
u p to our expectations. While this has substantially diminished t h e likehhood
of achieving our goals, t h e economy continues to move steadily forward and it is
still too early for a new and refined estimate of the gross national product for
1962 upon which our revenues necessarily depend. As to expenditures, the best
we can do is to rely on the J a n u a r y Budget document with the reahzation t h a t
Congress has not yet acted on any 1963 appropriation bill, nor has it taken final
action on our tax bill, t h e President's proposals on postal rates and farm price
supports, or on various other legislative recommendations. Until these m a t t e r s
are decided by congressional action, there is no firm basis for any new estimate
•of expenditures and revenues.
Accordingly, we have made no change in t h e basic assumption of a balanced
budget in fiscal 1963, and our request for a ,$308 billion temporary debt ceiling
is based squarely on t h a t assumption.
I t m a y seem incongruous to some t h a t , while projecting a balanced budget for
fiscal 1963, we are a t t h e same time requesting an $8 billion increase in
the temporary debt ceiling. Of course, if the timing of our receipts and expenditures were in balance t h r o u g h o u t t h e year, there would be no need for this increase
in t h e debt ceiling. Unfortunately, this is never the case. Even with a balanced
budget for fiscal 1963 as a whole, our estimates indicate t h a t the first half of t h e
fiscal year will show a substantial seasonal deficit, a deficit which will be offset
by a surplus during t h e remainder of t h e fiscal year, j
'
• ' Specifically, our projections indicate a seasonal cash deficit which reaches a
peak of $11.2 billion on December 15, just before t h e receipt of the large t a x
p a y m e n t s due on t h a t date. Succeeding peaks of $11 billion and $10.7 billion
will be reached on J a n u a r y 15 and March 15, before the receipt of the substantial
t a x p a y m e n t s due on those dates. Thereafter, this seasonal deficit will rapidly
be erased by a similarly large seasonal surplus; and by J u n e 30, 1963, our projections show t h e debt returning to approximately t h e same level as J u n e 30, 1962.
This seasonal imbalance between receipts and expenditures is illustrated on
an attached chart. T h e imbalance in fiscal 1963 is entirely a t t r i b u t a b l e to t h e
marked seasonal p a t t e r n of our t a x receipts, since expenditures are projected at
a fairly constant level throughout t h e fiscal year. I t is to finance this seasonal
deficit of $11 billion in t a x receipts, a deficit which will occur even with a fully
balanced budget, t h a t we need t h e $8 billion increase in the ternporary debt limit.
I t should be borne in mind t h a t , since t h e chart is based on semiannual figures
which include t h e heavy December 15 tax receipts, it understates by several billion
dollars t h e seasonal swing which reaches its peak in mid-December.
. As t h e attached table indicates, we are ending t h e current fiscal year with
a debt projected at about $294 billion. Adding tlie $3 billion allowance for flexibility to this figure, gives a total of about $297 billion, $3 billion under the current
temporary debt limit of $300 billion. I t is because of this extra leeway of $3
billion which we will have on J u n e 30th t h a t we will be able to finance a seasonal
deficit of $11 billion with, an $8 billion increase in t h e debt limit.
T h e seasonal imbalance between Federal Government receipts and expenditures
is a regular feature of our financial mechanism. I t is not just something t h a t will
occur in fiscal 1963. I would like to call your attention again to the chart which
shows semiannual receipts and expenditures from fiscal 1958 through fiscal 1963.
You will note t h a t a pronounced seasonal p a t t e r n in revenues shows up in each
and every year. I t was as much in evidence in fiscal 1960, when we last ran a
budget surplus, as it was in years when we ran budget deficits.
On t h e assumption of a constant $4 billion operating balance, we expect t h e
debt to rise to about $305 billion before dropping back- again tp around $294
billion a t t h e end of fiscal 1963. A $308 billion debt ceiling is t h e minimum
needed to provide us with t h e usual $3 billion leeway for flexibility in debt m a n agement and for unforeseen contingencies, a margin which prudent and econoniic
financial management requires.
T h e bill which passed t h e House embodies a formal recognition of the seasonal
variation in Federal Government revenues by proposing, for t h e first time, seasonal debt limits. While we would prefer t h e simpler, overall annual d e b t

292

196 2 REPORT OF THE SECRETARY OF THE TREASURY

limit such as we have had in the past, we recognize that the House bill does have
the characteristic of setting forth very clearly the seasonal nature of the Treasury's
borrowing requirements under the assumption of a balanced budget in fiscal 1963.
The Treasury's operating cash balance consists essentially of funds on deposit
at the twelve Federal Reserve Banks and in approximately 11,400 commercial
banks throughout the country. For the past few years the Treasury, in its
presentations at hearings on the debt limit, has assumed a $3.5 billion constant
operating cash balance. Experience has shown that this is an unrealistically low
figure. With careful management to have the necessary funds on hand in the
proper places and at the proper times to meet the Government's obligations as
they come due and with every effort to avoid excess cash balances, our average
operating cash balance (excluding gold) for the first eleven months of this fiscal
year was $4,755 million. The average for fiscal year 1961 was $4,620 million
and for fiscal year 1960 it was $4,638 million. In 1958, when the $3.5 billion figure
was first used for illustrative purposes, Federal expenditures amounted to $71.4
billion. Fiscal year 1963 expenditures are expected to be some 30 percent larger.
With larger expenditures, we require larger operating cash balances. For these
reasons, we have used a $4 billion figure in the attached tables as a conservative
figure for a constant operating balance. That this figure is truly conservative
can readily be seen by the fact that a 30 percent increase, comparable to the increase in budget expenditures between fiscal 1958 and fiscal 1963, would have indicated a figure of $4!''2 billion, a figure substantially closer to, but still lower than,
the actual average, of our operating balance during each of the past three years.
An operating balance at least as large as the average of the past three years is
needed to permit the day-to-day operations of the Treasury to be conducted in •
an efficient manner.
Our estimates also provide, as in the past, for a $3 bfllion margin to provide
much needed flexibility in debt management and to cover unforeseen contingencies, including the inescapable uncertainties in our month-to-month projections of revenues and expenditures." Since the assumed,cash balance of $4 billion
is over $500 million less than our actual needs, this margin of flexibility in practice
works out to less than $2Y2 billion. Such a margin for flexibility is the minimum
needed for the efficient management of the public debt. It is not in the public
interest to require the Treasury to operate with a smaller margin under the debt
limit. The end result of an excessively tight debt limit is likely to be higher
interest costs on the debt and other serious consequences, not only in our domestic
affairs, but also in our balance-of-payments position and its related effect on our
gold stock.
I would like to give you a few examples to illustrate why the $3 billion margin
for flexibihty is .so essential for efficient debt management. First, the Treasury
should be able to take advantage of especially favorable conditions in the money
and capital markets whenever they arise. However, an excessively tight debt
limit may prevent the Treasury from timing its borrowing operations most
advantageously and the opportunity to make important savings on interest
costs would, therefore, be lost.
Second, in conducting our debt management operations during the past seventeen months we have been very conscious of the impact of these operations on
our balance-of-payments position. It is of critical importance to our international
financial position that our short-term interest rate structure be in reasonable
equilibrium with short-term rates abroad. If this equilibrium is not maintained,
funds are induced to flow abroad seeking interest rate differentials, thus increasing
the drain on our gold stock. In order to avoid any disturbance of this equilibrium,
the Treasury has arranged its recent cash borrowing so as to permit the maximum
use of additional quantities of Treasury bills. It is vitally important that the
Treasury have enough room under the debt limit to take such actions whenever
market conditions warrant. To deny the Treasury a suflSeient margin for such
debt operations could result in substantial and unnecessary, drains on our gold
stock.
Third, it may often be in the best interest of both the Government and the
private capital markets if the Treasury consolidates some of its refunding operations. For example, in refunding the $7.2 billion in securities maturing this

EXHIBITS

293

coming November 15, it may be advantageous to make the same refunding offer
to the holders of the $2.3 billion of securities maturing December 15. An excessively tight debt limit could prevent us from using the cash refunding approach
in handling such an operation, even though market conditions might suggest that
a cash refunding operation would be most advantageous to the Treasury.
Fourth, if the debt limit becomes exceedingly binding, the Treasury might have
to do some of its financing through the sale of nonguaranteed issues of Federal
agencies which are not subject to the debt limit. This was done back in October
1957 and January 1958, under the preceding administration, when the Treasury
was struggling to live with an unrealistically low debt limit. This is a very
unsound financial practice which has been severely criticized by the Comptroller
General. It means that the Government has to pay }^ percent to % percent more
in interest costs than it would have to pay bn Treasury obligations. Secretary
Anderson used this device only with the greatest reluctance. I would hope that
we would never again be forced to use it.
For all of these reasons, a sufficient margin for flexibility in debt management
and for contingencies is essential if we are to have efficient and economical
management of the Government's finances.
The level of the debt is the resultant of all of our past decisions on appropriations,
expenditures, and taxes. However, it is important to recognize that these decisions are reflected in the debt only after a considerable time lag. The time lag
between decisions on appropriations and the impact of those decisions on the debt
is, in fact, the reason why we-need a substantial increase in the debt limit in
fiscal 1963 even under the assumption of a balanced budget. The increased debt
level during the coming fiscal year is a product of the deficit in fiscal 1962. If we
have a balanced budget in fiscal 1963 and, a year from now, contemplate a
balanced budget for fiscal 1964, we could get by in fiscal 1964 with the same $308
billion debt limit which we are requesting now.
The level of the debt is the final link in a sequential chain which has as its first
link the appropriations process. Debt levels in the future are the product of
past decisions on appropriations and taxes and the debt ceiling must be consistent
with those past decisions.
In conclusion, I wish to reemphasize that the increase in the debt ceiling to
$308 billion is based on the assumption of a balanced budget in fiscal 1963. The
last attached table shows monthly estimates of budget receipts and expenditures
in fiscal 1963, under a balanced budget assumption, and their relationship to our
month-end debt projections. The $8 billion increase in the temporary debt
ceiling is required to cover the seasonal low in receipts, which always occurs
during the first half of the fiscal year. Such an increase is needed in fiscal 1963
because of the substantial deficit which has already been incurred in fiscal 1962.
In other words, the increase is being requested to meet the fiscal consequences of
past deficits and does not reflect the expectation of a deficit in fiscal 1963.
There are those who think our revenue estimates for fiscal 1963 are too optimistic, and certainly they look more optimistic today than they did last January.
In April the staff of the Joint Committee on Internal Revenue Taxation, on the
basis of its independent revenue projections, estimated that fiscal 1963 would
produce an administrative budget deficit of $4.9 billion, assuming that the
administration's tax bill is approved by the Congress. I will not attempt to evaluate this estimate, since I have already given you the reasons why we feel that there,
is no firm basis, as yet, for revising the estimates presented in the President's
Budget Message. I raise the issue only to emphasize that if the budget deficit
forecast for fiscal 1963 by the staff of the Joint Committee on Internal Revenue
Taxation should prove to be correct, the graduated set of debt ceilings approved
by the House will not be adequate to meet the Treasury's needs, and we will be
forced to return to the Congress early in the next session, as was envisioned by
the report of the Ways and Means Committee.
A temporary increase in the debt limit to $308 biflion, as provided by the
House in the bill before you, is the absolute minimum needed if the Government's
finances are to be managed in an orderly and economical manner and if we are to
be able to finance our purely seasonal cash requirements in fiscal 1963 within the
framework of a balanced budget. I earnestly recommend its approval by this
committee.

294

1962 REPORT OF THE SECRETARY OF THE TREASURY

Actual public debt outstanding fiscal year 1962, with J u n e 30, 1962; estimate based on
operating cash balance of $4,000,000,000 {excluding free gold)
[In biUions, based on projection of June 22,1962]
Operating balance
Federal Reserve Public debt subject
to limitation
Banks and depositaries (excluding
free gold)

Date

Allowance to provide flexibility in Total public debt
financing and for limitation required
contingencies

ACTUAL

July 15,1961
July 31.
Aug. 15
:
Aug. 31
Sept. 15.
Sept. 30
Oct. 15
Oct. 31
Nov. 1 5 . . .
Nov. 30
Dec. 15
Dec. 31...
Jan. 15,1962
Jan. 31
Feb. 15
Feb; 28...
Mar. 15
Mar. 31.
Apr. 15
Apr. 30...
May 15
May 31-_
June 16

.-_

. ..

..
..

$3.3
5.8
4.2
5.3
3.1
8.1
7.0
5.4
4.7
5.4
2.8
5.6

$289.1
292.2
292.1
293.5
293.2
293.6
296.0
295.5
296.7
296.9
297.0
296.1

3.1
3.9
3.0
4.6
2.7
6.0
2.2
.4.7
5.6
7.2
5.2

296.3
296.4
296.3
296.9
297.8
296.1
295.8
296. 9
296. 7
299. 2
299.4
ESTIMATED

June 30.

4.0

293.7

$3.0

$296. 7

NOTE: For seasonal reasons the June 30,1962, operating balance will be significantly above $4.0 billion, so
the actual debt outstanding will be higher than sho-wm here.

295

EXHIBITS

^SEMIANNUAL BUDGET RECEIPTS AND EXPENDITURES^
Fiscal l958-'63
$Bil.

Expend itures \
40 h

Jan.June
-1958-

JulyJan.- JulyDec.
June Dec.
^-'59 —
-'60-

Jan.June
'61-

JulyJan.- July- Jan.Dec. June^. Dec.^ June^
-•62-

'63-

1 Net receipts after refunds.
,
•
2 May 1962 estimate.
3 Estimates on basis of January 1962 Budget Message plus formal modifications.
Forecast of public debt outstanding fiscal year 1963, based on constant operating cash
balance of $4,000,000,000 {excluding free gold)
[In biUions, based on 1963 Budget document—plus formal modifications]
Operating balance
F e d e r a l Reserve
P u b h c d e b t subject
B a n k s a n d deposito l i m i t a t i o n
taries (excluding
• free gold)

Date

1962
J u n e 30
July 15...
J u l y 31
A u g . 15
A u g . 31 _ .
Sept. 15.
Sept.30
Oct. 15
Oct. 31
N o v . 15
Nov. 3 0 . . . .
D e c . 15
Dec.31

$4.0
4.0
4.0
,4.0
4.0
4.0
4.0
4.0
4.0
40
40
4.0
4.0.

i...
• . '
:.
._

Allowance t o pro^
T o t a l public d e b t
vide flexibility i n
financing a n d for l i m i t a t i o n r e q u i r e d
contingencies :

$293.7
297.0
297.8
299.2
- 299.0
301.2
295.7
299. 5
300.5302 3:
• 302 1.
' 304 9
301. 6

$3.Q
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0

304.7
302.1
• '302.8
'
: .302.0
304.4
: : • . 297.9
'301.0
•
•
299.4
~
299. i
. •. •• 299.6,
: 302.0
.294.0

36
3.o:
3 0
.3 0
3.0
3.0
3.0
3.6
3.0
3.0

ll
3 6
30

$296. 7
300.0
300.8
302.2
302.0
304.2
298. 7
302. 5
303. 5
305.3
305.1
307.9
304. 5

1963
J a n . 15
J a n . 31
F e b . 15
Feb. 28...
M a r . 15
M a r . 31 . .
A p r . 15
A p r . 30 . .
May 15-May 31.-J u n e 15
J u n e 30

•
'

4.0:
4.0
4.o:
-

. .
..:...
....:..
•- '-

••

4.'0-

4..o:
4.0
4.0:
"4.0.
.4.0
4.0
4.0
40

3 |

307.7
305.1
305.8
305.0
307.4
300.9
304.0
302.4
302.4
302. 6
305.0
297.0

Estimated monthly budget receipts and expenditures and resulting end-of-month debt levels, fiscal year 1963
[Jn biUions, based on 1963 Budget document—plus formal modiflcations]
O
Budget receipts and expenditures

Net receipts

Balance on June 30,1962
1962: July
Aug
Sept .
Oct
Nov
Dec
1963: Jan
Feb
Mar
Apr
May
June
Fiscal Year 1963

— —

Expenditures

Monthly
surplus, or
deficit

(-)

Cumulative surplus, or
deficit

(-)

$3.1
7.0
10.2
3.2
6.9
9.0

$7.2
7.6
7.6
8.1
7.6
8.4

6.3
8.0
11.5
6.9
8.2
13.7

7.4
7.4
7.7
7.6
8.0
8.4

-1.1
+.6
H-3. 8
-1.7
+.2
+5.3

93.0

-$4.1
-.6
+2.6
-4.9
-.7
+.6

-$4.1
-4.7
-2.1
. -7.0
-7.7
-7.1

Net receipts of
trust and
clearing
accounts
and other
transactions

%.6

-.9

(*)

Total
tobe
financed

$4.1
1.2
-3.3
4.8
1.6
-.6

-8.2
-7.6
-3.8
-5.6
-5.3
0

+.5
-.5
+.3
+.2
-.4
+.3

.6
-.1
-4.1
1.6
.2
-6.6

0 •

-.3

Debt subject to
limitation

$4.0
4.0
4.0
4.0
4.0
4.0
4.0

$293.7
297.8
299.0
295.7
300.5
302.1
301.5

$3.0
3.0
3.0
3.0
3.0
3.0
3.0

$296.7
300.8
302.0
298.7
303.5
305.1
304.5

302.1
302.0
297.9
299.4
299.6
294.0

3.0
3.0
3.0
3.0
3.0
3.0

305.1
305.0
300.9
302.4
302.6
297.0

4.0.
4.0
4.0
4.0
4.0
4.0

•Less than $50 million.
1 Excluding free gold.
• At the mid-month points in December, January, and March the requirements are $307.9 biUion, $307.7 biUion, and $307.4 biUion, respectively.

AUowance
for flexi- Total debt
bihty and limitation
continrequired 2
gencies

Operating
cash balance 1

fel

s
o

td
fel

EXHIBITS

297

Taxation Developments
E X H I B I T 17.—Statement by the President, October 16, 1962, on signing H.R.
10650, the Revenue Act of 1962
I have t o d a y signed H . R. 10650, t h e Revenue Act of 1962.
This is an i m p o r t a n t bill—one possessing m a n y desirable-features which will
stimulate the economy and provide a greater measure of fairness in our t a x sytem.
T h e bill provides an investment t a x credit. In combination with the recently
revised guidelines for depreciation of assets, this credit will provide added stimulus
to investment in machinery-and equipment, and give American firms t a x t r e a t m e n t which compares favorably with their competitors in world markets.
I t includes several provisions designed to reduce t a x avoidance on incomes
earned by American companies and individuals a t home and abroad. By limiting
the opportunities to escape t a x liability, it makes the distribution of t a x burdens
fairer and increases our total t a x revenues from those sources.
Congress did not a d o p t the withholding system bn interest and dividend income
which I had recommended. However, as automatic d a t a processing is installed
by t h e I n t e r n a l Revenue Service, t h e interest and dividend reporting requirements
in t h e bill will be helpful in improving compliance with the t a x laws on these
sources of income.
I n s u m m a r y , this bill makes a good s t a r t on bringing our t a x structure up to
date and provides a favorable context for the overall tax reform program I intend
to propose to the next Congress.

ExfflBiT 1 8 . — s t a t e m e n t by Secretary of the Treasury Dillon, January 18, 1962,
before the Joint Committee on Internal Revenue Taxation on depreciation
reform
I a m h a p p y to have this opportunity to appear before this committee to discuss t h e work t h e Treasury has been doing in t h e area of depreciation reform.
As you know, t h e first step of this reform was completed last fall with t h e
announcement of new depreciation guidelines for a major p a r t of the textile indust r y . A further step was t a k e n this week with the announcement of new guidelines for machinery and equipment used by apparel manufacturers. This spring
we plan to announce new guidelines for major types of assets for all other
industries.
T h e changes being made will assist American business in its efforts to modernize a n d expand. The law calls for a reasonable allowance for depreciation,
including a recognition of obsolescence as a factor. T h e new guidelines will be
designed to meet this requirement.
. T h e new guidelines will be based on three major sources of information. The
first, initiated by m y predecessor, is a survey of business opinion and practice
regarding depreciation. T h e second, also started by Secretary Anderson, is a
s t u d y based on information drawn from corporate t a x returns. This was designed
to supply additional d a t a on actual current experience. The third, begun late
last year, is a group of engineering studies of six major industries aimed a t supplementing the statistical d a t a . I n addition, we have studied foreign depreciation
laws and practices.v
Although our work has not been completed, there is sufficient evidence to
indicate a real need for revision. We also plan to establish procedures for continuous f-eview and revision of t h e new guidelines to t a k e account of current
developments affecting depreciation.
This admistrative revision of depreciation—if complemented by the investment credit now before t h e Congress—will place American industry on a substantially equal footing with its foreign competitors.
Introduction
Depreciation is one of t h e most difficult items of business costs to deal with
under income t a x accounting. As a charge against income or addition to business
costs, it is designed to spread t h e cost to business of using depreciable capital
asset over their useful economic lives. Its purpose is to charge to each accounting
year a proportion of the original cost of each asset so t h a t over the life of the

298

1962 REPORT OF THE SECRETARY OF THE TREASURY

asset there will be reflected its loss of value due to wear and tear, including
the destructive forces of the elements, and obsolescence.
At best, t h e depreciation to be charged against each year's income can be
only an informed estimate. Establishing the r a t e a t which any given asset is
to be depreciated over its economically useful life is made particularly difficult
by the fact t h a t obsolescence is a function of prospective developments and
future changes in technology, wage rates relative to the cost of capital, competitive conditions, consumer tastes, preferences and demand, and other forces
t h a t cannot be foreseen with accuracy. And it is not surprising t h a t depreciation
for income t a x purposes has long been a subject of controversy a m o n g accountants,
economists, and lawyers, and between the taxpayer and those responsible for
administration of the income tax. In consequence it is appropriate t h a t the
general rule governing depreciation, as set forth in the Internal Revenue Code
of 1954, states only t h a t There shall be allowed as a depreciation deduction a
reasonable allowance for t h e exhaustion, wear and tear (including a reasonable
allowance for obsolescence) * * *" of property used in a trade or business or
held for the production of income.
Brief history of depreciation under the income tax
Because I believe t h a t t h e history of administrative and legislative procedures
in the depreciation area will help to place the present situation in proper focus,
I shall briefly describe t h a t history.
For t h e t w e n t y years following t h e introduction of our modern income tax,
considerable freedom was allowed to the taxpayer in the determination of depreciation. Deductions t a k e n by taxpayers for depreciation were generally
n o t challenged b y t h e I n t e r n a l Revenue Service unless it could be shown by
clear and convincing evidence t h a t they were unreasonable. Through most of
this period t a x rates were relatively low—the t o p rates of the corporate and
personal income taxes, for example, were a t 12.5 and 25 percent, respectively—
and depreciation evoked few problems.
However, in the early thirties when tax rates were raised substantially. Congress
became very m u c h concerned a b o u t t h e level of depreciation allowances. In
1933 a subcommittee of the Committee on Ways and Means reviewed depreciation policy in connection with the major t a x revision of 1934. I t reported t h a t
excessive depreciation was being t a k e n and recommended legislation to provide
a 25 percent across-the-board reduction in depreciation allowances for the next
three years.
T h e Treasury objected to this approach a n d suggested instead t h a t it be permitted administrative discretion to tighten up depreciation allowances in a
manner which would be more equitable t h a n an arbitrary and broadside percentage reduction. This proposal was accepted by t h e congressional committees
and the Treasury proceeded to issue its now rather famous T. D. 4422. This
document shifted to t h e taxpayer t h e burden of proof as to t h e correctness of
depreciation a n d paved t h e way for redetermining useful lives of depreciable
property for t a x purposes along more stringent lines. Following the issuance
of T . D . 4422, t h e administration of depreciation was considerably tightened,
although the extent of readjustment has sometimes been exaggerated.
Subsequently, in 1942, t h e still used Bulletin F was issued as a guide to t a x
lives. Conflict and controversy between taxpayers and administrative officials
continued, although eased somewhat by several developments.
The first of these were t h e provisions for accelerated amortization for defense
and defense related facilities, adopted as emergency measures in 1940 and again
in 1950. I n 1946 more general administrative approval was given to t h e use
of the 150 percent declining-balance method of computing depreciation. A
major change in administrative policy was introduced in 1953. This new policy,
designed t o reduce controversies over depreciation, was contained in Revenue
Rulings 90 and 91. These new rulings implied in large measure a r e t u r n to
pre-1934 arrangements. They stated, in effect, t h a t the Internal Revenue
Service would generally not disturb depreciation deductions claimed and revenue
agents would propose adjustnients only where there was a cleaT and convincing
basis for a change. This policy has since been incorporated into the regulations
under the 1954 I n t e r n a l Revenue Code.
The Revenue Act of 1954 marked an i m p o r t a n t new direction in depreciation
policy. New liberalized methods—the declining-balance method a t twice the
corresponding straight-line rate and the sum-of-the-years-digits formula—wer?

jaxHiBiTs

299

specifically authorized. These new methods permit acceleration of the timing
of deductions for depreciation and concentrate more of t h e capital recovery for
tax purposes in the early years of an asset's life. However, neither t h e 1954
Code nor administrative policy provided changes with respect t o useful lives
over which assets might be written off.
I n t h e period following t h e 1954 Code liberalization the Treasury continued
to s t u d y t h e question of useful life determination and possible revision of Bulletin
F . I t was recognized t h a t Bulletin F was outmoded, b u t the t a s k of carrying
through a realistic revision proved difficult.
One major project t h e object of which was to revise Bulletin F was undertaken
by t h e Treasury with t h e cooperation of nongovernment advisers in the years
1956 to 1958. This project provided suggested new guideline schedules for t a x
lives, b u t t h e Treasury believed t h a t these schedules did not give adequate recognition to increasingly rapid obsolescence and, consequently, did n o t indicate
a sufficient shortening of useful lives in m a n y cases.
The Treasury depreciation studies
I n order to obtain fuller insight into t h e problem, t h e Treasury, in 1960, init i a t e d two major studies designed to provide an adequate factual background on
t h e operation of existing depreciation practices and tax lives actually being
used. We have, in addition, carefully studied depreciation practices in nine of
t h e other leading industrial nations of t h e world.
Both of t h e Treasury's major depreciation studies are elaborate, detailed,
statistical surveys. One is based on a questionnaire survey of corporations.
T h e other draws its d a t a from a tabulation of information contained in t h e depreciation schedules s u b m i t t e d as p a r t of t h e corporate income tax returns for
1959. These studies were first u n d e r t a k e n on a pilot s t u d y basis in 1959, designed to test their feasibility and to perfect statisticaLprocedures.
The Treasury Depreciation Survey

I n July 1960 t h e Treasury D e p a r t m e n t asked approximately 2,700 large corporations to supply information on t h e a m o u n t of their depreciable assets, reserves
for depreciation, depreciation deductions, and fully depreciated property, as well
as the.service lives being used in t h e depreciation of various types of property,
and t h e extent to which t h e new methods of depreciation permitted under t h e
I n t e r n a l Revenue Code of 1954 had been adopted. In addition, a questionnaire
was distributed to these corporations requesting information on depreciation
practices, experience under t h e existing law, a n d opinions on various alternative
proposals for revision of t h e depreciation systeni. With t h e cooperation of t h e
Small Business Administration, t h e questionnaire portion of t h e survey material
was also mailed to approximately 7,600 small businesses. Completed returns
were received from about 2,000 of t h e large corporations and 1,300 of t h e smaller
firms.
A preliminary report on t h e questionnaire portion of this survey, dealing chiefly
with business opinions on alternative approaches to depreciation reform, was
issued in J a n u a r y 1961. Early in 1961 t h e processing of t h e statistical d a t a was
accelerated a n d by t h e fall of t h a t year, t h a n k s to t h e prodigious efforts p u t forth
by t h e Statistics Division of t h e Internal Revenue Service, t h e compilations of
t h e d a t a were completed.
These compilations provide a vast mass of d a t a which t h e Treasury is intensively engaged in analyzing. This analysis is not yet complete, b u t some indications of t h e n a t u r e of t h e findings m a y be indicated at this point. T h e 1,900
corporations which responded with usable d a t a account for close to one-half of all
corporate depreciable assets and approxiniately half of all corporate depreciation
charges t a k e n in 1959.
T h e survey results available at this date indicate t h a t in general depreciation
charges allowed to American corporations have by no means been liberal. This
conclusion is based on two major findings. One is t h a t t h e a m o u n t of fully depreciated assets reported is surprisingly small. T h e other is t h a t t h e ratio of
depreciation reseryes t o gross depreciable assets is below t h e level commonly
accepted as a measure of conservative depreciation practices.
The Life of Depreciable Assets Study

Our second study, designed t o complement t h e Treasury Depreciation Survey,
was also s t a r t e d on a full scale in 1960 and pursued with sharply stepped-up

300

196 2 REPORT OF THE SECRETARY OF THE TREASURt

intensity after the beginning of 1961. This study, known as the Life of Depreciable Assets Study, is based on a tabulation of the detailed depreciation information subnaitted on 1959 corporation income tax returns. The data are drawn
from the feturns of a large representative statistical sample of more then 50,000
corporations. It is designed to provide more detailed information by asset type,
year of acquisition, and depreciation method used than that obtained from the
Treasury Depreciation Survey. Moreover, whereas the latter provides information primarily for corporations with assets in excess of $5 million, the LDA
covers the full range of corporations classified by size.
The great inass of data provided by the Life of Depreciable Assets Study is
indicated by the fact that when all of the tabulations have been delivered to the
Treasury they will be contained in a pile of documents that will stand seven feet
high. Final deliveries are expected within the next few weeks. I regard this
unprecedentedly detailed and massive compilation of data as a potential source
of information of great value: It will not only provide hitherto unavailable
information on depreciation practices, but it will also be extremely useful as a
source of information that has not been available in the past on many aspects of
the operation of our corporate economy.
With the help of consultants the Treasury is proceeding as rapidly as possible
with the analysis of the data. Our findings thus far tend to confirm those arrived
at on the basis of the Treasury Depreciation Survey in that they too tend to demonstrate that the existing depreciation guidelines are outmoded and in need of
revision.
The engineering studies

In order to supplement the statistical data being developed we have also
undertaken engineering studies. While statistical data show what practice has
been, engineering studies are designed to disclose the nature of current and prospeciiive technological developments. Internal Revenue Service engineers have
completed an engineering study of the textile industry and are currently engaged
in similar studies in the following industries: aircraft, automobiles, electrical
machinery and equipment, machine tools, railroads, and steel. The six were
selected because they are large, basic industries and because, among them, they
represent major types of U.S. business activity. They also differ widely in their
level of automation and their recent experience with technological change. The
studies being conducted for these industries are expected to be completed by the
end of this month.
Because of .their importance in our program jof jfevision iand because of the
widespread publicity which has been accorded to them, I should like to describe
briefly for you the nature of our engineering studies.
For the purpose of carrying out our studies of the industries named, seven teams
of three engineers each were formed and each team was assigned to conduct a study
of one of the selected industries. Each engineer assigned to a team has the experience and training which qualify him to render expert opinion as to the useful life
of depreciable assets used in the industry under study. In most cases the engineering team is made up of one engineer designated by the Washington office and
two field engineers.
After the engineering teams were formed, they were assembled in the national
office simultaneously for briefing and general instructions. At that time each
team arranged a tentative schedule of activities, including conferences with industry personnel and inspection trips to selected representative plants.
• The selection of these plants has been subject to extreme care, so as to insure
access to the greatest possible variety of operating conditions within each industry.
Inspection trips involve the observation of actual plant operations and discussions
with management officials associated with each plant. The discussions are designed to elicit management views as to the useful lives they believe should be
assigned to various items of depreciable property. In order to secure fullest
cooperation, all visits to plants have been preceded by letters from the Com-,
missioner of Internal Revenue to the appropriate company officials, briefly
explaining the project and requesting cooperation and assistance.
Our engineers seek further information through the inspection of plant records

EXHIBITS

301

of purchases and retirements of machinery and.equipment and other records
which may have a bearing on.the taxpayer's operating practices and policies.
Another source of information being used is the major suppliers of machinery
and equipment to each of the industries. Officials of the firms producing the
various types of capital goods are being interviewed with a view to obtaining
insights into technological developments which may be expected to have a bearing
on the useful life of the machinery and equipment used and expected to be used
in each of the industries.
Conferences with major trade associations and individual firms representing
large segments of these industries have been arranged. At these conferences taxpayers and spokesmen for groups of taxpayers have been encouraged to present
briefs supporting each industry's position with respect to depreciation policy.
These conferences have thus far proved to be an excellent forum for the exchange
of views between industry representatives, the Treasury and the technical personnel of the Internal Revenue Service.
As a final step, an engineering report is being prepared by each of the industry
teams, setting out its findings and recommendations with respect to the average
useful lives of items of depreciable property used in the industry studied. These
reports are expected to reflect the expert opinions of the engineers, after giving
full consideration to all of the factors brought into the picture.
Depreciation abroad
Because American industry does not operate in a setting entirely of our own
making, but is actively in competition at home and abroad with foreign producers,
our practices with respect to depreciation policy need to be examined in the light of
foreign experience. Thus the.Treasury has gathered a substantial amount of information on depreciation practices in leading foreign industrial nations from a
wide variety of published and unpublished sources, including our Embassy personnel and officials of foreign governments.
In today's highly competitive world we find widespread use of initial allowances
and incentive allowances supplementing depreciation charges. Thus for the major.
industrialized nations of the free world, Belgium, Canada, France, West Germany,
Italy, Japan, the Netherlands, Sweden, and the United Kingdom, we have assembled reliable information with respect not only to depreciation practices, but also
regarding initial and incentive allowances.
The information presented in the first column of Table I shows that the typical
or representative tax life permitted with respect to production machinery and
equipment in each of these countries, except Japan and the United Kingdom, is
substantially lower than it is in the IJnited States. Moreover, in addition to
ordinary depreciation, Belgium, the Netherlands, the United Kingdom, and under
certain conditions, Sweden, permit the deduction from income of incentive allowances. Initial allowances, which add very appreciably to the deduction that may
be taken in the year of acquisition of a depreciable asset, are permitted in Canada,
Italy, Japan, the Netherlands, Sweden, and the United Kingdom.
The impact of ordinary depreciation plus initial and incentive allowances on the
amounts that may be deducted in the year in which a new asset is acquired is
shown in the second column of the table. Here it may be seen that the percentage
of the cost of an asset that may be deducted in the first year ranges from 20 percent
in West Germany to 43.4 percent in Japan, compared with as low as 10.5 percent
in the United States.
Columns 3 and 4 of Table I show the percentage of the cost of the asset that
may be deducted during the first two and first five years of its life. Here, again,
it may be seen that the deductions permitted in each of the nine industrialized
foreign countries comprise a far higher proportion of the cost of industrial machinery and equipment than is permitted under current law and practices in the
United States. For the first five years of the life of the asset, the relevant proportion falls within the range of 60 to 70 percent for West Germany, Japan, and the
United Kingdom, between 70 and 80 percent for Canada and France, and 85 to as
much as 100 percent for Belgium, Italy, the Netherlands, and Sweden. In sharp
contrast, the applicable percentage in the United States is 42.7 under the present
average Bulletin F life and 51.1 percent for the commonly used 15-year life.

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1962 REPORT OF THE SECRETARY OF THE TREASURY

T A B L E I.—Comparison of depreciation deductions, initial and incentive allowances'^
for industrial eguipment in leading industrial countries with similar deductions
and allowances in the United Staies under actual and various proposed plans

Representative
tax lives
(years)

Depreciation deductions,
initial and incentive
allowances
First
year

First 2
years

First 5
years

Percentage of cost of asset
Belgium.
Canada..
France.
West Germany..
Italy
Japan.
Netherlands
Sweden
:
•..
United Kingdom
._•
United States:
Without investment.credit and lives equal to current Bulletin
F weighted average of 19 years..
With lives of:
15 years
14 years
13 years
12 years
."
11 years
10 years
With investment credit and lives equal to current Bulletin F
weighted average of 19 years 2
_
With lives of:
15 years..-14 years
.
13 years_
12 years
.
'
11 years
J
-.
10 years
-._

22.5
30.0
25.0
20.0
25.0
43.4
26.2
30. 0
39.0

45.0
44.043.8
36.0
50.0
51.0
49.6
51.0
46.3

92.5
71.4
76.3
67.2 •
100.0
68.2
85.6
100.0
64.0

10.5

19.9

42.7

13.3
14.3
15.4
16.7
18.2
20.0

24.9
26.5
28.4
30.6
33.1
36.0

51.1
53.7
56.6
.59.8
63.0
67.2

26.5

35.9

58.7

40.9
42.5
44.4
46.6
49.1
.52.0

67.1
69.7
72.6
7.5.8
79.0
83.2

29.3
30. 3
31.4
32.7
34.2
36.0

1 The deductions and allowances for each of the foreign countries have been computed on the basis that the
investment qualifies fully for any special allowances or deductions permitted. . The deductions in tbe
United States have been determined under the double-declining balance depreciation method, without
regard to the limited first-year allowances for small business.
2 For purposes of this table, the proposed 8 percent investment credit has been considered as equivalent to
a 16 percent investment allowance. For corporations sub.iect only to the 30 percent norraal tax it is equivalent to an incentive allowance of 27 percent. The initial allowance of 20 percent of each year's investment,
up to $10,000. is not taken into account because of its relatively small impact.

This picture changes dramatically, however, when the proposed investment
credit enters. In terms of its effect on current liability, t h e 8 percent investment
tax credit is equivalent to an incentive allowance of approximately 16 percent for
corporations subject to the 52 percent corporate income tax r a t e and a b o u t 27
percent for corporations subject onl}^ t o t h e normal t a x r a t e of 30 percent.^ T h e
b o t t o m seven rows of Table I indicate t h e effect on comparable allowances for
• new depreciable assets t h a t would be achieved if the 8 percent investment t a x credit were currently in force. Assuming t h e existing weighted average Bulletin F
life of about 19 years, t h e equivalent first-year deductions would be 26.5 percent.
I n combination with a somewhat shorter life of 15 years, we find t h a t t h e first
year's equivalent deductions in t h e United States would be equal to 29.3 percent
of the cost of new depreciable assets. This proportion is higher t h a n t h a t which
obtains in Belgium, France, West Germany, Italy, and t h e Netherlands. Firstyear deductions or their equivalents would remain substantially higher t h a n theses
p e r m i t t e d in t h e United States only in J a p a n and t h e United Kingdom. For t h e
first five years of t h e life of t h e asset, permissible deductions would still exceed a p preciably those allowed in the United States in Belgium, France, Italy, the N e t h e r lands, and Sweden. B u t allowances in t h e United States would be approximately
the same as those allowed in Canada, West Germany, J a p a n , and t h e United Kingdom.
' Both the investment credit and the incentive allowance have greater overall effects than a similar initial
allowance because they do not reduce the amount of depreciation that may be taken over the life of an asset.

EXHIBITS

. 303

T h e d a t a presented in t h e b o t t o m portion of Table I demonstrate clearly t h a t ,
especially within t h e first two years of t h e life of an asset, even a revision to
provide realistic tax lives will not, by itself, place t h e United States in a position
comparable to t h a t of its most immediate foreign competitors. T h e achievenient
of this objective, rather, requires both t h e investment tax credit and t h e faster
writeoffs t h a t would be permitted under depreciation policies, which, in broader
recognition of t h e increasing importance of obsolescence in t h e postwar world,
would permit American firms to assume shorter tax lives for depreciable property.
Reviewing this s u m m a r y and analysis, three i m p o r t a n t conclusions emerge:
(1) Shorter tax lives alone will not do t h e job of bringing American industry
abreast of its foreign competitors with respect to tax allowances for investment.
(2) T h e investment credit will make a major contribution toward achieving t h a t
• goal. (3) T h e combination of t h e credit and t h e forthcoming revision of depreciation guidelines will place t h e United States on substantially equal footing with
other major industrial nations. These conclusions underscore t h e necessity for t h e
Treasury's two-pronged program of revised, realistic depreciation and t h e investment credit.
Objectives of depreciation revision
I t is m y firm intention to announce new guidelines for depreciation during
t h e course of t h e spring of this year. These guidelines will cover all major assets
for all industries. T h e combination of engineering studies and statistical analyses
will provide, on t h e basis of information never before gathered in such volume
and detail, t h e necessary guidance for this full scale revision. Our basic objective
is to provide realistic tax lives in t h e light of past actual practices and present
and foreseeable technological innovations and other factors affecting obsolescence.
Following t h e promulgation of t h e new guidelines, further revisions m a y be forthcoming with respect to any particular industry on t h e basis of subsequent engineering studies t h a t m a y be requested and found necessary.
Complementary to, b u t not subsidiary to this objective of providing realistic
lives, is our aim of achieving a far more simple and flexible system of depreciation
under t h e directive of t h e Internal Revenue Code which, as I indicated earlier,
requires t h a t ''reasonable allowances" for depreciation be permitted.
T h e existing Bulletin F , with its suggested useful lives for some 5,000 items of
depreciable property, is a morass of detail. One of t h e i m p o r t a n t goals of our
revision program is to reduce this detail. I intend to move toward guideline
lives for broad classes of assets used by each of t h e industries in our economy.
T h e Treasury Depreciation Survey has clearly demonstrated t h a t one of t h e
major irritants now experienced by American business stems from t h e detail
of existing guidelines. A large proportion of our respondents has expressed a
strong preference for a system t h a t involves establishment of t a x lives for broad
classes of assets. At t h e same time our procedures m u s t be sufficiently flexible
to allow for recognition of t h e varying circumstances surrounding t h e economics
of t h e operation of individual firms within industries as well as varying practices
with respect to replacement policy, intensity of use of machinery and equipment,
a n d practices with respect to repairs and maintenance.
Substantial simplification and elimination of controversy between t h e t a x
agent and t h e taxpayer will be achieved with t h e enactment by Congress of t h a t
feature of t h e bill how before the Ways and Means Committee wliich will permit
disregarding t h e first 10 percent of salvage value for purposes of computing annual
depreciation charges. Flexibility and simplification of t h e system of depreciation will require one i m p o r t a n t safeguard. This i m p o r t a n t safeguard is available in t h e Treasury's proposal to tax as ordinary income gains from t h e sale of
depreciable assets to t h e extent of prior depreciation charged after December 31,
1960. This a m e n d m e n t of section 1231 of t h e Internal Revenue Code, now
pending before t h e Ways and Means Cpmmitteee, will asssist greatly in facilitating t h e achievement of administrative depreciation practices t h a t are fully
in keeping with t h e requirements of t h e economy of 1962.
As you know, we began to move ahead with our revision of depreciation guidelines in October, when we announced new average useful lives for machinery and
equipment used in t h e spinning and weaving of textile products. This was
followed, early this week, by similar action with respect to apparel manufacturers.
Revised tax lives for other segments of t h e textile industry are being developed
as rapidly as possible.

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1962 REPORT OF THE SECRETARY OF THE TREASURY

The Treasury accelerated action with respect to the textile industry in response
to the President's directive of May 2. Our actions taken thus far have provided
reductions in Bulletin F guideline lives for depreciation of machinery and equipment of about 40 percent, specifically from 25 years or more to 15 years for production machinery and from 15 to 20 to 12 years for finishing equipment in the textile
mill products industry and from 15 to 9 years for sewing equipment. Because
many firms were depreciating their assets on the basis of lives considerably shorter
than those suggested in Bulletin F, the actual average reduction in tax lives
will be equal to 12 to 15 percent.
The new guidelines for the textile industry are designed to take into account
increased rates of obsolescence due to such factors as acceleration of technological innovation and increasingly intensive international competition. They
are far more realistic lives than the old ones and will bring a reduction in the .
wide variance among firms in depreciation allowances, thus improving equity.
In addition, the new lives involve fewer differences among closely related assets.
They will recognize the growing importance of the use of the system approach
to factory organization (in contrast with an assemblage of more or less unrelated
machines). They will also simplify accounting for depreciation, and facilitate
the use of composite and group depreciation.
Summary and conclusion
I consider our program of depreciation reform, including the investment credit,
a central part of our economic policy. Our two most important long-range
economic problems today are to stimulate growth in the domestic economy and
to eliminate the deficit in our balance of payments.
Comparison with other industrialized countries shows, as would be expected,
that those countries with higher levels of investment in productive equipment
have higher levels of economic expansion. As for our balance of payments, the
most effective way to eliminate that deficit is to increase our exports. Indications
are that other countries have been modernizing more rapidly, thus stepping
up their productivity, lowering costs, and offering stiff er competition to our own
producers, not only in foreign markets, but in domestic markets within the United
States as well. To meet that competition our manufacturers need the increased
stimulus to investment and modernization which can best be brought about by
these changes in tax policy.
It is no exaggeration to say that at the present time, one of the most important
policy goals of the administration is to increase productive private investment,
for both domestic and international reasons. We need to make sure that our
tax laws are fostering a strong flow of funds into investment in new productive
facilities.
It is my conviction that depreciation reform, including both the administrative
revision of depreciation guidelines and the investment credit, is not only the best
way to bring about a higher investment level, but is absolutely necessary if we
are to grow at a more rapid rate and maintain widespread international confidence in our currency.
EXHIBIT 19.—Address by Secretary of the Treasury Dillon, March 19, 1962,
before the Tax Executives Institute, Washington, D.C, on the role of tax
policy in economic growth
The United States is the richest, the strongest, and the most productive nation
on earth, but we are still well short of our vast potential. There is no automatic
way of closing the gap between what we are and what we could be. That gap
can be narrowed in only one way, by accelerating our rate of economic growth.
We must grow faster if we are to provide employment for our expanding labor
force and find new jobs for workers displaced by technological progress.
We must grow faster to increase business opportunities and profits.
We must grow faster to ensure the benefits of the world's highest standard
of living to all of our people.
We must grow faster if we are to .help the peoples of the emerging nations to
improve their standards of living within the framework of free institutions.
We must grow faster to demonstrate the vitality of a free market economy
to those in the emerging nations who may be influenced by Communist boasts
of the superiority of a controlled economy.

EXHIBITS

305

And we must grow faster to ensure that the future will find us able to meet
our heavy defense commitments both at home and around the world.
We can ignore the need for rapid economic growth only at our peril, for economic strength is essential to our survival as a free and prospering nation.
Growth has become such an imperative American goal that all of our national
policies must take it into account. Nowhere is this more important than in
the field of tax policy, because our present tax system does not contribute enough
to faster growth.
To grow more rapidly, we must among other things, raise our level of productive investment. We must use our tax laws to make such investment more
attractive and to foster a strong flow of investment fjinds. That is the aim of
the administration's plan for depreciation reform, a twofold program which
includes the proposed tax credit for new investment and the revision of existing
depreciation guidelines.
Depreciation revision began last October with the announcement of new
guidelines for machinery and equipment used by spinning and weaving mills
in the textile industry. In January, we brought out new guidelines for the
apparel part of the industry. Last month, revisions were published for the machinery and equipment used by hosiery and knitwear producers, thus completing
depreciation revision for textiles, which President Kennedy had ordered expedited
as part of his overall program to assist that struggling industry.
Depreciation studies for all other industries'are now well advanced and the new
guidelines will be in effect by late spring.
In setting guidelines, we are giving careful attention to the pace of technological
change and obsolescence as a standard for judging the useful "lives" of productive
equipment. And in attempting to determine actual and potential rates of obsolescence, we will not be bound by the obsolete notion that equipment is still usable
as long as it remains in good working condition. That is the narrow concept
of "physical" life. To the greatest extent possible, we will consider the "economic"
life of machinery and equipment. For a 25-year-old machine may still run well
enough, but its economically useful life is over if a newer machine produces at a
significantly lower overall cost per unit.
Establishing new depreciation schedules by that standard of obsolescence is no
simple task, especially when we are endeavoring to take into account, not only
recent technological change, but that which is foreseeable in the near future.
However, we do have a great deal of information on which to base our decisions,
including two extensive statistical studies of depreciation practices initiated by
my predecessor. Secretary Robert Anderson. They have been supplemented by
recent engineering studies of six basic industries to give us a broad look at actual
industry experience with technological change and obsolescence. In addition, the
many conferences and meetings we have held with industry and trade association
representatives and with their tax advisers have been most helpful.
Although we have reached no final decisions on new depreciable lives for any
industry other than textiles, the general shape of the revision is becoming clear.
We shall move to shorter and more realistic depreciable lives, and, in addition, put
into effect a truly significant simplification of Bulletin F. This audience is well
aware that Bulletin F, with its suggested useful lives for some 5,000 items of depreciable property, is a morass of detail. We intend to substitute a set of guideline lives for broad classes of assets in each of our industries.
But administrative revision of depreciation, important though it is, is not
enough. If our economy is to grow and prosper, it is essential that our industry
meet the highest standards of efficiency. Our prized American standard of living
means higher wages for our workers than for workers elsewhere. If they are to be
more highly paid, they must be more productive. And if they are to be more
productive they must have the most modern equipment available anywhere in the
world.
Our tax laws, as they presently stand, do not provide as great an incentive to
modernize as do the laws of our major competitors. To place American industry
on a comparable footing with industry elsewhere will require enactment of the
proposed investment credit which will soon come before the House of
Bepresentatives.
Canada, Japan, and each of the seven major industrial nations of Western
Europe provide first-year depreciation writeoffs for machinery and equipment—
including, in most cases, special incentive allowances—that are much more generous than ours. West Germany typically allows 20 percent and the first year
total writeoff in the other eight countries ranges upward from there to as high as
661496—63

306

1962 REPORT OF THE SECRETARY OF THE TREASURY

43.4 percent in J a p a n . T h e average first-year allowance among all nine of these
countries is 29 percent.
Compared with this, our own industry now averages a first-year writeoff of
onl}^ 13.3 percent less t h a n half t h a t of our competitors. Under present depreciation practices, our industrial equipment has an average useful life of about 15
years. Even if we were to reduce this to 10 years, and t h a t would be unrealistically low, our industry generally would be able to writeoff only 20 percent of t h e
cost of its new assets in t h e first year: still a third less t h a n our foreign competitors.
The proposed investment credit would dramatically change those figures. For
with the eight percent investment credit, we could keep the average depreciable
life of our equipment right where it is now, a t 15 years, and our industry's t o t a l
first-year cost recovery would a m o u n t to 29.3 percent. T h a t would be fractionally better t h a n the average of our major competitors and significantly higher t h a n
the first-year writeoffs presently allowed in Belgium, France, Italy, t h e Netherlands, and West Germany. We do not, of course, expect average depreciable
lives- to remain a t 15 years. To whatever extent they are reduced from t h a t level,
our future first-year writeoffs will become relatively even more advantageous.
E n a c t m e n t of the investment credit is the only feasible means of achieving this
result. Alternative plans would provide much less incentive to modernization
with m u c h greater revenue losses to t h e Government.
Our studies show, for example, t h a t the proposed eight percent investment
credit would iniprove t h e profitability of a typical IS-j^ear asset by 30 percent,
increasing the r a t e of aftertax return under double-declining balance depreciation.
from 5.6 percent to 7.3 percent. To achieve the same increase in profitability by
use of special depreciation writeoffs would require a full 40 percent first-year
depreciation allowance. Whereas t h e revenue loss from t h e proposed investinent
credit is estimated a t only $1.8 billion in the first year, first-year depreciation of
40 percent would reduce Government t a x collections by $5.3 billion. Over a fiveyear perfod, the credit would cost $9.9 billion in Federal revenues, while achievem e n t of the same result b}^ 40 percent first-year depreciation would cost $24.1
billion.
T h e recently advanced proposal for a 20 percent increase in depreciation allowances would likewise produce far less stimulation per tax dollar lost. Its revenue cost in t h e first full j^ear of operation would be $600 million and would rise
thereafter as new equipment was installed, reaching $1.6 billion in t h e fifth year,
and $3.0 billion in t h e t e n t h year. Over a ten-year period, t h e total cost of this
proposal would be $17.9 billion, somewhat less t h a n t h e $22.1 billion cost of t h e
investment credit. B u t t h e credit would provide more t h a n four times t h e stimul^ative effect in increased profitability of investment.
The proposed 20 percent increase in depreciation writeoffs has been coupled
by its sponsors with a one-shot, windfall tax allowance for distributors' inventories. This would cost $1)^ billion in its first year b u t would have only minor
revenue impact thereafter. This proposed tax t r e a t m e n t of inventories has
m a n y serious flaws, not t h e least of which is t h a t it would increase taxes on small
businesses at t h e very worst time—when they are being forced to reduce inventories because of unfavorable business conditions.
As I have said, t h e suggested t w e n t y percent increase in depreciation allowances
does not even come close to t h e eight percent investment credit as. a stimulus to
business investment. Its effect would not even equal t h a t of a two percent investment credit. T h e relative merits of t h e two proposals are most clearly seen
when 3^ou realize t h a t a full ninety percent increase in annual depreciation writeoffs, rather t h a n a mere t w e n t y percent, would be required to achieve a rise in t h e
profitability of investment equal to t h a t attainable by t h e eight percent investment
credit. And such a 90 percent increase would involve a cost over 10 years of well
over tliree times t h a t of t h e investment credit.
I t is essential t h a t we have t h e full increase in profitability inherent in t h e investment credit if our industry is to modernize and compete on even terms, both
against imports into our home markets and in world export markets. If American
industry is prevented from becoming fully competitive, it will cost us literall}^
hundreds of millions of dollars a year in our balance of payments, a loss we simply
cannot afford. All Americans now recognize t h a t t h e achievement of balance-ofp a y m e n t s equilibrium has become essential to our national security. Those who
oppose t h e investment credit and suggest mere poultices' in its place should be
fully aware t h a t in so doing t h e y are contributing directly to a serious a.ggravatio.n
of our balanee-of-pa}'ments difficulties.

EXHIBITS

307

Now pending before the Congress are two other changes in the tax treatment of
depreciation which should have special interest for this audience:
The first, which has received inadequate public attention, would virtuallj^
eliminate one of the most difficult and controversial questions in the entire area of
depreciation by changing the manner in which the prospective salvage value of
depreciable assets is treated. We propose that taxpayers be permitted to ignore
the whole issue of salvage value to the extent that such value does not exceed ten
percent of the cost of the asset. This change would completely wipe out all problems concerning salvage value on the overwhelming majority of industrial assets.
The second proposed change tightens the tax laws governing earnings on sales
of' depreciable property. The reason for this goes far beyond our aim of tax
equity. Adoption of the proposal to treat earnings from such sales as ordinary
income is also an essential prerequisite to our eff'orts to simplify depreciation.
Without this change, we will be thwarted in one of our major tax reform goals—
the elimination, to the greatest extent possible, of rankling controversy between
business taxpayers and Government tax agents for, once this provision is put into
effect, errors made in determining the proper depreciable lives of equipment
would no longer lead to tax windfalls on their sales. If we are to move forward
with our plan for a broad category approach to the establishment of useful lives—
and with the proposed liberalized treatment of salvage value—this modification
is absolutely essential.
The Congress is also considering a number of other major tax changes designed
to offset the revenue cost of the investment credit and to remove inequities in our
tax system. We are gratified by the careful consideration they have received
during exhaustive hearings and months of study by the House Ways and Means
Committee. This extended discussion has helped to clarify areas where even the
experts are sometimes less than certain. While the present bill, as modified by
the committee, is not as complete as we would like, it does represent a good start
on our program of overall tax reform.
The pending bill establishes a system of withholding on income from interest
and dividends, thereby assuring the collection of some $650 million annually in
taxes which are legally owed but are not now being paid. There is absolutely no
reason why those who receive income from interest and dividends and who year
in and year out avoid the payment of more than $800 million in taxes due their
Government should not be subject to withholding, just as wage and salary earners
have been for twenty years. The withholding system will collect fully three
times as much revenue as the proposed alternative of a vastly expanded interest
reporting system. $200 niillion is the maximum that could be collected by this
means and even this would call for literally thousands more revenue agents to run
down possible tax evaders identified by automatic data processing.
Adequate safeguards to protect the Current income of people with little or no
tax liability are built into the Ways and Means Committee bill which completely
exempts from withholding those who owe no tax on their dividends, their savings
accounts, or their savings bond interest. For those subject to tax, but to less
than the amount withheld, prompt quarterly refunds are planned.
As for payers of interest or dividends, they will not be required to make detailed reports to the Government identifying those to whom the payments have
been made. In addition, they will be permitted to retain and to use the withheld taxes for certain specified periods. This provision is designed to help them
offset the cost of the withholding system.
Other sections of the bill make additional important steps toward tax fairness:
The bill provides for more equitable taxation of mutual thrift institutions
and mutual fire and casualty insurance companies, although they will still bear
a relatively lighter tax load than their competitors.
It ends the existing possibilities for prolonged postponement of tax
payments on the earnings of cooperatives, by taxing currently either the co-op
itself or its patrons.
It makes a progessive move toward eliminating the widespread abuse
of tax deductibility as a means of paying for much personal entertainment, travel,
and recreation.
And, finally, it takes a major step toward ending the proliferating use
of tax havens abroad as a device for avoiding U.S. corporate taxes. The data
we now have, which we know is incomplete, shows that there are several thousand
American-controlled subsidiaries in the Bahamas, Liechtenstein, Panama, and
Switzerland to name just the areas most often used, and most of them appear
to have tax avoidance as the main reason for their existence. While the Ways

308

196 2 REPORT OF THE SECRETARY OF TPIE TREASURY

and Means Committee bill does not go as far as we would like toward ending
the advantageous tax treatment of income earned from overseas operations,
it will certainly curb the most obvious abuses. As in the case of the investment
credit, our balance-of-payments difficulties make it essential that we move ahead
vigorously in this area.
The pending tax bill, as you know, represents only a first step in a comprehensive program of tax reform which this adminstration is undertaking. Our
fundamental goal of more rapid economic growth underlies every aspect of that
program.
Growth is the basic consideration behind the President's recent request for
authority—subject to congressional concurrence—to reduce tax rates temporarily by as much as five percentage points in the early stages of a recession.
For recessions, with their utter waste of manpower and resources, constitute
the greatest of all setbacks to economic growth. We hope to increase our ability
to mitigate these periodic slumps through the use of a flexible tax policy which
will add to consumer purchasing power—and thus to overall economic activity—
during times when that is most essential.
Growth is also a primary objective of our overall tax reform bill, which will
be presented to the Congress later this year.
Our present tax system does not make the maximum possible contribution
to our goal of economic vitality. For example, it makes investment in some
kinds of business activity, such as speculative real estate transactions, more
attractive than investment in other forms of business enterprise that contribute
more to a growing economy.
Not the least of the economically undesirable consequences of our present
tax law is the fact that it diverts highly skilled talent from the making of
fruitful business decisions to the pursuit of the legal avoidance of tax liabilities.
I need not spell that out for this particular audience.
Simplifying our tax structure, and making it more equitable, is essential if .
our nation is to achieve its economic potential. The job must be done even
though there is little prospect, for the immediate future, of our being able to
afford a truly significant reduction in the total amount of our tax bill.
That amount is not, in fact, as burdensome as has sometimes been claimed.
Our Federal taxes are much less, as a proportion of total national income, than
they have been at various times in the past. And our combined Federal, State,
and local tax load is smaller, proportionate to either national incorne or gross
national product, than the taxes borne by the citizens and businesses of six of
our major allies, five of which have steadily maintained a rate of economic progress considerably in excess of our own.
Those who reject our concept of tax reform to be achieved largely through
a broadening of the tax base and urge instead massive reductions in tax rates,
without any provision for compensating revenue—are simply refusing to recognize that such a course would leave us no alternative but withdrawal from our
world commitments and neglect of our pressing needs at home—a course that
would be entirely unacceptable..
Tax rates can be cut. That is what our overall tax reform program will be
all about. Our aim is to reduce tax rates for all by eliminating the special tax
privileges of some—while at the same time maintaining the revenues needed to
fulfill our national commitments.
The tax burden imposed by our urgent needs at home and by our inescapable
leadership of the free world is a heavy one. But it can be borne.
The price of freedom may be high—but the day our citizens think it is too
high wiir be the day when freedom has no future.
I do not think that day will ever come.

EXHIBITS

309

EXHIBIT 20.—Statement by Secretary of the Treasury Dillon, April 2, 1962,
before the Senate Committee on Finance on H.R. 10650, the Revenue Act
of 1962
During my appearance before you this morning, I hope that I shall be able
to convey my strong personal feeling of urgency concerning the need for favorable
action on the balanced tax revision bill so painstakingly constructed by the House
Ways and Means Committee.
H.R. 10650—entitled the Revenue Act of 1962—was passed by the House
of Representatives last Thursday. This forward-looking measure was developed
on the basis of the tax recommendations contained in the President's message
to the Congress of April 20, 1961.
The President pointed out in his message that although the basic framework
of our tax system is generally acceptable, constructive reforms are essential to
ensure that it serves our changing domestic and international economic goals and
that it continues to meet the requirements of tax fairness in a changing economy.
The bill before you incorporates most of the President's recommendations,
although some of them in modified form. The House Ways and Means Committee merits high commendation for its thoughtful and truly prodigious efforts
over the past eleven months. Those efforts have produced a bill that moves
the tax structure a considerable distance in the directions sought by the President
and at the same time provides a modest revenue gain.
I appreciate being able to discuss with you the features of the bill which I
consider satisfactory as well as our recommendations for improvements. I
will not follow the order in which these features are taken up in the bill. The
sequence used in the bill does not group related subjects together but rather
takes up sections in accordance with the order in which they will appear in the
Internal Revenue Code. Thus, I will depart from this sequence in order to
treat related items in close conjunction with one another.
Tax credit for investment in certain depreciable property (section 2)
The central element in the bill is the tax credit for investment in depreciable
machinery and equipment. The bill provides in general for the deduction from
taxes otherwise due of 7 percent of the cost of new machinery and equipment.
A similar result could have been achieved by a 14 percent investnient allowance,
under which 14 percent of the investment would be deductible in computing
taxable income. This method of investment stimulation is presently in use in
the United Kingdom, Belgium, and Canada, and is in the process of being enacted
by the Australian Parliament. The Netherlands makes use of an investment
credit similar to that in the House bill. Both of these approaches are tried and
proven. We have preferred the 7 percent tax credit to the 14 percent investment
allowance because it gives full credit to small businesses subject to the 30 percent
corporate tax rate and to those unincorporated businesses whose tax rate is less
than 52 percent. With an investment allowance a small business would receive
only 30 percent of the benefit compared to 52 percent for larger companies. With
a tax credit the full benefit flows to small businesses. The credit will apply
to investment in eligible assets acquired after December 31, 1961. It will stimulate investment in modernization and expansion of our industrial capacity,
strengthen our whole economy, contribute to economic growth and substantially
increase the competitiveness of American products in markets at home and
abroad.
American industry must compete in a world of diminishing trade barriers,
in which the advantages of a vast market, so long enjoyed here in the United
States, are now being or are about to be realized by many of our foreign com-

310

1962 REPORT OF THE SECKETARY OF THE TREASURY

petitors. Our balance-of-payments position, as well as our standard of living
in the long run, can be improved or even maintained only if we can increase
our efficiency and productivity at a rate at least equal to that of other leading
industrialized nations. These nations have now largely achieved the conditions
needed to attract massive investment ih productive facilities, including external
currency convertibility, price stability, and political stability, and they are
providing effective tax incentives designed to accelerate investment and growth.
We cannot, therefore, afford to stand by and do nothing, or put off. affirmative
action to a later day. We need to increase our investment in machinery and
equipment now—delay can only place greater strains on our international payments position and put off the achievement of the rate of growth we must achieve
if we are to meet our domestic and international commitments and provide jobs
for our ever-increasing labor force.
Machinery and equipment expenditures—the type of business capital expenditure which is basic to the creation of new products and which also makes the
most direct contribution to cost-cutting, productivity, and efficiency—constitute
a smaller percentage of the gross national product in the United States than in
any major industrial nation of the world. In recent years we have devoted
less than 6 percent of our GNP (less than 5 percent in 1961) to this type of vital
capital outlay, only half the proportion devoted to this purpose by West Germany,
only three-fourths that of the United Kingdom, and about 60 percent as much
as the combined average of the European members of the Organization for Economic Cooperation and Development (OECD). Even more significant is the
fact that in the tJnited S.tates this percentage has recently been declining steadily,
whereas it has been increasing in these other nations.
Recent studies indicate a close correlation between the ratio of investment
in productive equipment to GNP and the rate of economic growth. In view of
the relatively small proportion of GNP that has been allocated to investment
in machinery and equipment in the United States, it is not surprising to find
that the average annual rate of growth (in constant prices) experienced in the
United States in the decade of the fifties was only 3 percent, compared with
more than 7 percent for West Germany, and with a range of 4 to 6 percent for
most other industrial countries of Western Europe. In order to minimize unemployment, to satisfy the desire of our people for rising standards of living,
to meet our defense and other domestic and international obligations, and to
demonstrate the vitality of our free economy, we must achieve a higher rate of
growth. This we cannot do unless we achieve a more satisfactory rate of capital
formation.
We cannot hope to achieve the increased rate of capital formation necessary
to more rapid economic growth and full employment unless we bring our tax
treatment of capital investment into line with the standards which our European
competitors have used so successfully over the past decade. To attain this result
the administration is pursuing a two-pronged course in the area of depreciation.
One step involves administrative action to modernize depreciation guidelines in
keeping with the statutory provision of a "reasonable allowance" for depreciation,
including obsolescence. In addition to more realistic recognition of obsolescence
and technological trends, the Treasury aims to achieve a simpler, more flexible
system of depreciation.
The revised depreciation guidelines, to be announced in late spring of this year,
will constitute the first really major change in the administration of depreciation
since the early 1930's. The establishment of a modern depreciation system which
takes account of the current faster tempo of obsolescence will help to stimulate
investment in this country. But, I must emphasize, the shortening of depreciable
lives to a fully realistic basis will not bring American industry abreast of its
foreign competitors. For all of the other major industrialized nations of the free
world provide for either the use of unrealistically short lives for depreciation
purposes, a practice which distorts income and cost statements, or for special
initial allowances or investment allowances which supplement regular depreciation
charges, or for a combination of two or more of these incentives.
The impact of depreciation plus initial and investment allowances on the
amounts that.may be deducted in the year in which a new asset is acquired in

EXHIBITS

311

Canada, J a p a n , and t h e seven leading industrial nations of Western Europe is
shown in Table I. Here it m a y be seen t h a t t h e percentage of t h e cost of an asset
t h a t m a y be deducted in t h e first year ranges from 20 percent in West Germany
to 43.4 percent in J a p a n compared with as low as 10.5 percent in t h e United
States. For t h e first 5 years of t h e life of t h e asset, t h e releyant proportion falls
within t h e range of 62-70 percent for West Germany, J a p a n , and t h e United
Kingdom, between 70 and 80 percent for C a n a d a and France, and 85 to as much
as 100 percent for Belgium, Italy, t h e Netherlands, and Sweden. I n sharp contrast, t h e applicable percentage in t h e United States is 42.7 under t h e present
average Bulletin F life and 51.1 percent for t h e most commonly used 15-year life.
T h e d a t a presented in t h e table demonstrate clearly t h a t even a drastic downward revision of depreciable lives beyond anything t h a t .can be justified b}^ realistic
asset lives would still not bring capital allowances in t h e United States to a level
comparable with t h a t permitted by our foreign competitors. Should our overall administrative revision of depreciation bring about reductions in guideline
lives as large as those which were found appropriate for t h e textile industry, not
more t h a n a q u a r t e r of t h e current gap between depreciation practices here and
abroad will be closed. Administrative modernization of depreciation simply cannot do t h e job. T h e reason is simple. Realistic depreciation cannot be expected
to produce depreciation chargeoffs equal to t h e special incentive provisions in
general use abroad. Nor can it provide t h e additional incentive which t h e experience of other industrialized countries has demonstrated is needed to broaden
a n d deepen t h e flow of investment into new, more efficient equipment. T h e
combination of both t h e forthcoming modernization of depreciation guidelines.
and a special incentive such as t h e investment credit contained in t h e bill before
you is required if U.S. business firms are to be placed on substantially equal
footing with their foreign competitors in this respect. I t is essential to our competitive position in m a r k e t s both here at home a n d abroad t h a t American indust r y be p u t on t h e same basis as foreign industry. Unless this is done increased
imports and decreased exports will unnecessarily add to t h e burden of our balanceof-payments deficit.
T h e investment credit will stimulate investment in a number of ways. Because
it reduces t h e net cost of acquiring depreciable assets it increases t h e r a t e of
profitability. Thus, for example, a 10-year asset t h a t is expected to yield a r a t e
of r e t u r n after taxes of 5.0 percent under straight-line or 5.6 percent under doubledeclining balance depreciation will, with an 8 percent investment credit, yield
a r e t u r n of 7.9 percent per year. This represents an increase in profitability
of more t h a n 40 percent (for a 7 percent credit t h e 7.9 and 40 percent become 7.J6
and 35 percent). An increase of this magnitude will provide a major stimulus
to business firms to replace older, less efficient machinery and equipment a n d ,
in t h e process, incorporate t h e most recent technological developments into productive facilities. Detailed explanations of t h e procedures involved in computing
profitability and t h e costs of t h e various incentive measures t h a t have been suggested a t one time or another are contained in Exhibit I. ^
I n v e s t m e n t decisions are influenced as well by t h e availability of funds. Since
t h e credit will increase t h e flow of cash available for investment, it will stimulate
investment through this effect as well as through its effect on profitability.
The
increased cash flow will be particularly i m p o r t a n t for new and smaller firms,
which do not have ready access to t h e capital markets and whose growth is often
restrained b y a lack of capital funds.
Still another way in which t h e credit m a y be expected to stimulate investment
is t h r o u g h a reduction in t h e pay-off period for investment in a particular asset,
which is one measure of t h e risk associated with any investment. This reduction
in risk, coupled with t h e higher r a t e of profitability and increased cash flow, will
shift t h e margin at which positive decisions to invest are made and will help to
restore to past levels t h e proportion of our annual o u t p u t t h a t is devoted, through
investment in machinery a n d equipnient, to building t h e strength, vitality, and
competitive force of t h e American economy.
Another interesting comparison m a y be made, one t h a t should intrigue those
who favor a low interest r a t e as a primary investment stimulus.
1 Omitted from this exhibit; for document reference see note at end of this statement.

312

1962 REPORT OF THE SECRETARY OF THE TREASURY

TABLE I.—Comparison of depreciation deductions, initial and investment allowances ^
for industrial eguipment in leading industrial countries wiih similar deductions
and allowances in the United States
Representative tax lives
(years)

Depreciation deductions, initial and
investment aUowances
First year

First 2 years First 5 years

(Percentage of cost of asset)
Belgium
Canada
France
West Germany..
ItalyJapan
Netherlands
SwedenUnited Kingdom
United States:
Without investment credit and lives equal to
current Bulletin F weighted average of
19 years
With hves of:
15 years
_
14 years
^
13 years
'
12 years
_
_
11 years
10 years
With investment credit and hves equal to
current BuUetin F weighted average of
19 years 2
_._
With hves of:
15 years.
14 years13 years12 years.
11 years10 years-

22.5
30.0
25.0
20.0
25.0
43.4
26.2
30.0
39.0

45.0
44.0
43.8
36.0
50.0
51.0
49.6
51.0
46.3

92.5
71.4
76.3
67.2
100.0
68.2
85.6
100.0
64.0

10.5

19.9

42.7

13.3
14.3
15.4
16.7
18.2
20.0

24.9
26.5
28.4
30.6
33.1
36.0

51.1
53.7
56.6
59.8
63.0
67.2

(24.5) 26.5

(33.9) 35.9

(56.7) 58.7

(27.3)
(28.3)
(29.4)
(30.7)
(32.2)
(34.0)

(38.9)
(40.5)
(42.4)
(44.6)
(47.1)
(50.0)

(65.1)
(67.7)
(70.6)
(73.8)
(77.0)
(81.2)

29.3
30.3
31.4
32.7
34.2
36.0

40.9
42.5
44.4
46.6
49.1
52.0

67.1
69.7
72.6
75.8
79.0
83.2

1 The deductions and allowances for each of the foreign countries have been computed on the assumption
that the investment qualifies fully for any special allowances or deductions permitted. The deductions in
the United States have been determined under the double-dechning balance depreciation method, without
regard to the hmited first-year allowances for small business.
2 For purposes of this table, the 8 percent investment credit has been considered as equivalent to a 16
percent investment allowance. For corporations subject only to the 30 percent normal tax it is equivalent
to an investment aUowance of 27 percent. The figures in parentheses indicate the eflect of a 7 percent credit,
equivalent to an investment allowance of 14 percent (23 percent for corporations subject only to the normal
•tax).

An 8 percent investment credit reduces the gross financing costs of a 10-year
asset as much as would a reduction of the interest rate from 5 percent to 3J^
percent; for a 15-year asset from 5 percent to 3% percent. But the credit does
not entail the balance of payments and other difficulties that would accompany a
concerted effort to bring long-term interest rates down by such a large extent.
Some critics of the investment credit have suggested that we should approach
the problem of increasing investment through tax changes by giving first priority
to measures designed, to add to consumer demand. An increase in consumer
demand will of course induce additional investment, but this is not the only way
in which the level of investment may be raised and it would be wrong to place our
entire reliance on this approach. This is because investment induced by consumer
demand suggests primarily expansion using existing kinds of equipment and techniques, rather than more efficient and larger quantities of capital per worker and,
therefore, greater productivity. We cannot be content merely with the level of
capital formation that will result from response to increased consumer demand.
We must have both more capital equipment per unit of output and increased
demand for that output. Thus a higher rate of growth requires a more rapid
accumulation of productive facilities than would be forthcoming if investment
were induced solely by an increase in final demand. The American economy now
is much in need of modernization of its capital equipment which, in the technological environment of the 1960's, requires an increase in the ratio of capital to
output. One of the important means of achieving a higher rate of economic

EXHIBITS

313

growth lies precisely in increasing this ratio, and a direct approach to investment
incentives is needed to accomplish this. We must increase the overall attractiveness of investment at any given volume of consumer demand in order that our
productivity and growth may be maximized.
With this objective in mind, the credit should be viewed primarily as a means
of encouraging the modernization of industrial, mining, agricultural, and other
equipment, increasing the productivity of the American economy by adding to
the quantity and quality of capital available per worker, and increasing the relative attractiveness of investment at home compared with investment abroad.
Those who are properly concerned about the existing gap between current and
full employment output urge that this gap should be filled by expansion of consumer demand. But the increase in overall demand required to bring the economy closer to full employment need not consist solely of an increase in consumer
demand. Increased investment adds equally to aggregate demand, and in the
transition to full employment the rising aggregate demand due to increased
investment will, by transmitting itself through the economy, add substantially
to consumer demand. Moreover, in this transition period the total increase in
demand, generated by increased investment but including additional outlays on
consumer goods and services, will far exceed any overall increase in capacity.
Thus the credit will contribute significantly to our objective of achieving a higher
level of employment. It should be clearly noted that the increased productive
capacity resulting from a more rapid rate of capital formation will also in the long
run make possible far higher levels of consumption.
Another objection to the investment credit stems from concern about our abilit}^
to maintain full utilization of the increased productive capacity after it has been
acquired. I believe that this concern reflects a viewpoint that is far too pessimistic. The underlying forces of expansion in our economy are strong and will be
strengthened further by the enactment of the investment credit. The substantial
anticipated increase in the labor force in the years ahead provides a challenge and
an opportunity, if the necessary tools of production are forthcoming, for a more
rapid rate of economic growth than we have experienced in recent history. I am
confident that this administration will take such steps as are needed to maintain
the required level of total demand. The economic effects of the investment credit
will make its task easier. It is in the context of this approach to public policy that
the merits of the investment credit must be appraised.
Another criticism which was heard frequently last year was based on a misunderstanding. This was the thought that the credit is a temporary remedy for
recession or that it would be somehow offset by more restrictive administration of
depreciation. The arguments I have made for the credit clearly reveal that such
legislation must be a permanent part of our tax code if we are to meet foreign
competition, and our administrative action in the textile field is a harbinger of
what is being prepared for other fields—more liberal rather than more restrictive
administrative action.
Finally there has been the criticism that holds that the credit is a form of
subsidy which other incentive measures are not and that it will not be sufficiently
effective as a means of increasing investment. Those who hold this view, including the National Association of Manufacturers, usually favor the acceleration
of depreciation beyond what is justified on the basis of realistic accounting. Careful study and consideration of a wide variety of alternatives to the investment
credit show, however, that all of these alternatives, without exception, share the
same characteristic of giving the investor in equipment a monetary reward beyond
what he would receive on the basis of realistic accounting. The element of subsidy or incentive is equally present in all of them. We have chosen the credit
primarily because it increases the profitability of investment far more per dollar
of revenue cost than any of the other alternatives. For example, the first 5 years'
revenue cost of a 20 percent initial allowance would exceed that of an 8 percent
investment credit by about $1 billion, but the allowance would increase the profitability of investment in a 10-year asset by less than 10 percent, compared with
more than 40 percent for the investment credit. Even a 40 percent initial allowance, the cost of which over the next 5 years would be more than twice as great as
the cost of the eredit, would have an appreciably smaller effect on profitability
for assets with expected useful lives of up to 20 years.
Similar conclusions emerge from our analysis of such incentives as triple-declining balance depreciation and across-the-board percentage increases in depreciation allowances. In addition all of these alternatives which go beyond realistic

314

196 2 REPORT OF THE SECRETARY OF THE TREASURY

depreciation suffer from a number of important disadvantages which are not
associated with the investment credit. Unrealistically high depreciation charges
tend to distort income accounting and produce higher costs for tax and, in the
case of a great number of firms, book purposes. Such higher costs may frequently
be reflected in higher prices. Since they also cost the Government more and
provide a lesser stimulus to investment, it seems clear that the investment credit
is the best way in which to supply the additional incentive that is so badly needed.
In general, the House bill carries out the President's recommendation on the
investment credit in aTi acceptable manner. As you know, however, the general
rate of the investment credit was reduced in the final stage of House consideration
of the bill from 8 percent to 7 percent in order to achieve an overall revenue
balance in the bill. At the same time the House reduced the limit on the credit
allowable against tax liability in any taxable year from the first $100,000 plus 50
percent of the excess to $25,000 plus 25 percent. Although a 7 percent credit
would provide a substantial stimulus to investment, the 8 percent figure was
originally chosen because it produced the maximum stimulus consistent with our
revenue needs. I therefore urge the committee to restore the credit to the original level as reported by the Ways and Means Committee. It would also be
helpful if the committee would restore the limitation over $25,000 to the 50
percent figure originally adopted by the Ways and Means Committee. These
two changes can be accomplished at a gross cost of $375 million, which would be
more than offset by other changes which I shall suggest. In order to reduce the
revenue cost of the credit for fiscal year 1963 I recommend that the 25 percent
limit be retained for the current year. This would hold the gross increase in cost
for fiscal year 1963 to $135 million, which would be more than offset by other
reductions in the cost of the credit which I shall suggest.
Under the House bill the credit can be taken on up to $50,000 a year in used
equipment which otherwise meets the tests of eligibility. This feature is intended
to aid small businesses, which frequently purchase used equipment. It should
help those smaller firms with limited capital resources which seek to upgrade their
equipment by replacing wholly obsolete assets with used but more recent models.
At the same time adequate safeguards are provided to ensure against abuses that
might otherwise arise as a consequence of fictitious trading in used assets.
H.R. 10650 provides a partial credit of 3 percent with respect to otherwise
qualified outlays by regulated public utilities such as electric power, gas, and.
telephone companies. The full credit is allowed transportation companies which
do not enjoy the monopoly privileges of the other utilities, and whose rates are
not regulated in a manner designed to permit a specific rate of return for each
company. The full credit is also allowed to gas pipelines.
The President's original proposal recommended that the credit not apply to
regulated public utility corporations. This recommendation was made with full
recognition of the great contribution the utilities make to the American economy.
It was based on the fact that public utilities are regulated monopolies with substantial assurance of a given rate of return on investment after tax. Moreover,
investment in public utility facilities is based largely on demand, governed by
public requirements.
After evaluating serious conflicting considerations, the Wa3^s and Means Committee and the House adopted a compromise position, granting a 3 percent rather
than a 7 percent credit to eligible investments of the utilities. While we recognize
that industrial power costs are an important element in manufacturing costs, we
have not been able to separate this element of the utility business from the regulated fields of commercial and household consumption. For this reason and for
the reasons more fully set out in Exhibit I^, the Treasury considers that on balance
the issue would be better resolved through the exclusion of the regulated utilities
in the electric, gas, and communications fields. The Federal Power Commission
has informed us that the gas pipelines share the basic characteristics of these regulated utilities and would be treated for ratemaking purposes in the same manner.
For this reason gas pipelines should be grouped with other regulated public utilities
and be excluded from qualification for the credit. The revenue gain from exclusion of these utilities from the credit in the House bill would amount to more
than $250 million. With the changes I have suggested the annual gross cost of
the investment credit when fully operable will be $1,350 million, based on level of
investment anticipated for 1962.
• Omitted from this exhibit; for docuraent reference see note at end of this statement.

EXHIBITS

315

I should like t o m a k e a few concluding comments on t h e investment credit proposal before passing on to other aspects of t h e bill. Throughout our economy,
there will be thousands of investment decisions involving billions of dollars during
t h e remainder of this year and in succeeding years which m a y hinge on t h e outcome of this legislation. There is often a t h i n line between a yes and'no decision
in t h e investment area. W i t h t h e credit we will have affirmative actions where
there would otherwise be none.
This m a t t e r has top priority in t h e agenda for tax reform. As chief financial
officer of t h e Nation, I do not lightly regard tax abatements on the scale proposed
here. I urge this legislation because it will m a k e a real addition to growth consistent with t h e principles of a free economy.; because it will provide substantial
help in alleviating our balance-of-payments problem, both by substantially increasing t h e relative attractiveness of domestic as compared with foreign investm e n t and by helping to improve the competitive position of American industry in
markets at home and abroad; and because, far from adding to t h e forces responsible
for alternating recessions and recoveries, it will be of major assistance in strengthening our present recovery and enabling us to attain a higher rate of growth and
sustained full employment. Early action will resolve uncertainty or hesitancy
a n d begin a t once a strong and lasting incentive for modernization of the productive
facilities of our national economy.
T h e rest of t h e bill and our further recommendations will bring substantial
improvements in tax equity a n d will more t h a n offset t h e gross cost of an 8 percent
investment credit.
G a i n s from the disposition of depreciable property (section 14)
T h e President recommended t h a t capital gain t r e a t m e n t be withdrawn from
gains on t h e disposition of depreciable property, both real and personal, t o t h e
extent of prior depreciation allowances. Such gain reflects depreciation allowances in excess of the actual decline in value of the asset and under the President's proposal would be t r e a t e d as ordinary income. Any gain in excess Of t h e
cost of t h e asset would still 'be treated as capital gain. This reform would eliminate an unfair tax a d v a n t a g e which t h e law today gives to those who depreciate
property a t a r a t e in excess of t h e actual decline in m a r k e t value and then proceed
•to sell t h e property, thus, in effect, converting ordinary income into a capital gain.
I t is particularly essential at this time in view of t h e impending administrative
revision of depreciation guidelines.
Under H . R. 10650 gain on t h e disposition of depreciable personal property,
and certain other property which is eligible for t h e investment credit, will be
t r e a t e d as ordinary income t o t h e extent of depreciation t a k e n for taxable years
beginning after December 31, 1961.
However, t h e House failed t o act on t h e President's proposal as it applies ta
real estate, largely because of difficulties in reaching a consensus on t h e appropriate remedy. There nevertheless appears to be recognition t h a t excessive depreciation in the real estate area is a serious problem and t h a t some action is required.
I t is m y view t h a t it would be unwise t o delay action. I therefore renew t h e
recommendation for legislation at this time. Specifically I recommend t h a t depreciation, with respect to all real property hereafter acquired, be limited to an
a m o u n t not in excess of t h e depreciation allowed under t h e straight-line method.
Under present rules depreciation at accelerated rates applies not only to t h e taxpayer's investment, b u t also to t h e a m o u n t of mortgage indebtedness to which
t h e property is subject. Since t h e acquisition of real property is usually heavily
financed by mortgage indebtedness, accelerated depreciation often provides deductions far in excess of t h e income from t h e property. I n such cases the investor
is able, because of t h e depreciation deduction, to amortize t h e principal Of the
mortgage, to obtain a nontaxable cash return of 10 to 12 percent or more on his
equity investment, and even to wipe out tax on other income at top bracket rates.
When t h e depreciation deductions 'cease to produce such spectacular results, t h e
property is frequently sold. T h u s t h e excess depreciation, having been" charged
against income taxable at ordinary rates, is recouped and taxed only as capita!
•gains. Concrete examples of this process are 'contained in Exhibit VI.^
F u r t h e r m o r e , accelerated depreciation applied to real estate is not an appropriate measure of decline in value. Real estate, unlike personal property, does
not generally suffer unusually heavy depreciation in t h e early years of its life.
1 Omitted from this exhibit; for document reference see note at end of this statement.

316

1962 REPORT OF THE SECRETARY OF THE TREASURY

In addition, gain on the sale of all real property should be treated as ordinary
income to the extent of depreciation for taxable years beginning after December
31, 1961. To meet the assertion of real estate investors that such ordinary income
treatment would operate peculiarly in the real estate area to lock them into their
investments after a long period of time, such treatment could be subject to a sliding scale cutoff as follows: In the case of real estate held for 6 years or less at time
of disposition, gain would be ordinary income to the extent of 100 percent of depreciation for taxable years beginning after December 31, 1961; in the case of real
estate held for more than 6 years prior to disposition, the percentage of such depreciation which would be treated as ordinary income would be reduced by one
percentage point for each month the property has. been held in addition to 6 years.
A sliding scale cutoff, starting as early as 6 years after acquisition, is appropriate
only if depreciation of real estate is limited to the straight-line method. Even with
straight-line depreciation, taxation of gain on the sale of depreciable real estate at
ordinary income rates to the extent of prior depreciation is necessary for at least
the period provided in the sliding scale cutoff. This will relieve the pressure on
depreciable lives that would otherwise obtain and will permit more flexibility to
the taxpayer. It will therefore limit disputes in the determination of tax lives,
salvage values, and expenditures allowable as repair deductions for depreciable
real estate.
The House bill also should be amended to provide for the treatment as ordinary
income of gain on the sale of depreciable property to the extent of prior deductions
for amortization of interests in depreciable property, in order to prevent avoidance
of this section by the use of leaseholds of depreciable property.
The revenue gain to be realized from the enactment of the House bill's provision for taxation of gain on the sale of depreciable property is $100 million. Adding the features I have recommended with respect to real property will add a
further $80 million to our tax receipts.
Expense accounts (section 4)
One of the most publicized and troublesome areas in our tax system today is the
deductible expense account. The problem is not simply one of the tax avoidance
that arises through abuse of existing rules, such as disguising as business expense
the entertainment and recreational activities of members of the family or the gross
overestimating of expenditures on business entertainment. The requirement in
the House bill that entertainment, traveling, and gift expenses be properly substantiated represents an effective step forward in controlling this abuse. But even
where business associates are involved and proper records are kept, present law
allows members of a select group to charge a large portion of their recreational and
personal living expenses to the Federal Government.
Tighter enforcement of present law is not the answer to the problem. Under
present law the use of a yacht to entertain acquaintances ostensibly to seek
potential business, or wining and dining acquaintances in night clubs and at
cocktail parties for similar purposes, can be charged against income otherwise
taxable. This confers substantial tax-free personal benefits upon those offering the
entertainment and the beneficiaries of the entertainment. Personal expenses
disguised as business expenses present difficult enforcement problems. Only clearcut decisive legislation will remedy this ever-worsening situation, with its unfortunate effects on the morale of the general taxpayer and on tax revenues.
Originally in the House and today before this committee, we urge that the cost
of business entertainment, including club dues, and the maintenance of entertainment facilities (such as yachts and hunting lodges) be disallowed in full as a tax
deduction. Restrictions should also be imposed on the amount to be deducted as
business gifts, and on travel expenses for vacations that are combined with business
travel. To permit the normal conduct of business affairs, a number of important
exceptions should be provided. Thus, deductions should not be denied for the
cost of meals in surroundings conducive to business discussions, employee recreational programs, entertainment extended to • the public in general, and similar
items, as set forth in the House bill.
As it relates to entertainment and facilities, H.R. 10650 is designed to require a
closer connection between the entertainment and the carrying on of business
activities. While this will enable the Internal Revenue Service to disallow the
cost of entertaining which is not directly related to the actual conduct of business,
the House provision obviously draws only a vaguely defined line. It seems certain
that considerable controversy and litigation will ensue. Moreover, the House
approach does not fully solve the basic problem. It still permits the deduction.

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for a relatively small and select group, of expenditures which, unlike other business
expenses, confer substantial personal benefits upon their recipients.
As regards gifts, the House provision denying deductions for business gifts
having a value of more than $25 would effectively curb present abuses.
The bill before you will also effect an improvement in the area of travel expenses
if, as we assume, the standard of ''reasonableness" inserted in the statutory
provisions dealing with the deduction of traveling expenses, is intended to curtail
lavish and extravagant expenditures. However, the bill fails to provide for any
allocation of traveling expenses when a trip is devoted partly to business and partly
to vacation; deduction of the total expenses of such travel is a serious abuse
problem today and a reasonable allocation provision is needed.
In its present form, the expense account features of H.R. 10650 will add $125
million per year to tax receipts. Adoption of the provisions we are now recommending will increase this figure to $250 million.
Withholding of income tax at source on interest and dividends (section 19)
An obvious defect in our tax system lies in the failure of some individuals to
report dividend and interest income on their tax returns. Most dividend and
interest recipients are responsible taxpayers who faithfully report each year about
$15 billion of such income. There is, however, about $3 billion of interest and
dividends received by taxable individuals which is not reported. That shortage
results in a revenue loss of more than $800 million annually, which must be made
up by the general taxpayer.
This nonreporting of dividends and interest is a chronic problem which must be
dealt with effectively. Billions of dollars in Government revenues have been lost
over the years and the substantial, continuing avoidance of tax in this area has
a demoralizing effect.
The Government has not let this problem go unchallenged. Strong efforts have
been made, with the full support and cooperation of the financial community, to
improve voluntary compliance through educational drives. The Internal Revenue Service has enlarged its audit enforcement and educational activities in this
area. But the overall results have been disappointing.
It has been suggested that in the future, with automatic data processing,
additional information reporting by interest and dividend payers, and more
audit enforcement effort, the nonreporting gap might be closed. This approach
has been carefully studied by our tax administrators. But the failure to report
dividends and interest is a mass compliance problem involving millions of transactions and ADP, although helpful in the sorting of information documents
filed by payers, will not, in itself, collect any tax. To collect taxes by this procedure would require an inordinate amount of time, manpower, and,money in
audit-followup and collection procedures, as well as the use of at least 250 million
information returns. Moreover, at best, the Government could be expected
to recover only a small portion of the unpaid taxes which, though large in total,
represent an aggregation of a large number of rather small sums.
The Commissioner of Internal Revenue has concluded that the ADP-enforcement approach alone, as compared to withholding, ''would be burdensome and
expensive to business and Government out of all proportion to the effect it would
have on the reporting gap." He estimates that, even with a substantially enlarged enforcement and collection effort, based upon greatly expanded reporting
by payers of interest, this approach would only reduce the nonreporting gap by
about 25 percent as compared to 80 percent for withholding. At the same time,
withholding will cost the Service about one-third less, $19 million, as compared
with $27 milhon.
The Commissioner regards withholding as "the most workable, businesslike approach" for closing the gap, by assuring the automatic collection of tax at
the first tax bracket rate. ADP, as a system complementary to withholding,
can be efficiently and effectively applied to assist in achieving tax compliance in
the higher income brackets.
The President's recommendation for tax withholding does not involve a new
tax on dividend and interest income; it is simply an administrative device to
assure collection of existing tax obligations. We have had tax withholding on
wages and salaries for almost two decades. It is a proven tax collection method—
helpful not only to the Government but also to taxpayers as a gradual and
systematic method of tax payment and collection. Since most dividend and
interest recipients also are, or have been, wage and salary earners, withholding
on dividends and interest would in large part cover taxpayers already familiar

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1962 REPORT OF THE SECRETARY OF THE TREASURY

with withholding operations. The House bill provides for exemptions from
withholding for most interest and dividends receivable by all children under
18 and for adults who do not expect to owe any tax. It also provides for prompt
quarterly refunds in all cases involving ovei-withholding.
The mechanics of withholding on dividends and interest will be simple. The
institution pacing the dividends and interest will merely total up the amount of
dividends or interest due to persons who have not filed exemption certificates,
deduct 20 percent of this total amount, and pay the 20 percent over to the
Government at the end of the month following the quarter in which the dividends or interest are paid. It will pay each dividend or interest recipient who
has not filed an exemption certificate 80 percent of the amount of his dividend
or interest. It will not be necessary for payers to furnish information statements
either to the Government or to the recipient of dividends or interest. Persons
who have filed exemption certificates will be paid the full amount of the dividend
or interest.
Dividend and interest withholding is equally simple for the recipient. Since
withholding will always be at a flat 20 percent rate, the recipient can easily determine how much has been withheld. In fact, the recipient does not even have to
know how much has been withheld in order to complete his tax return. The return
will carefully lead him through a simple gross-up procedure whereby he can
determine the amount of his dividends and interest to be included in his income
and the credit he is allowed for the amount of tax withheld.
The mechanics of the Treasury's original withholding proposal, with no provision for exemption certificates, were even simpler. The Ways and Means
Committee after full consideration, however, decided that a system of exemption
certificates for nontaxable individuals is more desirable. Although this will
mean some additional record keeping for. payers, the House felt that the benefits
of an exemption procedure clearly outweigh the additional work involved.
The withholding provisions of H.R. 10650, which would be made effective
on January 1, 1963, meet the President's objective in this area. It is estimated
that the withholding system provided in the bill will recoup $650 million of the
annual revenue loss resulting from the nonreporting of dividends and interest
Provisions involving tax equality among competing businesses
1. Tax treatment of cooperatives and patrons (section 17)

Legislation enacted by the Congress in 1951 was intended to tax cooperative
income on a current basis at the cooperative level if the income was not paid
out or allocated as. patronage dividends, or at the patron level, if it was paid
•out or allocated. As the result of court decisions which held .that certain noncash patronage refunds are nontaxable when received by patrons, even though
the dividends continued to be deductible by the cooperatives, this intent has
not been carried out.
The President recommended that the law be amended to make the intent
of the 1951 legislation effective. Another recommendation would extend the
proposed tax withholding on dividends and interest to patronage dividends.
Withholding on patronage dividends at the 20 percent rate would assure the
average patron of the funds with which to meet his tax on noncash dividends.
The House bill provides an adequate remedy for the unintended exemption
of some cooperative income. Under the bill, cooperatives would be permitted
a deduction for patronage dividends paid in cash and for noncash dividends
paid in the form of written notices of allocation. These written notices of allocation, in the form of noncash or "scrip" dividends, would be deductible by
the cooperative either if the}^ are payable in cash within 90 da3^s at the option
of the patron or if the patron has consented in writing to include them in his income, or if the cooperative has adopted a bylaw requiring all patron members
to pay tax on these written notices of allocation. As under present law, patrons
would not have to pay tax on dividends received with respect to purchases of
items for personal use.
Cooperatives engaged in furnishing electrical energy or providing telephone
service in rural areas would not be subject to these provisions as these cooperatives are exempt from taxation or are in the process of qualifying for exemption.
The enactment of the House bill will ensure that the earnings of cooperatives
will be taxed currently, either to the cooperative or to the patrons. This provision will yield $35 million per year in additional revenue.

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2. Taxation of mutual fire and casualty insurance companies (sectioii 8)

• The House bill, in line with the President's recommendation, is designed to
achieve more equal treatment of stock and mutual fire and casualty insurance
companies. Since 1942 the mutual companies have been taxed only on their
investment income, subject to a minimum tax of one percent on gross income
from all sources. This formula disregards both underwriting gains and underwriting losses. On the other hand, the stock companies are fully taxed on all
of their income, in the same manner as other corporations.
Under H.R. 10650 mutual fire and casualty companies, after generous provision for reserves for losses in a deferred income account, would be subject
to tax at ordinary corporate rates on net underwriting and investment income.
Amounts equal to one percent of claims paid plus one-quarter of underwriting
gain may be deducted from currently taxable income and credited to a deferred
income account. If the amount set aside in this account in any taxable year
is not used to absorb losses in the following 5 years it will be added to taxable
income in the sixth year, but only to the extent of the one percent of claims paid
and one-half of the one-quarter of underwriting gain that remains. Thus oneeighth of underwriting gains may be permanently deferred from taxation and,
in addition, taxation of a large portion of underwriting gains is deferred for 5
years.
The 5-year deferral provision is continuous in its effect; taxation of each succeeding year's underwriting gain is deferred for 5 years. Thus it is more than a mere
transition to regular corporate taxation. If the growth trend of the mutual
companies continues, each successive year's underwriting gains will exceed the
gains of the fifth preceding year, so that current full taxation will never be
achieved. In addition, permanent deferral of one-eighth of underwriting gains
is a windfall for the most profitable companies; only those companies with consistent underwriting profits will be able to enjoy this permanent deferral and the
larger their profits the greater the value of the benefit.
The House provisions represent an important step towards placing the mutual
fire and casualty insurance companies on a tax basis which recognizes underwriting as well as investment sources of income or loss. But the regular corporate basis of taxation, as orginally recommended by the President, and as now
applied to the stock companies would provide simpler and more equitable treatment. In eft'ect, this recommendation would eliminate both the 5-3^ear and
permanent deferral provisions of the House bill. Consideration might be given
to providing a gradual transition to regular corporate taxation over a 5-year period.
This would be preferable to the continuing and permanent deferral provisions
of the House bill.
Full corporate taxation would yield about $50 million of additional revenue
annually. The provisions in the. House bill will yield about $40 million after
the lapse of 5 years.
3. Mutual savings banks and savings and loan associations

Under present law, mutual savings banks and savings and loan associations
can deduct from- their income amounts added to a reserve for bad debts until
reserves, surplus, and undivided profits equal 12 percent of deposits or withdrawable accounts. As a result, during the entire decade, 1952-1961, all mutual
savings banks and savings and loan associations paid total Federal income taxes
of less.than $70 million, while at the same time they retained $5.5 billion as additions to reserves, surplus, and undivided profits. From an economic and accounting point of view a large part of the untaxed additions to bad debt reserves constitutes net income which, were it earned by competing financial institutions,
would be subject to corporate income tax.
H.R. 10650 goes part of the way toward implementing the President's recommendation that the tax laws should assure nondiscriminatory treatment of
competing financial institutions. It refiects the conclusion of the House of
Representatives that mutual thrift institutions do retain a considerable amount
of inconie which should be subject to tax. The bill would substitute for the
present reserve provision an annual deduction for reserves for bad debts of either
3 percent of the net increase in all real estate loans or 60 percent of the retained
income of the institutions.
The 'proposedj|substitute reserve provision is still more generous than is warranted by any Reasonable concept of a bad debt reserve. The alternative deduction of 60 percent of the retained income of these organizations is not related

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to bad debt reserve needs. In effect, it provides that the mutual thrift institutions
will pay tax on about 55 percent of their operating income, computed after deduction of a reasonable reserve for bad debts and after distributions to depositors.
In contrast the estimated comparable percentage for commercial banks is equal
to about 80 percent.
I believe your committee will wish to reexamine this provision of H.R. 10650
in the light of the President's recommendations to assure nondiscriminatory
taxation among competing financial institutions. The action by the House
of Representatives will yield $200 million per year in revenue, contrasted with
$365 million under a proposal that would provide taxation more closely comparable to that applicable to commercial banks. Such comparability could be
achieved by allowing these institutions to deduct from net income after distributions to depositors an amount equal to either 3 percent of net additions to
real estate loans, as in the House bill, or 33% percent of retained income before
deduction of a reserve for bad debts. This alternative would permit tax-free
additions to reserves of amounts well in excess of bad debt reserve needs and
would allow, in effect, substantial tax-free additions to capital. Under these
alternatives the mutual thrift institutions would pay tax on about 80 percent
of their net operating income, and thus this approach would achieve substantial
equality in the taxation of competing financial institutions.
Lobbying expenses (section 3)
Section 3 of the House bill would permit taxpayers engaged in business to
deduct certain lobbying expenditures. These include the cost of appearing
before committees of Federal, State, or local legislative bodies, contacting
individual legislators, transmitting legislative information between a taxpayer
and an organization of which he is a rnember, and the portion of the dues paid
by a member attributable to carrying on of such activities by the organization.
The Treasury is opposed to this substantial change in the law.
The taxation of foreign income and investment
The President's recommendations on the tax treatment of foreign income
and investment all support the general principles of equity and neutrality in
the taxation of U.S. citizens at home and abroad, and as such would promote
fairness and the efficient allocation of resources here and abroad. Moreover, since
the special tax preferences we seek to eliminate tend to favor foreign over home
investment, the President's recommendations have two important additional
advantages for us at the present time. They will promote domestic capital
formation and employment, and thus stimulate economic growth in this country.
They will thereby reinforce the stimulating effect of the investment credit, which
is limited to domestic investment. Implementation of these recommendations
will also contribute to an improved balance-of-payments position for at least the
next 10 to 15 years, when we expect we will most need that improvement. These
considerations lend urgency to the enactment of the recommendations.
H.R. 10650 contains provisions relating to all of the President's recommendations, each of which I will take up in turn. In addition, I will deal with the growing
problem of artificial tax incentives to short-term capital movements. The
bill includes several technical provisions which I will only mention here, such as
those dealing with gains from the liquidation of foreign corporations, distributions
in kind, rules for allocating income on sales between U.S. parent corporations
and their foreign subsidiaries, and reporting requirements

Full text of Annual Report of the Secretary of the Treasury on the State of the Finances : Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1962

FRASER