The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
,rt»a«J
LIBRARY
ROOM 5030
J UN 1 51972
TREASURY DEPARTMENT
LIBRARY
ROOM 5030
JUN 1 51972
TREASURY DEPARTMENT
TREASURY DEPARTMENT
m W r 1 U w » ? ? r * n " * i n ~ r W ) i H T r n i nn
FIIII 111 aiM-iirii.niiiTini^ifiiriMTifW.l'ii-rnriTiTrTTirlrtariii-ininrii rinIII.IIIMI
I.II.M.HI n —
m m
WII.M.II i •iin.iinimm
...
..i . n • n. u
4
A < L ^ I
W A S H I N G T O N , D.C.
May 1, 1961
R RELEASE A. M. NEWSPAPERS, Tuesday, May 2, 1961.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
easury bills, one series to be an additional issue of the bills dated February 2, 196]
d the other series to be dated May k, 196l, which were offered on April 26, were opene
the Federal Reserve Banks on May 1. Tenders were invited for $1,100,000,000, or
ereabouts, of 91-day bills and for 1500,000,000, or thereabouts, of 182-day bills. Tfc
tails of the two series are as follows:
NGE OF ACCEPTED
MPETITIVE BIDS:
High
Low
Average
182-day Treasury bills
maturing November 2, 196l
Approx. Equiv.
Price
Annual Rate
98.800
2.37*$
98.770
2.1*33$
98.778
2.1*17$ 1/
91-day Treasury bills
maturing August 3, 196l
Approx. Equiv.
Price
Annual Rate
"997C2B
99.10-6
99.1*19
~2726H
2.310$
2.300$ 1/
9i* percent of the amount of 91-day bills bid for at the low price was accepted
77 percent of the amount of 182-day bills bid for at the low price was accepted
TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Applied For
$
23,089,000
1,535,259,000
26,830,000
28,199,000
8,177,000
23,1*81*,000
219,893,000
18,751,000
15,328,000
32,91*2,000
13,059,000
11*1,975,000
$2,086,986,000
Accepted
$
11,089,000
722,982,000
1], 822,000
23,199,000
8,177,000
ll*,381^,000
117,853,000
13,751,000
8,810,000
19,753,000
13,059,000
135,765,000
*
•
•
:
i
t
«
«
:
*
*
Applied For
Accepted
$1,776,000
¥ 1,?76,00(T
801,299,000
6,980,000
20,206,000
1,072,000
3,167,000
77,015,000
1*,681,000
5,i55,ooo
i*,967,000
3,1*15,000
s
19,903,000
$1,100,61*14,000 ±/ $9149,636,000
396,319,000
1,980,000
lli,056,000
1,072,000
2,967,000
1*7,785,000
3,681,000
2,969,000
l*,9i*l*,000
3,1*15,000
19,288,000
$500,252,000 b/
Includes $180,037,000 noncompetitive tenders accepted at the average price of
Includes $36,986,000 noncompetitive tenders accepted at the average price of 98.778
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.35$, for the 91-day bills, and 2.1*8$, for the
182-day bills. 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.
» IS «*
to achieve a sustainable equilibrium ia our balance of payments.
We cannot relax, for there will be no let-up in the growing press
of world wide competition.
- 15 fhile it is difficult to make exact estimates, we believe that
elimination of the tax-deferral privilege in industraiized count
and the restriction of tax havens everywhere, will yield some two
hundred and fifty million dollars annually in additional taxes —
aa& a substantial additional amount in balance of payments saving
This represents a significant and much-needed contribution to th
solution of our long*range balance of payments problem.
In conclusionf X should like to say just a few words about
the relationship between our balance of payments and our domesti
economy:
The two largest items by far in our international accounts are
exports and imports.
As our economic activity expands, we normally may expect an
increase in Imports. At the same time, we may experience upward
pressures on domestic prices which would bring with them a decli
in exports. We must resist these pressures. This is essential
if we are to maintain and improve our position in world markets.
Our export prices must continue to be fully competitive if we ar
The tax-deferral privilege, as it is called, has fostered
the use of tax "havens", which permit enterprises to pay v^rj
little tax — or to escape paying taxes altogether — either to
the United State® or to the country in which their business is
principally conducted. This is most clearly demonstrated by the
stampede to Switzerland, where owmr two hundred new American-owne
companies were established during the past year.
» In addition tax deferral inevitably favors Investment abroad
over investment at home. Other things being equal, companies are
naturally inclined to invest where tax rates are lowest. Corporat
income tax rates in some European countries are a bit lower than
the United states — although in Germany, France, and England, the
differential is virtually non-existent. The elimination of tax
deferral will not have a substantial effect on companies operatin
in these countries and it will promote eaiaity by placing investm
at home and abroad on a fully equal footing*
4
• 13 *
present and future net income from abroad.
Indeed, in im®9
we
received two billion four hundred million dollars tmm this source
But we must realise that, ihile the earnings remitted from invest
which we have fcuilt up abroad over the years are substantial, th
still are being offset to a very sizeable extent by yearly outflo
of n®w capital. This is particularly true in the case of the ladu
trslised countries, for instancy new eafital outflow9to Western
Surope and Canada generally exceed the return flow from these sam
areas.
mile it is in our national interest to continue to promote
direct Waited States investment in countries in the earlier stage
of development so that they may benefit from American capital,
technical know-how, and managerial skills, we do not see any reas
why we should continue to provide special Incentives fear United
States investment in the prospering industralized countries. We
believe the time has come to terminate incentives in our tax laws
that enable American companies to defer payment of United States
income tax on the unremitted earnings of their subsidiaries ia
these countries.
5
- 12 The substantial improvement in our balaaee-*e|-paymeats pesitios
during the first quarter has been gratifying. But the long-term
problem has not yet hmn solved. The attainment and maintenance
of reasonable equilibrium in our international payments and recei
must remain a major national objective.
Although the surplus in our exports of goods and services has
recently continued to grow, the growth has been small and the ris
has been due almost entirely to a continued decline in our import
for. exports have remained fairly constant. A substantial part of
our recent improvement has resulted from the simultaneous occurre
of a boom in Europe and a recession here at home — a situation wh
cannot he expected to continue indefinitely.
Although we must spare no effort to strengthen our export
surplus, we cannot overlook other possibilities for strengthening
our position. A major area is capital transactions, including
long-term investments, which ham an important impact on our
international payments.
Our past direct investments have built a strong &**® *or
~ 11 ~
international cooperation so as to moderate the size and violence
of shifts of short-term capital.
the combination of these measures will, we hope, m
to solve our balance of payments problem.
a great detj
As for the immediate out-
look, I am sure you will waat to know how we are doing so far in 1913
iiace only preliminary figures are at haa«l, all that I can tell you
is necessarily tentative. We have had a substantial improvement
in our payments position during the first quarter of 1 M 1 .
export surplus remains high.
restored.
Our
Confidence in the dollar has been
Held stepped flowing out after February and there was a
small Inflow during March. It is probable that our usual "basic"
deficit was replaced hy m modest surplus for the first quarter of
this year.
funds —
But, because of the continuing outflow of short-term
even though at a much lower rate —
we still recorded an
overall loss of gold and dollars for the period. This relatively
modest loss was, however, in sharp contrast to the very large loss
of the previous quarter.
7
- it - The President has requested tax legislation as an investment
incentive to -American business designed to help modernise our pl
and improve our competitive position in expert markets.
- Our military and economic assistance programs are being
administered so as to place primary emphasis upon procurement of
American goods.
- The Congress Is preparing to act on Administration legislatioi
curring down on duty-free tourist allowances in order to reduce t
encouragement to United States travellers to spend their dollars
abroad.
-%Through the promotion of foreign travel to the United States
and of foreign Investment in the United States, we are endeavorin
to increase our receipts on service and capital accounts.
- We are examining the possibilities of strengthening the inter-*
national monetary system.
-itWe are seeking through the drgaaisation for Economic Cooperate
and Development to encourage increased economic development contr
butions by other iadustraiized countries, as well as to improve
8
•> 9 <*
for instance in ItSO, it ts estimated that over two billion
dollars of our two billion eight hundred million dollar total of
foreign economic assistance represented payments for Halted
States goods and services. As a matter of fact, taking merchandis
alone, goods shipped from the United States under our foreign
economic aid programs were equivalent to nearly half of our
merchandise export surplus.
In attacking our basic payments problem, the Administration
is seeking to avoid damage to our national security and to take
actions consistent with our international obligations. President
Kennedy has hmmu moving on many fronts:
- The Ixport-Import Bank is expanding its export credit
guarantee program.
*» ^£ *a
and developing countries is critically necessary to our
own survival as members of the free world. It is
fallacious because most of our foreign economic assistance
is in the form of United States goods and services which
would mot otherwise enter our export picture. These
goods and services are a vital contribution to the developing countries and go to areas which cannot afford to pay
cash for them* They are also an important contribution to
our export surplus, since foreign aid shipments are included in our commercial export statistics.
iU
- 7 How is this basic deficit created? By the simple cireuastaaee
that, even though we have large export surpluses, they have not b
sufficient to meet the expenditures we must make abroad in our
national interest to maintain our military installations, to cond
our feeeign economic assistance programs, and to cover the iavest
of private capital and the transfer of private remittances. In
1960, our export surplus of goods and services counted to almost
billion dollars. But our major non-trade expenditures were over
eight and a half billion dollars: three billion dollars for our
military forces abroad, two billion eight hundred million dollars
for economic assistance, two billion dollars for net long-term Un
States private investment abroad and foreign investment la this
country and finally eight hundred million dollars for remittances
the cry is sometimes raised that we could solve our payments
problem by curtailing our programs of economic aid to needy peopl
in Asia, Africa, and Latin America. This is as unrealistic as It
is fallacious. It is unrealistic because our assistance to tme ne
11
- 6 nevertheless, heavy short-term capital outflows can.and last
/
year did,result in large transfers of gold.
I&ey pose a severe
threat to international financial relationships because they can
bring loss of confidence in their wake. Closer international co-
operation is therefore required to prevent excessive differentials
In interest rates and other conditions which may stimulate such ou
flows. Hence, we are now regularly consulting with friendly finan-
cial and central bank officials in order to achieve the needed coordination. We hope to continue and improve these consultations
through the new Organization for Economic Cooperation and develop
and tn other appropriate ways.
Mow, as to our Mbasic" deficits
If estimated short-term capital movements are excluded from the
international accounts of the CJnited States, we find that our bas
deficit in 1960 was not three billion eight hundred million, but
nearer one billion five hundred million dollars. It is this defici
which is the persisting hard core oi our balance of payments probl
12
- 9*
the Twenties. These movements initially resulted from diiierencea
between the short-term interest rates them prevailing in the Unite
States and those then prevailing in other financial centers, i-ast
tali,speculative transactions also added to the outflow. But these
movements did not reflect persisting forces in our balance of paym
To put it simply, when an American transfers his saoaey from
New York to invest at short-term in London or Frankfort, he purchases sterling or ^eutsch marks with dollars — thus increasing
the United States "deficit" km the conventional sense. However, he
also acquires a short-term claim in the same amount against sterli
or ^e«tf^»Lr^ — a claim that can be quickly reconverted to
dollars whenever he decides to shift his funds back home. Conse-
quently, to include such short-term capital outflows in our defici
is to record liabilities without recording equivalent assets^*
Ibis has the effect of making the payments position of recipient
countries appear stronger than they really are, and of making our
position appear weaker than it really is.
*3
- 4 mot signify a basic shift in our payments position.
In 1999.we returned aaaia to a deficit.-^ but this time/a very
large scale; a deficit of three billion five hundred million do Ha
almost triple the 1951-56 average. The following year, our deficit
rose to three billion eight hundred million dollars. And last year
it once again reached three billion eight hundred million.
In contrast to the pre-Suez years, the deficits of 1938-60
were accompanied by substantial outflows of gold from the United
States which in part reflected the decision of some ferelga countr
to revert to their customary practice of holding la gold a larger
of their over-all monetary reserves.
In looking back at 1990, when there was a large outflow of
short*-term capital, it Is quite apparent that our traditional me
of measuring a deficit can be misleading in this new era of convertible currencies. Because of currency convertibility, shortterm eapital movements last year were on a scale not seen since
14
- 3 -
trade and payments from exchange controls. This convertibility of
major currencies^ which is of great benefit to the export trade o
united States, but which had not existed since before World War I
was achieved for all practical purposes at the end of 1959, and w
formally recognised by the International monetary fund Just last
February.
The deficits of 1951-99 generated only a small outflow of gold
from the United States* They were reflected, instead, by increase
in foreign liquid dollar holdings — which became a part of the
monetary reserves of our friends and allies abroad. The importanc
of the dollar as a reserve currency was thereby greatly increased
go, consequently, was the responsibility of the united States to
maintain the value of the dollar as a reserve currency.
1957,-when the United States ran a moderate surplus.saw a
temporary change in our balance of payments. However, this surplu
resulted from the Suez crisis — which brought with it heavily lacreased purchases of American petroleum and other goods — ££dld
15
• 2 Ime facts ©f our iateraatioaal payments position have been
»
widely discussed in the past two years. At times they have been
*
both over-dramatised with unfounded alarm and underplayed with u
warranted complacency. To help put them into proper focus, let
me review them briefly:
from the beginning of 1991 to the @w& of 1999, when European
currencies were approaching convertibility, the United States ra
a deficit in its balance of payments which averaged one billion
two hundred million dollars a year. Ihe total deficit for these
Six years was seven billion two hundred million dollars.
0uring that critical period of recovery from the ravages of
World War II, these deficits played a useful role. They helped to
rebuild the shattered financial structures of other' free nations
They helped to bring the world-wide dollar shortage to an end.
They gave to Western ISurope laud Jajjaifttbe extra reserves nee
restore convertibility to their currencies — thus releasing free
16
TREASURY DEPARTMENT
Washington
FOR RELEASE; 6:30 P.M..EDT
May 2, 1961
BESIABICS OF TEES HOHORABI^ BQ0€tLAS 0IUU3M,
SlClETABt 0F TBM T1EASUBY,
AT AMNUAX, DIHKI1 OF UHITf B STATES CO0HCIL
OF IB! IHTEMATI0IAL C B A H I I OF O O W U K S ,
SSSMTOH IAST HOUI,, m TOIHC 0ITT
T0ESMY, MAT S, 1961, 7:00 KS*," U K
The most important single problem confronting our Nation in
the field of international finance today is how to achieve and
maintain over-ail balance in our international payments — the ac
counting which shews the results oi ail of our trade and financi
relations with the rest of.the world.
It is, I am aware, a problem with which the members of the
United States Council of the International Chamber of Commerce a
deeply concerned. It is also a problem that you are in a positio
to help resolve in our country's favor, for I know of a© group
which has greater influence upon our international trade and pay
meats. I am, therefore, extremely pleased to be here with you
tonight.
22
TREASURY DEPARTMENT
Washington
May 2, 1961
FOR RELEASE;
6:30 P.M.,. EDT
REMARKS OF THE HONORABLE DOUGLAS DILLON,
SECRETARY OF THE TREASURY,
AT ANNUAL DINNER OF UNITED STATES COUNCIL
OF THE INTERNATIONAL CHAMBER OF COMMERCE,
SHERATON EAST HOTEL, NEW YORK CITY
TUESDAY, MAY 2, 196l, 7:00 P.M., EDT
The most important single problem confronting our Nation in
the field of international finance today is how to achieve and maintai]
over-all balance in our international payments — the accounting which
shows the results of all of our trade and financial relations with the
rest of the world.
It Is, I am aware, a problem with which the members of the
United States Council of the International Chamber of Commerce are
deeply concerned. It is also a problem that you are in a position to
help resolve in our country's favor, for I know of no group which has
greater influence upon our international trade and payments. I am,
therefore, extremely pleased to be here with you tonight.
The facts of our international payments position have been widely
discussed in the past two years. At times they have been both overdramatized with unfounded alarm and underplayed with unwarranted
complacency. To help put them into proper focus, let me review them
briefly:
From the beginning of 1951 to the end of 1956, when European
currencies were approaching convertibility, the United States ran a
deficit in its balance of payments which averaged one billion two
hundred million dollars a year. The total deficit for these six years
was seven billion two hundred million dollars.
During that critical period of recovery from the ravages of
World War II, these deficits played a useful role. They helped to
rebuild the shattered financial structures of other free nations.
They helped to bring the world-wide dollar shortage to an end. They
gave to Western Europe the extra reserves needed to restore
convertibility to their currencies — thus releasing free world trade
and payments from exchange controls. This convertibility of the
major currencies — which is of great benefit to the export trade of
the United States, but which had not existed since before World War II
was achieved for all practical purposes at the end of 1958, and was
formally recognized by the International Monetary Fund just last
D-95
February.
- 2-
21
The deficits of 1951-56 generated only a small outflow of gold
Prom the United States. They were reflected, instead, by increases
in foreign liquid dollar holdings — which became a part of the
monetary reserves of our friends and allies abroad. The importance
of the dollar as a reserve currency was thereby greatly increased.
So, consequently, was the responsibility of the United States to
maintain the value of the dollar as a reserve currency.
1957, when the United States ran a moderate surplus, saw a
temporary change in our balance of payments. However, this surplus
resulted from the Suez crisis — which brought with it heavily
increased purchases of American petroleum and other goods — and did
not signify a basic shift in our payments position.
In 1958, we again returned to a deficit, but this time on a very
large scale: a deficit of three billion five hundred million dollars,
almost triple the 1951-56 average. The following year, our deficit
rose to three billion eight hundred million dollars. And last year it
once again reached three billion eight hundred million.
In contrast to the pre-Suez years, the deficits of 1958-60 were
accompanied by substantial outflows of gold from the United States
which in part reflected the decision of some foreign countries to
revert to their customary practice of holding in gold a larger share
of their over-all monetary reserves.
In looking back at i960, when there was a large outflow of shortterm capital, it is quite apparent that our traditional method of
measuring a deficit can be misleading in this new era of convertible
currencies. Because of currency convertibility, short-term capital
movements last year were on a scale not seen since the Twenties. These
movements initially resulted from differences between the short-terra
interest rates then prevailing in the United States and those then
prevailing in other financial centers. Last Fall, speculative
transactions also added to the outflow. But these movements did not
reflect persisting forces in our balance of payments.
To put it simply, when an American transfers his money from
New York to invest at short-term in London or Frankfort, he purchases
sterling or Deutsch marks with dollars — thus increasing the
United States "deficit" In the conventional sense. However, he also
acquires a short-term claim in the same amount against sterling or
Deutsch marks — a claim that can be quickly reconverted to dollars
whenever he decides to shift his funds back home. Consequently, to
Include such short-term capital outflows in our deficit is to record
liabilities without recording equivalent assets. This has the effect
of making the payments position of recipient countries appear stronger
than they really are, and of making our position appear weaker than it
really is.
- 3-
L vJ
Nevertheless, heavy short-term capital outflows can, and last year
did, result in large transfers of gold. They pose a severe threat to
international financial relationships because they can bring loss of
confidence in their wake. Closer international cooperation is therefor
required to prevent excessive differentials in interest rates and other
conditions which may stimulate such outflows. Hence, we are now
regularly consulting with friendly financial and central bank officials
in order to achieve the needed coordination. We hope to continue and
improve these consultations through the new Organization for Economic
Cooperation and Development and in other appropriate ways.
Now, as to our "basic" deficit:
If estimated short-term capital movements are excluded from the
international accounts of the United States, we find that our basic
deficit in i960 was not three billion eight hundred million, but
nearer one billion five hundred million dollars. It is this deficit
which is the persisting hard core of our balance of payments problem.
How is this basic deficit created? By the simple circumstance
that, even though we have large export surpluses, they have not been
sufficient to meet the expenditures we must make abroad in our
national interest to maintain our military installations, to conduct
our foreign economic assistance programs, and to cover the investment
of private capital and the transfer of private remittances. In i960,
our export surplus of goods and services amounted to almost seven
billion dollars. But our major non-trade expenditures were over eight
and a half billion dollars: three billion dollars for our military
forces abroad, two billion eight hundred million dollars for economic
assistance, two billion dollars for net long-term United States private
investment abroad and foreign investment in this country, and, finally,
eight hundred million dollars for remittances.
The cry is sometimes raised that we could solve our payments
problem by curtailing our programs of economic aid to needy peoples
in Asia, Africa, and Latin America. This is as unrealistic as it is
fallacious. It is unrealistic because our assistance to the new and
developing countries is critically necessary to our own survival as
members of the free world. It is fallacious because most of our
foreign economic assistance Is in the form of United States goods and
services which would not otherwise enter our export picture. These
goods and services are a vital contribution to the developing countries
and go to areas which cannot afford to pay cash for them. They are
also an important contribution to our export surplus, since foreign
aid shipments are included in our commercial export statistics.
For instance in i960, It Is estimated that over two billion
dollars of our two billion eight hundred million dollar total of
foreign economic assistance represented payments for United States
goods and services. As a matter of fact, taking merchandise alone,
goods shipped from the United States under our foreign economic aid
programs were equivalent to nearly half of our merchandise export
surplus.
- i ^ -
In attacking our basic payments problem, the Administration is
3eeking to avoid damage to our national security and to take actions
consistent with our international obligations. President Kennedy has
Deen moving on many fronts:
- The Export-Import Bank is expanding its export credit guarantee
program.
- The President has requested tax legislation as an investment
incentive to American business designed to help modernize our plant
and improve our competitive position in export markets.
- Our military and economic assistance programs are being
administered so as to place primary emphasis upon procurement of
American goods.
- The Congress is preparing to act on Administration legislation
cutting down on duty-free tourist allowances in order to reduce the
encouragement to United States travellers to spend their dollars
abroad.
- Through the promotion of foreign travel to the United States
and of foreign investment in the United States, we are endeavoring
to increase our receipts on service and capital accounts.
- We are examining the possibilities of strengthening the international monetary system.
- We are seeking through the Organization for Economic Cooperation
and Development to encourage increased economic development contribution
by other industrallzed countries, as well as to improve international
cooperation so as to moderate the size and violence of shifts of
short-term capital.
The combination of these measures will, we hope, do a great deal
to solve our balance of payments problem. As for the immediate outlook, I am sure you will want to know how we are doing so far in 1961.
Since only preliminary figures are at hand., all that I can tell you
is necessarily tentative. We have had a substantial improvement in
our payments position during the first quarter of 1961. Our export
surplus remains high. Confidence in the dollar has been restored.
3old stopped flowing out after February and there was a small Inflow
luring March. It is probable that our usual "basic" deficit was
replaced by a modest surplus for the first quarter of this year. But,
because of the continuing outflow of short-term funds — even though
at a much lower rate — we still recorded an overall loss of gold and
iollars for the period. This relatively modest loss was, however, in
sharp contrast to the very large loss of the previous quarter.
The substantial improvement in our balance-of-payments position
luring the first quarter has been gratifying. But the long-term
problem has not yet been solved. The attainment and maintenance of
reasonable
remain
a major
equilibrium
nationalin
objective.
our international payments and receipts must
- 5-
?
Although the surplus in our exports of goods and services has
recently continued to grow, the growth has been small and the rise has
been due almost entirely to a continued decline in our imports, for
exports have remained fairly constant. A substantial part of our
recent improvement has resulted from the simultaneous occurrence of
a boom in Europe and a recession here at home — a situation which
cannot be expected to continue indefinitely.
Although we must spare no effort to strengthen our export surplus,
we cannot overlook other possibilities for strengthening our position.
A major area is capital transactions, including long-term investments,
which have an important impact on our international payments.
, Our past direct Investments have built a strong base for present
and future net income from abroad. Indeed, in i960, we received two
billion four hundred million dollars from this source. But we must
realize that, while the earnings remitted from investments which we
have built up abroad over the years are substantial, they still are
being offset to a very sizeable extent by yearly outflows of new
capital. This is particularly true in the case of the industrialized
countries. For instance, new capital outflows to Western Europe and
Canada generally exceed the return flow from these same areas.
While it is in our national interest to continue to promote direct
United States investment in countries in the earlier stages of
development so that they may benefit from American capital, technical
know-how, and managerial skills, we do not see any reason why we
should continue to provide special incentives for United States
Investment In the prospering industriali^sdcountries. We believe the
time has come to terminate incentives in our tax laws that enable
American companies to defer payment of United States income tax on the
unremitted earnings of their subsidiaries in these countries.
The tax-deferral privilege, as it is called, has fostered the use
of tax "havens", which permit enterprises to pay very little tax —
or to escape paying taxes altogether — either to the United States
or to the country in which their business is principally conducted.
This is most clearly demonstrated by the stampede to Switzerland,
where over two hundred new American-owned companies were established
during the past year.
In addition, tax deferral Inevitably favors investment abroad
over investment at home. Other things being equal, companies are
naturally inclined to invest where tax rates are lowest. Corporate
income tax rates In some European countries are a bit lower than in
the United States — although in Germany, France, and England,, the
differential is virtually non-existent. The elimination of tax
deferral will not have a substantial effect on companies operating in
these countries and It will promote equity by placing investment at
home and abroad on a fully equal footing.
4
- 6While it is difficult to make exact estimates, we believe that
elimination of the tax-deferral privilege in industrialized countries
and the restriction of tax havens everywhere, will yield some two
hundred and fifty million dollars annually in additional taxes —
plus a substantial additional amount in balance of payments savings.
This represents a significant and much-needed contribution to the
solution of our long-range balance of payments problem.
In conclusion, I should like to say just a few words about the
relationship between our balance of payments and our domestic
economy:
The two largest items by far in our international accounts are
exports and imports.
As our economic activity expands, we normally may expect an
increase in imports. At the same time, we may experience upward
pressures on domestic prices which would bring with them a decline
in exports. We must resist these pressures. This is essential if
we are to maintain and Improve our position in world markets. Our
export prices must continue to be fully competitive if we are to
achieve a sustainable equilibrium in our balance of payments. We
cannot relax, for there will be no let-up in the growing pressure of
world wide competition.
0O0
23
Ifcahiagtan, ®.C.
H^JEDIATE REU1A£5E
m® g, 1961
fhe Treasury department today announced the appcintmemt of
W. Carl W. 01er2^r# effective m? 22, 1961, as Deputy A&aiaistrative
Assistant Secretary and Director of the Office of Haaagemeat sad Oepml*
settau Mr. mewlew will assist the Mainistrative Assistant Secretary
is the iiseharge of his reapenaibilitiea and will give personal direetiea
to the Department's 2tae$sss&t Improvemeiifc Program.
Itr. Clewlovr, in %lm Federal career service twt nearly twemty*t«© ywn,
was selected from a panel developed by the Civil Service ^amiaaloa from
its newly established Gaveer 3&®e*ifciv® Boseer. For the past seveiel years,
he has been Erector ©f the Office of A&mlyeis and Bevtew f» the Office ef
the VsMmr Secretary ef the Asemy.
Hr. SteiAstr began his career with the Federal Cksvernmeat ia 193$ afltr
several years with Servel, lac., of Svansville, Indiana. His service has
been f^imarily tm the A m y , both a® a dvillam ana in uaifcm daring
World War II, though he had several assigmneiits in the Executive Office
ef the President m Assistant Director, Production Division, National
Security Bssmsrces Board) AsslBtsmt to the Iftxestep* Office of defease
!4obilizatioa; sad Beptsty for Prograjais, national Security Resources Beard.
While with the Bepartaaent of the Army, Mr. Clewlow received the
•"••wuft mm ipi^rafc ^a^^FijSi^
WFUJUP W JAMANMPSSSM. s'aw^sma^'^s e
j |
™ ^^s* ^m%wrs*^F
p» '•sK^yspJi. v ^ w w *
v*iWw
4^e* TS »• iiwt
see
a* ^a»^Hews^aiMeeem
*»weea**
from the U.S. Junior Chamber ef Commerce as one of tea outstanding young
men is CroveriaseEEt.
Mr* Clwlov ms bom at EvansviHe, Indiana, June 25, 19l6. He received
his A.B. and A.M. degrees from George Washington University, ami Is sov
d e l a t i n g his Ph.D. at American University. He has been active in comMuaity organlEations, He has been a visiting lecturer at Syracuse ^aiversity,
the Ifeivsraity ef Pittebiirgh, American University, and Florida State University, and a Professorial lecturer at George Washington University, teaching
graduate courses ia Advanced Management, Management Engineering and Office
H F , Clewlcr&r was sjarried to Beulah Hutchinson la 19^40. They have four
children and live at 305 Poplar Drive, f a n s Church, Virginia.
&P^
24
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 2, 1961
FOR IMMEDIATE RELEASE
CARL W. CLEWLOW NAMED DEPUTY ADMINISTRATIVE
ASSISTANT SECRETARY OF TREASURY
The Treasury Department today announced the appointment of
Mr. Carl W. Clewlow, effective May 22, 196l, as Deputy Administrative
Assistant Secretary and Director of the Office of Management and Organization. Mr. Clewlow -will assist the Administrative Assistant Secretary
in the discharge of his responsibilities and will give personal direction
to the Department's Management Improvement Program..
Mr. Clewlow, in the Federal career service for nearly twenty-two years,
was selected from a panel developed by the Civil Service Commission from
its newly established Career Executive Roster. For the past several years,
he has been Director of the Office of Analysis and Review in the Office of
the Under Secretary of the Army.
Mr. Clewlow began his career with the Federal Government in 1939 after
several years with Servel, Inc., of Evansville, Indiana. His service has
been primarily in the Army, both as a civilian and in uniform during
World War II, though he had several assignments in the Executive Office
of the President as Assistant Director, Production Division, National
Security Resources Board; Assistant to the Director, Office of Defense
Mobilization; and Deputy for Programs, National Security Resources Board.
While with the Department of the Army, Mr. Clewlow received the
Meritorious Civilian Award. He also received the Arthur S. Flemming Award
from the U.S. Junior Chamber of Commerce as one of ten outstanding young
men in Government.
Mr. Clewlow was born at Evansville, Indiana, June 25, 19l6» He received
his A.B. and A.M. degrees from George Washington University, and is now
completing his Ph.D. at American University. He has been active in community organizations. He has been a visiting lecturer at Syracuse University,
the University of Pittsburgh, American University, and Florida State University, and a Professorial Lecturer at George Washington University, teaching
graduate courses in Advanced Management, Management Engineering and Office
Management•
Mr. Clewlow was married to Beulah Hutchinson in 19*1-0• They have four
children and live at 203 Poplar Drive, Falls Church, Virginia.
D-96
0O0
TREASURY DEPARTMENT
Washington
cs
May 3, 196l
FOR RELEASE: UPON DELIVERY
STATEMENT BY THE HONORABLE DOUGLAS DILLON,
SECRETARY OP THE TREASURY
BEFORE THE COMMITTEE ON WAYS AND MEANS
OF THE HOUSE OF REPRESENTATIVES,
ON THE PRESIDENT'S MESSAGE ON TAXATION
WEDNESDAY, MAY 3, 1901, 10:00 A.M.,EDT
The central objectives of the President's current tax
program are:
First, to encourage modernization and expansion of American
industry;
Second, to remove tax advantages no longer justified that are
now enjoyed by some American firms with investments overseas;
Third, to correct certain evident flaws In our income tax
structure;
Fourth, to extend present corporation income and excise tax
rates so as to maintain needed revenues during the coming years; and
Fifth, to improve important aspects of tax administration.
This program will bring substantial gains to the American
economy.
Its prompt enactment is urgently needed to stimulate the
gathering forces of economic recovery, to create new jobs, to
strengthen the competitive position of American enterprise, and to
reduce our balance of payments deficit.
The program will also take us an important first step towards ou]
longer run objectives of tax reform, which are to adapt our tax syster
to the requirements of a dynamically expanding economy, to provide foi
a broader and more uniform tax base, and, as a consequence, to permit
reconsideration of the entire rate and bracket structure.
- 2 *• Tax Incentives for Modernization and Expansion
The President's message urges that "modernization and
expansion of the nation's productive plant and equipment are
essential to raise productivity, to accelerate economic growth,
and to strengthen our competitive position in world markets."
For this purpose, he proposes that an investment credit be
provided under the income tax.
This credit offers the most
powerful and efficient type of tax incentive. .
Why We Need a Tax Incentive
As we look back over the past century we see that our record
of economic growth has been unmatched anywhere in the world. But
of late we have fallen behind.
From an historic growth rate of
3 percent per annum in gross national product (1909-1956, in constant
prices), we have fallen to 2 percent in the latter part of the
50's.
In the last five years Western Europe has grown at double
or triple our recent rate and Japan has grown even faster. While
there is some debate as to the precise annual growth rate of the Soviet
economy, CIA estimates that their GNP grew at a rate of 7 percent in
the 50fs,
Clearly, we must improve our performance. Otherwise,
we cannot maintain our national security, we cannot maintain our
position of leadership in the eyes of the world and we cannot
achieve our national aspirations. The pressing task before us,
then, is to restore the vigor of our economy and to return to
our traditionally high rate of economic expansion and growth.
27
- 3I am confident this can be accomplished.
But it will require
a major effort by all of us.
I have been impressed during recent travels abroad by the
great progress our friends overseas have made in reconstructing
their economies since World War II and by the highly modern and
efficient plants they now have at their disposal. We can take
justifiable pride in our contribution to their recovery, for all
of us stand to gain from economic progress anywhere in the free
world.
But we must recognize that our friends.are once again
our vigorous competitors. And we cannot overlook the challenge
which their competition represents to our economy.
Obviously, we cannot hope to meet this challenge with aging
and obsolescent plant and equipment. The average age of our
plant today is 24 years. While this is an improvement over the
immediate post-war years, our plant is much older than during
the 20's. Much more serious is the fact that the average
age of our business machinery and equipment has been rising over
the past decade.
It now averages more than nine years, and from
1954 to 1959, the stock of equipment over ten years old rose
by 50 percent. While no comparable figures are available for
Western Europe, all the Information we do have indicates that the
plant and equipment of our friends and competitors are considerably
younger than ours.
Although this difference reflects the rebuilding of the
shattered European economies, I think it important to emphasize
that it was due in good part to the vigorous policies of the
European governments. Tax incentives for investment played a
significant role, including accelerated depreciation, initial
allowances and investment credits. Accelerated depreciation now
provides for twice the straight-line rate under the double
declining balance method in West Germany for equipment only and
in Canada for plant and equipment -- as we also do in the United
States for both plant and equipment.
It provides for 2-1/2 times.
the straight-line rate in France. The United Kingdom permits
several depreciation deductions from income of 5 percent of the
cost of plant in the first year, and 10 percent in the case of
machinery, with the balance depreciated under normal procedures
concurrently.
Holland permits 33-1/3 percent of the cost of
machinery to be deducted over the first 4 years (for buildings,
5-1/2 years), while Italy permits 40 percent over the same
period, and in both cases the balance depreciated concurrently.
The most liberal provisions are found in Sweden, where the entire
cost of equipment may be written off in five years. Three
Western European countries provide for deductions from income of
special investment allowances above cost, which are similar to
the technique we are now recommending.
These include a 10 percent
allowance over 2 years in Holland, an allowance of 10 percent
on plant and 20 percent on equipment In the United Kingdom, and
in Belgium, a 30 percent allowance spread over three years on
expenditures In excess of depreciation and proceeds from sale of
depreciable assets.
-5-
2a
All of our citizens will benefit from modernization of our
industry.
A basic fact of economic life is that modernization
and expansion are essential to higher productivity.
Rising
productivity will provide us with a rising level of per capita
income, with resultant and widely shared benefits in the form
of rising real wages and rising investment incomes. Rising
productivity will also permit us to hold prices down. But rapid
economic change is not without cost.
Progress' alters established
modes of production and creates hardships of transition.
As noted
in the President's message, this imposes serious responsibilities
on government to facilitate readjustment and spread these hardships equitably.
A most important contribution can be made by maintaining a
high level of employment and capacity utilization.
The fruits
of modernization and capital expansion are increasingly realized
as fuller use is made of all our productive resources. Moreover,
the higher level of capital formation which will be induced by
our proposed investment credit, will generate added demand, which
is much needed at this time to raise our over-all economic
activity.
The resultant Increase in jobs is estimated in the
President's message at about five hundred thousand*
The investment credit is needed this year to stimulate
modernization of our plant so that we can secure a higher rate of
growth, create jobs and stabilize the dollar both at home and
abroad.
There is not a moment to lose.
Proposed Method of Investment Stimulus
The tax credit provides the most powerful stimulant at the
lowest cost in revenues for a given incentive effect. The
investment credit, while new to tax practice in the United
States, is not a novel invention of this Administration.
As I
noted earlier, similar approaches are found in the United
Kingdom, the Netherlands, and Belgium.
The proposed Investment
credit follows their general approach but is adapted to the
needs of our own economy.
We propose, therefore, that the investor be given a credit
against tax equal to 15 percent of eligible investment expenditures
in excess of depreciation allowance; and in addition that he be
given a credit of 6 percent of investment between 50 percent and
100 percent of depreciation.
As a floor, In lieu of these
credits, a credit would be provided of 10 percent on the first
$5,000 of investment, regardless of whether it was more or less
than depreciation.
As an upper limit, the credit would not be
allowed to exceed 30 percent of tax liability, but a 5-year
carryover of unused tax credit would be provided.
The credit
would apply to investment expenditures made after January 1 of
this year and would be available to individually owned firms
as well as to corporations.
It would be separate from and in
addition to subsequent depreciation of the asset under existing
depreciation rules.
- 7-
V-'J.
Let me illustrate the method of computing the credit.
Suppose a firm has depreciation deductions of $100,000. If it
spends $150,000 on new plant and equipment or $50,000 in excess
of Its depreciation, Its credit would amount to 15 percent on
the $50,000 excess or $7,500 plus 6 percent or $3,000 on the
$50,000 expenditures between 50 and 100 percent of depreciation.
This would give it a total credit of $10,500. If the firm
spent $100,000, it would not qualify for the 15 percent credit,
but would receive the 6 percent credit or $3,000 on the $50,000
expenditures between 50 and 100 percent of depreciation.
If the
firm spent less than $50,000, it would qualify for neither the
6 percent nor the 15 percent credit, but would have a minimum
credit of 10 percent on the first $5,000 of its investments.
The 15 percent credit is very substantial. It is the
equivalent of a deduction of 29 percent of the cost of an asset
for a corporation subject to the 52 percent tax rate; a deduction
of 50 percent of cost for small corporations subject to the 30 percenl
tax rate; and a deduction of 75 percent for an individually owned
firm subject to the first bracket rate under the personal Income
tax.
As noted later, It Is largely because of this advantage
to the small firm that we favor the credit over the deduction
method.
The details of the proposed investment credit are set forth
in the detailed explanation which has just been submitted to you.
As shown there, appropriate provisions for averaging would be
Q9
- 8-
*-ȣ_
made to avoid undesirable bunching of investment and inequities
between firms.
The method would consist of carrying over as an
addition to depreciation in future years the excess of currentyear depreciation over current-year investment.
would be for a 5-year period.
This carryover
Thus, firms would have to offset
current depreciation plus cumulated deficiencies in investment
over a five year period starting with 1961.
In order to obtain the maximum contributibn to modernization
and capital expansion, eligible investment expenditures would
be limited to expenditures on new plant and equipment, and
to assets with a life of six years or more.
Investment in
plant and equipment located outside the United States would be
excluded as would be investment by public utilities, other
than transportation, and investment in residential construction,
including hotels and apartment buildings. As stated in the
President's Message, the credit should become a useful and
continuous part of our tax structure.
While it would be subject
to periodic review, it is not intended as a temporary measure.
The estimated revenue cost of the credit would be $1.7 billion
per annum.
Advantages of Investment Credit
As stated in the President's message, "The proposed credit
is designed to give the greatest inducement to investment for
the revenue loss involved."
The intent Is to stimulate investment,
not to give general relief to one particular group of taxpayers.
- 9For this purpose, the credit is superior to certain alternative
measures involving equal revenue loss, such as a corresponding
cut in the rate of corporation tax, or a corresponding allowance
for more rapid depreciation on new assets.
The proposed credit is altogether superior to a general cut
in the rate of corporation tax. The benefits from a cut in the
corporate rate would be received by all companies, whether they
invested or not. Our purpose is to stimulate new investment, not
to give general tax reduction. Therefore, we reject this approach.
A speed-up in depreciation on new assets, like the investment
credit, is directly aimed at new Investment. However, the investment credit is a more potent stimulus. It goes markedly further
In increasing the rate of return on new investment for the same
revenue loss.
Where the investment credit results in outright tax
reduction over and above present depreciation allowances, a speed-up
in depreciation only postpones, for any particular asset, the due
date for the Investor's tax liability on the earnings from this
asset. This tax postponement raises the rate of return to be sure,
but the gain is very much less than under the credit. Consider
a 20-year asset which yields 10 percent after tax using straightline depreciation or about 11 percent using double-declining
balance depreciation.
The 15 percent credit would raise its rate
of return to nearly 14 percent or by 27 percent, assuming use of
the double-declining balance method of depreciation.
The percentage
- 10 -
J4
gain in yield would be even greater for a lower yielding asset
or a shorter lived asset. To get approximately the same effect
for the above twenty-year asset, over 50 percent of additional
depreciation in the first year (applied to investment in excess of
depreciation) would be necessary, and the initial revenue cost would
be more than twice as great.
The revenue loss under the depreciatior
approach would remain higher, even if the total revenue loss over a
period of, say, 10 years is considered.
Therefore, for any given
cost in revenue to the Treasury over a substantial period, the
increase in rate of return, and hence the stimulus to investment,
would be much greater under the credit approach.
This conclusion may seem surprising.
While the credit clearly
involves a permanent revenue loss, it Is frequently said that the
speed-up of depreciation involves no permanent revenue loss to
the Treasury but merely a tax postponement. This is true for
revenues from earnings on any particular asset, but it is wrong with
regard to effects on the Treasury's total revenue over time.
Assuming a constant stream of Investment, the revenue loss from
accelerated depreciation is also permanent.
While the annual net
revenue loss from a speed-up in depreciation declines as postponed
tax payments come due In later years, the earlier losses are never
recouped.
- 11 Since the net revenue loss from accelerated depreciation declines
over the years while that from the credit remains constant (I still
refer to the assumed case of constant investment), it follows that
the advantage of the credit over accelerated depreciation, given
equal revenue cost, is greater if a fairly short period is considered.
However, as I have just stated, the credit would still
remain superior — more effective in raising profitability for a
given revenue loss — for a period of at least- 10 years. And if
investment should constantly grow, as is more likely to be the case,
long-run comparisons become even more favorable to the investment
credit as the revenue cost of accelerated depreciation falls off
more slowly with growing investment than with constant investment.
Not only is the investment credit superior in raising
profitability, it has other advantages as well. In the first
place, it is a tax offset, not a deduction from income. The credit
will not be booked In corporate records as a cost of operation as
would increased write-offs under accelerated depreciation. Thus,
the credit avoids distortion of the costs on which a firm bases
its pricing and other business decisions.
Since one of our
major goals is to hold the price line so as to strengthen the
dollar, this advantage of the credit is of very great significance.
In the second place, the investment credit does not confuse
the problem of stimulating investment with that of properly
defining taxable income. Depreciation constitutes a major cost
in arriving at taxable income. The amount deducted depends on the
method of depreciation and the depreciable lives of the assets, and
both of these are subject to differences of opinion and debate.
Some believe that present procedures inevitably produce inadequate
amounts of depreciation by failing realistically to measure the
amount of asset cost used up in any current period.
This question
is now under intensive study in the Treasury In connection with
next year's tax recommendations, and it is as yet too early to
anticipate what our findings will be. In any event, the investment
credit here proposed will in no way prejudice the case for such
depreciation reform as may prove to be desirable to improve income
measurement.
Incentive for Additional Investment
I repeat that the purpose of the investment credit is not to
provide general tax reduction for recipients of profit income.
Rather, it is to stimulate investment in the most efficient manner.
The credit, therefore, should be focused on investment which would
not have been undertaken without this inducement, and which will
be most responsive to the stimulus which it provides. A higher
credit on such strategic investment will stimulate modernization
and expansion more than will a credit granted to all new investment
at a lower rate. Holding the revenue cost constant, the proposed
credit of 6 and 15 percent may be compared with a credit to all
new investment of 7 percent.
The proposed credit is superior
because it gives a greater stimulus to the undertaking of Investment
that was not previously planned, and Is less likely to give a
credit for Investment that would have been undertaken in any event.
- 13 -
17
The strategic area for investment stimulus cannot be
determined precisely investor by investor, and must necessarily
be delimited by some general standard.
In our view it may best
be defined as investment in excess of depreciation allowances.
This threshold marks the dividing line between a firm's traditional
level of investment —
depreciation being, after all, but an
indicator of the firm's average level of investment in the past —
and a more ambitious policy of modernization and expansion. Also,
it marks the dividing line between the level of investment which
can be financed from depreciation, funds accumulated free of income
tax, and that which requires other sources for finance, either
external or internal.
This type of credit would focus the incentive on the most
responsive area of investment.
At the same time, it would bring
benefits to a broad range of American business. The Treasury's
recent depreciation survey indicates that nearly 80 percent of
small businesses and about 85 percent of large corporations made
investment expenditures which averaged In excess of depreciation
over the six-year period 1954 to 1959. In any particular year,
the fraction of qualifying firms would be different.
In the current
year 1961 It is estimated*that the expenditures of 94 percent of
On the basis of the Department of Commerce and SEC survey of
anticipated expenditures on plant and equipment, by projecting the
depreciation deductions shown in tax returns in most recent years.
- 14 all business firms will be substantially covered by the minimum
credit.
Of the remaining 6 percent of firms which account for
the greater part of our national production over sixty percent are ex
pected to be eligible for the 15 percent credit and an additional
twenty-five percent for the 6 percent credit.
Thus over 85 percent
of these larger firms will benefit this year from our proposal.
While it is desirable to have the incentive within reach of
a large number of firms, breadth of coverage Is not the only
criterion.
The purpose, as noted before, is not to provide general
tax reduction for the recipients of profit income. The purpose
is to encourage modernization and expansion.
It is only right,
therefore, that firms which respond less should benefit less.
The greatest benefit should go to the most favorable investment
response.
The proposed stimulus will be of particular advantage to new
and growing firms engaged in a high rate of capital expansion. It
will also be of particular advantage to small firms whose investment
is largely covered by the 10 percent credit. Moreover, small firms
will benefit from the proposal to express the investment allowance
as a credit against tax, rather than as a deduction from taxable
income. Under the credit approach the tax saving per dollar of
eligible investment is the same for small and large firms. Under
a deduction approach the tax reduction would be greater for large
firms which are subject to a higher rate of tax.
- 15 Relation to Next Year's Tax Revision
Before leaving this topic, let me relate the proposed
investment credit to our longer-run objectives of tax reform.
In
important part these will center on provision for a broader and
more uniform base but, as I have noted above, attention must
also be given to the requirements of a growing economy.
As the
President states in his message, "Some departures from uniformity
are needed to promote desirable social or economic objectives of
overriding importance which can be achieved most effectively
through the tax mechanism."
As indicated by the President,
such is clearly the case with the proposed investment credit.
The importance of stimulating modernization and capital
expansion and of doing so right now is beyond doubt. Also, it is
clear that tax policy can make a vitally needed contribution to
this end.
The proposed credit offers the best approach and achieves
this incentive in a powerful and efficient way.
Just how
powerful this incentive is can be measured by the equivalence in
effect on profitability of the 15 percent credit to a 50 percent
initial write-off. The tax credit, at the same time, Is least
likely to waste itself in benefits which do not serve the purpose
of inducing modernization and expansion and is directed most
squarely to those who are prepared to respond to an incentive.
- 16 -
II.
Equal Taxation of Foreign Investment Income
The President in his Tax Message has cited the strains in our
balance-of-payments position as one of the factors which have
led us to re-examine our tax treatment of foreign Income. Earlier,
in his Balance-of-Payments Message, the President made it clear
that our concern relates to the preferential treatment of foreign
investment income, tax treatment that has favored United States
private investment abroad compared with investment in our own
country.
There is no thought of penalizing private investment
abroad which rests upon genuine production or market advantages.
Role of Tax Deferral
The most important feature of our tax system giving
preferential treatment to U.S. investment abroad is the privilege
of deferring U.S. income tax on the earnings derived through foreign
subsidiaries until those earnings are distributed as dividends.
The lower the rate of foreign income tax, the more significant Is
this privilege of tax deferral.
I have here a table showing in the first line of figures the
statutory income tax rates imposed by various industrialized
countries in Europe. It shows a range of rates from 28^ percent
in Belgium to 31 percent In Italy, 51 percent in Germany and 53.5
percent in the United Kingdom.
If one were to take into account
variations in the methods of computing taxable income, the range of
effective rates would be somewhat lower, but similar adjustments
Comparison of tax rates applicable to income derived in selected foreign countries
under alternative assumptions concerning form of organization
Assumptions
Belgium
* Denmark
France
Germany ' Italy
[Netherlands* Sweden
U. K.
1.Corporation organized
by U.S.parent in
country where all
operations are conducted, and all
- profits are retained
by subsidiary
23.5$ 1/
hk% 2/
50$
51$ 3/
31$ y
h%
km
53.5$ 5/
2.Corporation organized
in country where
manufacturing is conducted as a subsidiary
of a U.S.-owned Swiss
parentjparent makes
sales and derives half
the total profits, and
receives dividends
from the subsidiary 6/
29.1
28.5
31.5
32.9
22.0
30
23
32.0
See page 18 for footnotes
1/ Taxes ^paid in the previous year are deductible in every case, thus lowering the effective tax burden.
^ssuiaing 100 percent distributions each year, this latter adjustment reduces the ^0 percent nominal
Belgian tax rate to 25.5 percent.
2/ Because^of a special deduction measured by a percentage of capital stock outstanding and allowed to
a^l vanish corporations, the rate may be reduced as low as 22 percent. The average rate foremost
corporations is 36 percent.
3/ The German corporate rate of 51 percent is reduced to approximately 22 percent if all profits ar«
attributed. This tax plus the creditable portion of the capital tax would amount to a- total combined
rate of approximately 37 percent.
y Includes some allowance for excess profits tax imposed at the rate of 15 percent on profits in excess
oi 6 percent of capital plus certain allowable reserves.
5/ Taking into account the increase announced in the 1961-62 Budget Message,
6/
^e Swiss Federal tax rate is 3 percent. In addition, income taxes are also imposed in varying de-rp-s
oy tne Cantons. However, substantial tax concessions may be granted bv the Cantons. T n the Ca-ton o^
Geneva,_ for instance, tne granting of such concessions would result in an aggregate tax rat- c~~
1 ^ percent, or 13 percent taking into account the fact that taxes paid in the orecediner year arp
allowed as a deduction. Foreign source dividends are not taxable in Switzerland.
4^
- 19 would have to be made for U.S. tax rates, and for present purposes
the statutory rates would seem to be the appropriate ones to use.
As you can see, in most of these countries, and particularly those
countries which are our more important competitors, the tax rates
are substantially at the same level as the U.S. corporation income
tax. Tax deferral with respect to profits earned in these
countries does not, of course, have any material effect on U.S.owned firms.
However, to the extent that business operations are conducted
in countries with lower tax rates, there is considerable leeway for
deferring U.S. tax.
With a foreign tax rate of 28J percent, for
example, a company can defer U.S. tax payments equal to 23i percent
of total pre-tax profits.
It thus can through deferral retain nearly
an extra dollar out of every four that It earns.
These statutory rates, however, do not give adequate weight
to the variety of arrangements that have been made by American
firms in their foreign operations which may bring down rather
substantially the rates of tax imposed on income from their
foreign operations. Thus, an American company operating in West
Germany through a German subsidiary will be subject to tax there
at the West German income tax rate of 51 percent, and hence it
cannot benefit significantly from U.S. tax deferral. However, to
the extent that the profits of the German subsidiary can be
diverted from the sweep of the German tax system, a lower tax on
44
- 20 profits can be attained. And this is precisely what is achieved
through a proliferation of corporate entities in tax haven countries.
like Switzerland.
The tax haven companies are given the right to license patents
developed by their parent organizations or sister corporations.
They supply the services of technicians of their corporate
affiliates to firms in various other countries. They acquire
the distribution rights of products manufactured by their
affiliates.
The transfer of these various activities to tax haven
entities means a transfer of income to them.
Since the income
taxes in these tax haven countries are very low or non-existent
with respect to income derived outside their own borders, the
result of these arrangements is to bring about a substantial
reduction in tax on the total income derived from the foreign
operations.
Switzerland, for example, has a federal income tax
ranging from 3 percent to 8 percent.
While local income taxes vary
widely, there are opportunities for the negotiation of tax
liability to the Cantons.
With U.S. tax deferral operating
simultaneously, tax payments over-all can be and often are very
substantially reduced.
If $100 of income of a German subsidiary can be segmented so
that $50 Is attributed to the entity in Germany and $50 attributed
to a selling entity in Switzerland, half the profit would be
subject to the 51 percent German tax rate but the other half would
- 21 -
45
be subject to a Swiss national tax of only 8 percent. The over-all
rate of tax would thus be reduced to less than 30 percent. The
table I last referred to shows on the second line the aggregate
income tax in cases where manufacturing subsidiaries are
organized in various European countries but which effect their
sales through a Swiss sales corporation so that taxable profits
are divided equally between the country of manufacture and
Switzerland.
As a consequence of such arrangements, and taking
into account withholding taxes on dividends transferred from the
manufacturing company to the Swiss sales company, the resulting tax
rates range from about 22 percent to 33 percent.
The reductions in tax that can be achieved through the use
of tax haven operations assume that the incomes attributed to the
tax haven companies are fair and reasonable. But the problem is
compounded by the fact that incomes are often allocated to tax haven
companies which are not economically justifiable. United States
companies frequently attribute a disproportionate share of profits
to the trading, licensing, and servicing companies established
in tax haven countries — a practice that Is extremely difficult
if not impossible for the Internal Revenue Service to police
effectively.
This is not simply a question of allocating the profits of
foreign operations to tax haven countries.
It is a problem that
significantly affects U.S. taxation of domestic profits. The
technique that is used for diverting profits from one company to
46
- 22 another among European affiliates is also used to divert income
from U.S. companies to foreign affiliates. Income that would
normally be taxable by the United States is thrown into tax haven
companies with the object of obtaining tax deferral. This is done,
for example, hy placing in a Swiss or Panamanian corporation the
activities of the export division of a U.S. manufacturing
enterprise. A very substantial volume of exports is required merely
to offset the loss in foreign exchange which the retention abroad
of export profits entails.
The recent growth of U.S. subsidiaries in tax haven countries —
and Switzerland and Panama are but two examples —
suggests that
their importance as a means of tax reduction and avoidance will
rapidly increase if the deferral privilege Is continued. An
examination of the public records in Switzerland alone indicates that
there are more than 500 firms there which can be identified as being
owned by U.S. interests. About 170 of these were created in the
year ending March 31> 196l. United States officials on the spot
are of the opinion that in addition to these firms there are a
substantial number of other U.S.-owned firms in Switzerland
which cannot be readily identified as such on the basis of the
presently available data.
Increasingly, U.S. manufacturing
subsidiaries operating elsewhere In Europe are being linked to
subsidiaries in the tax haven countries. Parenthetically, I might
note that the information returns filed by U.S. shareholders
or officers of foreign corporations indicate that there are only
92 U.S.-owned corporations in Switzerland all-told.
There is
4f
- 23 little doubt that these information returns are inadequate and
incomplete.
The tightened requirements for filing information
returns on new foreign corporations which were adopted by the
Congress last year will doubtless give us more accurate information in the future.
Proposal Regarding Advanced Countries and Tax Haven Operations
To avoid artificial encouragement to investment in other
advanced countries as compared with investment, in the United
States, we propose that American corporations be fully taxed each
year on their current share in the undistributed profits realized
by subsidiary corporations organized in economically advanced
countries. This change in the method of taxation should be
achieved over 2 years, with only half of the profits affected in
1962. Deferral of tax would also be eliminated for individual
shareholders controlling closely held foreign corporations in the
industrialized countries. The proposed change will not alter the
principle that companies may credit income taxes paid abroad against
U.S. income tax liability.
In view of the national objective of aiding the development
of less advanced countries, we do not propose the same change In
the tax treatment of income from investments in less developed
countries.
Tax deferral will continue to apply with respect to
operations in those areas, except that we propose to eliminate
deferral in the case of tax haven companies even in the less
48
- 24 industrialized countries. For this purpose, a tax haven company
would be defined generally as one receiving more than 20 percent
of its gross profit from sources outside the country in which it
is created.
This test would reach such typical tax haven activities as
export and import companies, licensing companies and insurance
companies.
However, the general test would be qualified so as not
to affect manufacturing companies operating in less developed
regions which must look to more than one country for their markets.
Other possible areas of exception may be considered in the light
of forthcoming testimony before this Committee.
While it is difficult to estimate quantitatively by how much
tax deferral has contributed to the balance-of-payment deficit,
it has surely been a significant factor. Particularly when it is
enhanced by the resort to tax havens, tax deferral has given
artificial encouragement to foreign Investment and has acted as
a deterrent to the repatriation of dividend income. Deferral thus
adversely affects our balance-of-payments position by increasing
payments and reducing receipts. For the four years 1957 through I960,
the U.S. capital outflow to Western European subsidiaries amounted
to $1.7 billion, raising the total investment in these subsidiaries
to $6.2 billion at the end of I960.
Earnings from these subsidiaries
in the same period were $2.4 billion, of which $1.1 billion were
reinvested abroad and $1.3 billion were remitted to the United
States in dividends. On balance, the outflow for the four year
- 25 period exceeded dividend remittances by $400 million. Much the
same picture applies to Canada. The capital outflow in the
same four years amounted to $1.3 billion, bringing our investment
there to $9.3 billion.
Earnings were $2.4 billion, but $1.3
billion were reinvested and only $1.1 billion were remitted in
dividends. Thus, capital outflow exceeded dividend remittances
by $200 million.
It is true that deferral causes U.S. assets abroad to rise
more rapidly than they would otherwise, so that dividend
remittances would also tend to rise over a long span of years.
But the time span is apt to be very long. The attached chart
shows how the tax deferral privilege can result in a slower
remittance of earnings from investment in a foreign subsidiary,
as compared with a situation in which the deferral privilege did
not exist.
Suppose an investment of $1,000 in a foreign sub-
sidiary that yields 20 percent a year before taxes, and that the
foreign tax rate is 20 percent.
Suppose also that the subsidiary
reinvests all of its after-tax earnings for five years; and then
for the next 15 years reinvests half Its profits and remits half
its profits to the United States as dividends.
Without the deferral privilege, as the solid line shows, the
company would immediately begin to remit funds for U.S. tax payments on its earnings.
Ill
Dollars
lode! A
4,000
3,000
Without Deferral
TO
ON
2,000
1th Deferral
1,000
>•-:
^
J
L
J
L
J
L
15
*Initialinvestment $1000; annua/rate of earnings before taxes 20%; foreign tax
rate 20%; U. S. tax rate 50%. Reinvestment of all after-tax earnings for first 5years,
and reinvestment ot halt after-tax earnings for next 15years.
Office of the Secretary of the ireasury
FO-355
- 27 With the deferral privilege, as the dotted line shows, the
company reinvests the funds it would otherwise have remitted for
U.S. tax payments and it remits nothing for the first five years.
The greater amount of reinvestment results in a more rapid growth
of its net worth, and increases its earnings and remittances,
once they begin.
Nevertheless, it will be 17 years before
cumulative remittances to the United States equal those that would
have occurred if the deferral privilege had not existed.
On the
chart this point is reached where the curves cross.
Actually, this is an optimistic example since it assumes that
with the deferral privilege the subsidiary will begin remitting
half of its after-foreign-tax earnings from the sixth year on.
In practice, the existence of the deferral privilege may lead it
to remit a considerably lower portion of its profits and thus
prolong further the time when the two curves cross.
Today our situation is such that we must look first to the
more immediate balance-of-payments results.
Last fall, as you
know, our balance-of-payments position led to a crisis which
threatened the stability of the dollar and therefore jeopardized
the economic health of the entire free world.
Although returning
confidence has given a temporary reprieve, it is Important that
we act to prevent a recurrence of last fall's situation. We must
Improve our balance-of-payments position.
deferral privilege will help us to do so.
Eliminating the
so
- 28 It may be estimated, although very roughly, that the
-'*-
elimination of the deferral privilege for subsidiaries in advanced
countries and for tax haven operations in all countries would
improve our balance-of-payments position by as much as $390 million
per annum. This estimate includes the Increase in remittances
for U.S. tax payments on foreign earnings, as well as increased
dividend remittances and a lower level of capital outflow than
would occur if the present privilege were continued.
I have
heard it said that elimination of,tax deferral such
as we propose will not help our balance of payments. Some people
even go so far as to claim that it will Injure our payments position.
In my opinion this view is utterly erroneous. I would cite In support
of my opinion that of the responsible financial leaders of Europe.
In mid-January, during the height of our balance of payments
difficulties, the Finance Ministers of the six Common Market
countries met and discussed the U.S. balance of payments position.
They were good enough to give us the general tenor of their thinking.
In particular, the Ministers informed us of their unanimous belief
that the U.S. would be justified in discontinuing the fiscal
incentives which encouraged the non-remittance of profits made
in Europe. This viewpoint from countries which have an interest
in attracting and keeping U.S. investment is strong confirmation
of our own judgment regarding the adverse impact of the deferral
privilege on our balance of payments.
- 29While relief for the balance of payments is an important reason
for discontinuing tax deferral, it is not the only one. There
exists, in addition, an important issue of equity which has a
significant bearing on domestic employment and production,
as well as an indirect bearing on our balance-of-payments
position. With the present deferral privilege, an American
firm contemplating a new investment and finding cost and market
conditions comparable at home and abroad is impelled towards
the investment opportunity overseas. This Is so because it would
thereafter be able to finance expansion on the basis of an
interest-free loan from the U.S. Treasury, repayable at the
option of the borrower. Tax deferral, after all, is just
such a loan.
This issue of equity is sometimes presented in reverse —
namely, that the withdrawal of the deferral privilege would be
unfair because it would change the rules on which companies
have already based major investment decisions. This argument seems
to me to be very questionable. During the postwar period, the
promotion of private foreign Investment in both advanced and
less developed countries was in the public interest. Times have
changed, and the need to stimulate investment in advanced
countries no longer exists. Hence, there can be no proper claim
that preferential treatment should be continued merely to
perpetuate a private gain. This change moreover, cannot severely
injure companies already abroad, for a change In the timing of
- 30 -
$4
income tax liability will not normally turn a profit into a loss.
At most, it may slow the growth of companies abroad or make the
financing of growth somewhat more expensive. To alleviate possible
problems, our proposal would remove the tax deferral privilege
in two steps.
It is sometimes contended that if U.S. firms are to compete
successfully abroad they must enjoy as favorable a tax treatment
as their foreign competitors.
been overly stressed.
I believe that this argument has
A difference in tax rates, I said before,
should not handicap companies producing abroad, although It may
slow the rate of expansion. But even if this argument were
fully valid, it could not be a decisive objection to our proposal.
As long as the tax systems of various countries differ — and I
venture to predict that this will be the case for years to come —
we must make a firm choice. Either we tax the foreign income of
U.S. companies at U.S. tax rates and credit income taxes paid
abroad, thereby eliminating the tax factor in the U.S. investor's
choice between domestic and foreign Investment; or we permit
foreign income to be taxed at the rates applicable abroad, thereby
removing the Impact, if any, which tax rate differences may have
on the competitive position of the American investor abroad. Both
types of neutrality cannot be achieved at once. I believe that
reasons of tax equity as well as reasons of economic policy clearly
dictate that in the case of investment In other Industrialized
countries we should give priority to tax neutrality In the choice
between Investment here and investment abroad.
- 31 -
^
This does not mean that elimination of the deferral privilege
would end U.S. investment in foreign subsidiaries. In many cases,
foreign investment opportunities will remain more attractive
although the same rates of tax apply to subsidiary earnings as
to income from a domestic business. Many U.S. subsidiaries in
high tax countries such as the United Kingdom and Germany have
not exploited tax haven opportunities and are therefore paying
taxes closely comparable to those in the U.S. Yet these companies
compete effectively.
Curtailment of foreign investment which
can survive only under the shelter of preferential tax treatment
can only be in the U.S. interest and in the interest of the
world economy.
It will help domestic growth, strengthen our
balance-of-payments position and (a matter in which I am not
entirely disinterested) substantially increase tax receipts.
Crediting of Foreign Tax
The credit for foreign Income taxes allowed a taxpayer under
existing law operates so as to grant an excessive allowance when
business activities are conducted abroad through a foreign subsidiary
When a foreign subsidiary pays income tax abroad, the portion of
its profits utilized for this purpose Is, of course, not available
for distribution as a dividend to the parent. The foreign income
tax is, in effect, deducted from taxable profits. When the U.S.
parent company receives dividends from its subsidiary it is
allowed a credit for a proportionate part of the income tax paid
by the subsidiary. Thus both a deduction and a credit are allowed
for the same income tax. The result Is to bring about a combined
foreign and domestic effective tax rate, In the optimum case, of
about 45 percent instead of the statutory rate of 52 percent.
This may be clearer from the example shown on the attached
table.
With a foreign income tax rate of 30 percent on the foreign
subsidiary, the combined effective tax rate is 45.4 percent instead
of 52 percent. The present method of computing the credit for
foreign income tax thus offers a substantial inducement to investment abroad through a foreign subsidiary and produces serious
tax discrimination against investment in the United States. The
differential may be enlarged even further if operations abroad are
arranged through two foreign subsidiaries.
To eliminate this unjustified tax advantage, it is proposed
that a taxpayer be required, as a condition for obtaining the
credit, to include in taxable income his share of profits before
foreign tax. The resulting gain In our tax receipts on foreign
earnings may be estimated at $110 million a year.
Shares in Foreign Investment Companies
Shareholders in domestic regulated investment companies are
subject to tax currently on the earnings of the investment
companies because the earnings must be distributed currently If
the companies are to be relieved of the corporate income tax.
Foreign Investment companies whose shares are held by United States
shareholders are not subject to U.S. tax, except on income from
U.S. sources. Hence, they may accumulate earnings Indefinitely.
Moreover, when a shareholder receives his pro-rata portion of such
accumulated earnings by submitting his shares to the company for
redemption, he obtains capital gains treatment on the income.
- 33 Example
Computation of Foreign Tax Credit
for Dividends from Foreign Subsidiary
Present Law
Profits of subsidiary ..........•••...•...•..
$100
Foreign xax •...«•..•*•.«.»•...•••••••.•*••••
3\J
Dividend to U.S. parent
70
Plus "gross-up" of foreign taxes
Tentative U.S. tax at 52$
36.40
Credit for foreign taxes paid by subsidiary..
21.00
Net U.S. tax
15.40
Combined foreign & U.S. tax
45.40
- 34 -
These foreign investment companies formed to attract United State
shareholders are organized in localities where the companies
themselves are subject to little or no tax as in Canada or Bermuda.
We propose to eliminate this preferential treatment of investments in foreign investment companies by requiring United States
shareholders in such companies to pay tax currently on their share
of the income derived by the foreign Investment company. Since
the SEC requires such companies to report theii* earnings currently,
there is no serious administrative difficulty involved in making
this change.
Limitation of Earned Income Exclusion under Section 911
Under existing law, an individual citizen of the United States
who qualifies as a foreign resident is granted tax exemption on his
entire earned income from outside the United States. In addition
an individual who goes abroad without establishing a foreign
residence and remains abroad for a period of 17 out of 18
consecutive months is exempt with respect to his earned income up
to $20^000 a year«
Available evidence indicates that there were approximately
50,000 American citizens who were living abroad in 1959 and who
claimed an aggregate exemption of more than $500 million for that
year under these two provisions. One individual excluded earned
income of almost a million dollars for one year*
A number of others
reported excluded Income of between $100,000 and $500,000, as the
attached table shows.
Individuals claiming tax ^caption of earned income of $100,000
or wore under Sec. 911 on tax returns filed in
calendar year i960
:
Country
Taxpayer
identification :
of
residence
number
C-l
C-2
c-3
Canada
Philippines
c-4
England
Australia
England
Mexico
Canada
Japan
Switzerland
Venezuela
Venezuela
Venezuela
Switzerland
Venezuela
France
Switzerland
Philippines
Philippines
Argentina
Venezuela
Lebanon
Ecuador
Venezuela
Brazil
Philippines
Venezuela
Germany
Brazil
Dominican Republic
Switzerland
England
Venezuela
c-5
c-6
c-7
c-8
c-9
c-10
c-11
c-12
c-13
c~i4
c-15
c-16
c-17
c-18
c-19
c-20
c-21
C-22
C-23
C-24
C~25
C~26
C-27
C-28
C-29
C-30
C-31
C-32
C~33
1/
: Adjusted
: gross income
:
reported
$32,791
14,739
26,797
17,651
54,985
20,931
22,813
5,976
5,111
8,021
6/729
8,984
756
1,345
48,876
74,586
122,951
146,821
132
2,321
0
0
0
431
331
3,1.82
282
240
4,493
0
5,677
2,893
3,l6l
: Amount of
:
income
: excluded
$186,751
108,638
996,200
130,766
105,707
217,500
583,087
136,700
122,260
160,000
107,000
107,367
184,171
155,360
119,551
115,523
156,000
265,540
111,870
217,121
161,083
151,167
122,307
153,078
449,803
131,950
129,570
160,450
144,833
150,059
117,556
162,500
105,145
May 3, 1961
l/ Not listed to avoid disclosure
Source: United states Treasury Department, Internal Revenue Service,
- 36 -
50
I believe that it is an unsound policy for the U.S.
Government generally to subsidize through tax exemption those
of its citizens who wish to live abroad.
This is especially so
for individuals who establish their residence abroad for tax
purposes even though the nature of their business does not
require it.
It is manifestly unfair to other taxpayers to continue
these exemptions which also contribute to our adverse balanceof-payments position. For these reasons, the President has
recommended that the tax exemptions now accorded the earned income
of American citizens who are abroad be eliminated entirely for
those living in economically developed countries*
Here, again, the less developed countries pose a different
problem.
It is in the public interest that Americans skilled In
industry, education, medicine and other professions be encouraged
to go to these countries and contribute to their economic development.
It is recommended therefore that the exemption for foreign
residents be continued for those resident in these areas, but only to
the extent of $20,000 per year. The present exemption of $20,000
for those who remain abroad for 17 out of 18 months would also be
continued for those Individuals working in the less developed
countries*
Estate Tax Exemption for Foreign Real Estate
The President recommended that the existing exemption of foreign
real estate from the Federal estate tax be eliminated.
In recent
- 37 -
£i
years this also has been a subject of abuse. Primarily because
of this tax feature, persons have been induced to make investments in
foreign real estate in countries which, due to their
very low tax rates, could be appropriately termed "estate tax
havens."
Under legislation adopted in 1951, credit is allowed
for estate and inheritance taxes paid abroad, and there is no
justification for continuing the special exemption for foreign
real estate.
In addition to the changes that I have just discussed, there
are several other proposals of a relatively minor nature which are
covered in the technical statemente
Summary
The foregoing set of proposals is designed to place the tax
treatment of foreign income on a more equal footing with that of
domestic income. These proposals are estimated to Increase revenues
toy $275 million annually.
Taken together these proposals may
be expected to improve our balance-of-payments position by as much
as $525 million a year, of which about one-half would represent increased tax receipts on foreign earnings,, Therefore, enactment
of these proposals will mark a significant forward step In the
battle to safeguard the dollars
battle and win it quickly.
It is essential that we win this
Thus, these proposals have a special
significance far higher than the increase in tax receipts.
Ill. Correction of Other Structural Defects
We are currently examining the income tax structure, using
recent studies by Congressional committees as well as materials
62
- 38 developed by the Treasury.
program of tax reform.
Our objective is to develop a basic
Studies of some parts of this program
have been completed, and in these areas the President has recommended action at this time.
Adoption of these recommendations will improve the equity of
the tax structure and constitute an important first step towards
tax reform.
The President has directed the Treasury to continue
with its research and studies aimed at providing a broader and
more uniform tax base together with an appropriate rate structure.
Additional proposals to this end will be submitted next year. I
turn now to the President's recommendations for this year.
1. Tax Withholding on Dividend and Interest Income
We must face the serious and continuing problem of numerous
individuals failing to report dividend and interest income for
tax purposes. This results in substantial revenue losses to the
Government and Is unfair to those who pay all of their taxes.
General tax compliance with respect to Income from salaries
and wages has been largely and satisfactorily achieved by a system
of tax withholding.
This system has been of help not only to the
Government but also to the wage earner in paying his taxes in a
gradual and systematic manner.
A similar system should be extended
to dividend and interest income to assure and facilitate tax
compliance.
- 39 Ql
This matter has been considered at various times by the
Congress and withholding provisions were passed by the House of
Representatives in 1942, 1950 and 1951. I believe that we have now
developed a plan which overcomes the objections which have been
raised previously.
Legislative action is clearly needed.
The failure to report
dividends and interest income cannot be dealt with adequately
through education programs.
In 1959 the Treasury Department launched an extensive educational program to remind taxpayers to report their full interest
and dividend income on their 1959 income tax returns which were to
be filed In early I960.
Payers of interest and dividends cooperated
fully with the Treasury, and tens of millions of reminder notices
were distributed by them.
Publicity campaigns were organized using
newspapers, magazines, radio and television.
The cooperative effort
of corporations, banks, the stock exchanges, communications media
and others in the educational campaign has been greatly appreciated
by the Department.
Unfortunately, the evidence indicates that despite these substantial efforts, there has been at best only a slight improvement.
While compared to 1958 returns, a larger number of taxpayers reported
this type of Income in the 1959 returns and while the over-all
percentages of reported interest and dividends improved slightly,
the absolute amounts of unreported interest and dividends actually
- 40 increased because of the larger over-all payments of interest and
dividend income in 1959. The most recent Treasury study Indicates
that for 1959 income, taxable individuals failed to report an
estimated $834 million of dividends and $1,995 million of interest
payments, or a total of $2,829 million. By including the unreported
interest and dividend incomes of those filing nontaxable returns,
the total nonreporting gap for 1959 is increased to $3,777 million.
It is further estimated that 11 percent of nonreported dividends
were received by taxpayers with incomes below $5,000, 18 percent
by those with incomes between $5,000 and $10,000, and 71 percent by
those with Incomes in excess of $10,000. The corresponding
percentages for nonreported interest income were 29, 42, and 29
percent. The failure to report 1959 interest and dividends is
estimated to have cost the Government $864 million.
The problem cannot be solved by increased audit and enforcement procedures. Nonreporting of interest and dividends is a
mass compliance problem.
Some of the nonreporting is deliberate
tax evasion, but much of it is due to inadvertence, forgetfulness
and failure to keep records, particularly by taxpayers who receive
a small portion of their incomes from such sources. Obviously, it
is impracticable and inefficient to rely only on information documents
combined with audit procedures to verify and to follow up on millions
of interest and dividend transactions. The Government, at best,
can be expected to recover at a high cost only a small proportion
of the unreported tax by this method.
An inordinate amount of
time and money would have to be spent in the attempt to close
the gap, and little would be gained by it.
To meet this need for compliance, we recommend instead that
a 20 percent withholding rate be applied to interest and
dividends.
Withholding would be applicable to dividends paid by
domestic corporations, Interest paid on deposits In savings
institutions, such as banks, savings and loan ^associations and
building and loan associations, interest paid on United States
Government and corporate securities other than short-term discount
obligations, and to patronage dividends allocated by cooperatives.
The withholding system we recommend would not Impose any
substantial burden on the payers of dividends and interest. In
fact, there would be little additional work as compared to their
present operations. The withholding agent would be asked to withhold on a simple flat rate basis without exemptions and he would
not be required to prepare withholding statements to be sent to
recipients. Remittance to the Internal Revenue Service of amounts
withheld would be by lump sum, without requiring the listing of
individual payees as Is required under wage withholding.
Exemption from withholding of certain payees such as exempt
organizations and nontaxable individuals would Increase payer
burdens.
Across-the-board withholding with no exemptions is
therefore recommended to make the task of payers as simple and as
inexpensive as possible.
Provision would be made in turn to
- 42 prevent hardship due to overwithholding in the case of taxexempt organizations and individuals not subject to tax. Taxexempt organizations, such as pension trusts, charitable
foundations, and educational Institutions, would be allowed to
offset currently the amounts withheld from their interest and
dividends against the amounts they withhold from their employees
for income and social security tax purposes. Where these
credits would be insufficient to provide a full offset, quarterly
refunds would be provided.
In order to simplify the refunding of
small amounts withheld from nontaxable minors, provision would be
made for a parent of a dependent minor to claim credit on the
parent's annual tax return for amounts withheld from the minor,
if the parent so wishes. Individuals not subject to tax (other
than minors) would be allowed to claim their refunds on a
quarterly basis. These refunds can be paid promptly.
Although
withholding statements would not be used, it is not expected
that their absence would result in baseless claims for refunds.
An excessive claim for refund is a fraudulent act; this fortunately
is not commonplace among our taxpayers. Moreover, the Service
would institute a special audit enforcement program to verify the
incomes reported by individuals claiming refunds. Spot checks
of refunds would be made by having payers confirm the reported
incomes on those claims.
The adoption of this practicable system of withholding on
dividends and most forms of interest would, on the basis of 1959
7
- 43 -
results, increase revenues by an estimated $613 million, the
bulk of the estimated revenue loss.
For most dividend and
interest recipients, withholding would cover the bulk of their
tax liabilities on such income.
We would then be in a position
to concentrate enforcement efforts on inadequate tax compliance
among higher bracket taxpayers to insure collection of the total
amounts of tax properly due. The out-of-pocket cost to the
Government to recoup the $613 million by withholding is estimated
.to be $18 million or 3 percent of the revenue gain. Ten million
dollars of this total would be the cost of additional return and
refund processing; $6 million would be the cost to the Treasury
for check issuance and fiscal service activities as payer; and
$2 million would be the cost of policing the refund system.
2. Repeal of the Dividend Credit and Exclusion
Under the law enacted in 1954 the first $50 of dividends may
be excluded from Income and a credit against tax of 4 percent taken
on dividends in excess of this amount. By providing the exclusion
and the credit against tax, it was intended to stimulate investment
in the economy through tax relief for dividend income, and to
partially remove the so-called double taxation of dividend income.
In my view, the investment credit is a much more direct and
effective method of encouraging investment.
As an attempt to
coordinate the personal and the corporate tax on dividend Income,
the 1954 technique has proved to be discriminatory and inequitable.
OS
- 44 Whether there is, in fact, double taxation of dividends has
been the subject of much controversy.
However, even assuming
the existence of such double taxation the fact remains that the
dividend credit and exclusion give a considerably larger relative
reduction in the burden of double taxation to the dividend
recipient with high Income than to the dividend recipient with
low income.
This point may be made clear by considering the average stockholder in a particular income class. The corporate tax imposes
an extra tax burden, over and above the personal tax on dividends,
of 52 cents per dollar of corporate profit before tax for shareholders
not liable to income tax, 42 cents per dollar of corporate profits
before tax for stockholders In the 20 percent tax bracket (for
example, married couples with less than $5,000 income), and of but
5 cents per dollar of corporate profits on those with Incomes of
over $1 million.
On the averatge, the credit and exclusion combined
reduce this extra burden by 3 cents per dollar of corporate
profit before tax for married couples with income of $5,000, and
by 2 cents for those with income over $1 million. The percentage
reduction of the so-called double tax is thus only 8 percent for
low income stockholders, while it is 41 percent for high income
stockholders. This deficiency of the credit and exclusion has been
noted widely.
Surely a technique as discriminatory as this has
little to recommend it.
G$
- 45 The dividend credit represents a dead-end approach toward the
equitable taxation of dividends. In 1954 the provisions were
represented as only a first step toward full relief, which was
eventually to be achieved by raising the credit to 15 percent of
dividends.
However, it is not possible to increase the credit
to such a level without giving those in the high tax brackets
reductions exceeding the extra burdens they are presumed to bear
as a result of the corporate Income tax. For example, the tax
relief granted by a 15 percent credit would amount to 7.2 cents
per dollar of corporate earnings before tax —
or about 25 percent
more than the extra burden presumed to fall on those with incomes
of $250,000 because of the corporate tax. With a 20 percent credits
which has been recommended by some, the tax relief at high income
brackets could be twice as large as the presumed extra burden of the
corporate tax.
Looked at as straight tax reduction, the benefits provided
by these provisions are highly concentrated In the upper income
groups.
In recent years less than 9 percent of the total com-
bined tax reductions from the dividend credit and exclusion have
gone to returns with less than $5,000 of Income. In contrast, more
than 75 percent of the total tax reductions accrue to returns with
incomes of $10,000 and over and more than 54 percent to taxpayers
with incomes over $20,000. In view of the fact that the dividend
exclusion is frequently represented as being helpful to lowincome groups, It Is noteworthy that only about 15 percent of the
- 46 ?
0
total tax reduction due to such exclusions go to returns with
incomes under $5,000. About 55 percent of its tax benefits go
to individuals with over $10,000 of income.
Benefits from the 1954 dividend provisions accrue more
broadly at the higher income levels because shareholding is more
usual at those levels. Only 6 percent of taxable returns with
income under $5,000 have any dividends at all, while over 90
percent of returns with incomes of over $50,000 have dividends.
Dividend income for returns under $5,000 constitutes but 1 percent
of total income of this group as against 29 percent for the
higher group. Putting It differently, returns with incomes under
$5,000, or 40 percent of the total number of taxable returns,
report only about 8 percent of the dividends included in tax
returns.
On the other hand, returns with incomes over $50,000, or
two-tenths of 1 percent of all returns, account for 33 percent of
all dividends, any way one looks at it. The over-all benefit of the
dividend credit is much larger for the upper income groups.
If the dividend credit and exclusion are thought of as methods
of reducing taxes, they are extremely restricted in form. Singling
out a particular type of income for such reduction discriminates
against all other kinds of Income recipients who also face high
marginal tax rates.
71
- 47 I am vitally interested in shaping the tax structure to
stimulate investment and growth.
When the dividend credit and
exclusion were adopted it was hoped that they would induce new
equity issues from corporations which would use the proceeds
to undertake new Investment in. plant and equipment. However,
these provisions have not proved effective in encouraging
additional capital investment. They cannot begin to compare in this
regard to the proposed investment credit whicft applies only to new
investment, operates directly at the point wheretthedecision to
buy plant and equipment is made, is available to firms whether they
are investing retained earnings or outside funds, and draws no
distinction between incorporated or unincorporated enterprises.
Let us look at the record and see what the dividend credit
and exclusion hare done to increase investment. Although the
number of stockholders has increased since the dividend provisions
were adopted, there has been no increase at all in the annual
dollar purchases of equity securities (less sales) by individuals.
In both 1951 and 1952 when dividends received no relief the net
purchases of stock by individuals were higher than in any other
year in the past decade.
In recent years, net stock purchases
by individuals have also been outpaced by a number of other forms
of personal savings such as time and savings deposits In banks and
shares In savings and loan associations.
The relative importance
of stock issues to corporate external long-term financing from all
sources has not risen. Department of Commerce figures show that
7°
- 48 -
the relative importance of stock issues was higher in the 1949-51
period than in later years of the past decade, except for 1959.
And, finally, but not least, any incentive effect could only
assist those large firms well enough known to be able to tap the
stock market for new funds.
According to estimates by the New York Stock Exchange, the
number of shareholders rose from 6.5 million in 1952 to 12.5 million
in 1959 and to 15 million in 1961. This is a healthy course for
economic democracy to take, and we welcome it. However, this
development does not require special tax preferences, and it is
very, doubtful whether the dividend credit and exclusion have
played a major role In this respect. A number of other factors such
as the levels of personal incomes and savings, corporate profits,
dividends, and stock prices, appear to have been far more important
than the dividend provisions in stimulating stock ownership.
The repeal of the dividend credit and exclusion should be
enacted promptly so that the introduction of withholding on
dividend and interest income may benefit from the resulting
simplification. The revenue gain from the repeal of these provisions is estimated at $450 million a year.
3.
Expense Accounts
Turning now to expense accounts, much has been said and
written about the abuses In this area.
Abuses through expense
accounts take a variety of forms. Tax deductible entertainment
7?
- 49 allowances frequently are a means by which business provides
tax-free compensation to favored employees or business associates.
The seller invites the buyer to his yacht or hunting lodge, the
buyer may reciprocate with lavish parties and night club entertainment, and both then charge it off as a business expense. Some of
this Is done because of the businessman's
own desire to obtain
such luxuries tax free; much of it is done in response to a
competitive pressure which has in large measure been created by our
tax law and not by the dictates of business. As a result,
therefore, there are few of the luxuries of life, such as vacations
at fancy resorts, club memberships, and cruises which a large
number of taxpayers cannot In some way deduct on tax returns as
business expenses. As the President stated, the time has come when
our tax laws should cease to encourage luxury spending as a
charge on the Federal treasury.
I have here a four-part document Illustrating the abuses in
the entertainment area. This document demonstrates that tighter
enforcement of present law will not suffice; corrective legislation
Ls necessary.
Part One of this document summarizes the result of a recent
mdit by the Internal Revenue Service. This audit was undertaken
Last September by the Treasury Department as a step In meeting the
lirective of the Congress, set forth in the Public Debt and Tax
late Extension Act of i960, that the Secretary of the Treasury
lake a report as soon as practicable during the 87th Congress on the
- 50 -
74
progress of an enforcement program, initiated by the Internal
Revenue Service In i960, relating to expenses for entertainment,
travel, yachts, hunting lodges, club dues, and similar items.
Although this audit covered only 38,000 returns, it shows that
these returns claimed deductions totaling $5.7 million for
club dues, $2 million for theatre tickets and similar amusements,
over $1 million for hunting lodges and fishing camps, $2.6 million
for yachts, and $11.5 million for business gifts. Most
significantly, the audit shows that only a small portion of these
expenses can be disallowed under existing law.
The difficulty in administering present law is shown by the
fact that, even though most of the claimed expenditure for entertainment was allowed under the existing generous standards, almost
50 percent of the returns had to be adjusted by Internal Revenue
agents. These adjustments resulted in the disallowance of
$28.3 million of claimed travel and entertainment expense. In
addition, it was determined that $29.5 million of the claimed
deductions constituted unreported income In the nature of
dividends or additional compensation to stockholders, officers,
or employees.
Part Two of the document consists of a report by the
Commissioner of Internal Revenue on the very serious problems
encountered In administering present law relating to travel and
entertainment expenses.
7,5
- 51 Part Three contains a summary of some court decisions and
administrative cases illustrative of the type of entertainment
expenditure which is deductible under existing law.
As the
introduction to this part states, when judicial decisions permit
the cost of a safari to Africa undertaken by a hunting enthusiast
and his wife to be deducted as an expense for advertising dairy
milk, one cannot expect revenue agents to question successfully
the business necessity for duck hunting or night-clubbing with
business associates.
Part Four of the document contains a compilation of recent
comments on expense accounts and business gifts appearing in
newspapers and other periodicals.
These comments illustrate the
widespread public concern, shared by many in the business community,
with expense account abuses.
The supplemental statement contains detailed proposals for
carrying out the President's recommendation to disallow certain
entertainment expenses. The characteristic feature of all of these
expenses is that they confer substantial personal benefits which
are in large measure a substitute for personal living expenses.
Under these detailed proposals, expenses for entertaining guests
at such functions as parties, night clubs, theatres, country clubs
and fishing trips would be disallowed in full.
So also would be
expenses for luxury entertainment facilities such as yachts, hunting lodges and swimming pools, as well as for such items as country
club dues. The cost of so-called "business gifts" would be
7S
- 52 disallowed to the extent it exceeds an annual limitation of
$10 for each recipient.
Expenditures for food and beverages generally would be disallowed, although several exceptions are made.
One exception re-
lates to food or beverages provided primarily to employees on
business premises. Another exception covers the cost of food and
beverages consumed in the course of conducting business, but not in
excess of a fixed amount per day for each individual involved. This
figure could be somewhere in the range of $4 to $7, A deduction
for the cost of food and lodging while on business trips would be
limited to twice the maximum per diem rate authorized to be paid to
Federal employees. At the present time this rate for travel in the
United States is $12 per day, but the Bureau of the Budget has recommended to the Congress that this figure be raised to $15. Therefore,
the per diem limitation applicable to business travel would be $30 if
the Congress accepts the recommendation of the Bureau of the Budget.
Finally, where a business trip is combined with a vacation, a portion of the cost of travel to the business destination would be disallowed.
I believe that these are realistic recommendations which recognize the legitimate needs of business while at the same time eliminating the lavish expenditure for personal benefit which has, in the past,
been charged off to the American taxpayer.
revenues by at least $250 million per yeare
They would increase
- 53 4.
T7
Capital Gains on Sale of Depreciable Business Property
The President has recommended that capital gain treatment be
withdrawn from gains on the disposition of depreciable property to
the 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 treated as
ordinary income. Any gain in excess of the cost of the asset
would be still be treated as capital gain. This reform will eliminate
an unfair tax advantage which the law today gives to those who
depreciate property at a rate in excess of the actual decline in
market value and then proceed to sell the property, thus, in effect,
converting ordinary income into a capital gain. This reform is
particularly essential at this time in view of the recommendations
to provide a tax credit for new investment in depreciable property.
Moreover, the proposed withdrawal of capital gain treatment
from gains on disposition of depreciable property that reflect prior
depreciation would eliminate much of the present tax advantage
attaching to investment in so-called "depreciation shelters", which
exist primarily in the real estate area. For example, during the
first few years after acquisition of a building by a real estate
syndicate, the total of depreciation allowances and mortgage Interest
will often exceed the rental income, so that distributions of income
during this period are tax exempt in the hands of the investor. When
the distributions substantially cease to be tax-exempt, the building
is sold, a capital gains tax paid on the gain attributable to the
depreciation allowances, and another building is acquired to provide
another depreciation shelter. Withdrawal of capital gain treatment
from the gain on sale of the building, to the extent of prior
depreciation allowances, will substantially eliminate this kind of
tax trafficking.
The gain in revenue is estimated to be $200 million
per year.
5-
Special Types of Institutions
In an economy characterized by a great variety of institutions,
the tax law must attempt as far as possible to provide uniform and
nondiscriminatory treatment among them. Various improvements of
this sort are recommended in the President's message.
Cooperatives.— The President has recommended legislation to
insure that earnings of cooperatives reflecting business activities
are taxed either to the cooperatives or to the patrons. Under the
recommendation, cooperatives would be allowed to deduct amounts
allocated in cash or scrip as patronage dividends and the patrons
would be taxable on the patronage dividends allocated to them. As
under present law, a patronage dividend received by a patron with
respect to purchases by him of items for his personal use would not
be included in his income.
In 1951, Congress enacted legislation which was Intended to
accomplish just this result. However, various court decisions have
rendered Ineffective the Congressional intent by holding certain
allocations of patronage dividends to be nontaxable to the patron,
although such allocations are deductible by the cooperative. As a
result, substantial income from certain cooperative enterprises Is
not being taxed to either the cooperative or to Its patrons. The
President's recommendation would, in essence, fulfill the prior
intention of Congress and remove a present inequity in the tax law.
7Q
I w
- 55 The President also recommended that the withholding tax on
dividends and interest at a rate of 20 percent be applied to
patronage dividends. This would, in effect, assure the average
patron of cash with which to pay the tax attributable to patronage
dividends which he receives, since the 20 percent tax paid to the
Government by the cooperative will come from its funds. The
President's recommendation will result in a method of taxation of
cooperative income that is fair and just to both the cooperatives
and competing businesses.
It is estimated to raise revenue by
$25 - $30 million.
Fire and Casualty Insurance Companies.—As indicated in the
President's message, the tax provisions applicable to mutual fire
and casualty insurance companies, originally adopted in 1942, are
outmoded and result in an inadequate and inequitable distribution
of tax. Under the provisions of the present law, stock fire and
casualty insurance companies are taxed essentially like other
corporations, on the basis of the application of the regular
corporate rates to their combined investment and underwriting
income. Mutual companies in the fire and casualty insurance field,
however, are generally subject to an alternative tax formula under
which they pay the regular corporate rates on net investment income
only or 1 percent on their gross income, consisting of the sum of
the gross Investment income and net premiums, whichever results in
the higher tax.
Reciprocals and interinsurers are excused from
the 1 percent gross income tax.
Su
- 56 We recommend that legislation be adopted which would eliminate
the special provisions now applicable to mutual and reciprocal
insurance companies and tax these companies on the general corporate
basis in essentially the same manner as stock companies. The bills
introduced in this Congress by Mr. Boggs and Mr. Baker, members of
this Committee, to equalize the taxation of the various types of
fire and casualty insurance companies provide a sound basis on
which to effect current remedial legislation in this field.
It is estimated, that the enactment of legislation along the
line of the Boggs-Baker bill, effective beginning in 1962 would
increase revenues by about $50 million annually in the next few
years.
Mutual Savings Banks and Savings and Loan Associations.—
As the President has pointed out:
"Some of the most important types
of private savings and lending institutions are accorded tax
deductible reserve provisions which substantially reduce or eliminate
their Federal income tax liability."
stated:
The President has further
"These provisions should be reviewed with the aim of assuring
non-discriminatory treatment."
The Treasury Department in cooperation with other interested
Government Agencies is now intensively reviewing these provisions
in order to develop specific recommendations in accordance with the
President's message. As soon as this review is completed, which we
expect to be done sometime in June, we will present our
recommendations to the Congress.
- 57 -
81
IV. Further Recommendations
I now turn to a final set of recommendations, including tax rate
extension, taxation of aviation fuel, and taxpayer account numbers.
Tax Rate Extension.—The President, in his tax message,
recommended an extension of present corporation income and excise
tax rates otherwise scheduled for reduction or termination on
July 1, 196l. In the absence of this legislation, the corporate
tax rate would be decreased 5 percentage points from 52 percent to
47 percent, excise tax rates on distilled spirits, beer, wines,
cigarettes, passenger automobiles, automobile parts and accessories,
and the transportation of persons would also decline; and the
excise tax on general telephone service would expire.
These scheduled reductions in corporate taxes and excise taxes
would cause a revenue loss of about $2.6 billion in fiscal year 1962
and a full year revenue loss of $3.6 billion. Since we are
already facing a deficit In fiscal 1962 this is entirely unacceptable.
It is essential that these rates be extended promptly to maintain
intact the revenue producing power of our tax system, to prevent an
increase in the budget deficit, and to avoid prejudging next
year's over-all tax reform.
Aviation Fuel.—The President has recommended (l) extending
the present net 2-cent rate on aviation gasoline to jet fuels,
(2) holding this uniform rate covering both types of fuel at the
2-cent level for fiscal 1962, and (3) providing for annual increments
in this rate of 1/2 cent after the fiscal year 1962, until the
portion of the cost of the airways properly allocable to civil
aviation is substantially recovered by this tax.
- 58 -
82
The immediate increase in revenue from this proposal will be
modest in comparison with anticipated airway cost; and the annual
gradation of further increases is intended to moderate the impact
of the tax on the air carrier industry.
The inclusion of jet fuel in the tax base, along with aviation
gasoline, is clearly in order and is estimated to almost triple
the revenue from aviation fuel.
As air travel increases through
the introduction of modern jet aircraft, revenues from the aviation
fuel tax are declining, from $29 million in fiscal year i960 to an
estimated $17 million in fiscal year 1962. This is a topsy-turvy
situation which must be corrected.
If the tax were extended to
jet fuel at the 2-cent rate, revenues in fiscal year 1962 would
increase by $28 million to a total of $^5 million.
In view of the
rapid transition to jet aircraft, the taxation of jet fuel is
essential if the aviation industry Is to contribute anywhere near
its proper share to the cost of improving and operating the Federal
airways system.
Further, since the revenue from aviation fuel is
considered a user charge for airways, the revenue from aviation fuel
now going to the Highway Trust Fund should be retained In the
general fund of the Treasury.
Representatives of the Federal
Aviation Authority are available to discuss this recommendation in
detail.
Taxpayer Account Numbers.—The President has recommended that
legislation should be enacted to authorize the use of taxpayer
account numbers beginning January 1, 1962, to Identify taxpayer
accounts throughout the processing and record keeping operations of
the Internal Revenue Service. This legislation would require the
- 59 -
83
use of identifying numbers for persons filing tax returns and
other documents.
It would also specify that such identifying
numbers must be furnished to other persons who are required to
file various tax documents.
The assignment of an account number to each taxpayer is
indispensable to the effective operation of the system of automatic
data processing which the Internal Revenue Service is now establishing. It is generally recognized that such a system utilizing modern
mechanical methods of collecting and processing tax data is
essential to a continued effective collection and enforcement
program.
A pilot processing installation located in Atlanta,
Georgia, encompassing the seven southeastern States, is scheduled
to begin operation in January of 1962. The need for identifying
numbers is therefore apparent.
The proposed coordination of account number assignment with
the existing Social Security numbering system will substantially
alleviate any possible burden on taxpayers. Moreover, substantial
flexibility in the requirements for using identifying numbers has
been incorporated in the proposed legislation in order to permit
the special problems of taxpayers in connection with information
returns to be taken into account.
Conclusion
In concluding, let me repeat what I believe should be the basic
principles underlying our tax policy this year and next. We must
conserve and strengthen the revenue producing power of our tax
84
- 60 system so that its proceeds will be adequate to meet the needs of
government in these crucial years. We must adapt the tax
structure to the requirements of a healthy economy, an economy
that makes full use of its resources, provides relative stability
of prices, and which generates a steadily rising level of income,
contributing thereby to its role in an expanding world economy.
Finally, we must improve the equity of our tax structure so as to
assure that all Americans contribute their fair and proper share
to the cost of their Government.
If these things are done, the
tax system will be a powerful positive force in the working of
our economy and in the life of our Nation.
with you to make it such.
0O0
I propose to strive
Exhibits Accompanying the Statement of
Secretary of the Treasury Dillon
Before the Committee on Ways and Means
House of Representatives
May 3, 1961
in connection with the hearings on the
President's Recommendations Contained
in His Message on Taxation
EXHIBIT I. TAX INCENTIVES FOR MODERNIZATION AND EXPANSION
EXHIBIT II. FOREIGN INCOME AND THE BAIANCE OF PAYMENTS
EXHIBIT III. DIVIDEND AND INTEREST NONREPORTING
EXHIBIT IV. REPEAL OF DIVIDEND RECEIVED CREDIT AND EXCLUSION
EXHIBIT V. EXPENSES FOR TRAVEL, ENTERTAINMENT, AND BUSINESS GIFTS
(This exhibit is in a separate accompanying document)
EXHIBIT VI. SALES OF DEPRECIABLE PROPERTY
EXHIBIT VII. COOPERATIVES
EXHIBIT VIII. FIRE AND CASUALTY INSURANCE COMPANIES
8S
EXHIBIT I - TAX INCENTIVE FOR MODERNIZATION AND EXPANSION
Table 1 - Estimated expenditures on new depreciable assets, 1961
Tnis table shows expected investment during 1961, in depreciable
assets, by industry, separately for corporate and unincorporated firms
•within each industry, and separately for those industries -which are
eligible for the proposed credit and for those which are being excluded.
The total shown in the table is larger than the anticipated expenditures for I96I on new plant and equipment as published in the Survey of
Current Business, U. S. Department of Commerce. The Commerce-Securities
and Exchange estimates do not include expenditures of farm businesses,
professional firms, real estate operators and lessors, nor all business
purchases of automotive equipment. Estimatedamounts for these categories
are included in Table 1.
Table 2 - Estimated distribution of benefits under investment incentive
credit, by industry, I96I
This table shows for 1961 how the total estimated revenue cost of
the proposed investment incentive credit, $1,700 million, is distributed
percentagewise among various eligible industries.
Also shown is the separate breakdown of each industry percentage
between corporate and unincorporated firms. For example, the manufacturing
industry is estimated to receive 4-2 percent of the total benefits; corporate manufacturing firms will receive 38 percent, and unincorporated firms
h percent.
Table 3 - Estimated number of firms covered and amount of investment
incentive credit, 196I
This table shows estimates for 1961 of the number of firms covered
and amounts of tax credit falling within the three forms of the credit:
(l) Minimum credit of 10 percent on the first $5,000 of investment.
(2) Credit of 6 percent for firms with investment between 50 percent
and 100 percent of depreciation allowances.
(3) Credits of 6 percent and 15 percent for firms with investment
in excess of depreciation allowances.
Numbers covered and amount of tax credit are shown separately for
corporate and unincorporated firms, under each form of credit.
87
Exhibit I
- 2 -
Table h - Examples showing computation of investment tax incentive
credit for a business with $2,500 depreciation assuming
varying levels of expenditures on new plant and equipment
ranging up to $7,5Q0
Table 5 - Examples showing computation of investment tax incentive
credit for a business with $100,000 depreciation assuming
varying levels of expenditures on new plant and equipment
ranging up to $100,000
These are companion tables illustrating the principles of the
computation of the investment incentive credit on portions of expenditures qualifying for the 6 percent and 15 percent rates, and the interrelationship between the 6 and 15 percent credits and the 10 percent
minimum credit on the first $5,000 of expenditures. An explanatory
note accompanying each table indicates the simplifying assumptions used
as a basis for these illustrative computations in the interest of clearer
exposition.
Table 6 - Capital expenditures and depreciation for large corporations
from Question 7 of Treasury Department depreciation survey
Table 7 - Capital expenditures and depreciation for small businesses
from Question 7 of Treasury Department depreciation survey
These are companion tables showing how capital expenditures on
plant and equipment compared with tax allowances for depreciation and
amortization over a 6-year period 1954-9, for large corporations and
for small businesses responding to the Treasury1s depreciation survey
questionnaire. The tables show the numbers of businesses with expenditures in excess of depreciation and with expenditures less than depreciation, the amount of such excess or deficiency, and the ratios of expenditures to depreciation for each group, as well as for the aggregate. The
figures are also broken down by broad industry classification.
Among other things, these tables show that for the large corporations,
excluding public utilities not eligible for the investment incentive credit,
1,369 or approximately 85 percent of the l,6l8 total would qualify for the
15 percent credit, based on their average 6-year experience. For the
small businesses, 806 or approximately 78 percent of the 1,027 total would
have qualified on the average for the 6 years.
Table 8 - Schematic illustration of permanent revenue impact of
accelerated depreciation, 10-year asset
This table presents a simplified schematic analysis of the annual
pattern of revenue losses and the cumulative total revenue losses,
Exhibit I
- 3 assuming the application of (a) 5-year amortization and (b) 100 percent
initial write-off (expensing of capital outlays in the first year)to a
stabilized depreciable property account, previously on the straight-line
method, with constant annual capital expenditures of $1,000. This
shows that the transitional revenue losses following introduction of
accelerated depreciation build up.to a cumulative total which is never
recouped as long as expenditures continue and the acceleration formula
remains in effect.
Table 9' Present discounted value of future tax deductions
This table provides a basis for comparing the value to the investor
of a 15 percent investment incentive credit with the value of various
illustrative formulas for accelerated depreciation, assuming a $1,000
investment in depreciable assets with various selected service lives
ranging from 6 to 40 years. In computing the present discounted value
of the depreciation deductions, a 5 percent interest or discount rate
is assumed.
These figures show, for example, that the present value of $1,000
of depreciation deductions for a 20-year asset using the double-declining
balance method is $376. Using 5-year amortization, the present discounted
value of $1,000 of deductions is $^73. The difference, or $97, represents
the value to the investor of using 5-year amortization *s against the
double-declining balance method. This may be compared with the value at
adding a 15 P ^ e n t investment credit to double-declining balance depreciation, shown to be $143 ($519 - $376). The net value of the credit as
shown in this instance is slightly less than $150 due to the offset
against the qualifying expenditure of the first year's depreciation
allowance on the new investment.
Table 10 --A™*™™ Annual rate of return on Investment after tax under
tgTpT-npnBefl IS percent investment incentive credit and
alternative depreciation methods
This table provides a basis for appraising the incentive value of
the proposed 15 percent investment credit compared/i^ * ^ ™ i n c r e a s i n g
accelerated depreciation formulas, in terms of their effects in R a s i n g
the average annual rate of return on investment after tax. The figures
shown are for 10 and 20 year assets, respectively, "sing as benchmarks
alternative earnings situations producing 5 and 10 percent after-tax tor
an investor using the straight-line method of depreciation.
PQ
Exhibit I
- hThe method of computation used, which is essentially the same as
the method used in determining bond yields (given the price of a bond,
its coupon rate, and maturity), is described in some detail in a note
accompanying the table.
The table shows, for example, that for an investor with a 20-year
asset yielding 10 percent after tax with the straight-line depreciation
method, the adoption of the double-declining balance method raises his
rate of return after tax to 10.9 percent; the addition of a 15 percent
investment credit for the investor on the double-dedining balance
method increases the rate of return to 13.8 percent, or an increase in
after-tax profitability of 2.9 percentage points or about 27 percent
(2.9 percent * 10.9 percent). By comparison, the addition of a
50 percent initial write-off under the double-declining balance method
results in a smaller increase in the rate of profitability—from
10.9 percent to 13.4 percent, or 2.5 percentage points, an increase
of 23 percent.
Table 11 -Effects on annual rate of return after tax for 20-year asset,
with corresponding total revenue.;losses under the proposed
investment incentive tax credit and alternative methods of
accelerated depreciation methods'
(Assuming asset and industrial eligibility similar to that
under investment incentive proposal^
This table (based in part on the computation of rates of return
after tax for a 20-year asset yielding 10 percent after tax under the
straight-line depreciation method, as shown in the preceding Table 10)
provides a convenient basis for comparing the incentive effect of the
proposed investment credit and selected accelerated depreciation formulas
in relation to their revenue effects. The revenue losses under the
investment incentive credit and under the different acceleration formulas
are shown for the first year, over the first 5 years, and over the first
10 years of operation. The 20-year service life was selected as representing approximately that of an average investment.
Table 11 shows, for example, that the proposed 15 percent investment
credit would increase the average rate of return on a qualifying 20-year
asset by more than a 50 percent initial allowance, yet would involve
only a fraction of the revenue losses resulting from such an initial
write-off, either in the first year, the first 5 years, or the first
10 years.
This table also shows that the proposed investment incentive credit
would provide incentive effects comparable to a 5-year write-off on the
assumed 20-year asset, with only about 40 percent of the revenue cost
of 5-year amortization over the first 5 years and only about one-third
the revenue cost over the first 10 years. '
Exhibit I
- 5 Table 12 - Growth of net stock of business plant and equipment, 1949-59
This table shows the percentage growth, year by year, of the net
stock of business plant and equipment in the United States from 1949
through 1959* Average annual increases are shown separately for the
first and second halves of the decade and for the decade as a whole.
These figures show, for example, that the average annual rate of
increase in the net capital stock (business plant and equipment combined) was about 3.1 percent for the second half of the decade, as
against 4.7 percent for the first half.
Table 13 - Receipts, deductions, net income, and depreciation and
amortization of all active corporations, 1940-58
Table l4 - Total assets, gross depreciable assets, and depreciation
and amortization reserves for active corporations with
balance sheets, 194Q-5"5
Table 15 - Gross depreciable assets, depreciation, amortization, and
average depreciation rate for active corporations with
balance sheets, 1940-55
These three companion tables provide basic background information,
taken from corporate statistics of income, on the amount of depreciation
deductions taken by corporations on their income tax returns for the
period 1940-58. The tables also furnish information on the amount of
depreciable property, depreciation reserves, the. importance of depreciable
property in relation to total corporate assets, and the importance of
depreciation deductions in relation to other deductions and net earnings
of corporations.
Table 13 shows, for example, that the total depreciation and
amortization deductions of corporations on their 1958 tax returns was
$20.7 billion. This represented only 2.8 percent of total corporate
receipts and 3 percent of total corporate deductions but amounted to
34,5 percent of net income before depreciation and nearly 53 percent
of net income after depreciation allowances. The figures show the
substantial rise in depreciation allowances over the years, as well
as some tendency for depreciation to increase in relation to receipts,
deductions, and net earnings.
Table l4 shows that while depreciable property has increased severalfold since 1940, both net depreciable assets and gross depreciable assets
have declined as a percentage of total corporate assets. The decline has
been proportionately greater in the case of net depreciable assets,
Exhibit I
- 6reflecting the increase in depreciation and amortization reserves as a
percent of gross depreciable property. As this suggests, corporate
depreciable property in 1958 was more fully "reserved" (subject to
relatively larger accumulated depreciation and amortization reserves)
than it was in 1940, although less fully reserved than at the close
of World War II.
Table 15 shows, among other things, that the average depreciation
rate has approximately doubled since 1940. This computation of the
average depreciation rate was made with adjustments to exclude
amortization and property subject to accelerated amortization. While
the rise in average depreciation rates has been due in part to the
use of liberalized depreciation methods, these figures suggest that
the 2.6 percent average depreciation rate in 1940 was equivalent to
an average service life on the straight-line basis of about 39 years,
while the 5»1 percent rate for 1958 w a s equivalent to an average
service life on the straight-line basis of slightly less than 20 years.
Exhibit I
-7 Table 1
Estimated expenditures on new depreciable assets, 1961
(in billions of dollars)
By
corporate
firms
By
noncorporate
firms
34.0
22.7
4.0
.0
n.3
14.1
13.6
6.7
7.4
1.0
.6
1.9
1.2
1.5
9.7
6.4
7.2
.8
.6
1.4
.0
1.3
5.0
Excluded industries, total
Lessors of residential buildings ..
Communications
Other public utilities
12.9
12.4
=5
3.7
3.0
6.2
3.3
3.0
6.1
.4
.0
.1
Total, all industries
46.9
35.1
11.8
Eligible industries, total l/
Agriculture
Manufacturing
Durable goods
Nondurable goods
,
Mining
,
Railroads
Other transportation
Professional firms
,
Lessors of nonresidential property
Commercial and other
Office of the Secretary of the Treasury,
Office of Tax Analysis
4.0
.5
.3
.2
.2
.0
=5
1.2
.2
4.7
May 3, 1961
Source: Based in part on data from Commerce-Securities and Exchange Commission
survey of anticipated expenditures on new plant and equipment. However, the estimated totals in this table are larger than those
published by Commerce-S.E.C, because the Commerce-S.E.C. estimates
do not include expenditures of farm businesses, professional firms,
real estate operators and lessors, nor all business purchases of
automotive equipment.
l/ Includes approximately $5.0 billion of assets with lives under 6 years.
Exhibit I
Table 2
Estimated distribution of benefits under
investment incentive credit, by industry, 1961
{Percent of total revenue loss of $1,700 million)
„ . " """"" " i '-Il~« " i' Corporate TSoncorporati'
*n**»try
. Total
,
flpea
,
^
Agriculture 14 0 14
M&nufeetoriBg ..«...*
Durable goods
Scusdurable good* .........
Mining .............#...
42
IS
£4
Railroads
Other tr&nsport&tica
38
X6
22
4
2
2
3 2 1
1
0
1
5
3
2
PToifeasloaal firss
4
0
4
Lessors of no^reatMutSJul property »*.
9
B
1
22
9
23
100
61
39
Ceisserclal &&& other
total •
,.•..
••«••..,..«+
Office "of tbe Secretary of 'the~t»a«ury# ' May 3, 19bl
Office of Test A&aly&is
Exhibit I
94
- 9 Table 3
Estimated number of firms covered and amount of investment
incentive credit, 1961
Separately for each form of credit
„
Form of credit
: Numbers
.
-,
11<a
: covered
(000]
Minimum credit of 10 percent on first $5,000
of investment:
Credit available at 6 and 15 percent rates,
total
7,580
Corporate firms
700
Noncorporate firms
6,880
Additional credit for these same firms because
they used the 10 percent minimum credit,total
Corporate firms
Noncorporate firms
Credit of 6 percent, for firms with investment falling
within 50 percent and 100 percent of depreciation
allowances, total
120
Corporate firms
110
Noncorporate firms
10
Credits of 6 percent and 15 percent for firms with
investment in excess of depreciation allowances,
total
Corporate firms
Noncorporate firms
Total, all firms 8,000 1,700
Corporate firms
Noncorporate firms
Office of the Secretary of the Treasury,
Office of Tax Analysis
:
Tax
,.,
: credit
($000,000)
435
35
400
205
40
165
100
90
10
300
240
60
96O
880
80
1,050
6,950
1,045
655
May 3, 1961
Examples showing computation of investment tax incentive credit for a business
with $2,500 depreciation assuming varying levels of expenditures on new
plant and equipment ranging up to $7,500
Example
1
2
3
4
5
6
7
8
9
10
11
12
13
14
* Expenditures
-0
$500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
7,500
: 15 percent credit; 6 percent credit: Minimum credit
:Base 1/ : Credit : Base
Credit :Base 3p. Credit
0
0
0
0
0
0
$500
1,000
1,500
2,000
2,500
3,000
3,500
5,000
0
0
0
0
0
0
$75
150
225
300
375
450
525
750
0
0
0
$250
750
1,250
1,250
1,250
1,250
1,250
1,250
1,250
1,250
1,250
0
0
0
$15
45
75
75
75
75
75
75
75
75
75
0
$500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,000
5,000
5,000
Treasury Department, Office of Tax Analysis
0
$50
100
150
200
250
300
350
400
450
500
500
500
500
Applicable
credit
0
$50
100
150
200
250
300
350
400
450
500
525
600
825
May 3, 1961
l/ Expenditures as shown less $2,500 depreciation.
2/ Expenditures as shown up to $2,500, less $1,250 depreciation.
3/ Expenditures as shown up to $5,000.
Note; The above examples are designed to illustrate the principal rules for the computation of the
credit. In the interest of simplified exposition, they are set forth as independent examples,
based on different amounts of expenditures but a fixed amount of depreciation. On this basis,
the examples do not reflect the changes in depreciation and resulting minor adjustments in the
credit due to the first year's depreciation (generally half of a full year's depreciation) on
the capital acquisitions of the current year, which would occur if a particular firm, starting
with a given amount of depreciation, raised its expenditures.
' &
(_J p .
o o4
I
e+
Examples showing computation of investment tax incentive credit
for a business with $100,000 depreciation assuming varying levels
of expenditures on new plant and equipment ranging up to $200,000
Zxami)]„e
1
2
3
4
5
6
7
8
9
10
: Expenditures
0
1,000
5,000
50,000
60,000
75,000
100,000
125,000
150,000
200,000
$
15 percent credit :; 6 percent credit
: Base 1/ : Credit \; Base 2/ : Credit
0
0
0
0
0
0
0
$ 25,000
50,000
100,000
0
0
0
0
0
0
0
$ 3,750
7,500
15,000
0
0
0
0
$10,000
25,000
50,000
50,000
50,000
50,000
:
0
0
0
0
$ 600
1,500
3,000
3,000
3,000
3,000
Treasiiry Department
Office: of Tax Analysis
Minimum credit
Ease 3/::Credit
0
$1,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
0
$100
500
500
500
500
500
500
500
500
i
: Applicable credit
0
100
500
500
$
6co
1,500
3, ceo
6,750
10,7^0
i8,oco
May 3, 1961
1/ Expenditures as shown less $100,000 depreciation
Expenditures as shown up to $10Ci,000, less $50,000 depreciation
3/ Expenditures as shown up to $5,000
1
X
1/
1
c+
tH
Note:
The above examples are designed to illustrate the principal rules for the computation
of the credit. In the interest of simplified exposition, they are set forth as
independent examples, based on different amounts of expenditures but a fixed amount
of depreciation. On this basis, the examples do not reflect the changes in depreciation
and resulting minor adjustments in the credit due to the first year's depreciation
(generally half of a full year's depreciation) on the capital acquisitions of the
current year, which would occur if a particular firm, starting with a given amount of
depreciation, raised its expenditures.
Table 6
Capital Expenditures, and Depreciation for Large Corporations
from Question 7 of Treasury Department Depreciation Survey
(amounts in thousands of dollars)
:Non-manufacturing:
Public Utilities
Manufacturing:
other than
:
:Public Utilities :Eligible for Credit:Ineligible for Credit
Corporations with expenditures in excess of depreciation:
Number of corporations
Expenditures
Depreciation
Excess of expenditures over depreciation
Ratio of expenditures to depreciation
Corporations with expenditures less than depreciation:
Number of corporations
Expenditures
Depreciation
Amount by which expenditures '-fell short of depreciation
Ratio of expenditures to depreciation
Aggregate:
Number of corporations
Expenditures
Depreciation
Excess of expenditures over depreciation
Ratio of expenditures to depreciation
902
$1+1+,587,951
27,958,076
16,629,875
•159* :
1+09
$8,820,157
l+, 1+73,071+
k, 31+7,083
197$
130
$ 1,156,031
1,1+16,1+52
260,1+21
82$
1,032
$1+5,71+3,982
29,37^,528
16,369,1+51+
156$
65
$
19^,551
282,857
88,306
69$
1+71+
$9,0li+,708
!+,755,931
l+,258,777
190$
zjki
1,1+56
$81+, 861,109
1+5,130,583
39,730,526
188$
1,369
$58,1+1+5,51+2
35,1+88,037
22,957,505
165$
-
21+9
$ 3,009,865
3,798,235
788,350
21+9
$ 3,009,885
3,798,235
788,350
87
51+
$l+,1+58,^01
2,722,726
1,735,1+75
l6ty
-
$26,1+15,567
9,61+2,51+6
16,773,021
53
$1,657,209
2,096,703
1+39,1+91+
79$
107
$6,115,1+10
i+, 819,1+29
1,295,981
.127$
:Total Excluding
Total 1/ : Ineligible 1
:Public Utilities
87
$26,1+15,567
9,61+2,51+6
16,773,021
27!+$
Treasury Department
Office of Tax Analysis
79$
1,705
$87,870,991+
1+8,928,818
38,91+2,176
18C#
79$
1,618
$6l,i+55,!+27
39,286,272
22,169,155
156$
May 3, 19ol
l/ Includes 5 corporations for which business activity not identified
Note: For most firms the capital expenditures and depreciation cover a six-year period from 1951+-1959. Capital expenditures
include all expenditures on depreciable property. Depreciation allowances as reported include amortization.
CD
ro o*
1
rt-
H
Table 7
Capital Expenditures and Depreciation for Small Businesses from
Question 7 of Treasury Department Depreciation Survey
(amounts in thousands of dollars)
Manufacturing ; Non-manufacturing : Total 1/
Corporations with expenditures in excess of depreciation:
Number of corporations
Expenditures
Depreciation
Excess of expenditures over depreciation
Ratio of expenditures to depreciation
Jorporations with expenditures less than depreciation:
Number of corporations
Expenditures
Depreciation
Amount by which expenditures fell short of depreciation
Ratio of expenditures to depreciation
Aggregate:
Number of corporations
Expenditures
Depreciation
Excess of expenditures over depreciation
Ratio of expenditures to depreciation
Treasury Department
Office of Tax Analysis
396
2if0
806
.78,897
96,369
82,528
186$
$108,503
61,119
1+7,38*+
178/o
$391+, 601
213,^3^
181,167
185$
101
19,251
32,226
12,975
60$
1+97
$198,11+8
128,595
69,553
I5ty
85
$
9,590
1^,558
h,968
6&f0
325
$118,093
75,677
42,1+16
156$
221
$ 33,9^6
53A83
19,537
63*
1,027
$1+28,5^7
266,917
161,630
l6lfa
May 3, 196l
1/ Includes 205 businesses for which activity not identified
Note :
For most firms the capital expenditures and depreciation cover a six-year period from 195^-1959,
Capital expenditures include all expenditures on depreciable property. Depreciation allowances
as reported include amortization.
H
w
Table 8
Schematic illustration of permanent revenue impact of accelerated depreciation
10-year asset
Constant level of expenditure $1,000
Year
Excess depreciation (over straight-line)
Depreciation on
Depreciation
acquisitions beginning
Expensing in year
on old
5-year
year 1
of
assets
amortization
Straight-: 5-year :Expensing in
acauisition
(straightline
:amortiza-: year of
line)
Cumulative
Annual
Cumulative
: tion
; acquisition Annual
1
$900
$100
$200
$1,000
$100
$100
$900
$900
2
800
200
1+00
1,000
200
300
800
1,700
3
700
300
600
1,000
300
6oo
700
2,1+00
h
600
Uoo
800
1,000
1+00
1,000
600
3,000
5
500
500
1,000
1,000
500
1,500
500
3,500
6
1+00
600
1,000
1,000
1+00
1,900
1+00
3,900
7
300
700
1,000
1,000
300
2,200
300
1+,2C0
8
200
800
1,000
1,000
200
2,1+00
200
i+,i+oo
9
100
900
1,000
1,000
100
2,500
100
l+,500
10
0
1,000
1,000
1,000
0
2,500
0
l+,500
0
1,000
1,000
1,000
0
2,500
0
l+,500
ll(and
subsequent)
Treasury Department, Office of Tax Analysis
May 3, I96I
Table 9
Present discounted value of future tax reductions
5 percent rate of discount
$1,000 asset, 52 percent tax rate
:6 years
pensing in year of purchase
$520.00
?lf$:line Q e P r ? c ^ t l o n ........................ 461.89
V ? f ^ years d l § l t s depreciation .............. 480.64
able declining balance depreciation 2/........... 480.12
b tax credit with straight-line depreciation l/.. 599*39
h tax credit with sum of the years digits
"
depreciation l/.................................. 609.21
h tax credit with double declining balance
depreciation 1/ 2/............................... 605.12
year amortization
472.78
30^ first-year deduction, balance depreciated by ^ g
straight-line method............................. 479-33
T^ '
485.13
50> .......
.................................... 490.94
Ov-yo ..
,
496.77
Treasury Department, Office of Tax Analysis
W
mu
Life of asset
:10 years :15 years :2Q years
$520.00 $520.00
$520.00
421.61
377.82
3 4o.22
452.34
420.45
391.97
446.14
408.58
376.33
564.11
522.82
486.47
:25 years
$520.00
307.81
366.44
348.04
454.81
588.70
561.08
534.83
510.67
58l.l4
472.78
548.58
472.78
518.83
472.78
492.04
472.78
:40 years
$520.00
234.22
304 17
282.10
382.35
-3^o^
450.51
**?v.;>_
42835
472.*78
451.13
460.96
470.80
480.64
420.47
434.69
448.91
463.13
394.15
412.13
430.11
448.09
371.47
392.69
413.90
435.13
319.96
348.54
377."ll
405.69
-
MSy 3
'
1 X
|_i H.
l S
M
1961
1/ The tax credit has been computed on the assumption that one-half year's depreciation is claimed on the
acquisition in the first year.
2/ Computed with switch to straight-line method.
Note: Present discounted values are computed as of the end of the year in which the investment is made, using
&
the compound discount formula
A
'
(assuming a % rate of discount)
O
Average annual rate of return on Investment after tax under the proposed
15$ investment incentive credit and alternative depreciation methods
Rate of return, after tax
Assuming 5$ return under Assuming 10^ return under straightstraight-line method
line method
10-year
:
20-year
10-year
: 20-year
asset
:
asset
asset
: asset
Depreciation method:
5.0$
5.6
6.5
5.0$
5-5
7.5
10.0$
ll.l
12.4
10.0$
10.9
13-9
5.8
5.9
11.4
11.5
6.4
6.6
12.6
12.8
6.3
6.3
12.4
12.3
6,9
7.0
13.4
13.4
8.6
7.3
14.0
12.8
9.5
8.0
15.3
13-8
on straighton straighton double
on double
15$ investment credit with straight-line
depreciation
15$ .Investment credit with double declining
balance depreciation l/
M
chibit I
- 16 -
Straight-line
Double declining balance l/
5-year write-off
30$ initial write-off, remainder
* line
50$ initial write-off, remainder
line
30$ initial write-off, remainder
declining balance 1/
50$ initial write-off, remainder
declining balance 1/
Investment incentive credit:
Treasury Department, Office of Tax Analysis
May 3, 1961
l/ Computed with shift to straight-line method.
Note: The above computations are made on the basis of the standard formula for computing the average annual
yield or rate of return on an investment.These computations assume (a) the amount of money invested and
(b) the amount of net revenues and the dates of their receipt. On these assumptions, it is possible
to calculate the average annual rate of return or rate of profit on the investment using the following
interest equation:
A
n
TOT:
XI+IT11"
where P represents the investment," r the rate of return, and Ai, A 2 , etc. the net revenues
The pattern of net revenues used assumes a constant rate of decline of net revenues before income taxes
consistent with loss of economic usefulness at the end of the service life. For p u r S e s o? ?he S m
putations a level of net revenues before income tax was established which produced under ?he s t r a i t
line depreciation method, a rate of return after tax of (a) 5 nercent and (h) in ™ ™ T
TT •
!i?
pattern of net revenues before income taxes, the net lUnl^Vtt™
a f ^ t L s £ £ " he £ _ £ _ ? U " "
depreciation and investment credit methods was computed. The rate of return after tax for this rattem
VtlTo^ltllV^ ^^ ^ ^
int6reSt
°f ^^on, a 50 percentlax^te^L^assSd
Exhibit I
-17- ;
Table 11
Effects on annual rate of return after tax for 20-year
asset, with corresponding total revenue loss under the
proposed investment incentive tax credit and alternative
methods of accelerated depreciation
(Assuming asset and industrial eligibility similar to
that under investment incentive proposal)
Method
:Rate of return:
Revenue loss
:First :First'
:after tax, 20-:
:1st year:5 years;10 years
:year asset
(percent)
($ billions)
1. Present law
Straight line method 10.0$
Double declining
10.9
balance method
2. 5-year amortization 13.9
1.4
21.8
50.5
3* 30 percent initial
allowance, with double
declining balance
depreciation
12.3
3.3
15.4
27.2
50 percent initial
allowance, with
double declining
balance depreciation
13.4
5-3
23.6
40.2
5. Proposed investment
incentive credit with
double declining
balance depreciation
(assuming 15 percent
credit at the margin on
qualifying investment) 13.8
1.7
8.5
17.0
Treasury Department
Office of Tax Analysis
May 3, 1961
Table 12
Growth of net stock of business plant and equipment, 1949*59
(in billions of constant 1955 dollars)
Note: Net stock equals gross stock less accrued depreciation
'
Plant
End of vpnT
. Net stock
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
:
Equipment
*
$116.3
119.6
123.3
128.0
132.7
136.4
140.6
146.5
152.5
156.9
160.2
Arithmetic average
of annual percentage
increases 19^9-59
1949-54
1955-59
:
:
Increase 1L
$
:
3.3
3.7
4.7
4.7
3.7
4.2
5.9
6.0
4.4
3.3
\ Net stock
„
2.8
3.1
3.8
3.7
2.8
3.1
4.2
4.1
2.9
2.1
$ 96.0
104.9
112.8
120.0
127.4
13L0
134.9
136.0
145.3
144.4
152.0
:
Increase _/ \
: V>
: %
8.9
7.9
7.2
7.4
3.6
3.9
1.1
9.3
9-3
7.5
6.4
6.2
2.8
3.0
.8
6.8
- .9
- .6
7.6
5.3
Total plant
and equipment
Incresise 1/
Net stock :
:—$—r
$212.3
224.5
236.1
248.0
260.1
267.4
275.5
282.5
297.8
301.3
312.2
12.2
11.6
11.9
12.1
7.3
8.1
7.0
15.3
3.5
10.9
*
'
5.7
5.2
5.0
h.9
2.8
3.0
2.5
5.4
1.2
3.6
03
1
*
3-3
3.2
3.3
Treasury Department, Office of Tax Analysis
4.7
6.4
3.1
3-9
4.7
3.1
/
.
Source: Based on plant and equipment estimates for 1949-55 in Machinery and Allied Products Institute,
Capital Goods Review No. 23, August, 1955> and other estimates supplied by the Institute for
1956-59. Plant and equipment relate to private business only, including agriculture but
excluding the ownership and operation of residential property.
l/ Over preceding year.
O
Co
Table 13
Receipts, deductions, net income, and depreciation and Amortization of all active corporations
1940-1958
(Dollar amounts-in millions)
: Depreciation and amortization as percent of
: Net income be- :
Number of •• ' Total|
.Depreciation! ^otal
Total
i net
Total
: fore deduction : list
• active
an
receipts deductions: income
°- :receipts .deductions:for depreciation: income
corporations
amortization.
:
:and amortization:
1953
195 7
1956
1955
1954
1953
1952
1951
1950
1949
1 o'j.3
i P;+7
1945
1944
1943
1942
1941
1940
990,331
940,147
885,747
807,303
7Qp POS
677,975
672;071
652,376
629,314
614,842
594,243
551,807
491,152
421,125
412,467
420,521
442,665
463,906
473,042
$735,338
$696,11^ $39,224
675,340
720,414
45,073
679,868
632,456
47,413
642,248
594,299
47,949
554,822
518,102
36,721
518,441
39,801
5 58-, 242
492,572
531,307
33,735
473,240
43,800
517,039
458,130
42,831
.415,299
393,450
28,387
365,063
34,588
376,378
410,966
367,746
336,130
31,615
288,954
263,555
25,399
234,102
255,448
21,345
262,201
235/654
26,547
28,126
221,556
249,682
217,681 - 194,292_
23,389
190,432
173,757
16,675
9,348
148,2371
138,889
$20,676
19,432
17,579
16,009
13,691
12,026
10,435
9,121
7,901
7,222
6,338
5,279
4,266
5,928
4,931
4,607
4,325
3,879
3,528
2.8*
2.7
2.6
: 2.5
2.5
2.2
2.0 1.3
1.7
1.8
1.5
\A
1.5
2.3
1.9
1.8
2.0
2.0
2.4
3*0$
2.9
2.8
2.7
2.6
2.3
2.1
1.9
1.9
2.0
i.7
1.6
1.6
2.5
2.1
2.1
•2.2
2.2
2.5
34.5*
30.1
27.0
25.0
27.2
23-2
21.2
17.2
15.6
20.3
15.5
14.3
14.4
21.7
15.7
14.1
15.6
18.9
27.4
52.7^
43.1
37.1
33.4
37.3
30.2
26.9
20.8
13.4
25.4
18.3
16.7
16.8
27.3
13.6
16.4
18.5
23-3
37.7
Gross depreciable assets, depreciation, amortization, and average depreciation
rate for active corporations with balance sheets
1940-1958
(Dollar amounts in millions)
Number of
active
corporations
with balance
sheets
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
1945
1944
1943
1942
1941
1940
927,635
879,106
827,916
7^6,962
667,856
640,073
615,698
596,385
569,961
554,573
536,833
496,821
440,750
374,950
363,056
366,870
383,534
^07,053
413,716
Gross
depreciable
assets
Depreciation
$370,218
$18,513
344,245
16,820
315,824
14,789
288,807
13,240
266,934
11,486 3/
260,460 1/
10,386
243,859
9,493
227,882
8,733
209,098
7,754
195,024
7,064
180,562
6,201
163,7^
5,124
148,968
^,131
138,444
3,921
137,020
3,891
136,351
3,857
135,249
3,832
133,500
3,664
130,685
3,459
Treasury Department, Office of Tax Analysis
Amortization
$1,992
2,458
2,621
2,572
2,000 3/
1,508
827
291
43
30
39
58
63
1,931
974
681
408
113
7
Total depreciation and
amortization
$20,505
19,278
17,410
15,812
13,486
11,894
10,320
9,024
7,797
7,094
6,24o
5,182
^,194
5,852
^,865
^,538
3,240
3,777
3,466
Average depreciation
rate 2/
5.1*
5.1
*.9
4.8
^.5
4.1 1/
4.0 "
3.9
3.7
3.6
3.4
3.1
2.8
3.0
2.9
2.9
^9
2.8
2.6
May 3, 1961
l/ Prior to 1954 includes depletable assets and related reserves.
2/ Represents the ratio of depreciation (exclusive of amortization) to gross depreciable assets (adjusted for
estimated amount of assets subject to amortization). This adjustment was made by reducing gross depreciable
assets by five times the amount of the amortization deduction.
__"*»*» uepreciao_e
3/ Allocation between depreciation and amortization estimated.
ro
CD
CD
EXHIBIT II - FGRSIGM IKC0i_2 /il«T> THE BAUNCJ2^)F-PAYM2HTS
Fore %»^BX^^1^^^™?~^2.
Chart 1 shows that while we have built up a large investment ia
subsidiaries In Western Europe, the contribution of this investaisnt
in the fona of dividend receipts in our balance of payments has been
more than offset h^ new U.S* capital outflow.
Table I ahovo the relevant data for Chart 1.
Chart 2 shows tfc& satse pattern for Canada aa Chart 1 shows for
Western Europe*
Table 2 shows the relevant data for Chart 2.
gab2__J, -how actual data on financial flows between U. S» firms
and subsidiaries abroad for the period 1957 through 1959 with a country
breakdown. The bottom line entitled "International** represents shipping
company transactions• Amon_ other things It shows that a very considerable portion of earnings have been reinvested abroad rather than remitted ,
to the United States*
ChsrtJ|, based on reasonable assumptions about earnings and reinvest*
mnt, shows that accumulative earnings remitted to the United States by
a company without the deferral privilege will be greater for a period of
17 years than such remittances would be if the company had the deferral
privilege.
Table 4 shows the relevant data for Chart km
Tax Rates
Table 5 shows that the corporation income tax rates imposed by the
national government in industrial!jr.ed countries range from $ percent in
Switzerland to 53J- perce&t in the United Kingdom.
Table 6 ©hows that because of tax treaties, income flowing into
Swiss parent corporations from abroad is subject to little or no income
tax at source.
jfoatea toacivt Companies
M W M W — — M » » < l l m i H « W » III mi.iiTiiHi
ill
lllll
Table 7 showa the 14 foreign investment coispaniea registered with
the SEC and their net assets as of the most recent available date in I960.
Table 6 show fehe sales and redemptions of the foreign investment
companies by year since 1954 and indicates that redemptions exceeded Bales
ia the laat two years*
Table 9 shows the amount of income and ita dispoaition by for*si_n
investment companies for the period since 195^•
108
2 ~
Investment Companies (continued)
Table 10 shove the sourceo which contributed to the A3B9 million
of not assets of foreign investment companies on the latest reporting
datea in i960*
Chart,kt reproduces a page from a Bermuda investment company
prospectus that discusses taxes*
Kgrned _IncQLne_ Exemption
Table 11 la a Hat of 33 individual taxpayers, identified ^ symbols *
Qlalrains exemption of earned income ranging from over $100,000 to nearly
$1 ailllon and shows them to be resident in s&ny different countries*
Tablei IS shows a similar list of 9^ taxpayers claiming exceptions
of between §50,000 and $100,000*
Table ^13 shows the number of returns and the ajsouot of earned income
reported ©a being exempt froa tax, by size of exempt incone and by
continents*
Estate Tax
•m%im^mWmymmmrmmMmm»nitwmmm
Table rl4 ©hows that the marginal estate tax rates In the United States
are substantially higher than in several other nearby countries*
Tax Havens
Table 15 shows the growth in U.S. companies cheated in tax haven
countries In recent years*
109
Exhibit II
page 1
Chart 1
o
a)
*
CO
__
0_
O
_
<B
«*o
•*""
£
o
5g s
o.
Q
CO
£0
3
CO
« s
>
cn
_
"—_
o
CD
<D
CO
CO
«/>
_
c
=
a) o
-o
•> 2
' • —
'cn
CD
JO
<u
Z3
O
>
'_
co
Z3 ce
>
•
o
to «_
C
_
'
_
XJ o
a> o
. _ CO
E
=>\
OJ
>
V
<_
....»
_
O o
Csl
<0
LLI
(0 e
CD "3
%WMMM
B88S888888888oo«x?x> ~3888w<3vvw68ooo<yxs^
•
XX1" .^c^^wwvvvvvvvvSvv
^ J^vwSA<^<v><vyVxxxxxx
••' •• co •..•°
.;-.'6:
a.
o
1
1?
_J
^"TXJTTOWAVA VVKVJOrOQCXXXXXX?CXX?CXX^A^
_
in
t~
2_
L«J
J
o- ro &&X§§§$$$<
vvvs •* ^ ^ ^ ^ x ^ w w S S w w
ci O
•iwi^ivwxy^^v^^^^S
Wmm
O
_?
CO
_J
co
CD
.1
*o
1
>
CD
If)
t\ vysXAXJv ^ ^ ^ ^ g o ^ ^ ^ w w ^ X X x ;
c,
v££>££3 v Q W M f l ^ XgooJyyVVVV^Ax;
s" -VVSAVVVS
<VYV)<V<SO ^OCJX^CX^^XA^^^^VSXXXJVV^
I
5=
h-
*
o
to c
CD _
;"
UJ
lO K)
o ci d
*r
_=
Q
8ww88Sx "• IvSvvwvwvvS;
X3XXXXXXX> "> Ws8A(Wfe5<W
/W
CO
3
CD
U.S. Direct Investment in W. European Subsidiaries
(In millions of dollars)
Value Reinvested U.S. Value Remitted U.S. Remitted Dividends
Year
beginning
Earnings
Capital End
Dividends Capital
minus
of Year
Outflow of Year
Outflow U.S. Capital Outflow
1957 3,333 294 281 3,958 245 281 -36
i-3
1958 3,958 238 161 4,357 301 161 140 |
1959 a,357 258 447 5,o62 392 447 -55
1960(prel.) 5,062 275 860 _/ 6,197 390 860 -470
1/
Rounded to $0.8 billion in chart to add to total.
April 12, 1961
U.S. DIRECT INVESTMENT IN CANADIAN SUBSIDIARIES
$ Billions
10
-Value End of Year
;U.S. Capital Outflow
•Reinvested Earnings
9.30.2~f
46M7.5
05j
."'->-"-> • '<;
O
Value Beginning of Year
• -;-'>•>: >>2
,•
P
« • $
ro
• a
• • >^-§
£•£$*
-'-'•jn-"'^
:
—Remitted Dividends
/ M i n u s US.
Capitol Outflow
Cot
.•'V". y
-0.2
1957
Less than $ 5 0 million
1958
1959
I960
(preliminary)
U.S. Direct Investment in Canadian Subsidiaries
(In millions of dollars)
Year
Reinves ted U.S.
Value
tnig inning Earnings
Capital
Outflow
of Year
Value
End
of Year
1957
6,708
357-/
U73
7,538
1958
7,538
279
316
1959
8,133
393
1960(prel.)
8,825
280
1/
Remitted
Dividends
U.S.
Remitted Dividends
Capital
minus #
Outflow U.S. Capital Outflow
-216
257
U73
8,133
269
316
299
8,825
28U
299
-15
2U0
9,3U5
28U
2i|0
M
t-3
Rounded to $0.3 billion in chart to add to total.
April 12, 1961
Area
and
CountryAll areas
Value-end of 1959
Reinvested aarr.in.33 I9;7-;9 Co—.on Dividends iy57-5^
Capital flows 1957-59
Eam—vssl/ 1957-59
.-.—ini-;anun_raZ-lanuPetro—
'Petro—
facfacPetrofac- PetrofacPetrofacicon
Other
iei—. Other Total turTotal tur- leua
Other Total tur- leua
Other Total tur- leua Other ' Total turing
ing
ing
ing
i
ing
22,306 9,3^3
6,20!+ 6,759 2,911
1,1-8
1,103
700
Canada.. 8,835 *,*73 1,788 2,57* 1,083 385 358 3to
6,357
2,809
1,7H
1,837
1,906 1,112 283 5H
*0
36 _/
i/
52 4s . 4/
lk 3j
3/
Oceania... . 835 to3 3*2 90 5*
Australia
702
388 _^
Nev Zealand..
50
15 "2/
Internat ional.
1,309
l/ Earnings on con—on stock.
2/ Less than $500,000.
82?
_/
^
*82
7
17
29
37
_/
278
to
7
ki 4/
4r
670
37
*i
nk
287
260
-1
£/
22
36 -*
5 ^
3/
±0
3 / 3 /
8 _
-^
3/
203
7
75
286
.1*96
1* :_.
16 _^
38
^
19k
62
162 ' _>
12 „/
290
811
1*89
116
206
153
3
2
22
23
10
5
2
2/
-3
20
65
938
22
6
56
112
32
25
1
k
13
15
63*
to6
16
5
36
87
18
6
1
2
*
1*
307
3
305
258
135
3
1
8
1*
7
11
_/
1
8
1
71
too
-2/
3
13
371
22
29
*
13
36
73
ID
91
135
_/
151
790
39
1
96
IkQ
27
16
J*
10
-*
2k
to?
5*1
28
2
k2
130
21
' 3
3
8
2
9
288
96
8
-3
32
-5
-k
8
-1
2
-3
-5
5*
7*7
27
86
23
1
5*
50
115
15
192
197
19
70
15*
ito
61
5
k
9
*7
1
2
150
^
1/
*/
-12
13
1
10
11
to 66
1 4/ 3/
9
32
2
10*
2
86
19 k2 79
- _/
55
_/
3J
2*5
27
29
72
31
^
^<
167
157
5
125 - 161 271
632
588
18
91
952
1,029
5*
33
1,229
T33 1,163
Europe 5,083 2,880 1,1+19 78I+ 891 1*31 Qk 116
to8
29*
1,767 1,065
Eelgiua
200
120
53
27
3
2/
2
1
13
7
6Q
kS
6
Denmark
k6
15
22
9
5
2/
k
1
-2
1
166
France
608
328
201
79
&*•
"*"*
35
5
k5
33
228
275
Germany
771
Vf9
199
93
171 . 55
90
26
3
39
39
59
Italy
287
122
123
1+2
38
28
6
k
3
17
10
k2
Netherlands..
228
55
130
k$
56
20
30
6
16
16
1*
6
Norway
6b
10
25
25
6
2/
5
1
-1
3 !
9
Ik
Spain
*8
25
1*
9
3
1
1
1
3
2 i
6
10
Sweden
Ilk
38
55
21
21
7
H
3
-2
6
22
to
Switzerland..
157
' 66
11
80
78
3i
*
*0
-5
23
United
593
313
135
Kingdom
2,*17 1,5$*
*90
3*3
kid
2to
1*1
37 1,0*1
Latin America.. *,576 1,271 1,070 2,235 556 208 233 H5 1,139
295
286
558
Argentina....
286
ikk 3 / 3 /
k2
10 3/
-3/
50
32 4/
3/
Brazil
672
373
9
290
116
109
2/
7
122
92
3
27
Chile
263
20 •?/
4f
k
-1 _/
if
29
6
3/4/
Colombia.....
227
57
122
kS
16
11
-8
-3
15
8
-3
10
Cuba
516
80
135
301
39
15
*6
-22
91
15
18
58
Mexico
686
3*5
11
330
k5
17
-1
29
128
33
3
*2
Panama
255
8 , 2k
223
67
5
3
5k
125
1
10
n'tPeru
l6l
29
7*
58
21
10
2
9
1+6
5
2*t17
Venezuela...."
655
l6o
267
223
139
27
71
*1
26l
V*
112
105
British
189
.2 „/.'
-^
dependencies,
633
19 2f
4/
119
1 3 / 4 /
8
-38
39
302
60
51
Africa
6k2
112
170
360
9
191
^
Liberia
112
1 4/
4/
2
1 4/' 4/
' 9S
4/
Union of
_+6
57 -2/
6 ^ .
^
South Africa.
312
102 4/
4/
-29
Asia . 1,026 20* 588 23*
India
96
Jaoan
161
Philippines..
285
2,813
3,389 1,1*93
2/
4/
4/
27
69
35
12
i/
12
11
7
8
2/
1
1
18
2/
1
_/"'
to 9 107
~ i/
4/
91
39 4/
4f
23 366 25
* 2/
jy
in*
8
_/
_/•
12
2
_/
3*
n
93 , 55 , 19
108
91
17
90 6 12
15
13 2
1*
25 £/"
93 4/
2/ 4r
112
63
3s
4/
159
77
_/
_/
^
_^
4f
13-2/
v_ vn
25
37
10
1*
19
156
35
If
127
11 CD O
-?/
6
*
3
5
6
3*
2
2/
—
2
11
*
k6
2/ ^ «!/
4/
9
1*5 E _
4/
i—' cn C
2/
'3/
CO
CUMULATIVE REMITTANCES TO U.S. FRC
MET EARNINGS ©FAU.S. FOREIGN SUBSIDIARY
Dollars
4,000
o
n
CO
l,<
Wat
*Initio! investuent $1,000; annual rate of earnings before faxes 20%; foreign tax
m e 20%; U. 5. tax rale 50%. Reinvestment of all after-tax earnings for first 5years,
GndrQtvQotni3.it of half after-tax earnings for next 15years.
of the Secrtury of tf« V — s u y
Remittances to U.S. from Net Earnings of a U.S. Foreign Subsidiary
(In dollars)
With Deferral
Year
Annual
Cumulative
Without Deferral
Annual
Cumulative
60.0
66.0
72.6
79.9
87.8
60.0
126.0
198.6
278.5
366.3
9x3.k
757.2
985.8
177.1
186.0
195.2
205.1
215.3
729. k
92U.6
1,129.7
1,3U5.0
2U6.9
266.7
288.0
311.0
335.9
1,232.7
1,U99-U
1,787-U
2,098.k
2,l*3l*.3
226.0
237. k
2U9.2
261.6
•27E.8
1,571.0
1,808.1*
2,057.6
2,319.2
2,59U.O
362.7
391.8
U23.1
U56.9
2,797.0
3,188.8
3,611.9
k,o68;8
k936
U,562.3
285.5
302.9
318.1
33H.0
350.7
2,879.5
3,182.U
3,500.5
3,83^.5
U,185-2
-0-0-0-0-0-
1
2
3
k
5
-0-0-0-0-0-
6
7
8
9
10
168.0
181.5
196.0
211.7
228.6
168.0
3U9.5
11
12
13
Ik
15
26
17
13
19
20
5U5-5
•5 Remittances of U.S. tax. and income on following basis:initial investment $1,000; annual
rate of earnings before taxes 20$; foreign tax rate 2 0 & U.S. tax rate $0%. Reinvestment
of all aft'jr~V:z earnings for first 5 years, and reinvestment of half after-tax earnings
for next 15 y^rs.
April -^ 196l
n
{S3
<
Mr
(D
•P-
•_
P
TO
CD
-0
%
V
H*
tf
H«
c+
H
l-l
|_A
\~*
C/l
Exhibit II - page 3
Table 5
Comparison of Maximum Rates of Corporate Income Tax * on
Profits of Corporations in Selected Industrial Countries
Country
Rate
Australia
hOFjo
Belgium
23.5 1/
Canada
50
Denmark
44 2/
France
50
West Germany
51 3/
Italy
314/
Japan
33
Luxembourg
42
Netherlands
hi y
Sweden
40
Switzerland
United Kingdom
*See notes on next page
3 6/
53-5 7/
+ 1?
Exhibit TT - naae Q
(l) Income tax paid in the previous year is deductible so that the
nominal tax rate of 40 percent is reduced to approximately
23.5 percent.
(2) Because of a special deduction measured by a percentage of
capital stock outstanding and allowed to all Danish corporations, the rate may be reduced as low as 22 percent. The
average rate for most corporations is 36 percent.
(3) The German corporate rate of 51 percent is reduced to approximately 22 percent if all profits are distributed.
(4) This rate of tax is increased by 15 percent on profits in excess
of 6 percent of capital plus certain allowable ^reserves. The
Italian corporate tax is limited to profits from domestic sources.
(5) The Netherlands does not impose tax on profits derived abroad.
(6) In addition to this tax, income taxes are also imposed in varying
degrees by the Cantons. Zurich imposes tax at rates ranging from
5 percent to 26 percent and Geneva up to 27 percent. However,
substantial tax concessions, and in many cases complete exemption
from tax may be granted by the Cantons, particularly with respect
to foreign income.
(7) Takes into account tax rate increase announced in 1961-62 Budget
Message.
Exhibit II - page 10
Table 6
Effect of Swiss Treaties upon Withholding
Taxes of Selected Countries
Interest on
Commercial Obligation
Dividends
%
ource
buntry
General
Rule
To Swiss
Parent
Companies
General
Rule
To Swiss
Parent
Companies
Royalties other
< than Mineral
General
•Rule
To Swiss
. Parent
Companies
Lustria
17.7
0
17.7
0
17.7
0
lenmark
0 to 60
0
0
0
0
0
'inland
15
5
0
0
0
0
'ranee
22
0
Various
0
22
0
rermany
25
25 to 60
0
25
0
Netherlands
15
under
revision
0 to 5
0
0
0
0
Norway
25
5
0
0
0
0
Sweden
30
5
0
0
50
0
0
33.75
0
J.K.
_/
_./
33.75
•
L/ The British impose a 38.75 percent income tax on corporate profits but it is
treated as if it were a tax on the shareholder. No additional withholding
tax is levied on dividends paid by the corporation.
Exhibit II - page 11
Table 7. LIST OF REGISTERED FOREIGN INVESTMENT COMPANIES
As Of
Date Commission Granted
Order Peraiting Registration
Release
Number
$ 37,090,000
3/31/60
8/13/58
2756
Canada General Fund (1954) Ltd.
72,616,749
6/30/60
8/16/54
2007
Canadian International Growth
Fund, Ltd.
11,166,126
6/30/60
7/ 6/56
2386
Electronics International Capital
Ltd. (Bermuda)
14,400,000
12/31/60
9/16/60
3115
Investors Group Canadian Fund, Ltd . 110,260,000
6/30/60
3/30/55
2124
Keystone Fund of Canada Ltd.
15,996,800
6/30/60
8/18/54
2008
Loomis-Sayles Fund of Canada Ltd.
2/
Multnomah Canadian Fund, Ltd.
13,826,367
12/31/59
7/ 6/59
2895
110,440
4/30/60
12/10/57
2641
New York Capital Fund, Ltd.
29,972,778
6/30/60
8/11/54
2006
Scudder Fund of Canada Ltd.
53,864,897
5/31/60
4/27/54
1975
Axe Templeton Growth Fund of
Canada Ltd.
5,238,780
6/30/60
10/ 7/54
2020
UBS Fund of Canada, Ltd.
3,486,560
12/31/60
4/ 1/60
3002
United Funds Canada Ltd.
15,715,000
6/30/60
8/ 4/54
2003
3/ 9/60
2981
1/
Name
American-South African Investment Company, Ltd. (South
Africa)
Net Assets
United International Fund Ltd.
(Bermuda) 3/
1/
Unless otherwise indicated, all companies are incorporated
in Canada
2/ Being liquidated
3/ Not yet engaged in operations
Table 8.-Sales and Redemptions of Capital Stock of Foreign Investment Companies
—
-
Caiendar
Year 1/
W&...
^
^ 6
19
H
1958
(In millions of dollars)
l_i__?U-l^
^ v e n Canadian 0 _ p « _ _
Net
Net
Sales Redemptions Proceeds Sales Redemptions Proceeds
*
—
12Ji
83
80
&
68
19
&
•
51
1°60 (to latest
available dates 2/)_28
Total...
520
*
15
19
21
31
6k
_Jt6
195
X2_j.
68
61
614.
37
«12
12fc
83
80
85
37
51
.^ B e ^ d i a f £ _ £ _ _
Net
Sales Redemptions Proceeds
*
15
19
21
31
6k
12k
68
61
6k
7
-12
_i_J_:
J__
_3£
^ _/
-
325
195
280
k$
-
1*75
31 3/
-
31 3/
lU _/
h$
CD
CO
ro
M
_/ Data for four companies are included on basis of fiscal quarters ending closest to end of the calendar
year©
2/ Data for nine companies are available only through a portion of i960 (ranging from April 30 to
September 30)•
3/ South African company.
_/ Bermudian companies (one of which has issued only a nominal amount of capital stock).
* Less than $500,000.
Note: Detail may not add to totals because of rounding.
Source: Based on material made available by the Securities and Exchange Commission.
March 2k, 1961
f-4
j.aD_e 9. Analysis or Net Investment Income of Foreign Investment Coinpanies 1/
Xln Millions of dollars)
Year 2/
Net
Investment
Income,
-_-___f__Canadian Corroanies
J_a_ist_r?uted Net Inv.Income
Ac emulated
Year-End
Annual
Amount
Change
Income
Distributed 3 /
Net
Investment
Income
One South African Comoarrr
Undistributed Met Inv.Income
Accumulated
Annual
Year-End
Amount
Change
1954
.9
.9
1955
4.0
4.7
3.7
.3
1956
5.8
9.8
5.1
.7
1957
7.6.
15.a
6.0
1.6
1958
3.1
22,4
6.6
1.5
.6
.6
.6
1959
a.o
27.6
5.1
2.9
1.6
1.3
1.1
6.4
•29-r5-
2.3
4.1
.9
2.4
.6
I960 '
"tO latest
available
dateo) j5/
Total
.9
Income
Distributed 4 /
#
5
Jr 3 ^ *'
cr"^ p .
MCT? c?\
^Of-J
H
40. B
29.9
11.0
3.1
2.4
.7
Co.,u,aicn c.- , „oir„i African •-;-panics only; n o income has bec-n reported f o r t h e B e i T a u d T i T ^ ^ i e a ^ "
17 L-A-ca
...or xivo cojmanieg are included o n basis of half-year ending closest to end of t h e calendV- y e a -
?/
Lor., v.2a b y subv„„ra.Dg t h e annual change in undistributed net investment income from net investment income
C:v/* dividends.
Data f o r six companies a r e available only through a portion of I960 (ranging from June 30 to November 3 0 ) .
Loss than $50,000. ' " '
Detail ir.ay n o t add to totals because o f rounding.
C,\eed o n material made available b y t h e Securities and Exchange Commission.
J_J.
ro
I'-arcch 24, 196
Tables-Sources of Net Assets of Foreign investnent Co^anles as of
Latest Available Dates in I960
iJ_LI_iJ__ligP_s„oJ' dollars)
Eleven
Canadian
Companies
Total
1/
One
South African
Company _/
Two
Eernudian
Companies
______
Net proceeds from sale, of capital stock...•
327
Accumulated net realized gain on investments
1?
Unrealized appreciation of investments..... c" 13
Total0 ««...e-e
282
31
lh
16 _•
J2
_JL
30
.2
3^0
3^
••••«•••••••••••••.o 357 310 33 ^
Undistributed net investment income c0.......
32
Net assets applicable to outstanding
shares..« •••«
o......«..0..«00.#ao
350
D4
Notes
1/
Detail may not add to totals because of rounding
Data for nine of the eleven Canadian companies _re ireluded - n f va-*«„_. ^ *
March 31 to November 30.
included as of various dates ranging from
2/ June 30.
3/ December 31«
* Less than $500,000.
Sources Based on" data made available by the Securities and Exchange Commission,
ifereh 2ht l?6l
Exhibit II - page 15
1 O'J
Chart k
DIVIDEND POLICY
The Fund intends lo accumulate and reinvest earnings from investment income and net realized
capital "ams. It is the present intention of the Fund to make stock distributions from time to time.
but it dees not expect to declare cash dividends. T h e Fund's policy with respect to retaining all investment income might be changed at some time in the future, depending upon die extent and amount of
income from united States sources, tax factors (including those mentioned under "The Fund") and
other considerations.
TAXES AND FOREIGN EXCHANGE
Tax Status of the
Fund
The Fund is subject to no income, capital gains or other tax in Bermuda, except aflatcorporate
tax of approximately $560 per a n n u m and a small stamp duty on the par value of its authorized shares.
Furthermore, under the Exempted Companies Act, 1956, the Fund has been 'guaranteed exemption by
the Bermuda Government from any tax which m a y hereafter be enacted in Bermuda, until June 16, 19S6,
Income paid to the Fund on investments in other countries, however, will be subject to such
withholding taxes as m a y be imposed by the country of origin, including the United States. T h e
rates of such withholding taxes vary widely.
Because it has been organized under the laws of a country other than the United States, the Fund
cannot qualify as a "regulated investment company" under the United States Internal Revenue Code.
However, the Fund intends to operate in such a w a y as to be a foreign corporation not engaged in
trade or business within the United States, in which event the only tax to which it expects to be subject
in the United States is the withholding tax (currently at the rate of 30 per cent),on income, if any,
from sources in the United States. If so operated, no taxes will be payable on capital gains from
United States investments.
Tax Status of United States Shareholders
Under Section 305 of the Internal Revenue Code there is no tax on the receipt of stock dividends.
Under present law, if a United States resident surrenders for redemption by the Fund all of the shares
of the Fund owned directly or indirectly by him and held for more than six months or the ownership
of which is attributed to him as provided in the Internal Revenue Code, any excess of the redemption
price over the cost of his shares will be taxable at capital gain rates (currently not more than 2 5 % )
and not at the higher rates applicable to ordinary income. Capital gain tax treatment also would apply
upon any redemption of less than all of such shares held for more than six months if such redemption
is not essentially equivalent to a dividend or includes a sufficient proportion (generally at least 2 0 % ) of
such shares so as to meet certain conditions set forth in Section 302 of the Internal Revenue Code, which
Secii.-.-.: should be carefully examined in respect of any particular redemption, especially in family, par
ship ;.nd trust situation.*, where a shareholder m a y be charged with contractive ownership of shares
»!" held in his o w n name.
There is no withholding tax on dividends paid by a Bermuda corporation to foreign shareholders,
whether dividends be paid in stock or in cash.
ft a cash dividend were paid by the Fund to its shareholders, any such dividend would be subject
^ U. S. tax at ordinary income tax rates, regardless of whether from income or from capital gains.
As there are no estate or inheritance taxes in Bermuda, shareholders domiciled in the United States
will not be subject to any foreign estate or inheritance taxes.
Individuals claiming tax exenp„on or earned inco_e of $100,000 or more
under Sec. 911 on tax returns filed in calendar year i960
Taxpayer
Identification
Nunfber
Gomitiv
0;?
P-°IlM£_-2£
C-l
C-2
PhillDoines
1/"
c-3
c-4
c-3
c-6
c-7
Auo ir-alia
_n~land
Mexico
»,1.1.. _ .t.., ^t
GA"OC_
Inccr/o
Rer-oi'tcd
<? 32791
' D>739
26?97
17651
20931
22513
C-6
c-9
c-10
c-11
c-12
c-13
C-lU
c-15
c-16
c-17
c-iQ
c-19
c-20
c-21
c-22
c-23
C-2^
C-25
c-26
c-27
c-28
C-29
C-30
C-31
C-32
C-33
x
Japan
Siiitccrland
Venezuela
Vene_uc0.a
Venezuela
Switzerland
Venezuela
France
Switzerland
Philippines
Philippines
Argentina
Venezuela
Lebanon
Xucador
Venezuela
Brazil
Philippines
Venezuela
Germany
Brazil
DoMinican Fcej
S^tzerland
F^-laud
Voiior.nola
l/ Hot lifted to avoid disclosure
5111
8021
6729
6P3);
756
13fc5
1^6576
7l>5'36
122951
11-6621
132
2321
0
0
0
U31
331
3162
232
21-0
bh93
0
5677
2C93
3161
A' :Oi.!n<i
o f Ir-cono
S.r.cluc".cd
UG6751
luoo^a
996200
105707
217500
533007
135700
122260
160000
107000
107367
161:171
155360
119551
115523
156000
2655U0
111670
217121
161033
151167
122307
153070
ljh9S03
131950
129570
160};50
I!:)j333
150059
117556
162500
I05ib5
•-3 H*
c+
CD
t—1
1
^
on
Q
!—'
vn.
K_
rv>
•A.
Taxpayer
Identification
Number
L-l
L-2
L-3
L-k
L-5
L-6
L-7
L-8
L-9
L-10
L-ll
L-12
L-13
L-U
L-15
L-16
L-17
L-18
L-19
L-20
L-21
L-22
L-23
L-2k
L-25
L-26
L-27
L-23
L-29
L-30
L-31
L-32
L-33
L-31^
L-35
L-36
L-37
L-35
Country
of
Residence
Philippines
South Africa
France
Canada
Canada
Germany
Venezuela
Cuba
Canada
Mexico
Canada
Canada
Venezuela
Canada
Venezuela
England
Japan
Brazil
Canada
Mexico
France
Saudi Arabia
Canada
Panama
Mexico
Luxembourg
Saudi Arabia
Canada
Mexico
Canada
Japan
Italy
Venezuela
Philippines
Turkey
Venezuela
Canada
Vc;ir:;:u?lvi
Adjusted
Groe-3 Incorrj3
Reported
1,552
3,990
2U,602
215
6,5U3
5A35
3,903
6,921
5,880
5,32U
900
Anoun-fc
of Income
Excluded
55,217
6U,U0O
69,920
^,962
70,000
70,917
53,731
58,550
50,000
52,220
50,225
597
51,255
0
0
8,6!;6
7U,000
70,072
52,881
55U
53,bu0
50,3h5
52,869
$±9999
67,906
6b,865
57,115
52,500
67,505
56,252
67,303
5H,H5
70,579
50,560
50,29U
51,117
52^837
8UAU0
63,750
0
U,098
0
3,6U5
0
1,1*66
1,233
1,6U0
16,580
1,0112
0
20,579
2,U76
0
0
1,835
6,200
2,Wi5
850
9,117
0
11,863
30,003
52,881
67,073
61 S:?S
a1
»-3
8- M
f—'
CD
H
ro
P
CD
f-
f_JL
CJ7
Identification
Number
L.-39
L-40
L-il
L-^2
L-i+3
L-kk
L-i+5
L-i+6
L-Vf
L-48
L-U9
L-50
L-51
L-52
L-53
L-5I+
L-55
L-56
L-57
L-53
L-59
L.L-60
L-61
L-62
L-63
h-6\
L-65
L-66
L-67
L-68
L-69
L-70
L-71
L-72
L-73
L-7if
. L-75
L-76
L-77
of
Residence
Canada
Canada
Canada
Canada
Colo:±ia
Brazil
Canada
^Okinawa
(Mexico
jSngland
[Mexico
Venezuela
'Brazil
(Venezuela
Venesuela
.Stdtserland
.Venezuela
Canada
jKezico
jOklnaua
France
Mexico
.Mexico
jVenesuela
{Venezuela
_rasil
(Venezuela
jFranco
Canada
Canada
Venesuela
Spain
iColon&ia
Venezuela
Venesuela
Canada
!
Brasil
Vene3_ela
Republic of
Panama
Adjusted
Gross Income
Reported
7,775
0
7,530
3,hOQ
0
0
1,283
0
l>28
1,963
92U
5,137
Amount
of Income
Excluded
77^115
60,000
70,195
5U,8oi
65,000
53,000
92,666
57,139
5li,k30
67,50$
57,077
95,262
0
$1^$9
3,120
61,393
50,780
86,592
0
fc,059
0
0
2,873
0
0
0
0
0
0
389
i,liii0
697
6,796
6,163
3,233
Loss 16,701;
0
0
1,398
0
6,U96
Loss 21,966
320
56,ia8
51,000
53,500
7ii,000
5^,317
76,000
57,793
55,522
53,731
62,659
81,711;
75,250
66,077
50,000
66,321
77,701;
• 79,822
6U,925
52,009
51,626
60,059
62,52i8
80,000
V
!•"
CJCJ
CD
!—1
-O
ro
CD
£Z?
H-
cr
HcfM
M
Taxpayer
Identification
Nu:Dber
Country
of
Residence
L-78
"79
L
"S0
L
-gl
Venezuela
France
Korea
Canada
L
"£2
Japan
L
"^3
Philippines
L
L
Spain
L
Canada
Switzerland
Chile
Germany
Venezuela
Bahaaas
Saudi Arabia
Venezuela
England
Italy
'f>
"°5
--S6
--S7
L-83
L-39
L-90
L-91
L-92
L-93
^'9h
Adjusted
Gross Income
Reported
k,l6k
0
331
0
8,850
0
U,302
5,787
11,0U9
13,425
37,035
7,531;
10 u^^
12,51;
2,100
18,159
300
Anount
of Incor-a
Excluded
53,281;
65,953
63,815
59,185
88,500
87,011
52,U95
55,902
51,839
85,366
98,291
9h,525
65,597
57,U53
67,351
66,726
67,71*2
_xnioit 11 - page ly
^1 *w'
Table 13
INCOME EXCLUDED UNDER SECTION 911 OF THE CODE ON RETURNS FILED IN 1960 AS DISCLOSED ON FORMS 2555 M SIZE OF
EXCLUDED INCOME AND CONTINENT
'
Continent unci Gir.e of
excluded Income
Physical presence
Residence
Number Percent
Percent Number Percent
Amount
(1)
(2)
(3)
39,482
100.0
418,906 940
1,458
3.7
11,785
9,076
13,149
3,768
29.8
23.0
33.3
9.5
32,750,427
62, 650,725
186,718,941
100,000,678
204
35
7
0.5
0.1
11, 199
100.0
510
4.6
3,299
3,068
3,309
935
29.5
27.4
29.5
8.3
10,894,623
21,447,700
45,767,243
25,368,822
73
4
1
0.7
9,238
100.0
226
2.4
1,761
1,660
4,004
1,522
19.1
18.0
43.3
16.5
4,786,298
12,697,092
58,406,618
39,804,562
51
13
1
0.6
0.1
5,249
100.0
263
5.0
1,429
1.595
1^746
559
27.2
22.8
33.3
10.6
(4)
(5)
(6)
Amount
Totnl
Percent Number Porcont
(7)
(8)
(9)
100.0
50,714
100.0
1,831
3.6
6.9
34.7
54.8
3.0
14,236
13,452
17,045
3,898
122, 307
0.3
0.1
8,398,037
100.0
(10)
?
10,000 under $20, 000
20,000 under $50,000....
'•i
$50,000 under $100,000...
$100,000 under $500,000..
100 0 92,175,510
12,991,339
5,835,576
17,959,254
2,451
4,376
3,896
130
5
1
109,420,551
100.0
1,166
100.0
92
7.9
4,603,566
755,510
583,087
10.0
19.6
41.8
23.2
4.2
0.7
0.5
289
464
306
13
2
24.8
39.8
26.2
1.1
0.2
121,937,893
100.0
1,398
21.8 6,402,207
39.0 32,014,862
34.7 50,538,567
1.2 2,794,622
302,945
(12)
511,082,450
100.0
28.1
26.5
33.6
7.7
39,152, 634
94,665,587
237,257,503
102,795,300
7.7
13.5
46.4
20.1
209
36
7
0.4
0.1
13,294, 284
5,957,883
17,959,254
2.6
-1.2
3.5
12,365
100.0
117, 818, 588
100.0
602
4.9
9.9
37.8
47.6
3.3
3,588
3,532
3,615
948
29.0
28.6
29.2
7.7
11,722,702
24, 619, 318
49,764,689
25,644,088
20.9
42.2
21.8
1.5
75
4
1
0.6
4,729,194
755, 510
583,087
4.0
0.6
0.5
100.0
10,636
100.0
135,320,746
100.0
263
2.5
3.3
7.8
15.0
44.6
23.9
3.1
1.4
4.3
Percent
(11)
ALL CONTINENTS
100 0 11 232
373
Amount
-
NORTH AMERICA
I
\,10,000 under $20, 000....
p20,000 under $50, 000....
under $100,000...
i150,000
1100,000 under $500,000..
828,079
3,171,618
3,997,446
275,266
125,628'
SOUTH AMERICA
Jnder $5,000
,..
110, 000 under $20, 000....
120,000 under $50, 000....
150,000 under $100, 000...
1100,000 under $500,000..
100.0 13,382,853
37
2.6
3,238,838
2,204,485
800,000
3.9
10.4
47.9
32.6
2.7
1.8
0.7
230
502
604
23
1
1
16.5
35.9
43.2
1.6
0.1
0.1
61,484,793
100.0
3,216
4.0
692, 055
3,914,723
8,044,366
536,805
5.2
29.3
60.1
4.0
1,991
2,162
4,608
1,545
18.7
20.3
43.3
14.5
5,478,353
16,611,815
66,450,984
40, 341, 367
12.3
49.1
29.8
72, 597
122,307
0.5
0.9
52
14
1
0.5
0.1
3,311,435
2,326,792
809,000
2.4
1.7
0.6
100.0 25,622,333
100.0
8,465
100.0
87,107,126
100.0
380
4.5
2,272
2,320
2,845
591
26.8
27.4
33.6
7.0
5,712/750
17,615, 208
38,361,398
.16,089,006
20.2
44.0
18.5
46
9
2
0.5
0.1
3,022,909
1, 375,655
4,930,200
3.5
1.6
5.7
31
100.0
195,479
100.0
6
19.4
10
6
9
32.3
19.4
29.0
31, 215
44,326
119,938
16.0
22.7
61.4
WESTERN EUROPE
Total
110,000 under I&20, 000....
120,000 under $50, 000....
ip50,000 under $100,000...
$100,000 under $500,000..
46
9
2
0.9.
0.2
3, 022,909
1, 375,655
4,930,200
5.9
14.6
39.3
25.1
4.9
2.2
8.0
152,781
100.0
3 643 1^9
8^971^965
24,132,851
15,406,084
117
843
1,125
1,099
32
3.6
26.2 2,067,621
35.0 8,643,243
34.2 14, 228, 547
682,922
1.0
-
-
9
100.0
1
11.1
8.1
20.2
71.7
5
2
1
55.6
22.2
11.1
-
-
100.0
3,385
-
8.1
33.7
55.5
2.7
-
6.6
EASTERN EUROPE
Total
1
\Jnder
$5, 000
>10,000 under $20, 000....
,20,000 under $50,000....
$50,000 under $100.000...
$100,000 under $500,000..
$500, 000 and over.
22
100.0
5
22.7
5
4
8
22.7
18.2
36.4
-
-
12, 378
30,858
109, 545
-
-
42,698
18,837
13,468
10,393
-
100.0
44.1
31.5
24.3
-
-
-
-
-
ASIA
Total
Indcr $5,000
!10,000 under $20,000....
20,000 under $50, 000....
i50,000 under $100, 000...
100,000 under $500, 000..
9,776
100.0
238
2.4
2,754
2,529
3,549
665
28.2
25.9
36.3
6.6
30
6
3
0.3
0.1
105,478,366
73
7,343,036
15,025,362
51,046,367
17, M l , 256
1,882,159
1,394,219
11,645,967
7.0
14.2
48.4
16.3
1.8
1.3
U.O
548
1,416
1,307
40
1
100.0 28,961,887
100.0
2.2
134,440,253
100.0
25.1
30.0
36.9
5.4
8,732,045
24,711,125
68,048,739
17,971,S84
6.5
18.4
50.6
13.4
0.2
0.1
1,936,274
1,394, 219
11,645,967
1.4
1.0
8.7
13,161
100.0
311
2.4
16.2 1,389,009
41.8 9,685,763
38.6 17,002,372
830,628
1.2
4.8
33.4
58.7
2.9
3,302
3,945
4,856
705
54,115
0.2
31
8
3
_
Exhibit II - page 20
INCOME EXOLUDED UNDER SECTION 911 OF THE CODE ON RETURNS FILED IN I960 A3 DISCLOSED ON FORMS 2555, BY SIZE OF
EXCLUDED INCCME AND CONTINENT—Continued
Continent and oizo of
excluded income
Reoidence
Number Percent
Phyoical preoence
Amount
Percent Number Percent
Amount
(5)
(7)
(1)
(2)
3,436
100.0
184
5.4
2,216
550
422
62
64.5
16.0
12.3
1.8
5, 383, 142
3,969,610
5,690,345
1,617,618
32.1
23.6
33.9
9.6
2
0.1
128,800
0.8
(3)
(4) '
(6)
AFRICA
I
under $20,000....
:10,000
20,000 under $50, 000....
1
$50,000 under $100,000...
$100,000 under $500,000..
5500,000 end over
16,789,515
100.0
561
100.0
19
3.4
162
223
148
9
28.9
39.8
26.4
1.6
-
-
—
'otal
Percent Number Percent
(8)
4,278,191
422, 170
1,700,307
1,963,515
192,199
-
(9)
100.0
9.9
39.7
45.9
4.5
(10)
Amount
Percent
(11)
(12)
3,997
100.0
203
5.1
2,378
773
570
71
59.5
19.3
14.3
1.8
5,805,312
5,669,917
7,653,860
1,809,817
27.6
26.9
36.3
8.6
2
0.1
128,800
0.6
976
100.0
7,586,763
100.0
35
3.6
334
291
287
26
34.2
29.8
29.4
2.7
836, 861
•2,192,990
3, 654, 096
682,042
11.0
28.9
48.2
9.0
2
1
0.2
0.1
115,067
105,707
1.5
1.4
1 083
100 0
7 545 789
100 0
31
2 9
33.3
39.1
23.5
1.1
0.1
833,396
3,200,886
3, 203, 804
257,096
11 0
42.4
42.5
3.4
50, 605
0.7
21,067,706
-
OCEANIA
i
110,000 under £20,000....
,20,000 under $50, 000....
,50,000 under $100, 000...
,100,000 under $500,000..
i500,000 and over
1
413
100.0
22
5.3
208
60
97
23
50.4
14.5
23.5
5.6
471,305
443,778
1,352,447
616,392
15.2
14.3
43.5
19.9
2
1
0.5
0.2
115,067
105,707
3.7
1.4
3,106,696
100.0
563
100.0
13
2.3
126
231
190
3
22.4
41.0
33.7
0.5
-
-
4,480,067
365,556
1,749,212
2,301,649
63,650
":
100.0
8.2
39.0
51.4
1.4
-
COUNTRY NOT REPORTED
Total
1
110,000 under $20, 000....
120,000 under $50, 000....
I
1
i50,000 under $100,000...
,100,000 under $500,000..
:
149
10
100.0
113
10
14
2
75.8
6.7
9.4
1.3
-
536, 345
100.0
6.7
-
214,516
64,360
213, 525
43,944
-
40.0
12.0
39.6
8.2
-
934
100.0
21
2.2
248
413
241
10
26.6
44.2
25.8
1.1
618,880
3,136,528
2,990,279
213,152
8.8
44.7
42.7
3.0
361
423
255
12
1
0.1
50,605
0.7
1
7,009,444
100.0
Comparison of Marginal Estate and Inheritance Tax Rates in the U.S.
and in Selected Foreign Countries for Estates up to $1 million
; Unit•ed States
100,000-$ 250,000
30
20
h
15
8
250,000-
32
20
h
15
10J
37
20
k
15
10|
500,000
{'30,000-1, 000, 000
*
:
Taxable Estate
Ax'gentina * *
Bahamas
•
Canada
\
Venezuela *-*
These are the rates of inheritance tax applicable to descendants, ascendants and spouses.
** This is the rate of inheritance tax applicable to parents, children or spouses.
U. S.-OWNED CORPORATIONS ORGANIZED ABROAD
^ IN SELECTED COUNTRIES, I95I+-I96O-
;
195^
Bahama Islands
-
Canada
Liberia
;
1955
;
1956
;
1957
:
1953
;
1959
!
i960
;
Total
3
h
2
13
19
6h
105
h5
37
50
67
67
57
82
if05
65
109
163
113
82
59
^7
633
Mexico
3
2
8
5
7
15
19
59
Panama
he
Uo
63
96
95
13^
95
569
2
2
7
5
5
Venezuela
i/
7
33
170
53-7
Tabic
(information not available)
Switzerland
All countries
5
]xhibit ;
l-H
Puerto Rico
r-?
1
10
17
23
lk
7
16
86
VA 1
187
233
338
339
332
1+13
7^1
2,89^
O
ro
April 26, 1961 .. . .._ ro
Note:
Except in the case of Switzerland, these figures are based upon information returns filed pursuant
to section 60^6 of the Internal Revenue Code of 195^* The degree of compliance with this provision
for prior years is uncertain. The figures for Switzerland are based on information furnished by
the Consulate General in Zurich. This information indicates that as of March 31, 1961, approximately
517 American-owned corporations were created in Switzerland. Of these, 170 were created in the period
between March 31, I960 and March 31, 1961.
l/ The figures for the specific years from 195^ to 1959 do not include Switzerland, but they are inc d
in the "total" column.
h-^
"32
EXHIBIT III - DIVIDEND AND INTEREST NONREPORTING
Treasury estimates indicate that a substantial gap exists between
the amount of dividend and interest income which should be reported by
individuals on income tax returns and the amount they actually report.
In addition, findings in special case-by-case studies conducted in
recent years by the Service give additional evidence of substantial
nonreporting.
Gap estimates
The dividend and interest underreporting gaps are estimated from
aggregate figures of the amounts of such payments to individuals and
of the amounts reported by individuals on their tax returns. Since the
components of the calculation are derived from sample data or are estimates involving considerable elements of judgment, the final gap
figure represents general approximations. This method has also been
used by the New York Stock Exchange and independent tax experts whose
estimates have in the past corresponded closely with Treasury estimates.
** Pi-vi-flenflfl (Table l)
For dividends the estimate is based on cash distributions to stockholders by domestic corporations, as reported in the Internal Revenue
Service Statistics of Income, and adjustments are made to add foreign
dividends received by individuals, and to exclude dividend payments to
corporations, tax-exempt organizations, and persons not required to file
tax returns and to exclude distributions which are not taxable or are
capital gains. The balance presumably should appear on individual tax
returns if there were complete compliance in tax reporting. This type
of calculation is shown in Table 1 for the years 1955 to 1959> inclusive.
The 1959 underreporting gap of $9^0 million is still a preliminary estimate since the Statistics of Income figure for dividend payments by
domestic corporations is not available, l/ The reporting gap attributable to taxable individuals was estimated at $83^ million for 1959.
l/ The 1959 estimate of dividends paid to individuals is an extrapolation of the 1958 figure, with the same changes as is currently
estimated by the Department of Commerce for the 1958 to 1959
increase in dividends received by individuals. The final
Commerce Department figure for dividends received by individuals
has in recent years varied from their preliminary estimate by
+ $200 million, and present indications are that a revision of the
preliminary figure for 1959 will probably be to increase it by
about $100 million.
Table 1.
Estimated dividend gap 1955 to 1959
(In millions of dollars)
• 1^55
_ _
: 1956
: 1957 .: 1953
: 1959
Cash distributions to stockholders by domestic corporations,
Statistics of Income .
Domestic dividends ^ ^ ^ V t o ^ " ^ r ^ t _ ^ ; ' ^ m i «
^ ' ^
'^
*>*k
• *>**
^ 9 1/
f
nC
e
le S d v i d e n d s
>*+ A° >A T* ' , t ^
received-from Federal Reserve Banks . -2,563 -2,677 -2 669 -2 816 -P Q - 1/
het dividends paid by domestic corporations
^ ^ Q i r l p T
T^ltf
T § ^
TT2^?^
U
Domestic dividends paid abroad
^ 0 2
'PS
'to?
'iS
'ul ~'
Foreign dividends received by individuals
!!!!."!!."!!] + 1 7 1
I _?Q ~ nib I n k
J vi~
9
Distributions paid to individuals, fiduciaries and tax-exe^t
"
* ^
*
^
organizations.
.
]\........ 10,898 11,656 12,038 11,842 12,81,21/
Distributions©? small business corporations taxed as partnerships — — £7 m-a
Distributions exempt from tax
_
. 125
_ lso
. ^l
" oX( " i ^
Distributions taxable as capital gains
278 - 368 - 3J9 I ___" I t%$
Dividends received by corporate pension funds 2/
. A
. 229
271
r\ 8
£?
Dividends received by other tax-exempt organizations 2/ ........... 454 - V79 - 4 9 1
&?
" CQT
Dividends received by persons not required to file or"/ho use 1040A - 94 - 101 - ink
107
m
Dividends retained by estates and trusts
.
- ^ko - %h&
*z*
tzl
"£<>
Total deductions
:/....V.::[ -*$&
-1,673 '-1,41 - ' l , i f - ^ j g r
Dividends includable on individual tax returns . 9,433 9,983 10,283 9 975 10 6*4
Dividends reported on individual tax returns ...... „ 8,100 8,892 9,432 9,058 9 714
Dividend reporting gap ^333
1>091 851 01-
^
Attributable to nontaxable filers 15-3 ips oft ink in*
Attributable to taxable filers
;;;;;;;;
1>I8
Q
966
T £>
Office of the Secretary of the Treasury " ~" """"""" ~~ ——
Office of Tax Analysis
l/ Estimated by relationship to Commerce Department estimates.
2/ Estimate limited to corporate pension funds as defined by SEC. Joint, union controlled and
non-profit institution funds are included with other tax-exempt organizations.
.13
Ma
^ 3, 196l
Q™
Exhibit III
1 ?3
x ^ T
- 3 2. Interest (Table 2)
The interest underreporting gap has at times been estimated starting
from the Commerce Department's estimate of interest receipts by individuals, unincorporated businesses and nonprofit institutions. The
Commerce Department's concept of personal interest income includes about
$10 billion of imputed interest (largely interest assumed to be earned
on bank deposits, which i6 not paid to individuals but is absorbed by
the bank in lieu of service charges). The large adjustments involved
in the Commerce Department concept cast a good deal of doubt upon such
a gap estimate. In consequence, the Treasury has used a different
approach, namely, estimating directly amounts of interest payments to
individuals and then deducting certain relatively small amounts of
interest received by sole proprietors as business income, by individuals
not required to file tax returns, and by tax-exempt organizations. This
type of calculation for the years 1956 to 1959> inclusive, is shown in
Table 2. The interest underreporting gap for 1959 vas estimated at
$2,837 million; the gap attributable to taxable individuals was $1,995
million.
3. Relative dividend and interest gaps (Tables 3 and 4)
The estimated dividend gap as a percent of dividends includable on
individual income tax returns is presented in Table 3 for the years
1955 through 1959. It would appear that for the period 1957-1959> the
annual percentage gaps were somewhat lower than in the period 1955-1956.
For 1959, however, while the percentage of nonreporting declined somewhat from 1958, the absolute amounts of unreported dividends increased
because of the larger over-all payments of dividends in 1959 over 1958.
The estimated interest gap as a percent of interest includable on
individual returns was relatively stable in the years 1956-1958
(Table 4). There appears, however, to have been a slight decrease in
the percentage gap in 1959. l/ It should be noted that while the percentage interest gap declined in 1959, the absolute amounts of unreported interest rose by more than $200 million because of the larger
amounts of interest paid in 19594- Revenue effect (Table 5)
To estimate the revenue effect of dividend and interest underreporting, a further adjustment is made to exclude the amount assumed to
go to persons required to file tax returns but who would not be taxable
l/ The 2.7 percent decrease is based on preliminary data; the final
Statistics of Income figure for interest reported by individuals
for 1959 is not available at this date.
Exhibit III
lit;
- 4Table 2
Estimated interest income of individuals not accounted for on
tax returns for 1956, 1957, 1958 and 1959
An analysis of payments to individuals of interest includable in
taxable income, by source of payment, and the amounts reported
and not reported on Federal tax returns
: 1956 : 1957 ! 1958 : .1959
.
_
.___«_____--__-______-____-______^^
interest payments to individuals:
Cash interest paid on Government securities l/
Interest paid on corporation bonds and notes l/ ....
Interest on time and savings deposits l/
Interest on savings shares l/
Interest paid on holdings of foreign bonds
Interest on farm mortgages paid to non-farm individuals
Interest paid on non-farm mortgages
Interest paid to unincorporated brokers and dealers
Interest paid to unincorporated consumer credit
companies
Interest paid on life insurance dividends left to
accumulate .,
•
Interest paid to retail auto dealers
Total payments
'
)educt:
Interest reported as business income by sole proprietors
Interest received by low income individuals not required to file
Interest receipts of non-profit organizations
Total deductions
.
.
»
(In millions of dollars)
1,200
746
1,564
1,120
50
1,400
837
1,976
1,384
58'
1,200
883
2,231
1,627
62
181
1,000
71
198
1,100
69
214
1,220
86
144
155
155
74
50
6,200
80
*+8
7,305
331
383
^7
133
211
675
154
244
"ol
166
260—
o33
87
51..,_
7*816
[nterest includable in individual tax returns 5,525 6,5-4 6,983
Cnterest reported as such on tax returns: ,
Individuals - Form 1040«
Individuals - Form 1040-A
•
Partnerships
fiduciaries
Total
2
>872
3
2
?f
__!§
3,319
J
f£
*°2
3,0,9
\kn
3.990
4,378
Sstimated amount of interest payments not accounted
Attributable to nontaxable filers f22 £j0 782
Attributable to taxable filers
,-
1^50
1,77*
tffice of the Secretary of the Treasury
Office of Tax Analysis
/ These items^include payments to nonprofit organisations.
f£
_*_L
6o5
i,°<o
Ma
y 3, 1961
1 QC
Exhibit III
- 5 Table 3
Estimated Dividend Gap I955 to I959
(In millions of dollars)
1955
DIVIDENDS INCLUDABLE
on individual tax returns
1956
1957
$9,433 $9,983 $10,283
1958
1959
$9,975 $10,654
DIVIDENDS REPORTED
on individual tax returns
8,100
8,892
9,432
9,058
9,714
DIVIDEND REPORTING GAP
1,333
1,091
851
917
9^0
9.2
8.8
DIVIDEND REPORTING GAP as a
percentage of dividends
includable on individual
tax returns
Percent
14.1
10.9
8.3
Table 4
Estimated Interest Gap I956 to 1959
(in millions of dollars)
1956
1957
1958
1959
INTEREST INCLUDABLE
on individual tax returns
$5,525
^6,524
$6,983
$8,194
INTEREST REPORTED
on individual tax returns
3,453
3,990 4,378 5,357
INTEREST REPORTING GAP
2,072
2,534 2,605 2,837
INTEREST REPORTING GAP as a
percentage of interest
includable on individual
tax returns
Percent
37.5
Office of the Secretary of the Treasury
Office of Tax Analysis
38.8
37.3
May 3, 1961
34.6
137
Exhibit III
- 6 Table 5
Revenue effect of withholding on dividends and interest, 1959
(in millions of dollars)
] Dividends ; Interest ' Total
A. Total estimated gap ..................
To nontaxable filers
To taxable filers
834 1/
1,995
B. Revenue gain from complete enforcement
342 2/
522
C. Revenue gain from 20 percent withholding rate only
167 2/
333
500 2/
Difference (B-C) due to:
175
189
364
85
85
Certain unreported interest not
subject to withholding
940
106
—
2,837
842
3,777
948
2,829
864 2/
Tax on unreported interest and
dividends of taxpayers with
marginal rates higher than
20 percent
175
104
279
D. Revenue gain from withholding plus
estimated improvement in upper
income brackets 3/
254 2/
359
613 2/
Estimated improvement in upper
income brackets 3/ (D-C)
Office of the Secretary of the Treasury
Office of Tax Analysis
87
26
113
May 3, 1961
1/ Assumes repeal of dividend exclusion.
2/ Assumes repeal of dividend exclusion and credit.
2/ For dividends, It is assumed that withholding will result in one-half of
the dividend gap being fully reported and bearing a 41 percent effective
rate, and the other half of dividends being taxed only at the withholding
rate. For interest, it is assumed that only 25 percent of the interest
gap subject to withholding will be fully reported and bear a 26 percent
effective rate, and 75 percent would be taxed only at the 20 percent
withholding rate.
Exhibit III
-7 even if they had reported properly. Table 5 shows these adjustments
for dividends and interest for 1959. The table shows an estimated
revenue gain of $864 million by complete elimination of interest and
dividend nonreporting. The table also shows the estimated $500 million
revenue gain from the application of the 20 percent withholding alone,
and the estimated $613 million revenue gain if in addition to withholding there is an improvement in tax compliance by persons subject
to individual income tax rates above the 20 percent bracket.
Special case studies
Another method of measuring nonreporting of interest and dividend
income is through survey of specific cases. Such case studies provide insights into the frequency and extent of nonreporting which
supplement aggregate gap measures. The Internal Revenue Service has
conducted several such case studies during the fifties. Some dividend
and interest studies utilized the information documents filed by payers
which report the interest and dividends paid to individuals. One case
study of the reporting of interest paid on savings deposits was based
on bank records. The reporting of Series E savings bond interest was
studied using Treasury bond redemption records.
!• Case studies of interest and dividend reporting
utilizing information documents (Tables 6 and 7)
The most recent survey utilizing information documents was conducted for 1959. The study started out from scientific samples of
information documents submitted to the Service by payers of dividends
and interest. In the case of dividends, these documents covered payments of $10 or more a year. In the case of interest, the documents
largely covered payments of $600 or more a year, although some documents were filed for smaller payments. No documents are required under
the regulations for corporate bond interest.
The Information documents selected in the samples were matched
against the income tax returns to determine whether the interest and
dividends were accurately reported on the tax returns.
Among the cases studied for dividend reporting, the Service found
that one out of every three cases had some nonreporting of dividends.
In 10 percent of the cases no dividends whatever were reported on tax
returns. About one out of every four taxpayers partially reported their
dividends for 1959. (See Table 6)
Corresponding figures for all interest recipients were not available, but for the group studied whose interest was reported on information documents (usually $600 or more from each source), one out of
QQ
Exhibit III
-8-
Table 6
Tax Compliance in Reporting Dividends in 1959 —
Sample Survey Based on Information Documents
Number
Percent
of Total
Total in survey
2,289
100
With dividends fully reported
1,455
64
With dividends partially reported
616
27
With no dividends reported
218
10
Number of Cases l/
Amount of Dividends on Information Documents l/
Total in survey $2,192,893 100
Reported on returns 1,990,317 91
Unreported on returns 202,576 9
Internal Revenue Service
Research Division
l/ Limited to taxpayers who filed Form 1040.
j^y 3 1961
Exhibit III
- 9 _
Table 7
Tax Compliance in Reporting Interest in 1959 —
Sample Survey Based on Information Documents
Number
Percent
of Total
Total in survey
2,841
100
With interest fully reported
2,179
77
With interest partially reported
200
7
With no interest reported
462
16
Number of Cases
Amount of Interest on Information Documents
Total in survey
$3,105,000
100
Reported on returns
2,559,000
82
Unreported on returns
546,000
18
Internal Revenue Service
Research Division
May 3, 1961
Exhibit III
- 10 -
1 dl
j„ T J_
every four taxpayers had not reported interest that should have been
reported. Sixteen percent of the taxpayers failed to report any
interest on their tax returns. It should be noted that these were
sizeable payments of interest, usually more than $600. In 7 percent
of the cases, the taxpayers partially underreported their interest.
(See Table 7.) It is apparent from other studies that if information
documents had also been available for interest paid in amounts less
than $600 for each source, the compliance picture would have been
worse.
In terms of amount of dividends underreported among the cases
studied, about 9 percent of the dividends reported on information
documents were not included in the tax returns. It Is noteworthy
that this percentage closely approximates the relative size of the
aggregate dividend nonreporting gap discussed above.
The understatement of interest was much larger than the understatement of dividends. About 18 percent of the interest reported on
information documents was not included on the Income tax returns.
Here, again, the extent of noncompliance would have been greater if
small interest payments (less than $600) were included on information
documents.
2« Case studies of reporting of bank deposit interest (Table 8)
The Service undertook to study the reporting of interest credited
to bank deposit accounts during 1958. A random sample of depositors
was selected in eight banks in three New England States. The amount of
interest paid or credited to each depositor's account was compared with
the amount reported on the income tax return of the depositor.
The Service found that in more than half of the cases studied the
depositor failed to report the deposit interest on his tax return
(Table 8). In 5 percent of the cases, the depositor understated the
amount of interest paid or credited.
In terms of amounts of interest, 38 percent of the interest recorded by the banks for the cases studied was not reported on tax
returns.
3* Case studies of the reporting of Series E
savings bond interest (Table 9)
During 1953 and 1954, the Service studied bond redemption cases to
determine the extent to which those who redeemed Series E savings bonds
in 1951 reported the interest on 1951 tax returns. The names and
addresses of those who redeemed the bonds were noted and the amount of
Exhibit III
- 11 -
Table 8
Tax Compliance in Reporting Savings Account Interest in 1958 -Sample Survey Based on Depositors in Mutual Savings Banks
in New England
Number
Percent
of Total
Number of Cases
Total in survey
With interest fully reported
With interest partially reported
With no interest reported
1,279
100
539
42
69
5
671
53
Amount of Interest on Savings Accounts
Total in survey $129,790 100
Reported on returns 80,644 62
Unreported on returns 49,146 38
Internal Revenue Service
Research Division
May 3, 196l
Exhibit III
- 12 -
Table 8
Tax Compliance in Reporting E-Bond Interest by Taxpayers
Who Redeemed Bonds in 1951 — Sample Survey l/
Number Percent
(Thousands)
of Total
Number of Individuals Redeeming Bonds
Total number earning interest, where
tax return was located for inspection
4,o6o
100
With interest fully reported
449
11
With interest partially reported
128
3
3,483
86
With no interest reported
Amount of Interest on E-Bonds (thousand dollars)
Total paid out by Treasury, where tax
return was located for inspection
$246,357
100
Reported on returns 71,930 29
Unreported on returns 174,427 71
Internal Revenue Service
Research Division
j^y 3 1953
1/ The survey sample results have been "blown up" to represent
a H taxpayers who redeemed E-bonds in 1951.
1
Exhibit III
- 13 interest received. The income tax returns of these individuals were
traced to determine whether the bond interest was reported.
In the case of a few taxpayers no returns could be located, probably largely because they were not required to file returns. For those
whose returns were located, tt was found that 86 percent failed to
report any savings bond interest whatsoever. In only 11 percent of
the cases was the interest fully reported, and in three percent partially
reported. In terms of amounts, 71 percent of the bond interest that
should have showed up on tax returns went unreported and untaxed.
Selected cases of substantial nonreporting (Tables 10, 11 and 12)
To provide explicit evidence of purposeful underreporting of
interest and dividends, the Treasury selected recent fraud prosecution
cases in which substantial amounts of such income were unreported.
Table 10 summarizes 33 recent fraud cases which were prosecuted and
convictions secured during i960 for all except one case, l/ Persons
with incomes as high as $400,000 a year, and evasion by underreporting
of more than $100,000 a year are represented in these selected cases.
Occupations, such as real estate broker, investor, dentist, physician,
attorney, turn up In the list.
In addition, the Treasury selected cases of substantial underreporting from its 1959 study of interest and dividend underreporting
in which interest and dividends reported on information documents
filed by payers were checked against such incomes reported on the 1959
tax returns filed by the recipients. Table 11 summarizes 38 selected
cases of interest underreporting. Table 12 summarizes 21 selected
cases of dividend underreporting.
Results of the Treasury's educational program
Experience has proven that the mass nonreporting of interest and
dividends cannot be dealt with adequately by means of taxpayer education.
The Treasury Department launched in 1959 a taxpayer education program to remind taxpayers to report their interest and dividend income
on their 1959 income tax returns. Interest and dividend payers cooperated with the Treasury. Tens of millions of reminder notices were
distributed. Publicity campaigns were organized using newspapers,
magazines, radio and television. The Treasury Is very appreciative of
the cooperation of corporations, banks, stock exchanges, the communications media, and others for their assistance In the campaign.
1/ One case resulted In an acquittal for fraud. Nevertheless, civil
deficiencies and assessments were made for unreported Incomes.
Exhibit III
- 14 Table 10
Selected Examples of Substantial Under-reporting
of Dividends and/or Interest in Recent Fraud
Prosecution Cases
•
Dividends and/or Interest
:
:Adjusted Gross: Occupation
• Determined to: Reported: Under- : Tax : Income Per :
Case:
of
No.: be Reportable: on Return: reported: Year:
1
$
6,110
5,779
5,705
5,388
*
250
0
0
0
$
5,860
5,779
5,705
5,388
195**
1955
1956
1957
Return
$
1,582
1,641
1,605
1,621
: Taxpayer
Farmer
2
4,490
397
^,093
1951*
22,432
3
1,962
1,99**
927
2,19**
871
837
0
1,686
1,091
1,157
927
508
1951*
1955
1956
1957
3,109
4,079
4,912
8,379
Maintenance Serv:
4
3,1*6
5,695
6,046
0
0
0
3,1*6 1953
5,695 1954
6,046 1955
1,1*90
1,501
1,402
Broker-Sales
5
7,371
10,459
0
0
1953
1954
4,366
24,464
Home Builder and
Farmer
6
16,321
3,449
12,872 1955
19,062
Furniture Store
7
7,009
5,947
5,631
11,725
3,030
3,439
2,899
7,709
8
20,785
45,682
^7,689
5,183
9,466
29,046
9
3,186
4,283
4,828
5,665
5,292
75
75
75
92
0
7,371
10,459
3,979
2,508
2,732
4,016
1951
1952
1953
1954
11,766
12,563
(
831)
20,841
Ptr. Theater
Attorney
15,602 1954
36,216 1955
18,643 1956
8,403
33,776
45,069
Rental Property
1954
1955
1956
1957
1958
4,249
4,400
7,720
8,322
10,892
Dentist
3,111
4,208
4,753
5,573
5,292
14S
Exhibit III
-15-
"
:
Dividends and/or Interest
T Adjusted Gross
Case: Determined to: Reported: Under- : Tax :
Income Per
No.: be Reportable: on Return: reported: Year:
Return
10
$
1,396
1,576
1,835
2,400
0
0
0
0
$
$
1,396
1,576
1,835
2,400
1953
1954
1955
1956
$
3,289
2,764
2,695
4,24o
Occupation
of
Taxpayer
Self-Employed
2,377
3,610
0
2,377 1953
3,610 1954
: 863)
l*,736
Cattle Dealer
0
12
12,473
15,216
21,777
6,128
6,442
18,947
6,345
1955
8,774 1956
2,830 1957
80,661
79,800
96,223
Executive
13
2,961
3,171
3,677
1,961
2,035
2,269
1,000
1,136
1,408
1953
1954
1955
12,438
12,637
10,too
Salesman and
Salesgirl
ll*
100,457
78,673
69,086
74,496
0
100,457
78,673
69,086
51,847
1953
1954
1955
1956
9,554
8,558
382,043
3,lto
3,109
3,269
3,231
0
2,000
2,117
2,945
1,557
Extractor
0
755
1,420
3,1^0
1953
3,109 1954
2,514 1955
1,811 1956
28,693
26,143
0
0
28,693 1953
26,143 1954
No Ret.
70,347
Not Stated
(Delinquent Return)
17
1,778
1,939
2,341
325
350
365
1953
1,453
1,589 1951*
1,976 1955
1,660
2,124
1,960
Farming
18
2,31*7
1,119
7,1*50
Not Stated
19
7,163
12,827
0
16,876
16,239
Farmer
0
7,163 1955
12,827 1956
14,647
ll*,989
15,412
16,704
18,852
19,101
0
1952
1953
1951*
1955
1956
1957
No Ret.
Not Stated
0
0
0
0
0
14,647
14,989
15,412
16,704
18,852
19,101
11
15
16
20
0
0
22,649
1,229
1956
Real Estate
11
Exhibit III
147
-16.
~
Dividends and/or Interest
_~
: Adjusted Gross Occupation
Case: Determined to: Reported: Under- : Tax : Income Per
of
Wn.i be Reportable: on Return: reported: Year;
Return
Taxpayer
0
0
$ No Ret.
Not Stated
1955
1956
No Ret.
Not Stated
973 1953
1,117 1951*
1,423 1955
3,609 1956
5,800
7,446
7,652
24,659
Store Manager
422 1953
1,011 1954
1,728 19^5
988 1956
?
3,923
2,907
424
1953
1954
1955
0,615
9,045
10,638
Tax Assessor and
Movie Operator
16,161
14,409
15,969
Mise. Warehousing
and Trading
$ 11,718 1954
15,266 1955
21
$ 11,718
15,2bb
22
3,132
2,640
0
0
3,132
2,640
23
97
0
0
0
24
422
1,669
2,520
2,424
$
65b
792
1,436
Farming
25
2,239
2,1*86
3,113
0
26
7,504
5,303
7>56
4,976
5,271
5,646
2,528 1952
32 1953
1,810 1951*
27
2,331*
2,086
3,203
3,664
3,711*
361
611
2,310
2,580
2,697
1,973
1,975
«93
1,084
1,017
1954
1955
1956
1957
1958
13 ,.668
14,203
16,336
15,1*1*5
28
4,550
4,654
6,010*
7,308
0
4,550
4,654
6,010
7,308
1953
1954
1955
1956
1,632
1,632
1,664
1,824
Retired Mail
Carrier
12,721
12,082
12,877
14,902
4,043
6,469
6,892
8,390
8,670* 1954
5,613 1955
5,985 1956
6,512 1957
8,514
11,247
11,950
13,612
Dentist
29
0
0
0
0
0
2,239
2,^86
3,113
Physician and
Surgeon
Exhibit III
-17-
"
;
Dividends and/or Interest
:
: Adjusted Gross; Occupation
Case: Determined to: Reported: Under- : Tax : Income Per :
of
No.: be Reportable: on Return: reported: Year:
Return
: Taxpayer
$ 5,504
1*,981
6,255
7,1*30
8,739
1953
1951*
1955
1956
121
1,508
164
336
476
7,105
5,198
9,647
18,335
15,372
1953
1951*
1955
1956
1957
3,288
7,600
10,652
10,762
13,610
117,367
113,671
66,592
112,950
89,940
93,532
60,325
91,410
27,427
20,139
6,267
21,51*0
1953
1954
1955
1956
89,940
409,516
163,899
140,116
5,515
1*,903
6,015
6,803
2,548
2,023
2,885
3,426
2,967
2,880
3,130
3,377
1953
1954
1955
1956
6,105
6,494
7,846
9,100
7,128
8,453
10,262
523
873
1,023
1,523
31
7,226
6,706
9,811
18,671
15,81*0-
32
33
30
$
Internal Revenue Service
Research Division
$
$
7,863
9,038
8,558
6,761
Not Stated
Self-Employed
Investments
Printer
May 3, 196l
149
Exhibit III- 18 Table 11
Selected Examples of Substantial Under-reporting
of Interest on 1959 Income Tax Returns
;
Taxable Interest
: Adjusted Gross : Occupation
Case : On Informs•- : Reported on : Under
of
: Income per :
No. : tion Doc's. : Return 1/ •• reported :
: Taxpayer
Return
1
2,100
470
2,100
5,815
Renting of Property
2
774
26
774
3,972
Executive
3
657
0
657
13,201
Steel Cutter
4
986
0
986
14,811
Executive
5
1,680
513
1,680
8,934
Not Stated
6
907
907
7,044
Retired
7
992
94
992
2,581
Farmer
8
801
0
801
4,058
Farmer
9
6o6
0
606
7,201
Not Stated
10
8,000
3,790
8,000
15,105
Student
n
32,570
27
32,570
62,617
Lawyer
12
8,400
706
8,400
Not Stated
13
1,800
495
1,305
1,713
(Loss)
4,952
14
650
0
650
6,224
Not Stated
15
738
0
738
8,688
Switchboard Operator
16
719
0
719
10,212
17
607
0
607
1,185
0
Not Stated
Corp. Officer
Not Stated
l/ Unreported interest is the amount reported on information returns but
not reported on the return. The interest reported on the return may
cover amounts not covered by Information documents, especially In the
case of joint returns where documents for only one spouse were available. As a result, the "underreported" amount may not equal the
difference between the document and the return amounts.
Exhibit III
-19-
1$G
':
Taxable Interest
: Adjusted Gross : Occupation
:
On
Informa: Reported on : Under- :
Case
Income per :
of
No. : tion Doc's. : Return 1/ : reported :
Return
: Taxpayer
18
1,157
133
1,157
3,617
19
2,344
1,152
2,344
11,141
Housewife
20
1,001
0
1,001
U,336
Not Stated
21
679
0
679
10,463
Farmer
22
1,375
555
1,375
2,016
Retired
23
1,425
706
1,425
9,720
Merchant
24
649
0
649
10,932
Orchardist
25
729
51
729
10,283
Janitor & Custodia
26
3,066
1,650
3,066
3,399
Cattle
27
682
0
682
6,658
Farmer
28
2,562
0
2,562
10,839
29
678
0
678
7,643
30
792
0
792
10,066
Merchant
31
1,364
8£8
£06
4,036
Dairyman
32
780
0
780
24,780
33
1,182
0
1,182
1,940
34
3,25Q
0
3,2SO
25,615
R. E. Broker
3$
6,152
3,948
3,064
32,574
Hotel Executive
36
2,839
0
2,839
23,691 '
Farming
37
38
765
0
765
4,o59
Packing Plant
0
1,273
8,996
Insurance Clerk
1,273
Internal Revenue Service
Research Division
Teacher
Real Est.&Ins.Agt.
Farmer (Ret.)
Dist. Manager
Not Stated
May 3, 1961
l/ Unreported interest is the amount reported on information returns but
not reported on the return. The Interest reported on the return may
cover amounts not covered by Information documents, especially In the
case of joint returns where documents for only one spouse were available. As a result, the "underreported" amount may not equal the
difference between the document and the return amounts.
Exhibit III - 20 Table 12
151
Selected Examples of Substantial Under-reporting
of Dividends on 1959 Income Tax Returns
Taxable Dividends
Case : On Inf orma- : Reported on : UnderNo. : tion Doc's. : Returns l/ : reported
Adjusted Gross
Income per
Return
Occupation
of
Taxpayer
1
871
231
640
7,866
Mechanic
2
1,1*70
572
898
2,016
Factory Worker
3
1,361
421
940
4,182
Clerk
4
344
0
344
11,804
Clerk
5
343
0
343
3,971
Collector
6
2,087
1,125
1,152
5,715
Barber
7
1,711
22,172
1,711
43,561
8
590
0
590
5,035
Clerk
9
558
241
453
4,467
Dressmaker
10
3,214
3,676
2,900
34,728
11
405
0
405
4,335
12
918
519
467
716
13
5,51*6
3,020
3,253
12,970
Not Stated
14
2,448
408
2,040
40,895
Geologist
15
6,814
1,796
6,147
2,435
16
12,57S
0
12,573
11,222
Not Stated
Cert.Public Acc't*
Not Stated
Clerk
Not Stated
Lawyer
1/ Unreported dividends are the amounts reported on Information returns but
not reported on the return. The dividends reported on the return may
cover amounts not covered by Information documents, especially in the
case of joint returns where documents for only one spouse were available,
As a result, the "underreported" amount may not equal the difference
between the document and the return amounts.
Exhibit III
152
-21-
Taxable Dividends
Case : On Informa- : Reported on : UnderNo» : tion Doc's. : Returns l/ : reported
Adjusted Gross
Income per
Return
Occupation
of
Taxpayer
17
2,661
3,067
702
19,089
Housewife
_8
1,937
2,656
726
25,880
Not Stated
19
324
0
324
28,963
Real Estate Broker
20
6,657
5,1*79
1,865
6,821
Not Stated
21
761
425
336
4,120
Laborer
Internal Revenue Service
Research Division
3, 1961
1/ Unreported dividends are the amounts reported on Information returns but
not reported on the return. The dividends reported on the return may
cover amounts not covered by information documents, especially in the
case of joint returns where documents for only one spouse were available.
As a result, the "underreported" amount may not equal the difference
between the document and the return amounts.
Exhibit III
.7
The Treasury finds seme evidence of slight improvement in the
number of taxpayers properly reporting this income. It can be
expected that improvement would arise frosa the educational campaign.
However, the Treasury has found no evidence to indicate that there
has been a substantial reduction in the nonreporting dollar gaps.
As was presented above, almost $4 billion of interest and dividends
(taxable and nontaxable) went unreported for 1959.
This conclusion was substantiated by new data that became
available earlier this year as a result of a study specifically
directed at determining the extent of nonreporting of interest and
dividends and the Improvement in 1959 over 1958. The Internal
Revenue Service conducted two surveys on 1959 tax returns, one on
dividends and one on interest. The 1959 results were compared with
the results of two similar surveys on 1958 returns, conducted a year
earlier to measure any improvement in reporting by taxpayers.
These studies were representative surveys that attacked the
problem of nonreporting directly and on a broad scale, at all levels
of amounts of dividend and interest income, and all income levels of
taxpayers. Information documents selected in random samples were
matched against Income tax returns to see whether the dividends or
interest on the information documents were reported on the tax returns.
The Commissioner of Internal Revenue summarized the results of
the surveys in a report to Senator Harry F. Byrd on March 10, 196l:
"Reviewing the evidence given above, I think we can say that
in the dividend area the educational campaign resulted in some minor
improvement in reporting, in terms of numbers, particularly among
the low- and moderate-income groups, where much of the nonreporting
has always been thought to be due to ignorance or carelessness. This •
improvement In numbers reporting made little impression on the total
amount of dividends reported, since there was practically no change -a slight fall, if anything -- in the percentage of amounts received
that was reported on tax returns. There was enough decline in the
middle income brackets to overcome the improvement in the lower income
groups. The picture of improvement in dividend reporting cannot be
regarded with much optimism.
"It is even more difficult to generalize in the case of interest,
because of the fact that such a small sector of interest income is
within the sample of information documents -- mostly those payments
in excess of $600 per annum, and exclusive of many types of interest.
But within the field covered in the surveys, we find the same tendency
as in dividends for the improvement to be confined to the low- and
moderate-income brackets: also to those receiving small amounts of
interest. Again we find a tendency to retrogress, both in percent of
Exhibit III
- 23 -
54
numbers reporting and in amounts reported, among some income groups;
this time both of the high income groups in excess of $10,000. Overall there is no appreciable change in the compliance picture as
measured by numbers, and only a small change, If any, when measured
by amounts of Interest reported. The Indication of the sample survey
Is toward a slight decline; but the amount Is too small to be very
significant In this type of sample survey.
"Some of these conclusions from the surveys are confirmed by the
other evidence: the improvement in reporting dividends and Interest
by some classes of taxpayers, particularly those receiving small
amounts. None of the data, carefully evaluated, contradict the conclusion that overall, in terms of total amounts of dividends and
interest reported, the improvement has probably been very modest,
if, indeed it is appreciable.
"Completely aside from any Improvement in the reporting of dividends and Interest from 1958 to 1959, it is Important to note the
nonreporting still present. In 1959, according to the sample survey,
36 percent of taxpayers were not putting all their dividends into
their tax returns, and they were omitting about 10 percent of the
total amounts received.
"We cannot make such definite estimates of the total nonreporting
of interest, for we know that our sample, derived largely from information documents with a $600 minimum, is not representative of all
taxpayers who receive interest. From, other studies we know that
compliance in reporting interest is materially lower in those types
not subject to information document submission. It seems certain
that the compliance rate on the reporting of interest is even worse
than In the case of dividends.
"In the light of the evidence developed above, it is clear that
there is still much too much nonreporting of dividend and interest
income by•taxpayers."
*
These findings differ markedly from reports issued at the end of
I960 by Treasury officials. At that time, wide publicity was given
to what was considered evidence of a reimrkable improvement in the
reporting of interest and dividends attributable to the educational
program.
Unfortunately, these earlier interpretations were not well-founded.
They were based on information from two sources. One source was
enforcement data from the Service's regular audit program which pertained to persons not representative of all Interest and dividend recipients. The other source was very preliminary data from 1959 tax
Exhibit III
- 24 -
returns which, when the final tabulations were made, had substantial
variation, enough to modify considerably the original Treasury interpretation made late In i960. The former Treasury officials, aware of
these limitations, quite correctly called attention repeatedly to the
limited reliability of the data when they discussed their Interpretations.
Commissioner Capltn explained In his report to Senator Byrd why
conclusions cannot be drawn from the audit enforcement program as to
the behavior of taxpayers in general:
"The reasons are very simple. First, this tabulation was in
no sense a survey of a representative sample of taxpayers, but was
limited to taxpayers where a relatively large potential tax deficiency for 1958 was anticipated. Second, the methods of selection
and audit Introduced certain distinct biases Into the results, so
that we were much more apt to Include In the program taxpayers who
had Improved In their reporting of dividends and Interest than taxpayers whose reporting had declined. In short, the program was
simply a by-product of our regular audit activity designed to check
up on potentially flagrant cases of nonreporting, and to bring in
revenue. The results were reported for information purposes, but the
study was not designed to provide a measure of the improvement among
taxpayers generally in the reporting of dividends and interest. The
apparent Inconsistency with the survey results can be explained
primarily on the basis of the unrepresentative character of the body
of taxpayers whose returns were audited."
Preliminary tabulations of data from 1959 individual income tax
returns, completed late in December, showed substantial increases
over 1958 in the number of persons reporting dividends and interest,
and in the amounts of such income reported, on their tax returns.
When the data were applied to the over-all gap analysis, the 1959
dividend gap narrowed by more than one-half. These data were transmitted to the Chairman of the Senate Finance Committee by the Treasury
on December 22 of last year, and released to the press at the same
time. The figures were interpreted as indicating a considerable
degree of success in the Treasury's drive to improve taxpayer reporting
of dividend and interest income.
During April 1961, however, tabulations were completed of dividends and interest reported on 1959 individual income tax returns.
The figure tabulated for dividends reported by individuals was found
to be $9,714 billion as contrasted to the $10,294 billion which was
issued as a preliminary figure in December i960. The difference of
$580 million would increase the 1959 dividend nonreporting gap to
$940 million. As a result the gap analysis now shows no appreciable
change In the nonreporting gap from 1958 to 1959-
1 Sc
_. J^
Exhibit III
- 25 Differences between advance and final data are always present.
In this case, several factors in the preliminary data such as size
of the sample, error in population estimate, and error in stratification of several large returns contributed to the difference. The
final data were derived from a sample of returns more than four
times as large as the sample used for the preliminary data.
Anticipating some revision, Treasury officials indicated in their
December 22, I960 release that their interpretations were based on
advance data subject to change.
1 cEXHIBIT IV - REPEAL OF THE DIVIDEND xiECEIVED CREDIT AND
EXCLUSION
Table 1 - Number of individual income tax returns with dividends and
amount of such dividends in 1958
This table shows that the receipt of dividends is highly concentrated in high income groups. In 1958 only 6 percent of the
taxable returns with incomes under $5*000 reported dividends and for
such returns dividends amounted to less than 1 percent of income.
In contrast, 96 percent of the returns with Incomes between $200,000
and $500,000 reported dividends amounting to about 44 percent of the
total income reported by returns in this income group.
Table 2 - Extra burden on stockholder, assuming double taxation of
dividends
(For a single dollar of corporate earnings before tax)
This table shows that the extra burden of "double taxation" per
dollar of corporate earnings is greater for stockholders with low
incomes than for stockholders with high incomes. The extra burden is
the sum of (l) the corporate income tax on the dollar of profits,
plus (2) the individual income tax on the dividends received from the
profits remaining after the payment of corporate tax, minus (3) the
individual income tax that would be incurred if the entire dollar of
corporate profits were distributed to the individual in the absence
of a corporate -income tax.
Table 3 - Relief from "double taxation" of dividends provided by
the 4 percent dividend credit
(For a single dollar of corporate earnings before tax)
This table shows that the 4 percent dividend credit removes a
very substantial part of the extra burden of "double taxation" at
high income levels but only a small portion of the extra burden at
low income levels.
Table 4 - Relief from "double taxation" of dividends provided by
a 10 percent dividend credit
Table 5 - Relief from "double taxation" of dividends provided by
a 15 percent dividend credit
Table 6 - Relief from "double taxation" of dividends provided by
a 20 percent dividend credit
(For a single dollar of corporate earnings before tax)
Tables 4, 5 and 6 indicate how much of the extra burden of
"double taxation" would be removed for shareholders at various income
Exhibit IV
- 2 -
levels if the present 4 percent credit were increased to 10 percent,
15 percent, or 20 percent. They show that at high income levels
credits of these magnitudes would produce tax savings exceeding the
extra burden that the shareholder is presumed to bear under the
double taxation concept. In other words, with credits of this size
shareholders at high income levels would be in a better position
than if there were no corporate income tax and the entire earnings
were taxed to them directly.
Table 7 - Relief from "double taxation" of dividends provided by
the $50 exclusion
(For a single dollar of corporate earnings before tax)
This table illustrates how the absolute amount of tax reduction
granted by the present $50 dividend exclusion increases with the
size of the taxpayer's income. At high income levels the relief
provided per dollar of dividend eligible for the exclusion exceeds
the extra burden resulting from the corporate income tax.
Table 8 - Relief from "double taxation" of dividends provided by
the dividend credit and exclusion for taxpayers receiving
the average amount of dividends reported at their income
level on 1958 returns with dividends
"[Per dollar of pretax corporate earnings attributed to
taxpayer)
This table shows the effect of the credit and exclusion on
shareholders who are assumed to have the average amount of dividends
reported on 1958 returns with dividends at comparable income levels.
On the average, because of the effect of the exclusion, the 195^
dividend provisions, taken as a package, grant somewhat larger
reductions per dollar of corporate earnings at the low income levels
than at the high income levels. However, the important point is
that at low income levels the combined credit and exclusion remove
only a small part of, the extra burden of "double taxation" while at
high income levels they remove a very substantial part of this extra
burden.
Table 1
Number of individual income tax returns with dividends and amount of such
dividends in 1958
Adjusted gross
income
Number
of
returns
with
Dividends on
returns l/
All returns : Adjusted
: gross income,
: all returns
riivirfoprlp l/;
Number of
returns with
dividends as
a percent of
all returns
: Dividends on
: returns as a
: percent of
: adjusted
: gross income
(dollar amounts in thousands)
Taxable returns
Under $5
5-10
10-20
20-50
50-100
100-200
200-500
500-1,000
1,000 and over
Nontaxable returns
Total
1,053,591
1,724,929
1,109,027
^39,837
80,701
16,453
3,792
515
227
696,741
5,125,813
$ 6146,428
1,201,103
1,646,580
2,055,025
1,328,965
747,995
483,445
171,000
252,739
24,129,298
17,702,182
3,072,449
634,002
91,605
17,894
3,934
531
236
$ 7^,263,196
120,222,881
39,218,752
18,189,272
6,042,852
2,302,842
1,109,680
356,220
482,640
6.4$
9.7
36.1
69.4
88.1
92.0
96.4
97.0
,96.2
.9S&
1.0
4.2
11.3
22.0
32.5
43.6
48.0
52.4
522,486
13,433,048
13,965,757
5.2
2.8
9,057,766
59,085,182
281,154,092
8.7
3.2
Treasury Department, Office of Tax Analysis
May 3, 1961
l/Covers domestic and foreign dividends before dividend exclusions.
Does not include data, for Form lO^OA returns which do not specify the amount
of dLividencLs received..
X
HO"
Cx) C+
1-1
<
Exhibit IV
16- .If
- u Table 2
E x t r a b u r d e n o n s t o c k h o l d e r , a s s u m i n g double t a x a t i o n of dividends
For a single dollar of corporate earnings before tax
! Corporation ::
Adjusted gross :: income tax ::
income
: on $1 of
:;
:
earnings ::
(D
$ 1,500
;!
(2)
52/
::
:Individual
:income tax if
Individual ;
5 Extra
corporate
income tax 1; Total
learnings of $1 .1 burden
on 48^ of ;1 present :were distributed ; due to
tax
dividends ::
:with no corpora- : double
it ion income tax ; taxation
(h) :
(3)
!
(5)
:
(6)
(2)+(3)
> (5)-(4)
0^
52^
0/.
52^
5,000
52
10
62
20
k2
10,000
52
11
63
22
41
25,000
52
16
68
36
32
50,000
52
25
77
54
23
100,000
52
32
84
68
16
250,000
52
4o
92
86
6
500,000
52
43
95
90
5
Treasury Department
Office of Tax Analysis
Note;
May 3, 1961
Table assumes that the 4.8 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the credit. It also assumes
that the stockholder has a spouse and two children.
Exhibit IV
61
- 5 Table 3
Relief from "double taxation" of dividends provided by the
4 percent dividend credit
For a single dollar of corporate earnings before tax
Adjusted
gross
income
(1)
•
•
•
•
«
•
•
•
•
Extra burden
from "double
taxation" of
dividends
(2)
1
J• Dividend
:
credit
: {hi of 4 8 J O
:
(3)
:
;\
2!
1
J
:
Extra burden ; Percent of
after
. extra burden
dividend ;; removed by
credit :- dividend credit
(2) - (3)
:
(3) * (2)
52.0^
0.0^
52.0i
o.ou/a
3,000
41.6
1.9
39*1
4.6
5,000
41.6
1.9
39.7
4.6
10,000
40.6
1.9
38.6
h.l
15,000
38.5
1.9
36.6
5.0
20,000
36.4
1.9
34.5
5.3
25,000
32.2
1.9
30.3
6.0
50,000
22.9
1.9
21.0
8.4
100,000
16.1
1.9
14.2
11.9
250,000
5.7
1.9
3.8
33.6
500,000
h.l
1.9
2.8
41.0
1,000,000
h.l
1.9
2.8
4i.o
$
1,500
Treasury Department
Offino nf1
H^nv
Annliroi P
May 3, 1961
Note; Table assumes that the 48 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the credit. It also assumes
that the stockholder has a spouse and two children.
1 QQ
Exhibit IV
- 6 Table 4
Relief from "double taxation" of dividends provided by a 10 percent
dividend credit
For a single dollar of corporate earnings before tax
• Extra burden i
Adjusted 5. from "double ;: Dividend
credit
gross '< • taxation" of ::
dividends
: (10°/O of 48*0
income ::
(2)
(3)
(i)
•
; Extra burden
:
after
i
dividend
;
credit
:
(2) - (3)
;; Percent of
:: extra burden
:; removed by
dividend credit
'!
(3) * (2)
$ 1,500
52,0^
0.0^
52.0j^
3,000
41.6
4.8
36.8
11.5
5,000
41.6
4.8
36.8
11.5
10,000
40.6
4.8
35.8
11.8
15,000
38.5
4.8
33.7
12.5
20,000
36.4
4.8
31.6
13.2
25,000
32.2
4.8
27.4
14.9
50,000
22.9
4.8
18.1
21.0
100,000
16.1
4.8
11.3
29.8
250,000
5-7
4.8
.9
84.2
500,000
h.l
4.8
-.1 a/
102.1 a/
1,000,000
h.l
4.8
-.1 a/
102.1 a/
Treasury Department
Office of Tax Analysis
0,0$
May .3, 1961
Note: Table assumes that the 48 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the credit. It also assumes
that the stockholder has a spouse and two children.
a/Extra burden converted to tax savings*
Exhibit IV
1 P^
- 7-
j.
Table 5
Relief from "double taxation" of dividends provided by a 15 percent
dividend credit
For a single dollar of corporate earnings before tax
; Extra burden 2
. Extra burden
Adjusted : from "double 2 Dividend
:
after
gross
: taxation" of 2
credit
;•
dividend
income 's dividends 2. (15$ of 48|0 : credit
(2)
2
•
(2) - (3)
(3)
(1)
•l
1 Percent of
1 extra burden
t removed by
: dividend credit
•
(3) * (2)
52.0^
0.0j£
52.0^
3,000
41.6
7.2
34.4
17.3
5,000
41.6
7.2
34.4
17.3
10,000
40.6
7.2
33.4
17.8
15,000
38.48
7.2
31.28
18.7
20,000
36.4
7.2
29.2
19.8
25,000
32.2
7.2
25.O
22.3
50,000
22.9
7.2
15.7
31.5
100,000
16.1
7.2
8.9
44.7
250,000
5.7
7.2
-1.5 a/
125.9 a/
500,000
h.l
7.2
-2.5 a/
153.8 a/
1,000,000
h.l
7.2
-2.5 a/
153.8 a/
$ 1,500
Treasury Department
Tax Analysis
0.0$
May 3, 1961
Note: Table assumes that the 48 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the credit. It also assumes
that the stockholder has a spouse and two children.
a/Extra burden converted to tax savings.
\J
^
Exhibit IV
1 64
- 8 Table 6
Relief from "double taxation" of dividends provided by a 20 percent
dividend credit
For a single dollar of corporate earnings before tax
Adjusted
gross
income
(1)
Extra burden
! from "double
s taxation" of
1
dividends
l
(2)
2
J
i
2
2
. Extra burden 5 Percent of
Dividend
:
after
2! extra burden
credit
2
dividend
1 removed by
(20$ of 48ji0 2
credit
: dividend credit
(3) * (2)
'
(2) - (3) =
(3)
52.0^(
0,0^
52.0^
3,000
41.6
9.6
32.0
23.1
5,000
41.6
9.6
32.0
23.1
10,000
40.6
9.6
31.0
23.6
15,000
38.5
9.6
28.9
24.9
20,000
36.4
9.6
26.8
26.4
25,000
32.2
9.6
22.6
29.8
50,000
22.9
9.6
13.3
41.9
100,000
16.1
9.6
6.5
59.6
250,000
5.7
9.6
-3.9 a/
168.4 a/
500,000
4.7
9.6
-4.9 a/
204,3 a/
h.l
9.6
-h*9 a/
204.3 a/
$ 1,500
1,000,000
Treasury Department
Office of Tax Analysis
0,0$
May 3, 1961
Note: Table assumes that the 48 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the credit. It also assumes
that the stockholder has a spouse and two children.
a/Extra burden converted to tax savings.
165
Exhibit IV
- 9 Table 7
Relief from "double taxation" of dividends provided by the $50 exclusion
For a single dollar of corporate earnings before tax
Adjusted
gross
income
(D
: Extra burden
: from "double
: taxation" of
:
dividends
:
(2)
I 1,500
52|^
:
: Reduction
:
under
: exclusion
:
(3)
Q>4
Extra burden
after
exclusion
:
:!
!
(2) - (3)
''
52^
Percent of extra
burden removed
by exclusion
<3) * (2)
0.0$
3,ooo
42
10
32
23.8
5,000
42
10
32
23.8
10,000
41
11
30
26.8
15,000
38
12
26
31.6
20,000
36
14
22
38.9
25,000
32
18
14
56.2
50,000
23
27
-4 a/
117-4 a/
100,000
16
33
-17 a/
206.2 a/
250,000
6
43
-37 a/
716.7 a/
500,000
5
44
-39 a/
880.0 a/
1,000,000
5
44
-39 a/
880.0 a/
Treasury Department
Office of Tax Analysis
Notes
May 3, 1961
Table assumes that the 48 cents of corporate earnings remaining
after payment of the 52 percent corporate income tax are
distributed and are eligible for the exclusion. It also assumes
that the stockholder has a spouse and two children.
a/Extra burden converted to tax savings*
Table 8
Relief from "double taxation" of dividends provided by the dividend credit and exclusion for taxpayers
receiving the average amount of dividends reported at their income level on I958 returns with dividends
Per dollar of pretax corporate earnings attributed to taxpayer
: Extra burden
Adjusted 2 from "double
gross
2i taxation" of
income 2: dividends
(1)
2
(2)
Dividend
credit
(3)
Reduction
under
exclusion
(h)
4
£
Combined
credit
and
exclusion
(5)
(3) + (4)
0.0/£
Percent of extra burden removed by
Credit
Exclusion
: Combined
: credit and
: exclusion
(3) * (2) W * (2) :' (5) » (2)
52.0^
0.0^
5,000
41.6
1.7
1.5
10,000
40.6
1.7
1.2
2.9
4.2
3.0
7.2
25,000
34.3
1.9
.5
2.4
5.5
1.4
6.9
50,000
24.6
1.9
.3
2.2
7.7
l.l
8.8
100,000
17.5
1.9
.1
2,0
10.9
.7
11.6
250,000
8.8
1.9
2.0
21.9
.5
22.4
500,000
5.3
1.9
1.9
36.4
.4
36.8
h.l
1.9
1.9
40.9
.2
41.1
1,500
1,000,000
Treasury Department, Office of Tax Analysis
3.2
0.0$
4.0
0.0$
3.6
0.05b
7.6
O ct1
May 3, 1961
Note: Figures for columns (2), (3), (4), and (5) represent the respective dollar totals for
each of these columns divided by the amount of corporate earnings attributed to the
stockholder at each income level on the basis of the average dividends received .at
0}
that level by returns with dividends. Table assumes corporate earnings are for distribum
tion. Computations are based on the tax liabilities of a married couple with two dependents.
*Less than .1 of a cent.
IP 7
EXHIBIT VI
SALES OF DEPRECIABLE PROPERTY
Another defect in existing law is the treatment of gain on the
sale of depreciable property. Under existing law, a taxpayer deducts
his depreciation allowances against ordinary income and upon sale of
the property the gain from the sale is taxed at capital gains rates.
In those cases in which allowances for depreciation exceed the actual
decline in economic value of the property the taxpayer is allowed, in
effect, to convert ordinary income into capital gain.
Despite the requirement of existing law that the taxpayer in
computing depreciation make an adjustment for estimated salvage value
of an asset at the end of its useful life, the Service is constantly
faced with cases in which depreciation allowances exceed the actual
'decline in economic value. This is due in part to the fact that for
administrative reasons salvage value is determined at time of acquisition rather than annually, and in part to the fact that assets are
frequently sold before the end of their useful life. Generally,
salvage value must be taken into account either by a reduction of the
amount subject to depreciation or by a reduction in the rate of
depreciation. However, in no event is an asset to be depreciated
below a reasonable salvage value.
Examples taken from actual situations in which depreciation
allowances exceed the actual decline in economic value are as follows:
A taxpayer acquired a hotel in 1953 at a cost of slightly in excess of
$13 million. After three years, the property was sold for $20 million.
During the 3-year period, the taxpayer had taken a little over
$2,700,000 in depreciation allowances. Thus, almost $3 million of the
gain on the sale of this property is represented by depreciation deductions which had been taken against ordinary income. Another taxpayer
in 1953 acquired a store and office building at a cost slightly in
excess of $1 million. This real estate was sold in 1959 for $1,150,000.
Over the six years, using straight-line depreciation, the taxpayer had
deducted a little over $174,000. Thus again, most of the gain from
the sale of this real property is represented by depreciation deductions.
Another taxpayer in 1953 acquired an office building costing approximately $925,000. The property was sold in 1958 for approximately $973,000
and over the 5-year period the taxpayer had taken as deductions for
depreciation $192,000.
Examples of such conversion of ordinary income into capital gain
are not limited to the sales of real property. For example, in the area
of personal property, a taxpayer in the auto leasing business sold some
of the automobiles used in his business, costing in the aggregate
$729,636, for $577,218 thus realizing a gain after adjustment for
Exhibit VI
- 2 -
depreciation of $233,734. Depreciation of approximately $386,000
had been taken with respect to these automobiles. Thus, a major portion
of the gain is represented by the excess of depreciation deductions
taken by the taxpayer over the actual decline in the value of the
asset sold.
The foregoing are just a few of the many cases which have come to
the attention of the Internal Revenue Service. Not only does existing
law allow, as shown in the examples, a conversion of ordinary income
into capital gain, but a new concept of business has evolved which
was fostered and encouraged by existing law. For example, corporation
A, which is in the business of owning and leasing hotel buildings, stated
in a prospectus in connection with an issue of its stock that beginning
in the year 1955 and for 11 years thereafter the Board of Directors
planned to distribute all rentals received, less interest and principal
requirements, to its stockholders. A study made of this corporation's
contemplated depreciation practices indicates that the combined effect
of deductions for interest and depreciation will give rise to net
operating losses which will wipe out all taxable income through the
year 1967. If the corporation continues Its plan to distribute all
earnings to the stockholders, the result will be that the earnings so
distributed and represented by deductions against ordinary income of
the corporation will be first passed on to the stockholders tax-free
as a reduction in the basis of their stock and any excess would be
subject to capital gains rates. At the point at which the corporation's
deductions will not be sufficient to wipe out most of the rental income
the corporation probably will sell its properties at a capital gains
rate, replace them with other property, and the process will be started
again.
As another corporation stated in a report to its shareholders:
"In short, the company would be able to repeat the
process of annual depreciation write-offs and thus add
nontaxable cash flow income for distribution to shareowners and acquire still more income producing properties.
"It is anticipated that this continuing process of
purchase and leaseback of new properties to offset rising
taxable income as the •depreciation" runs out on existing
properties will meet the investment objectives of the
company and its shareowners for an indefinite time.
When properties have eventually lost their attractiveness as depreciation shelters, the company may elect to
dispose of them to others with similar investment
objectives, replacing them with new acquisitions."
J6Q
•=s- O
\y
Exhibit VT
- 3 Such corporations are not engaged in the business of real estate
investment with the usual objective of looking to rental income for the
return on investment; rather, their business is principally one resting
upon present provisions of the tax law which allow them to buy property,
take depreciation, distribute nontaxable earnings or earnings which
would be taxed to shareholders only at the capital gain rate, sell the
property at a capital gain, and repeat this process. The present law
does not encourage investment in new building but rather appears to favor
the retention of old buildings which are readily available for this new
type of operation which has been generated by our tax laws.
This process is not limited to real property. Such corporations
will also buy personal property such as airplanes, beer kegs, machinery,
etc., lease them, depreciate the property, and sell at a capital gain
rate. These practices rest upon an economics supplied by our tax laws.
This defect in our tax structure should be eliminated. The President's
Tax Message recommends that the gain on the sale of depreciable property
be taxed as ordinary Income to the extent of prior depreciation allowances.
Any gain in excess of such allowances should continue to be taxed at the
capital gain rates.
The following are additional examples, taken from actual situations.
Beer Kegs
Example 1
Corporation A, engaged in the brewing business, acquired beer kegs
in 1947 to 1949 at a total cost of slightly over $3 million. In 1958,
Corporation A sold the beer kegs to Corporation B for $2,800,000. After
adjustment for depreciation allowances of slightly over $2,875*000,
Corporation A realized a profit slightly in excess of $2,500,000 taxable
as capital gain under section 1231. Thus, the entire capital gain of
slightly in excess of $2,500,000 reflected depreciation allowances in
excess of actual decline in economic value of the beer kegs. Corporation
B then turned around and leased the beer kegs back to Corporation A and
began the depreciation process all over again.
Oil Tools
Example 2
Corporation A is a large supplier to the oil industry and a large
portion of Its business is renting various oil tools manufactured, under
its patents to oil well drillers. The rental agreements carry a
•i- i %J
Exhibit VI
-4 stipulation that if tools are lost, destroyed or not returned, they will
be billed to the customer at manufacturing cost plus reasonable market.
In such cases, the proceeds are treated as sales of 1231 assets. These
tools are depreciated on the basis of a 4-year life. In I956, the
taxpayer sold tools in the manner described at a gain of approximately
$295,000 while the depreciation allowances with respect to such tools
were approximately $155,000. In 1957, the taxpayer sold tools in the
manner described at a gain of approximately $274,000 while the depreciation allowances with respect to such tools were approximately $99,000.
In the 5 years preceding 1956, the taxpayer had disposed of tools with
respect to which depreciation allowances averaged in excess of $84,000
each year while the gain was considerably in excess of the depreciation
allowances. Over the period from 1951 to 1957, the taxpayer was able
in the manner described to have an amount of $675,000, reflecting prior
depreciation, treated as capital gain for a net tax saving of approximately
$182,350.
Construction Equipment
Example 3
Corporation A, after having depreciated certain equipment from
an initial cost of $175*000 down to $8,000, sold the equipment in 1954
to Corporation B for $173,000 and then leased the equipment back from
Corporation B. Corporation A thus had a gain of $165,000 on the sale
of equipment with respect to which it had depreciation allowances of
$167,000. Corporation B depreciated the equipment from $173,000 to
$4,000 over a period of 3 years, and then sold the equipment back to
Corporation A for approximately $142,000. Thus, Corporation B had the
benefit of depreciation allowances of approximately $169,000 with
respect to the same equipment while realizing a gain of approximately
$138,000 on the resale of such equipment.
Small Shovel
Example 4
Corporation A purchased a small shovel for $8,500, depreciated the
shovel in full and sold the shovel to Partnership B for $3,000. Partnership B depreciated the shovel in full and sold it back to Corporation A
for $8,000. Thus Corporation A realized a capital gain of $3,000,
attributable to depreciation allowances in excess of actual decline in
economic value of the shovel, and Partnership B realized gain of $8,000
of which $3,000 reflected depreciation allowances in excess of the actual
decline in economic value of the shovel.
Exhibit VI
- 5 Mobile and Logging Equipment
Example 5
In 195^, Corporation A, in the timber business, realized gain of
approximately $361,000 on the sale of depreciable mobile and logging
equipment with respect to which it had claimed prior depreciation of
approximately $825,000. In 1955, Corporation A realized gains of
approximately $791,000 on the sale of depreciable mobile and logging
equipment with respect to which it had claimed depreciation in excess
of $1,250,000. In 1956, Corporation A realized gains of approximately
$306,000 on the sale of depreciable property with respect to which it
had claimed prior depreciation of slightly over $1 million. Thus, over
a period of 3 years, Corporation A was able to have an amount in excess
of $1,458,000, reflecting prior depreciation, treated as capital gain
for a net tax saving of approximately $393,660.
Highway Construction Equipment
Example 6
In 1958, Corporation A realized gains of slightly over $60,000 on
the sale of 6 pieces of depreciable equipment, mostly shovels and
scrapers, with respect to which depreciation allowances of $108,000
had been claimed. The entire gain of $60,000 reflected depreciation
allowances in excess of the actual decline in economic value of the
deprec iable e quipment.
Auto Rental
Example 7
In 1956, Partnership A realized gain of approximately $138,000 on
the sale of automobiles with respect to which prior depreciation of
approximately $218,000 had been claimed. In 1957, Partnership A realized
a gain on the sale of rental autos of approximately $119,000 with respect
to which prior depreciation was approximately $212,000. In 1958,
Partnership A realized gain on the sale of rental autos of approximately
$178,000 with respect to which prior depreciation of $343,000 was claimed.
Thus, over a period of 3 years, Partnership A realized capital gain of
approximately $435,000 reflecting depreciation allowances in excess of
the actual decline in value of rental autos which were sold.
I 7o
Exhibit VI
- 6 Airplanes
Example 8
In 1957, Corporation A realized a gain of approximately $702,000
on the sale of an airplane with respect to which prior depreciation in
the amount of approximately $609,000 had been claimed. Thus, Corporation
A realized capital gain of $609,000 reflecting depreciation allowances
in excess of the actual decline in economic value of the airplane.
Elevator Equipment
Example 9
In 1958, Partnership A realized gain of approximately $245,000 on
the sale of elevator equipment with respect to which prior depreciation
of approximately $222,000 had been claimed. Thus, Partnership A
realized capital gain of approximately $222,000 reflecting depreciation
allowances in excess of actual decline in economic value.
Construction Rental Equipment
Example 10
In 1958, Corporation A realized capital gain of approximately
$68,000 on the sale of rental equipment costing $128,000 and with
respect to which prior depreciation had been claimed in the amount of
approximately $46,000. Thus approximately $46,000 of the capital gain
reflected depreciation allowances in excess of the actual decline in
economic value of the rental equipment which was sold.
Road Contractor
Example 11
In 1957, this taxpayer realized a gain of $41,447 on the sale of
depreciable equipment costing $63,352 and with respect to which prior
depreciation was $62,383. In 1958 the taxpayer realized a gain of
$20,000 on the sale of equipment costing $20,772 and with respect to
which prior depreciation had been claimed in the amount of $19,772.
Over the two year period the taxpayer was able to have an amount of
$61,219, reflecting prior depreciation, treated as capital gain for a
net tax saving of approximately $20,500.
Exhibit VT
-7 Auto Rental
Example 12
In 1958, this taxpayer realized a gain of approximately $34,000 on
the sale of automobiles with respect to which depreciation had been
claimed in the amount of approximately $66,600. This taxpayer had
a net tax saving of $16,000 as a result of capital gain treatment of
the $34,000 gain which reflected depreciation allowances in excess of
economic decline in value.
*
Trucks and Trailers
Example 13
In 1958, Corporation A realized a gain of approximately $275,000
on the sale of trucks and trailers with respect to which depreciation had
been claimed in the amount of approximately $335,000. Although this
gain was nontaxable, since the sale was followed by a liquidation under
section 337, it reflected depreciation allowances in excess of actual
decline in value of the trucks and trailers.
Hotel
Example l4
In 1955, Corporation A acquired a hotel at a cost of $1,965,000
and sold it the next year, in 1956, at a gain of about $1,390,000,
after taking depreciation in the amount of about $197,000. Since
Corporation A realized such a large gain it is clear that the entire
first year's depreciation of approximately $197,000 was in excess of
the actual decline in value.
Office Building
Example 15
In 1958, Partnership A realized gain of approximately $212,000 on
the sale of an office building acquired in 1953 at a cost of $925,000
and with respect to which depreciation had been claimed of $192,000.
Thus, $192,000 of capital gain realized in 1958 reflected depreciation
allowances claimed with respect to the building when there had been no
actual decline in the economic value of said building.
^?4
Exhibit VI
- 8 Shopping Center
Example 16
Corporation A, in 1959, realized a gain of about $323,000 on the
sale of the shopping center acquired in 1956 at a cost of approximately
$2,200,000 and with respect to which depreciation had been claimed over
the 3-year period of approximately $150,000. Thus, Corporation A
realized a capital gain of approximately $150,000 reflecting depreciation allowances taken over a period of 3 years which were in excess of
the actual decline in economic value of the shopping center.
Hotel
Example 17
In 1955, Corporation A realized a gain of approximately $3,500,000
on the sale of the hotel costing approximately $8,750,000, and with
respect to which prior depreciation had been claimed in the sum of
about $4,850,000. Thus, the entire gain of $3,500,000 reflected
depreciation allowances in excess of actual decline in economic value
of the hotel.
Airplanes
Example 18
In 1957, a joint venture, composed of individuals, L, S, H and P,
realized a gain of nearly $400,000 on the sale of two used airplanes
acquired approximately 14 months earlier, after having claimed
approximately $625,000 in depreciation deductions. The $400,000
gain reflected depreciation allowances in excess of the actual decline
in economic value of the used airplanes. The net tax savings to members
of the joint venture as a result of this capital gain treatment was as
follows: L, in the 87 percent bracket, saved slightly over $144,000;
S, in the 35 percent bracket, saved over $1,800; H, in the 87 percent
bracket, saved slightly over $42,000; and P, in the 87 percent bracket,
saved slightly over $42,000.
EXHIBIT VII
COOPERATIVES
175
STATEMENT ON RECOMMENDED TAX
TREATMSOT OF COOPERATIVES
In his recent tax message, the President recommended that the
tax law be clarified to insure that all cooperative earnings,
reflecting business activities, are taxable either to the cooperatives
or their patrons, assessing the patron on the earnings that are allocated
to him as patronage dividends in scrip or cash. The President also
recommended that the withholding system proposed for dividends and
interest generally also be applied to patronage dividends so that the
average patron receiving scrip will, in effect, be given the cash to
pay his tax on his patronage dividend. Before discussing the President's
recommendation in more detail, a few general observations about the
cooperative form of doing business and how the present need for corrective legislation came about might be helpful.
Operation of Cooperatives
A cooperative is a type of business organization formed for the
purpose of providing goods to its natron-owners, or selling their
products. While farmers' cooperatives are the principal type of cooperative
association, there are other cooperatives in this country which are not
engaged in business relating to farming. These include urban consumer
cooperatives, cooperative wholesaling business owned by retailers, and
the like.
Broadly speaking, the major tax difference between cooperatives and
other forms of doing business lie? in the treatment by cooperatives of
amounts allocated as patronage dividends. Ever since 19l4, cooperative
organizations have been allowed to exclude from gross income patronage
dividends paid or allocated to patrons on the basis of business done
with the cooperative, if such payments or allocations are made pursuant
to pre-existing contractual obligations. This treatment is based on
long-standing Treasury rulings which hold that the refund payments or
allocations are to be regarded as discounts or rebates which reduce the
taxable net income of the cooperative. Under their articles of association,
by-laws or other document, cooperatives obligate themselves to return
their net margins or savings to their patrons.
Testimony before the Ways and Means Committee in the past indicates
that stock in a cooperative is not as attractive to the average investor
as is stock in an ordinary corporation. Pro/isions commonly found in
State cooperative statutes limit dividends on capital stock, prohibit
payment of cumulative dividends, and require that control of the cooperative shall be in the members. Typically members each have one vote regardless of the amount of stock owned. The capital stock of a cooperative
Exhibit VII
17S
- 2 -
does not have the attributes of growth stock, since enhancement,
if any, in value above par is limited by the cooperative's obligation
to allocate most of its income to its patrons. In many cooperatives
there is no growth, for amounts paid in redemption of stock may be
limited to the par value of the stock. Therefore, the patrons of
a cooperative often agree that the cooperative may retain portions of
their share of the net margins as reinvestments. Such amounts are
allocated to the patron in the form of scrip which is received by
the patron as evidence of his reinvestment. In practice, the average
farm cooperative pays more than half of its patronage dividends in
the form of scrip.
In connection with reinvestments through the-use of scrip, cooperatives often use a system called the "revolving fund" plan of
financing. When a cooperative determines it has built up sufficient
capital, it may use current margins to retire the oldest outstanding
scrip, i. e., revolving fund contributions. The Department of Agriculture
indicated in a 1957 publication that of 1,157 farmers1 cooperatives
studied, 62 percent were using the revolving fund plan of financing, l/
While cooperatives differ, on the average cooperatives retain earnings
9 or 10 years before redeeming the scrip which was issued against those
earnings under the revolving fund plan.
The Department of Agriculture study, and a tabulation by the
Treasury of cooperative income tax returns for 1953, indicates that in
each of the years 1953 and 195^ farmers* marketing and purchasing cooperatives retained about $125 million of earnings by making allocations in
scrip. In each of those years the cooperatives probably redeemed in
cash about $60 or $65 million of the previously issued scrip, or an
amount equal to about 50 percent of the new retentions (Table l ) .
The Department of Agriculture estimated that in 1954 farmers'
marketing and purchasing cooperatives had assets of $3*6 billion. The
Department also estimated that their gross volume of business was $14.0
billion in 1957. (Table 2) About $10.5 billion of this represented
sales of farm products, or $8.3 billion on a net basis after eliminating
sales between cooperatives. 2/ This $8.3 billion is over 25 percent of
farmers' receipts from farm marketings and Government payments in that year. 3/
1/ Parmer Cooperative Service, U.S. Department of Agriculture, "Methods of
Financing Farmer Cooperatives", p.39 (General Report 3 2 , June 1957).
2/ Department of Agriculture, "Statistics of Farmer Cooperatives, 1957-58",
P. 19.
3/ Department of Agriculture, "The Farm Income Situation".
Exhibit VII
- 3-
177
Present Tax Treatment
For income tax purposes, cooperatives are divided into three
categories. Certain cooperatives are fully exempt from income tax
under section 501 of the Internal Revenue Code. Generally, the
fully exempt cooperatives are public utility type organizations, the
most notable being the rural electrification cooperatives. These
section 501 or fully exempt cooperatives and their patrons are not
affected by the President's recommendation and no further mention will
be made of them. A second group consists of the so-called exempt
farmers* marketing and purchasing cooperatives which are described
in section 521 of the Code. All other cooperatives are commonly
referred to as taxable cooperatives, although they are not specifically
mentioned in the Internal Revenue Code. Taxable cooperatives will be
discussed first, since their tax treatment is basic to the whole existing
approach to cooperative taxation.
A taxable cooperative, irrespective of its exact legal form, is
considered a corporation for Federal income tax purposes. Its income
and expenses are computed in the same manner as those of an ordinary
corporation with the very important exception of the treatment of
patronage dividends. The excess of receipts over costs constitutes
the income of the organization and is taxable at ordinary income tax
rates. Thus any dividends paid on capital stock must be paid from
income previously subject to corporate income tax. Income from sources
not directly related to the business carried on with patrons, such as
capital gains, interest, rents, dividends on stock, and business done
with the United States, also is taxable at the cooperative level.
Income derived from business carried on with or for patrons is taxable
at the cooperative level unless it is paid or allocated as a patronage
dividend pursuant to a pre-existing obligation in the year in which
earned or by the time the corporate income tax return must be filed for
such year.
As previously indicated, ever since 19l4 cooperative organizations
have been allowed to exclude from gross income patronage dividends paid
or allocated to patrons on the basis of business done with the cooperative
if such payments or allocations are made pursuant to pre-existing contractual obligations. At the cooperative level, no attempt has been
made by the Treasury to draw a distinction between patronage dividends
paid in cash and in the form of stock, revolving fund certificates or
other scrip allocations.
The exempt farmers' cooperative is a farmers', fruitgrowers', or
like association which meets certain statutory requirements as to operation
Exhibit VII
-l^-
178
and financial structure. Prior to the Revenue Act of 1951 such a
cooperative was fully exempt from income tax. As a result of legislation contained in the Revenue Act of 1951, the exempt farmers'
cooperative is not actually fully tax exempt, since it may be taxed
on some of its income unless allocated on the basis of patronage.
It is, however, allowed deductions for the following amounts which
are not allowed to the non-exempt or taxable cooperative:
(l) Amounts distributed by it in payment of dividends
upon capital stock (if not in excess of 8 percent);
(2) Non-operating earnings (such as rents, interest,
dividends on capital stock, etc.) distributed or
allocated to its patrons upon a patronage basis;
and
(3) Income derived from business with the United States
and distributed or allocated to its patrons on a
patronage basis.
As for the tax treatment of the patrons of the cooperative, the
Treasury Department for a long time took the position that the patrons
were required to report all patronage dividends (including allocations
in scrip) as income provided the dividends were attributable to an
income-producing transaction. Thus, if a farmer received a patronage
dividend attributable to the marketing of his farm products, he was
expected to take it into income as an increase In receipts from the
sale of his products. On the other hand, if he received a patronage
dividend from a purchasing cooperative with respect to supplies for
his business which he bought, he was expected to reduce his deduction
for the cost of the supplies on his return, or report the patronage
dividend as income. Where the business transaction involved the
purchase of a capital asset, such as a tractor, the cost basis of
the asset had to be reduced by any patronage dividend received thereon.
In the case of patronage dividends attributable to personal living
expense items, such as the purchase of food or clothing, however,
the patron was not regarded as having received taxable income.
The fact that patronage dividends often are paid in scrip which
has no market value was disregarded and patrons were expected to
report all patronage dividends in scrip at their face value. The
theory was that the patrons had in effect received cash, or the right
to cash, and then, under the terms of their contract with the cooperative,
Exhibit VII
- 5had reinvestea such cash in the noncash aocuraent actually receivea. This is known as the "immeaiate reinvestment theory".
The assumption by the Treasury Department that patronage
aiviaenas allocatea in scrip were taxable at the full face value
to the patron in the year of receipt was citea with approval by
the Senate Finance Committee in its report on the Revenue Act of
1951. When Congress enactea the legislation in 1951 changing the
tax status of the exempt farmers' cooperatives it was expectea to
result in current taxation at either the cooperative or patron
level of all cooperative income, except that related to personal
purchases by patrons. However, Congress made no specific provision
in the law for the tax treatment to be given noncash patronage
dividenas by the patron.
Several court aecisions have nullifiea the intent of the 1951
legislation ana have heia that a patron aoes not realize income upon
receipt of scrip having no market value. As a result of the various
adverse court aecisions, the Internal Revenue Service announcea
on February 14, 1958, that it wouia no longer attempt to assess an
income tax on patrons with respect to noncash patronage aiviaenas
having no market value. The income tax regulations, unaer both the
1939 ana 195^ Coaes, have since been revisea to reflect this change
in position. In view of the obvious intent of the 1951 legislation,
the Treasury Department continued to allow all patronage dividends
paid under pre-existing contracts to be excluded by cooperatives.
Thus, at the present time, cooperatives are permitted to exclude from
gross income noncash patronage dividends of a character which are
not taxable to the patron.
Exhibit VII
- 6Proposed Tax Treatment of Cooperatives
The President*s recommendation would, in effect, fulfill the 1951
Congressional Intent. The law would be amended to specifically provide
for the tax treatment of patronage dividends In the hands of the
patron*
Under the proposal an exempt farmers9 cooperative would, as under
present law, be allowed to deduct dividends paid on its capital stock,
allocations of its income not derived from patronage and allocations of
patronage dividends. The allocations of income not derived from
patronage and of patronage dividends would be deductible by the cooperative whether made in the form of cash, property or scrip. Allocations in the form of scrip would include allocations of capital stock,
revolving fund certificates, retain certificates, certificates of indebtedness, letters of advice, or any other written notice which discloses to the patron the dollar amount allocated to him by the cooperative. As under present law, allocations made by an exempt farmers'
cooperative of income not derived from patronage and of patronage dividends after the close of a taxable year and on or before the 15th day
of the ninth month following the close of such year would be considered
as made on the last day of such year.
Non-exempt or taxable cooperatives would be allowed to deduct
allocations of patronage dividends with respect to patronage occurring
during the taxable year in which the allocation Is made. As in the
case of the exempt farmers' cooperative, the deduction would be allowed
for allocations which are made in the form of cash, property or scrip.
Allocations of patronage dividends made by a taxable cooperative after
the close of a taxable year and prior to the time prescribed by law for
filing the cooperative's income tax return, including any extensions
which have been granted, would be considered as made on the last day
of such year.
Some cooperatives allocate patronage income only to a limited
group of patrons* For example, such a cooperative might allocate
patronage dividends only to its Member patrons. The term "patronage
dividends" would be defined to exclude allocations of patronage Income
derived from patrons to whom no allocation is made. This would not
affect the exempt farmers* cooperative which is required to make
allocations of patronage income to all of its patrons. However, it
would as under present law, result in such amounts being taxed to the
taxable cooperative. It would also result in $uch amounts being taxed
in the same manner as a corporate dividend to the persons receiving them
from the cooperative.
The term "patronage dividends" would also be defined to exclude
allocations of income not derived from patronage. Under present law
Exhibit VII
IQ1
- 7 such income is taxed to the taxable cooperative and is treated by the
patron of such a cooperative when he receives It in the same manner as
a corporate dividena. Although, unaer both the proposal and present
law, allocations of such income are aeductible by an exempt farmers*
cooperative, under present law the patron treats allocations of such
income as a patronage aividena. Under the proposal the patron of an
exempt farmers1 cooperative would treat allocations of such income as
corporate dividends.
Und.er the proposal, a patron of an exempt farmers' cooperative
would include in income allocations of income not aerived from patronage
and allocations of patronage dividends which are received by him in
cash, property or scrip. A patron of a taxable cooperative would
incluae in income allocations of patronage dividends received by him
in cash, property or scrip. However, as under existing law, the patron
wouia not include in income patronage aiviaenas allocated with respect
to services rendered by, or supplies or equipment purchasea from, a
cooperative the cost of which was not deauctible by the patron. These
items would include purchases by the patron for his personal use. However,
if a patronage diviaena received by a patron is with respect to purchases
of capital assets or property used in the trade or business, the cost or
other basis of such assets or property would be reduced by the amount
of the patronage dividenas. To the extent that the patronage aiviaena
is in excess of the adjusted basis of such property, or relates to such
property which the patron no longer owns, the patronage diviaend would
be includea in income.
The proposal wouia provide that a patron, on reaemption or sale
of scrip allocatea to him with respect to patronage during taxable
years governea by present law, should treat the excess of the amount
realizea over the amount previously taken into account by him in
aetermining income for a prior year as if such excess were a patronage
aiviaena received in cash. In order to alleviate bunching of income
by reason of the new rules proviaed by the proposal, the proposal
couM incluae a provision providing for the spreading of income realizea
on such a redemption or sale, if in excess of a minimum amount, such
as $3,000, equally among the taxable years of redemption or sale
ana the two preceaing taxable years if this wouia result in a lower
total tax.
The withhoiaing system proposea for dividenas and interest generally
wouM also apply to allocations by a cooperative of patronage dividends
and to allocations by an exempt farmers' cooperative of income not
derived from patronage. In order to minimize withholding on patronage
dividends with respect to purchases by a patron of items for his personal
use, which patronage dividends would not be includible in his gross
income, the Secretary or his delegate could be authorized to exempt
from the withholding requirement a cooperative which is primarily engaged
in the business of selling at retail goods or services used generally
for personal living or family use.
182
Exhibit VII
- 8 Policy Reasons for the Proposal
Tax Treatment of Patronage Dividends
The proposal continues long-standing recognition of the importance
of farmers* cooperatives. Prior to the Revenue Act of 1951, farmers*
cooperatives were fully exempt from tax, and under the Revenue Act of
1951 they are taxed only on their unallocated earnings. The proposal
would in effect continue this tax treatment which reflects Congressional
recognition of the important role cooperatives play in the farm economy.
Normally, the individual farmer is far from the principal market
for his products, and alone he has no bargaining power. He is not an
expert in the grading, merchandising or disposing of his products, and
he has no research facilities. He generally must sell his products at
wholesale but buy his business supplies and equipment at retail. Few,
if any, other producers operate on such a basis. To overcome these
competitive disadvantages, farmers have joined together into cooperative
marketing and purchasing organizations in an effort to eliminate the
middleman in their transactions. Because of the economic disadvantages
under which farmers operate, Congress has long sought to aid these farmer
cooperatives.
However, in 1951, Congress intended that cooperative income
reflecting business activities be taxed at least once either to the
cooperative if unallocated, or to the patron, If allocated to him.
Congress made no specific provision in the Code as to the tax treatment
to be given patronage dividends by the patron, and, as indicated earlier,
as a result several court decisions held certain allocations of patronage
dividends to be nontaxable to the patrons. The proposal would make clear
that these allocations would be taxable to the patron. It would,
therefore, fulfill the 1951 Congressional intent and correct the present
inequity in the law whereby substantial amounts of income escape current
taxation.
Under the proposal, patronage dividends would be treated as price
readjustments. In order for the patronage dividends to be deductible
by the cooperatives, they must be allocated pursuant to a legal obligation of the cooperative to do so, which must be in existence prior to
the time the cooperative receives the income which is to be allocated.
The patronage dividends must be allocated to the patron on the basis of
business done with or for the patron. Also, they must be allocated only
from the income which the cooperative derives frqm patronage. Even
before this income exists, it is thus irrevocably earmarked for the patrons.
183
Exhibit VII
- 9 It is true that some cooperatives allocate patronage income only
to a limited group of patrons. However, as indicated earlier, the
proposal would tax income derived from patrons to whom no allocation
is made in the same manner as regular corporate income. These amounts
would be excluded from the definition of "patronage dividend". These
amounts represent profits from persons to whom there is no obligation
to pay patronage dividends and they should be treated like the earnings
of any other corporation, taxable to the cooperative when earned. As
they represent profits from the cooperative's transactions with others
they should be taxed as corporate dividends to the persons to whom
the cooperative allocates them.
The proposal would also exclude from the term "patronage dividends"
allocations of income which the cooperative derives from sources
other than patronage. Thus, except in the case of an exempt farmers*
cooperative which allocates such income, such income would be taxed
to the cooperative. These amounts would also be taxed to the patron
in the same manner as a corporate dividend. As these amounts do not
represent excess charges to the patron which are returned to him as a
rebate, but rather income derived from sources other than the transaction
with the patron, they are treated as a distribution of earnings by any
other corporation.
The fact that patronage dividends are allocated after the net
margins of the cooperative have been determined should not be considered
as altering their character as price readjustments. This is done for
reasons of business necessity. It is difficult, if not impossible,
for a cooperative to anticipate the exact amount of its expenses in
connection with the carrying on of its activities. In view of the
cooperative's obligation to allocate and the formula for arriving at
the amount allocated, the allocations can properly be regarded as
retaining their character as price readjustments.
For the same reasons that patronage dividends can be regarded
as price readjustments by the cooperative they can be so regarded by
the patron. Under the proposal, if the patronage dividend is received
by the patron with respect to the marketing of his products or to the
purchase of supplies and equipment for his business, it would be
included in his income. On the other hand, if the patronage dividend is
received by the patron with respect to the purchase by him of an article
for his personal use, he would not include it in income. This situation
would be analogous to one in which the patron purchases a suit of clothes
marked down from $100 to $90. At the time he does business with the
cooperative, he knows it is legally obligated to return to him a portion
of the cooperative's net income from patronage. For tax purposes the
patronage dividend would be limited to the amount allocated to him from
the income derived by the cooperative from patronage on the basis of
the business he does with the cooperative.
Exhibit VII
P
- 10 -
The form of a patronage dividend should not affect its tax
treatment. As indicated earlier, the proposal would allow a cooperative
to deduct from income and require a patron to include in income patronage
dividends that the cooperative is under a legal obligation to allocate.
The proposal would require this treatment regardless of whether the
patronage dividend is paid in the form of cash, property or scrip. Since
all of the elements which must be present for a cooperative to deduct
patronage dividends paid in cash must also be present for it to deduct
patronage dividends paid in scrip, there does not seem to be sufficient
reason for treating the two differently. If under the terms of the
cooperative's obligation to the patron the cooperative may make allocations in scrip, the patron should be treated as having accepted the
scrip and as reinvesting in the cooperative. The patron has, in effect,
agreed to allow the cooperative to substitute one obligation for another.
It is true that some court decisions have not accepted the immediate
reinvestment theory. However, those decisions arose at a time when
there was no specific provision in the statute for treatment of patronage
dividends by the patron. As there was no specific provision for the
taxation of the patrons, the cases had to be decided under general case
law. The proposal will make clear that the patron is now required by
statute to include both cash and scrip allocations in income. The patron
should be cognizant of the clear statutory provisions when he enters into
a transaction with a cooperative. Being cognizant of these provisions
and still entering into transactions with the cooperative he must be
considered as having consented to this method of taxation.
Patrons and members of cooperatives do business in the cooperative
form in order to obtain economic advantages. There are sound economic
reasons why the patrons agree to accept scrip as an evidence of their
reinvestment in the cooperative and the proposal recognizes those reasons.
As indicated earlier, a cooperative has special problems in raising
capital which it, like other businesses, needs. Reinvestment by patrons
of part of their share of the cooperative's net margins is necessary to
fulfill the cooperative's capital requirement.
When the Ways and Means Committee has had occasion to consider the
tax treatment of cooperatives in the past, it was suggested by some
that it would be unconstitutional to legislate the 1951 intent. However,
it is believed that the proposal would be upheld by the courts. The
constitutionality of a provision taxing a patron on the face amount of
scrip involves the considerations presented by question whether it is
constitutional to tax stockholders of a corporation on their shares of
the undistributed profits of the corporation. The courts have held
such a tax constitutional. Therefore, regardless of whether the courts
accept the immediate reinvestment theory they would uphold the proposal.
Exhibit VII
185
-li-
lt is true that in Eisner v. Macomber, 252 U.S. 189 (1920), the
Court cast doubt upon the constitutionality of such a tax. However,
language in subsequent decisions of the Supreme Court indicates clearly
that the Court would now uphold such a provision. For example, in
Heiner v. Mellon, 304 U.S. 271 (1938), the Court held that partners
liquidating a partnership on the death of a partner were taxable on
their share of partnership income, even though under State law the shares
of income could not be distributed to them. In so holding, the Court
cited section 220 of the Revenue Act of 1918 which taxed to the shareholders the income of a corporation improperly accumulating its earnings
for the purpose of avoiding surtax on the shareholders.
In Helvering v. National Grocery Co., 304 U.S. 282 (1938),
a case upholding the imposition of tax on a corporation improperly
accumulating profits to avoid surtax on its sole stockholder, the
Court said:
"If the business had been carried on by Kohl individually
all of the year's profits would have been taxable to him.
If, having a partner, the business had been carried on as
a partnership, all the year's profits would have been taxable
to the partners individually, although these had been retained
by the partnership undistributed. . . .Kohl, the sole owner
of the business, could not by conducting it as a corporation,
prevent Congress, if it chose to do so, from laying on him
individually the tax on the year's profits." 304 U.S. at 288.
It is important to note that the Court in the National Grocery Co.
case did not state that a shareholder may be taxed on the undistributed
earnings and profits of a corporation only when substance prevails
over form. The Court placed no restriction on the power of Congress
to impose a tax on the shareholder for undivided corporate profits,
if Congress chose to do so.
Finally, in Eder v. Commissioner, 138 F. 2d 27 (2nd Cir. 1943),
the court upheld the provision of the 1939 Code which imposed on the
shareholders of a foreign personal holding company a tax on their
pro rata share of the income of the corporation.
Withholding on Patronage Dividends
The withholding system applicable to dividends and interest
payments should apply to patronage dividends. Just as there is
underreporting of dividends and interest, we believe that there is
also underreporting of patronage dividends. The confusion in the
Exhibit VII
- 12 -
law during the past few years with respect to the includibility of
scrip could not help but bring about underreporting. In view of
this, withholding would assist in the collection of the revenues.
It will help alert the patron to the fact that the patronage dividend
which he receives may be includible in income.
Further, withholding will, in effect, assure the average patron
of sufficient cash with which to pay his tax on patronage dividends
which he receives. Otherwise, if a patron received an allocation
only in scrip, he would have to draw upon other funds in order to
pay his tax. Thus, rather than constituting a hardship withholding
would assist many patrons. Withholding would result in a patron's
receiving the equivalent of cash in the amount of 20 percent of an
allocation which might otherwise be in scrip. Objection might be
raised that withholding would result in hardship upon a large
number of farmers who will have little farm income. It may be contended
that many of these farmers would not otherwise be required to file
returns, but would have to do so solely by reason of withholding on
their patronage dividends. However, a number of farmers with little
farm income receive income from other sources to supplement their farm
income. Many are engaged in farming only on a part time basis and have
wages subject to withholding. Others receive amounts of dividends and
interest. These farmers would not be subject to additional burdens by
reason of withholding on patronage dividends, for they have to file
returns to claim credits or refunds for amounts which have been withheld
on their salaries and they will have to file returns with respect to
amounts withheld on dividends and interest.
Furthermore, the provisions relating to prompt refunds in hardship
cases contained in the withholding system applicable to dividends and
interest generally would also apply to withholding on patronage dividends.
As patronage dividends generally are allocated only once a year by a
cooperative these provisions for prompt refunds would alleviate almost
completely the problems of withholding on these taxpayers. Under these
provisions the taxpayer will obtain a very quick refund. In fact, if
cooperatives allocate within the time prescribed by law for the filing
of their returns,without requesting extensions, many patrons would be
able to claim the credit or refund on their tax return for the year in
which their patronage occurred. For example, assume that a cooperative
on the calendar year basis makes allocation by March 15, the calendar
year patrons of the cooperative could claim credits or refunds for the
amounts withheld in their income tax returns which they file by April 15-the following month.
Exhibit VII
187
- 13 As indicated earlier, under the proposal, the Secretary or his
delegate could be authorized to exempt from the withholding requirement
cooperatives which are primarily engaged in the business of selling
at retail goods or services of a type which are generally used for
personal living or family purposes. This would eliminate a considerable
amount of withholding on patronage dividends with respect to items for
personal use --patronage dividends which are not includible in income.
It may be contended that withholding should not apply to patronage
dividends because they constitute items of business income as distinguished
from corporate dividends which are more generally considered items of
personal income. However, regardless of how described, patronage dividends
can give rise to taxable income. They can represent an increase in
receipts from the sale of products or a decrease in cost of goods sold.
Furthermore, being outside the regular stream of farm income, patronage
dividends present substantially the same compliance problems found in
the case of dividends and interest generally. Therefore, since the
withholding system applicable to dividends and interest can easily be
expanded to cover patronage dividends, withholding should apply to
patronage dividends.
Withholding would impose no undue burden upon the cooperative.
The withholding system would not require the cooperative to mail
receipts for the amounts withheld to the patron. Elimination of this
requirement would make the withholding system even less of a burden
than that presently in effect for employers paying wages and salaries.
It may be claimed that patronage dividends often involve small and
nominal amounts. However, while the individual amounts may be small,
the aggregate is sizeable. It is estimated that enactment of the
President's recommendation will raise revenues by $25 - $30 million.
Furthermore, it does not seem appropriate to exclude income from a
withholding requirement merely because the amount of tax involved is
not great. The withholding system would also be applicable to interest,
where many small amounts are involved.
Summary
There is urgent need for legislation in this area. It Is believed
that enactment of the President's recommendation will achieve a method
of taxing cooperative income that is just and fair both to cooperatives
and competing business. Application of withholding to patronage dividends
will impose no undue burden on the cooperative or the patron and will,
in effect, assure the average patron of sufficient cash to pay his tax
on his patronage dividend.
*> ftS
Exhibit VII
- HTable 1
Data on net income and allocation of net income of
farmers' marketing and purchasing cooperatives
(Dollar amounts in millions)
Agriculture
(195*0
Number of cooperatives
9,793
Gross receipts $8,500
Treasury 1/
(1953)
8,3U
$7,419
Net income before income tax 332
Less: Non-cash patronage diviaenas receivea
Net income less intercooperative non-cash
patronage aiviaenas
Less: Income tax
Net income after tax
275
14
261
253
Allocation of net income after tax
Cash aistributions:
Diviaenas on capital stock
"Interest" on other equity
Patronage aividenas
Total cash aistributions 2/
18
1
103
122
15
Non-cash aistributions:
Patronage diviaenas (net of
intercooperative)
127
123
270
57
17
10
243
100
115
Total aistributions 249
238
Net income retained. 12
5
Sources: Department of Agriculture, "Methods of Financing Farmer Cooperatives," pp. 34 and 4l; Treasury Department, "Farmers' Cooperative Income Tax Returns for 1953•"
l/ Returns for nonexerapt cooperatives do not show patronage dividends
and they are estimated on the basis of data for "exempt" cooperatives.
2/ In addition, cash distributions are made to retire patronage dividends
declared in non-cash form in previous years. Such payments were
about 50 percent of non-cash payments during the period 1950-195^.
Exhibit VII
- 15 Table ?
Number and volume of business of farmers' marketing and purchasing
cooperatives, 1940-57
[Dollar amounts in millions]
Volume of business^
Year^
Number of
cooperatives
Gross
19^0
19"5
195c
1951
1952
1953
195^"
1955
1956
1951
•••*••••••••••••••«
•••••••••••••••••••
••••»•»•••*••••••••
•••••••••••••••••••
•••••••••••••••••••
•••••••••••••••••••
• .•••••'•••••••»•••••
• ••••••'•••••••••*••
.*'..
• •••••••••••••••••••
10,600
10,150
10,051
10,l66
10,114
10,050
9,007
9,070
9,872
9,716
$2,280
6,070
10,519
12,132
12,299
12,193
12,456
12,692
13,484
14,006
Net3
8,144
9,4o4
9,517
9,462
9,626
9,7^0
10,359
10,693
1 FLgures are for the marketing seasons for crops produced in the
"" specified year.
2 Data for 1940 and 1945 not completely comparable to subsequent
"" years. The earlier figures are somewhere between the gross and
net figures shown for later years•
3 Gross volume less the volume of business done between coopera"" tives. Both the gross and net figures include the total value
of products handled on a commission basis.
Source: Department of Agriculture, "Statistics of Farmer Coopera«
tives, 1957-58", PP. 3, 18, 19?8l.
EXHIBIT VIII - FIRE AND CASUALTY INSURANCE COMPANIES
I. General Statement of Recommendations
The President, in his Tax Message to the Congress of April 20, I96I,
recommended that consideration be given to taxing mutual and reciprocal
fire and casualty insurance companies on a basis similar to stock companies. On April 26, two members of the Committee on Ways and Means,
Mr. Boggs and Mr. Baker, introduced identical bills, H. R. 6659 and
H. R. 6660, designed to carry out this proposal.
The Treasury Department favors enactment of legislation along the
line proposed in the Boggs-Baker bills effective for taxable years
beginning after December 31, 1961. Such legislation would be desirable
on three scores: First, it would provide fair and equal tax treatment
for all fire and casualty insurers. Second, it would appropriately tax
this industry on the same basis as business corporations generally,
thus contributing to the general objective of achieving equality of
tax burdens. Third, it would provide additional revenues. To align
the taxation of foreign insurance companies writing fire, casualty
and other lines of insurance in the United States with the proposed
increase in taxes on domestic companies, it is also recommended that
the present 1 percent tax on premiums paid on foreign policies of
insurance or reinsurance be Increased to 2 percent.
The question of equalizing the taxation of fire and casualty
insurance companies has been before the Committee on Ways and Means
on a number of occasions. In 1942, the Committee approved and the
House passed legislation applying ordinary corporate rates to all
companies. The Senate changed the bill, substituting those provisions
which now exist. The problem was most recently reviewed in presentations and discussions during the Panel Discussions before the Committee
on Ways and Means in November and December, 1959. Subsequently, the
Treasury conducted extensive inquiries into the whole problem. The
Department gave all segments of the fire and casualty insurance industry
an opportunity to meet with representatives of the Department and the
staff of the Joint Committee on Internal Revenue Taxation/ to present
their views. It is on the basis of this study that the conclusion has
been reached to recommend and support the legislative approach proposed
in the Boggs-Baker bills.
All fire and casualty Insurance companies, whether they be stock
companies, mutual companies or reciprocal insurers, l/ are engaged in
1/Reciprocal insurers (including also those known as "interinsurers")
are unincorporated mutual associations which originally confined their
operations to particular classes of business, but which have in recent
years broadened their business operations to include all classes of
casualty insurance, chiefly In the automobile field.
Exhibit VIII
- 2 the same kind of business. They compete vigorously with each other. All
are subject to the same form of state regulation, with regard to rates
and other aspects of their business. All are treated alike for these
purposes. Moreover, state taxation has long been on a basis which makes
no significant distinction as to the type of insurer involved, whether
stock, mutual or otherwise. It is thus accepted at the state level that
equality of treatment for all fire and casualty insurance companies is
appropriate and equitable.
Stock companies have always paid Federal income tax on the same basis
as business corporations generally. On the other hand, mutual companies
have enjoyed a special taxing formula which has resulted in the mutual
segment of the industry paying very substantially smaller taxes than they
would had they been taxed on the stock company basis. Reciprocal insurers
have enjoyed an even more favorable formula, which has resulted in their
bearing not only a relatively much lighter share of the burden than stock
companies, but even a lighter share than the mutual companies.
Briefly stated the present special taxing formulas are as follows:
(l) Mutual companies - are subject to an alternative tax whereby
they pay either (a) 1 percent of their gross income (consisting of net
premiums after dividends to policyholders plus gross investment income)
or (b) the regular corporate tax applicable to their net investment
income and the capital gains tax on their capital gains, whichever computation results in the higher tax.
(2) Reciprocals or interinsurers - are subject to tax at regular
corporate rates on their investment income only.
These special taxing formulas do not take account of underwriting
gains. This is contrary to the total income approach and the pattern
of similar treatment for mutual and stock companies adopted in the life
insurance field.
These differences in treatment between stock, mutual and reciprocal
companies are significant to the industry, for the retained earnings of
insurance companies are, to an even greater degree than in most businesses,
essential to their growth. Tax preferences necessarily increase the
capacity for growth of the favored companies and give them a better
competitive position in the industry.
Based on the study previously mentioned, it is the Department's
view that there is no adequate reason why all fire and casualty insurance
companies should not be taxed substantially as business corporations
generally. This seems appropriate and equitable from the viewpoint of
19?
Exhibit VIII
- 3maintaining tax neutrality in a very competitive industry. It would
also advance the broad and important objective set forth in the
President's Tax Message of eliminating areas of special tax treatment
where they are not justified and thus promoting "uniform distribution
of the tax burden" and a taxing system that "is more equitable, more
efficient and more conducive to economic growth."
The recommended change would have the further advantage of
eliminating from the taxing system the present floor under the taxes
of mutual insurers which, by imposing a tax based on premium volume,
will cause a company to pay a tax even in a year in which adverse
underwriting experience may cause an operating loss. While, over-all,
the existing taxing formula favors the mutual and reciprocal companies,
nevertheless, this unresponsiveness to losses can impose a hardship on
a particular company in a year of bad experience. Such a result is
generally indefensible in an income tax system based on the taxing of
net income.
One specific aspect of the proposed legislation should be mentioned.
The Boggs-Baker bills would permit an unlimited deduction in computing
taxable income for dividends paid to policyholders. In this respect
the proposal is more liberal than the treatment that was applied to life
insurance companies by the Life Insurance Company Income Tax Act of 1959,
which placed a limitation on policyholder dividend deductions based on
underwriting income. Moreover, in 1942 when the Committee on Ways and
Means approved legislation along the lines now proposed, it inserted a
similar type of limitation on the deductibility of dividends paid to
policyholders by fire and casualty companies. However, this problem
as it affects fire and casualty insurance companies does not seem to
parallel entirely the life insurance situation. Competitive factors,
the need for additional surplus funds, and other business considerations
may be adequate to discourage any persistent and unreasonable payments
to policyholders for purposes of tax avoidance. At the same time, the
development of equitable and acceptable limitations on the deductibility
of policyholder dividends would Introduce into the law some considerable
additional complexity which, under the circumstances, does not apx^ear
likely to be required. Therefore, the Department does not believe it
necessary at this time to recommend any amendment imposing restrictions.
However, the Department would intend to keep a close watch on the situation so that if any practice should develop by which companies persistently pay dividends to policyholders in excess of underwriting profits,
it will be in a position-" to inform the Congress and recommend the
enactment of appropriate further legislation to eliminate undesirable
tax avoidance practices.
+ 93
Exhibit VIII
- 4 'The proposed legislation would materially increase revenues from
this industry. The application of the proposed taxing formula in the
years 1948 to 1959, inclusive, would have resulted in increased revenues
to the Government in excess of $150 million. The amount of increased
revenue in future years, of course, depends not only on state regulated
premium rates, but even more on the underwriting loss experience of the
industry, which can vary substantially from year to year. Considering
past experience, steadily increasing premium volume, and increases in
the state regulated rate structure during the last two or three years,
the Department estimates that in a year of reasonable underwriting
experience enactment of the Boggs-Baker bills would increase revenues
from the fire and casualty insurance industry in the order of __50 million
dollars. In unusually good years, such as were experienced by the
industry in 1953 and 1954, the increase in revenues could readily exceed
this amount, while In years of poor experience, such as the years 1956
and 1957, revenues could be substantially less. This amount will, of
course, tend to increase further with continued growth of the industry.
With regard to the effective date of the legislation, the bills
as introduced would be applicable with respect to taxable years beginning after December 31, I960. In view of the substantial changes in
present law that would be involved and because it now appears that
enactment cannot be cormpleted until well along In 196l, the Department
recommends that the new law be applicable to taxable years beginning
after December 31, 1961. In this connection, the bills appropriately
provide that net operating loss carryovers and carrybacks will be
confined entirely to years to which the new law applies.
For the further aid of the Committee on Ways and Means and the
Congress in its consideration of this matter, technical background
is furnished in the following sections on the structure of the fire
and casualty insurance Industry, the present methods of taxation and
the proposed revisions.
IS 4
Exhibit VIII
- 5II. Present Methods of Taxation and Proposed Revision
A. Present methods of taxation
1. Stock company provisions
Stock fire and casualty insurance companies are taxed under the
provisions of section 831 and 832 essentially like other corporations
subject to ordinary corporate rates on their combined net income from
investment and underwriting. The statute prescribes that combined
gross earnings from investment and from underwriting as well as
certain expenses incurred be computed in general on the basis of the
underwriting and investment exhibit or other applicable portions of
the annual statement approved by the National Convention of Insurance Commissioners. Certain adjustments are made where necessary to
properly reflect net income. Stock companies also pay tax on their
realized net capital gains in the same manner as other corporations.
However, a special rule permits the deduction against ordinary income
of losses sustained in liquidating capital assets in order to obtain
funds to meet abnormal insurance losses, and to provide for the payment of dividends and similar distributions to policyholders.
The treatment provided for the stock companies applies also to
mutual fire insurance companies operating on a perpetual basis. A
perpetual company is one which charges a premium deposit sufficiently
large that the investment income on the deposit will ordinarily cover
all underwriting losses and expenses of operation. Thus, the policyholder in a perpetual company can expect to receive back his entire
premium deposit at the end of the policy period, usually a considerable number of years. Since no part of the perpetual premium deposit
is expected to be absorbed by the company, the statute proviaes that
single deposit premiums are not to be included in gross income.
The stock company treatment is also applicable to mutual marine
insurance companies.
The aomestic "Lloyds" organizations, not to be confused with
Lloyd's of London, are taxed like stock companies. Lloyds organizations are voluntary unincorporated associations of individuals
each of whom assumes a specified portion of the liability under
each policy issued. These underwriters operate through a common
attorney-in-fact, as do the reciprocals and interinsurers.
Exhibit VIII
- o 2. Mutual and reciprocal company provisions
Mutual fire and casualty insurance companies since 1942 have
been subject in general to an alternative tax formula set forth in
sections 821 and 822. Under this formula they pay the higher of
two alternatives: (l) Investment income basis: regular corporate
tax rates on net investment income plus capital gains tax on realized
long-term capital gains, or (2) Gross income basis: 1 percent of
gross income, consisting of the sum of the gross investment income
and net premiums, minus dividends to policyholders ana tax-exempt
interest, and exclusive of capital gains.
A mutual company pays the regular 25 percent, capital gains tax
if it is under the investment income alternative but nothing on
capital gains if it is under the 1 percent gross income tax. It'
also receives the intercorporate dividend income deduction if it
pays on investment income but not if it is taxed under the 1 percent
provision. The special rule permitting the offset of capital losses
incurred in the liquidation of investments to meet abnormal underwriting losses is available to a mutual company if it is under the
investment income tax but not under the 1 percent gross income
alternative. The regular net operating loss carryover provisions
are not available to mutual fire and casualty insurance companies.
The statute provides special exemptions of $3,000 with respect
to net Investment income and $75,000 with respect to gross income
for the mutual companies. These exemptions vanish at higher levels
of income and notch provisions apply in the interval.
The statute provides a special exception to the operation of
the alternative tax formula in the case of reciprocals and interinsurers. These organizations, operating through an attorney-infact, are not subject to the 1 percent gross income tax. Their tax
liabilities, therefore, are determined only with respect to their
net investment income in excess of $50,000 and capital gains.
Factory mutual insurance companies are taxed like other mutual
fire and casualty insurance companies, although their method of
operation is somewhat different. The factory mutuals charge a
larger premium than an ordinary insurance company but not large
enough to generate investment income sufficient to cover all of the
underwriting losses and expenses. Consequently, a substantial part
of the premium deposit with a factory mutual is used up during the
Exhibit VIII
- 7policy period, although there is a substantial refund. These companies, therefore, occupy a position somewhere between that of a
regular mutual company and a perpetual. Because of their large
premium deposits they have relatively large amounts of investment
income and therefore pay tax under the investment income alternative.
3. Special provision for shipowners' protection and indemnity
associations
Special treatment is provided by section 526 for certain shipowners' protection and indemnity associations. This section excludes
from gross income the receipts of the shipowners' mutual protection
and indemnity associations not organized for profit, no part of the
net earnings of which inures to the benefit of any private shareholder. However, it provides that "such corporations shall be subject as other persons to the tax on their taxable income from interest
dividends, and rents." It is understood that there are only one or
two beneficiaries of section 526. The substance of the special rule
under section 526 apparently is that associations qualifying under it
are taxable in a manner similar to reciprocals and interinsurers
under the provisions of sections 821 and 822, with the exception of
tiie omission of royalties, business income, and other possible types
of investment income from the statutory definition of the taxable
income base in the case of the shipowners' associations. This provision has been in the law since 1921.
h- Foreign insurance companies
In general, a foreign insurance company licensed to do business
in the United States is subject to tax in the same manner as a
domestic insurance company, with respect to its U. S. business. A
foreign insurance company not licensed to do an insurance business
in the United States and not otherwise engaged in business in this
country is not subject to income tax here.
Section 1442 applies a withholding tax of 30 percent on various
items of income, including premiums, paid to a foreign insurance
company not engaged in U. S. trade or business (except where the
withholding rate is reduced by special tax treaty covenants). However, longstanding rulings l/ of the Internal Revenue Service have
excluded premium income paid to a foreign insurance company, such
as Lloyd's of London and others not entered in the United States,
from the application of the withholding tax. These rulings are
I/l.T. 1359, C.3. 1-1, 292,T922; I.T. 3061, C.B. 1937-1, H^.
ids
Exhibit VIII
- 3 based on the principle that such premiums contain only a small
element of net income and that it would, therefore, be inappropriate
to apply the 30 percent levy on such a nonincome item. Another consideration is the fact that a 30 percent withholding tax would
destroy a normal and essential channel of insurance business, which
is important to the American economy where only a foreign company is
equipped to handle the resk.
The foreign insurers like Lloyd's of London are, however, subject to special documentary stamp taxes on the policies they issue
measured by the premium paid. The documentary stamp excise taxes
imposed by section 4371 and related sections of subchapter D of
Chapter 33 on policies issued by foreign insurers are levied at a
rate of 4 cents on each dollar or fractional part thereof in the
case of a premium charged on a direct policy of casualty insurance
or an indemnity bond and at the rate of 1 cent on each premium dollar
or fraction thereof on any reinsurance policy involving either casualty or life insurance and on life insurance, sickness and accident
policies and annuity contracts.
B. Structure of the fire and casualty insurance industry
Income tax return data for 1958 disclose that there were 2,194
returns by fire and casualty insurance companies, with a total tax
liability of about $128 million. Of this total, 841 were mutual
company returns, with a total income tax liability of about $34
million. Some 1,353 were returns taxable under the stock company
provisions, with a reported tax liability of about $94 million.
Similar data for the period 1942-1958 are shown in the accompanying
Table 1.
The 84l mutual fire and casualty insurance companies fall into
various special groups as follows: 772 regular mutual companies,
8 factory mutuals, and 6l reciprocals and interinsurers. The 1,353
companies taxed under the stock company rules of sections 831 and
832 include 1,330 regular stock companies, 7 perpetuals, 15 Lloyds
organizations, and 1 mutual marine, l/
Data on the number of companies in the various categories, and
the distribution of tax liability and premium volume among the various groups are summarized in Table 2.
Unlike the life insurance business, in which the major portion
of the premiums are written by mutual companies, in the fire and
l/These breakdowns are based on data from Best's Insurance Guide and
and other industry sources. Statistics of Income do not provide
this information.
Exhibit VIII
- 9 TABLE 1
•MUTUAL INSURANCE CARRIERS OTHER THAN LIKE, OR MARINE, OR FIRE INSURANCE
COMPANIES ISSUING PERPETUAL POLICIES, AND INSURANCE CARRIERS (EXCEPT LIFE OR
MUTUAL) TAXED UNDER CODE SECTION 831: NUMBER OF RETURNS AND TAXES ACCOSTING PERIODS ENDED 1942 THROUGH 1958
Type of company
and year
Total
number
of
returns
Declared
Number of
value » Excess
returns
with net Income tax excess profits
profits
tax
income
tax
(Amounts in Thousand dollars)
iuiual insurance carriers (otherj
than life,or marine, or fire
insurance companies issuing
perpetual policies) taxed under
Code section 821:
33,7^2
817
1958
841
31,771
750
1957
775 •
29,940
759
1956
786
28,297
735
1955
766
26,107
722
1954
750
25,378
696
1953
736
22,980
663
1952
707
19,759
641
1951
........
686
15,514
639
1950
689
13,250
612
1949
656
11,624
565
1948
610
10,262
502
1947
541
9,213
479
1946
„
515
7,642
436
1945
471
6,263
416
1944
•
»
446
5,682
392
1943
OB
5,629
386
1942
•
472
94,134
883
i3urance carriers (except life
52,268
780
ir mutual) taxed under Code
85,217
758
lection 831;
206,015
837
15
1958......
1,353
257,204
874
9,064
1957
J
1,382
206,821
848
6,529
1956
1,282
150,911
743
6,561
1955
1*309
94,812
723
6,929
1954
,
1,165
131,635
812
1953
1A31
187,578
791
1952
1,033
1
97,818
757
1951
1,062
39 7,459
35,265
603
1950
.....
1,136
24
13,355
24,068
496
1949.1
...
1,042
9
16,697
36,023
559
1948
1,006
6
11,042
, 44,110
577
1947
913
64,021
582
1946
334
Less than $500.
59,110
621
ludt
1945
337
te: The income tax shown for mutual insurance
carriers
*
™
£;t^v^^
815
1944
<•• Section
thout net Income computed under
ti2l\a)K*)»
ivhytl piles Mvlslon
1943
737
1942
832
Exhibit VIII
- 10 Table 2
Types of fire and casualty insurance companies taxed under
stock and mutual provisions:
Number of companies, income tax paid, and share of
premiums written, 1958
Type of company
: Number of ; Income tax paid
: companies :(Dollars : % of
:filing 1958:millions):industry
:tax returns:
: total
Percentage of
total premiums
written by the
industry
Taxed under stock
provisions (sections 831-832):
Regular stock l/
Perpetuals
Lloyds organizations
1,331
Total under stock
provisions
1,353
9^.1
73.6
71.2
Regular mutuals
Factory mutuals
Reciprocals and
interinsurers
772
8
31.3
1.9
1.5
2^.5
.8
61
.5
Total under mutual
provisions
81+1
33.8
26.If
28.8
2,19^
$127=9
100.0
.100.0
7
15
$9i4-.0
n.a.
.1
73.5*
n.a.
.1
71.09
.2
Taxed under mutual
provisions (sections 821-622):
Grand total
Note:
3.5
Items may not add to totals, due to rounding.
l/lncludes 1 mutual marine company
* Because of unique method of operation, regular concept of premiums
written not applicable; investment income on premium deposits,
equivalent to annual premiums, estimated at less than .1 percent.
Sources: Aggregate data on numbers of section 821 and 831 companies and
income tax paid from Statistics of Income. Data on premiums
and taxes paid by particular types of companies from B e s ^ s
Insurance Guide, 1959 and Best's Fire and Casualty Aggregates
and Averages, i960'.
2
Exhibit VIII
- 11 casualty insurance field, the major portion of the premiums are
.^Vritten by the stock companies. Of the $14.1 billion of total premiums written by the fire and casualty industry in 1959, approximately 71 percent was written by stock companies. However, the
proportion of the business written by the stock companies has been
declining over the years. Prior to the first income tax law in 1913,
stock companies wrote over 90 percent of all the fire and casualty
insurance. By 19*fl, the last year in which the mutual and reciprocal fire and casualty insurance business was substantially exempt
from income taxation, the stocks1 proportion had decreased to 77
percent. Further decreases have occurred since that time. The
stock companies have been subject to the full corporate tax since
1913.
As in the case of life insurance and other industries, there
is considerable concentration of premium volume in the hands of a
comparatively few large companies. Data for 1959 made available by
persons in the industry indicate that 42 large stock companies
accounted for about 59 percent of all of the premiums written by
some 1,300 stock companies. Similarly, 10 large mutual companies
accounted for 46 percent of the total premium volume in the hands of
some 800 mutual companies.
The question of the competitiveness of the fire and casualty
insurance business, the reasonableness of its rate structure and
rate-setting practices, and the effectiveness of State regulation
were matters of concern to the Subcommittee on Antitrust and
Monopoly of the Senate Committee on the Judiciary in the course of
its recent hearings. In connection with the consideration of the
role of the tax laws in the insurance business, the matters of unfair competition by untaxed foreign companies and tax avoidance
arrangements through foreign subsidiaries and foreign reinsurance
operations were raised.
In earlier decades fire and casualty insurance companies tended
to be specialized in specific lines, such as fire insurance, automobile and casualty insurance, accident and health insurance, workmen's compensation, marine insurance, and similar lines. The current
trend is toward multiple line insurance, in which a company offers
a wide variety of coverage to its customers. It is not entirely
clear what implications the growth of multiple line business may
have with respect to the re-evaluation of the present tax provisions
in this area. To the extent that the multiple line trend is symptomatic of sharpened sales competition, this may imply greater sensitivity to tax differentials.
Exhibit VIII
- 12 C. Boggs-Baker Bills (H. R. 6659 and H. R. 6660):
The identical bills recently introduced by Mr. Boggs (H. R. 6659)
and Mr. Baker (H. R. 6660) would tax all fire and casualty companies
like stock companies, i.e. at the prevailing corporate rates on both
their underwriting and investment income. Companies would be enabled
to offset their underwriting losses against investment gains and thereby eliminate objections which some mutual companies have made to the
existing special formulas applicable to mutual companies.
The following specific provisions should be mentioned:
(l) Exemption for small mutual and reciprocal companies.- Small
mutual or reciprocal companies which are exempt under the present provisions of section 501(c)(15) would remain exempt. This section exempts
mutual or reciprocal companies if the gross amount received during the
year from investment income and premiums does not exceed $75,000. In
lieu of the various other forms of tax relief at present afforded small
mutual and reciprocal companies, these companies would be tax exempt if
their taxable net income was less than ^6,000, with a notch feature
operating in the bracket from $6,000 to $12,000. None of the above
forms of tax relief would be applicable to stock companies.
(2) Deductibility of policyholder dividends.- Existing law as
to stock companies permits full deduction for all dividends paid to
policyholders, and this provision would be made equally applicable to
mutual and reciprocal companies.
(3) Capital gains.- All companies, as is true of stock companies
under present law, would pay the regular 25 percent corporate capital
gain tax on realized capital gains.
{h) Transitional rules.- The bills provide special transitional
rules relating to net operating Loss deductions for mutual companies.
The effect of this provision is to Insure that no net operating loss
deduction shall be allowed to a mutual insurance company, heretofore
taxed under the special provisions of section 821 of the Code, for any
taxable year ending before the effective date of the bill and that no
loss deduction shall be permitted for any taxable year ending after
that date to the extent based on losses suffered for a taxable year
ending prior to the effective date. The purpose of these provisions
is to insure that mutual companies which are now to be subjected to
regular corporate tax rates do not gain any special advantage from the
operations of a prior year or years when the company was not subject
to such tax rates.
Exhibit VIII
- 13 D. Premium tax on policies issued by foreign insurers
Although the Boggs-Baker bills contain no provision for realignment of the premium taxes on policies issued by foreign insurers in
the United States market, it is recommended that the present 1 percent
tax imposed by section 4371 of the Code be increased to 2 percent on
policies issued after December 31, 1961. This recommendation would
apply to all policies of reinsurance issued by foreign insurers covering fire or casualty insurance risks and indemnity bonds, as well as
all policies of insurance or reinsurance in the case of life insurance,
health and accident policies, and annuity contracts. The suggested
increase would be approximately in line with the proposed increase in
the taxes on domestic mutual insurance companies now averaging roughly
1 percent of gross income. This adjustment in the foreign premium tax
should increase collections under the tax by about $4 million annually.
No increase is recommended at this time in the 4 percent tax now
imposed on certain direct policies of casualty insurance and surety
bonds. Since this tax is already imposed at a differentially higher
rate which tends to discourage the sale of direct policies which involve the 4 percent tax, an upward adjustment does not seem appropriate
for purposes of alignment with the Boggs-Baker legislation for resident
insurers.
- 3*-* w
*j
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 subje
to estate, inheritance, gift or other excise taxes, whether Federal or State, bu
are exempt from all taxation now or hereafter imposed on the principal or intere
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 inte
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the amo
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
cluded 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, whe
on original issue or on subsequent purchase, and the amount actually received ei
upon sale or redemption at maturity during the taxable year for which the return
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.
- 2 -
decimals, e. g., 99.925. Fractions may not be used.
It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-
cept for their own account. Tenders will be received without deposit from incor
rated banks and trust companies and from responsible and recognized dealers in
ment securities. Tenders from others must be accompanied by payment of 2 percen
the face amount of Treasury bills applied for, unless the tenders are accompani
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-
serve Banks and Branches, following which public announcement will be made by t
Treasury Department of the amount and price range of accepted bids. Those submi
ting tenders will be advised of the acceptance or rejection thereof. The Secret
of the Treasury expressly reserves the right to accept or reject any or all ten
in whole or in part, and his action in any such respect shall be final. Subject
these reservations, noncompetitive tenders for $ 200^000 or less for the additi
bills dated February 9, 1961
2$0XX)
August 10, 1961
f
( 91 days remaining until maturity date on
2$3}@)
) and noncompetitive tenders for $100,000 or less for the
182 -day bills without stated price from any one bidder will be accepted in ful
at the average price (in three decimals) of accepted competitive bids for the r
tive issues. Settlement for accepted tenders in accordance with the bids must b
made or completed at the Federal Reserve Bank on May 119 1961 , in cash or
other immediately available funds or in a like face amount of Treasury bills ma
ing May 119 1961 . 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 anv exasptioja^ as such, and l
TREASURY DEPARTMENT
Washington
May 3, 1961
FOR IMMEDIATE RELEASE. MBBDOEXHUMJK
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,600,000,000 , or thereabouts> for
cash and in exchange for Treasury bills maturing May 11, 1961 , in the amount
^ .
of $ 1,500,379,000 • as follows:
m
91 .day bills (to maturity date) to be issued May 11, 1961 ,
in the amount of $ 1,100,000,000 , or thereabouts, representv^
ing an additional amount of bills dated February 9, 1961
and to mature
August 10, 1961
,
, originally issued in the
amount of $ 500,174,000 , the additional and original bills
to be freely interchangeable.
182 -day bills, for $ £00,000,000 , or thereabouts, to be dated
"pEEF
*x2#
May 11, 1961
, and to mature November 9, 1961
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, $100,000, $500,000 and $1,000,000 (maturiti
value).
Tenders will be received at Fed.eral Reserve Banks and Branches up to the closinj
Daylight Saving
hour, one-thirty o'clock p.m., Eastern/stHKBtaxst time, Monday, May 8, 1961
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
TREASURY DEPARTMENT
208
WASHINGTON, D.C.
May 3, 1961
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,600,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 11, 1961,
in the amount of
$1,500,379*000, as follows:
91-day bills (to maturity date) to be issued May 11, 1961,
in the amount of $1,100,000,000, or thereabouts*, representing an
additional amount of bills dated February 9>19ol, and to
mature August 10, 196l, originally issued in the amount of
$500,174,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $500,000,000, or thereabouts, to be dated
May 11, 19ol, • and to mature November 9, 1961.
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, $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 Daylight
Savings time, Monday May 8, 1961. Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
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
D-97
accompanied
by an express guaranty of payment by an incorporated bank
or trust company.
- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 9, 196l, (91-days remaining until maturity date on
August 10, 19ol) Q and noncompetitive tenders for $100,000
or less for the 182-day 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 May 11, 19^1,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 11, 1961.
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
0O0
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe the terms of the Treasury bills and govern the conditions
of theirReserve
Issue. Bank
Copies
of the circular may be obtained from any
Federal
or Branch.
TREASURY DEPARTMENT
WASHINGTON, D.C.
IMMEDIATE RELEASE May 4, 1961
RESULTS OF TREASURY'S NEW CASH OFFERING
Reports received from the Federal Reserve Banks show that subscriptions total
about $13,824 million for the offering of $5,250 million, or thereabouts, of 3$ Certificates of Indebtedness of Series A-1962, due May 15, 1962, and $12,889 million
for the offering of $2,500 million, or thereabouts, of 3-1/4$ Treasury Notes of Series
D-1963, due May 15, 1963. Total subscriptions accepted amount to about $5,510 million for the certificates and $2,750 million for the notes.
The Treasury will allot in full all subscriptions, totaling about $2,379 millio
for the certificates and $1,258 million for the notes, from States, political subdivisions or instrumentalities thereof, public pension ana" retirement and other public
funds, international organizations in which the United States holds membership,
foreign central banks and foreign States, Government Investment Accounts, and the
Federal Reserve Banks, as provided in the offering circulars.
On subscriptions for the certificates received subject to allotment, the Treasu
announced a 27 percent allotment; except that subscriptions for $25,000 or less will
be allotted in full, and subscriptions for more than $25,000 will be allotted not less
than $25,000.
On subscriptions for the notes received subject to allotment, the Treasury announced a 12 percent allotment; except that subscriptions for $25,000 or less will be
allotted in full, and subscriptions for more than $25,000 will be allotted not less
than $25,000.
Details by Federal Reserve Districts as to subscriptions and allotments will be
announced when final reports are received from the Federal Reserve Banks.
Subscriptions were divided among various investor classes a,s follows:
INVESTOR CLASS 5$ C.of I. 5-1/4$ NOTES TOTAL
(Amounts in millions^
States, political subdivisions or instrumentalities thereof, public pension and retirement and
other public funds, international organizations
in which the United States holds membership,
foreign central banks and foreign States, Government Investment Accounts, and the Federal Reserve Banks „
$ 2,379
Commercial Banks for their own account 7,375 7,258 14,633
AH others 4,070 4,575 8,445
Total $13,824 $12,889 $26,713
D-98
$ 1,258
$ 3,637
Kay 8, 1961
FOR RELSAS& A. If. MgWSPAPERS, Tuesday, Hay ?, 1961,
USSlfS OF ffEa&atT'S *H*XT SHX OTF»a«l
the Treasury Department announced last evening that the tenders far two series %t
Treasury bills, one series to be an additional issue of the bills dated February 9, t*j
treeBesji
and the other series to be dated Pay 11, 1961, which were offered on Kay 3, were
at the Federal Reserve Banks on Way 8* Tenders vera invited for ;1,100,000,000j
u Tesl
aborts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills,
tails of the tare series are as follows?
E&ms w ACCEPTED
maturing August 10, 196l
cswwifns BIBS?
Apprssi* l^sw*
Fries
Aosnal Rate
Price
Anneal late
9
8
.
7
8
6
^
2.e0tf
99.1001
I35S
98.773
i
2.et?l
99.^32
| 2.2k7S
Average
98.775
^sJ*tim
99.1*36
* ,2.2322 1/
Excepting one tender of $100,000
« percent of the amount of 91-dsy bills bid for at the low price was accepted
76 percent of the asonst of 182-day bills bid for at the low prise was accepted
torat rmm& kfftrm FOR km AOCS BT mmm. Fisgra DISTRICTSt
Blstriet
Applied for
Applied For
A^ssgtsd
Accepted
55o
Boston
t 15,i« 000
965,550.000 U2a,350,000
1,381 6Mt 000
Hew fork
699,963
8,738,000
3,713,—
273
000
?8
000
ffeUadslpitia
13,273
23,02*,000
10,66a,000
27 fhl000
000
Cleveland
22,9«7
2,382,000
2,381,080
000
9
000
f^iatssond
9,*67
2,9*7,000
2,723,«0
000
28
000
Atlanta
2a,«96
68,139,000
3O,k26,000
000
225 126
000
Chicago
189,71* 000
5,677,000
a,677»088
23 216 000
St. Ionia
19,286
h,877,000
2,377,008
16 325 000
000
Minneapolis
11,39$
9,661,000
7,561,008
000
*5 630 000
Kansas City
U
J
,
2
9
©
3,638,000
•£Z«MM>
3,638,888 1
?*•?**«»
000
Dallas
la 306 000
£1,876,629
11,100,3^,000
y
I I ,17,683.000
US;IA;W6
13,606
000
f*f&uEBL
000
San Francisco
b/ Includes
#197,106,000
noncompetitive
tenders
accepted
at
the
average
pries
of 9f«aH
T0TAIS
a/ Includes 137*129,000 noncowp«titive tenders accepted at the average prise of 9$.?1f
0 B a coupon issue of the sane length aad for the sane amount invested, the retsra H
these bills would provide yields of 2.28$, for the 91-day bills, and 2**9£, far M
lS2-day bills. Interest rates on bills are quoted in teres of bank discount with
the return related to the face awoaat of the bills payable at maturity rather than
the amount invested and their length in actual nuaber of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed is ten*
of interest on the amount invested, and relate the amber of days reaalnlnf la as
interest psysent period to the actual number of days is the period, with lealim—1
eospoundix^ if store than one coupon period is involved*
m
s
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 8, 1961
'OR RELEASE A. M. NEWSPAPERS, Tuesday, May 9, 196l.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
treasury bills, one series to be an additional issue of the bills dated February 9, 196l,
Ind the other series to be dated May 11, 196l, which were offered on May 3, were opened
it the Federal Reserve Banks on May 8. Tenders were invited for $1,100,000,000, or thereibouts, of 91-day bills and for $£00,000,000, or thereabouts, of 182-day bills. The dejails of the two series are as follows:
N3E OF ACCEPTED
iJOMPETITIVE BIDS:
High
LowAverage
91-day Treasury bills
maturing August 10, 196l
Approx. Equiv.
Price
Annual Rate
2.200$
99.hbh
2.2h7%
99.U32
2.232$ 1/
99.k36
182-day Treasury bills
maturing November 99 196l
Approx. E*quiv.
Price
Annual Rate
98.786 a/
2.U012
2.k27%
98.773
2.hZ3% 1/
98.775
a/ Excepting one tender of $100,000
?7 percent of the amount of 91-day bills bid for at the low price was accepted
76 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accented
District
Accepted
Applied For
Applied For
Boston
15,105,000
f
25,105,000 ¥
r^27&3o7USo
New York
699,963,000
1,381,6iWi,000
965,550,000 li2ii,350,000
3,713,000
Philadelphia
13,273,000
28,273,000
8,738,000
10,66I*,000
Cleveland
22,9ii7,000
27,91*7,000
23,02U,000
2,382,000
Richmond
9,)467,000
9,167,000
2,382,000
2,723,000
Atlanta
2l+,l496,000
28,126,000
2,91*7,000
30,126,000
Chicago
189,71^,000
225,86^,000
68,139,000
^,677,000
St. Louis
19,286,000
23,286,000
5,677,000
2,377,000
Minneapolis
11,395,000
16,325,000
7,561,000
1*, 877,000
Kansas City
1^,290,000
1*5,630,000
3,638,000
Dallas
9,661,000
13,606,000
3i,306,000
5,333,000
San Francisco
36,796,000
50,656,000
3,638,000
£1,100,338,000
b
/
fiTnFTiBIi^ooo
$500,272,000
c/
TOTALS
11,876,629,000
17,683,000
y Includes $197,106,000 noncompetitive tenders accepted at the average price of 9
£/ Includes $37,129,000 noncompetitive tenders accepted at the average price of 98.775
II On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.28$, for the 91-day bills, and 2.19%, for the
182-day bills. 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.
D-9 9
STATEMENT BY SECRETARY OF THE TREASURY DOUGLAS DILLON ON
AMENDMENT OF THE ARTICLES OF AGREEMENT OF THE INTERNATIONAL
FINANCE CORPORATION BEFORE A SUBCOMMITTEE OF THE HOUSE BANKING AND CURRENCY COMMITTEE, WEDNESDAY, MAY 10, 1961, 10 A.M.
Mr. Chairman and Members of the Subcommittee:
I appear before you today in support of H.R. 6765,
authorizing the approval by the United States of a proposed
amendment to the Articles of Agreement of the International
Finance Corporation which would permit the Corporation to
make equity investments under limited conditions.
This amendment would have a significant effect in stepping up the rate at which the Corporation is able to invest
in its less-developed member countries and would thereby
further the purposes for which the Corporation was established.
The proposed agreement has been carefully considered
by the Corporation and is unanimously recommended by its
Board of Directors.
This is the first time since the IFC's creation in 1956
that a matter concerning it has been before this Committee.
It may, therefore, be helpful to review the origins of the
Corporation and its work:
tL. .£_ 'w'
- 2The IFC was established as an affiliate of the International Bank for Reconstruction and Development, or World
Bank, whose outstanding record the Committee knows well.
Any country which is a member of the Bank may become a
member of the IFC, and 59 of the Bank's 68 members have
now joined the Corporation. The total authorized capital
of the Corporation is $100 million. Present members have
actually paid in $96.6 million, in dollars. The United
States subscription, which we paid when we joined in 1956,
is $35*2 million.
While the Corporation has cooperated closely with the
World Bank since its inception, its relationship to the Bank
will be even closer in the future. The President of the
Corporation, Mr. Garner, has announced his intention to retire
this fall after the annual meeting. Mr. Eugene Black, President of the World Bank, has agreed to take on the added duty
of the Presidency of the International Finance Corporation
at that time. This will ensure the closest possible coordination between the operations of these two important institutions.
-25
- 3The idea behind the Corporation is a simple one. It is
that a multilateral source of capital should be available to
give direct encouragement to the stimulation and growth of
private enterprise in the less-developed countries of the
Free World. The Corporation seeks to accomplish this by
providing "seed capital" — that extra margin which may
very well determine whether private funds are willing to
go in.
In practice, the Corporation has invested in small or
medium private enterprise projects. What is often regarded
as a small private firm in a large industrialized nation may
be a good-sized undertaking in many of the less-developed
countries with which the Corporation deals.
Most of the enterprises assisted by the Corporation are
engaged in light and medium manufacturing in such fields as
furniture, rubber products, automotive components and replacement parts, electrical equipment, steel products, and food
packing. A number of firms in which IFC has invested produce basic materials such as cement, bricks, lumber products,
fertilizers, and paper pulp. All of the firms have aided
<-«L4
- 4 local economies by providing additional employment, and all
contribute importantly to the growth of the private sector
of the developing economies.
During the approximately four years of its operations,
the Corporation has made investment commitments totaling
$44.8 million, of which $29.3 million has actually been
disbursed. The average size of its investments is about
one and one-quarter million dollars. Thirty-six investment
commitments have been made in 17 countries. In each case
additional private investment funds have been committed
alongside the IFC. These private investments have amounted
to over $125 million or nearly $3.00 of new private investment for each $1.00 of IFC investment.
In carrying forward its operations, the Corporation has
been severely limited by the provision in Article III, Section 2(a) of its Articles that: " financing [by the
Corporation] is not to take the form of investments in
capital stock."
ft- i. w
- 5As I indicated in my letter of April 4, 1961, to the
Speaker of the House, this limitation has tended to constrict
the desirable flexibility of the Corporation in making risk
capital available to less-developed economies. Because of
this limitation, the Corporation has had to resort to the
use of convertible debentures or long-term stock options —
that is, instruments which are not themselves common stock
and may be converted to common stock only under prescribed
conditions and only after they have been transferred out of
the hands of the Corporation. However, convertible debentures
are not well-known in foreign capital markets, especially in
the developing countries. In many of these countries legal
provisions for the issuance of such debentures do not exist.
Arrangements for long-term stock options have involved techniques which are legally complex and present substantial
negotiating difficulties. A detailed explanation of these
problems and of the need for authority to make equity investments is contained in a memorandum dated February 10,
1961 from the President of the Corporation which I would
like to submit for the record at this point. In sum, the
;i >
- 6charter limitation on the purchase of capital stock has
severely restricted the ability of the Corporation to
carry out its primary function of stimulating private
enterprise in the less developed areas.
The original reason for including a prohibition
against equity investment in the Articles of Agreement
was to insure that the Corporation would not, as a result
of stock ownership have management responsibilities in the
private enterprises in which it invested. Such responsibilities properly lie with the private owners of the enterprise. This concept is a sound one and remains applicable
today. However, safeguards have been incorporated in the
proposed amendment to insure that the Corporation will not
become involved in the operational or management decisions
of the enterprises in which it invests.
The form of the proposed amendment to the Articles of
Agreement is embodied in the proposed Resolution of the
Board of Governors of the International Finance Corporation. It proposes that Article III, Section 2 of the
Corporation's Articles—the sense of which I described
- 7to you a moment ago—would be deleted, and a new Section 2
would be substituted, reading simply: "The Corporation may
make investments of its funds in such form or forms as it
may deem appropriate in the circumstances."
In order to safeguard the Corporation's role in exercising voting rights attached to capital stock which it acquires,
Subsection (iv) of Article III, Section 3, which now reads:
"The Corporation shall not assume responsibility
for managing any enterprise in which it has invested"
would be amended by adding:
" and shall not exercise voting rights for such
purpose or for any other purpose which, in its opinion,
properly is within the scope of managerial control."
This formulation, in my judgment, would achieve the
purpose of the original prohibition on the purchase of
capital stock. Yet it would also permit the Corporation
to take the necessary steps to protect its interests in the
event it is legally required, as a stockholder, to vote on
such matters as corporate reorganization, increase of capitalization, etc.
£. 1
- 8The proposed amendment represents a desirable and logical evolution in the development of the Corporation. The
National Advisory Council on International Monetary and
Financial Problems has recommended its adoption. It is
in the interest of the U. S., as well as in the interest
of the Free World as a whole, to improve the ability of
the Corporation to carry out its task of promoting productive private enterprise in the developing countries. The
proposed amendment is essential for this purpose.
H.R. 6765 would give me authority, as United States
Governor of the IFC, to vote in favor of the proposed
amendment and I earnestly recommend its approval by the
Congress.
May 8, 1961
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 subj
to estate, inheritance, gift or other excise taxes, whether Federal or State, b
are exempt from all taxation now or hereafter imposed on the principal or inter
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 whic
Treasury bills are originally sold by the United States is considered to be in
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the am
of discount at which bills issued hereunder are sold is not considered to accru
until such bills are sold, redeemed or otherwise disposed of, and such bills ar
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder need include in hi
income tax return only the difference between the price paid for such bills, wh
on original issue or on subsequent purchase, and the amount actually received e
upon sale or redemption at maturity during the taxable year for which the retur
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.
- 2-
<L i d
decimals, e. g., 99.925. Fractions may not be used.
It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-
cept for their own account. Tenders will be received without deposit from incor
rated banks and trust companies and from responsible and recognized dealers in
ment securities. Tenders from others must be accompanied by payment of 2 percen
the face amount of Treasury bills applied for, unless the tenders are accompani
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-
serve Banks and Branches, following which public announcement will be made by t
Treasury Department of the amount and price range of accepted bids. Those submi
ting tenders will be advised of the acceptance or rejection thereof. The Secret
of the Treasury expressly reserves the right to accept or reject any or all ten
in whole or in part, and his action in any such respect shall be final. Subject
these reservations, noncompetitive tenders for $ 200,000 or less for the additi
bills dated February 16, 1961 , ( 91 days remaining until maturity date on
August 17, 1961 ) and noncompetitive tenders for $ 100,000 or less for the
182 -day bills without stated price from any one bidder will be accepted in ful
at the average price (in three decimals) of accepted competitive bids for the r
tive issues. Settlement for accepted tenders in accordance with the bids must b
made or completed at the Federal Reserve Bank on May 18, 1961 , in cash or
other immediately available funds or in a like face amount of Treasury bills ma
ing Mav 18. 1961 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 anv exesptiojk- as such, and l
L- L~ v-/
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
W
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,600,000,000 , or thereabouts)
cash and in exchange for Treasury bills maturing May 18.. 1961 > ia the amount
of $1,601,214,000 , as follows:
91 -day bills (to maturity date) to be issued May 18, 1961 ,
in the amount of $1,100,000,000 , or thereabouts, represent-
Spy
ing an additional amount of bills dated
and to mature
August 17, 1961
February 16. 1961 J
to
, originally issued in the
m
amount
of $500,456,000
, the additional and original bills
to
be freely
interchangeable.
182 -day bills, for $500,000,000 , or thereabouts, to be dated
May 18, 1961 , and to mature November 16. 1961
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their fac
will be payable without interest. They will be issued in bearer form only, and
denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (m
value).
Tenders will be received at Federal Reserve Banks and Branches up to the closi
Daylight Saving
hour, one-thirty o'clock p.m., Eastera/stHHjkuai time, Monday, May 15, 1961
Tenders will not be received at the Treasury Department, Washington. Each tend
must be for an even multiple of $1,000, and in the case of competitive tenders
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
• •,'!'! 11'. IMI"MIIJI'HW • ?.«•!'imu.iH'MBmmnnrB
WASHINGTON, D.C.
May 10, 1961
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,600,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May lo, 196*1,
in the amount of
$1,601,214,000, as follows:
91-day bills (to maturity date) to be issued May 18, 1961,
in the amount of $1,100,000,000, or thereabouts, representing an
additional amount of bills dated February 16, 196l,and to
mature August 17, 196l, originally issued in the amount of
$500,436,000,
the additional and original bills to be freely
interchangeable.
182-day bills, for $500,000,000, or thereabouts, to be dated
May 18, 196l,
and to mature November 16, 1961.
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, $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 Daylight
Saving time, Monday, May 15, 1961.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99^925. Fractions may not
be used. It Is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
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
orD-100
trust company.
- 2 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 Departmment 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 hi3 action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 16, 196l,(91-days remaining until maturity date on
August 17, 196l)
and noncompetitive tenders for $100,000
or less for the 182-day 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 May 18, 1961,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 18, 1961.
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 hereundei
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 0O0
loss.
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe the terms of the Treasury bills and govern the conditions
Federal
of theirReserve
issue. Bank
Copies
or Branch.
of the circular may be obtained from any
Statement by Robert V. Roosa, Under Secretary for Monetary Afrairs
Treasury Department, Before the House Committee on Banking and
Currency on May U f 1961, on H.R. 5306
Mr. Chairman and Members of the Committee:
I appreciate this opportunity to appear before your Committee in
support of H.R. 5306, "To authorize adjustments in accounts of outstanding old series currency".
The purpose of the proposed legislation is three-fold. First, it
would free gold and silver reserves held as security for the redemption
of certain types of old issues of currency. Second, it would authorize
a procedure whereby old series currency could be written off the
Treasury books as a liability. And third, it would authorize the
retention of pieces of this currency for ai historical collection.
As the members of the Committee know, the size of the paper money
of the United States was changed in 1929. Since that time, the former
large-size paper money has, for the most part, been replaced by the new
smaller-size paper money presently in use. In fact, all but a very
small fraction of the old size currency has been redeemed. In order
to place what we are considering in better perspective, I would like to
cite the following figures. The amount of old. size currency issued
prior to July 1, 1929 totaled in round figures $74 billion. Of this
total, only a little more than $140 million remains outstanding at the
present time. This comparatively tiny segment of old style paper money
still outstanding is what we are concerned with today.
- 2It stands to reason that the greater portion of this outstanding
old style currency will probably never be presented for redemption.
Some of the currency issues, such as United States notes, date back to
nearly one hundred years ago.
In the decades that have passed, much of
the old style paper money has undoubtedly been destroyed in fires or
floods or has otherwise been irretrievably lost. Other amounts are
presumably held by individuals as collector's items. In such cases,
the numismatic value of the currency exceeds its face value so there
is no inducement to present it for redemption.
The amount of such currency presented for redemption also decreases
with the lapse of time. To illustrate, a little over $1 million in
Treasury notes of 1B90 was outstanding In 1939«
Only $25,000 of that
currency has been presented for redemption since that time, a period
of twenty-one years. Last year, six dollars was presented. By the way
of further example, $435 million in the large size silver certificates
was outstanding at the time of the change-over in 1929*
$30 million in such certificates remained outstanding.
La I960, only
In the past
year, merely $26,000 worth of large size silver certificates was
redeemed.
It is thus a relative certainty that only a minor percentage of
the old style currency will ever be presented for redemption. Yet, the
Treasury and the Federal Reserve System are required under existing
law to carry gold and silver reserves, dollar for dollar, as security
for a substantial amount of this old currency.
i _,
- 3 More specifically, $37 million in reserves is held by the Federal
Reserve banks to secure Federal Reserve notes. Another $31 million in
silver is heM by the Treasury as security for old-size silver
certificates and Treasury notes of 1890. An additional $30 million
in gold is held by the Treasury as security for outstanding gold
certificates. The latter figure includes $lB million in large size
gold certificates and $12 million in small size certificates issued
between 1929 and 1934.
The foregoing reserves held by the Treasury and the Federal Reserve
System total $98 million. This amount is in effect frozen by law and
cannot now be put to any beneficial use. This does not make good sense
to me. In my opinion, there is little point in letting these reserves
lie idle when most of the old. series currency which the reserves secure
will never be presented for redemption. The holding of gold reserves
against gold certificates makes even less sense since the redemption
of such currency in gold is prohibited by the Gold Reserve Act of 1934.
Consequently, the first purpose of the bill is to free the foregoing
gold and silver reserves. The bill would accomplish that end in two
ways. First, it would transfer to the general fund of the Treasury,
to be credited as a public debt receipt, gold held, as security for gold
certificates issued prior to January 30, 1934 and standard silver dollars
held as security for Treasury notes of IB90 and silver certificates
issued prior to July 1, 1929. Secondly, it would authorize the Board
of Governors of the Federal Reserve System to require any Federal
Reserve bank to pay to the Secretary of the Treasury, to be credited
as a public debt receipt, an amount equal to the amount of Federal
Reserve notes of any series prior to the series of 1928 issued to such
bank*
In this manner, the Treasury's cash position would be improved to
the extent of $98 million. This increase in its cash position would
enable the Treasury to decrease its borrowing in the open market by
a corresponding amount*
The result would be an annual saving in interest
costs to the Treasury ranging from $3 million to $4 million a year on
the basis of present interest rates.
It would, of course, be unthinkable to do away with the reserves
held as security for the currency without providing an alternative
and equally sound method for its redemption. The United States must
always stand ready to redeem its paper money or otherwise public confidence in such money would be impaired.
Hence, the bill would provide
for the redemption of this currency from the general fund of the Treasury.
This procedure is most logical since the general fund would receive
the benefit of the reserves now held as security for redemption.
Turning now to the second aspect of the bill, the old series
currency we are talking about has, ever since its issuance, been
carried on the books of the Treasury as a liability in the form of
currency outstanding.
It will continue to be so carried for time
immemorial unless some provision is made for a different treatment.
- 5 "
oOQ
:L £- ^
As I have said earlier, the greater portion of this outstanding old style
currency will probably never be presented for redemption. Consequently,
there is no justification, in my judgment, in continuing to carry the
total amount of such outstanding old series currency indefinitely as a
Treasury liability. I feel that a gradual write-off of this liability
should be permitted to the extent that it is determined that the currency
will never be presented for redemption. The bill would authorize such a
procedure.
Under the procedure that would be established by the bill, the old
series currency would in the future be carried on the books of the Treasury
as public debt bearing no interest. The Secretary of the Treasury would
be authorized to determine, from time to time, the amount of such currency
which, in his judgment, has been destroyed or irretrievably lost and so
will never be presented for redemption. After making such a determination,
the Secretary of the Treasury would be authorized to reduce correspondingly
the amount carried on the books as public debt bearing no interest and
credit such amounts to the appropriate receipt account.
Under this procedure, the Treasury would from time to time make
estimates of the amount of this old currency which it believes has been
destroyed or lost and will never be presented for redemption. It would
then reduce by an equivalent amount the liability for such currency
appearing on the books of the Treasury as public debt bearing no interest.
An early determination of that nature can be made in the case of the
-6 -
«?<>>
Treasury notes of I89O, which I have previously mentioned, because of
the minor amounts of such notes that have been presented in recent
years. From time to time, similar determinations would be made as to
other classes of the old series currency when it appeared that only
nominal amounts were being redeemed. I would venture to say that
write-offs of fairly significant amounts, when considered in relation
to the total amounts of old series currency outstanding, could be made
in the not too distant future under this procedure. Incidentally, as
these write-offs occurred in the future, they would be reflected in
budget receipts.
Redeemability of the currency would not be affected in any way
by the write-offs and the bill includes an express provision to that
effect. Write-offs of the currency would be limited so as to assure
an adequate leeway between the anticipated amounts of currency presented
for redemption and the amount of the public debt liability left remaining
on the Treasury books.
There is precedent for both the treatment of carrying this currency
as a part of the public debt bearing no interest and for the write-offs of
such currency. Under existing law, national bank notes and Federal Reserve
bank notes are now carried as an Item of public debt bearing no interest.
With respect to write-offs of currency, over $8 million of fractional
currency was written off in 1880 and nearly $5 million was written off in
1920.
-7 As to the third and last aspect of the bill, the proposed legislation
would authorize the Secretary of the Treasury to withhold from cancellation
and destruction one piece of each type of the old series currency in order
to provide an historical collection of such currency.
In that connection,
the Secretary of the Treasury would be authorized to make appropriate
entries in the redemption accounts and other books of the Treasury to
cover currency held for the collection.
To summarize, the bill would free reserves held as security for
old series currency, thus improving the cash position of the Treasury.
It would permit future write-offs of old series currency. Both of these
objectives are desirable from the standpoint of the management of Treasury
financial affairs.
Accordingly, I recommend favorable consideration of the proposed
legislation by your Committee.
I am furnishing for the record some exhibits relating to old series
currency and a Treasury memorandum on the history of coins and currency of
the United States.
TREASURY DEPARTMENT
Washington, 0* C«
229
IMMEDIATE RELEASE
D-101
THURSDAY, MAY 11, 196l.
PRELIMINARY DATA ON IMPORTS FOR CONSUMPTION OP UNMANUFACTURED LEAD AND ZINC CHARGEABLE TO THE QUOTAS' ESTABLISHED
BY PRESIDENTIAL PROCLAMATION NO. 3257 OF SEPTEMBER 22, 1958
QUARTERLY QUOTA PERIOD • April I, 1961 - Junt 50, 1961
IMPORTS -
AprM t>
,96, .
May 8,
1961
ITEM 394
ITEM 393
ITEM 392
t Lead bullion or base bullion, T
t lsad In pigs and bars, load
t
*
Load-bearing or«3, fluo dust,t dross, reolaimad lead, sorap
: Zlno-boaring oros of all kinds, 1 Zlno In blooks, plga, or slabs)
and mattes
» lead, antlaonlal load, antl» exoept pyrites containing not * old and worn-out zlno, fit
1 aonlal sorap load, typo matal, »
ovor yf> of zlno
1 onlydross,
to boand
roinanufaoturod,
zlno skimmingszlno
: all alloys or combinations of 1
1
laad n«a«p.ft
1
jQuarterly Quota
"t Quarterly Quota
Quarterly Quota
x Quarterly Quota
Imports
Imports : By ffelflht
Dutlabls. Lead
Imports 1 Dutlabls Load
Iaportt 1 Dutiable Zinc
(Pounds)
(Pounds)
(pounds)
(Pounds5
ITEM 391
Country
of
Produotlon
Australia
10,080,000
5,05*,^
23,680,000
iu, :.->?/,0*0
•
—
Belgian Congo
-
-
-
5,440,000
330,696
Belgium and
Luxemburg (total)
-
-
-
7,520,000
856,325
-
-
Bolivia
Canada
5,040,000
3,068,7(6
-
13,440,000
•3,225,303
15,920,000
Italy
«D
Moxloo
-
-
3,600,000
-
6,320,000
988,825
5,037,307
35,120,000
I0,28»f,705
3,760,000
757,625
On. So. Afrioa
14,680,000
IM,880,000
-
6,^60,000
H,839, • &
23,085,578
12,880,000
6,560,000
-
37,840,000
70,480,000
3,089,558
All other forolgn
oountrios (total)
22,1*15,285
25,W3,762
16,160,000
-
66,480,000
36,880,000
Poru
Yugoslorla
5,01*1,511
-
-
15,760,000
6,600,651
-
6,080,000
6,080,000
17,840,000
17,8^0,000
6,080,000
6,080,000
TREASURY DEPARTMENT
Washington, D« C«
H&2DIATE RELEASE
THURSDAY, MAY 11, 196l.
D-101
PRELIMINARY DATA ON IMPOSTS FOR CONSUMPTION 0? UNLLWFACTUPilD LEAD AND ZINC CHARGEABLE TO THE QUOTAS' ESTABLISHED
BY PRESIDENTIAL PROCLAMATION NO, 3257 OF SEPTEMBER 22, 1953
QUARTERLY QUOTA PERIOD • April I, 1961 - June 50, 1961
IMP0RTS
* April I, 1961 - May 8, 1961
ITEM
Country
of
Produotlon
Australia
ITEM 394
ITEM 392
V Lead buYHoiTor base bullion,
t lsad in pigs and bars, lead
Lead-boaring ora3, fluo dust,t dros3, realalaad load, sera?
laad, anti.sonlal load, antl
and nattes
: social scrap load, typs satal,
1 all alloys or ooabinationa of
t
lsad n.s.p.f.
; Quarts rly Quota
xQuariarly Quota.
: Zino-bearing or93 of all kinds,: Zlno la blooks, pigs, or slabs;
: except pyrites containing not : old and •srora-out zlno, fit
orar 3 ^ of zino
:
l only to bs reaanufactursd, zin«
:
:
dross, and zino ski.Txainga
jtCuartariy Quota
:Quartoriy Quota
1 Dutiable Load
(Pounds)
1 Dutiable Zinc
(founds)
10,080,000
391
Isports
5,632,959
: Dutlabia Lsad
([Pounds)
23,680,000
Import3
10,597,628
ITEM 393
:
t
t
t
Imports
Isports
(Pounds)
-
-
Belgian Congo
-
-
-
5,440,000
530,696
Belgium and
Luxaaburg (total)
-
-
-
7,520,000
656,325
-
-
Bolivia
Canada
5,040,000
3,068,716
-
13,440,000
•3,225,303
15,920,000
5,0*11,511
66,430,000
22,|li5,285
37,840,000
n,839,»2»*
3,600,000
-
Italj
•
m
Msxico
-
36,880,000
23,^3,762
70,480,000
23,085,578
6,320,000
988,825
5,037,307
35,120,000
10,284,705
3,760,000
757,625
Peru
16,160„000
3,089,558
12,880,000
On. So. Afrioa
14,880,000
lit, 880, 000
-
Yugosloria
All other foreign
oountries (total)
6,560,000
6,560,000
-
-
4s>
15,760,000
6,600,651
-
6,080,000
6,080,000
17,840,000
17,8*40,000
6,080,000
6,080,000
-.£COTTON WASTES
(In pounds)
IPL
STRIPS made from cotton having-a staple of less than 1-3/16 inches in length, COlffiER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING ffASIE, AETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE* Provided, however, .that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the following countries % United Kingdom, France, Netherlands,
Switzerlands Belgium, Germany, and Italy*
Country of Origin
Established
TOTAL QUOTA
2
Total Imports
g Sept, 20, 1960, to
i Mav Rr 1961,'
United Kingdom
Canada . . . .
France .
British India .
Netherlands . .
Switzerland . „
Belgium . • « .
Japan • « . • ,
China o , • • .
Egypt . . . . ,
Cuba e . . . .
Germany • • . . .
Italy . . . .
Established s
Imports
33-1/3* of s Sept, 20, I960
Total Quota s to Mav 8. 1961
4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,1356,544
76,329
^1.263,
1,660,358
239,690
42,782
1,441,152
1,393,963
75,807
42,782
21,442
22,747
14,796
12,853
21,442
50,646
25,443
7,088
9,937
5,482,509
2,017,986
1,599,886
1,471,192
1/ Included in total imports, column 2..
Prepared in the Bureau of Customs.
3,068
3,068
V
TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE " 0^0
THURSDAY. M A Y 11. lQ6l
^"-
D
_102
Preliminary data on imports for consumption of cotton-and cotton waste chargeable to the quotas
established by the President's Proclamation of September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, I960 - May 8, 1961
—~
Country of^rigln Established Q,ota Ijnports Country of Origin Established Quota
Imports
Egypt and the Anglo- „ ,
China i qvn 7m ^ ° ° 195
Mexinn
'
""*
B ^ I :::::::: :::::;••••
QOOO
^
*>%*>%'
Union of Soviet
Socialist Republics ...
Argentina
Haiti
Ecuador
.[.'.
^
^
"
*-™-™>
^
British East Africa .. „
******** E. mdies. -
, ft****™ • ' • •
. i / ^ B n t i s h W. Indies
k73f22k
5 ^
o/rw? «
5
'S|
" ^/Other British W. Africa
" 3/^ther French Africa ...
Q tlL
^ ^
"
Algeria and Tunisia ...
1/ Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago
2/ Other than Gold Coast and Nigeria.
3/ Other than Algeria, Tunisia, and Madagascar.
Cotton 1-1/8" or more
Imports August 1, I960 - May 8. 1961
Established Quota (Global) - 45,6^6,420 Lbs.
.
^
Staple length. Allocation Imports
t^lrZZ, and under ^^ ^^^
•^V^^ *r 1'50°'000 1.393.16,
1-3/8
2 240
>,565,6te
4,565,642
21,321
5
>377
i6>0ok
689
681
S
TREASURY DEPARTMENT
Washington, D. C.
"— ^ '..->
IMMEDIATE RELEASE
THURSDAY. MAY 11. !Q6l
D-102
Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas
established by the President's Proclamation of September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, i960 - May 8, 1961
Country of Origin
"i:ypt and the AngloEgyptian Sudan ....
Peru
British India
China
Mexico
Brazil
Union of Soviet
Socialist Republics
Argentina
,
Ecuador
Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
475,124
5,203
237
9,333
Imnorts
50,569
8,883,259
618,721
Country of Origin
Honduras
Paraguay
Colombia
Iraq
British East Africa ...
Netherlands E. Indies .
Barbados
l/0ther British W. Indies
Nigeria
2/Other British W. Africa
3/0ther French Africa ...
Algeria and Tunisia ...
Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
Other than Gold Coast and Nigeria.
Other than Algeria, Tunisia, and Madagascar.
Cotton 1-1/8" or more
Imports August 1, I960 - May 8. 1961
Established Quota (Global) - 45,656,420 Lbs.
Staple length Allocation
1-3/8' ^ or more
1-5/32" or more and under
I-3/8" (Tanguis)
1-1/8" or more and under
1-3/8"
39,590,778
1,500,000
4,565,642
Imports
39,590,778
1,395,169
4,565,642
Established Quota
752
871
124
195
2,240
71,388
21,321
5,377
16,oo4
689
Imports
-
681
-
~£COTTON WASTES
(In pounds)
COTTON CARD STRIPS made•.from cotton havings staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING Y/ASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE % Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple- length in the- case- of the following countries % United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italys
Country of Origin
: Established
s TOTAL QUOTA
s
:
Total Imports
s Established s
Imports
: Sept. 20, I960, to % 33-l/3# of s Sept. 20, I960
i Mav 8r 1961
i Total Quota ; to May 8. 1961
United Kingdom ..... 4,323,457 1,660,358 1,441,152 1,393,963
Canada
239,690
239,690
France
. . .
227,420
42,782
75,807
British India
69,627
Netherlands . . . . . . .
68,240
21,442
22,747
Switzerland . . . . . . . .
44,388
14,796
Belgium
38,559
3,068
12,853
Japan
341,535
China . . .
17,322
Egypt . . . . . . . . . .
8,135
Cuba
6,544
Germany .
76,329
50,646
25,443
Italy
21,263
7,088
5,482,509 2,017,986 1,599,886 1,471,192
\J Included in total imports, column 2,
, Prepared in the Bureau of Customs.
42,782
21,442
3,068
9,937
._
17
23d
TREASURY DEPARTMENT
Washington
IMMEDIATE RELEASE
THURSDAY, MAY 11, 196l
D-103
The Bureau of Customs announced today the following preliminary
figures showing the imports for consumption from January 1, 1961, to
April 29, 1961, inclusive, of commodities for which quotas were established pursuant to the Philippine Trade Agreement Revision Act of 1955:
Commodity
Established Annual
Quota Quantity
765,000
Buttons
Unit
of
Quantity
Gross
Imports
as of
April 29, 1961
81,743
1,629,365
Cigars.
180,000,000
Number
Coconut oil,
403,200,000
Pound
39,706,420
Cordage....
6,000,000
Pound
1,108,640
Tobacco....
5,850,000
Pound
5,520,1991/
1/ Duty-free quota filled May 2.
TREASURY DEPARTMENT
Washington
IMMEDIATE RELEASE
THURSDAY, MAY 11, 196l
D-103
The Bureau of Customs announced today the following preliminary
figures showing the imports for consumption from January 1, 1961, to
April 29, 1961, inclusive, of commodities for which quotas were established pursuant to the Philippine Trade Agreement Revision Act of 1955:
Commodity
Established Annual
Quota Quantity
765,000
Buttons
Unit
of
Quantity
Gross
Imports
as of
April 29, 1961
81,743
oxgars••«••.•«..•».«
180,000,000
Number
1,629,365
Coconut oi 1
403,200,000
Pound
39,706,420
Cordage •
6,000,000
Pound
1,108,640
Tobacco .».<,.....••«.
5,850,000
Pound
5,520,1991/
1/ Duty-free quota filled May 2.
Q,
-2-
Commodity
Period and Quantity
: Unit
Imports
: of
as of
•.Quantity: April 29, 1961
Absolute Quotas
Peanuts, shelled, unshelled,
blanched, salted, prepared or
preserved (incl. roasted peanuts but not peanut butter)
12 mos. from
Aug. 1, I960
1,709,000
Pound
41,922*
140,733,957
2,872,122
Pound
Pound
136,968,598*
Calendar Year 1961 1,200,000
Pound
Quota Filled
Oct. 31, 1961
Argentina
Paraguay
Other Countries
Pound
Pound
Pound
5,092,384*
Quota Filled
Rye, rye flour, and rye meal July 1, 1960June 30, 1961
Canada
Other Countries
Butter substitutes, including
butter oil, containing 45% or
more butterfat
Tung Oil Feb. 1, 1961-
*
Imports through May 8, 1961.
18,770,577
2,230,313
711,188
?1?
TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE
THURSDAY, MAY 11, 1961
D-104
The Bureau of Customs announced today preliminary figures showing the imports for
consumption of the commodities listed below within quota limitations from the beginning
of the quota periods to April 29, 1961, inclusive, as follows:
Commodity
Imports
as of
April 29. 1961
Period and Quantity
Tariff-Rate Quotas:
Cream, fresh or sour ,
Calendar Year
1,500,000 Gallon
243
Whole milk, fresh or sour,
Calendar Year
3,000,000 GalIon
37
Cattle, 700 lbs. or more each
(other than dairy cows)
April 1, 1961June 30, 1961
120,000 Head
2,120
Cattle less than 200 lbs. each,
12raos.from
April 1, 1961
200,000 Head
10,493
Fish, fresh or frozen, filleted,
etc., cod, haddock, hake, pollock, cusk, and rosefish
Calendar Year
32,600,645
Tuna fish.
Calendar Year
57,114,714 Pound
15,083,873
White or Irish potatoes:
Certified seed
Other
12 mos. from
Sept. 15, 1960
114,000,000 Pound
36,000,000 Pound
54,225,020
6,535,499
Peanut Oil,
12 mos. from
July 1, 1960
Walnuts,
Calendar Year
Stainless steel table flatware
(table knives, table forks,
table spoons)
Nov. 1, 1960Oct. 31, 1961
14,287,7301/
Pound
Pound
1,440
5,000,000 Pound
4,547,455
80,000,000
69,000,000
Pieces
Quota Filled!*
1/ Imports for consumption at the quota rate are limited to 16,300,322 pounds during
the first six months of the calendar year.
2/ Based on preliminary data; subject to adjustment.
(over)
o n
TREASURY DEPARTMENT
Washington, D. C.
MEDIATE RELEASE
URSDAY, MAY 11, 1961
D-104
The Bureau of Customs announced today preliminary figures showing the imports for
nsumption of the commodities listed below within quota limitations from the beginning
the quota periods to April 29, 1961, inclusive, as follows:
Commodity
Imports
as of
April 29. 1961
Period and Quantity
riff-Rate Quotas:
sam, fresh or sour
Calendar Year
1,500,000
Gallon
243
)le milk, fresh or sour,
Calendar Year
3,000,000
Gallon
37
M e , 700 lbs. or more each
rther than dairy cows)
April 1, 1961June 30, 1961
120,000
Head
2,120
:tle less than 200 lbs. each,
12 mos. from
April 1, 1961
200,000
Head
10,493
ih, fresh or frozen, filleted,
:,, cod, haddock, hake, pol:k, cusk, and rosefish
Calendar Year
32,600,645
Pound
14,287,7301/
"ia fish.
Calendar Year
57,114,714
Pound
15,083,873
114,000,000
36,000,000
Pound
Pound
54,225,020
6,535,499
80,000,000
Pound
1,440
Pound
4,547,455
;te or Irish potatoes:
Wfied seed
1.her....,
.
inut o i l ,
12 mos. from
Sept. 15, 1960
12 mos. from
July 1, 1960
'touts,
Calendar Year
5,000,000
ilnless steel table flatware
able knives, table forks,
liable SDoons)
Nov. 1, 1960Oct. 31, 1961
69,000,000
Pieces
Quota Filled!/
Imports for consumption at the quota rate are limited to 16,300,322 pounds during
'irst six months of the calendar year.
on preliminary data; subject to adjustment.
(over)
-2
Commodity
Period and Quantity
: Unit
Imports
: of
as of
•.Quantity: April 29. 1
Absolute Qtfotas
Peanuts, shelled, unshelled,
blanched, salted, prepared or
preserved (incl. roasted peanuts but not peanut butter)..,
Rye, rye flour, and rye meal..
Butter substitutes, including
butter oil, containing 45% or
more butterfat
Tung Oil,
*
Imports through May 8, 1961.
12 mos. from
Aug. 1, 1960
1,709,000
Pound
41,92
140,733,957
2,872,122
Pound
Pound
136,968,59
Calendar Year 1961 1,200,000
Pound
Quota Fill
Feb. 1, 1961Oct. 31, 1961
Argentina
Paraguay
Other Countries
Pound
Pound
Pound
5,092,36
Quota Fill
July 1, 1960June 30, 1961
Canada
Other Countries
18,770,577
2,230,313
711,188
STATUTORY DEBT LIMITATION
April 30, 1961
AgnF
o
fAc'trf l ^ r i i V T s C
Washington,
M a y
12j
19ft
dtletl s e c ^ ? 7 M U s tiding^^t a n ^ n e d;e7ForTurposes of ^ s e c t i o n the 0 ^ 7 7 .
^™ptionJriutVa%9'oblta^n t Jed^n^dffir br^hich is'redeemable prior to ^ » * * ' ^ ^ £
h
°?«
shaft be considered as its face amount." The Act of Tune 30, 19,60.(P.L. 8 6 - 5 6 4 . ^ S X l V ^ ^ S ^ S l t S i S t }
beginning on July 1, I960 and ending June 30, 1961, the above limitation ($285,000,000,000) shall be temporarily increased by
$8,000,000,000.
The following table shows the face amount of obligations outstanding and the face amount which can still be issued under
this limitation:
Total face amount that may be outstanding at any one time
$293*000,000,000
OutstandingObligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills $38,212,646,000
Certificates of indebtedness
Treaty „o,«s
B
T°,tly
11,503,1^7,000
S7•S18.237. OOP
$107,23^,030,000
80,863,577,550
* Savings (current redemp. value)
Depositary.
R.E. A. series
Investment series
Special FundsCertificates of indebtedness
Treasury notes
Treasury bonds
Total interest-bearing
Matured, interest-ceased
4/»^20,137,301
120,636,000
-...
^ ,467, 000
5,913.887,000
Bearing no interest:
United States Savings Stamps
Excess profits tax refund bonds
Special notes of the United States:
Internat'l Monetary Fund series
jggprjEntti Develop. Ass'n.
,
6,839,178,000
8,635,719,000
27.637.385,000
13^,33^,704,851
^,012,282,000
284,581,016,351
J^T? % (D( *sV]F
51,392,2of
(D^tOXf
2,5^9,000,000
57,652,200
2.658,799.084
,
Totfia"". 7'.'7"". 7T.T .7;77r:T:777::::;'"';T. 287,589,573,879
Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A&..RC.. S t a d . B d S .
2 1 8 , 2 7 2 ,950
Matured, interest-ceased
824,825
Grand total outstanding ...
Balance face amount of obligations issuable under above authority
219,097,775
Reconcilement with Statement of the Public Debt ..™E£h±...2P..?...i9.ol
(Date)
(Daily Statement of the United States Treasury,
7*;P£_...?....»...l?£-t;
(Date)
OutstandingTotal gross public debt
Guaranteed obligations not owned by the Treasury.
Total gross public debt and guaranteed obligations.
Deduct * other outstanding public debt obligations not subject to debt limitation
287^08^71,6^.
J**-7±*J& tJ
)
.
287,987,166,90^
21)* t v l r ' ^
2oO,206»2o5» o /v
3971??•** f
287,808,671,65^
D-105
STATUTORY DEBT LIMITATION
A s n p _April 30, 1961
M a y
12
196l
Washington, __ _
Section 21 of Second Liberty Bond Act, as amended, provides that the face amount of obligations issued under authority
of that Act, and the face amount of obligations guaranteed as to principal and interest by the United States (except such guar-
shali be considered as its face amount." The Act of June 30, 1960 (P.L. 86-564 86th Congress) provides that during the period
beginning on July 1, I960 and ending June 30, 1961, the above limitation ($285,000,000,000) shall be temporarily increased by
J8,000,000,000.
The following table shows the face amount of obligations outstanding and the face amount which can still be issued under
this limitation :
Total face amount that may be outstanding at any one time
Outstanding-
$293,000,000,000
Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing :
Treasury bills $38,212,646,000
Certificates of indebtedness
11,503,147,000
Treasury notes
57.518.237.000
BondsTreasury
* Savings (current redemp. value)
80,863,577,550
*( »^*2U » 1 J / , J$U-L
Depositary.
R.E.A. series
Investment series
Special FundsCertificates of indebtedness
Treasury notes
Treasury bonds
1 2 0 ,636, 0 0 0
l 6 ,46? , 0 0 0
5,913,887,000
8 , 635 , 719 , 000
27,537,385,000
Special notes of the United States:
Internat'l Monetary Fund series
f££$vTnt»l Develop. Ass'n.
43,012,282,000
284,581,016,351
Matured, interest-ceased
Excess profits tax refund bonds
13^,33^,704,851
6 , 8 3 9 ,178 .000
Total interest-bearing
Bearing no interest:
United States Savings Stamps
$107,234,030,000
J^y , (jt i/^*'
JJ-tjy£t.-0(
• J ^O-IY
2 ,5^9 1 0 0 0 , 0 0 0
57,652,200
2.658.799.084
Total 7 7 7777*' ,77'777'7 777 777 7777 287,589,573.879
Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A^..P.Q..Stad f BdS .
218,272,950
Matured, interest-ceased
Grand total outstanding
824,825
2 1 ° t 0 9 7 1775
? 8 7 y §08 ,67^6,54
5,191,328,346
Balance face amount of obligations issuable under above authority
Reconcilement with Statement of the Public Debt ...^£^...^0.».....4:9ol
(Date)
(Daily Statement of the United States Treasury,
r,
..
OutstandingTotal gross public debt
Guaranteed obligations not owned by the Treasury.
Total gross public debt and guaranteed obligations.
:^?^il.„?.?.»...i?.„n*.
(Date)
Deduct - other outstanding public debt obligations not subject to debt limitation
)
287,987,166,904
/J-Ly , U J ( , ( (p
2oo,.c0o,.»O5 , 0 / 7
3 9 7 . 5 9 3 » Q-'y?
287,808,671,654
D-105
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE
May 15, 1961.
SUBSCRIPTION AND ALLOTMENT FIGURES FOR TREASURY'S CURRENT CASH OFFERING
The Treasury Department today announced the subscription and allotment figures
with respect to the current offering of $5,250 million, or thereabouts, of 3$ Treasury
Certificates of Indebtedness of Series A-1962, due May 15, 1962, and $2,500 million,
or thereabouts, of 3-1/4$ Treasury Notes of Series D-1963, due May 15, 1963.
Subscriptions from States, political subdivisions, or instrumentalities thereof,
public pension and retirement and other public funds, international organizations in
which the United States holds membership, foreign central banks and foreign States,
Government Investment Accounts, and the Federal Reserve Banks totaled $2,381,111,000
for the certificates and $1,258,846,000 for the notes and were allotted in full, in
accordance with the offering circulars. Subscriptions for the certificates from all
others totaled $11,438,300,000 and were allotted 27 percent with subscriptions for
$25,000 or less being allotted in full and those for more than $25,000 being allotted
not less than $25,000. Subscriptions for the notes from all others totaled
$11,687,659,000 and were allotted 12 percent with subscriptions for $25,000 or less
being allotted in full and those for more than $25,000 being allotted not less than
$25,000.
Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows:
Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Govt.Inv.Accts.
Totals
D-106
CERTIFICATES OF INDEBTEDNESS
SERIES A--1962
Total
Total. SubscripAllotments
tions Received
$
465,301,000
7,180,114,000
369,786,000
682,734,000
342,123,000
442,592,000
1,636,003,000
266,903,000
189,429,000
343,437,000
401,766,000
1,461,268,000
7,955,000
30,000,000
$13,819,411,000
$
130,589,000
3,415,846,000
105,217,000
194,922,000
120,480,000
127,309,000
505,952,000
83,556,000
56,051,000
114,520,000
118,694,000
501,479,000
1,955,000
30,000,000
$5,506,570,000
TREASURY NOTES
SERIES D--1963
Total SubscripTotal
Allotments
tions Received
$
556,244,000
5,651,942,000
316,338,000
750,642,000
387,500,000
449,163,000
1,908,817,000
283,062,000
230,150,000
441,902,000
418,460,000
1,399,783,000
15,722,000
136,780,000
$12,946,505,000
$
77,230,000
1,426,581,000
44,192,000
139,435,000
93,202,000
71,728,000
302,546,000
47,373,000
38,829,000
124,766,000
65,657,000
183,635,000
2,251,000
136,780,000
$2,754,205,000
Hay 15, 1961
>B S^LEASl A. R,
Fay 16, iy6l.
EESi^fS OF fRSA&RT'S tflUE&lY *i!A GFF£B.?i6
The Treasury Bepartment announced 1 st evening that the tender* for two series of
Treasury bills, one series to be en additional issue of the bills dated February 16, Jand the other series to be dated $*ay 18, K 6 l , which were offered on May 10, were opei
at the Federal Reserve Banks on May IS. Tenders were invited for #1,100,000,000, or
aborts, of 91 --day bills and fer *$00,003,000, ©r thereabouts, of 182-day bills* The
tells ef the two series are as followst
m% Of ACCI2TSD
91-dav Treasury bills
matering- August. 17, l"6l
A"ror. }.cuiv,
Annual %ate
Fries
2.215$
99* y§o
2.275*
99.1*25
2.26W V
99. MM*
Average
182-day Treasury bills
metering Hovember 16, 196l
Approx. Esalv,
Price
Annual Rate
98.775 a/
98.766 "
2.135* 1/
98,769
a/ Tce?tir:.*r two tenders totaling #1,200,000
®0 percert of the amount of 91-day bills bid for at tne low iriee was Accepted
11 percent of the am unt of 182-day bills bid for st the low price was accepted
TOTAL TE-8B&RS kV.-Um FOP K*ti> kCC&TEu SI FEDE1AI B&fRV* DISTRICTS*
istrtet
Bostoi
Hew fork
Hiiladelphia
Cleveland
Stiebmond
Chicago
St. Louis
Kansas City
Pallas
TOTAL;
Applied For
f
JJ6,668 '
TO
1,501,169 000
000
3«,51li
000
12,92$
23,552 000
212,^63 000
£3,2^2 ooo
??,5k?
39,722 ooo
19,Sl6
67,961
#2,012,06^,000
Hill i
I.I i ill i m p
in,
Aceeipted
Applied For
T3CT
730,689,000
1,029,107
12,1*65,000
8,333
&,&* 9 0GQ
21,031
12,92$t0©0
1,932
21,152,000
5,020
136,263,000
79,101
18,031,000
5,35a
16,31*7,000
6,921
25,657,000
10,383
18,816,000
2,987
57**61,000
23,510
#1^0^,018,000 b/ Il,201,l4l6,
b/ Includes ^28,015,000 noncompetitive tenders accepted at the average price of
c/ Includes $52,026,000 iioneompetitive tendons? accepted at the arerage prise ef 98.769
1/ On a coupon issue of the same length and for the same amount iirreeted, the return ea
these bills would provide yields of 2.314, for the 91-day bills, and 2.50$, for **
182-day bills. Interest rates on bills are quoted in terns of bank discount wits
the return related to the face amount of the bills payable at maturity rather teat
the amount invested and their length in actual number of days related to a 360-4*/
year. In contrast, yields on certificates, notes, and bonds are computed in teieJ
of interest on the amount invested, and relate the number of days remaining la as
interest payment period to the actual number ef days in the period, with semJaeeaal,
compounding if more than one coupon period is iavelv**!
TREASURY DEPARTMENT
WASHINGTON, D.C
May 15, 1961
FOR RELEASE A. M. NEWSPAPERS, Tuesday, May 16, 1961.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
treasury bills, one series to be an additional issue of the bills dated February 16, 1961,
M the other series to be dated May 18, 1961, which were offered on May 10, were opened
I the Federal Reserve Banks on May 15. Tenders were invited for $1,100,000,000, or there
fbouts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills. The details of the two series are as followss
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing August 1 7 ^ 1961
Approx. Equiv,
Price
Annual Rate
99.10*0
2.21556
2.275#
99.i£5
2,261$ 1/
99.1*28
182-day Treasury bills
maturing November 16, 196l
Approx. Equiv.
Price
Annual Rate
9B.775 a/
2.1*23*
98.766 "
2.hia%
98.769
2.1*352 1/
a/ Excepting two tenders totaling $1,200,000
8b percent of the amount of 91-day bills bid for at the low price was accepted
11 percent of the amount of 182-day bills bid for at the low price was accepted
'OTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS?
Accepted
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
$
26,668,000
1,501,189,000
27,1*65,000
3l*,5H*,000
12,925,000
23,552,000
212,1*63,000
23,21*2,000
22,51*7,000
39,722,000
19,816,000
67,961,000
$2,012,061*,000
Accepted
8
Applied For
$
•
«
$
13,798,000
730,689,000
12,1*65,000
3l*,l*ll*,000
12,925,000
21,152,000
136,263,000
18,031,000
16,31*7,000
25,657,000
18,816,000
57,1*61,000
«
X
:
t
t
t
t
1
3
t
t
7,W,06o
1,029,107,000
8,333,000
21,031,000
1,932,000
5,020,000
79,101,000
* 1*,309,000
1*09,677,000
2,995,000
15,997,000
1,932,000
1*,573,000
32,279,000
5,351*,ooo
3,851*,ooo
6,921,000
10,383,000
2,987,000
23,510,000
l*,321,000
5,157,000
2,987,000
12,61J5,000
$1^00,018,000 b / $1,201,1*16,000 $500,726,000 c/
Includes $228,01*5,000 noncompetitive tenders accepted at the average price of 99.1*28
Includes $52,026,000 noncompetitive tenders accepted at the average price of 98.769
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.31$, for the 91-day bills, and 2.50& for the
182-day bills. 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 i f m o r e t h a n o n e c o u p o n p e r i o d i s involved'
•107
244
my 5, 1961
The follsmtiag traiisactions were msd* in direct and guaranteed securities
of the goveraosent for Treasury Invmsfeasantand otber accounts during the aonth
of Aprils
K.rchas^s................. ,249,327,500.00
Sales **..*...*«.*........ 229,?9o,G0Q«0Q
Set i%reha#as*«« 1^,531,500*00
TREASURY DEPARTMENT
WASHINGTON, D.C
Apill 17, 19Ql
7?t^y A// /ft>f
IMMEDIATE RELEASE
AfifilL.
TREASURY MARKET TRANSACTIONS IN MIKMI
During Jtaoab 1961, market transactions in
direct and guaranteed securities of the government for Treasury investment and other accounts
resulted in net>tjpurchases
purchases by the Treasury
Department of
0O0
<=^D-62
n
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 15, 1961
IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN APRIL
During April 196l, market transactions in
direct and guaranteed securities of the government
for Treasury investment and other accounts resulted
In net purchases by the Treasury Department of
$19,531,500.
0O0
D-108
Treasury Issues Reminder on Disposal
of Gold Holdings Abroad
2V
The Treasury Department today called attention to the fact
that, under Executive Order 6260 and the Treasury Gold Regulations, as amended effective January 16, 1961, Vpp*&*r 19&1 • ia^
the^-£inaa^det=fce==^o-r U. S. citizens and enterprises and other
persons subject to U. S. jurisdiction whote£>gold abroad or
securities representing gold on deposit abroad on the effective
date of the amendments.to dispose of such holdings,. Effective
June 1, 1961, the further holding of such gold, unless licensed,
and securities representing gold on deposit abroad "vail be
prohibited. (jttUful viioa*torS of these prohibitions W e subject to criminal penaltk.es provided in Section 5(b) of \the
Act of October 6, 1917 > | as amended, "which are a maximum*, fine
I
\
of $10,000 or imprisonment for not more than ten years or both.
i
Violators may also incur a civil penalty provided in the Gold
Reserve Act of 193^, equal to twice the value of the gold
involved.
\
l^~*f^'
** <*
u
t *
I
,-' tag.
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 16, 1961
IMMEDIATE RELEASE
Treasury Issues Reminder on Disposal
of Gold Holdings Abroad
The Treasury Department today called attention to the
fact that, under Executive Order 6260 and the Treasury Gold
Regulations, as amended effective January 16, 1961, U. S. citizens
and enterprises and other persons subject to U. S. jurisdiction
who held gold abroad or securities representing gold on deposit
abroad on the effective date of the amendments are required to
dispose of such holdings no later than May 31, 1961.
Effective June 1, 1961, the further holding
of such gold,
unless licensed, and securities representing gold on deposit
abroad will be prohibited.
Willful violators of these prohibitions are subject to
criminal penalties provided in Section 5(b) of the Act of
October 6, 1917, as amended, which are a maximum fine of
$10,000 or Imprisonment for not more than ten years or both.
Violators may also incur a civil penalty provided in the Gold
Reserve Act of 1934, equal to twice the value of the gold
involved.
0O0
D-109
- 3•• c *». w
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.
- 2 -
decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders be
made on the printed forms and forwarded In the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-
cept for their own account. Tenders will be received without deposit from incorp
rated banks and trust companies and from responsible and recognized dealers in
raent securities. Tenders from others must be accompanied by payment of 2 percen
the face amount of Treasury bills applied for, unless the tenders are accompanie
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-
serve Banks and Branches, following which public announcement will be made by th
Treasury Department of the amount and price range of accepted bids. Those submit
ting tenders will be advised of the acceptance or rejection thereof. The Secreta
of the Treasury expressly reserves the right to accept or reject any or all tend
in whole or in part, and his action in any such respect shall be final. Subject
these reservations, noncompetitive tenders for $200,000 or less for the addition
bills dated February 23, 1961 , ( 91 days remaining until maturity date on
• """ &EI 1^5"
August 2h, 1961
) and noncompetitive tenders for $100,000 or less for the
183 -day bills without stated price from any one bidder will be accepted in full
~5sr
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 May 25, 196l , in cash or
other immediately available funds or in a like face amount of Treasury bills mat
ing May 25, 1961 . 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 anv exemption,., as such, and l
TREASURY DEPARTMENT
Washington
«-~ May 17, 1961
FOR IMMEDIATE RELEASE XXB5XTOC£
TREASURY1 S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,600,000,000 , or thereabouts, for
cash and in exchange for Treasury bills maturing May 25, 1961 , in the amount
of $1,602,596,000 , as follows:
91 -day bills (to maturity date) to be issued
May 25, 1961
in the amount of $ 1,100,(XX),000 , or thereabouts, representing an additional amount of bills dated February 23, 1961
and to mature August 2u, 1961
, originally issued in the
Xo6^c
amount of $500,lu5,000
, the additional and original bills
to be freely interchangeable.
183 -day bills, for $ 500,000,000 , or thereabouts, to be dated
May 25, 1961 , and to mature November 2l|, 1961
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their fa
will be payable without interest. They will be issued in bearer form only, an
denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (
value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos
Daylight Saving
hour, one-thirty o'clock p.m., Eastern/xlteDdimd time, Monday, May 22, 1961
.
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 tender
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
.'iH.'1'J .1 • • H H M H W . W . ••-• U..HIH IJHHW
WASHINGTON, D.C.
May 17, 1961
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,600,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 25, 1961,
in the amount of
$1,602,596,000, as follows:
91-day bills (to maturity date) to be issued May 25, 196l,
in the amount of $1,100,000,000, or thereabouts, representing an
additional amount of bills dated February 23, 1961, and to
mature August 2h, 1961, originally issued in the amount of
$500,145,000, the additional and original bills to be freely
interchangeable.
183-day bills, for $500,000,000, or thereabouts, to be dated
May 25, 19ol,
and to mature November 24, 1961.
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, $100,000, $500,000 and $1,000,000 (maturity
value) .
Tenders will be received at Federal Reserve Banks and Branches
JiB_fco__the closing hour, one-thirtv o'clock o.m., Eastern Daylight
s
Saving time, Monday, May 22, 1961.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It Is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
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
D-110 company.
- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 23, 196l,(91-days remaining until maturity date on
August 24, 196l)
and noncompetitive tenders for $100,000
or less for the !83-day 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 May 25, 196l,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 25, 1961.
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 hereundei
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
0O0
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8, 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.
- 2-
P5?
3. To provide new credits to Brazil totalling $338
million. Of this amount $168 million will be
provided by the Export-Import Bank, $70 million by
the Treasury Exchange Stabilization Fund, and $100
million from President Kennedy's new foreign
assistance program, subject to action by the Congress
on the proposed foreign aid program.
Minister Marianl and Secretary Dillon have signed the Treasury
Exchange Stabilization Agreement and the President of the ExportImport Bank, Harold F. Linder, has issued a letter of commitment on
behalf of the Bank.
While in Washington Minister Marian! also completed discussions
with the International Monetary Fund. The Fund today announced that,
in order to assist Brazil in carrying out its new economic program,
the Fund has agreed to reschedule Brazil's existing debt to the
Fund of $140 million and, in addition, to extend to Brazil a standby
credit of $160 million.
Conversations were also held by Brazilian representatives with
private United States banks with a view to alleviating the burden
of repayments in the next few years, which amount to $114 million,
as well as to obtaining additional credits. These conversations
are proceeding satisfactorily and will be concluded by the
Director of Exchange of the Bank of Brazil who will stay in the
United States for this purpose.
The Brazilian and United States Governments have also undertaken
discussions with European countries regarding the contribution they
might make in helping Brazil to overcome its financial difficulties.
The two governments have been informed that a number of European
countries have agreed in principle to extend to Brazil a substantial
standby credit and to reschedule Brazil's existing debts to them in
order to lengthen the terms of repayment and reduce substantially
payments of principal due in 196l and 1962.
During his visit to Washington, Minister Mariani and
Ambassador Walther Moreira Salles, who has conducted the preparatory
phase of the negotiations, were received by President Kennedy. The
President expressed his great hope that assistance provided by the
United States, the International Monetary Fund and European
countries would help to assure the success of Brazil's new economic
0O0
program.
May 17, 1961
FOR IMMEDIATE RELEASE
i- ^J -^s
May 17, 1961
FOR IMMEDIATE RELEASE
""" c; 4
May 17, 1961
FOR IMMEDIATE RELEASE
Joint Announcement by
Secretary of the Treasury Douglas Dillon
and the Minister of Finance of Brazil,^*
Clemente Mariani
Secretary of the Treasury Douglas Dillon and the Minister of
Finance of Brazil, Clemente Mariani, today announced the conclusion
of financial negotiations between the United States and Brazil.
In his message to the Brazilian Congress in March President
Quadros announced a new economic program to bring economic growth
and progress to the Brazilian people under conditions of financial
stability. President Kennedy, in the spirit of Operation Pan
America and the Alliance for Progress, responded by directing the
appropriate agencies of the United States Government to assist the
Brazilian people in carrying out Brazil's new economic program.
President Kennedy pointed out that the future of Brazil —
a nation containing half the population of South America — was
vital to the future of the Western Hemisphere. "By identifying
ourselves with the economic and social aspirations of the people of
Brazil," the President said, "we are identified with the hopes of
half the continent." The size and importance of Brazil make it
clear that the success of this nation in realizing its potential for
growth and progress is a key to the maintenance of free government
in Latin America.
As a result of the financial negotiations between the
United States and Brazil, the United States has agreed:
1. To postpone to later years principal repayments to
the Export-Import Bank, amounting to $220 million,
which would otherwise have fallen due during the
rest of 1961, calendar year 1962, and the first half
of 1963.
2. To extend the obligation to repay over a 20-year
period the existing debt to Export-Import Bank of
approximately $530 million by rescheduling payments
of approximately $305 million. This rescheduling
includes the postponement, referred to above, of
principal payments otherwise due during the next two
years in the amount of $220 million.
D-lll
May 17, 1961
FOR IMMEDIATE RELEASE
Joint Announcement by
Secretary of the Treasury Douglas Dillon
and the Minister of Finance of BrazilT"
Clemente Mariani
Secretary of the Treasury Douglas Dillon and the Minister of
Finance of Brazil, Clemente Mariani, today announced the conclusion
of financial negotiations between the United States and Brazil.
In his message to the Brazilian Congress in March President
Quadros announced a new economic program to bring economic growth
and progress to the Brazilian people under conditions of financial
stability. President Kennedy, in the spirit of Operation Pan
America and the Alliance for Progress, responded by directing the
appropriate agencies of the United States Government to assist the
Brazilian people in carrying out Brazil's new economic program.
President Kennedy pointed out that the future of Brazil —
a nation containing half the population of South America — was
vital to the future of the Western Hemisphere. "By identifying
ourselves with the economic and social aspirations of the people of
Brazil," the President said, "we are identified with the hopes of
half the continent." The size and importance of Brazil make it
clear that the success of this nation in realizing its potential for
growth and progress Is a key to the maintenance of free government
in Latin America.
As a result of the financial negotiations between the
United States and Brazil, the United States has agreed:
1. To postpone to later years principal repayments to
the Export-Import Bank, amounting to $220 million,
which would otherwise have fallen due during the
rest of 1961, calendar year 1962, and the first half
of 1963.
2. To extend the obligation to repay over a 20-year
period the existing debt to Export-Import Bank of
approximately $530 million by rescheduling payments
of approximately $305 million. This rescheduling
includes the postponement, referred to above, of
principal payments otherwise due during the next two
years in the amount of $220 million.
D-lll
- 2 3. To provide new credits to Brazil totalling $338
million. Of this amount $168 million will be
provided by the Export-Import Bank, $70 million by
the Treasury Exchange Stabilization Fund, and $100
million from President Kennedy's new foreign
assistance program, subject to action by the Congress
on the proposed foreign aid program.
Minister Mariani and Secretary Dillon have signed the Treasury
Exchange Stabilization Agreement and the President of the ExportImport Bank, Harold F. Linder, has issued a letter of commitment on
behalf of the Bank.
While in Washington Minister Mariani also completed discussions
with the International Monetary Fund. The Fund today announced that,
in order to assist Brazil in carrying out its new economic program,
the Fund has agreed to reschedule Brazil's existing debt to the
Fund of $140 million and, in addition, to extend to Brazil a standby
credit of $160 million.
Conversations were also held by Brazilian representatives with
private United States banks with a view to alleviating the burden
of repayments in the next few years, which amount to $114 million,
as well as to obtaining additional credits. These conversations
are proceeding satisfactorily and will be concluded by the
Director of Exchange of the Bank of Brazil who will stay in the
United States for this purpose.
The Brazilian and United States Governments have also undertaken
discussions with European countries regarding the contribution they
might make in helping Brazil to overcome its financial difficulties.
The two governments have been informed that a number of European
countries have agreed in principle to extend to Brazil a substantial
standby credit and to reschedule Brazil's existing debts to them in
order to lengthen the terms of repayment and reduce substantially
payments of principal due in 1961 and 1962.
During his visit to Washington, Minister Mariani and
Ambassador Walther Moreira Salles, who has conducted the preparatory
phase of the negotiations, were received by President Kennedy. The
President expressed his great hope that assistance provided by the
United States, the International Monetary Fund and European
countries would help to assure the success of Brazil's new economic
program.
0O0
TREASURY DEPARTMENT
Washington
r
May 18, 1961
FOR RELEASE: ON DELIVERY
REMARKS BY STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE BOND CLUB OF CHICAGO,
CHICAGO, ILLINOIS,
MAY 18, 1961 - 12:00 NOON, CDT
I welcome this chance to talk to you about some present tax
issues. President Kennedy's Tax Message deals with a number of
critical tax problems and it is important that they be fully
discussed. I won't, however, subject you to the full course, which
consists of reading Secretary Dillon's statement, the detailed
explanation of the recommendations, and the exhibits — a total of
295 pages presented to the Ways and Means Committee. Instead I will
give you the short course covering the highlights.
The President's proposals have three objectives — to encourage
modernization and expansion of American industry, to strengthen our
balance of payments position and the ability of American industry to
compete internationally, and to correct certain serious defects in
our income tax structure. As to the first objective — that of
modernization of plant and equipment — the President proposes a tax
credit of 15 percent of the cost of eligible investment. As to the
second objective — strengthening our international position — the
President proposes to remove tax inducements to Investment In
Western Europe and other developed countries, with the general
objective of removing the income tax disadvantages to investment in
the United States as against that in Europe. As for the third
objective — the correction of defects — the President's most
important recommendations relate to withholding on dividends and
interest, repeal of the 4 percent dividend credit and $50 exclusion,
restrictions on deductions for business entertainment, business gifts
and expense account travel, and remedial legislation to correct the
existing undertaxation of certain institutions competitive with
taxable businesses, such as cooperatives and certain mutual organizations in the insurance and savings fields.
These are such simple, clear-cut and desirable changes In our
tax system that one wonders how they can even create mild
controversy. And yet, we have over 250 witnesses asking to be
heard by the House Ways and Means Committee in its current tax
D-112
hearings. I suppose the only conclusion a casual visitor to our shores
could reach Is that we are an argumentative people and It really takes
very little to stir up a good argument. A more discerning visitor,
> ^
- 2 say one who really took the time to read the President's Message and
Secretary Dillon's statement, might be tempted to conclude that a
large measure of the argument is based on misconceptions of the
president's proposals and either a lack of understanding of the issues
or an unwillingness to come to grips with them. As one reporter put
it, Secretary Dillon's "2 pound book" punctured some of the fondest
dreams extant regarding these aspects of our tax system. Let us,
therefore, consider the major proposals and the major misconceptions.
As for the investment tax credit, the President and Secretary
Dillon stressed the importance to the United States of an increase
in investment in plant and equipment. There is a generally
recognized need for modernization. There is also a need for increased
capacity as our economy recovers and moves toward full employment.
Larger investment in productive capacity — plant, equipment,
commercial buildings — is thus required to sustain and promote our
economic growth. It will also enable us to maintain and improve our
worldwide competitive position as an exporter of goods.
So much for the need. The first task is to decide whether a
change in the income tax Is an appropriate mechanism to promote
increased investment compared with other non-tax alternatives, such
as a change in the interest rate. If so, the next task is to consider
what tax change will provide the greatest incentive with the least
cost of revenue. I gather businessmen would approach similar problems
in the same fashion — witness any carefully planned bonus plan for
employees. The President indicated that in this light the focus must
be on the marginal investment -- the added investment that a business
would like to make but is uncertain about the risk. If a tax
incentive could affect this decision and be sufficiently powerful to
induce the investment, then the incentive has achieved its purpose.
But this in turn means that as far as possible revenue cannot be
wasted on the investment that would be made anyway. Such wastage
merely reduces the revenue loss that can be devoted to strengthening
the Incentive In the critical area.
The President recommended a credit against tax of 15 percent of
the cost of new investment in excess of current depreciation allowances.
This credit would apply to all eligible investment — plant,
machinery and equipment with more than a six-year life, and commercial
buildings in all businesses except public utilities other than
transportation. As applied to these assets, it is more generous than any
allowance in Western Europe. It should be remembered that the credit
does not reduce the depreciation base, so that 100 percent
depreciation remains available. The credit is thus the tax
equivalent, for a 52 percent taxpayer, of a deduction of 29 percent
of the cost of the new investment, for a 30 percent taxpayer of 50
percent of the cost — and the asset can still be fully depreciated.
How can an Incentive this powerful be made available without huge
- 3revenue loss? The answer lies in the effort to concentrate the
incentive at the margin, through granting the 15 percent credit to
investment expenditures in excess of current depreciation allowances.
Since depreciation is really a long run average of prior expenditures,
the credit is thus aimed at additional expenditures above a long run
average. The revenue loss not wasted on an across-the-board credit
is devoted to investment above the average.
No tax incentive will hit the target exactly, a weakness of any
tax Incentive. But other forms of incentive also will overlap the
target — lowered interest rates often are a windfall to the wellheeled company and do not help the small company that may have
trouble in getting bank credit. The question for the tax incentive
is one of the range of qualifying businesses if the depreciation
standard is used as the measure. We find that over a six-year
average 85 percent of the large corporations averaged expenditures
in excess of depreciation — 156 percent is the ratio. Even so, to
increase eligibility, a lesser credit of 6 percent would be allowed
for investment in excess of 50 percent of depreciation. And, finally,
as an aid to small business, a minimum credit would be granted of
10 percent of expenditures up to $5,000. For 1961, we find this:
the planned expenditures of 94 percent of all business firms would be
substantially covered by the minimum credit. Of the remaining firms,
which account for the greater part of our national production, 60
percent are eligible for the 15 percent credit and 25 percent more
for the 6 percent credit. The opportunity to qualify — to get the
incentive for the marginal investment — is thus very broad, and the
incentive remains powerful since revenue is not wasted on most of
the investments that would be made anyway. If an across-the-board
credit were utilized instead, so that all investment qualified, the
credit would be only 7 percent for the same revenue loss -- clearly
a lesser incentive than the 15 percent available for most above
average investment.
Why should many business organizations appear to object to this
incentive? I find the question genuinely puzzling. And I may add,
I am not alone in this since my colleagues In the Department of
Commerce are equally puzzled. That Department, after independently
considering various incentives, told the Treasury in emphatic terms
that the credit device was superior to other proposals, including
accelerated depreciation.
Let us look at a few of the arguments. The Chamber of Commerce
says that the credit is a tax subsidy and "philosophically, we have
difficulty with the idea of subsidies, direct or Indirect. Only
in extremis are they warranted. Unfortunately, a tax subsidy to
one group inevitably and understandably leads to demands for
comparable
subsidies
for
other
groups."....
Weinhave
considered
it
my
advisable
surprised
academicto
that
friends
keep
they
onwho
have
striving
also
found
talk
for
a convert.
neutrality
tax.neutrality
the
will
Code."
be somewhat
I guess
g_ V»' \«f
-4The Chamber does recommend that an additional 20 percent
deduction be given on all depreciable equipment in the first year.
And other groups have recommended 30 percent or higher allowances.
Curiously enough, these are not regarded as subsidies by business,
though their revenue loss to the Treasury is much greater than that
of the credit. The answer to this strange dichotomy, if any can be
found, may be in the belief that such an initial allowance or other
form of accelerated depreciation does not really involve a revenue
loss to the Government. This belief rests on the fact that an
increase in initial depreciation means a decrease in later
depreciation, so that the Government is supposed finally to come out
even. Let us consider this. The initial revenue loss of accelerated
depreciation is quite large -- $3.3 billion for a 30 percent initial
allowance, as against $1.7 for the credit. In effect, the taxpayer
under accelerated depreciation is reducing his tax payments now in
return for paying more later. But he will pay more only when he
makes up the difference as his depreciation deductions drop off. On
any particular asset this occurs in the later life of the asset. But
as respects a continuing business as a whole, a drop in depreciation
on an existing asset Is offset by accelerated depreciation starting
all over again on other assets subsequently acquired. As a
consequence, the loss is never made up until the business terminates
or declines.
Suppose a business with 10 machines each costing $1,000 and each
with a 10-year life. Assume the taxpayer replaces a machine a year.
His total annual depreciation deduction under straight-line
depreciation (10 percent of cost a year) is then $1,000. Now suppose
accelerated depreciation is adopted in the form of permitting the
entire depreciation deduction to be taken in the first year. In year
one, the taxpayer — following his pattern of a machine a year -buys a machine for $1,000. His depreciation deduction Is $1,000 for
that machine under accelerated depreciation and $900 under normal
depreciation for the old machine, or a total of $1,900 — in contrast
to $1,000. In year two, he buys another machine, and his total
depreciation if $1,000 plus $800, since the first new machine is no
longer depreciable. In the third year, it is $1,000 plus $700 as
he buys another machine, and so on. Finally, after he has used up
all his old machines in the tenth year, he will then be getting each
year thereafter a deduction of $1,000 a year as he continues to buy
each new machine. This is equivalent to the deduction he always had
before accelerated depreciation was introduced. But over this tenyear period his depreciation deductions were increased by a total of
$4,500 as a result of the operation of accelerated depreciation, and
in turn the Government lost that revenue. In a growing business,
the revenue loss Is greater as additional machines are bought and
machines
this
then does
replaced.
that
not happen
heIt
starts
isIn
only
to
a stable
when
lose depreciation.
and
or growing
If this economy.
taxpayer
But onstops
the aggregate
replacing
- 5In short, where there is only a tax postponement as respects any
particular asset, considering the business as a unit and assuming a
constant rate of investment, the revenue loss from accelerated
depreciation is permanent. While the annual net revenue loss from
a speed-up in depreciation may decline as postponed tax payments
come due in later years, the earlier losses are never recouped.
Hence, accelerated depreciation, though it does not reduce the tax
basis for depreciation, is a subsidy and involves a permanent revenue
loss. As compared with the investment credit, the revenue loss of
accelerated depreciation is initially much larger and continues at
least as large for ten years or more.
The Important and crucial question is which does the better job
with the least revenue loss, and the least undesirable collateral
effects. As to the better job, the 15 percent credit in terms of
the profitability of a particular investment, that is, its rate of
return is equivalent to 50 percent additional depreciation in the
first year. Yet the revenue cost of the latter is far greater,
whether applied across-the-board as most accelerated depreciation
advocates desire or limited to excess investment. If you will go back
and do the arithmetic under the credit for a qualifying investment, you
will see its effect. It is interesting to observe that business
organizations in recommending a 20 percent or even a 30 percent
initial allowance are thus not even coming close to the stimulus
afforded by the credit.
The credit is thus far more powerful. Secondly, the credit does
not confuse incentives with the function of depreciation. The latter
is to fix the return of cost over the useful life of the asset, and
involves such matters as asset lives, recognition of obsolescence,
and appropriate methods of depreciation. The Treasury is working on
a study of these matters, one started in i960, and will make a
recommendation on this matter next year. The important point is that
while we think depreciation lives must be reconsidered, we also think
an Incentive to new investment should be granted but the two should
not be confused. If the two are confused, and depreciation is
distorted to provide an incentive, we will never know what is
incentive and what Is depreciation. Thirdly, since the credit is not
a deduction in computing net income as is a depreciation incentive, it
will not be booked in the corporate records. It will thus avoid the
distortion which accelerated depreciation can cause in the costs on
which a firm bases its pricing and other business decisions.
The case for the credit as against accelerated depreciation
incentives is clear. The remaining question is whether the credit
should be on an across-the-board method or on the excess method
recommended by the President. The excess method aims at the goal of
reaching the strategic Investment — the investment not previously
decided upon but which may be induced by the incentive. It seeks to
avoid wasting its revenue on the investment that inevitably takes
Place year after year as business maintains its plant and equipment.
- 6-
?Q0
C o iu
This would permit a 15 percent credit under the excess approach
rather than a 7 percent credit across-the-board for the same revenue
loss.
An excess approach involves, however, a standard of measurement.
Necessarily, that standard cannot apply with precision in each case —
it may be too low for some, and too high for others. The proposal
does have a modest but respectable incentive — the 6 percent credit —
for those now investing under 100 percent of depreciation allowances.
The excess approach is more complicated than an across-the-board
credit, but the advantage of getting a 15 percent credit at the
margin as compared with a 7 percent over-all credit is worth this
price. The interesting fact is that the immediate revenue loss is
distributed in about the same fashion among existing corporations
under either approach. But the excess method concentrates that loss
in the area above depreciation, and hence produces the higher 15
percent credit at the strategic level. In sum, the excess credit
is superior to the across-the-board credit — and the latter is
superior to the various forms of accelerated depreciation.
So much for the investment credit. The Administration, believing
it is in the interest of the country that our productive capacity be
increased through modernization and expansion of our facilities, has
suggested this tax incentive. It has given careful consideration to
demands from labor and others for a reduction in the individual
income tax. However, it believes that as far as the tax system is
concerned this year, the stress should lie in seeking a method to
promote sustained economic growth. The credit will do this, and at
the same time give a lift to the present business recovery and to
increased employment. It is hoped that business firms and groups will
view the situation as realistically as has the Administration — that
they will recognize that the large revenue losses involved in the
various forms of accelerated depreciation, wholly apart from the
other problems associated with these devices, simply are not feasible
from a budgetary standpoint. They might also recognize that the
other claimants to tax relief, who place great stress on individual
income tax reduction as the answer to our economic problems, are far
less likely to yield their claims to expensive accelerated
depreciation devices than to the investment credit. All the old
proverbs about the bird in the hand have a pertinence here for the
business community.
Let us turn to some of the other proposals, starting with
withholding on dividends and interest. The essential facts are
simple. All the relevant statistical data we can obtain show that
there is a total of about $4 billion of dividends and Interest not
reported by individuals and that the revenue loss involved is close
- 7-
dp?
*-• ^
u-
to a billion dollars. About 9 percent of dividends and 35 percent of
interest are not reported. A remedy clearly must be found for this
persistent lack of compliance. The President has suggested that it
can be most appropriately found in a system of withholding on
dividends and interest at the source. The system would involve a
20 percent withholding rate, applicable to dividends, corporate
bonds, government bonds and savings accounts.
So much for the proposal — what are the misconceptions. One
is that the remedy really lies not in withholding but in educational
efforts designed to press on recipients of dividends and interest
knowledge about the obligations of compliance. Yet the record is
clear that despite the very great and generous efforts of banks,
corporations, stock exchanges, and others to provide this education
through millions of reminder notices, the percentage of unreported
interest and dividends has improved only slightly and, indeed, the
absolute amount of unreporting has increased. Resort to increased
audit efforts and the use of automatic data processing is likewise
not an answer to mass under-compliance — these methods depend on
detailed data to be filed by all payors of interest and dividends,
a factor which has itself blocked prior withholding proposals. Even
if the payors were to supply data on all interest and dividend
transactions, the task of matching information with tax returns and
then of trying to collect the deficiencies would be administratively
wasteful.
As for withholding itself, many banks and other payors of
interest have the impression that It will be unduly burdensome and
complex. I believe this is because they are thinking in terms of
wage and salary withholding, under which each recipient must get an
individual receipt and the Government must also receive an individual
statement for each employee. Yet, this is precisely not what the
President has recommended. He has instead suggested a simple system
under which the payor takes 20 percent of the totals of interest and
dividends paid to all recipients and reports just this one figure
to the Government. No individual receipts or statements are required.
The return form will tell the recipient to list his interest and
dividends, increase them by 25 percent and pay tax on the total —
then take a credit for the 25 percent increase. To be sure, here
and there some adjustments in paying practices may be necessary, but
I cannot see how the basic system can be regarded as burdensome.
Another misconception is that millions of individuals will suffer
great hardships through overwithholding. Yet each year the Service
pays out refunds of over $4 billion to some 35 million taxpayers,
largely because of overwithholding on wages and salaries, and every
°ne seems reasonably satisfied. Even so, to go as far as possible
overwithholding.
nontaxable
°r
refunds.
in semi-annually,
the dividend
Since
recipients,
and
interest
there
Some
Interest
the
Inconvenience,
would
and
plan
dividends
area
thus
proposed
to
beprevent
no
yes
are
serious
involves
—usually
any
and hardship
loss
also
current
received
of
some
Income
for
quarterly
explaining
quarterly
through
- 8 by patient bank executives or some letter writing by corporations.
But we would soon adjust to all this — and collect about $600 million
in taxes and be able to concentrate on the remaining upper bracket
noncompliance in this area — as well as to move on to other fields of
noncompliance.
Let me proceed to another recommendation — this time to the
4 percent dividend credit and the $50 exclusion. Here the
recommendation is certainly simple — repeal these features. They
have not worked effectively to encourage Investment and they have
proved to be discriminatory and inequitable. The proof of their
ineffectiveness lies in the fact that there has been no increase in
net purchases of securities by individuals, and that the ratio of
equity financing to debt financing has not risen -- though the credit
was adopted to increase equity financing and investment incentives.
The discrimination and inequality lie in the fact that the benefits
are concentrated in the upper income groups, so that as tax
reduction devices the credit and exclusion are completely unfair.
63 percent of the total benefits of the credit and exclusion go to
taxpayers with incomes over $10,000, and 55 percent to those with
incomes over $20,000. 55 percent of the benefits of the exclusion
go to individuals with incomes over $10,000. Again, viewed as tax
reduction, not only do these benefits discriminate in favor of the
upper brackets but within those brackets they discriminate in favor
of dividend recipients as against salaries, professional income,
and other incomes. They, thus cannot be defended as appropriate
ways to reduce our unduly high upper bracket taxes.
But the misconceptions are here — many and subtle. It is said
that the combination of corporate and individual income taxes
constitutes double taxation of distributed corporate profits and the
credit and exclusion provide relief against double taxation. But if
the problem is double taxation, one can insist that the relief fairly
meet the problem. Yet this is precisely what the credit and exclusion
fail to do.' The burden of double taxation is 52 cents per dollar of
corporate profit before tax for shareholders not liable to individual
income tax, 42 cents for those subject to a 20 percent tax, and 5
cents for those in the top brackets. This is simply because if there
were no corporate tax — and hence no double taxation — wealthy
individual recipients would have to pick up the increased distributions
at top bracket individual rates. The dividend credit and exclusion
reduce the extra burden by 3 cents per dollar at the 20 percent level
and 2 cents at the 91 percent level -- so that the percentage
reduction in double taxation is zero for those not subject to
individual income tax, 8 percent for low income taxable shareholders
and 4l percent for high income shareholders.
As
a up
remedy
forunfair.
double
the
anddevices
exclusion
are
course
to
face
thus
the
inherently
true,
low
to this
income
but
simple
which
brackets
fact.
istaxation
The
no
than
proponents
answer
They
a deduction
will
to credit
the
argue
of these
argument
would
that
be
athat
credit
— which
will
theIs
credit
not
is
fairer
of
29 ^
- 9-
*— o •,_,-
still remains inherently unfair and which is irrelevant since no
one is urging a deduction. They will argue double taxation is bad,
but again that is no answer to the contention that the credit is an
improper solution. They will argue that the credit removes a greater
percentage of a 20 percent tax on the dividend then of a 91 percent
tax on the dividend — but that is no answer to the fact that the
penalty of double taxation is not the individual tax but the corporate
tax and the real issue is the relationship of the credit to the
double taxation.
I have not seen a single proponent of the credit who will meet
this basic issue. In fact, the defenders of the credit go the
other way and recommend extension of the credit to 20 percent. They
do this without attempting to answer the point that with such a credit
the 91 percent stockholder will pay less over-all tax on dividend
income — counting both corporate tax and individual tax — than on
non-dividend income. A solution for double taxation which makes it
better to own a corporate business than an individual business is
absurd.
Once the false support of the double taxation point disappears,
the remaining misconceptions are readily apparent. It is argued that
apart from double taxation, the credit and exclusion are good because
they increase equity investment and encourage shareholders. This is
said — but never proved. Reference is made, for example, to an
increase in shareholders since 1954. A number of things have
increased since 1954 — from babies to big league baseball teams to
Democratic voters. The question is whether the dividend credit and
exclusion brought about the increase in shareholders. Savings
deposits in banks and shares in savings and loan associations have
also increased — without any credit or exclusion. In fact, all we
probably really know is that tax conscious families have increased
the shareholdings of the wife to get the maximum benefit of the
$50 exclusion.
It is said that It is inconsistent to recommend an incentive
for corporate investment by way of the investment credit and then to
recommend elimination of the dividend credit and exclusion. But this
assumes that the dividend credit and exclusion are an effective
incentive to equity investment — and here the facts do not sustain
this assumption. It is said that if equity investment hasn't
increased, the fault is that the credit Is too low and should be
increased — again refusing to face the fact that an increase in this
type of credit becomes an absurdity as a solution to double taxation.
Finally, it is said that the dividend credit was adopted after
long study by the Congress in 1954 and therefore just shouldn't be
reconsidered. The facts are that Congress has all along been
skeptical
about
the
credit.
Treasury
proposed
a 15 percent
credit
the
in
1954,
credit,
Senate
the
has
and
House
twice
thereduced
Congress
voted to
ItThe
compromised
to
repeal
10 percent,
the credit.
at
4the
percent.
Senate
eliminated
Since then
?Rc
- 10 There may well be a double taxation problem. But trying to
shore up a demonstrably inappropriate remedy that offers a dead end
to its further use is no way of meeting the problem. It may be that
the British gross-up approach will bear study since it Is a fair and
defensible solution. Interestingly enough, no current supporter of
the 4 percent credit has offered to demonstrate to Congress the
complete change in tax benefits as respects the lower and upper
brackets between the gross-up approach and the 4 percent credit —
though the CED has clearly presented this in its rejection of the
credit and support of the gross-up method.
The next recommendation relates to deductible business
entertainment and the expense account. Here we need spend little
time — for the misconceptions we see elsewhere are not so prevalent
in this area. The reason is obvious — nearly all of us recognize,
along with the President, that the deductible business entertainment
and the handsome expense account have become in his words:
"A matter of national concern, affecting not only
our public revenues, our sense of fairness, and our
respect for the tax system, but our moral and business
practices as well. This widespread distortion of our
business and social structure is largely a creature of the
tax system, and the time has come when our tax laws should
cease their encouragement of luxury spending as a charge
on the Federal Treasury. The slogan -- 'It's deductible' should pass from our scene."
I gather that responsible leaders in business and the professions
agree. After all, the examples in Secretary Dillon's statement of
what goes on today and what our revenue agents must allow under
present rules are really shocking. I also gather that most of us
agree that the recommendations go directly to the abuse. These are
to disallow deductions for entertaining business guests at luxury
facilities, as yachts, hunting clubs, and the like, or at night
clubs, sporting events and country clubs; to disallow deductions for
business gifts above a minimal figure, and to restrict deductions
for food and beverage at a. business luncheon to a modest figure,
§h - $7, and to restrict the deduction for food and lodging on
business travel to twice the Government per diem, or presumably $30
a day. Any such set figures have their arbitrary aspects at the
borderline, and a $30 figure may look different in Chicago or
New York from a small city. But the Government's per diem also looks
different from city to city — and yet one figure Is there set by the
Congress for the country. It seems a little difficult to complain
unduly about a figure that is over twice the Government rate and over
half the weekly wage of many workers. We should not allow the way of
lifeour
to which
have grown accustomed to distort our perspective
and
sense we
of may
restraint.
- 11 -
<67
I may be a bit optimistic about all this. When I asked one
Congressman who will testify on this point, which company will testify
that it wants its executives to base their business decisions on the
basis of who gives them the best entertainment, he replied: "There
is a company in my district that does a lot of business entertaining,
dinners, parties, and so on. But the one I will hear about and the
one that will be presented as the hardship will be the annual dinner
they give for the Daughters of the Confederacy". As he said, while
you always know who has loaded the gun, it is always interesting to
see who they get to fire it.
I come now to the last proposal I wish to discuss — the
treatment of foreign income. Here the President has recommended
that the tax advantages under our system that are afforded to
foreign income be withdrawn as respects the industrialized and
developed countries because they are no longer needed, and that the
tax rules which have promoted a thriving boom in the use of foreign
tax havens be ended. The principal tax rule involved as respects
foreign investment is the non-taxation of the profits of foreign
subsidiaries until repatriated to the United States, the so-called
tax deferral rule. The principal rule as respects individuals is
the complete exemption of income earned abroad when an American
citizen resides abroad. The exhibits attached to the Secretary's
statement show that this exemption has become a means of tax escape
for a sizeable number of persons in significant income brackets
reaching up to a million dollars. The exemption has simply
outlived its need and rationale as respects the developed world.
As to tax deferral, the President's recommendations were based
on the need to strengthen our balance of payments position, to remove
tax disadvantages to investment in the United States as compared
with investment in Europe, and to obtain additional revenue. Here
the misconceptions are indeed many. It Is said that the proposal is an
attack on investment abroad and Is designed to end all such investment.
But the proposal is directed only at that investment which goes
overseas to Europe — as against staying at home — because of tax
advantages now obtaining for foreign investment. It seeks to move
to tax neutrality in this respect. Investment which goes abroad for
business reasons and not tax reasons is not affected. After all, we
estimate that the reduction in funds leaving the United States would
be about $100 million a year, or less than 7 percent of the present
flow. It is said that in the 1950's the Government was encouraging
investment in Europe and now it is Unfair to remove the tax inducement.
But this fails to recognize that changing events have forced changes
in our foreign economic policy. In the 1950's we were interested —
and rightly so — in restoring the economies of Europe and in
redressing
their
dollar
shortage.
Today
economies
are is
strong
to
competitors
simply
us —cannot
investment
and
afford
we
are
which
toconcerned
induce
leaves
what
our
about.a
we
shores
dothose
serious
not
for
need
tax
dollar
and
reasons.
what
drain.
harmful
We
9^0
- 12 -
<JSQ
In reply, it is said that this is a shortsighted policy, since
foreign investment results in a favorable balance of payments figure
as the returns from that investment are greater than the capital
outflow. Here the figure often referred to is an $8 billion favorable
balance in the period since 1950. But this figure is an over-all
figure for our direct investment through both branches and subsidiaries,
and the balance is favorable probably only because of branch
operations in oil and other foreign natural resources — operations
which are not affected by the proposal. No one disputes the
Secretary's figure that as respects investment through subsidiaries
in Western Europe — the point we are talking about — new capital
outflow has exceeded remitted dividends by over $400 million in the
last four years. Moreover, no one seems willing to face up to the
Secretary's demonstration that for nearly 20 years the remitted
earnings from an investment made today in Europe will probably be
greater without the tax deferral privilege than with it. And no
one seems willing to recognize that the return from our existing
investment will still be with us. In brief, our balance of payments
will be strengthened now and for a long period to come, and that is
what we need. It is no answer to say, "Be careful, we must not
throw out the baby with the bath." Far too often that pat phrase
prevents people from looking at the bath and finding there simply
isn't any baby there.
It is next said that the host countries of Europe will resent
this action and call it an interference with their plans and a
disregard of their needs. Yet, as the Secretary pointed out, the
finance ministers of the Common Market countries all recently
informed us that the United States would be justified in discontinuing
these tax Incentives which encourage the non-remittance to the
United States of profits, made in Europe.
It is thought by some that the recommendation means that more
foreign aid will be necessary. But our foreign aid goes not to
Europe and developed countries but only to underdeveloped countries
and here tax deferral will remain except for tax haven activities.
It is said that our export trade to Europe will suffer, since our
subsidiaries abroad obtain materials and supplies from the United
States. This they do -- but they also increase imports to the
United States, and decrease other exports through the substitution
of manufacture abroad for export from the United States. On balance
it is not at all clear that the ultimate trade effects of Investment
abroad are any more than a standoff as respects the balance of
payments.
It is then said that the United States subsidiaries abroad will
not be able to compete with the nationals of other countries if our
subsidiaries must, in effect, pay United States taxes. This claim
overlooks
the
fact
that
United
States
companies
in high
States,
slow
tax
countries
theyet
growth
they
abroad
of
compete
companies
paymany
effectively.
taxes
abroad,
comparable
although
Elimination
to
those
this of
in
Isoperating
deferral
the
not United
necessarily
may
true ii profit opportunities are good. In any case, we must remember
that we have an interest in investment In the United States, in
strengthening our economy, in strengthening our ability to compete
internationally. The dollar that goes abroad is a dollar not invested
at home. The National Industrial Conference Board reports that
American companies with foreign operations have increased their
allocation of funds for foreign Investment as against domestic
investment from 15 percent to 21 percent between 1959 and i960 — the
fourth successive year to year increase. All our proposal says is
that to the extent tax factors have played a part in this increase,
the result is disadvantageous to the United States position. It is
more important to our over-all policy that the tax induced layer of
this choice of foreign investment as against domestic investment be
removed than that every single American business abroad be accorded
United States tax advantages which would enable it to compete in
every country in every line of business conducted by nationals of that
country.
One final thought on this treatment of foreign income. The
Treasury last year recommended that the method of computing the credit
for foreign taxes in the case of dividends from a subsidiary be
corrected, to eliminate the reduced rate of tax that results if a
subsidiary is used instead of a branch. This was opposed and no
action resulted. This is again recommended this year and I gather
that it is now recognized that its defense of this illogical result
is no longer appropriate. It may not be amiss to point out that while
the President this year has also recommended the elimination of the
tax deferral privilege, he has not joined with those in the Congress
and elsewhere who urge the withdrawal of the credit for foreign income
taxes. But an attack on the President's recommendation that misconceives the issues and does not discuss the real considerations can
so confuse the whole area that in the end those who urge the far more
severe course of withdrawing the foreign tax credit may strongly push
that objective as the only way to cut through the maze. The effort
of the President to point out that while tax deferral is no longer
desirable in Europe and that tax havens should end but that the solid
advantages of foreign Investment should not be weakened by withdrawal
of the foreign tax credit — these efforts could then well fail to
the disadvantage of our foreign sector.
This then completes a review of the principal aspects of the
President's Message. My purpose has been to present the issues and
to remove misunderstandings and misconceptions. There is a danger,
however, that in this analysis of the argumentation, in this attempt
to separate debating points from real concerns, the over-all
perspective may be lost. I hope that you will not lose sight of the
essentials. We have here a significant allocation of tax revenues to
allocation
o
vitally
tf
hethe
business
amount
needed
tosector
the
Involved
to promote
business
to assist
— economic
almost
sector
it $2
in
has
growth.
billion
the
been
modernization
made
We
— or
should
the
the
focal
not
fact
and point
expansion
lose
thatsight
of
this
the first tax proposal. Moreover, in addition the President has
stated that a study of depreciation lives and rules is being pursued
and that the incentive credit will not foreclose later action on these
aspects. In addition, the message is fiscally sound, since it seeks
a balance of revenue losses and gains. The revenue gains are
obtained through measures neither novel nor hastily conceived. After
all, withholding on dividends and interest has several times passed
the House and has been discussed for years. Repeal of the dividend
credit has twice passed the Senate, and impartial students of the
problem have long recognized the weaknesses of the credit and exclusion.
Concern over expense accounts has been steadily mounting and a
measure similar to the recommendation was adopted by the Senate last
year. The proposals in the foreign income area are but the
culmination of a steadily growing realization, both in Congress and
elsewhere, that our country must be more prudent regarding its
domestic economy and can no longer afford to be wasteful in its
dollar drain. Finally, there are the significant statements of the
President and the Secretary that the next step is a broad tax reform
which will reconsider the top rates of individual income tax as well
as the entire rate structure — a program that other Administrations
have not been willing to undertake.
It is important that we discuss and debate these matters. But
the discussion should avoid misconceptions and should not lose sight
of the essentials. The President's program is broadly conceived in
an objective, careful and non-political approach to our tax problems.
If, in turn, it Is considered and examined in the same light, I am
confident we will all be benefited.
0O0
TREASURY DEPARTMENT
22
WASHINGTON, D.C.
May 19, 1961
IMMEDIATE RELEASE
TREASURY DECISION ON RAYON STAPLE FIBER
UNDER ANTIDUMPING ACT
<•*» ~J
r~)
TREASURY DEPARTMENT
WASHINGTON, D.C
May 19, 1961
IMMEDIATE RELEASE
TREASURY DECISION ON RAYON STAPLE FIBER
UNDER ANTIDUMPING ACT
TREASURY DEPARTMENT
271
w
WASHINGTON, D.C.
May 19, 1961
IMMEDIATE RELEASE
TREASURY DECISION ON RAYON STAPLE FIBER
UNDER ANTIDUMPING ACT
The Treasury Department has determined that rayon
staple fiber from Sweden and Switzerland Is not being,
nor likely to be, sold in the United States at less than
fair value within the meaning of the Antidumping Act.
Notice of the findings will be published in the Federal
Register.
The dollar value of imports received during i960
was approximately $l,3l&,000 and $813,000 for Sweden
and Switzerland, respectively.
0 70
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 19, 196l
IMMEDIATE RELEASE
TREASURY DECISION ON RAYON STAPLE FIBER
UNDER ANTIDUMPING ACT
The Treasury Department has determined that rayon
staple fiber from Sweden and Switzerland is not being,
nor likely to be, sold in the United States at less than
fair value within the meaning of the Antidumping Act.
Notice of the findings will be published in the Federal
Register.
The dollar value of imports received during i960
was approximately $1,3^,000 and $813,000 for Sweden
and Switzerland, respectively.
May 19, 1961
272
VISIT OF WILFRED BAUMGARTNER, MINISTER OF
FINANCE AND ECONOMIC AFFAIRS OF FRANCE
Maas&sfcer Wilfred Baumgartner, Minister of Finance and S*—
Economic Affairs of France, and Secretary of the Treasury >0 ^
Douglas Dillon, have held very useful discussions on economic developments in France and the United States and on
matters of mutual interest in the international financial
field. )The talks, which began yesterday and were concluded
today, covered a review of the general economic situation
and the balance of payments trends in each country, an
exploration of the relationship of the International Monetary Fund to the problem of short-term capital movements
under conditions of convertibility, as well as the need for
the coordination currently being developed in the framework
of the future Organization for Economic Cooperation and
Development. /The talks themselves were part of the effort
to improve consultation and coordination in the economic
and financial field among the major industrial nations.
Minister Baumgartnerfs visit to the United States
was at the invitation of Secretary Dillon.
The Minister
was accompanied by Ambassador Alphand, Mr. Jean Sadrin,
Director of External Finance in the French Ministry of
Finance, and Mr. Rene Larre, the French Executive Director
in the International Bank.
A,
TREASURY DE D ARTMENT
WASHINGTON, D.C.
May 19, 1961
FOR IMMEDIATE RELEASE
VISIT OF WILFRED BAUMGARTNER, MINISTER OF
FINANCE AND ECONOMIC AFFAIRS OF FRANCE
Wilfred Baumgartner, Minister of Finance and Economic
Affairs of France, and Secretary of the Treasury Douglas
Dillon, have held very useful discussions on economic developments in France and the United States and on matters of mutual
interest in the international financial field.
The talks, which began yesterday and were concluded today,
covered a review of the general economic situation and the
balance of payments trends in each country, an exploration of
the relationship of the International Monetary Fund to the
problem of short-term capital movements under conditions of
convertibility, as well as the need for the coordination
currently being developed in the framework of the future
Organization for Economic Cooperation and Development.
The talks themselves were part of the effort to improve
consultation and coordination in the economic and financial
field among the major industrial nations.
Minister Baumgartner's visit to the United States was
at the invitation of Secretary Dillon. The Minister was
accompanied by Ambassador Alphand, Mr. Jean Sadrin, Director
of External Finance in the French Ministry of Finance, and
Mr. Rene Larre, the French Executive Director in the
International Bank.
0O0
D-113
27 q
May 22, 1 9 &
TO «LBA» A. M. Bg^FAFSBS, Tuesday, ffay 23* 1961.
SBStiLTS OF T*i£A5VRr«S -.*>XSLI 8HX OFFBBI**
The Treasury ^epartiaent announced last evening that the tenders for two series e
Treasury bills, one series to be an additional is rue of the bills dated February 23,
1961, ami the other series to be k tec1 Hay 2$, 1961, which were offered on Hay 17, wen
opened at the Federal Reserv* Banks on May 22. Tenters were invited for ?1,100,000,001
or thereabouts, of 91-day bills and for $500,000,000, or thereaboete, of 183-day bills.
The details of the two series are as followsC C K m i T O T BIDS s
Average
91 -day Treasury bills
maturing August 2b, 1961
Approx. Equiv.
Fries
Annual Rate
994aia/
2.330$
99.b01
f.370*
2.35b£ 1/
99.b©5
?
s
s
•
*
183-day Treasury bills
•storing lovsaber 2b. 1961
Approx. Sqaiv,
Fries
Anneal Bate
98.756 b /
2.bb7*
98.735
2.b89*
98.7bb
•urn
a/ Excepting two tenders totaling 1900,000; V Excepting one tender of 1100,000
1 percent of the amount of ?l-day bills bid lor at the low price was accepted
81* pereent of the amount of 183-day bills bid for at the lew prise was accepted
./TAt TBBDERS AT PIAn.- mm
rm km,
km ACCI
kCCKftm
District
Boston
?tew Tork
Philadelphia
Cleveland
Richmond
Atlanta
Chicsffo
St. lonis
Minneapolis
Kansas City
Hellas
San Franeisco
TOTALS
Applied For
33,5514,000
l,b59,791,000
25, 708,OCX)
33,887,000
12,360,000
25,llb,000
297,lb7,00G
21,385,000
17,652,000
3^,588,000
lb,2b9,000
72,117,000
^2,0^7,552,000
m
F&SSRAL WTSKVR DISTRICTS!
Accepted
*
19,5ft
679,210
10,708
21,Sb5
11,762
22,81b
225,912
16,385
9,596
26,908
lb,2b9
bl,297
fl,100,2bO
Applied For
000
I 3,917.000
OCX;
823,156 000
000
7,27b
000
lb,b00 000
000
1,708 000
000
3,069 000
000
66,621 000
000
5,631 000
000
5,33b 000
000
ll,b65 000
000
b,873 000
000
18,013,000
000 c/ 1965,961,000
Accepted
I 3,917,000
397,156,000
2,27b,000
lb,b00,000
1,708,000
2,869,000
b0,621,000
b,631,000
3,75b,000
6,365,000
b,873,000
1500,081,000 ij
c/ Includes #209,911,000 noncompetitive tenders accepted at the average priee ef 9f »bfl5
1/ Includes $b9,788,000 noncompetitive tenders accepted at the average priee ef 98.7bb:
y On a coupon issue of the same length and for the sane amount invested, the rstara #
these bills would provide yields of 2.hQ%, for the 91-<Jay bills, and 2.5b*, *** **
183-day bills. Interest rates on bills are quoted in terns of bank diseount wits a
the return related to the face amrunt of the bills payable at maturity rather lbs*]
the amount irvcstad and their length in actual nuwber ef days related to a 360-dsj*
year. In contrast, yields on certificates, notes, and bonds ars computed in %m*h
of interest on the anount invested, and relate the nusiber of days regaining is «
interest payment period to the actual nunber of days in the period, with
compounding if wore than one coupon period is involved.
TREASURY DEPARTMENT
W A S H I N G T O N , D.C.
May 22, 196l
FOR RELEASE A. M. NEWSPAPERS, Tuesday, May 23, 1961.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
Treasury bills, one series to be an additional issue of the bills dated February 23,
1961, and the other series to be dated May 25, 1961, which were offered on May 17, were
opened at the Federal Reserve Banks on May 22. Tenders were invited for $1,100,000,000.
or thereabouts, of 91-day bills and for 1500,000,000, or thereabouts, of 183-day bills.
The details of the two series are as follows:
91-day Treasury bills
maturing August 2k, 196l
Approx. Equiv.
Price
Annual Rate
2.33055
~
99.101 a/
2.370$
99.bOl
2.35b56 1/
99.UQ5
RANGE OF ACCEPTED
COMPETITIVE BIDS;
High
Low
Average
183-day Treasury bills
maturing November 21*, 1961
Approx. Equiv,
Price
Annual Rate
98.756 b,
~"~ 'i.\ik7$~
2.1*89$
98.735
2.1*70$ 1/
98.7U*
a/ Excepting two tenders totaling $900,000,' b/ Excepting one tender of $100,000
H percent of the amount of 91-day bills bid for at the low price was accepted
8U percent of the amount of 183-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS!
District
Boston
Mew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
Accepted
*
33,S5GIooo
F19755I;,000
1,1*59,791,000
25,708,000
33,887,000
12,360,000
25,llU,000
297,11*7,000
21,385,000
17,652,000
3l*,588,OOQ
ll*,2l*9,000
72,117,000
$2,01*7,552,000
679,210 ,000
10,708 ,000
21,81*5,000
11,762 ,000
22,8ll*,000
225,912 ,000
16,385 ,000
9,596,000
26,908 ,000
Hi, 21*9,000
000
$1,100,21*0,000
Applied For
I3j9177000
823,156,000
7,27l*,000
ll*, 1*00, 000
1,708,000
3,069,000
66,621,000
5,631,000
5,83l*,000
11,1*65,000
i*,873,000
18,013,000
c/ $965,961,000
Accepted
f 3,917,000
397,156,000
2,27l*,000
li*,l*00,000
1,708,000
2,869,000
1*0,621,000
1*,631,000
3,751*,000
6,365,000
1*, 873,000
17,513,000
$500,081,000 y
5/ Includes $209,911,000 noncompetitive tenders accepted at the average price of 99.1*05
"'includes $1*9,788,000 noncompetitive tenders accepted at the average price of 98.7UU
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.1*0$, for the 91-day bills, and 2.51*$, for the
183-day bills. 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.
D-1H
Pechman, Dr. Joseph A.
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, D. C.
Salant, Dr. Walter S.
Brookings Institution
1776 Massachusetts Avenue, N.W.
Washington, D. C.
Samuelson, Professor Paul A.
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Schultze, Professor Charles
Indiana University
Bloomington, Indiana
Shapiro, Professor Eli
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Shaw, Professor Edward S.
Stanford University
Stanford, California
Shoup, Professor Carl S.
Columbia University
New York, New York
Smith, Professor Warren L.
University of Michigan
Ann Arbor, Michigan
Suits, Professor Daniel B.
University of Michigan
Ann Arbor, Michigan
- 2 ECONOMISTS
Angell, Professor James W.
Columbia University
New York, New York
Bernstein, Dr. Edward M.
E.M.B. Limited
1329 - 18th Street, N.W.
Washington, D. C.
Blough, Professor Roy
Columbia University
New York, New York
Brazer, Professor Harvey E.
The University of Michigan
Ann Arbor, Michigan
Brown, Professor E. Cary
Massachusetts Institute of Technology
Cambridge, Massachusetts
Caves, Professor Richard E.
University of California
Department of Economics
Berkeley, California
Colm, Dr. Gerhard
National Planning Association
1606 New Hampshire Avenue, N.W.
Washington, D. C.
Duesenberry, Professor James S.
Harvard University
Cambridge, Massachusetts
Gurley, Dr. John G.
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, D. C.
Hansen, Professor Alvin H.
Wesleyan University
Middletown, Connecticut
Harris, Professor Seymour E.
Littauer Center
Harvard University
Cambridge 38, Massachusetts
si
Hart, Professor Albert G.
Columbia University
New York, New York
Humphrey, Professor Donald
Fletcher School of Law and
Diplomacy
Tufts University
Medford, Massachusetts
Kareken, Professor John H.
University of Minnesota
Minneapolis, Minnesota
Kenen, Professor Peter B.
Columbia University
New York, New York
Kindleberger, Professor C. P.
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Kuh, Professor Edwin
Massachusetts Institute of
Technology
Cambridge, Massachusets
Lary, Dr. Hal B.
National Bureau of Economic
Research
261 Madison Avenue
New York, New York
Lubin, Dr. Isador
Rutgers University
New Brunswick, New JerseyMoore, Dr. Geoffrey H.
National Bureau of Economic
Research
26l Madison Avenue
New York, New York
Musgrave, Professor Richard A
Johns Hopkins University
Baltimore, Maryland
Q
- 2 Secretary Dillon named Dr. Seymour E # Harris of Harvard
University as the Senior Consultant who will coordinate the activities of the group.
The group will hold two or three general meetings each year,
at whicft^smaller working groups will/-fee-aggiffiiod to meet from
to time with Treasury officials and staff members £ijj^w^ »*£J
This week's meetings are to be working sessions in which there
will be an initial exchange of information between the economists
and Treasury officials. Secretary Dillon will attend the sessions
as his schedule permits. Dr. Harris said the discussions this week
will be on four general topics: the economy, fiscal policy, monetary
and debt policy, and the
able at ttje^co
The group of consultants includes:
O ";» •
* t* ' i
*~ \J v
DRAFT —
5/19/61
4:10 p.m.
FOR RELEASE: jp.M. NEWSPAPERS
Monday, May 2 & 1961
Thirty Top Economists to Serve
As Treasury Consultants
Treasury Secretary Dillon announced today that thirty of the
Nation's top economists have agreed to serve as consultants to the
Treasury Department. They will hold their first meeting with
Treasury officials in Washington on Tuesday and Wednesday, May 23
and 24.
"Thirty leading economists on the staffs of various universities and research organizations have agreed to serve the Treasury
as consultants in their particular fields of study," Secretary
Dillon said. "Their views on the variety of activities in which
the Treasury is engaged will be of great value in carrying out our
responsibilities. The availability of these authorities on such a
work basis insures orderly access by the Government to new ideas
and findings in the fiscal, monetary and general economic areas in
which the Treasury operates — areas of basic importance to the
economic welfare and growth of the Nation."
May 22, 1961
FOR RELEASE: P.M. NEWSPAPERS
THIRTY TOP ECONOMISTS TO SERVE
AS TREASURY CONSULTANTS
Treasury Secretary Dillon announced today that thirty of the
Nation's top economists have agreed to serve as consultants to the
Treasury Department. They will hold their first meeting with
Treasury officials in Washington on Tuesday and Wednesday, May 23,
and 24.
"Thirty leading economists on the staffs of various universities
and research organizations have agreed to serve the Treasury as
consultants in their particular fields of study," Secretary Dillon
said. "Their views on the variety of activities in which the
Treasury is engaged will be of great value in carrying out our
responsibilities. The availability of these authorities on such a
work basis insures orderly access by the Government to new ideas and
findings in the fiscal, monetary and general economic areas in which
the Treasury operates -- areas of basic importance to the economic
welfare and growth of the Nation."
Secretary Dillon named Dr. Seymour E. Harris of Harvard
University as the Senior Consultant who will coordinate the activities
of the group.
The group will hold two or three general meetings each year.
Smaller working groups will meet from time to time with Treasury
officials and staff members to advise on current problems.
This week's meetings are to be working sessions in which there
will be an initial exchange of information between the economists
and Treasury officials. Secretary Dillon will attend the sessions
as his schedule permits. Dr. Harris said the discussions this week
will be on four general topics: the economy, fiscal policy, monetary
and debt policy, and the balance of payments.
The group of consultants include:
_ > •
D-115
- 2 f^
ECONOMISTS
Angell, Professor James W.
Columbia University
New York, New York
Hart, Professor Albert G.
Columbia University
New York, New York
Bernstein, Dr. Edward M.
E.M.B. Limited
1329 - 18th Street, N.W.
Washington, D. C.
Humphrey, Professor Donald
Fletcher School of Law and
Diplomacy
Tufts University
Medford, Massachusetts
Kareken, Professor John H.
University of Minnesota
Minneapolis, Minnesota
Blough, Professor Roy
Columbia University
New York, New York
Brazer, Professor Harvey E.
The University of Michigan
Ann Arbor, Michigan
Brown, Professor E. Cary
Massachusetts Institute of Technology
Cambridge, Massachusetts
Caves, Professor Richard E.
University of California
Department of Economics
Berkeley, California
Colm, Dr. Gerhard
National Planning Association
1606 New Hampshire Avenue, N.W.
Washington, JD, C.
Duesenberry, Professor James S.
Harvard University
Cambridge, Massachusetts
Gurley, Dr. John G.
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, D. C,
Hansen, Professor Alvin H.
Wesleyan University
Middletown, Connecticut
Harris, Professor Seymour E.
Littauer Center
Harvard University
Cambridge 38, Massachusetts
Kenen, Professor Peter B.
Columbia University
New York, New York
Kindleberger, Professor C. P.
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Kuh, Professor Edwin
Massachusetts Institute of
Technology
Cambridge, Massachusets
Lary, Dr. Hal B.
National Bureau of Economic
Research
26l Madison Avenue
New York, New York
Lubin, Dr. Isador
Rutgers University
New Brunswick, New Jersey
Moore, Dr. Geoffrey H.
National Bureau of Economic
Research
26l Madison Avenue
New York, New York
Musgrave, Professor Richard A
Johns Hopkins University
Baltimore, Maryland
pechman, Dr. Joseph A.
Brookings Institution'
1775 Massachusetts Avenue, N W
Washington, D. C.
Salant, Dr. Walter S.
Brookings Institution
1776 Massachusetts Avenue, N.W
Washington, D. C.
Samuelson, Professor Paul A.
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Schultze, Professor Charles
Indiana University
Bloomington, Indiana
Shapiro, Professor Eli
Massachusetts Institute of
Technology
Cambridge, Massachusetts
Shaw, Professor Edward S.
Stanford University
Stanford, California
Shoup, Professor Carl S.
Columbia University
New York, New York
Smith, Professor Warren L.
University of Michigan
Ann Arbor, Michigan
Suits, Professor Daniel B.
University of Michigan
Ann Arbor, Michigan
784
- 3 -
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 sub
to estate, inheritance, gift or other excise taxes, whether Federal or State, b
are exempt from all taxation now or hereafter imposed on the principal or inte
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 whi
Treasury bills are originally sold by the United States is considered to be in
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the a
of discount at which bills issued hereunder are sold is not considered to accr
until such bills are sold, redeemed or otherwise disposed of, and such bills a
cluded from consideration as capital assets. Accordingly, the owner of Treasur
bills (other than life insurance companies) issued hereunder need include in h
income tax return only the difference between the price paid for such bills, w
on original issue or on subsequent purchase, and the amount actually received
upon sale or redemption at maturity during the taxable year for which the retu
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 o
the circular may be obtained from any Federal Reserve Bank or Branch.
- 2"
.*»¥it:oii»:*?j««;«««
decimals, e. g., 99.925. Fractions may not be used,
it is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-
cept for their own account. Tenders will be received without deposit from incorp
rated banks and trust companies and from responsible and recognized dealers in
ment securities. Tenders from others must be accompanied by payment of 2 percent
the face amount of Treasury bills applied for, unless the tenders are accompanie
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-
serve Banks and Branches, following which public announcement will be made by th
Treasury Department of the amount and price range of accepted bids. Those submit
ting tenders will be advised of the acceptance or rejection thereof. The Secreta
of the Treasury expressly reserves the right to accept or reject any or all tend
in whole or in part, and his action in any such respect shall be final. Subject
these reservations, noncompetitive tenders for $ 200,000 or less for the additio
bills dated March 2, 1961 , ( 91 days remaining until maturity date on
August 51, 1961 ) and noncompetitive tenders for $ 100,000
or
less for the
182 -day 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 respec-
tive issues. Settlement for accepted tenders in accordance with the bids must b
made or completed at the Federal Reserve Bank on June 1, 1961 t *n cash or
other immediately available funds or in a like face amount of Treasury bills ma
ing June 1, 1961 . 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. exemotioa,^ as such, and
KXKBQgX%X%£ft
np^
i= V^ w'
WivMMMmMm't
TREASURY DEPARTMENT
Washington
m y
FOR IMMEDIATE RELEASE,. 7&mX&m$
22
>
19
61
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $ 1,500,000,000 > or thereabouts,
2$&}OC
cash and in exchange for Treasury bills maturing
June 1, 1961
> la "the amount
of $ 1,501,190,000 , as follows:
—m—
91 -day bills (to maturity date) to be issued
in the amount of $1,000,000,000
June 1, 1961
, or thereabouts, represent-
ing an additional amount of bills dated March 2, 1961 >
m
and to mature
August 31, 1961
, originally issued in the
m
to be freely interchangeable.
amount of $ 500,141,000
, the additional and original bills
182 -day bills, for $ 500,000,000 , or thereabouts, to be dated
• June 1, 1961 , and to mature November 50. 1961
SUx
3Sf
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their fac
will be payable without interest. They will be issued in bearer form only, and
denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (m
value).
Tenders will be received at Federal Reserve Banks and Branches up to the closi
Daylight Saving
hour, one-thirty o'clock p.m., EasternfefcaxaksacAtime, Friday, May 26, 1961
.
Tenders will not be received at the Treasury Department, Washington. Each tend
must be for an even multiple of $1,000, and in the case of competitive tenders
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
^aa'iu l rm, l ^mmsnT.'ivrv^^^
WASHINGTON, D.C.
May 22, 1961
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$ 1,500,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing June 1, 1961,
in the amount of
$1,501,190,000, as follows:
91-day bills (to maturity date) to be issued June 1, 1961,
in the amount of $1,000,000,000, or thereabouts, representing an
additional amount of bills dated March 2, 1961,
and to
mature August 31, 1961, originally issued in the amount of
$500,141,000,
the additional and original bills to be freely
interchangeable.
182-day bills, for $500,000,000, or thereabouts, to be dated
June 1, 1961,
and to mature November 30, 1961.
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, $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 Daylight
Saving time, Friday, May 26, 1961.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
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
D-116
or
trust company.
- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
March 2, 1961,
(91-days remaining until maturity date on
August 31, 1961)
and noncompetitive tenders for $100,000
or less for the 182-day 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 1, 1961,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing June 1, 1961.
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, ynder 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 during0O0
the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8, 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.
28f>
In order to effect a satisfactory settlement of the outstanding
obligation of the Government of the Philippines to return certain peso
funds (advanced to the National Defense Forces of the Republic of the
Philippines by United States Armed Forces in the Philippines), and in
order at the same time to provide short-term budgetary assistance to
the Philippine Government, an agreement was signed on November 6, 1950,
between the Republic of the Philippines and the United States Government
(generally referred to as the Romulo-Snyder Agreement).
The effect of the Agreement was to make peso funds immediately
available for use by the Philippine Government to meet urgent internal
obligations. Pursuant to the Agreement, the obligation of the Philippine
Government was funded as a dollar obligation payable over a ten-year
period.
The Philippine Government discontinued payments on this obligation
in 1955 as the result of a law suit brought in the Philippine courts
which contested the legality of payments under the Agreement. The
Philippine Supreme Court ultimately dismissed the suit as without
justification and upheld the legality of the actions taken by the
Philippine Government under the Romulo-Snyder Agreement.
Since that time, negotiations have been carried on to arrive at
a settlement fair to both Countries. The final settlement involving
a payment in the amount of $20,000,000(by the Government of the
Philippines meets this objective.
d^ijCJj /#, /?&/
282
?7L*>j-?%/n/
&®mit Mr. Aafeaaaa4ori
Ifeairatfca koaor to Mkaoili4|« r oa fcafcaU of *&a
^ S S ftmt#s, raaoipt o» A»rll 10, 1961. o* tk® zmumt
of $90,000,600 from iHo ftapablia of tfcafffcillpplaaais
full and final aattlavmt of aaoaata 4MM tit® 6aita4
Statue unite? tha HoaaloHtawiar -Igraaaaiit of Bovaafear 6.
I960.
ffci* pajmat rapraaasta tfca rot*tm of ftuHto w&icfe
w#ra a4vaaaa4 ta tfea HutioaaX Hofoaso ftoraaa af tto
PHlllpplaaa 4*riag at*$ afcortly aftar wtr ^owaost fig&t
far fjraa4o* is Mar 14 War II.
fa wall rawNriMr tha prefcla«i pea* peopla ovaraaaa
aa4 teaa graat a4airatloa tm your aaaaapliaiuMMita is
*alltfla* a aaaa4 aa4 at**!* 4aaoaraay. Tfcia papaaat is
ml4mmm
of tha pooltiva aatioaa tfca itapafciio af tfca
Pbillppiaaa Is takiag «a a raapoaaifela asmfeor af ilia
fr## *orX4 cotsaitaity af aatioaa. It alao avi4a©€#s a
ooatiaaatioa of the eor4ial raiatloaa featvaaa our
G^veramaata aa4 our people®.
I a« wry grataful far tfcia opportoalty to ®xpr®m
mm appraeiatloa of ay Govaraaaat.
•Siscaraly yours,
Doaglaa 9-illoa
His ~&caX2aBcy
Gaaaral Carlos p, EoaBiio
Ai«baaaa4or of tit® Pfetllppiaaa
/
#
•///
(/ /
-•*/
V
/•' <f //> <
<?/?-/, * /' *
Office of i46oraatioo:RCfCahoon:tg4 5-19-61
TREASURY DEPARTMENT
?r,.
WASHINGTON, D.C.
May 22, 1961
FOR RELEASE: 3:00 P.I.I., EDT
SECRETARY DILLON THANKS PHILIPPINE AMBASSADOR
FOR FINAL LOAN PAYMENT
In a brief ceremony at the Treasury Department this afternoon, Secretary
Douglas Dillon presented a letter of appreciation to Philippine Ambassador
Romulo expressing the thanks of the United States Government for a final loa
payment of $20,000,000, received on April 10, 1961, from the Republic of the
Philippines. This was the final payment on a loan agreement of November 6,
19S0.
Text of Secretary Dillon's letter of appreciation to Ambassador Romulo
follows:
TREASURY DEPARTMENT
aMU'i, ^raw.wmV'»^''"'''','iw«ysw.^
WASHINGTON, D.C.
FOR RELEASE AT 3:00 P.M., EDT
May
^'
19Sl
SECRETARY DILLON THANKS PHILIPPINE AMBASSADOR
FOR PINAL LOAN PAYMENT
In a brief ceremony at the Treasury Department this afternoon,
Secretary Douglas Dillon presented a letter of appreciation to
Philippine Ambassador Romulo expressing the thanks of the United
States Government for a final loan payment of $20,000,000, received on
April 10, 19ol, from the Republic of the Philippines. This was the
final payment on a loan agreement of November 6, 1950.
Text of Secretary Dillon's letter of appreciation to Ambassador
Romulo follows:
May 22, 1961
Dear Mr. Ambassador:
I have the honor to acknowledge, on behalf of
the United States, receipt on April 10, 1961, of
the amount of $20,000,000 from the Republic of the
Philippines in full and final settlement of amounts
due the United States under the Romulo-Snyder
Agreement on November 6, 1950.
This payment represents the return of funds
which were advanced to the National Defense Forces
of the Philippines during and shortly after our
common fight for freedom in World War II.
We well remember the problems your people
overcame and have great admiration for your
accomplishments in building a sound and stable
democracy. This payment Is evidence of the positive
actions the Republic of the Philippines is taking as
a responsible member of the free world community of
nations. It also evidences a continuation of the
cordial relations between our Governments and our
peoples.
I am very grateful for this opportunity to
express the appreciation of my Government.
Sincerely yours,
/s/ Douglas Dillon
His Excellency
General Carlos P. Romulo
Ambassador of the Philippines
0O0
D-117
?0 0
*— Vrf ;__
BACKGROUND ON ROMULO-SNYDER AGREEMENT
In order to effect a satisfactory settlement of the outstanding
obligation of the Government of the Philippines to return certain peso
funds (advanced to the National Defense Forces of the Republic of the
Philippines by United States Armed Forces in the Philippines), and in
order at the same time to provide short-term budgetary assistance to
the Philippine Government, an agreement was signed on November 6, 1950,
between the Republic of the Philippines and the United States Government
(generally referred to as the Romulo-Snyder Agreement).
The effect of the Agreement was to make peso funds immediately
available for use by the Philippine Government to meet urgent Internal
obligations.
Pursuant to the Agreement, the obligation of the
Philippine Government was funded as a dollar obligation payable over a
ten-year period.
The Philippine Government discontinued payments on this obligation
in 1955 as the result of a law suit brought in the Philippine courts
which contested the legality of payments under the Agreement. The
Philippine Supreme Court ultimately dismissed the suit as without
justification and upheld the legality of the actions taken by the
Philippine Government under the Romulo-Snyder Agreement.
Since that time, negotiations have been carried on to arrive at
a settlement fair to both Countries. The final settlement involving
a payment in the amount of $20,000,000 on April 10, 1961 by the
Government of the Philippines meets this objective.
0O0
as"
-2-
Before that he was in the Department of Defense in several
assignments, including that of Director of the Office of
Special International Affairs./ His activities involved.close
working relationships between the major Federal departments
and the National Security Council.
In 1946 and 19^7, he was with the Reconstruction Finance
Corporation (later the War Assets Administration). Before
serving with the U. S. Army during World War II, Mr. Sullivan
was with the Treasury Department in the Foreign Funds Control
Division.
Mr. Sullivan was born in Washington, D. C, November 3,
1920. He received his education at George Washington
University and at Cambridge University in England, majoring
in economics and business administration. He is married to
the former Katharine Reynolds McCarthy. Mrs. and Mrs. Sullivan
reside at 2810 Dumbarton Avenue, N.W.
oOo
<-. r>, A
1961
3:00 ^.m.
RNIMMEDIATE RELEASE
CHARLES A. SULLIVAN APPOINTED
SPECIAL ASSISTANT TO SECRETARY
Treasury Secretary Douglas Dillon today announced the
appointment of Charles A. Sullivan as Special Assistant^for '
national security affairs. Mr. Sullivan was sworn jaato eftttgg*
£y 0ecretai7"T3ITIonf at noon today.
Mr. Sullivan served with Mr. Dillon when the Secretary was
Under Secretary of State, with similar responsibilities to those
in his new Treasury post. Earlier, Mr. Sullivan was Deputy
Special Assistant to the Secretary of State for Disarmament
and Atomic Energy, in which capacity he participated in international conferences of foreign ministers and on disarmament
and atomic energy affairs.
Mr. Sullivan was Assistant Director of the Office of
Defense Mobilization from October 1, 1957> to February 6, 1959.
K
TREASURY DEPARTMENT
• w w y n i i n i»m
HIIQII •ii|.i.M1
WASHINGTON, D.C. N ^ ^ X
May 22, 1961
FOR IMMEDIATE RELEASE
CHARLES A. SULLIVAN APPOINTED
SPECIAL ASSISTANT TO SECRETARY
Treasury Secretary Douglas Dillon today announced the appointment of Charles A. Sullivan as Special Assistant to the Secretary
for national security affairs. Mr. Sullivan was sworn in at noon
today.
Mr. Sullivan served with Mr. Dillon when the Secretary was
Under Secretary of State, with similar responsibilities to those in
his new Treasury post. Earlier, Mr. Sullivan was Deputy Special
Assistant to the Secretary of State for Disarmament and Atomic
Energy, in which capacity he participated in international
conferences of foreign ministers and on disarmament and atomic
energy affairs.
Mr. Sullivan was Assistant Director of the Office of Defense
Mobilization from October 1, 1957, to February 6, 1959. Before
that he was in the Department of Defense In several assignments,
including that of Director of the Office of Special International
Affairs.
His activities involved serving as a Defense Advisor to the
Foreign Ministers Conferences at Geneva in 195^ and 1955, and the
Summit Conference at Geneva in 1955, and close working relationships between the major Federal departments and the National
Security Council.
In 1946 and 19^7, he was with Reconstruction Finance Corporation
(later the War Assets Administration). Before serving with the
U. S. Army during World War II, Mr. Sullivan was with the Treasury
Department in the Foreign Funds Control Division.
Mr. Sullivan was born in Washington, D. C, November 3, 1920.
He received his education at George Washington University and at
Cambridge University in England, majoring in economics and business
administration. He is married to the former Katharine Reynolds
McCarthy. Mr. and Mrs. Sullivan reside at 28l0 Dumbarton Avenue, N.W
0O0
D-118
TREASURY DEPARTMENT
Washington, D. C.
EXCERPTS FROM REMARKS BY R. DUANE SAUNDERS,
DIRECTOR OF THE OFFICE OF DEBT ANALYSIS,
U. S. TREASURY DEPARTMENT, AT THE FIFTY-FIFTH
ANNUAL CONFERENCE OF THE MUNICIPAL FINANCE
OFFICERS ASSOCIATION, SEATTLE, WASHINGTON,
MAY 24, 1961.
FOR RELEASE UPON DELIVERY:
In talking with you today on the subject of Treasury Debt Management
Policies and Problems I would like to focus on these problems from a
technician's standpoint - in other words to give you a view of the
mechanics of debt management, which has a direct and significant relation
to your own financings and interests. At the outset, however, I should
like to emphasize that there is nothing really mechanical or static about
debt management policies and problems; both policy objectives and techniques
of implementation are subject to change and adaptation in the changing
environment in which debt management operates. To illustrate, our objectives have evolved over time, from simply raising money to pay the
bills, to recognition of the contribution that can be made by debt management to sustained economic growth, and, most recently, the addition of a
new dimension in terms of balance of payments considerations. Similarly
on the techniques side we are constantly searching for new means of
assisting us to achieve our objectives in debt management — new types
of securities, new methods of marketing. In the last year we have
resorted to two new marketing methods, cash refunding and advance
refunding.
Reviewing first the objectives of debt management, as an integral
part of Federal financial policy, there are a number of basic policy
objectives or guidelines to policy:
First, to raise the money to pay the bills, to meet the
Governments fiscal requirements.
Second, to borrow as cheaply as possible, keeping in mind
the impact on the financial markets and the economy
as a whole.
Third, to manage the debt in a way that will contribute to,
or at least not inhibit, an orderly growth of the
economy.
- 2 Fourth, to take account of the new dimension in debt management decisions, namely, balance of payments.
Fifth, and last, but far from least, to work toward a
balanced maturity structure of the debt.
No review of objectives would be complete without pointing up the
fact that these objectives are not easily reconcilable. President
Kennedy pointed to the "apparently contradictory" objectives in his
Economic Message of checking the decline in short rates while increasing
the flow of funds into long-term markets at declining rates. Similarly,
a contra-cyclical debt management objective is not always feasible or
desirable; even in periods of rapid expansion, when it is clearly undesirable to add to liquidity, the Governments fiscal requirements may
necessitate short-term borrowing. In recessionary times, despite the
obvious desire not to pre-empt the flow of savings, considerations of
maturity structure make imperative some continued long-term financing.
With this brief review of the objectives and fundamental considerations that surround debt management decisions let us put some flesh on
this skeleton in the context of current problems confronting debt
management. Here it seems necessary to begin with the debt itself and
some of its more important aspects — and with the organizational
structure involved in reaching debt management decisions.
As to the debt itself, over the history of the United States as an
independent nation we have spent around $1.4 trillion and taken in in
receipts around $1.1 trillion, leaving a difference of slightly under
$300 billion. Our Federal debt is the end product of financing this
difference. Size alone is not a measure of the debt's manageableness
however; for perspective it has declined since World War II in per
capita terms and in relation to the total output of our economy. Debt
is, after all, the resultant of other actions, specifically Congressional
action with respect to receipts and expenditures. Here the most recent
estimates indicate deficits of $2.2 billion in fiscal 1961 and $2.8
billion in fiscal 1962. The dynamics of change In the size of the debt
are related directly to surpluses or deficits — there are no bootstrap
techniques in debt management. An additional aspect of the debt is the
seasonal pattern of receipts, with tax collections light in the JulyDecember period the Treasury's debt operations are largest in that period.
These facts, and our various objectives, may be related to our most
recent financing. The securities maturing May 15 were $7-3/4 billion of
certificates and notes carrying coupons of 4-3/8 percent and 3-5/8 percent
-3 -
PQo
respectively. Specific areas of decision involved the choice of cash
versus rights refunding, the relative weight to current economic and
balance of payments considerations, the choice of maturities and the
specific pricing. In the week of the financing, consultations with
the market and advisory committees were underway. When all the
information and advice were in the Secretary had to make a specific
choice. The resolution of these was (1) a cash refunding, (2) selection
of short maturities - a one-year certificate and two-year note, (3) attractive terms of 3 percent and 3-1/4 percent respectively.
Debt management involves informed judgment at every stage of process
from the weighing of objectives as to the appraisal of potential demand,
choice of maturities, and pricing in the case of a fixed price security;
with the usual difficulties inherent in operations as opposed to
generalized theory we can only conclude that debt management is "an art
and not a science."
* * * * * * *
May 26, 1961
239
FOR RKLEASi A. If. BEtf aPAJPBBS. Saturday, Kay 27* 19fo.
HBSULT5 OF TH*SBRY'& WEEKLY BILL OFFSRI13
The Treasury Department announced last evening that the tenders for two series ef ,
Treasury bills, one series to be an additional issue of the bills dated larch 2, 1961, '
asad the other series to be dated June 1, 1961, which vara offered on May 22, were open©
at the Federal Reserve Banks ©a May 26. Tenders were invited for f 1,000,000,GOG, or
thereabouts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills.
details of the two series are as follows?
mmt
OF ACCIFTSB
COOTTITIfE SIBSs
91-day Treasury bills
—taring August 31, 19*1
' Ipproi.' Equiv.
Priee
Annaal late
High
Low
Average
w^m—
99.3m
- 2.khn
r&nr~~
99.3BU
2.m% 1/
182-day Treasury bill®
maturing lovenber 30., 1961
Approx. Equiv"
Price
Annual late
98«ofJg£
98.689
2»601|
2.593*3/
Rxoepting two tenders totaling $69^,000
percent of the amount of 91 -day bills bid for at the low price was accepted
90 percent of the amount of 182-day bills bid for at the low price was accepted
X
TOTAL T1HBE8S APPLIED FOR AID ACCEPT®) BY FEDERAL EESEBfE BlSffilCfSj
District
Boston
Sew fork
Fhiladelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
*
Accepted
#,#6,606
1,812,375,000
23,739,000
2u,13ii,000
9,517,000
25,032,000
199,G9h,QOQ
13,7&>,000
18,123,000
27,313,000
15,370,000
80,639,000
12,287,326,000'
762,900,000
8,310,000
23,875,000
7,517,000
12,760,000
9^,256,000
10,01*0,000
7,823,000
12,525,000
1^,280,000
39,392,000
11,000,178,000 b /
Applied. For
Accepted
I i,Si,ooo
I iJSL,obo"
773,2^6,000
385,liil,OQ0
6,017,000
1,017,000
20,551,000
15,551,000
1,31*0,000
1,31*0,000
3,876,000
3,676,000
91,837,000
57,337,000
5,681,000
li,88l,O00
5,3^8,000
2,81*8,000
10,713,000
9,213,000
6,156,000
2,656,000
23f@92,QQQ
15,31*7*000
$»«9,818,000
1500,168,000 5/
b/ Includes tl62,361*,Q00 noncompetitive tenders accepted at the average price of 99.384
3/ Includes 138,855,000 noncompetitive tenders accepted at the average price of 9B.6B9 k
0 B a coupon issue of the sa»@ length and for the same amount invested, the return ® #
these bills would provide yields of 2.1*9*, for the 91-day bills, and 2.66*, for m
182-day bills. Interest rates on bills are quoted in terms of bank discount with I
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, note®, 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 smi
compounding if more than one coupon period is involved.
*>-/<? LA
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 26, 1961
FOR RELEASE A.M. NEWSPAPERS, Saturday, May 27, 1961.
•*^"*""
'
•
••
i in
i
I
*
D
II
m*
i "
C
Mil
•
in
iii>r..^..
atm
i M
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
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 2, 196l,
and. the other series to be dated June 1, 196l, which were offered on May 22, were opened
)k the Federal Reserve Banks on May 26. Tenders were invited for $1,000,000,000, or
thereabouts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills. The
details of the two series are as follows:
RUDE OF ACCEPTED
COMPETITIVE BIDS s
High
Low
Average
91-day Treasury bills
maturing August 31, 1961
Approx. Equiv.
Price
Annual Rate
99.386
2.1*29%
99.383
2. ma*
99.381*
2.1*38* 1/
182-day Treasury bills
maturing November 30> 1961
Approx. Equiv.
Annual Rate
Price
—2.5633T—
98!685
2.601*
98.689
2.593* 1/
a/ Excepting two tenders totaling $69l*,000
91 percent of the amount of 91-day bills bid for at the low price was accepted
90 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
$
17,650,000
1,832,375,000
23,739,000
2l*,13l*,000
9,517,000
25,032,000
199,694,000
13,71*0,000
18,123,000
27,313,000
15,370,000
80,639,000
$2,287,326,000
Applied For
Accepted
$ 1,161,000
|
6,500,000
773,21*6,000
762,900,000
6,017,000
8,310,000
20,551,000
23,875,000
1,31*0,000
7,517,000
3,876,000
12,760,000
91,837,000
9ky256,000
5,681,000
10,01*0,000
5,31*8,000
7,823,000
10,713,000
12,525,000
6,156,000
ll*,280,000
23,892,000
39,392,000
$1,000,178,000 b/ $91*9,818,000
Accepted
$ 1,161,000
385,12*1,000
1,017,000
15,551,000
1,31*0,000
3,676,000
57,337,000
1*, 881,000
2,8148,000
9,213,000
2,656,000
I5,3u7,000
$500,168,000 c/
b/ Includes $l62,361*,000 noncompetitive tenders accepted at the average price of 9
e/ Includes $38,855,000 noncompetitive tenders accepted at the average price of 98.689
1/ On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.1*9*, for the 91-day bills, and 2.66*, for the
182-day bills. 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.
D-119
" -•>' f 1 "f
h For Release Bpan^«/fc//£*^6*»
^^^
«©K€ta^^*fefs€^ 1961.
'
/
^
TREASURY SALUTES ADVERTISING AND ENTERTAINMENT INDUSTRIES
The Treasury Department paid tribute to the advertising and entertainment
industries here tonight for 20 years of patriotic support to the United States
Savings Bond Program*
Under Secretary of the Treasury Henry H. Fowler presented
tt
20th Anniversary"
citations to James S. Fish, Chairman of the Advertising Federation of America,
and Gene Barry, the "Bat Masterson" of television fame, who represented the
entertainment industry, at the Advertising Federation's convention dinner at the
Sheraton-Park Hotel in Washington.
Mr. Fowler also read a message from Treasury Secretary Douglas Dillon, who
was unable to be present.
In his statement, the Secretary said:
"I deeply
regret that I shall not have the pleasure of being with you on this important
evening.
The 20th anniversary of the Savings Bond Program is a significant event
for the Treasury and the Nation.
It is fitting that we recognize the occasion
through this Savings Bond Night, honoring the advertising and entertainment
industries for their two decades of patriotic cooperation.
wishes go to you all —
My thanks and best
and in particular, to the honored recipients of our 20th
anniversary bond citations."
In making the awards, Under Secretary Fowler praised the two industries which,
he said, have made such a major contribution to the bond program.
nition is given symbolically," he added, "because the hall —
"This recog-
or the stadium
—
has not been built that could accommodate the many members of these industries
who individually merit thanks.
"During the past 20 years, the United States Savings Bond Program has become
a significant factor in American life.
It is significant, first of all, to the
millions of citizens who have taken advantage of it to learn regular habits of
saving and to enjoy its fruits.
general —
It is significant to the cause of thrift in
a tradition which helped to build our Nation, and one which today is
helping it to grow and progress, because real capital can come only from saving.
Finally, it is significant in the part it plays in our Nation's economic soundness —
the foundation upon which our national strength must be built."
Earlier today, Actor Barry received the key to the city from District Commissioner Robert McLaughlin for his personal efforts in behalf of the bond program.
ft # #
TREASURY DEPARTMENT
WASHINGTON, D.C. \ V r y
May 29, 1961
FOR RELEASE A.M. NEWSPAPERS
Tuesday, May 30, 196l
TREASURY SALUTES ADVERTISING AND ENTERTAINMENT INDUSTRIES
The Treasury Department paid tribute to the advertising and
entertainment industries here tonight for 20 years of patriotic support
to the United States Savings Bond Program.
Under Secretary of the Treasury Henry H. Fowler presented "20th
Anniversary" citations to James S. Fish, Chairman of the Advertising
Federation of America, and Gene Barry, the "Bat Masterson" of
television fame, who represented the entertainment industry, at the
Advertising Federation's convention dinner at the Sheraton-Park Hotel
in Washington.
Mr. Fowler also read a message from Treasury Secretary Douglas
Dillon, who was unable to be present. In his statement, the Secretary
said: "I deeply regret that I shall not have the pleasure of being
with you on this important evening. The 20th anniversary of the
Savings Bond Program Is a significant event for the Treasury and the
Nation. It is fitting that we recognize the occasion through this
'Savings Bond Night,' honoring the advertising and entertainment
industries for their two decades of patriotic cooperation. My thanks
and best wishes go to you all — and In particular, to the honored
recipients of our 20th anniversary bond citations."
In making the awards, Under Secretary Fowler praised the two
industries which, he said, have made such a major contribution to the
bond program. "This recognition Is given symbolically," he added,
"because the hall — or the stadium — has not been built that could
accommodate the many members of these Industries who individually merit
thanks.
"During the past 20 years, the United States Savings Bond Program
has become a significant factor in American life. It is significant,
first of all, to the millions of citizens who have taken advantage of
It to learn regular habits of saving and to enjoy its fruits. It is
significant to the cause of thrift In general — a tradition which
helped to build our Nation, and one which today is helping it to grow
and progress, because real capital can come only from saving* Finally,
it Is significant In the part it plays in our Nation's economic
soundness — the foundation upon which our national strength must be
built."
Earlier today, Actor Barry received the key to the city from
D-120
District Commissioner Robert McLaughlin for his personal efforts in
behalf of the bond program.
0O0
- 2U!
w*fiM#ttwm&Mi*
decimals, e. g., 99.925. Fractions may not be used.
It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-
cept for their own account. Tenders will be received without deposit from incorp
rated banks and trust companies and from responsible and recognized dealers in i
ment securities. Tenders from others must be accompanied by payment of 2 percent
the face amount of Treasury bills applied for, unless the tenders are accompanie
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-
serve Banks and Branches, following which public announcement will be made by th
Treasury Department of the amount and price range of accepted bids. Those submit
ting tenders will be advised of the acceptance or rejection thereof. The Secreta
of the Treasury expressly reserves the right to accept or reject any or all tend
in whole or in part, and his action in any such respect shall be final. Subject
these reservations, noncompetitive tenders for $ 200,000 or less for the additio
bills dated March 9, 1961
1
September 7, 1961
26&&fc
f
( 91 days remaining until maturity date on
i££5r
) and noncompetitive tenders for $ 100,000 or less for the
182 -day bills without stated price from any one bidder will be accepted in full
2$£dx)£
at the average price (in three decimals) of accepted competitive bids for the respec-
tive issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on June 8. 1961 t *n cash or
other immediately available funds or in a like face amount of Treasury bills mat
ing June 8, 1961 • 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
MXJ&3M5&
W ^J v/
TREASURY DEPARTMENT
Washington
May 31, 1961
FOR IMMEDIATE RELEASE, 5K5JXXXB3M2QC
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,600,000,000 , or thereabouts) for
cash and in exchange for Treasury bills maturing
of $1,592,655,000
June 8, 1961
x^ScJc
, in the amount
, as follows:
91 -day bills (to maturity date) to be issued June 8, 1961
,
x£3$
§&)c
in the amount of $ 1,100,000,000 , or thereabouts, representxfcljc
ing an additional amount of bills dated March 9, 1961
>
m
and to mature September 7, 1961 , originally issued in the
amount of $ 500,282,000
, the additional and original bills
to be freely interchangeable.
182 -day bills, for $ 500,000.000
, or thereabouts, to be dated
fcxi* feUF
June 8. 1961
x^s
, and to mature
December 7. 1961
Effir
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, $100,000, $500,000 and $1,000,000 (maturity
value).
Tenders will be received at Federal Reserve Banks and Branches up to the closing
Daylight Saving
hour, one-thirty o'clock p.m., Eastern/SUSSMASXA time, Monday, June 5, 1961
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
./)
/ -r /
/•-> ITS ;*"\
Vf !K
TREASURY DEPARTMENT
WASHINGTON, D.C.
May 31,
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$ 1,600,000,000, or thereabouts, for cash and In exchange for
Treasury bills maturing June 8, 1961,
in the amount of
$ 1,592,655,000, as follows:
91-day bills (to maturity date) to be issued June 8, 1961,
in the amount of $1,100,000,000, or thereabouts, representing an
additional amount of bills dated March 9, 1961,
and to
mature September 7*196l, originally issued in the amount of
$500,282,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 500,000,000, or thereabouts, to be dated
June 8, 196l,
and to mature December 7, 1961.
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, $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 Daylight
Saving time, Monday, June 5, 1961.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It Is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or.Branches on application therefor.
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
D-121 by an express guaranty of payment by an incorporated bank
accompanied
or trust company.
- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $ 200,000 or less for the additional bills dated
March 9, 1961,
(91-days remaining until maturity date on
September J, 1961) and noncompetitive tenders for $ 100,000
or less for the l82~day 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 8, 1961,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing June 8, 1961.
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 k^k (b) and 1221 (5) of the Internal
Revenue Code of 195^ 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
0O0
return Is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8, 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.
Treas.
HJ
;L0
.A13P4
v.125
U.S. Treasury Dept,
Press Releases
Treas.
HJ
10
.A13P4
U.S. Treasury Dept
AUTHOR
Press Releases
TITLE
v.125
DATE
LOANED
^
-^ _ -^-
BORROWER'S NAME
PHONE
NUMBER
L„.,_—
U.S. TREASURY LIBRARY
1 0031497
@FedFRASER