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POOM 5Q30

JUN 151972
TREASURY DEPARTMENT

LIBRARY
PWM 5030

JUN 151972
TREASURY DEPARTMENT

,Uni«ted States Savings Bonds Issued and Redeemed Througn February 28, 1962
(Dollar amounts in. millions - rounded and will not necessarily add to totals)
Amount
Issued Xf
MATURED
Series A-1935 - D-1941 .,
Series F & G-1941 - 1949
INMATUHED
Series E:.2/
1941 .
. 1942 .
1943 .
1944 .
1945 .
1946 •.
1947 .
1948 .
1949 .
1950 .
1951 .
1952 .
1953 1954 .
1955 .
1956 .
1957 .
1958 .
1959 •.
1960 .
1961 .
1962 .
Unclassified . •.
.Total Series E
Series H-1952 - 1962 3/
Total Series E and H
Series F and G:
". 1950
1951
.1952
Unclassified
Total Series F and G ...
Series J and K-1952 - 1957
Total Series F G, J and K
»'

Amount
Redeemed \J

5,003
26,082

4,987
25,840

1,810
7,994
12,866
14,989
11,726
5,258
4,943
5,090
4,998
4,350
3,766
3,920
4>435
4,488
4,655
4,474
4,191
4,041
3,771
3,741
3,646
54
373
119,579

1,493
.6,581
10,669
12,321
9,420
3,986

Amount
Outstanding 2/
$

17
242

% Outstanding
of Amt.Issued
.34 %
.93 <

17.51
17.68
17.08
17.80
19.67
24.19
28.12
30.49
32.47
34.87
36.22
' 39.72
41.51
43.00
44.08
44.30
47.20
51.42
54.20
60.38
76.39
100.00

81,392

317
1,413
2,197
2,668
2,306
1,272
1,390
1,552
1,623
1,517
1,364
1,557
1,841
1,930
2,052
1,982
1,978
2,078
2,044
2,259
2,785
54
8
38,187

8,070

1,558

6,51?

80.69

127,649

82,950

44,699

35.02

2,427
792
211

'1,859
409
101
50

rA/ 568

23.40
48.23
52.61

3,429
3,676

2,419
1,836

1.010
1,840

2? .4?
50.05

7,105

4,255

2,850

40.11

31,085
134.754
165,839

30,827
87,205
118,032

259
47,549
47,808

.83
35.29
28.$3

3,53B
3,375
2,832
2,402
2,363
2,594
2,558
2,603
2,492
2,213
1,963
1,727
1,481
861
365

382
111
-50

21,92

•'

• Tctal matured
11 Series C Total unmatured ....
[ Gjcand Total

( Includes accrued discount.
OFFICE OF FISCAL ASSISTANT SECRETARY
/ Current redemption value.
/ At option of ov/ner bonds may be held and "will earn interest for additional periods
after original maturity dates.
' Includes matured bonds which have not been presented for redemption.

TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE

March 2, 1962

TREASURY'S LATEST REFUNDING A SUCCESS
The Treasury Department today announced that, based upon reports received
at the close of business Thursday, March 1, holders of about $4 billion of the
outstanding publicly held bonds included in the Department's latest advance
refunding operation have exchanged their holdings for 5-1/2$ and 4$ bonds.
Subscription books for the offering were open from February 19 to 21, but subscriptions from individuals and trustees were also accepted through February 28.
All subscriptions have not yet been reported to the Treasury because of the
large number of securities involved in the refunding.
Preliminary reports from the Federal Reserve Banks show that total subscriptions (including $1,001 million from Government Investment Accounts)
amounted to $ 5,07*4- million. These subscriptions will be allotted in full.
Delivery of the new 4$ bonds will be made on March 9, 1962, and delivery of
the new 5-1/2$ bonds will be made on March 16, 1962.
Subscriptions are as follows (in millions of dollars);
From Public From Government
New Issue
Holders
4$ bonds of 1971
4$ bonds of 1980 — — - - (additional issue)
5-1/2$ bonds of 1990 — —
(additional issue)
5-1/2$ bonds of 1998
(additional issue)

Investment Accounts

Total

$2,^17
381

$385
177

$2,802
558

635

218

853

6U0

221

861

Total —— *f,073 1,001 5,07l*
Details showing the amounts of the outstanding bonds, by issues, which
have been exchanged, and subscriptions by Federal Reserve Bank districts will
be announced when final reports are received.

0
mutmm $> xm

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®p«m«i at tint -dsral i# M rt« taunt «_ Mftwti S* TrnKtan » f 8 lorlU* H M T f £ i f ^ * ^ * ^ *
mr %awmmmm\m9 at fU*gr bill® mM far 8*00*000*000, ©r ti«*»!wt* f mi m%~d*y bOla*
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a/ fisi#t$»-g tw* t#nd«x*s t®%aliiig
ft ]»*t*at if %H® aMnwt at n ^ / u i X U MUI f«r m% tarn liv ppi**ma accepted
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St. Immia

mty

__-_S____L
itJfflitOOMoo
3o#$i?,cw
JM6.t,OO0
Uf$t)fO0O
80,3-7*000
mf9x9t9oo*
83*01S»0OO
17*008*000
to*3Si,oo0
mt9nk9ft$9moo

7ft*»J8**0Oo
1S*|§7,0»
»*fc8:»*0Q0
11,03*000

IMW9O00
i»**j#ifOO0
80*515*000
lit, 728*000
JOiJftiOOO
10»lli8*O0O

873*071*000

MU*ooo
13,130*000
ft*$70#ooo
ii,06l,000
117,013*000

i9m9m*

Ii8i*m*oo0
3*0*1*000
8,530,000
-,370,000
it, 061,000
54,053,000
5,192,000

t*<f%»*ooo

S»O»*OQO
?fmfooo
12,li08#000
1**075,000
1*315,000
fOtJXS
|1,10$*1®$,000
•m*t®&m9mmj
JCTjffifoffP
&£2Zt_S
ifkm$m
ImXwkmn $15^,968,000 noncompetitive t^mdam mmaptmd„,,at tma
ararma price
of 99.312
£600,161,000
6/
XncludeE $ii?,667,000 mammmmp^titim lamdmm accepted at th« average price of $S*$i*3
On a coupon tssn* of the gtt# length and for th* saw® amount invested, the return oil
tli®®« bllli iNivld ymnlAi jrMld* of U7H9 tar tma 9X*»dmy M 1 U 0 and t._nf*# far tfe«
JJiMajr bUlt. Ist#r*s% !«%•• om teUlt am $mtad im t#ns ©f b&nk diammmt «itti
ill® vwt-fB mXakwk to tl»> f M « Mtoust «f tlMt bilXi pajraitelt *t m-t-rlty rmkmmr than
tht a^*«iit tmmtad m& their .lea;th in _ctaal naaber o' dayn r«late^1 to a 3o0-day
y^ar. la contrast, yields on certificates, not«a, and bonds am coHp^t«d in tarma
at interest mi th© amount Invested, and r«.Hte the number at days rejaainin^ in an
interest parent period to tint actasl nmber of dmjrs in the period, with
eo«po«o--sig if »or@
sor« ttea on® cwupqa parlad is lwolf@4.

TREASURY DEPARTMENT
WASHINGTON, D.C.
March 5, 1962
FOR RELEASE A. M. NEWSPAPERS, Tuesday, March 6, 1962.
RESULTS OF TREASURIES WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
Ifreasury bills, one series to be an additional issue of the bills dated December 7, 196l,
md the other series to be dated March 8, 1962, which were offered on February 28, were
(bpened at the Federal Reserve Banks on March 5. Tenders were invited for $1,200,000,000,
3r thereabouts, of 91-day bills and for $600,000,000, or thereabouts, of 182-day bills,
Che details of the two series are as follows s
IANGE OF ACCEPTED
COMPETITIVE BIDS?
High
Low
Average

91-day Treasury bills
maturing June 7, 1962
Approx. Equiv,
Price
Annual Rate
99.319 a/
2.691$
99.305 ~
2.71*9$
99.312
2.121% 1/

182-day Treasury bills
maturing September 6, 1962
Approx. Equiv.
Price
Annual Rate
98.551 b/
2.866$
2.900$
98.53U
2.883$
1/
98.51*3

a/ Excepting two tenders totaling $500,000j b/ Excepting three tenders totaling $500,000
72 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

OTAL 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

Accepted

$
27,375,000 $ 1U,578,000
790,l*81*,QOO
1,398,08U,000
15,567,000
30,567,000
33,1*63,000
39,863,000
11,593,000
11,593,000
19,507,000
20,327,000
169^352,000
227,192,000
20,535,000
23,815,000
16,726,000
17,006,000
30,351,000
1*0,351,000
18,1146,000
59,907,000
18,1*26,000
$1,911*,509,000
59,907,000 $1,200^09,000 c/

Applied For
%
13,1*18,000
873,071,000

8,8i*i,ooo
13,530,000
2,570,000
kt 061,000
117,013,000
7,1*32,000
5,055,000
12,1*08,000
8,315,000
39,391.000
$1,105,105,000

Accepted
$ 9,038,000
1*61,171,000
3,81*1,000
8,530,000
2,370,000
l*,06l,000

51*,o53,ooo
5,192,000
2,555,000
7,381*,000
1*,075,000
37,911,000
$600,181,000 d/

Includes $196,968,000 noncompetitive tenders accepted at the average price of 99.312
Includes $1*7,687,000 noncompetitive tenders accepted at the average price of 98.51*3
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.78$, for the 91-day bills, and 2.97$, 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-l*ll

5
UNITED STATES NET MONETARY GOLD TRANSACTIONS WITH
FOREIGN COUNTRIES AND INTERNATIONAL INSTITUTIONS
January 1, 1961 - December 31, 1961
(In millions of dollars at $35 per fine troy ounce)_ .
Negative figures represent net sales by the
United States; positive figures? net purchases
Calendar
Fourth
Third
Second
First
Quarter
Quarter
Year
Quarter
Quarter
1961
1961
Country
1961
1961
1961
Argentina
Belgium

BIS
Cambodia
Chile
Congo Republic
Costa Rica
Cyprus
Denmark
Dominican Rep.
Egypt
El Salvador
Germany (West)
Greece
Iceland

IMF
Iran
Italy
Kuwait
Laos
Lebanon
Netherlands
Nigeria
Peru
Saudi Arabia
Spain
Switzerland
Turkey

-90.0
-__

-23.0

•

-81.4

--.— — -

-63.0
___

- 3.1

__ _

_ __

/24.2

--«.

- 6.6
__-

- 2.3
- 2.0
-35.0
- 3.0
_.—

_—

/ 6.4

_ —

- 5.0

- 7.8
- .7

---

-10.2
- 2.0

/150.0

___

-22.5

_.__

___

-16.1
/100.0
- 9.8
- —

- 1.9

— _

___
---

-21.0
-24.9

___

-20.0
- 5.0
-10.0
-58.2
-54.9

-150.0
- 1.0
All Other
-366.0
Total
Note: Figures may not

m* »

__-

-25.0
_«._

-12.5

-58.0
-40.0
-20.0
-44.8
- 4.9
—
- 2.5
/224.6
-54.6
-325.7
- 2.8
- 2.3
- 1.8
/178.8
-138.4
-494.4
add to totals because of rounding.

-90.0
-144.4
-23.0
- 3.1
- 6.6
/24.2
- 2.3
- 2.0
-35.0
- 3.0
- 7.8
/ .7
-22.5
-10.2
- 2.0
/150.0
-16.1
/100.0
- 9.8
- 1.9
-21.0
-24.9
-20.0
- 5.0
-47.5
-156.2
-124.6
- 2.5
-305.7
- 7.8
-820.0

TREASURY DEPARTMENT
WASHINGTON, D.C
March 6, 1962
FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS
FOR FOURTH QUARTER OF 1961
During the fourth quarter of 1961, the net sale
of monetary gold by the United States amounted to $494.h
million. The first and third quarters showed net sales
of $366.0 million and $138.4 million, respectively,
while in the second quarter there was a net purchase of
monetary gold by this country of $178.8 million.
These transactions brought to $820.0 million the
net sale of monetary gold for the year as a whole.
The Treasury's quarterly report, made public today,
summarizes monetary gold transactions with foreign governments, central banks and international institutions for
Calendar 1961 by quarters (table on reverse side).

oOo

D-412

7
TREASURY DEPARTMENT
WASHINGTON, D.C.
March 6, 1962
FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS
FOR FOURTH QUARTER OF 1961
During the fourth quarter of 1961, the net sale
of monetary gold by the United States amounted to $494.4
million. The first and third quarters showed net sales
of $366.0 million and $138.4 million, respectively,
while in the second quarter there was a net purchase of
monetary gold by this country of $178.8 million.
These transactions brought to $820.0 million the
net sale of monetary gold for the year as a whole.
The Treasury's quarterly report, made public today,
summarizes monetary gold transactions with foreign governments, central banks and international institutions for
Calendar 1961 by quarters (table on reverse side).

0O0

D-412

UNITED STATES NET MONETARY GOLD TRANSACTIONS WITH
FOREIGN COUNTRIES AND INTERNATIONAL INSTITUTIONS
January 1, 1961 - December 31, 1961
(In millions of dollars at $35 per fine troy ounce)
Negative figures represent net sales by the
United States; positive figures, :.*,T.
net purchases
r
.Calendar
Second
First
Third
Fourth
.
Quarter
Quarter
Year
Quarter
Quarter
1961
. 1961
1961
1961
1961
L1J.LCU

Country
Argentina
Belgium
BIS
Cambodia
Chile .&

Congo Republic
Costa Rica
Cyprus
Denmark
Dominicafh Rep.
Egypt
El Salvador
Germany (West)
Greece
Iceland
IMF
Iran
Italy
Kuwait
Laos
Lebanon
Netherlands
Nigeria
Peru
Saudi Arabia

_>L._

W, V _ . O j

j_»\Jl_ J_ _ J. V »_.

-90.0
— .

...

_—£?«- — - >

...

-63.0

-81.4

...

-23.0

- 3.1
- 6.6

...

/24.2
- 2.3

...

- 2.0
-35.0
...

...

- 3.0

- 5.0

-.7.8
- .7

...

/ 6.4
-22.5

-10.2
- 2.0

...

. ..

...

/150.0

...

-16.1
/100.0
- 9.8

. —_

---

- 1.9

...

-21.0
-24.9

...

- 5.0
-10.0

-25.0

...

-20.0
-12.5

...
Spain
-58.2
-58.0
-40.0
Switzerland
-54.9
-20.0
-44.8
- 4.9
Turkey
- 2.5
Z224.6
-54.6
-325.7
-150.0
UK
- 2.3
- 1.8
- 2.8
- 1.0
All Other
-494.4
-138.4
-366.0
/178.8
Total
Note: Figures may not add to totals because of roundine.

-90.0
-144.4
-23.0
- 3.1
- 6.6
/24.2
- 2.3
- 2.0
-35.0
- 3.0
- 7.8
/ .7
-22.5
-10.2
- 2.0
/150.0
-16.1
/100.0
- 9.8
- 1.9
-21.0
-24.9
-20.0
- 5.0
-47.5
-156.2
-124.6
- 2.5
-305.7
- 7.8
-820.0

3 -

and exchange tenders will receive equal treatment. Cash adjustments will be mad

for differences between the par value of maturing bills accepted in exchange an
the issue price of the new bills.

0?he 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 lo
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, bu

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-

terest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 195

the amount of discount at which bills issued hereunder are sold is not consider

to accrue until such bills are sold, redeemed or otherwise disposed of, and suc

bills are excluded from consideration as capital assets. Accordingly, the owner

of Treasury bills (other than life insurance companies) issued hereunder need i

clude in his income tax return only the difference between the price paid for s

bills, whether on original issue or on subsequent purchase, and the amount actu

received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice, pre-

scribe the terms of the Treasury bills and govern the conditions of their tissu

Copies of the circular may be obtained from any Federal Reserve Bank or Branch.

- 2A^*vX»**j€^:v.'_ce.*.5Av

decimals, e. g., 99.925. Fractions may not be used.

It is urged that tenders

be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers In investment
securities. Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.

Those

submitting tenders will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept or reject any
orftiitenders, 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

December 14, 1961

, ( 91

QBS}
ing until maturity date on
$100,000 or less for the

June 14, 1962

days remain-

1&BT

) and noncompetitive tenders for

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 rnade or completed at the Federal Reserve
Banks on

March 15, 1962

, in eash or other immediately available funds or

T__l
in a like face amount of Treasury bills maturing

March 15, 1962

r&j

• Cash

L6.»wt\t^#>«;«;-»:oiKoj&;i;

9
TREASURY DEPARTMENT
Washington

FOR IMMEDIATE RELEASE,

March 7, 1962

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 $1,800,000,000 , or thereabouts, fo
cash and in exchange for Treasury bills maturing March 15, 1962 , in the amount
of $ 1,701,558,000 , as follows:
91 -day bills (to maturity date) to be issued

March 15, 1962

W~ Pi
in the amount of $ 1,200,000,000 , or thereabouts, representing an additional amount of bills dated December 14, 1961 ,
and to mature

June 14, 1962

, originally issued in the

—~—m——
amount of $ 600,818,000
to be freely interchangeable.

, the additional and original bills

182 -day bills, for $600,000,000 , or thereabouts, to be dated

"TOT TO
March 15, 1962
,

, and to mature September 15, 1962

The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face

amount will be payable without interest. They will be issued in bearer form onl

Tenders will not be received at the Treasury Department, Washington. Each tende
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

v.ntmmniL&mr^-n.vmjwi.rsjfxenwj'r'r

WASHINGTON, D.C.
March 7, 1962
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
$ 1,800,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 15, 1962,
in the amount of
$1,701,558,000, as follows:
91-day bills (to maturity date) to be issued March 15, 1962,
in the amount of $1,200,000,000, or thereabouts, representing an
additional amount of bills dated December 14,l96l, and to
mature June 14, 1962,
originally issued in the amount of
$600,818,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $600,000,000, or thereabouts, to be dated
March 15, 1962,
and to mature September 13, 1962.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity.value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Standard
time, Monday, March 12, 1962.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on t£ie basis of 100,
with not more than three decimals, e. g., 99,925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount D-4_3
of Treasury bills applied for, unless the tenders are
accompanied
by an express guaranty of payment by an incorporated
bank
or trust company.
H^aucu UCJUK

- 2 Immediately after the closing hour, tenders will be °P e ^ e d a t
the Federal Reserve Banks and Branches, following which P u ^ i l c
announcement will be made by the Treasury Departmment of the amount
and price range of accepted bids. Those submitting tenders will oe
advised of the acceptance or rejection thereof. The Secretary 01
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
December 14, 1961,(91-days remaining until maturity date on
June 14, 1962)
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 March 15, 19°2,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing March 15. 1962. Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The Income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or Interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold, is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life Insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
0O0 the taxable year for which the
sale or redemption at maturity during
return Is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8 (current, revision) and this
notice
prescribe
theBank
terms
-the Treasury
bills and
govern
the
conditions
any Federal
of
Reserve
their
issue.
orof
Branch.
Copies
of the circular
may
be obtained
from

- 13 -

allowed to complete our staffing as proposed, I will then be in a position
to fully discharge my responsibilities as I see them.

This concludes the remarks I wanted to make in this statement on these
appropriation items. I urge most strongly your favorable consideration of

this appeal for restoration of the reductions in the items I have discussed.
I will be pleased to now discuss any other matters in which the Committee
may be interested, or to answer any questions that the Committee may have.

the office, particularly in the professional fields which are undermanned.
The 24 new positions requested for 1963 are to strengthen the existing

staffs in the various organizational units within the Office of the Secretary,
including the staff assistance available to me. The House Bill allows only
12 new positions, or one-half of our request.
Included in the 24 positions are 15 which were requested in the estimate
submitted for 1962 but could not be funded when the appropriation was reduced

by $133»000. The remaining nine are positions which the past year's experience
has convinced us must be provided to handle the workload. Each position
requested is to be utilized in an area where the amount of work has increased
to the point where it cannot be handled without many hours of overtime.
In addition, the lack of sufficient staff is making it impossible for us
to undertake all of the analyses which should be made. The areas which

particularly need strengthening are the Office of Under Secretary for Monetary
Affairs, Executive Secretariat, Office of Financial Analysis, Office of
Tax Analysis, Office of Tax Legislation, and the reproduction, secretarial,
library, and custodial forces of the Office of Administrative Services.
The estimated 481 average positions requested for 1963 are the minimum
required to discharge the functions of the Office of the Secretary other
than those relating to emergency planning. Therefore, I urge that action
be taken to restore the reduction of $100,000 recommended by the House
Subcommittee on Appropriations. In this connection, I would like to express
my appreciation to you, _r. Chairman, and to the rest of the Committee for t
permitting us to strengthen our staff of professional economists by the
increases approved last year. This has allowed me to fulfill my responsibilities to the President in the over-all financial area and particularly
in the important field of the balance of payments in a far more satisfactory
way than would otherwise have been the case. I consider that if we are

- 11 -

1o
A. w

agents are required whenever Presidential travel is involved. We have not
thought it efficient to assign these men to Washington when their full-time
service is not required.

Instead, men who augment our regular protective

detail are stationed in the various field offices where, when their services
are not required for Presidential travel, they are effectively utilized in
combatting the ever-increasing activities of organized crime as it pertains
to counterfeiting and check and bond forgery. They are sorely needed in
these field offices. The number of counterfeiting cases jumped 60 percent
during 1961, as compared with I960. During the same period, there was a
doubling in the number of cases involving forgery and fraudulent negotiation
of Government bonds.
Unless we receive these extra positions, the added manpower requirements
for Presidential protection which must be met when the President travels
at home or abroad, will require us to denude our local offices at a time when
counterfeiting and forgery are rising rapidly. The additional agents which
we have requested are imperative if we are to meet the increased needs for
Presidential protection and the growing menace of counterfeiting.

OFFICE OF THE SECRETARY:
The House reduced the 1963 estimate of £4,660,000 for this item by
$180,000, of which approximately $80,000 related to the assumption of financing
for civil defense activities, and £100,000 is applicable to staff increases
requested. While no protest is being made with respect to the civil defense
portion of the estimate, it should be understood that the funds requested
will be needed, either in this appropriation or from another source, if
another form of financing is followed.

Leaving the funds in this appropri-

ation, as contemplated in the budget, would seem to have the merit of reflecting the costs in the place where they are actually incurred.

We do

urgently request restoration of the $100,000 for increasing the staffing of

-io-

more than the 210 officers requested in the 1963 budget. The 2$ additional
enforcement positions allowed by the House are a token gesture in the right
direction but are completely inadequate to fulfill actual needs. They will
not even provide for all of the ports where there is now a total lack of
enforcement officer coverage, and of course will provide nothing at all for
those ports where additional enforcement is necessary. Restoration of the
full amount of this request is urgently requested.

UNITED STATES SECRET SERVICE:
The House Bill accorded a reduction of $550,000 in the 1963 estimate
of $5,850,000 for the United States Secret Service.
There appears to have been some misunderstanding in our request for
58 additional special agents and 22 additional clerk-stenographers. Although
these positions were going to be assigned to the field for regular investigative duties, they also are counted on to form an integral and vital part
of the protection of the President and his family. In this connection,
whenever Presidential travel is contemplated, seasoned special agents from
various field offices are summoned to augment the headquarters White House
Detail prior to and during the period the President is visiting locations
in the United States or abroad. For example, in situations of foreign
Presidential travel, depending upon the number of countries visited, the
special agents regularly assigned to the White House Detail are assigned
to the necessary advance preparations, and, to replace them, the experienced
field special agents are withdrawn from their regular criminal investigative
activities. Their temporary assignment to the headquarters White House
Detail are for varying periods of time, depending on the length of the
Presidential trip involved.
The size of the White House Detail is set to cover the requirements
for Presidential protection while the President is in Washington. Additional

1lm. 9 —

that of the Customs Agency Service. Customs intelligence-gathering and
investigative staff and the enforcement officers are now combined under the
Division of Investigations and Enforcement. A large amount of time had to
be devoted to reassigning, recruiting, and training men before increased
effectiveness could appear, and we are now ready to capitalize fully on
this important move.
I am convinced that our present enforcement officers are effective,

both as individuals and as part of our over-all enforcement program. However,

the limited staff now available cannot provide adequate enforcement coverage.

The 1963 budget request for 210 additional positions in this area was designe
to meet, firstly, almost a total lack of enforcement coverage at some ports

where foreign trade by vessel has become active in recent years; and secondly
the need for additional enforcement coverage at ports where the volume of
international carriers has continued to increase year after year.
Our enforcement officer staff now stands at just over 500 men—the
smallest total in modern times and less than one third of the personnel

available 15 years ago. In the meantime, total imports have more than doubled

Even with the increased effectiveness which has been achieved, this is simnly
too small a staff to provide adequate coverage. Yet, without proper coverage
the Nation's ports are open to smuggling of all kinds, including, of course,
narcotics. It is for this reason that this year we have asked for an
increase in our enforcement personnel. A full field survey of customs
enforcement officer requirements has just been completed, by representatives of the Bureau of the Budget, of my office, and of the Bureau of
Customs. Preceding the preparation of the final report, the preliminary
conclusion reported orally to me was that enforcement activities required
strengthening in several ways, including the assignment of several hundred
more enforcement officers to ports throughout the country-consider ably

-8-

is no advantage to be gained by over-estimating for this appropriation, since
the funds cannot be used for any purpose other than retirement pay. We are
just as anxious as the House to estimate correctly on this*item. It is our
considered judgement that the House reduction of $700,000 in this item will
be needed and should be restored.
Joint Study of the Coast Guard,
With respect to the Coast Guard generally, it might be of interest to
note that a comprehensive survey of the roles and missions of the Coast Guard
has been under way since October 1961 by joint study teams representing the
Treasury, the Bureau of the Budget, the Department of Defense, and the Ccast
Guard. Each program of the Coast Guard is being subjected to a searching
analysis during the course of this study to establish operational guidelines
and related polieie© and a more exact delineation of areas and levels of
responsibility. This study will develop information which is expe&ted to be
highly useful for planning purposes in a variety of different w_ys especially
with respect to the vessel replacement program. A target date of June 1, 1962
has been set for the completion of the study and we will be pleased to keep
this Committee and the Congress advised of the results and possible future
implications on budgetary requirements.
BUREAU OF CUSTOMS:
The House recommended a reduction of $1.4 million in the $66 million
estimate for the Bureau of Customs, thereby eliminating 200 of the 290 additional positions requested for 1963. One hundred and eighty-five of the
eliminated positions were for Customs enforcement officers. The 25 positions
allowed in this area were to provide for those ports of entry not now receiving "adequate coverage." Since the main issue raised by the House action
relates to the need for Customs enforcement officers, I would like to address
myself to this requirement.
About two years ago, after lengthy investigation by the House Committee
and at its urging, the Customs enforcement officer staff was merged with

An undesirable side effect would result as well from the discontinuance
of the vessel construction program. This would be the loss of technical
personnel now engaged in design and construction inspection activities.
Experience has shown that retention of these people is difficult, and
temporary discontinuance of projects would certainly result in a significant
loss of experience and background accumulated in the program.

For instance,

the orderly working of the Coast Guard YARD would be disrupted.

For efficiency

and economy the planned YARD workload must be maintained at as even a level
as practicable.
Finally, reductions in the vessel replacement program will be reflected
in increased maintenance requirements. The situation thus created would
even further aggravate the precarious condition of our maintenance programs,
already endangered by recommended reductions in the appropriation for
operating expenses.
Finally, I wish to point out that we are recommending that the vessel
replacement program be maintained only at last year's level pending the
completion of the long-range study of the Coast Guard to which I will refer
in a moment.
Retired pay
A reduction of $700,000 in the Coast Guard's 1963 Retired Pay appropriation cannot be effected without the postponement of retirements to which
military members will be eligible pursuant to existing law. It should be
noted that the House Report recognizes the full legal liability for these
payments, does not recommend any stretch-out of retirements, but does question
the statistical validity of the Coast Guard estimate and recommends the
reduction solely because of this difference of opinion.

The fund requirements

for this appropriation are based upon statistical changes that can be predicted within a high degree of accuracy, and the estimate for 1963 is fully
supported by recent history and current trends. It should be noted that there

- 6-

IS
necessary to support present operating programs.
After careful review of the various programs, we are satisfied that

no reduction in the scope of planned operations can be accepted as a feasible
means for meeting the reduction recommended in this item. The only recourse
would be to apply the reduction to maintenance and repair which would be
neither safe from an operating standpoint nor economical from a financial
standpoint. It is urged that the $2.5 million reduction in this estimate
be restored and the full amount of the budget request be approved.
Acquisition, Construction and Improvements
In a similar manner, the effects of a $14,000,000 reduction in
Acquisition, Construction and Improvements programs will nearly, if not
entirely, eliminate any vessel replacement construction in 1.963. Of the
$25,000,000 recommended by the House, $15,788,000 will be required to

support the aviation and training facility programs which have been supported
by the Congress in the past, and practically all of the balance to provide
aids to navigation essential to the mariner and boatman in new or improved
waterways and essential shore installations such as repair and supply
facilities. It is thus apparent that the -^15,100,000 program for vessel
replacement must be virtually eliminated.
The importance of continuing an adequate vessel replacement program
is illustrated by the fact that one old lightship has recently been declared
unserviceable, and a medium patrol craft has been deemed beyond economical
repair and decommissioned. The condition of a large number of vessels is
becoming increasingly critical. An additional three lightships are at least
as old as the one just mentioned. The patrol craft constructed in the
1920fs and 1930's for anti-smuggling are rapidly reaching the end of their
usefulness and should be replaced as rapidly as replacements can be
provided.

-5limits of the $5 million recommended by the House Committee, and no protest
is being made on this reduction.

UNITED STATES COAST GUARD:
The House Bill recommends reductions in Coast Guard appropriations
totalling $17.2 million, all of which is being appealed.

Operating Expenses
In imposing a reduction of $2.5 million in the budget request for
Operating Expenses, the House Report indicated it was to be applied against
expanded programs, such as aids to navigation and loran coverage for which
increases totalling $7,350,000 were requested in 1963. However, included
in the $7,350,000 proposed for program increases under Operating Expenses,
is $3*006,000 for program increases over which we have no control. These

programs involved the operation of new loran stations and aids to navigation
being constructed this year and fixed costs resulting from the recruiting
and discharge programs. In addition, the deterioration and obsolescence of
air search radar aboard our major cutters have reached the point where the
full costs of replacing this essential equipment must be met. These costs
must be met even if it becomes necessary to eliminate other programs in
their entirety. Likewise, the program of installing on-line cryptographic
equipment must be started at the earliest practicable date if we are to
maintain an adequate communications capability.
The estimates for recruiting and discharge programs cover unavoidable
costs attributable to the personnel program which must be provided for in
1963• Curtailment is not feasible. The remaining programs for military
readiness, and management and training improvements are at the minimum

-4 -

also eat into the $11 million that is required simply to maintain our presen
standards of enforcement. I certainly cannot agree that we ought to go
backwards by lessening rather than increasing enforcement. Nor can I agree
that the Nation should thereby be deprived of over $100 million in direct
enforcement revenue in 1963, plus additional revenues in the voluntary
compliance area, and still greater revenues in 1964 and succeeding years.
Forcing us to reduce the fiscal year 1963 budget revenue estimates by over
$100 million seems particularly inappropriate at a time when every effort
is needed to achieve a balanced budget.
The 1963 budget estimates represent a balanced program for the advancement of the long-range plan of expansion. As a general proposition, any
substantial reduction in the estimate presented would simply result in a
stretch-out of the plan, putting further into the future the things we ought
to be doing today. Moreover, the reductions in the other requests offer the

additional hazard of upsetting an otherwise balanced program, so that progre
can no longer be made with proper coordination, harmony and emphasis.
The House Committee recommended a reduction of $5 million in the
$10 million request contained in the estimate for reimbursing the Social
Security Administration for the cost of assigning taxpayer identification
numbers pursuant to recent legislation. These account numbers will provide
a positive identification and control of taxpayer accounts and returns and
are a vital factor in the system of procedures being formulated for the
application and use of automatic data processing equipment. When the
estimate was originally prepared, the amount requested was based upon the
best information available at the time as to the number of individuals who
would require new numbers. It has since been determined that fewer new
numbers will be required than originally estimated and the House Committee
was so advised. It now appears that the program can be pursued within the

-3"

In view of the limited audit coverage which is possible with existing
resources, with due regard to evidence concerning unreported income and the
need to tighten up enforcement, and in fairness to the many honest
public-spirited taxpayers who are the bulwark of our voluntary tax assessment
system, I am unable to agree with the action of the House regarding the
reduction made in this item.
The 1963 budget estimates provided approximately $27.2 million for
increasing the number of positions. Of this amount, $11 million was needed
simply to keep up with normal growth in the workload; that is, to maintain
the current level of enforcement. Another $16.2 million was requested to
expand the staff to increase audit coverage and raise the enforcement level.

In addition, $6.8 million was provided to carry forward the automatic data
processing program, which holds out such great promise for the advancement
of tax administration. Other requested increases were:

$17»6 million for

necessary space, equipment, supplies, travel, training and promotions; $1.9
million to cover increased per diem costs resulting from recent legislation;
and a one-time appropriation of $10 million for the taxpayer numbering
system which I will come back to a little later. Certain offsetting adjustments resulted in a total requested increase of $6l million.
The House Bill recommends a reduction of over half of this increase—
$21 million of the $33 million cut being assigned to the increase in positions
requested, $7 million to the items for space, training, travel, equipment,
supplies and promotions, and $5 million to the cost of providing taxpayer
account numbers.
The most important point to be noted in connection with the House action
is the fact that the $21 million cut recommended in staff expansion would
not only wipe out completely the $16.2 million for increasing audits and
raising the enforcement level, but would, to the extent of nearly $5 million,

- 2 -

22
The Treasury is requesting the restoration of $47,250,000 in five
accounts—$28,000,000 for Internal Revenue Service, $17.2 million for the
Coast Guard, $1.4 million for the Bureau of Customs, $550,000 for the Secret
Service, and $100,000 for the Office of the Secretary.
In addition, we point out that a number of the other cuts were based
on differing estimates as to the probable workload of various bureaus, such
as the Bureau of Accounts, Bureau of the Public Debt, Bureau of the Mint, and
the Office of the Treasurer.
While we will try to live within the limits set for these accounts by the
House Bill, if our original workload estimates should prove correct, we will
have to come back at a later date for supplemental funds.
I would like to turn now to the specific appropriation areas which are
most seriously affected by House reductions and where appeal is being made
to this Committee for restoration. I believe it would be most convenient
to take them up in the order in which they were listed in the letter to
the Chairman.

INTERNAL REVENUE SERVICE;
The 1963 budget estimate for the Internal Revenue Service of $513 million
reflected an increase of $61 million over the 1962 appropriation in order
to advance a third step in the long-range program of expansion initiated
in 1961. This long-range plan is a comprehensive program aimed at raising
the level of enforcement of our tax laws by increasing the staff, expanding
audit coverage, and improving

the quality of the work through training and

improvements in standards and morale, and by the application and use of the
most modern business machines and systems available.

FOR RELEASE ON DELIVERY

2,? M a r c h 7>

1962

STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE
SENATE TREASURY SUBCOMMITTEE ON APPROPRIATIONS
ON THE TREASURY DEPARTMENT APPROPRIATION BILL
FOR THE FISCAL YEAR 1963
WEDNESDAY, MARCH 7, 1962, 10:00 A.M.,EST

Mr. Chairman and Members of the Subcommittee:
I am pleased to appear before you today in connection with the Bill,
H.R. 10526, which makes appropriations for the Treasury Department and certain
other agencies for the fiscal year 1963. I welcome this opportunity to present
the Treasury's views on this Bill in the form in which it was approved by
the House.
In this statement, I would like to address myself especially to the
appropriation items on which appeal is being made to this Committee for
restoration of House reductions. I have with me a copy of the statement
I presented before the House Subcommittee, which contains summary highlights
of each of the appropriation estimates. You may wish to have it inserted
at this point in the record of these proceedings.
The explanations of the House Committee action as contained in the Report
accompanying the Bill were subjected to the most careful scrutiny as soon
as the Report was made available late last week. Each Treasury bureau was
instructed to make a careful reexamination of its projected programs and
fund requirements as reflected in the I963 budget estimates in the light of
the recommendations of the House Committee. Based upon these reviews, I
forwarded to the Chairman this week a letter setting forth the Departments
position with respect to the House action, and requesting restoration of
reductions where the impact of the cuts on the programs concerned was considered to be too severe and unwarranted to be acceptable. Perhaps it would
be helpful to insert that letter into the record at this point.

FOR RELEASE ON DELIVERY

24
March 1, 1962

Mr. Chairman and Members of the Subcommittee:
I am pleased to appear before you today in connection with the Bill,

H.R. 10526, which makes appropriations for the Treasury Department and certain

other agencies for the fiscal year 1963. I welcome this opportunity to present
the Treasury's views on this Bill in the form in which it was approved .by
the House.
In this statement, I would like to address myself especially to the
appropriation items on which appeal is being made to this Committee for
restoration of House reductions. I have with me a copy of the statement
I presented before the House Subcommittee, which contains su_unary highlights
of each of the appropriation estimates. You may wish to have it inserted
at this point in the record of these proceedings.
The explanations of the House Committee action as contained in the Report
accompanying the Bill were subjected to the most careful scrutiny as soon
as the Report was made available late last week. Each Treasury bureau was
instructed to make a careful reexamination of its projected programs and
fund requirements as reflected in the I963 budget estimates in the light of
the recommendations of the House Committee. Based upon these reviews, I
forwarded to the Chairman this week a letter setting forth the Departments
position with respect to the House action, and requesting restoration of
reductions where the impact of the cuts on the programs concerned, was considered to be too severe and unwarranted to be acceptable. Perhaps it would
be helpful to insert that letter into the record at this point.

_ 2 -

The Treasury is requesting the restoration of $47,250,000 in five
accounts—$28,000,000 for Internal Revenue Service, $17.2 million for the
Coast Guard, $1.4 million for the Bureau of Customs, $550,000 for the Secret
Service, and $100,000 for the Office of the Secretary.
In addition, we point out that a number of the other cuts were based
on differing estimates as to the probable workload of various bureaus, such

as the Bureau of Accounts, Bureau of the Public Debt, Bureau of the Mint, and
the Office of the Treasurer.
While we will try to live within the limits set for these accounts by the
House Bill, if our original workload estimates should prove correct, we will
have to come back at a later date for supplemental funds.
I would like to turn now to the specific appropriation areas which are
most seriously affected by House reductions and where appeal is being made
to this Committee for restoration. I believe it would be most convenient
to take them up in the order in which they were listed in the letter to
the Chairman.

- 3-

OK
_. \J

public-spirited taxpayers who are the bulwark of our voluntary tax assessmen
system, I am unable to agree with the action of the House regarding the
reduction made in this item.
The 1963 budget estimates provided approximately $27.2 million for
increasing the number of positions. Of this amount, $11 million was needed
simply to keep up with normal growth in the workload; that is, to maintain
the current level of enforcement. Another $16.2 million was requested to
expand the staff to increase audit coverage and raise the enforcement level.

In addition, $6%8 million was provided to carry forward the automatic data
processing program, which holds out such great promise for the advancement
of tax administration. Other requested increases were: $17*6 million for
necessary space, equipment, supplies, travel, training and promotions; $1.9

million to cover increased per diem costs resulting from recent legislation;
and a one-time appropriation of $10 million for the taxpayer numbering
system which I will come back to a little later. Certain offsetting adjustments resulted in a total requested increase of $61 million.
The House Bill recommends a reduction of over half of this increase—

$21 million of the $33 million cut being assigned to the increase in positio
requested, $7 million to the items for space, training, travel, equipment,
supplies and promotions, and $5 million to the cost of providing taxpayer
account numbers.
The most important point to be noted in connection with the House action
is the fact that the $21 million cut recommended in staff expansion would
not

only wipe out completely the $16.2 million for increasing audits and

raising the enforcement level, but would, to the extent of nearly $5 million.

-4 -

stretch-out of the plan, putting further into the future the things we ought
to be doing today. Moreover, the reductions in the other requests offer the

-5-

25
limits of the $5 million recommended by the House Committee, and no protest
is being made on this reduction.

UNITED STATES COAST GUARD:
The House Bill recommends reductions in Coast Guard appropriations
totalling $17 • 2 million, all of which is being appealed.

Operating Expenses
. In imposing a reduction of $2.5 million in the budget request for
Operating Expenses, the House Report indicated it was to be applied against
expanded programs, such as aids to navigation and loran coverage for which
increases totalling $7,350,000 were requested in 1963. However, included
in the $7*350,000 proposed for program increases under Operating Expenses,
is $3>006,000 for program increases over which we have no control. These
programs involved the operation of new loran stations and aids to navigation
being constructed this year and fixed costs resulting from the recruiting
and discharge programs. In addition, the deterioration and obsolescence of
air search radar aboard our major cutters have reached the point where the
full costs of replacing this essential equipment must be met. These costs
must be met even if it becomes necessary to eliminate other programs in
their entirety. Likewise, the program of installing on-line cryptographic
equipment must be started at the earliest practicable date if we are to
maintain an adequate communications capability.
The estimates for recruiting and discharge programs cover unavoidable
costs attributable to the personnel program which must be provided for in
1963. Curtailment is not feasible. The remaining programs for military
readiness, and management and training improvements are at the minimum

- 6necessary to support present operating programs.
After careful review of the various programs, we are satisfied that
no reduction in the scope of planned operations can be accepted as a feasible
means for meeting the reduction recommended in this item.

The only recourse

would be to apply the reduction to maintenance and repair which would be
neither safe from an .operating standpoint nor economical from a financial
standpoint,. It is urged that the $2.5 million reduction in this estimate
be restored and the full amount of the budget request be approved.
Acquisition, Construction and Improvements
In a similar manner, the effects of a $14*000,000 reduction in
Acquisition, Construction and Improvements programs will nearly, if not
entirely, eliminate any vessel replacement construction in 1963*

Of the

$25,000,000 recommended by the House, $15,788,000 will be required to
support the aviation and training facility programs which have been supported
by the Congress in the past, and practically all of the balance to provide
aids to navigation essential to the mariner and boatman in new or improved
waterways and essential shore installations such as repair and supply
facilities. It is thus apparent that the $15,100,000 program for vessel
replacement must be virtually eliminated.
The importance of continuing an adequate vessel replacement program
is illustrated by the fact that one old lightship has recently been declared
unserviceable, and a medium patrol craft has been deemed beyond economical
repair and decommissioned. The condition of a large number of vessels is
becoming increasingly critical. An additional three lightships are at least
as old as the one just mentioned.

The patrol craft constructed in the

1920's and 1930's for anti-smuggling are rapidly reaching the end oT their
usefulness and should be replaced as rapidly as replacements can be
provided.

27
- 7An undesirable side effect would result as well from the discontinuance
of the vessel construction program. This would be the loss of technical
personnel now engaged in design and construction inspection activities.
Experience has shown that retention of these people is difficult, and
temporary discontinuance of projects would certainly result in a significant
loss of experience and background accumulated in the program. For instance,
the orderly working of the Coast Guard YARD would be disrupted.

For efficiency

and economy the planned YARD workload must be maintained at as even a level
as practicable.
Finally, reductions in the vessel replacement program will be reflected
in increased maintenance requirements. The situation thus created would
even further aggravate the precarious condition of our maintenance programs,
already endangered by recommended reductions in the appropriation for
operating expenses.
Finally, I wish to point out that we are recommending that the vessel
replacement program be maintained only at last year's level pending the
completion of the long-range study of the Coast Guard to which I will refer
in a moment.
Retired Pay
A reduction of $700,000 in the Coast Guard's 1963 Retired Pay appropriation cannot be effected without the postponement of retirements to which
military members will be eligible pursuant to existing law. It should be
noted that the House Report recognizes the full legal liability for these
payments, does not recommend any stretch-out of retirements, but does question
the statistical validity of the Coast Guard estimate and recommends the
reduction solely because of this difference of opinion. The fund requirements
for this appropriation are based upon statistical changes that can be predicted within a high degree of accuracy, and the estimate for 1963 is fully
supported by recent history and current trends. It should be noted that there

- 8is no advantage to be gained by over-estimating for this appropriation, since
the funds cannot be used for any purpose other than retirement pay. We are
just as anxious as the House to estimate correctly on this item. It is our
considered judgement that the House reduction of $700,000 in this item will
be needed and should be restored.
Joint Study of the Coast Guard. •
With respect to the Coast Guard generally, it might be of interest to
note that a comprehensive survey of the roles and missions of the Coast Guard
has been under way since October 1961 by joint study teams representing the
Treasury, the Bureau of the Budget, the Department of Defense, and the Coast
Guard. Each program of the Coast Guard is being subjected to a searching
analysis during the course of this study to establish operational guidelines
and related policies and a more exact delineation of areas and levels of
responsibility. This study will develop Information which is expe&ted to be
highly useful for planning purposes in a variety of different ways especially
with respect to the vessel replacement program. A target date of June 1, 1962
has been set for the completion of the study and we will be pleased to keep
this Committee and the Congress advised of the results and possible future
implications on budgetary requirements.
BUREAU OF CUSTOMS:
The House recommended a reduction of $1.4 million in the $66 million
estimate for the Bureau of Customs, thereby eliminating 200 of the 290 additional positions requested for 1963- One hundred and eighty-five of the
eliminated positions were for Customs enforcement officers. The 25 positions
allowed in this area were to provide for those ports of entry not now receiving "adequate coverage." Since the main issue raised by the House action
relates to the need for Customs enforcement officers, I would like to address
myself to this requirement.
About two years ago, after lengthy investigation by the House Committee
and at its urging, the Customs enforcement officer staff was merged with

_. -

that of the Customs Agency Service. Customs' intelligence-gathering and
investigative staff and the enforcement officers are now combined under the
Division of Investigations and Enforcement. A large amount of time had to
be. devoted to reassigning, recruiting, and training men before increased
effectiveness could appear, and we are now ready to capitalize fully on
this important move.
I am convinced that our present enforcement officers are effective,
both as individuals and as part of our over-all enforcement program. However,
the limited staff now available cannot provide adequate enforcement coverage.
The 1963 budget request for 210 additional positions in this area was designed
to meet, firstly, almost a total lack of enforcement coverage at some ports
where foreign trade by vessel has become active in recent years; and secondly,
the need for additional enforcement coverage at ports where the volume of
international carriers has continued to increase year after year.
Our enforcement officer staff now stands at just over 500 men—the
smallest total in modern times and less than one third of the personnel

available 15 years ago. In the meantime, total imports have more than doubled.
Even with the increased effectiveness which has been achieved, this is simply
too small a staff to provide adequate coverage. Yet, without proper coverage
the Nation's ports are open to smuggling of all kinds, including, of course,
narcotics.

It is for this reason that this year we have asked for an

increase in our enforcement personnel. A full field survey of customs
enforcement officer requirements has just been completed by representatives of the Bureau of the Budget, of my office, and of the Bureau of
Customs. Preceding the preparation of the final report, the preliminary
conclusion reported orally to me was that enforcement activities required
strengthening in several ways, including the assignment of several hundred
more enforcement officers to ports throughout the country—considerably

- 10 more than the 210 officers requested in the 1963 budget; The 25 additional
enforcement positions allowed by the House are a token gesture in the right
direction but are completely inadequate to fulfill actual needs. They will
not even provide for all of the ports where there is now a total lack of
enforcement officer coverage, and of course will provide nothing at all for
those ports where additional enforcement is necessary. Restoration of the
full amount of this request is urgently requested.

UNITED STATES SECRET SERVICE:
The House Bill accorded a reduction of $550,000 in the 1963 estimate
of $5,850,000 for the United States Secret Service.
There appears to have been some misunderstanding in our request for
58 additional special agents and 22 additional clerk-stenographers. Although
these positions were going to be assigned to the field for regular investigative duties, they also are counted on to form an integral and vital part
of the protection of the President and his family. In this connection,
whenever Presidential travel is contemplated, seasoned special agents from
various field offices are summoned to augment the headquarters White House
Detail prior to and during the period the President is visiting locations
in the United States or abroad. For example, in situations of foreign
Presidential travel, depending upon the number of countries visited, the
special agents regularly assigned to the Vihite House Detail are assigned
to the necessary advance preparations, and, to replace them, the experienced
field special agents are withdrawn from their regular criminal investigative
activities. Their temporary assignment to the headquarters White House
Detail are for varying periods of time, depending on the length of the
Presidential trip involved.
The size of the White House Detail is set to cover the requirements
for Presidential protection while the President is in Washington. Additional

-11-

agents are required whenever Presidential travel is involved. We have not
thought it efficient to assign these men to Washington when their full-time
service is not required.

Instead, men who augment our regular protective

detail are stationed in the various field offices where, when their services
are not required for Presidential travel, they are effectively utilized in
combatting the ever-increasing activities of organized crime as it pertains
to counterfeiting and check and bond forgery. They are sorely needed in
these field offices. The number of counterfeiting cases jumped 60 percent
during 1961, as compared with I960. During the same period, there was a
doubling in the number of cases involving forgery and fraudulent negotiation
of Government bonds.
Unless we receive these extra positions, the added manpower requirements
for Presidential protection which must be met when the President travels
at home or abroad, will require us to denude our local offices at a time when
counterfeiting and forgery are rising rapidly. The additional agents which
we have requested are imperative %if we are to meet the increased needs for
Presidential protection and the growing menace of counterfeiting.

OFFICE OF THE SECRETARYt
The House reduced the 1963 estimate of $4,660,000 for this item by
$180,000, of which approximately $80,000 related to the assumption of financing
for civil defense activities, and $100,000 is applicable to staff increases
requested. While no protest is being made with respect to the civil defense
portion of the estimate, it should be understood that the funds requested
will be needed, either in this appropriation or from another source, if
another form of financing is followed. Leaving the funds in this appropriation, as contemplated in the budget, would seem to have the merit of reflecting the costs in the place where they are actually incurred. We do
urgently request restoration of the $100,000 for increasing the staffing of

- 12 the office, particularly in the professional fields which are undermanned.
The 24 new positions requested for 1963 are to strengthen the existing

staffs in the various organizational units within the Office of the Secretary
including the staff assistance available to me. The House Bill allows only
12 new positions, or one-half of our request.
Included in the 24 positions are 15 which were requested in the estimate

submitted for 1962 but could not be funded v/hen "the appropriation was redu

by $133*000. The remaining nine are positions which the past year's experienc
has convinced us must be provided to handle the workload. Each position

requested is to be utilized in an area where the amount of work has increased
to the point where it cannot be handled without many hours of overtime.
In addition, the lack of sufficient staff is making it impossible for us
to undertake all of the analyses which should be made. The areas which

particularly need strengthening are the Office of Under Secretary for Monetar
Affairs, Executive Secretariat, Office of Financial Analysis, Office of
Tax Analysis, Office of Tax Legislation, and the reproduction, secretarial,
library, and custodial forces of the Office of Administrative Services.
The estimated 481 average positions requested for 1963 are the minimum
required to discharge the functions of the Office of the Secretary other
than those relating to emergency planning. Therefore, I urge that action
be taken to restore the reduction of $100,000 recommended by the House
Subcommittee on Appropriations. In this connection, I would like to express
my appreciation to you, Fr. Chairman, and to the rest of the Committee for
permitting us to strengthen our staff of professional economists by the
increases approved last year. This has allowed me to fulfill my responsibilities to the President in the over-all financial area and particularly
in the important field of the balance of payments in a far more satisfactory
way than would otherwise have been the case. I consider that if we are

- 13 -

allowed to complete our staffing as proposed, I will then be in a position
to fully discharge my responsibilities as I see them.

This concludes the remarks I wanted to make in this statement on these
appropriation items. I urge most strongly your favorable consideration of

this appeal for restoration of the reductions in the items I have discussed
I will be pleased to now discuss any other matters in which the Committee
may be interested, or to answer any questions that the Committee may have.

- 7-

o _.

One has only to look at the new market in compact cars to
appreciate how much scope there Is for a constructive response to
import competition. Furthermore, recent factory shipments of
U.S.-made small transistor radios have doubled, as we began to take
advantage of a domestic market created by Japanese imports. At
first the imports far outnumbered domestic production, but our own
manufacturers quickly improved production methods and increased
production when they saw the market potential. The resulting drop
in unit cost, thanks to increased efficiency, made the difference,
despite the lower wages In Japan,.
The trade program offers a challenge — not a threat. This
is particularly true in the matter of jobs. One out of every
eight farm workers produces for export, and nearly eight percent
of the employment in manufacturing is attributable to exports.
In all, more than three million workers owe their jobs —
directly or indirectly — to exports, many more than the small
fraction of all workers who might be adversely affected by a rise
in imports. Failure to enact the trade program would seriously
affect these export workers, by making it more difficult to sell
goods in Europe.
The President's Trade Program is not an Isolated, one-shot
proposal, but a strong commitment to a new era in economic
cooperation among all free nations. It has political, as well as
economic implications, for trade is a means to stay in touch with
other nations on a basis of mutual interest arising from mutual
advantage. The trade program is not merely a device to deal with
the Common Market, but an avenue of cooperation for all free
nations. Trade with the Common Market will stimulate both our own
growth and that of our allies in Western Europe — thereby expanding
their capacity to assume an increasing share of the common defense
of freedom. If freedom is to survive, the free nations must be
united as closely as possible in pursuit of our common purpose.
The President's Trade Program Is a major means of achieving
ever closer cooperation and economic strength. Without it, our
immediate outlook is uncertain. With It, we are a step closer to
our goal of a free world of thriving, prosperous and strong nations.
Let us reject economic insularity as we rejected political insularity.
Let us decide now, while there is time, that we will not let this
opportunity pass. Let us seize it boldly, in the best tradition
of a people who welcome change oOo
and challenge and who willingly
face up to competition.

Here are some facts to be considered in evaluating the threat
of low-wage foreign competition:
— Our high-wage industries usually do much better in export
markets — and suffer less in import markets — than our low-wage
industries.
— Despite the fact that our wage rates in many cases are
double or triple those of our competitors, the United States exports
much more to foreign markets than any other nation.
We sell far more abroad than other countries sell to us.
Last year our trade surplus, excluding aid-financed exports, totaled
$3 billion.
— About sixty percent of our present imports do not compete
with domestic goods, either because they are products we do not
produce Inthis^country, or at. letast do not produce in any
significant quantity.
— And finally, it is not unit wage cost, but overall unit cost
that is important In determining competitive prices. An American
coal miner, for instance, is paid eight times as much as a Japanese
miner, but we still sell tens of millions of dollars worth of coal
to Japan every year. Part of the explanation is that the American
miner produces coal about fourteen times faster than his Japanese
counterpart, so our overall unit cost is smaller.
While the fact that foreign wages are lower than ours does not
in itself make foreign manufacturers more competitive than our own —
and while considerable pressure is building up to drive foreign
wages higher — this does not mean that we can afford to ignore the
importance of our own wage-price structure. On the contrary, our
wages and prices are all-important in determining our competitive
position against foreign producers, both in domestic and overseas
markets.
From 1955 to 1957, for instance, U. S. wages and prices in a
few key exporting industries rose substantially in relation to those
in Europe, and during that period, our share of world exports of
those commodities fell sharply.
Wage-price inflation at home must be avoided at all costs.
Such inflation would create serious trouble for our manufacturers
In competing against foreign producers both at home and abroad.
The beneficial effect of imports on our economy is often overlooked. Many of our important industries are dependent upon
imports for raw materials. We must, for instance^ import ninety
percent of our manganese or chrome ore — essential products in
steel production.

Finally, negotiations take time — the last round took 17
months — and there is always a delay before thf agreements become
effective. If we are to make significant pro^re-ss, we cannot afford
to lose time. It is important to provide a new trade program —
and it is also important to provide it without delay. President
Kennedy's new trade proposal will give him authority to bargain
for whole groups of products at once. Only in that way can effective tariff reduction be negotiated with the Common Market.
. The time for decision is running out. So far, our role as a
supplier and customer of the Common Market has been steadily
picking up momentum. But the potential for progress, prosperity,
and growth, dammed up behind internal European trade barriers,is
being let loose as those barriers are taken down, and the result is
a torrent of trade between the Market countries. For example,,
West German trade with the other five Common Market countries rose
last year about twice as fast as her total foreign trade. We must
act promptly to demonstrate to Europe that we intend to take an
active part in the new trade era. Prolonged Inaction — or
Inadequate authority — could defeat this purpose.
Since it came into being almost five years ago, the Common
Market has grown — In terms of gross national product — at
roughly twice the rate of the United States. With the proposed
addition of the United Kingdom and other full and associate members,
it would have a population substantially larger than ours, with an.
economy which would also rival ours. Equally important, it would
have — in time — a single external tariff barrier, just as we do.
The profit potential for us in the Common Market is clear.
European highways are jammed with shiny new cars, luxury shops
are crowded with eager customers, new stores are constantly opening
their doors. These are all signs — so common in America — of a
high-income, high-consumption economy. Thousands of familiar U. S.
products are unknown in Europe, and even though Europe's shopwindows are well-stocked, they can hold a great deal more. For
American manufacturers the development of this new Europe could be
a bonanza.
One of the most frequent arguments in opposition to the trade
program is that lowering our tariff barriers would open us to a
flood of low-wage foreign competition that would damage our domestic
industries.
No one, of course, can rule out the possibility of some damage
to domestic industry. Such damage as might occur, however, would
be limited to a relatively small proportion of our overall economy.
While some individual companies might suffer, there is no evidence
to support any prediction of economic damage to our economy as
a whole. To assist the adjustment 6f industries and localities to
whatever harmful competition might develop, President Kennedy has
proposed
amoved
trade
adjustment
program.
It will
also
provide,
wherever
program
countries
smoothinginside
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Common
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as
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successful
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_4Od
of freer trade, it must be a world in which decisions to invest at
home or abroad are not based on tax incentives, but on genuine
economic factors. Although we cannot change foreign tax laws, we
can,if we wish, see to it that American capital is taxed in similar
fashion wherever it may be. " This does not mean that we look with
disfavor on foreign investment — provided it is based on economic
considerations, rather than tax favoritism which discriminates
against investment at home. We propose, of course, to leave
intact the present tax advantage for investment in underdeveloped
nations. This is appropriate because such investment not only
Involves a greater risk, but because it also serves a vital purpose
in adding to the potential economic strength of the free world.
In addition to our tax and trade policies, we are employing
other measures to expand exports. One deserves particular mention.
It is a new program of insurance against both commercial and
political risks in export trade which was recently begun by the
Export-Import Bank in cooperation with fifty-seven private insurance
companies. This program offers our exporters for the first time
insurance comparable to that available to their European and
Japanese competitors.
Recent and proposed export promotion measures should begin to
show results sometime this ye_ar — although their full impact may
not be felt for two years or more. Such measures cannot succeed,
however, if American products must surmount a barrier of high
tariffs abroad. This Is why President Kennedy has asked Congress
to give him the authority to negotiate effective tariff reductions
and allow our goods to enter foreign markets on a competitive
basis.
But negotiating is a two-way street, and the President must have
the power to lower our tariffs as well. At present he.has authority
only to negotiate for one item at a time -- bargaining' -the wall down
brick by brick. This slow process will not work with the Common
Market, which has already reduced its internal tariffs about forty
percent and is moving ahead of schedule. We can't keep pace under
the present authority.
This was made clear in the announcement yesterday by President
Kennedy of the conclusion of tariff negotiations with the Common
Market and 25 other countries at Geneva. Largely because of the
difficulties imposed by our current law, those negotiations were
extraordinarily complex, and it "is no exaggeration to say that they
used up all the available authority given to the President under our
present legislation.
We achieved agreement stabilizing or reducing tariffs on $4.3
billion a year in export items, whereas our concessions covered only
$2.9 billion in imports. The agreements, although excellent, are
Without
only
opportunity
opportunity,
farmers
a start
and
it they
businessmen
of
we
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give
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negotiat6rs
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our

- 3 -

The task is a staggering one. We must grow fast enough to
create an additional 1.5 million new jobs a year during the present
decade to provide for the expected Increase in our labor force. In
addition, more than a million jobs are needed merely to reduce
unemployment from its present unacceptable level of more than
5-1/2 percent, to a more tolerable level of four percent. Finally,
employment opportunities must be kept open for the millions of
workers who will be affected In the years ahead by advancing
technology.
The additional jobs we need, and the equilibrium we seek in
our balance of payments, depend in good part upon a trade policy
that will increase exports through effective tariff reduction.
It Is imperative that we expand our commercial trade surplus — the
excess of merchandise exports over imports — because increased
export sales help to raise output, broaden our industrial base, and
create more jobs. Exports also give us the foreign exchange we
need to finance our vital overseas programs of defense and foreign
aid — as well as private investment — without loss of dollars or
gold.
Another proposal to promote domestic growth and expand exports
Is our tax program. It seeks to do this by encouraging a higher
level of domestic Investment in equipment and machinery that will
lead to increased productive efficiency. Such new investment
is needed if American business is to modernize and thus continue to
maintain competitive prices in world markets — as it must to
expand sales abroad.
President Kennedy's tax program — on which the Ways and Means
Committee of the Congress has just completed work after six months
of the most careful consideration — is designed to promote
investment at home in two major ways.
The first is our proposed investment credit, which would allow
a tax deduction of eighty dollars for every thousand dollars
spent on new equipment. We are also revising existing tax guidelines for depreciation of equipment. The completion of the
depreciation program — which we have promised for the spring —
will, with the investment credit, give American manufacturers tax
treatment comparable to their foreign competitors. The result will
be more investment in new, up-to-date equipment which will increase
productive efficiency and improve our competitive position.
The second way in which our tax program seeks to increase
domestic investment is by removing the long-standing preference in
our tax laws for investment abroad. The bill takes a major step
In this direction by effectively ending the benefits of so-called
tax haven" operations — use of U.S.-controlled business
subsidiaries
in we
countries
impose
little
or no tax on
operations. If
are to which
use our
resources
effectively
in their
a world

37
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE
THE DALLAS WORLD AFFAIRS COUNCIL
DALLAS, TEXAS, THURSDAY,
MARCH 8, 1962, 6:30 P.M., C.S.T.
The Challenge of a New Era in World Trade

Next Monday in Washington the Congress will begin hearings on
a crucially important legislative proposal that is designed to keep
this Nation moving ahead — strong and prosperous — in an
increasingly competitive world. I refer to President Kennedy's
sweeping new trade program. \
The overriding aim of that proposal is to bring the United
States into step with the dynamic new era in world trade that opened
less than ten years ago with the formation of the European Coal and
Steel Community. Soon after, six European nations agreed to remove
trade barriers and foster economic and political cooperation between
them within a Common Market. That brilliant experiment, which rode
the wave of European expansion, has been fabulously successful —
and its success has created a major challenge for the United States
States.
The challenge is simply this: are we going to compete with the
Common Market on equal terms — or are we going to step aside because
we are afraid to compete?
In making our decision, we must bear in mind that the Common
Market will profoundly Influence trade among all free nations. We
should also bear in mind that our decision to compete or to step
aside will have far-reaching consequences — not only for the
United States and the Common Market countries, but for every free
nation, developed or developing, with a stake in world trade.
Our decision may well determine whether the free world of the
future will be a close-knit, cooperative alliance of thriving
nations, or a loose coalition of trading blocs, each with its own
economic interests, and each a potential political rival of the
others.
President Kennedy has clearly charted the direction we should
take. He has called upon the Congress to replace the old
D-414
Reciprocal Trade Act — which has been extended eleven times in

TREASURY DEPARTMENT
Washington

FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE
THE DALLAS WORLD AFFAIRS COUNCIL
DALLAS, TEXAS, THURSDAY,
MARCH 8, 1962, 6:30 P.M., C.S.T.
The Challenge of a New Era in World Trade

Next Monday in Washington the Congress will begin hearings on
a crucially important legislative proposal that is designed to keep
this Nation moving ahead -- strong and prosperous — in an
increasingly competitive world. I refer to President Kennedy's
sweeping new trade program.
The overriding aim of that proposal is to bring the United
States into step with the dynamic new era in world trade that opened
less than ten years ago with the formation of the European Coal and
Steel Community. Soon after, six European nations agreed to remove
trade barriers and foster economic and political cooperation between
them within a Common Market. That brilliant experiment, which rode
the wave of European expansion, has been fabulously successful —
and Its success has created a major challenge for the United States
States.
The challenge is simply this: are we going to compete with the
Common Market on equal terms — or are we going to step aside because
we are afraid to compete?
In making our decision, we must bear in mind that the Common
Market will profoundly Influence trade among all free nations. We
should also bear in mind that our decision to compete or to step
aside will have far-reaching consequences — not only for the
United States and the Common Market countries, but for every free
nation, developed or developing, with a stake in world trade.
Our decision may well determine whether the free world of the
future will be a close-knit, cooperative alliance of thriving
nations, or a loose coalition of trading blocs, each, with its ovm
economic Interests, and each a potential political rival of the
others.
President Kennedy has clearly charted the direction we should
take. He has called upon the Congress to replace the old
D-414
Reciprocal Trade Act — which has been extended eleven times in

- 2 twenty-eight years, and is now at the end of its usefulness — with
a vital new program: the Trade Expansion Act of 1962. This bold
new approach to world trade will give the President the power he
needs to bargain effectively with the Common Market — as well as
with other nations or groups of nations — for mutually profitable
reduction of trade barriers.
In the months ahead, the new program will be widely discussed
and hotly debated. I hope that the debate will not polarize around
theoretical extremes of absolute protection or absolutely free
trade. For this is a practical proposal, and an important one,
deserving of our most thoughtful consideration. It is an answer
to a challenge to compete on even terms. It is not without risks.
But its opportunities far outweigh the risks — and we face greater
risks if we fail to act.
The President's Trade Program is designed to take advantage of
those opportunities. If it becomes law -- and if we then
energetically exploit our vast export potential — the United
States will continue to grow and prosper as the greatest trading
nation in the world.
The importance of increasing our exports becomes clear in the
light of our two major economic problems: the persistent deficit
in our international balance of payments, and our need for more
rapid economic growth.
Our balance of payments deficits in the last four years have
totaled about $13-5 billion, and have reduced our gold reserves by
almost six billion dollars. If we are to end this steady drain of
gold, we must reduce and eventually eliminate our deficits. We have
already taken action along a broad front, and, as a result of our
efforts our gold outflow last year was cut in half, and our deficit
by a third.
While the long-range outlook for our balance of payments is
hopeful, improvement may not continue at last year's pace. We are
at present in a time of cross-currents. The combination of boom
abroad and recession at home — which simultaneously expanded our
exports and reduced our demand for imports — was in large part
responsible for our favorable balance of payments position last
spring. But this has changed, and now our economy is expanding
rapidly, while the European boom is showing some tentative signs
of stabilizing.
Our principal domestic economic problem is how to maintain our
own expansion at a pace adequate to meet the increasing need for
production and jobs.

- 3The task is a staggering one. We must grow fast enough to
create an additional 1.5 million new jobs a year during the present
decade to provide for the expected increase in our labor force. In
addition, more than a million jobs are needed merely to reduce
unemployment from its present unacceptable level of more than
5-1/^ percent, to a more tolerable level of four percent. Finally,
employment opportunities must be kept open for the millions of
workers who will be affected in the years ahead by advancing
technology.
The additional jobs we need, and the equilibrium we seek in
our balance of payments, depend in good part upon a trade policy
that will increase exports through effective tariff reduction.
It is imperative that we expand our commercial trade surplus — the
excess of merchandise exports over Imports — because increased
export sales help to raise output, broaden our industrial base, and
create more jobs. Exports also give us the foreign exchange we
need to finance our vital overseas programs of defense and foreign
aid — as well as private investment — without loss of dollars or
gold.
Another proposal to promote domestic growth and expand exports
is our tax program. It seeks to do this by encouraging a higher
level of domestic investment in equipment and machinery that will
lead to increased productive efficiency. Such new investment
is needed if American business is to modernize and thus continue to
maintain competitive prices in world markets — as it must to
expand sales abroad.
President Kennedy's tax program — on which the Ways and Means
Committee of the Congress has just completed work after six months
of the most careful consideration — is designed to promote
investment at home in two major ways.
The first is our proposed investment credit, which would allow
a tax deduction of eighty dollars for every thousand dollars
spent on new equipment. We are also revising existing tax guidelines for depreciation of equipment. The completion of the
depreciation program — which we have promised for the spring -will, with the investment credit, give American manufacturers tax
treatment comparable to their foreign competitors. The result will
be more investment in new, up-to-date equipment which will increase
productive efficiency and improve our competitive position.
The second way in which our tax program seeks to increase
domestic investment is by removing the long-standing preference in
our tax laws for investment abroad. The bill takes a" major step
in this direction by effectively ending the benefits of so-called
"tax haven" operations
— which
use of
U.S.-controlled
business
operations.
subsidiaries
If
in we
countries
are to
use
our
impose
resources
littleeffectively
or no
tax on
in their
a world

- 4of freer trade, it must be a world in which decisions to Invest at
home or abroad are not based on tax incentives, but on genuine
economic factors. Although we cannot change foreign tax laws, we
can,if we wish, see to it that American capital is taxed in similar
fashion wherever it may be. ' This does not mean that we look with
disfavor on foreign investment — provided it is based on economic
considerations, rather than tax favoritism which discriminates
against investment at home. We propose, of course, to leave
intact the present tax advantage for investment In underdeveloped
nations. This is appropriate because such investment not only
involves a greater risk, but because it also serves a vital purpose
in adding to the potential economic strength of the free world.
In addition to our tax and trade policies, we are employing
other measures to expand exports. One deserves particular mention.
It is a new program of insurance against both commercial and
political risks in export trade which was recently begun by the
Export-Import Bank in cooperation with fifty-seven private insurance
companies. This program offers our exporters for the first time
insurance comparable to that available to their European and
Japanese competitors.
Recent and proposed export promotion measures should begin to
show results sometime this ye.ar — although their full impact may
not be felt for two years or more. Such measures cannot succeed,
however, if American products must surmount a barrier of high
tariffs abroad. This is why President Kennedy has asked Congress
to give him the authority to negotiate effective tariff reductions
and allow our goods to enter foreign markets on a competitive
basis.
But negotiating is a two-way street, and the President must have
the power to lower our tariffs as well. At present he has authority
only to negotiate for one item at a time — bargaining the wall down
brick by brick. This slow process will not work with the Common
Market, which has already reduced Its internal tariffs about forty
percent and is moving ahead of schedule. We can't keep pace under
the present authority.
This was made clear in the announcement yesterday by President
Kennedy of the conclusion of tariff negotiations with the Common
Market and 25 other countries at Geneva. Largely because of the
difficulties imposed by our current law, those negotiations were
extraordinarily complex, and it is no exaggeration to say that they
used up all the available authority given to the President under our
present legislation.
We achieved agreement stabilizing or reducing tariffs on $4.3
billion a year in export Items, whereas our concessions covered only
$2.9 billion in imports. The agreements, although excellent, are
Without
only
opportunity,
opportunity
farmers
a start
and
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seize
ofof
the
this
our

- 5-

Finally, negotiations take time — the last round took 17
months — and there is always a delay before the agreements become
effective. If we are to make significant progress, we cannot afford
to lose time. It is important to provide a new trade program —
and it is also important to provide it without delay. President
Kennedy's new trade proposal will give him authority to bargain
for whole groups of products at once. Only in that way can effective tariff reduction be negotiated with the Common Market.
The time for decision is running out. So far, our role as a
supplier and customer of the Common Market has been steadily
picking up momentum. But the potential for progress, prosperity,
and growth, dammed up behind internal European trade barriers, is
being let loose as those barriers are taken down, and the result Is
a torrent of trade between the Market countries. For example,
West German trade with the other five Common Market countries rose
last year about twice as fast as her total foreign trade. We must
act promptly to demonstrate to Europe that we intend to take an
active part in the new trade era. Prolonged inaction — or
inadequate authority — could defeat this purpose.
Since it came into being almost five years ago, the Common
Market has grown -- In terms of gross national product — at
roughly twice the rate of the United States. With the proposed
addition of the United Kingdom and other full and associate members,
it would have a population substantially larger than ours, with an
economy which would also rival ours. Equally important, it would
have — in time — a single external tariff barrier, just as we do.
The profit potential for us in the Common Market is clear.
European highways are jammed with shiny new cars, luxury shops
are crowded with eager customers, new stores are constantly opening
their doors. These are all signs — so common in America — of a
high-income, high-consumption economy. Thousands of familiar U. S.
products are unknown in Europe, and even though Europe's shopwindows are well-stocked, they can hold a great deal more. For
American manufacturers the development of this new Europe could be
a bonanza.
One of the most frequent arguments in opposition to the trade
program is that lowering our tariff barriers would open us to a
flood of low-wage foreign competition that would damage our domestic
industries.
No one, of course, can rule out the possibility of some damage
to domestic industry. Such damage as might occur, however, would
be limited to a relatively small proportion of our overall economy.
While some individual companies might suffer, there is no evidence
to support any prediction of economic damage to our economy as
a whole. To assist the adjustment of industries and localities to
whatever
harmful
competition
might
develop,
President
Kennedy
has
wherever
proposed
program
countries
smoothinginside
necessary,
a
moved
over
trade
the
toward
adjustment
Common
rough
forcomplete
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in

- 6Here are some facts to be considered in evaluating the threat
of low-wage foreign competition:
— Our high-wage industries usually do much better in export
markets — and suffer less in import markets — than our low-wage
industries.
— Despite the fact that our wage rates in many cases are
double or triple those of our competitors, the United States exports
much more to foreign markets than any other nation.
We sell far more abroad than other countries sell to us.
Last year our trade surplus, excluding aid-financed exports, totaled
$3 billion.
— About sixty percent of our present imports do not compete
with domestic goods, either because they are products we do not
produce in this country, or at least do not produce in any
significant quantity.
— And finally, it is not unit wage cost, but overall unit cost
that is important In determining competitive prices. An American
coal miner, for instance, is paid eight times as much as a Japanese
miner, but we still sell tens of millions of dollars worth of coal
to Japan every year. Part of the explanation is that the American
miner produces coal about fourteen times faster than his Japanese
counterpart, so our overall unit cost is smaller.
While the fact that foreign wages are lower than ours does not
in itself make foreign manufacturers more competitive than our own —
and while considerable pressure is building up to drive foreign
wages higher — this does not mean that we can afford to Ignore the
importance of our own wage-price structure. On the contrary, our
wages and prices are all-important in determining our competitive
position against foreign producers, both in domestic and overseas
markets.
From 1955 to 1957. for instance, U. S. wages and prices in a
few key exporting industries rose substantially in relation to those
in Europe, and during that period, our share of world exports of
those commodities fell sharply.
Wage-price inflation at home must be avoided at all costs.
Such inflation would create serious trouble for our manufacturers
in competing against foreign producers both at home and abroad.
The beneficial effect of imports on our economy is often overlooked. Many of our important industries are dependent upon
imports for raw materials. We must, for instance, import ninety
percent of our manganese or chrome ore — essential products in
steel production.

41
- 7One has only to look at the new market in compact cars to
appreciate how much scope there is for a constructive response to
Import competition. Furthermore, recent factory shipments of
U.S.-made small transistor radios have doubled, as we began to take
advantage of a domestic market created by Japanese imports. At
first the imports far outnumbered domestic production, but our own
manufacturers quickly improved production methods and increased
production when they saw the market potential. The resulting drop
in unit cost, thanks to increased efficiency, made the difference,
despite the lower wages In Japan.
The trade program offers a challenge — not a threat. This
is particularly true in the matter of jobs. One out of every
eight farm workers produces for export, and nearly eight percent
of the employment in manufacturing is attributable to exports.
In all, more than three million workers owe their jobs —
directly or indirectly — to exports, many more than the small
fraction of all workers who might be adversely affected by a rise
in imports. Failure to enact the trade program would seriously
affect these export workers, by making it more difficult to sell
goods in Europe.
The President's Trade Program is not an isolated, one-shot
proposal, but a strong commitment to a new era in economic
cooperation among all free nations. It has political, as well as
economic implications, for trade is a means to stay in touch with
other nations on a basis of mutual interest arising from mutual
advantage. The trade program is not merely a device to deal with
the Common Market, but an avenue of cooperation for all free
nations. Trade with the Common Market will stimulate both our own
growth and that of our allies in Western Europe — thereby expanding
their capacity to assume an increasing share of the common defense
of freedom. If freedom is to survive, the free nations must be
united as closely as possible in pursuit of our common purpose.
The President's Trade Program is a major means of achieving
ever closer cooperation and economic strength. Without it, our
immediate outlook Is uncertain. With it, we are a step closer to
our goal of a free world of thriving, prosperous and strong nations.
Let us reject economic insularity as we rejected political insularity.
Let us decide now, while there is time, that we will not let this
opportunity pass. Let us seize it boldly, in the best tradition
of a people who welcome change 0O0
and challenge and who willingly
face up to competition.

42
March 8, 1962
FOR IMMEDIATE RELEASE
TREASURY TO OFFER $1.8 BILLION IN
TAX ANTICIPATION BILLS

^fJxtfOOfUmtb
The Treasury today mm*

that tax anticipation bills in a

total amount of $1.8 billion maturing September 21, 1962, will
be auctioned on March 20 for payment on March 23.
The bills will be accepted at face value in payment of
Income and profits taxes due September 15, 19^2.

They will be

offered without tax and loan privilege.
A formal announcement inviting tenders for the bills will
be available March 13.
In addition to the
also continue to increase

f t_* Septemb
aim at its
additions to

VOX ha Biade on a week*to-week basis,

o 0'*

£W

tat bills, the Treasury may
offering© at Treasury bills.
r©gular weekly M i l offerings

TREASURY DEPARTMENT
WASHINGTON, D.C.
March 8, 1962
FOR IMMEDIATE RELEASE
TREASURY TO OFFER $1.8 BILLION IN
TAX ANTICIPATION BILLS
The Treasury today announced that tax

anticipation

bills in a total amount of $1.8 billion maturing
September 21, 1962, will be auctioned on March 20 for
payment on March 23.
The bills will be accepted at face value in payment
of income and profits taxes due September 15, 1962. They
will be offered without tax and loan privilege.
A formal announcement inviting tenders for the bills
will be available March 13.
In addition to the sale of the September tax bills,
the Treasury may also continue to increase the size of its
weekly offerings of Treasury bills. The decisions on any
future additions to the regular weekly bill offerings will
be made on a week-to-week basis.

0O0

D-415

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY

REMARKS BY J. DEWEY DAANE
DEPUTY UNDER SECRETARY OP THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE MINNESOTA SAVINGS BONDS CONFERENCE
ST. PAUL HOTEL, ST. PAUL, MINNESOTA
FRIDAY, MARCH 9s 1962, 1:15 P.M., C.S.T.
The Balance of Payments in Perspective

To begin with, the balance of payments concept is not an easy
one to grasp. Several years ago, for instance, a businessman
paid a social call on the then Secretary of the Treasury and as he
was leaving remarked: "Oh, by the way, you'll be happy to hear
I'm helping you out on your balance of payments problem — I'm
putting up a branch plant in Europe."
He was, of course, quite mistaken In assuming this would be
a help to the U. S. balance of payments position. It would be a
net loss in our payments position, but if I say so without
qualification I can expect a storm of contradiction from interested
parties, along with a maze of closely reasoned statistical information in support of the opposite view.
And this is typical of the whole area of our balance of
payments. The concepts are elusive, many of the issues are in
dispute, and to complicate matters further, the figures involved
are far from rock-solid. To all of this I should add that much of
our present system of accounting represents somewhat arbitrary
practice on our part, and there are various other ways of measuring
our payments position, most of them with a claim to at least one
sound reason why it is superior to the one we use.
I will not go into the many gaps in our information in putting
together our balance of payments account. It is enough to mention
that no country has a completely accurate picture of its payments
during a given period. There are, unquestionably, many factors
which produce distortions, but we feel, overall, that the picture
given is reasonably accurate — once it is understood exactly
what is being taken account of, and allowances are made for the
problems of data collection.
Also, because we use a double entry system of accounting,
all the receipts always equal all the debits, so in that we are
always in balance, and that is why the account is called the
D-416

- 2-

45
balance of payments. Naturally the two sides will not balance without correction, and so a category "errors and omissions" is set
up to create the balance, and presumably represents unrecorded
transactions. This balanced system of accounting adds confusion
to our terminology, so we cannot seek balance in our payments —
we must instead seek equilibrium. That Is, our long-range
goal Is neither surplus nor deficit, but one of reasonable
fluctuation around a neutral position.
The balance of payments is a way of looking at a very significant
problem — the financial position of the United States vis-a-vis
the rest of the world. The important thing to remember is that our
balance of payments is merely ONE way of looking at that position,
and that there are others as well. The size of our payments
deficit, for example, or the amount of the gold outflow, while
significant indications, are no more a reflection of the overall
picture than railway car loadings are a reflection of the overall
state of our domestic economy.
Now that you are forewarned, you will not be surprised If
the subject becomes confusing. Many of you are familiar with
our balance of payments, but for those of you who have not dealt
with it, I will begin at the beginning. Our balance of payments
is the net result of all payments and receipts between the
United States and other countries. It includes transactions of
individuals and of governments.
Thus our balance of payments is affected, one way or another,
when a U. S. resident buys something from a foreigner, and vice
versa, and wherever money is borrowed or loaned abroad by a
U. S. resident or by the U. S. Government.
U. S. payments abroad include such things as the purchase
by an American importer of a car built in West Germany, or
coffee from Brazil. U. S. payments also include money paid to
foreigners by American tourists traveling abroad, and the amounts
the U. S. Government spends overseas, to maintain our troops in
other countries, or for loans and grants to other countries as
part of our aid program. In connection with aid, of course,
about two-thirds of it does not affect our balance of payments,
since it is spent to purchase U. S. goods and services.
Examples of U. S. receipts are the sale of U. S. products
to foreigners, amounts spent by foreign tourists here or payments
made by other nations or other foreign borrowers on private or
government loans from the United States.

-3-

When our payments abroad are larger than our receipts, we
have a payments deficit. When we have a deficit, it means, in
effect, that we have paid out more dollars than we have received.
The effect of deficits, then, is to increase the number of
dollars held by foreigners. Foreign central banks have the
option of holding such dollars, or turning them in to the U. S.
Treasury for gold. When these dollars are converted into gold, our
gold reserves are lowered. The balance of payments problem,
therefore, has two aspects — the first is the need to reduce our
dollar outflow to manageable proportions, the second is the need
to deter the conversion of dollars into gold.
In this connection it is important to consider whether the
dollars held by foreigners — or as we call them, liquid dollar
balances, since the actual dollars do not go abroad, but instead
are usually transferred in various forms to foreign accounts in the
U. S. — are held by governments or individuals. If individuals
hold them, they cannot be turned in for gold, since only governments
and their central banks — can buy gold from the United States.
Thus, when there is a deficit, its size does not tell the whole
story. It is equally Important how the deficit was financed —
what portion of it went out in gold, and what portion in liquid
dollar balances, and who holds those balances.
To translate this world of theory into the world of fact,
we began to run a deficit in our balance of payments in 1950 —
and have had a deficit every year since with the exception of
1957* when the Suez crisis led to large exports of oil from the
United States, creating a small surplus. Between 1951 and 1957*
despite the fact that our deficits averaged about a billion dollars
a year, they were not accompanied by any gold outflow from the
United States. This was because foreign countries were content
to add that much to their dollar holdings rather than convert
some of the dollars into gold.
In the three-year period from 1958 through i960, however,
the deficits became sizable, and almost half the dollar claims
were used to buy gold from the U. S. Treasury, depleting our gold
stocks by several billion dollars.
In i960 our balance of payments problem became acute. Both
foreigners and Americans transferred large sums of money —
usually by shifting bank accounts -- out of the United States to
Europe to take account of higher interest rates.
Europe was in the midst of a boom, and interest rates there
had gone up, while a slack period in the United States had
depressed
rates.
to this
was be
speculation
money markets
price
of gold.
thatAdded
the dollar
would
devalued in
by international
raising the

47
- 4 During that period the United States lost gold — $1.7 billion
of it In i960 and another $325 million in January of 1961. This
reflected a move by many foreign dollar holders to get out of
dollars.
One of President Kennedyfs first acts was to issue a firm
commitment not to devalue the dollar. At the same time, a broad
range of measures to reduce the deficit was announced. These
included dozens of separate orders designed to minimize dollar
outflow resulting from aid and defense expenditures and procurey
ment abroad,from spending by troops, officials and dependents
abroad, and from other means. In addition, shipment of goods in
American vessels was emphasized. The amount of goods that
American tourists could bring back to the United States duty-free
was reduced, and a special travel agency was created to encourage
foreign tourists to visit the United States. The combination of
the pledge not to devalue, together with actual and proposed
measures by the President, the Congress and the government as a
whole, ended the speculation against the dollar. The deficit in
1961 was considerably lower than it was the year before, and..the.
gold loss was sharply reduced. This improvement also, of ..coarse*.'
was the result of a new air of international cooperation, and a
number of other measures that grew from that.
We have, then, had a persistent deficit in our balance of
payments. Such deficits must be eventually eliminated if we are
to end the steady drain on our gold reserves.
Our balance of payments deficits in the last four years
have totaled about $13.5 billion, and have created a drain on
our gold reserves during that time of" almost six billion dollars.
During this period reserves of most other developed countries
of the free world — particularly Western Europe and Japan —
increased, and in large part the surpluses of those countries
were the counterpart of our deficits.
Reducing our deficit requires cooperation from the surplus
countries, and it is to their interest to cooperate, because the
dollar — as the major reserve currency of the free world — is
the cornerstone of the whole international payments system.
Their cooperation has increased markedly in the last year, and we
expect it will continue.

- 5 -

4B
Let's take a closer look at last year's developments. We
look at our deficit as being divided into two parts. First
of all, there is what we call the basic deficit; that is the net
balance on our trade and services, foreign aid, military
expenditures, and long-term investment. The second part is the
short-term capital outflow from the United States.
In 196l our short-term capital outflow was only slightly
less than the year before — $1.8 billion compared to $2 billion.
The bulk of this outflow of U. S. capital, however, did not
reflect movements of funds abroad for speculative reasons. The
bulk of the outflow represented an increase in financing of foreign
trade by the U. S. banking system. Commercial loans to Japan
alone amounted to more than 40 per cent of our total recorded
short-term outflow. At the same time as this outflow of U. S.
short-term capital was occuring there was also an inflow of about
$750 million in foreign private short-term capital into the
U. S. — in sharp contrast to our experience of i960.
This demonstration of world-wide confidence in the dollar
was reflected even in the fourth quarter of the year, when our
overall deficit was relatively large. Despite the operations
by certain foreign commercial banks — which converted a large
share of their dollar holdings Into their own national currencies
in order to dress up their final balance sheet of the year —
private dollar holdings continued to rise. These "windowdressing" operations were reversed very early in 1961, thereby
swelling foreign private holdings of dollars once more.
In contrast to i960, there was no rush to get out of dollars
and into gold. In the last 11 months of 1961, our gold outflow
amounted to a little over $500 million, about one-fifth of our
overall deficit for that period, and only a quarter of the gold
outflow for the previous 11 months. In addition, we increased
our own holdings of convertible foreign currencies — which can
be viewed as a substitute for gold holdings in our new convertible
world — by $116 million.
Disruptive short-term capital flows did not pose a major
problem for the United States in 1961 as a whole. But this
country remains vulnerable to such sudden shifts in funds.
U, S. residents increasingly are willing to move short-term funds
abroad as foreign currencies strengthen and our tax structure
provides an additional inducement for such movements. In addition,
rapid flows of money can follow changes in relative interest
rates here and abroad or be created by expectations of change in
international currency values.
We are therefore constantly pressing forward with efforts to
insure that
anybe
large
short-term
capital
flows
— own
if they
should
develop
— can
controlled,
partly
through
our
efforts,
and

- 6-

49
partly through measures of international cooperation. During 1961
we took a number of steps to neutralize such flows. These
included measures to keep short-term interest rates in the U. S.
from declining to the exceptionally low levels that prevailed in
earlier periodsof business recession in this country.
Chief among such measures was a coordinated effort by the
Treasury and the Federal Reserve System which has been called "Operation
Nudge." This involved the intent of the Treasury, in issuing
Government securities, and the Federal Reserve, in buying and selling
such securities, to avoid undue reduction of short-term interest
rates, while at the same time not encouraging a sharp rise in
long-term rates. The intention was to prevent a sudden outflow
of short-term capital which might result from a sudden drop in
rates compared to rates available abroad, and at the same time
maintain a sufficient flow of long-term funds for domestic investment needed to spur economic recovery. Our effort, I am happy to
say, was quite successful. This joint Federal Reserve-Treasury
effort was supplemented by Federal Reserve action increasing the
legal limit that our banks can pay on time deposits.
On the international side, ten industrial nations, including
the U. S., agreed to provide standby resources of $6 billion to
the International Monetary Fund — resources which will greatly
augment the IMF's ability to finance borrowing through which
major industrial countries can finance temporary deficits that may
tend to undermine the structure of our payments mechanism. Besides
that,
the results of our consultation with other nations
through the Organization for Economic Cooperation and Development
have greatly exceeded our expectations. In addition, consultation
among U. S. officials and foreign central banks at the meeting of
the Bank for International Settlements at Basle has also
contributed to the timely interchange of information and views.
Finally, beginning In March of 1961, the Treasury has undertaken
modest pilot operations in the exchange market with a view to
moderating any unsettling currency flows. Our ability to operation
in the exchange market has recently been greatly strengthened by the
decision of the Federal Reserve System to undertake operations on
its own account.
We are also taking measures to reduce the other part of our
deficit — the basic deficit.
At present only about one-third of our foreign aid expenditures
affects our balance of payments. The other two-thirds involves
exports of goods and services from this country rather than dollars.
We are trying to reduce this dollar outflow fraction of aid still
further, and we hope to get it down to one-fifth.

- 7As for the impact of overseas defense spending,agreement has
been reached with West Germany that that country will substantially
increase its purchases of military goods and services from the
U. S. We hope that through sales of military equipment and services
to West Germany and other countries the net impact of our overseas
defense costs will be reduced by about one-third during 1962.
The year 1961, then, saw some improvement in our balance of
payments. The basic deficit was cut to a third — from $1,9
billion to $600 million; the gold outflow was cut in half — from
$1.7 billion to $857 million; and our overall deficit was cut to
two-thirds — from $3.9 billion to $2.4 billion.
The most important factor, however, in the long-term outlook
for our balance of payments is our ability to increase our
commercial trade surplus. If we can increase our exports of
goods and services over our imports to a sufficient level, we can
wipe out the deficit entirely, and even bring about a surplus to
bring gold back to the United States.
This will not be easy, however, and it will not come about
overnight. It will take both time and effort.
A number of measures are important to export expansion. I
will mention only three.
The first is the new export credit insurance system set up
/With 57 private insurance companies by the Export-Import Bank
which,as you know, is a U. S. Government agency. This newlyformed Foreign Credit Insurance Association will insure exporters
against both commercial and political risks, and puts them on a
comparable footing with their foreign competitors who have had
such protection for years.
The second measure is designed to increase private Investment
in productive machinery and equipment, to increase our manufacturers'
productive efficiency and help lower their unit cost, to make
them more competitive. This involves the 8 per cent investment
tax credit proposal now before Congress, as well as the Treasury's
program of depreciation reform, which is bringing depreciation
guidelines for tax purposes in line with technological advances.
These two tax measures — which will, at the outset, cost
between two and three billion dollars in tax revenues, according
to preliminary estimates — will provide a broad, long-range
stimulus to private investment, which we hope will soon begin
to show itself In more modern equipment. The stimulus will also,
rather quickly, generate additional economic activity at home,
which will, among its other beneficial results, create additional
tax revenues. Foreign manufacturers have been modernizing much
more
rapidlyis
than
thoseneeded
interms.
theto
United
States,
and stimulus
to
can
investment
compete
on
urgently
comparable
assure
that American
companies

- 8 -

*J^-

We feel that these export promotion measures will begin to
show themselves sometime this year, although they will probably
not have a significant effect until next year, and it may take
another year or more for their full impact to be felt.
The third measure to promote an increased level of exports
is President Kennedy's trade program, which is now before the
Congress. Unless this is approved, the President will not have
adequate authority to achieve significant mutual tariff reduction
between the United States and the Common Market.
This authority is needed if we are to expand exports, because
as the barriers to trade inside Western Europe fall, the effect,
in some cases, is to raise the outer wall, American manufacturers,
then, will have increasing difficulty in competing in Europe.
The trade program, then, is a must if we are to expand exports and
solve our balance of payments problem.
In summary, I would like to leave you with this view of the
balance of payments problem: while it is serious, and certainly
nothing to be ignored, it is far from the whole story of our
international economic position.
It is, for instance, only an account of our international
dealings over a brief period. When we take long-range claims
into account, we find that our position is quite different.
Without considering long-term claims, for instance, we find that
our balance of payments deficits for the three-year period
1958 through i960 totaled $11 billion — of which $5 billion
represented gold losses.
When we include long-term claims in this accounting, however,
we find our net loss position was not $11 billion, but only
$3.5 billion.
To be sure, these long-term claims are not liquid — we
cannot necessarily convert them immediately into usable assets.
They should not, however, -be written off.
Actually, in the past 10 years, our long-term claims against
foreigners, as compared to their long-term claims against us,
have doubled, and our claims now exceed theirs by some $27 billion.
It should also never be forgotten that our economic position
in the world is not reflected in a balance sheet, but in the
hopes and accomplishments of free people. We spend money abroad
for defense, for foreign aid, and for investment, and while we
do everything we can to reduce or offset the balance of payments
Impact of such spending, we should never believe that we would
be performing constructive action by cutting aid or defense below
adequate levels.

-9-

We must make every effort to expand our exports, in order to
wipe out our deficit and stem the gold drain, but we must not be
blinded by this need to our other responsibilities.
Principal among these are the defense and development of the
free world. How well we meet those responsibilities will
determine whether our future will see the free nations of the
world as a strong, thriving and cooperative group, or as a motley
collection of developed and undeveloped lands, bound together less
by trust or mutual interest than by a common threat to their
security. That is why the President's trade program is so
important — it offers an opportunity to expand exports, and at
the same time draw ALL free nations politically and economically
closer through trade.
The balance of payments problem is one which will have to be
solved if we are to achieve our goal of a strong and prosperous
free world, but it is only part of our program. The other
parts — such as our aid program for our fellow members of the
Alliance for Progress in Latin America — are also important.
We must not only make every effort to bring our international
payments into balance — but we must also remember that a prime
reason for this effort is to enable us as the leader of the free
world to continue to help its peoples to a better way of life.
That is our major responsibility.

0O0

counts the promotion of economic growth as an objective
along with the goals of i_#rov®d tax equity and reduced
coa^lexity. The President's proposal for standby authority
for temporary tax reduction provides a procedure by fetich
tax policy can move swiftly in a faltering economy to
turn us back toward full eiDployment. In sum, a nation
dedicated to economic growth can readily find in tax
policy a strong and flexible tool to that end.

_U -

Other provisions of the bill, in a few specialized
areas, seek to achieve a more efficient allocation o£
resources and greater equity by eliminating tax dif|e^
entiais among cosseting businesses. These areas concern
thrift institutions, the mutual casualty insurance
companies, and the cooperatives. Furthert any correcr
tive action in the field of entertainment expenses md
the like which will swing the pendulum away fro® the
froth and excesses that the present tax rules encourage
must surely be beneficial even if its sole result is
improved taxpayer morale -~ and tax morality.
In closing, I would like to observe that the relationship between tax policy and economic growth is an
ever continuing one. we must be alert to see that tax
policy provides a firm foundation for growth. Hie pending tax bill, with its emphasis on stimulating economic
growth through the investment credit accompanied by admin*
istratlve depreciation revision, will permit tax policy
to make a significant contribution to growth. The basic
tax reform which the President has said he will submit
later this year, and which involves a combined re-examination of the income tax base and the existing rate schedules*

- 17 deduction incentive.

In short, these and similar observa-

tions apply to any incentive t© investment, and are not
peculiar to the investment credit.

This is, ©f course,

also the case with respect to the curious point of view
that no incentive will be effective Since investment
decisions are made by guess and by hunch, without any
regard for profit calculations9 rates of return, er the
like.
I have dwelled on the investment credit at considerable length because it is the corners tone of the pend ing
tax bill, and is the most significant of the contributions
which that bill makes to economic growth.

But the bill

also contains other provisions which work in the same
direction. Thus, the entire thrust of the foreign income
provisions is to remove tax inducements to investment
abroad as against investment at home. The goal here is
to use our tax system to strengthen the economy of the
United States and to produce a geographically efficient
allocation of resources. That portion of Investment
abroad which is tax induced provides benefits to a few
at the expense of accelerated growth here at home.

It might be added that the suggestion that book depreciation be used to determine tax depreciation has a far

greater potential for distortion than any of the other
incentive proposals discussed.
TfedjL set of comparisoas indicates, that the investment
credit cut-performs on all counts commonly advocated
incentive depreciation devices. Of course, there are
some things neither vastly speeded-up depreciation nor
the credit will do.

It seldom has been realized, however,

that criticisms aimed at the investment credit equally g
applyIto the other suggested incentives. Thus, it is-4m,,
said that since the credit covers only acquisitions in
this year or hereafter, it does not apply to the taxpayer
who undertook an investment program a year or so ago. But
the suggested depreciation deduction incentives also apply
only to future acquisitions, as did the 1954 Code accelerated depreciation methods.

It is also said that the

investment credit will not immediately increase investments.
Time is required for management decisions and planning, so
that the year 1962 will not reflect the full effect of the
credit. Again, this is equally true of any depreciation

57
from 5.6 percent to 6,1 percent as compared with 7.9 percent for the credit — would cost $500 million more than
the credit in the first year. A 20 percent increase in the
annual depreciation deduction —

which likewise only gives

a profitability figure of 6.1 percent — will over a 10~year
period cost almost as much revenue as the credit.

Each

dollar of revenue lost under these depreciation deduction
incentive devices thus buys less incentive to new investment
than does the credit.
Some proponents of these depreciation deduction speedups have failed to point out that they cost the Government
substantial revenue. The growth of Investment in successive years ensures that the speeded-up depreciation
deductions will always exceed the deduction normally a1lowable, and initial revenue losses are never recouped.
Effect on Prices. - -A further advantage of the investment credit lies in the fact that it does not distort
operating costs. On the other hand,"'for taxpayers who keep
their tax returns and business books on the same basis, an
Investment incentive by way of a depreciation deduction
device —

giving write-offs faster than realistic depreci• ' -

ation —

• -

. t v

»4J.

••

leads to increased book operating costs that will

Inevitably affect prices, wages, and business financing.

5S
~ 14 •
15-year asset, an 83 percent write-off for a 10-year
asset —
ity.

while exerting a stronger effect on profitable

In brief, the credit is far more powerful as a

stimulus or incentive than most of the depreciation
deduction incentives that have been suggested.
*»*

Furthermore, the full impact of the investment eredlt

is felt at the time new equipment1 is purchased.

These

incentive depreciation deductions, however, which involve
an unrealistic shortening of depreciable lives have an
effect, particularly on cash flow, which Is spread out
over a number of years. This adds an additional argument
In favor of the credit.
Revenue Cost. —When we look at the comparable revenue
costs of various devices, we find that the incentive effectiveness of the credit is obtained at far smaller revenue
cost to the Government than Incentive depreciation deduction devices. The revenue cost of a 40 percent initial
allowance would be nearly three times as great in the
first year and 2-1/4 times as great in the first five years*
Even the cost of a 20 percent first-year allowance — which
would only increase the rate of return on a 10-year asset

think is clear. Urn must remember that the Treasury's
program of depreciation reform covers both the investment
incentive and realistic depreciation guidelines. Hence
the suggested incentives involving only the depreciation
deduction as an alternative to the credit must go beyond
realistic depreciation.

They include such suggestions as

an arbitrary increase In the first year's depreciation
deduction, or five-year amortization for all assets, an
arbitrary percentage shortening of the. lives under Treasury
guidelines, or an arbitrary increase in the annual depreciation deduction. Here are some yardsticks to measure the
investment credit against these depreciation deduction
Incentives:
Effectiveness.--For both a 10-year and a 15-year asset
the credit is worth more --in terms of the present value of
the tax benefits involved —

than a 40 percent initial depre-

ciation write-off in the first year.

For both a 10-year and

a 15-year asset the credit is equivalent to more than a 40
percent reduction in the depreciable life. The credit is also
clearly superior, taking a 15-year asset, to a 20 percent
Increase in the annual depreciation deduction otherwise allowable --in fact It is close to a 90 percent increased
Compared to a five-year write-off, a combination of the
credit and double declining balance depreciation achieves

productive capacity and the efficiency with which our
economy can use its resources. This means higher incomes,
better products, and an improve_»nt in our competitive
position abroad.
It must be remembered that the investment credit is
not designed as an ant i-recess ion device. The Administration since its inception has contantly employed fiscal
and other measures to stimulate recovery and full utilization of capacity,

nevertheless, the investment credit

will strengthen the present recovery.

It will stimulate

expenditures on investment which, in turn, generate demand
for consumer goods. Both direct and indirect effects of
the credit will lead to more employment and fuller utilization of our industrial capacity.

The Investment credit

will thus strengthen the present recovery and accelerate
growth at full employment.
One final question remains: Given the importance of
increased Investment to achieve economic growth and a tax
change which will favorably affect investment, why use
the investment credit rather than an Incentive built
directly into the depreciation deduction?

The answer we

el
DM

to invest. One other interesting comparison isvat hand,
a comparison that should Intrigue those who1lean to
monetary inducements and * lower rate of interest as a
primary investment stimulus. The 8 percent investment
credit reduces the gross financing costs of a 10-year
asset as much as would a reduction of Interest rates from
5 percent to 3 percent; for a 15-year asset, from 5 percent to 3-2/3 percent.

Yet the credit does not entail m

the balance of payments difficulties that changes in**ir
interest rates could involve.
I gather that some might say that the credit is, of
course? effective, but why use it now when there is still
slack in the economy?

The fact that the investment credit

was suggested at a time when we were in a recession period
and the fact that it is being adopted in a period of
recovery does not mean that it is to be regarded as a
counter-cyclical tool. Rather, it is intended to be a
permanent part of our basic tax law. The major impact of
the credit will be felt as we move along itrour recovery
to full employment and increased growth thereafter. By
stimulating investment the credit will increase both our

62
-iocs percent on strala&t line depreciation, and 11*7 percent
before tax), the rate after the credit will be 7.3 percent,
or a 30 percent increase in profitability.

For a 10-year

asset, the rate of return increases from 5.6 percent to
7.9 percent —

an Increase of 40 percent.

Flow of Funds.--The credit immediately makes available to business *- and agriculture — an additional flow
of funds available for investment.

For 1962 the Treasury

estimates the flow will be about $1.5 billion excluding
utilities, or about 10 percent of the tax reduction
afforded by existing depreciation allowances. Moreover,
the flow will increase as investment increases. Historical
evidence indicates that such funds, which become available
with each new investment, will rapidly find their way into
still further ittves tment.
Tax Bates.—The credit achieves the same effect on
after-tax profits as a reduction of the corporate rate
from 52 percent to 36 percent for a 15-year asset, or a
reduction to 31 percent for a 10-year asset.
Thus, the investment credit has a favorable impact on
each of the factors which people may use in their decisions

63
- 9 recouped by the taxpayer. Thus, for a 15-year asset,
the credit, combined with the deduction for depreciation,
permits nearly 30 percent of the cost of the asset to be
recovered In the first year, 41 percent in two years, and
67 percent in five years; for a 10-year asset, the figures
are 36 percent, 52 percent, and 83 percent.
Comparability with Western Europe.—The investment
credit, coupled with realistic depreciable lives, will
make the tax treatment of investment in the United States
comparable with that offered by our major competitors in
Western Europe, Canada and Japan. The investment credit
thus takes Its place along with the variety of Western
European devices -- such as the incentive allowances
afforded in addition to depreciation in the United Kingdom,
Belgium and the Netherlands, or the first-year additional
depreciation allowances permitted in the United Kingdom,
France, Italy and the Netherlands.
Profitability of mm Investment.—The credit will
significantly Increase the profitability of investment.
Thus, if the present after-tax rate of return on a 15-year
investment under double declining balance Is 5*6 percent

8 under the proposal a credit against tax would be allowed
of 8 percent of the amount of an eligible investment.
Eligible investments cover machinery and equipment and
other depreciable property short of buildings.

If the

life of the asset itu4 or 5 years, one-third of the cost
of the asset is eligible; if it is 6 or 7,%years, two-thirds
is eligible. Assets with lives of 8 years or more are
fully eligible. Used assets are eligible up to $50,000.
Regulated public utilities receive a 4 percent credit.
The credit may offset $100,000 of tax liability, plus
50 percent of the tax liability in excess of $100,000,
with a five-year carryforward of unused credit. Wthm *
credit is Independent of the depreciation deduction, so
that depreciation for the full cost of the asset may be
obtained.
We believe that this credit will be a powerful stimulus
to Investment in machinery and equipment in the United
States.

Its significance may be measured by a variety of

yardsticks:
Pay-Out Period.—The investment credit materially
shortens the period over which the investment will be ^

65
- 7 percentage for the united States i starting with the
Bulletin F weighted average of 19 years for depreciable
lives and going down thru lives of 15 years on to 10 years.
At no one of these levels would depreciation charges in
the United States be comparable to those allowed abroad.
In short, realistic lives alone will not achieve for the
United States the tax treatment for investment which is
characteristic of European tax systems. The reason lies
In the simple fact that the Europeans have built into
their depreciation structures a variety of Incentive
features which go beyond realistic depreciation.

If we

are to achieve comparable tax treatment for productive
equipment —

a comparability that will be very meaningful

in a world of increased international competition and
freer trade — and if we are to move on under our tax
system to the modernizing and deepening of our own capital
equipment, we must provide an over-a 11 treatment that
includes some allowance or Incentive in addition to
realistic depreciation.
The Administration and the*Ways and Means Committee
propose to do this through an investment credit.

In brief,

65
** w

this administrative actl^ni--,tiaougjh^they do not fully
reflect the simplification in administration!that m*A*
believe can be achieved*

It has been said by some that

the textile action accomplished only token change, since
the industry had already been using lives shorter thanthose found in Bulletin F.

It is true that some concerns

were already using lives comparable to the new guidelines
and, indeed, some are using still shorter lives. ,But it
is equally true that considerably more than half of the
industry were using longer lives than our new guidelines.
The revision thus had a significant effect, which the
textile industry,readily acknowledged.
The Treasury will complete its adminIsM^tive revision
of guidelines this spring. pWhy not stop depreciation
reform there?

The answer lies in an interesting table

submitted by Secretary Billon to thc£Joint Committee on
Internal Revenue Taxation — a table which has three
comparisons.

It first gives for the western European

countries, and Canada and Japan, the percentage of the
cost of industrial equipment which can be recovered over
the first five years of the Investment.

It then shows the

67
• 5—
possible, the guidelines should be based upon a classified
or system approach to asset lives in each of the various
Industries, rather than the elaborate detailing of Item
after item which is the approach of most of Bulletin F.
Yet rigidity must be avoided, so that all industries and
all taxpayers within an industry are not imprisoned in a
single mold.

It is appropriate to have basic standards

to guide both taxpayers and the Internal Revenue Service,
so that the depreciation deduction can be utilized and
administered with minimum difficulty or controversy.
But flexibility must be preserved for the taxpayer who
is replacing his assets even more rapidly than the guideline lives suggest. And the guideline lives themselves
must be kept under continuous examination as the pace and
character of technological advance changes.
The Treasury Department is now shaping its new
depreciation guidelines and administrative policies*

is only in recent months that we have been able to obtain
from various studies the data needed for responsible
decision.

The changes In the textile industry, reducing

Bulletin F lives by some 40 percent, were a forerunner of

-4-

economists have done* and both have reached the same
conclusion —

that there is a close correlation between

growth ratios and the ratio of investment to GW

and,

accordingly, that our tax policy should aim at increasing
the pace of investment in productive equipment.
Our tax policy seeks that result through "depreciation reform".

1 use the phrase "depreciation reform" to

describe the proposed changes in the treatment which the
income tax accords to capital investment.
One part of that reform is an administrative revision
of the guideline lives applicable to the determination of
the deduction for depreciation.

That deduction is

designed to achieve a proper measure of net income over
the life of an asset*

To do so, the deduction must be

realistic. For depreciation to be realistic, the guideline
lives must be realistic, which in the world of today means
that these lives must constantly take account of a rapidly
moving technology and the resulting increase in obsolescence.

These guidelines must also be effectively adminis-

tered, which means a system that involves as few complications and as little controversy as possible.

Wherever

6Q
- 3 Recent analyses of our nation's economic progress —
both government studies and private ones — hava paid
increasing attention to the relationship between levels
of investment in productive equipment and over-all
economic growth.

These studies have also underlined the

lagging ratio in the United States of investment in
productive equipment to gross national product.
Investment in machinery and equipment in this country
during the decade of the 1950 *s was equal to about 6 percent of gross national product —

and this percentage has

been steadily dropping in recent years.

In West Germany,

It exceeded 11 percent; in Italy and France, upwards of
8 percent.

Growth rates —

in terms of gross national

product — have followed a similar pattern; barely^3 percent
annual rate of growth in GNP at constant prices for the
united States during the 1950' s, but more than 7 percent
for West Germany, and 4 to 6 percent for a number of other
major industrial countries of Western Europe. We must
therefore look long and hard at our slower growth rate and
our lower investment ratio, and ponder the relationship
between the two. This is what government and private

(.0
2 private sector outweigh those of government in their
relative importance to growth. Private decisions to
invest and innovate, as well as private decisions to
allocate resources to higher education, research, and
on the job training, account for a major share of the
growth this nation has enjoyed* let government decisions
play their part — and consequently government has its
responsibilities and opportunities* Government is
responsible for fiscal and monetary policies which should
provide a favorable climate for growth and full employment
of the nation's resources. And so again we move^thr^ an
area of basic agreement in this country, that of the
vital role of fiscal and monetary policy in affecting the
potential for growth of the private sector.
I have chosen today one facet of governmental action •
tax policy — and will discuss its relevance to growth.
But since tax policy encompasses so many matters, it is
helpful to concentrate mainly on a point of current importance, that of the relationship of tax policy to increased
investment in plant and equipment.

71
FOR RELEASE ON DELIVERY
REMARKS BY STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SOCIETY OF BUSINESS ADVISORY PROFESSIONS, INC.
IN NEW YORK CITY, MARCH 12, 1962
12 NOON
TAX POLICY A» ECONOMIC GROWTH
A fundamental goal of our economic policy is a more
rapid rate of growth. This has been stated again and
again -- most recently by President Kennedy in his
Economic Report. Our tax policy plays a major role in
the pursuit of that goal.
I take for granted that the benefits of economic
growth are beyond debate. These benefits are familiar to
all of you — a higher standard of living; the creation of
additional resources to meet our many domestic needs, such
as urban redevelopment and the expansion of health and
educational facilities; the ability to meet our defense
responsibilities, our international responsibilities and
the challenge of outer space.
Economic growth, of course, does not depend solely
on decisions of government. Indeed, decisions made in the

TREASURY DEPARTMENT
Washington
79
1 _.

FOR RELEASE ON DELIVERY

REMARKS BY STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SOCIETY OF BUSINESS ADVISORY PROFESSIONS, INC.,
NEW YORK UNIVERSITY CLUB, NEW YORK CITY
MONDAY, MARCH 12, 1962
12:00 NOON, E. S. T.
TAX POLICY AND ECONOMIC GROWTH

A fundamental goal of our economic policy is a more rapid rate
of growth. This has been stated again and again — most recently
by President Kennedy In his Economic Report. Our tax policy plays
a major role in the pursuit of that goal.
I take for granted that the benefits of economic growth are
beyond debate. These benefits are familiar to all of you — a
higher standard of living; the creation of additional resources to
meet our many domestic needs, such as urban redevelopment and the
expansion 'of health and educational facilities; the ability to meet
our defense responsibilities, our international responsibilities
and the challenge of outer space.
Economic growth, of course, does not depend solely on
decisions of government. Indeed, decisions made in the private
sector outweigh those of government in their relative importance to
growth. Private decisions to invest and innovate, as well as
private decisions to allocate resources to higher education,
research, and on the job training, account for a major share of the
growth this nation has enjoyed. Yet government decisions play
their part — and consequently government has Its responsibilities
and opportunities. Government is responsible for fiscal and
monetary policies which should provide a favorable climate for
growth and full employment of the nation's resources. And so
again we move through an area of basic agreement in this country,
that of the vital role of fiscal and monetary policy in affecting
the potential for growth of the private sector.
'. I have chosen today one facet of governmental action —
tax policy — and will discuss Its relevance to growth. But
since tax policy encompasses so many matters, it is helpful to
D-417

- 2 concentrate mainly on a point of current importance, that of the
relationship of tax policy to increased investment in plant and
equipment.
Recent analyses of our nation's economic progress — both
government studies and private ones — have paid increasing attention to the r^iatlonshlp between levels of investment in
productive equipment and over-all economic growth. These studies
have also underlined the lagging ratio in the United States of
investment in productive equipment to gross national product.
Investment in machinery and equipment in this country
during the decade of the 1950fs was equal to about 6 percent of
gross national product — and this percentage has been steadily
dropping in recent years. In West Germany, it exceeded 11
percent; in Italy and France, upwards of 8 percent. Growth
rates — In terms of gross national product — have followed a
similar pattern; barely a 3 percent annual rate of growth In GNP
at constant prices for the United States during the 1950's, but
more than 7 percent for West Germany, and 4 to 6 percent for a
number of other major industrial countries of Western Europe. We
must therefore look long and hard at our slower growth rate and
our lower investment ratio, and ponder the relationship between
the two. This is what government and private economists have
done, and both have reached the same conclusion — that there is
a close correlation between growth ratios and the ratic of
investment to GNP and, accordingly, that our tax policy should aim
at increasing the pace of investment in productive equipment.
Our tax policy seeks that result through "depreciation reform",
I use the,phrase "depreciation reform" to describe the proposed
changes in the treatment which the income tax accords to capital
investment.
One part of that reform is an administrative revision of
the guideline lives applicable to the determination of the
deduction for depreciation. That deduction is designed to achieve
a proper measure of net income over the life of an asset. To do
so, the deduction must be realistic. For depreciation to be
realistic, the guideline lives must be realistic, which in the
world of today means that these lives must constantly take account
of a rapidly moving technology and the resulting increase in
obsolescence. These guidelines must also be effectively
administered, which means a system that involves as few complications
and as little controversy as possible. Wherever possible, the
guidelines should be based upon a classified or system approach
to asset lives in each of the various industries, rather than the
elaborate detailing of item after item which is the approach of
most of Bulletin F. Yet rigidity must be avoided, so that all
Industries and all taxpayers within an industry are not imprisoned
in a single mold. It is appropriate to have basic standards to
guide both taxpayers and the Internal Revenue Service, so that the

depreciation deduction can be utilized and administered with minimum
difficulty or controversy. But flexibility must be preserved for
the taxpayer who is replacing his assets even more rapidly than
the guideline lives suggest. And the guideline lives themselves
must be kept under continuous examination as the pace and character
of technological advance changes.
The Treasury Department is now shaping its new depreciation
guidelines and administrative policies. It is only in recent
months that we have been able to obtain from various studies
the data needed for responsible decision. The changes in the
textile industry, reducing Bulletin F lives by some kO percent,
were a forerunner of this administrative action — though they do
not fully reflect the simplification in administration that we
believe can be achieved. It has been said by some that the
textile action accomplished only token change, since the industry
had already been using lives shorter than those found in Bulletin
F. It is true that some concerns were already using lives
comparable to the new guidelines and, indeed, some are using still
shorter lives. But it is equally true that considerably more
than half of the industry were using longer lives than our new
guidelines. The revision thus had a significant effect, which the
textile industry readily acknowledged.
The Treasury will complete its administrative revision of
guidelines this spring. Why not stop depreciation reform there?
The answer lies in an interesting table submitted by Secretary
Dillon to the Joint Committee on Internal Revenue Taxation — a
table which has three comparisons. It first gives for the Western
European countries, and Canada and Japan, the percentage of the
cost of industrial equipment which can be recovered over the
first five years of the investment. It then shows the percentage
for the United States, starting with the Bulletin F weighted
average of 19 years for depreciable lives and going down through
lives of 15 years on to 10 years. At no one of these levels
would depreciation charges in the United States be comparable to
those allowed abroad. In short, realistic lives alone will not
achieve for the United States the tax treatment for investment
which is characteristic of European tax systems. The reason lies
In the simple fact that the Europeans have built into their
depreciation structures a variety of incentive features which go
beyond realistic depreciation. If we are to achieve comparable
tax treatment for productive equipment — a comparability that
will be very meaningful in a world of increased international
competition and freer trade — and if we are to move on under our
tax
to must
the
and
deepening
of our
own
capital
equipment,
somesystem
allowance
we
or modernizing
incentive
provide an
inover-all
addition
treatment
to realistic
that
depreciation.
includes

- 4 The Administration and the House Ways and Means Committee
propose to do this through an investment credit. In brief,
under the proposal a credit against tax would be allowed of
8 percent of the amount of an eligible investment. Eligible
investments cover machinery and equipment and other depreciable
property short of buildings. If the life of the asset is 4 or 5
years, one-third of the cost of the asset is eligible, if it is 6
or 7 years, two-thirds is eligible. Assets with lives of 8
years or more are fully eligible. Used assets are eligible up
to $50,000. Regulated public utilities receive a 4 percent
credit. The credit may offset $100,000 of tax llalbility, plus
50 percent of the tax liability in excess of $100,000, with a
five-year carryforward of unused credit. The credit is independent
of the depreciation deduction, so that.depreciation for the full
cost of the asset may be obtained. #
We believe that this credit will be a powerful stimulus to
Investment In machinery and equipment in the United States.
Its significance may be measured by a variety of yardsticks:
Pay-Out Period.—The investment credit materially shortens
the period over which the Investment will be recouped by the
taxpayer. Thus, for a 15-year asset, the credit, combined with
the deduction for depreciation, permits nearly 30 percent of
the cost of the asset to be recovered in the first year, 4l
percent In two years, and Sj percent In five years; for a 10-year
asset, the figures are 36 percent, 52 percent and 83 percent.
Comparability with Western Europe.— The investment credit,
coupled with realistic depreciable lives, will make the tax
treatment of investment in the United States comparable with that
offered by our major competitors in Western Europe, Canada and
Japan. The investment credit thus takes its place along with the
variety of Western European devices — such as the incentive
allowances afforded in addition to depreciation in the United
Kingdom, Belgium and the, Netherlands, or the first-year
additional depreciation allowances permitted in the United Kingdom,
France, Italy and the Netherlands.
Profitability of an Investment.—The credit will significantly
increase the profitability of investment. Thus, if the present
after-tax rate of return on a 15-year Investment under double
declining balance Is 5.6 percent (5 percent on straight line
depreciation, and 11.7 percent before tax), the rate after the
credit will be 7.3 percent, or a 30 percent increase In profitability.
For a 10-year asset, the rate of return Increases from 5.6 percent
to 7.9 percent — an increase of 40 percent.

74
- 5Flow of Funds.— The credit immediately makes available to
business — and agriculture — an additional flow of funds available
for investment. For 1962 the Treasury estimates the flow will be
about $1.5 billion excluding utilities, or about 10 percent of the
tax reduction afforded by existing depreciation allowances.
Moreover, the flow will increase as investment increases.
Historical evidence indicates that such funds, which become available with each new investment, will rapidly find their way into
still further investment.
Tax Rates.—The credit achieves the same effect on after-tax
profits as a reduction of the corporate rate from 52 percent to
36 percent for a 15-year asset, or a reduction to 31 percent for
a 10-year asset.
Thus, the Investment credit has a favorable impact on each
of the factors which people may use In their decisions to invest.
One other interesting comparison is at hand, a comparison that
should Intrigue those who lean to monetary Inducements and a
lower rate of interest as a primary investment stimulus. The 8
percent investment credit reduces the gross financing costs of
a 10-year asset as much as would a reduction of interest rates
from 5 percent to 3 percent; for a 15-year asset, from 5 percent
to 3-2/3 percent. Yet the credit does not entail the balance of
payments difficulties that changes in interest rates could
involve.
I gather that some might say that the credit is, of course,
effective, but why use it now when there is still slack in the
economy? ,The fact that the investment credit was suggested at
a time when we were in a recession period and the fact that it is
being adopted In a period of recovery does not mean that It is
to be regarded as a counter-cyclical tool. Rather, It is
intended to be a permanent part of our basic tax law. The major
Impact of the credit will be felt as we move along in our
recovery to full employment and Increased growth thereafter. By
stimulating investment the credit will increase both our
productive capacity and the efficiency with which our economy can
use its resources. This means higher incomes, better products,
and an Improvement in our competitive position abroad.
It must be remembered that the investment credit is not
designed as an anti-recession device. The Administration since
Its inception has constantly employed fiscal and other measures
to stimulate recovery and full utilization of capacity. Nevertheless, the investment credit will strengthen the present recovery.
It will stimulate expenditures on investment which, in turn,
generate
demand
forindustrial
consumer
goods.
Both
direct
and
indirect
will
utilization
at
effects
full
thus
employment.
of
strengthen
the
of credit
our
the
will
present
lead
capacity.
to
recovery
more
employment
The
andinvestment
accelerate
and
fuller
credit
growth

- 6One final question remains: Given the importance of
increased investment to achieve economic growth and a tax change
which will favorably affect investment, why use the investment
credit rather than an incentive built directly into the
depreciation deduction? The answer we think is clear. We must
remember that the Treasury's program of depreciation reform
covers both the investment incentive and realistic depreciation
guidelines. Hence the suggested incentives involving only the
depreciation deduction as an alternative to the credit must-go
beyond realistic depreciation. They include such suggestions as
an arbitrary increase in the first year's depreciation deduction,
or five-year amortization for all assets, an arbitrary percentage
shorterning of the lives under Treasury guidelines, or an
arbitrary increase in the annual depreciation deduction. Here
are some yardsticks to measure the investment credit against
these depreciation deduction incentives:
Effectiveness.—For both alQ-year and a 15-year asset the
credit is worth more — in terms of the present value of the tax
benefits involved — than a 40 percent initial depreciation
write-off in the first year. For both a 10-year and a 15-year
asset the credit is equivalent to more than a 40 percent reduction
in the depreciable life. The credit is also clearly superior,
taking a 15-year asset, to a 20 year Increase in the annual
depreciation deduction otherwise allowable — In fact it is close
to a 90 percent increase. Compared to a five-year write-off, a
combination of the credit and double declining balance depreciation
achieves the equivalent of a 67 percent write-off in 5 years for
a 15-year asset, an 83 percent write-off for a 10-year asset —
while exerting a stronger effect on profitability. In brief, the
credit is far more powerful as a stimulus or Incentive than most
of the depreciation deduction incentives that have been suggested.
Furthermore, the full Impact of the investment credit is
felt at the time new equipment is purchased. These incentive
depreciation deductions, however, which involve an unrealistic
shortening of depreciable lives have an effect, particularly on
cash flow, which Is spread out over a number of years. This adds
an additional argument in favor of the credit.
Revenue Cost.—When we look at the comparable revenue costs
of various devices, we find that the incentive effectiveness of
the credit is obtained at far smaller revenue cost to the
Government than incentive depreciation deduction devices. The
revenue cost of a 40 percent initial allowance would be nearly
three times as great in the first year and 2-l,A times as great
in the first five years. Even the cost of a 20 percent firstyear allowance — which would only Increase the rate of return
on a 10-year asset from 5.6 percent to 6.1 percent as compared

7*
- 7 with 7.9 percent for the credit — would cost $500 million more
than the credit in the first year. A 20 percent increase In the
annual depreciation deduction — which likewise only gives a
profitability figure of 6.1 percent — will over a 10-year
period cost almost as much revenue as the credit. Each dollar of
revenue lost under these depreciation deduction incentive devices
thus buys less incentive to new investment than does the credit.
Some proponents of these depreciation deduction speed-ups
have failed to point out that they cost the Government substantial
revenue. The growth of investment in successive years ensures
that the speeded-up depreciation deductions will always exceed the
deduction normally allowable, and initial revenue losses are
never recouped.
Effect on Prices.—A further advantage of the investment
credit lies in the fact that it does not distort operating costs.
On the other hand, for taxpayers who keep their tax returns and
business books on the same basis, an investment Incentive by
way of a depreciation deduction device — giving write-offs faster
than realistic depreciation — leads to Increased book operating
costs that will inevitably affect prices, wages, and business
financing. It might be added that the suggestion that book
depreciation be used to determine tax depreciation has a far
greater potential for distortion than any of the other incentive
proposals discussed.
This set of comparisons Indicates that the investment credit
out-performs on all counts commonly advocated incentive
depreciation devices. Of course, there are some things neither
vastly speeded-up depreciation nor the credit will do. It seldom
has been realized, however, that criticisms aimed at the investment credit equally apply to the other suggested Incentives.
Thus, It Is said that since the credit covers only acquisitions
In this year or hereafter, it does not apply to the taxpayer who
undertook an investment program a year or so ago. But the
suggested depreciation deduction incentives also apply only to
future acquisitions, as did the 1954 Code accelerated depreciation
methods. It is also said that the investment credit will not
immediately increase investments. Time is required for management
decisions and planning, so that the year 1962 will not reflect
the full effect of the credit. Again, this is equally true of
any depreciation deduction Incentive. In short, these and
similar observations apply to any Incentive to investment, and
are not peculiar to the investment credit. This is, of course,
also the case with respect to the curious point of view that no
incentive will be effective since investment decisions are made by
guess
andreturn,
by hunch,
any regard for profit calculations,
rates of
or without
the like.

- 8I have dwelled on the investment credit at considerable length
because it is the cornerstone of the pending tax bill, and is the
most significant of the contributions which that bill makes to
economic growth. But the bill also contains other provisions which
work in the same direction. Thus, the entire thrust of the
foreign income provisions is to remove tax inducements to investment abroad as against investment at home. The goal here is to *
use our tax system to strengthen the economy of the United States
and to produce a geographically efficient allocation of resources.
That portion of investment abroad which is tax induced provides
benefits to a few at the expense of accelerated growth here at
home.
Other provisions of the bill, in a few specialized areas,
seek to achieve a more efficient allocation of resources and greater
equity by eliminating tax differentials among competing businesses.
These areas concern thrift institutions, the mutual casualty
insurance companies, and the cooperatives. Further, any corrective
action in the field of entertainment expenses and the like which
will swing the pendulum away from the froth and excesses that the
present tax rules encourage must surely be beneficial even if its
sole result Is improved taxpayer morale — and tax morality.
In closing, I would like to observe that the relationship
between tax; policy and economic growth is an ever continuing one.
We must be alert to see that tax policy provides a firm foundation
for growth. The pending tax bill, with its emphasis on stimulating
economic growth through the investment credit accompanied by
administrative depreciation revision, will permit tax policy to
make a significant contribution to growth. The basic tax reform
which the President has said he will submit later this year, and
which involves a combined re-examination of the income tax base
and the existing rate schedules, counts the promotion of economic
growth as an objective along with the goals of Improved tax
equity and reduced complexity. The President's proposal for
standby authority for temporary tax reduction provides a procedure
by which tax policy can move swiftly in a faltering economy to
turn us back toward full employment. In sum, a nation dedicated
to economic growth can readily find in tax policy a strong and
flexible tool to that end.
0O0

7v
Mmrm%n9 lf62
m mm^m |* K, mmm?ms. tweedy, mrmh x^JS&k

fas fiees-ty Bsptrto»^ mmmmmd
last ammim « * * the tmdmm tm %m earlee at
tmmmmy bills, see seriss U km, am. aemtlen-1 imm mi Urn b i H s eated Bseeafcsr H * XM
md tut #tbsr »rl#s to b# dated M S M B IS, 1962, -Idea seie etfttned on M-fen 7, «wrs
i
^ e m d at the led***! mmrm
Busto m its*** 12. feiitSew sere imrlted fer $1,-00,000,^
<t*r t-e*e*-NNfte, at SO-day bills md tm $600,0)0,000, ar tteer«t®iwt% mi 192«-dsy &iHs» tt
details ef thetowsseries sre us folloest
'
lat-dsy freastiiy b i U s
9X^dmy Tmaamry bills
aQMPHflTTfi BXISi
f¥_#i_- Jy-_t_«l lata :.
HIMHWMSllMiWll

High
Lew
§/ Mmmmtim

—» - . M.4-jSj^—SL-.—mm»

9*V

99*29$ ft/

£—5g5—S—« WmS!iTmmtmm

umn

U9t9$
U97H y
2 tmmmam tetalliif H-St.009| W AieeitfafE 1 tender at $1,000,000,

i ess _ « sat s !iAm BAi%Hv^%vs&
terrHL Tg»sag amise roa
mmnm
m im»kL
sxstaccrs*
SB*—
TTSeSTds*
*JD

KSEOT
,009
929,311,000 M*«2ttlf0Q0
jOOO
.11,068,000
9,118*090
2%?0®,G00
ft«lipa»909
^9&»909
llflSt»0D0
2,175,000
2ti?$,0OO
t3,o?5,ooo
f^tt,CK30
9,tte,ooo
X7S9t$i9O0Q
11,290,009
116^993^900
»,$B*000
3,614,000
6,11^,000
13,601,000
3,622,090
5*1*02,900
tO#SS%,OO0
5,075,090
S,l6?f000
13,171,000
•J-g-ffia9923$9W®
«MB_gg
000 a/ $l,l6b,52O,00O $600,262,000 f/
.•2OO»30,<222

j?oo#ooo
Haw lei*
Msm9®m
Ph11-del|»la
11,151,000
CXmaXmnd
Hietaead
m*m9sm
St* havdm
260,??O,OOO
Hifmeapoli29*533,000
Xansas City
20*971,000
Dallas
-s,m»ooa
San Trsmim®
16,972,000
TOTALS
—3-tZi3y-2s25S
Iiselm^s $221,lli2
i000 iio-ftso-gMtiUTO teodars aeeaptsd at tfas airsfrn^ peiee ef S^#291
Inelwles ^2.595>,000*nenmas^_itlvs
tsttisrs a«spt#d at ths rnmrmm P*ise of 98^1i9i
m%mMhcSi
On a ©wpoa issta® ef the mm® langth md im Um mm amomt immatmd9 the rslaara e*
tbftas bills W0uld piwid® ylslds act 2wha% * » tte« ^1-*^* b U l s , ssd J#0tf, for *&*
l6_Mtay bills. Xntsiest ratss m bills a w qBOt@4 lis teams of ba*& eiswwit sltli
ths arefr-im related ^0 ttes fact aaouiit af t3ut bills p«ymbl« at Maturity Falser tfesn
the amo-tjt invests- and thsir langth is set-sl mm^mr ®t da^s rsla^d to a ^0-dsf
ymmr* In eOTitrast, ylslds oa eerUfi©«t€@, aote®, ami bonds' ar® eo^nted in tensi
of interest on the »OTit lnwst#d ? sad relets ths sjssbsr ef ^ays r@»ii_ing la sa
interest payraent jmrioi, to ths set-al ma_bsr of days in ths period, with
co^>mMiding If m®m HiaB ons eonpoB .parlod is Invaai^d*

TREASURY DEPARTMENT
WASHINGTON, D.C.
March 12, 1962
FOR RELEASE A. M. NEWSPAPERS, Tuesday, March 13, 1962.
RESULTS OF TREASURY1S 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 December I4, 1961,
and the other series to be dated March 1$, 1962, which were offered on March 7, were
opened at the Federal Reserve Banks on March 12. Tenders were invited for $1,200,000,000,
or thereabouts, of 91-day bills and for $600,000,000, or thereabouts, of 182-day bills The
details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:

91-day Treasury bills
maturing June 1U, 1962
Approx. Equiv.
Price
Annual Rate

182-day Treasury bills
maturing September 13, 1962
Approx. Equiv.
Price
Annual Rate

High
Low
Average

98.50U b/
2.959$
99.295 a/
2.789$
98.U9U
2.979$
99.289
2.813$
98.1*98
2.972$ 1/
99.291
2.801$ 1/
a/ Excepting 2 tenders totaling $125*000$ b/ Excepting 1 tender of $1,000,000
21 percent of the amount of 91-day bills bid for at the low price was accepted
04 percent of the amount of 182-cLay 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
$
34,111,000
2,062,700,000
31,326,000
55,1*86,000
11,157,000
37,594,000
260,770,000
29,533,000
20,971,000
25,794,000
18,872,000
127,129,000
$2,715,443,000

Applied For
Accepted*
Accepted
$
12,794,000
$
13,028,000 $ 7,028,000
775,576,000
929,311,000 U76,2Ul,000
lU,232,000
4,068,000
9,118,000
28,706,000
_4,16U,000
19,964,000
11,157,000
2,175,000
2,175,000
23,095,000
9,444,000
9,444,000
175,892,000
Ui,290,000
116,983,000
20,533,000
3,614,000
6,114,000
13,681,000
3,622,000
5,402,000
20,594,000
7,882,000
8,167,000
13,872,000
5,075,000
9,235,000
90,223,000
25,659,000
35,579,000
$1,200,355,000 c/ $1,164,520,000 $600,262,000 d/

/ Includes $221,142,000 noncompetitive tenders accepted at the average price of 99.2
/ Includes $52,595,000 noncompetitive tenders accepted at the average price of 98.498
/ On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.86$, lor the 91-day bills, and 3.06$, 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-dajf
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.
1*18 •

TREASURY DEPARTMENT
WASHINGTON, D.C.
March 12, 1962

IMMEDIATE RELEASE

SUPPLEMENTAL REPORT OF SUBSCRIPTIONS FOR LATEST ADVANCE REFUNDING
The Treasury Department today announced a breakdown of the securities exchanged
for the new bonds offered in the Department's latest refunding offer, together with
total amounts of subscriptions received as of the close of business, Friday, March 9.
Subscriptions showing the amount of issues exchanged for the new bonds offered are
as follows (in millions of dollars):
Bonds issued in exchange
Bonds to be exchanged

4$ of 1971 4$ of 1980

3|# of 1990

m«+«i
Exchanged

3^. of 1998
•

$1,154.1

3$ bonds of 1964
2-5/8$ bonds of 1965

1,650.3

$560.9

$1,154.1

2,211.2

2-1/2$ bonds of 6/15/72

$232.8

$180.5

413.3

2-1/2$ bonds of 9/15/72

344.5

419.6

764.1

2-1/2$ bonds of 12/15/72

321.8

332.7

654.5

$899.1

$932.8

$5,197.2

Total

$2,804.4

$560.9

These figures reflect an increase of $123 million over the subscriptions announced
by the Treasury on March 2. There is attached a table showing an analysis of subscriptions by investor classes.

D-419

SI-MART OF AMOUNT AND NUMBER OF SUBSCRIPTIONS RECEIVED
FEBRUARY 1962 ADVANCE REFUNDING
AS OF MARCH 9, 1962

3 & Bonds of 1990 .
I** Bonds of 1980
It* Bonds of 1971
No.Sub. Amount
No^Sub,
No. Sub. Amount
Amount
Individual* i/

$117,255,000

6,177

•35,782,000

518

|82,01l*,000 6,381*

3 & Bonds of 1998
Amount
No.Sub.
$132,1*03,000

5,61*0

TOTAL
Amount

No.Sub,

•367,!*51*,000

18,719

Commercial Banks
(Own account)

1,590,821,500 5,389

115,531,500 267 93,558,000 576

77,698,500 233

1,877,609,500 6,1*65

All Others _/

710.868,500 3,396

232,698,000 UU2 505,750,500 2,263

502,11*6,500 1,-08

1,951,1*63,500 7,509

Totals

2,10.8,9-5,000 lh,9te

38U,011,500 1,227 681,322,500 9,223

712,21*8,000 7,281

1*,196,527,000 32,693

Govt. Investmt. Accts.

385.U29.0QO

176,869,000

217,815,000

220,569,500

1,000,682,500

Grand Totals

2,80l*,37l*,000

560,880,500

899,137,500

932,817,500

5,197,209,500

1/ Includes partnerships and personal trust accounts
2/ Includes insurance companies, mutual savings banks, corporations exclusive of commercial banks, private pension and retirement funds,
pension, retirement and other funds of State and local governments, and dealers and brokers.

STATUTORY DEBT LIMITATION
. - February 28, 1962
A s of

Washington, M - T C h

1 3 ^ 6 2 ^

Section 21 of Second Liberty Bond Act, asr'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 guaranteed obligations as m a y be held by the Secretary of the Treasury), "shall not exceed in the aggregate $285,000,000,000
(Act of June 30, 1959; U. S- C , title 31, sec. 757b), outstanding at any one time. For purposes of this section the current redemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the holder
shall be considered as its face amount." T h e Act of June 30, 1961 (P. L. 87-69 87th Congress) provides that during the
period beginning on July 1, 1961 and ending June 30, 1962, the above limitation ($285,000,000,000) shall be temporarily increased by $13,000,000,000.
T h e 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 m a y be outstanding at any one time
$298,000,000,!
Outstanding Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills
$44,245,648,000
Certificates of indebtedness
Treasury notes

12,375,^92,000
64,400,051.000

$121,021,191,000

76,587,$12,250
47,549,363,157
145,776,500
23,978,000
4,972,037.000

129,278,966,907

Bonds Treasury
•Savings (current redemption value).
Depositary
R. E. A. series
Investment series
Certificates of Indebtedness

450,000,000
48,128.250

Foreign series
Foreign Currency series

498,128,250

Special Funds -

6,367,820,000
6,646,907,000
29,736.432.000

Certificates of indebtedness
Treasury notes
Treasury bonds
Total interest-bearing
Matured, interest-ceased

42,751,159,000
293,549,445,157
392,765,957

Bearing no interest:

51,930,660
737,272

United States Savings Stamps
Excess profits tax refund bonds
Special notes of the United States

2,411,000,000
115,304,400
25,000,000

Internat'l Monetary Fund series
Internat'l Develop. Ass'n. series
Inter-American Develop. Bank series.
Total

2.6031972,332
296,546,183,446

Guaranteed obligations (not held by Treasury);
Interest-bearing :
Debentures : F. H. A. & D C Stad. Bds.
Matured, interest-ceased

369,353,200
1,777,200

321,130,400

Grand total outstanding

______L24n4i(

Balance face amount of obligations issuable under above authority.

Reconcilement with Statement of the Public Debt
(Daily Statement of the United States Treasury,

oruary _ o , 19b2

Februarytefe, I962

)

(Date)

Outstanding Total 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

D-420

296,983,221,3

?7i.i3.-«ia
•297,35^351.7*
437.037.i_S
296,917,313,^

STATUTORY DEBT LIMITATION
A* of February 28, 1?62
Washinptnn, M-TCh l ? j l 9 6 2
th^A^Ji
?LS?»?nd L i b e f t y * B ° n d Act, ap amended, provides that the face amount of obligations issued under authority
It^l «hlV._S„iS .1 m TIT t |5 f k° b l _ g a t l 0 , I S « u a r a ? t e L e d a s to P»ncipal and interest by the United States (except such gua.fAct of lunf S " IQ.J.Tq r r ^ l ^ i ^ ^ J K ° f the T " a s u r y>' " shaI1 ? ot e * c e e d *« * « aggregate $285,000,000,000
(Act ot June 30, 1959, U-S.C., title 31 sec. 757b), outstanding at any one time. For purposes of this section the current redemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the holder
a tS
SSi^K/^Sn6
7 , i«_,a,,IOUnt- _•T h e A c t ° f J U 1 e 30»1 9 6 1 < P ' L* B7'69 8 7 t h Congress) provides that during the
leasedf by $13I 000 O O O M O
* , U n C 3 ° 'W
' ^ a b ° V C Vlmitation (1285,000,000,000) shall be temporarily inT n e
win t a b e
. . . *°M? 8 l 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
$298 000 000 000
Outstanding « • » » » »
Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills
$44, 245,648 ,000
Certificates of indebtedness
. 12 ,3751492 ,000
Treasury notes
;
64.400,051.000
$121,021,191,000
Bonds Treasury
_
76,587,812,250
•Savings (current redemption value)
47,549»363 ,157
Depositary
.
1^5,776 . $QQ
R. E. A. series
23 , 978 , 000
Investment series
. 4 . 9 7 2 .037.000
129,278,966,907
Certificates of Indebtedness Foreign series
450,000,000
Foreign Currency series
48.128.250
498,128,250
Special Funds Certificates o-f indebtedness
6,367,820,000
Treasury notes
6,646,907,000
Treasury bonds
29,736.432,000
42,751.159.000
Total interest-bearing
293,549 4 4 5 157
Matured, interest-ceased
___^_
392' 765 957
Bearing no interest:
United States Savings Stamps
51,930,660
Excess profits tax refund bonds
737, 272
Special notes of the United States :
Internat'l Monetary Fund series
2 , 411,000,000
Internat'l Develop. Ass'n. series
115,304,400
Inter-American Develop. Bank series
25,000,000
2,603 .972 3^?
Total
296,546,183,446
Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures : F. H. A. & D C Stad. Bds
3 6 9 , 3 5 3 ,200
Matured, interest-ceased
1,777,200
371,130.400
Grand total outstanding
___
2 9 6 9 1 7 3T 3 ft/j-£
Balance face amount of obligations issuable under above authority
.
Q_ 082 680 1 'Xl

Fsbrurirv' ^8 1962
Reconcilement with Statement of the Public Debt
(Daily Statement of the United States Treasury,

^—t—Z—I

February*^, 1962 v
(Date)

Outstanding Total 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 __

D-420

2 9 6 ,983, 2 2 1 , 3 4 8
??1,130,400
297 ,354,3 51, 748
437.03719^2
296,917,313.846,

81
TREASURY DEPARTMENT
WASHINGTON, D.C.
March 13, 1962
FOR IMMEDIATE RELEASE

The Treasury Department, by this public notice, invites tenders for
$1,800,000,000, or thereabouts, of 182-day Treasury bills, for cash and in
exchange for Treasury Tax Anticipation Series bills maturing March 23, 1962,
in the amount of $3,502,886,000. The bills will be issued on a discount basis
under competitive and noncompetitive bidding as hereinafter provided. The
bills of this series will be designated Tax Anticipation Series, they will be
dated March 23, 1962, and they will mature September 21, 1962. They will be
accepted at face value in payment of income and profits taxes due on September 15, 1962, and to the extent they are not presented for this purpose the
face amount of these bills will be payable without Interest at maturity. Taxpayers desiring to apply these bills in payment of September 15, 1962, income
and profits taxes have the privilege of surrendering them to any Federal Reserve Bank or Branch or to the Office of the Treasurer of the United States,
Washington, not more than fifteen days before September 15, 1962, and receiving
receipts therefor showing the face amount of the bills so surrendered. These
receipts may be submitted in lieu of the bills on or before September 15, 1962,
to the District Director of Internal Revenue for the District in which such
taxes are payable. The bills will be issued in bearer form only, and in
denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000 and
$1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the
closing hour, one-thirty p.m., Eastern Standard time, Tuesday, March 20, 1962.
Tenders will not be received at the Treasury Department, Washington. Each
tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not
more than three decimals, e. g., 99.925. Fractions may not be used. It is
urged that tenders be made on the printed forms and forwarded in the special
envelopes which will be supplied by Federal Reserve Banks or Branches on
application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.

D-421

- 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 Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for
$400,000 or less without stated price from any one bidder will be accepted in
full at the average price (in three decimals) of accepted competitive bids.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank on March 23, 1962, in cash or other
immediately available funds or in a like face amount of Tax Anticipation Series
bills maturing on March 23, 1962. Cash and exchange tenders will receive equal
treatment. Cash adjustments will be made for differences between the par value
of maturing bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from
the sale or other disposition of the bills, does not have any exemption, as
such, and loss from the sale or other disposition of Treasury bills does not
have any special treatment, as such, under the Internal Revenue Code of 1954.
The bills are subject to estate, inheritance, gift or other excise taxes,
whether Federal or State, but are exempt from all taxation now or hereafter
imposed on the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally
sold by the United States is considered to be interest. Under Sections 454 (b)
and 1221 (5) of the Internal Revenue Code of 1954 the amount of discount at
which bills issued hereunder are sold is not considered to accrue until such
bills are sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of Treasury bills
(other than life insurance companies) issued hereunder need include in his
income tax return only the difference between the price paid for such bills,
whether on original issue or on subsequent purchase, and the amount actually
received either upon sale or redemption at maturity during the taxable year
for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their
issue. Copies of the circular may be obtained from any Federal Reserve Bank
or Branch.

He progressively served in the Bureau of the Budget, the
Air Force, "Veterans Administration, and the Atomic Energy Commission,
until he joined Internal Revenue in 1953, as Assistant to the
Deputy Commissioner.
Since then, he has been Assistant Director of the Collection
Division, and Assistant Commissioner for Planning and Research.
He now holds the position of Deputy Commissioner of Internal Revenue.
His achievements with Internal Revenue include the development
of simplified methods for taxpayers to comply with all Federal tax
obligations.

He also reorganized tax collection methods and

stimulated the use of automatic data processing to speed handling
of tax returns.
Bert, it gives me great

pride to witness this presentation on

behalf of the National Civil Service League.

0O0

TREASURY DEPARTMENT
Washington

FOR RELEASE AT 6:30 P.M., EST.
TUESDAY, MARCH 13. 1962
REMARKS BY DOUGLAS DILLON, SECRETARY OF THE TREASURY,
AT THE EIGHTH ANNUAL BANQUET OF
THE NATIONAL CIVIL SERVICE LEAGUE,
AT THE SHERATON-PARK HOTEL, WASHINGTON, D. C.
TUESDAY, MARCH 13. 1962, 7:00 P. M.
I am happy to join in honoring the recipients of the Career
Service Awards of the National Civil Service League for two reasons:
First, I am pleased that the National Civil Service League
awards this much-needed recognition to public servants for unusual
competence, character and accomplishments demonstrating the high
principles of the entire Civil Service system.
Second, I am delighted that one of my associates In the largest
agency within Treasury, the Internal Revenue Service, has been
selected to receive one of these much desired awards. It is the
first time the Internal Revenue has been so honored.
In nominating Bert Harding for this year's Career Service Award,
Commissioner Mortimer M. Caplin of Internal Revenue said that his
record has been "spectacular."

I second that statement.

In less than 20 years, Bert Harding has progressed from the
bottom to the top of the Civil Service career ladder.
Bert began his government career as a messenger with the
U. S. Employment Service in 1939, immediately after graduation from
Antioch College.

^ A

TREASURY DEPARTMENT
Washington
FOR RELEASE AT 6:30 P.M., EST.
TUESDAY, MARCH 13. 1962
REMARKS BY DOUGLAS DILLON, SECRETARY OF THE TREASURY,
AT THE EIGHTH ANNUAL BANQUET OF
THE NATIONAL CIVIL SERVICE LEAGUE,
AT THE SHERATON-PARK HOTEL, WASHINGTON, D. C.
TUESDAY, MARCH 13. 1962, 7:00 P. M.
I am happy to join in honoring the recipients of the Career
Service Awards of the National Civil Service League for two reasons:
First, I am pleased that the National Civil Service League
awards this much-needed recognition to public servants for unusual
competence, character and accomplishments demonstrating the high
principles of the entire Civil Service system.
Second, I am delighted that one of my associates in the largest
agency within Treasury, the Internal Revenue Service, has been
selected to receive one of these much desired awards. It is the
first time the Internal Revenue has been so honored.
In nominating Bert Harding for this year's Career Service Award,
Commissioner Mortimer M. Caplin oJ? Internal Revenue said that his
record has been "spectacular."

I second that statement.

- 2 -

fis

He progressively served in the Bureau of the Budget, the
Air Force, Veterans Administration, and the Atomic Energy Commission,
until he joined Internal Revenue In 1953, as Assistant to the
Deputy Commissioner.
Since then, he has been Assistant Director of the Collection
Division, and Assistant Commissioner for Planning and Research.
He now holds the position of Deputy Commissioner of Internal Revenue.
His achievements with Internal Revenue Include the development
of simplified methods for taxpayers to comply with all Federal tax
obligations.

He also reorganized tax collection methods and

stimulated the use of automatic data processing to speed handling
of tax returns.
Bert, it gives me great

pride to witness this presentation on

behalf of the National Civil Service League.

oOo

86
Statement of the Honorable Douglas Dillon
Secretary of the Treasury
before the
Senate Finance Committee
on
DEBT MANAGEMENT POLICIES
Wednesday, March 14, 1962 - 10:00 a.m.
I welcome the opportunity to discuss with this
distinguished Committee the Treasury's debt management
policies and, in particular, our use of advance refunding
as a tool in achieving our debt management objectives.
The management of the debt is one of the major
financial responsibilities of the Federal Government and
it is, in addition, an important arm of economic
policy-making. If the Federal debt were small, we could
afford to manage it much like the treasurer of a
corporation manages his company's debt, without giving
much thought to the impact of our operations on the money
markets and the economy. This is not, however, the case.
The magnitude of the Federal debt is such that the
decisions made in managing the debt can have profound
effects on the money markets, on the structure of interest

D422

- 2rates and on the magnitude of the flow of funds into
corporate and municipal bonds and mortgages. Moreover,
debt management decisions can have a significant impact
on the liquidity of the economy, on the effectiveness of
monetary policy and on the balance of payments.
All of this means that the management of the debt
is a continuous and unrelenting task. Even in a year in
which the Federal budget is in balance, debt operations on
a very large scale must be carried out both to meet the
seasonal financial needs of the government and to refund
maturing obligations.
The primary objective of debt management is to
assure a satisfactory placement of the debt, and our aim
must always be to minimize the burden on the American
taxpayer of the interest cost of the debt. An important
objective of economic policy with respect to debt
management is to help create conditions in the money and
capital markets which are most conducive to the orderly
growth of the economy without inflation. A further
objective, now of very great importance, is to conduct

- 3 operations in such a way as to contribute toward the
achievement of equilibrium in our balance of payments.
We must constantly blend these objectives so as to obtain
the overall result that most clearly reflects the national
interest at the moment, as well as over the long term.
In seeking to attain these debt management objectives,
we are continually striving to produce a more balanced
maturity structure for the debt - - that is, a broad
distribution of the outstanding debt among holders
interested in short-term securities, others who want issues
of intermediate term, and those whose needs are for
long-term bonds. This will enable us to reach all types
of demand for government securities and to avoid the
problems produced by an excessive concentration of debt
in a particular maturity area.
One of the Treasury's principal instruments in
working toward the needed restructuring of the debt over
the past few years has been the advance refunding.
I would like to emphasize, however, that the achievement

- 4of a more balanced debt structure is not an end in itself.
It is a necessary means toward achieving all of the other
goals that I have already mentioned. We do not advocate
lengthening the debt structure merely for its ewn sake.
If it were possible to accomplish all of our objectives
with a Federal debt entirely composed of short maturities,
our problem, in some respects, might be easier. In that
same light, the shortest maturity of all would be that of
printing money. But merely to mention that extreme
result - - the ultimate result of continually shortening
the maturity of the debt - - is to give the answer. The
eventual breakdown of the entire payments mechanism would
be the inevitable end of that kind of course.
One fact of life which bears heavily on any debt
manager is that, unless he moves in a fairly regular
fashion to put out reasonable amounts of intermediate and
long-term debt, he will, within the space of a few years,
find himself with a debt that is predominantly short-term
in character, and getting shorter every day. In this

- 5 Chart I

^POTENTIAL GROWTH OF THE UNDER 1-YEAR MARKETABLE
PUBLIC DEBT
$Bil.

Assuming 1-Year Rollovers without Attrition'

160 h

148
l32'/2
120

Rolled over from
Preceding Year

153

135/2

l06'/2

148
80

l06'/2

Maturing within
Following Year

I35y2
132'A

88!£

m i•si
1962
'63

'64

mxmm
^__Z1

'65

'66

'67

As of March I Each Year
* Without any future change in the marketable debt or in the volume of seasonal bills.
Partially tax-exempt bonds to earliest call date.
Office of the Secretary of the Treasury

connection, I would like to call your attention to Chart 1.
This chart shows what would happen to the size of the under
one-year debt if, beginning today, we were to refund all
maturing securities with one-year issues during the next
five years. With no change in the total size of the debt,
the amount of debt maturing within one year would rise
from the present level of $88.5 billion to $132.4 billion
in two years and to $153.1 billion in five years. As a

- 6 -

percentage of the present total of outstanding marketable
debt, this would mean a rise from 45% to 67%, to 77%.
Granted that the printing press extreme is out of
the question, why, though, should a concentration of debt
in the short-term area cause serious economic problems?
Why are we seeking a balanced maturity structure which
includes reasonable amounts of intermediate and long-term
debt? These are the questions I would like to discuss
further before considering the subsequent question:
namely, if it should be agreed that we ought to put out
some long-term debt, why use the advance refunding
technique rather than offering long-term issues for cash
or in regular refunding operations?
Off hand, looking at the smooth manner in which our
short-term security operations have usually been carried
out, with relatively little disruptive impact on the money
markets, and at interest rates usually lower than on
longer-term issues, one might ask why we do not put the
entire Federal debt in short-term securities.
The answer is that the short-debt only behaves this
way now because we have kept its size down to the present

Q0
- 7relative magnitudes.

While it is true that there is a

strong demand for short-term government securities, the
demand is not without limits.

If the Federal Government

were to try to increase the supply of short-term
securities far beyond the needs of the economy for this
kind of instrument, yields would be certain to rise
sharply.

As a consequence, if we were to concentrate the

entire Federal debt in maturities of five years or less,
the average interest cost of the debt would probably be at
least as high as it is with our present debt structure.
A good example of what can happen when the Federal
Government pushes more debt into a particular maturity
area than the economy wishes to hold is provided by the
experience of 1959.

Because, under the interest rate

ceiling, it could not offer securities with a maturity
over five years bearing a coupon higher than 4-1/4%, while
the market demanded a higher rate, the Treasury
concentrated all of its financing operations from
April 1959 through March 1960 in the five-year or under
area.

During that period you will recall that the debt

increased by $9.1 billion.

I would like to call your

attention to Chart 2, which shows the effect on yields of

- 8 -

Chart 2

MARKET YIELDS ON TREASURY SECURITIES

Office of the Seastay of the T w a i y

F-646

this concentration of relatively short-term financing.
Chart 2 shows the pattern of yields on government
securities in January 1960, when short-term issues from
91-day bills out to five year notes were selling at
higher yields than bonds maturing in twenty-five to
thirty-five years. I need not remind you that we have
only one outstanding United States Government security
bearing a coupon of 5%. This was a 4-year and 10-month
obligation sold on October 6, 1959. Without reviewing

the experience of 1959 and early 1960 in detail or the
related role of Federal Reserve action and other market
factors at that time, the events of that period provide
a vivid demonstration that concentrating an excessive
amount of Treasury securities in short maturities, a
greater quantity than the market desires to absorb, produces
higher xather than lower interest costs.
As time passes and the economy grows, the demand for
short-term government securities for use as liquidity
reserves will also grow, and it would be quite appropriate
for the Treasury to expand the outstanding volume of
short-term government securities consistent with this
growing demand. During 1961, the outstanding amount of
government securities maturing within one-year was increased
by $10.6 billion. Thus far in 1962, the under one-year
debt has been increased by an additional $2.6 billion.
We have not been reluctant to increase the outstanding
short-term debt in those quantities which we felt the
economy could appropriately absorb, and we will continue
to do so in the future.
Increasing the supply of short-term securities, of
course, tends to put upward pressure on short-term rates.

- 10 One of the Treasury's purposes in increasing the volume
of under one-year debt during the past year has been to do
just that - - to put upward pressure on short-term interest
rates and, thereby, to keep our short-term rates in
reasonable equilibrium with rates in other countries. The
objective was to deter outflows of short-term money to
foreign countries stemming from interest rate
differentials, outflows which would weaken our balance of
payments position. In substantially increasing the supply
of under one-year debt, the Treasury did help to push
short-term rates higher, as illustrated by the fact that
yields on 3-month Treasury bills have moved up from
around 2.25% in January 1961 to 2.80% at present.Even if it were possible to reduce substantially
the burden of interest costs by concentrating on relatively
short-term security offerings, which we do not believe to
be true, there is a vital economic reason for avoiding
an excessive concentration of short-term debt; that is,
the undesirable effects of such an excessive concentration
on the liquidity of the economy and the effectiveness of
monetary policy.
Short-term government securities are close
substitutes for money. They can be turned into cash

quickly, with little marketing cost and relatively little
risk of loss. A banking system holding excessive
quantities of short-term government securities will
respond only slowly to monetary controls. This means
that to achieve a given level of monetary restraint the
Federal Reserve would be required to adopt more
restrictive measures than would otherwise be necessary.
An excessive volume of short-term debt hampers an
effective monetary policy in still another way. The
shorter the maturity structure of the debt, the more often
the Treasury must come to the market in sizable refunding
operations. Because of-the magnitude of Treasury debt
operations, it has always been considered essential that
the Federal Reserve maintain an "even keel" in the market
during such operations. However, if the Treasury is
almost continually in the market, the Federal Reserve will
find itself with very little room to operate in carrying
out its responsibilities. A balanced debt structure,
which reduces the number of occasions during the year that
the Treasury must carry out sizable refunding operations,
will make for the exercise of more effective monetary
control by the Federal Reserve.

For all of these reasons, it is essential that the
Treasury, from time to time, put out some longer-term
debt. If this must be done, why is it often more
advantageous to put out longer-term debt through advance
refunding rather than through direct cash sales or regular
refunding operations?
There are three important and unique advantages to
the Treasury in the advance refunding approach. First,
and most important, the advance refunding technique does
not immediately pull large blocks of long-term, funds out of
the capital markets, funds which otherwise would go into
corporate and municipal bonds or mortgages. What this
means is that job-creating business investments and the
financing necessary to build schools, roads, other public
improvements and homes will not be curtailed. Were the
Treasury to sell any substantial quantity of long-term
bonds for cash, it would immediately reduce the quantity
of long-term funds available for private investment and
investment by state and local governments and, thereby,
slow down our economic expansion. With the economy still
operating well below capacity levels, we believe that this
would be poor economic policy.

The advance refunding, however, has the least
possible immediate impact on the current flow of new
long-term savings. It merely changes the form in which
old savings are held by lengthening the maturity of the
obligation. New cash funds are not involved, except to
the relatively minor extent that some investors buy the
eligible securities in the market in order to make the
exchange, and even in such cases an equivalent amount of
funds is freed for other uses.
By use of the advance refunding technique, the
Treasury can assure the retention of its regular customers
for genuine long-term investments. This is not possible
if long-term securities are only sold as part of regular
refundings since, for a considerable period before the
maturing securities come due, they have become liquid
money market instruments; and their ownership has largely
been shifted out of the hands of long-term investors into
the hands of short-term investors who are not likely to be
interested in long-term securities.
A second important advantage of advance refunding
is that, through this technique, a substantial quantity
of long-term bonds can be added to the government's debt

- 14 structure with an absolute minimum of upward pressure on
long-term interest rates. This was the experience in
earlier advance refundings, and it was certainly the
experience in our most recent operation. In last month's
advance refunding, we placed an additional $1.4 billion in
bonds maturing in 1990 and 1998 in the hands of the public.
Yet the level of long-term government bond yields is
somewhat lower today than it was at the time we announced
the advance refunding on February 15. The level of
long-term interest rates in both the corporate and the
municipal bond markets is lower now than on February 15.
If we had attempted to sell $1.4 billion of long-term
bonds in the current market as a cash offering or regular
refunding, we would certainly have put substantial and
immediate upward pressures on long-term bond yields.
The Administration's policy on long-term interest
rates has been stated on many occasions during the past
year. We have continually sought to avoid putting
upward pressures on long-term interest rates, in order to
provide the kind of atmosphere in the capital markets
conducive to a large flow of long-term funds into private
investment. Our debt management policies have been and

are being directed toward this end.

We feel that our

efforts in this direction have been successful. For 1961
saw the largest combined flow of funds into corporate bonds,
municipal bonds and mortgages in our history and, despite
this fact, long-term interest rates, on the whole, are no
higher today than they were a year ago, when we were close
to the bottom of the recession (see Chart 3). While
yields on long-term United States Government bonds are
about 1/4 of one percent higher than a year ago, yields
on corporate bonds are approximately unchanged and those
on municipal bonds and mortgages are lower. In
considering these results, we should realize that the most
important long-term rates from the point of view of the
economy are those for new corporate borrowing, for the
sale of new municipal bonds and for mortgages, since they
finance new jobs and new schools, roads and homes.
A third important reason for using the advance
refunding approach is that it is usually the cheapest way
for the Treasury to put out long-term securities. There
is one simple reason for this. When the Treasury puts
out long-term securities for cash or in a regular
refunding, we must appeal to investors who have complete

- 16 -

iPl

Chart 3

LONG-TERM MARKET YIELDS
Monthly Averages 1959-62
%

FHA Mortgage Yields•>
^ New Aa Corporate Bonds*
..•••*%.••'*""*••..

Reoffering Yields

3/13

Municipal Bonds

--• 3/8

J
1 1 1 1 1 1 1

1959

I960

1961

i i

1962

Estimate ofaverageyields on Moody's Aa rated new Corporate bonds.
Bond Buyers average of 20 bonds on first Thursday in each month.

1
Office of the Secretary of the Treasury

freedom of action.

They are free to choose among our Treasury

offerings, corporate bonds, corporate equities, municipal
bonds, mortgages, and still other alternatives. The
yields on our long-term cash or refunding issues must be
fully competitive with these alternatives.
However, in an advance refunding we are appealing
to a group of investors who do not have complete freedom
action. To move out of their present holdings, many of

these investors would have to realize substantial capital
losses on market sales. Through the advance refunding,
these investors may extend the maturity of their holdings
without putting capital losses on their books and with a
minimum of inconvenience and uncertainty. It is because
of this special appeal of an advance refunding to those
who otherwise would not wish to disturb their holdings that
the Treasury can in this way put out larger quantities of
long-term bonds at lower interest costs to the taxpayer
than would be possible by other means.
I mentioned earlier that we placed in the hands of
private investors $1.4 billion of bonds maturing in 1990
and 1998 in last month's advance refunding. "To have
attempted to sell such a large quantity of long-term bonds
for cash would have required a greater total interest cost
to the Treasury than we paid in our advance refunding
offering.
I would like to present a numerical example, which,
I believe, illustrates this last point. While the
situation is hypothetical, it rather closely parallels the
form of last month's advance refunding. The details of
the example are shown in Chart 4, but I will attempt to
summarize the principal features.

- 18 Chart 4

.INTEREST COST OF EXTENDING DEBT TO 1998_
Through Advance Refunding and through Direct Long-Term Borrowing; Per $100
11/15/98

Hypothetical issues
2/15/61*- "sold" at a
3$ bond due 2/15/64
due II/15/98 "sold"
advance refunding.

based on market pattern of rates on 2/14/62: 3-1/2$ note due
discount to yield 3.55$; h$ bond due 12/15/72 "exchanged" for
plus $0.25 per $100 payable by the Treasury; and k-\/k1> bond
at par. Other issues were actually involved in the latest

•f* Interest figures are simple arithmetic totals. They are not discounted to present
' value. Even when discounted at 4.25$ (the rate for 1998 cash borrowing directly)
the net discounted cost through advance refunding is lower.
Office of the Secretary of the Treasury

In the example we assume that the Treasury needs
to borrow $1 billion in cash and that, to improve the
debt structure, it is desirable to place this $1 billion
out in the 1998 maturity area. We can accomplish these
objectives in one of two ways. One way, of course, is
to sell a $1 billion, 1998 bond directly for cash. An
alternative is to place $1 billion in bonds out in the

- 19 -

!-''*

1998 area through advance refunding and to raise the
required cash through the sale of a short-term issue in
the maturity area vacated by the advance refunding.
We will assume that the $1 billion of 1998 bonds could
have been sold for cash in the present market with a 4-l/47o4
coupon, priced at par. In the opinion of the Treasury, this
interest cost assumption for the sale of such a large quantity
of new long-term bonds is most conservative. Even on the
basis of this; conservative assumption the total interest
payments on these 4-1/4% bonds through their maturity in 1998
would amount to $156-01 per $100 of bonds sold.
Now let us look at an alternative way of handling
the situation which, as I noted earlier, rather closely
parallels last month's advance refunding operation. It
is, in effect, a way of putting an issue into the
long-term area while drawing funds from the shorter-term
area. This is done by what some market observers have
called "leap frogging". Not all of the leaps may occur
at once; but to make this example clear, I will assume
that they do. What happens is that a 10-year issue, for
example, is converted into a 36-year issue; then,

- 20 -

105

following behind that, a 2-year issue is converted into
a 10-year issue. There are two leaps involved: one
from 10 out to 36 years; the second from 2 out to 10
years. In effect, the second move has filled in the
space vacated when the first move occurred.
After that, the third step is an easy one - borrow for cash at a two-year maturity. In the end,
then, the Treasury will have its cash. It will have
borrowed the cash at the two-year rate of interest, but
it will have no more two-year debt outstanding than before
the operation began. Nor will it have any more 10-year
debt than before. The only increase will have occurred
in the 36-year debt.
Now let me repeat the example more precisely, using
issues and prices now in the market. What we have here
is a combination "junior" and "senior" advance refunding.
The "senior" portion involves the advance refunding of
$1 billion of 2-1/2% bonds maturing in 1972 into 3-1/2%
bonds maturing in 1998. To fill the 1972 vacancy in the
maturity structure created by this "senior" advance
refunding, there is a "junior" advance refunding of 3%»

- 21 -

i no

bonds maturing in 1964 into 4% bonds maturing in 1972.
Finally, to meet the $1 billion cash requirement, the
1964 gap in the maturity structure created by the "junior"
advance refunding is filled by selling for cash $1 billion
of 3-1/2%, notes maturing in 1964.
Adding the interest' payments to maturity on the
1964 note which we would sell for cash, and the interest
payments on the 1972 bonds placed through the "junior".
advance refunding and the 1998 bonds placed through the
"senior" advance refunding, we find that the total interest
cost resulting from this three-part operation over the
entire period to 1998 is $145.49 per $100 borrowed. Thus,
we would have achieved our objectives of raising $1 billion
in cash and placing $1 billion in bonds out in the 1998
area through advance refunding at a total interest cost
during the period of $10.52 less per $100 borrowed than if
we had issued $1 billion of 4-1/4%, 1998 bonds directly
for cash. The total interest cost savings on the
$1 billion of debt would have amounted to $105.2 million.
Moreover, the debt management objectives would have
been achieved without draining new long-term funds out of

the capital markets or placing any overall upward
pressure on long-term interest rates.
The basic reason that the advance refunding
approach resulted in a lower total interest cost to the
Treasury is that, in the "senior" advance refunding,
holders of the 1972 maturities were induced to extend an
additional 26 years with a 3-1/2% coupon, 3/4 of 1% below
the minimum coupon that would have been required for a
direct cash sale of 1998 bonds. In order to induce the
holders of the 1972 bonds to extend to 1998 at 3-1/2%,
the Treasury had to offer to increase their return from
2-1/2% to 3-1/2% during the ten years from 1962 to 1972,
but this was an exchange that the Treasury could well
afford to make. It represented a payment of 1% in
additional interest for the next 10 years in return for a

saving of 3/4 of 1% in interest over the following 26 years a fair offer but no bonanza.*
In our last advance refunding, 19% of the public
holdings of the 2-1/2% bonds of 1967-72 were exchanged for
3-1/2%, bonds
*The calculated interest costs and interest savings in the
five advance refundings are summarized in the tables attached
to the appended correspondence with Senator John J. Williams.

- 23 -

f riQ
.,-L w v_,

3-1/2% bonds maturing in 1990 and 1998.

This was a

response with which the Treasury was well satisfied.
But if this had been a windfall offering, something which
involved an undeserved gain for the investor, one would
have to conclude that American investors holding 81% of
the bonds did not know a windfall when they saw one,
because 81% of the bonds were not exchanged.
To sum up, the advance refunding offers a number of
unique advantages to the Treasury.

Through this device,

it is possible to put out substantial quantities of
long-term Treasury bonds with the least possible drain of
new long-term funds out of private investment channels and
with the minimum of upward pressures on long-term interest
rates.

In addition, this technique has enabled the

Treasury to place long-term bonds in private hands at
lower interest costs than could have been possible through
cash offerings or regular refunding offerings of any
comparable size.

To be sure, as market conditions shift

about, there will be times when long-term cash issues or
refunding exchanges will also be appropriate.

But the

appraisal will depend in large part upon analysis of

- 24 alternatives such as I have tried to outline here.
Clearly, in the tool-kit of debt management, advance
refunding must be recognized as an instrument of major
importance.
Advance refunding was first used by my predecessor,
Secretary Anderson, who conducted two advance refunding
operations in 1960. Last month's operation was this
Administration's third use of this technique, making a
total of five advance refundings in all. These advance
refunding operations have accomplished much in producing
a more balanced maturity structure for the debt. The
average length of the debt today is 4 years and 11 months,
the longest it has been since the fall of 1958. If the
five advance refundings had not been undertaken, the
average length of the debt would now be only 3 years and
7 months, almost 30%, shorter (see Chart 5). We now have
$15.2 billion in outstanding debt maturing beyond 20 years.
$7.7 billion, or just over half of this total, was placed
through advance refunding.
In conclusion, advance refunding is a technique that
would hope to use again in the future, whenever circumstanc

- 25 Chart 5

-AVERAGE LENGTH OF THE MARKETABLE PUBLIC DEBT*
Years

Years

5:3

Monthly

r-Advance Refundings-,
Q (2) (3) (?) (|)

H V
Without Advance Refunding

1946

'50

'52

'54

'56

'58

\J
3-7

'60

'62

December 31

"Adjustedto exclude 21%% bonds exchanged for nonmarketable 2%% bonds. Partially
tax-exempt bonds to earliest call date; all other callable bonds to maturity.
Office of the Secretary of the Treasury

are appropriate for its use.

In seeking to conduct our

debt management operations in a responsible manner, we
will continue to be mindful of the need to minimize the
interest burden of the debt, and we will also continue
to be mindful that our debt management policies, through
their impact on the money and capital markets, must
contribute toward our major economic objectives of sound
economic growth, reasonable price stability and
equilibrium in our balance of payments position.

JOHN J. WILLIAMS
DELAWARE

QICrcHei) JS>iaic& JS>cnaic
WASHINGTON, D. C.

March 5, 1962

Honorable Douglas Dillon
Secretary of the Treasury
Washington 25, D. C.
My dear Mr. Secretary:
In connection with the series of advance refunding
operations by the Treasury Department I would appreciate the
following information:
1. The maturity date and the coupon rate of the outstanding
bonds involved in the refunding operation and the maturity
date and coupon rate of the new bonds offered in transfer.
2. The total-amount of these bonds of each series which were
traded for the new issue (if more than one issue is involved
give the amount involved in each transfer).
3. In connection with each refunding operation please furnish
the total amount of additional interest which will be paid
by the government to these new bondholders during the
period between the date of the refunding operation and the
original date of maturity of the bonds traded in.
What I am trying to establish is how much additional
interest the Federal Government will be paying during the next
five to ten years above the amount which would have been paid
had these low coupon bonds been allowed to mature in a normal
manner.
Yours sincerely,

JJW-.ERL

THE SECRETARY OF THE TREASURY
«

11 9
-»•. -4. &_,

WASHINGTON

MAR 1 3 1962
Dear John:
In response to your letter of March 5, I enclose
two tables which provide the information you requested
on the five advance refundings which the Treasury has
undertaken in the past two years.
One of the tables presents the additional interest
costs incurred by the Treasury in the five advance refundings. In addition, it shows the interest savings to
the Treasury in these advance refundings on the assumption
that the original issues are to be refunded at maturity
into the issues offered in exchange at today's interest
rate levels. Looking at both the additional interest costs
to the Treasury and the interest savings involved in advance
refundings places the interest cost issue in its proper
perspective.
You will note that only the June, 1960 and March, 1961
"junior" advance refundings resulted in a net interest cost
to the Treasury on these assumptions and that, in taking the
five advance refundings as a whole, these calculations indicate a net interest savings to the Treasury of $541 million
over the entire period through fiscal year 1999.
With best wishes,
Sincerely,

s Dillon
The Honorable John J. Williams
United States Senate
Washington 25, D. C.
Enclosures

" 19&0-62
Old issues

Description

June i960:
2-1/2% 11/15/61

New issues
Amount
Term to
outmaturity
standing (Yrs. (pua£ d.) Mas.)

$11,177

1-5

Description

/3-3/_* 5/15/64
13-7/8% 5/15/68

Term to
Extenmaturity
sion
(Yrs. (Yrs. Mas.)
Mas.)

3-11
7-11

11,177
October
2-1/2%
2-l/2%
2-1/2%
2-1/2%

i960;
b/15/62-67
12/-5/63-68
6/15/64-69
12/15/6U-69

torch I96I;
2-1/4% 6/15/59-62
2-1/4% 12/15/59-62
2-5/8% 2/15/63
2-1/2% 8/15/63
September I96I:
2-1/2% 3/15/65-70

2,109
2,815
3,738
3,812
12,474

6-8-1/2
8-2-1/2
8-8-1/2
9-2-1/2

5,262
3,449
3,971
6,755
19,^36

1-3
1-9
1-11
2-5

4,688

2-1/2% 3/15/66-71 2,927 9-6

3-1/2% 11/15/80
3-1/2% 2/15/90
3-1/2% 11/15/98
3-1/2% 11/15/98

3-5/8%
3-5/8%
3-5/8%
3-3/8%

11/15/67
11/15/67
n/15/67
11/15/66

20-1-1/2
29-4-1/2
38-1-1/2
38-1-1/2.

6-8
6-8
6-8
5-8

3-1/2% 11/15/80
3-1/2% 2/15/90
3-1/2% II/15/98
'3-1/2% 11/15/80
3-1/2% 2/15/90
3-1/2% 11/15/98

19-2
28-5
37-2
19-2
28-5
37-2

7^15
March 1962:
—&
2/15/64
2-5/8% 2/15/65

3,854
6,896

2-1/2% 6/15/67-72 1,756
2-1/2% 9/15/67-72.... 2,716
2-1/2% 12/15/67-72 3,512
18,734
Total

69,435

1-11-1/2 4% .
2-11-1/2 M
\4%
10-3-1/2 /3-l/2%
10-6-1/2 \3-l/2%
/3-l/2%
10-9-1/2 13-1/2%
/3-l/2%
\3-l/2%

8/15/71
8/15/71
2/15/80
2/15/90
11/15/98
2/15/90
11/15/98
2/15/9O
11/15/98

9-5-1/2
9-5-1/2
17-11-1/2
27-11-1/2
36-8-1/2
27-11-1/2
36-8-1/2
27-11-1/2
36-8-1/2

Publicly
held
(m. of d.)

Total

3,893 $ 3,814
264
320
*,077
4,214

34.f
2.9
37.7

•34.7%
2.4
37.1 ~oTB~

13-5
21-2
29-5
28-11
24-7

643
993
1,095
1,248
3,979

3,395

30.5
35-3
29.3
32.7
31-9

27.8
32-5
30.3
33.9
31. *

5-5
4-11
4-9
3-3

1,296
1,177
1,131
2,438
6,041

1,226
819
998
2,399
5,442

24.6
34.1
28.5
36.1
31.1

25.9
30.2
26.3
35.8
30.3 "1^5"

48.0

50.1

2-6
6-6
2-10

T3T
8-6

Amount
exchanged

:For nontaxable holders
•.Effect
"Boot" :
or before tax
: on
%"
: average paid :Approximate:Approximate
to
: investment :m__Lmum reexchanged
tlength
Treasury: yield from : inves taient
i
: of
(+)
: exchange : rate for
:Pub- : markper
: date to
:extension
Total :licly retable
$100
: maturity :period adj.
:held : debt
I
__
: for"boo-tT
:
;(Mos.)

10-8
19-11
28-8
9-8
18-U
27-8
19-2

1,035
722
495
238
576
692
3,757

7-6
6-6
15-0
17-8
26-5
17-5
26-2
17-2
25-H
11-11
13-0

l,154p
l,651p
56lp
233p
iSOp

512
777
993

1,H3

203]
515 > 51.^
428 J
2,82b *

52.6

23.1

28.2 19.1
185P\
420p
266p|
I8.7 18.0
322p
28lp
299p| 27. 7 P
333P
"4TT
3___?pp 19,915P 33-4p 33.Qp 16.6 2/
23,l89
345P

4.51*
4.22

—

3.92
3.96
3-97
3-99

4.23
4.17
4.09
4.14

+$0.30
.
—

3.75
3-75
3-75
3.63

3.98
4.10
4,08
4.09

+
+
+
-

4.l£
4.23
4.19
4.15
4.21
4.19

4.31
4.36
4.28

4.11
4.10
4.20
4.21
4.19
4.21

U.32
4.36
4.36
^.37
4.30
4.38
4.30
4.38
4.30

2.25
1.00
2.00
3.50
0.25
1.00

4.30
4.36
4.30

~5HT "IT5"

l,104p
29-9 29-9
l,293p\
32.1
27.5

38W
198p1 23-5
1651/

4.24%
4.14

"573

589]

622 [
469 J

+ 2.00
+ 0.25
+ 1.25
+ 1.50
+ 0.25
+ 1.75
+ 0.50

j*.19
4.19
4.17

Office of the Secretary of the Treasury
March 9, 1962
Office of Debt Analysis
1/ Based on price of bonds eligible for exchange — mean of bid and ask prices at noon on day before announcement,
payments adjusted for "boot
f-~„
2/ Based on debt level of March 1, 1962.
f~_A
Bote: All items on table vere made public or are derivable from public sources.

FIVE ADVANCE REFUNDINGS -- INTEREST COSTS AND INTEREST SAVINGS
Added Interest Cost over Remaining Life of Issues Eligible for Exchange and
Estimated Interest Savings from Maturity of Eligible Issues to Maturity of Issues Offered in Exchange l/
(Dollar figures are in millions)

June i960

Fiscal
Year

I960
1961
1962
1963
1964
1965
1966
196?
1968
1969
1970
1971
1972
1973.....
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Added
interest
to
maturity
of
eligible
issue

Interest
savings
from maturity of
eligible
issue to
maturity
of
offered
issue 2/

$ 1.0
53.1
19.9

Net savings or
added cost (-)
over life of
issue offered..

Added
interest
to
maturity
of
eligible
issue

Interest
savings
from maturity of
eligible
issue to
maturity
of
offered
issue 2/

March 1961

Added
interest
to
maturity
of
eligible
issue

Interest
savings
from maturity of
eligible
issue to
maturity
of
offered
issue 2/

September 1961

Added
interest
to
maturity
of
eligible
issue

-$ 6.1*

-$80.4

$29.5
39.8
39.8
39.8
_39.8.
39.8
39.5
33.4
27.5
_5.7.

$334.6

$15.9
65.9
35.8
2.7

.2
6.2
15.0
_15.9.
15.9
11.3
3.2

$ .2
4. 4
8.7
_24.8
29.0
29.0
29.0
29.0
_ 29.0
29.0
29.0
29.0
29.0
_ 29.0
26.3
21*. 6
21*. 6
24.6
_ 24.6
24.6
24.6
24.6
24.6
_21.9
17.3
17.3
17.3
17.3
— 17.3
17.3
17.3
17.3
$718.4
6.5

$383.8

> 3.3 3/
37.6
37.6
37.6
37.6
37.6
37.6
37.6
.31.0
10.7

$67.6

$120.3

$301.4

-$52.7

Office of the Secretary of the Treasury
Office of Debt Analysis
Note:
1/

_/
3/

Interest
savings
from maturity of
eligible
issue to
maturity
of
offered
issue 2/

Total of five
advance refundings

March 1962

Added
interest
to
maturity
Of
eligible
issue

Interest
savings
from maturity of
eligible
issue to
maturity
of
offered
iBSue 2/

Added
interest
to
maturity
of
eligible
issue

-$ 1.8
- 2.9
- 2.5
.2.
.2
.2
3

$74.0

Totals

October i960

4.7_
19.2
26.9
26.9
26.9
.26.926.9
26.9
26.9
26.9
26.921.9
18.8
18.8
18.8
.18.8.
18.8
18.8
18.8
18.8
.15.29.2
9.2
9.2
9.2
_ 9.2.
9.2
9.2
9.2
3.5
$531.2

$229.8

-$30.8 3/
60.3
56.0
37.3
18.3
18.3
18.3
18.3
I8.3
18.3
18.2
4.6

.3
1.2.
2.0
2.0
2.0
2.0
-2.0.
2.0
1.4
11.2
14.5
14.
14.
14.
14.
14.
14.
13.
13.4
13.4
13.4
,13.413.4
13.4
13.4
13.4
11.0.
6.9
6.9
6.9
6.9
_6.96.9
6.9
6.9
2.6
$316.2

$255.5

$60.7

Interest
savings
from maturity of
eligible
issue to
maturity
of
Offered
issue _'

1.0
98.5
91.5
173.5
136.0
114.7.
95.7
95.4
89.3
83.4
55.129.0
18.2
4.6

$1,085.9

-$ 1.7
3.2
12.7
— 17.3
18.1
13.6
9-8
10.7
31.4
50.2
57.3
67.I
70.4
_70.4
70.4
70.4
70.4
70.4
-70.0
61.5
56.8
56.8
56.8
_56.8
56.8
56.8
56.8
56.8
_48.1
33-5
33.5
33.5
33.5
-33.5
33.5
33-5
33.5
12.6
$1,626.9

$54l.O
March 12, 1962

Figures wiy not add to totals because of rounding.
Includes cash payments on account of issue price: Payments to the Treasury are credited in the fiscal year received; payments by the Treasury are charged
pro rata over the terra of the issue offered in exchange.
*_ti«ites based on hypothetical issues needed to refund eligible issues at their maturity for the remaining term of the issues offered in exchange. For
J u n T l S o advance refunding rates based on market yields at the time of the November 1961 refunding on the issues offered in the June i960 exchange. For
all other advance refundingsrates are based on market pattern of yields on February 28, 1962.
Cash payments to the Treasury on account of issue price exceed added interest cost.

1 i^c;
_ 3 _

and exchange tenders will receive equal treatment. Cash adjustments will "be ma

for differences between the par value of maturing bills accepted in exchange an
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 lo
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